0001019056-01-500506.txt : 20011112 0001019056-01-500506.hdr.sgml : 20011112 ACCESSION NUMBER: 0001019056-01-500506 CONFORMED SUBMISSION TYPE: SC TO-I/A PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 20011105 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: QWEST COMMUNICATIONS INTERNATIONAL INC CENTRAL INDEX KEY: 0001037949 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 841339282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-53477 FILM NUMBER: 1774589 BUSINESS ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3039921400 MAIL ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: QUEST COMMUNICATIONS INTERNATIONAL INC DATE OF NAME CHANGE: 19970416 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: QWEST COMMUNICATIONS INTERNATIONAL INC CENTRAL INDEX KEY: 0001037949 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 841339282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-I/A BUSINESS ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3039921400 MAIL ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: QUEST COMMUNICATIONS INTERNATIONAL INC DATE OF NAME CHANGE: 19970416 SC TO-I/A 1 qwest_toa1.txt SCHEDULE TO-1/A - AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- SCHEDULE TO (Rule 14d-100) TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. 1) ---------------- QWEST COMMUNICATIONS INTERNATIONAL INC. --------------------------------------- (Name of Subject Company (Issuer) and Name of Filing Person (Offeror)) ---------------- Options To Purchase Common Stock, $.01 Par Value, of Qwest Communications International Inc. Granted to Eligible Employees ------------------------------------------------ (Title of Class of Securities) ---------------- 749121109 ------------------------------------------------ (CUSIP Number of Class of Underlying Securities) ---------------- Yash Rana Associate General Counsel and Assistant Secretary, Qwest Communications International Inc. 1801 California Street, Denver, Colorado 80202 (303) 992-1400 ----------------------------------------------------------------------- (Name, Address and Telephone Numbers of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons)) -------------------- Copy to: Steven L. Grossman, Esq. O'Melveny & Myers, LLP 1999 Avenue of the Stars, 7th Floor, Los Angeles, California 90067 (310) 553-6700 CALCULATION OF FILING FEE ============================================================= Transaction Value(1) Amount of Filing Fee(2) ------------------------------------------------------------- $227,260,440 $45,452 ============================================================= (1) Calculated solely for the purpose of determining the amount of the filing fee. The transaction value assumes that options to purchase 40,863,079 shares of Qwest Communications International Inc. Common Stock, par value $0.01 per share ("Common Stock"), having an aggregate value of $227,260,440 as of November 1, 2001, will be exchanged pursuant to this amended offer. The aggregate value of such options was calculated based on the Black-Scholes option-pricing model. (2) The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50th of 1% of the transaction value. $42,547.00 of the filing fee was previously paid on October 31, 2001 in connection with the initial filing of this Schedule TO. [ ] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: Not Applicable Filing Party: Not Applicable Form or Registration No.: Not Applicable Date Filed: Not Applicable [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [ ] third-party tender offer subject to Rule 14d-1. [X] issuer tender offer subject to Rule 13e-4. [ ] going-private transaction subject to Rule 13e-3. [ ] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer [ ]. This Amendment No. 1 amends and supplements the Tender Offer Statement on Schedule TO (the "Tender Offer Statement") filed by Qwest Communications International Inc. (the "Company") with the Securities and Exchange Commission on October 31, 2001 relating to the offer by the Company to certain eligible employees to exchange certain outstanding options to purchase shares of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), for new non-qualified stock options to be granted by the Company under the Company's Equity Incentive Plan, all upon the terms and subject to the conditions set forth in the original Offer Circular, dated October 31, 2001, and in the related Election Form and Release Agreement, copies of which were attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement. The filing of this Amendment No. 1 to the Tender Offer Statement shall not be construed as an admission by the Company that the offer described below constitutes an issuer tender offer for purposes of the Securities Exchange Act of 1934 and the rules promulgated thereunder. ITEM 1. SUMMARY TERM SHEET Item 1 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: The information set forth under "Summary of Offer Expiring November 30, 2001" beginning on page 1 of the Amended and Restated Offer Circular, dated November 2, 2001 (the "Amended and Restated Offer Circular"), attached hereto as Exhibit (a)(19), is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION Item 2 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) The name of the issuer is Qwest Communications International Inc., a Delaware corporation (the "Company"). The address of the Company's principal executive offices is 1801 California Street, Denver, Colorado 80202. The Company's telephone number is (303) 992-1400. (b) This Tender Offer Statement relates to an offer by the Company to eligible employees of the Company (as described in the Amended and Restated Offer Circular) to exchange Eligible Options (as defined in the Amended and Restated Offer Circular) and Recent Options (as defined in the Amended and Restated Offer Circular) to purchase shares of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), for new non-qualified stock options (the "New Options") to be granted by the Company under the Company's Equity Incentive Plan. The offer by the Company, and the exchange of Eligible Options and Recent Options for New Options, are each made upon the terms and conditions described in the Amended and Restated Offer Circular and the related Election Form and Release Agreement attached hereto as Exhibit (a)(20) (the "Election Form"), each of which is incorporated herein by reference. The information set forth in the response to Question 45 ("How many Eligible Options are there?") in the Amended and Restated Offer Circular is incorporated herein by reference. (c) The information set forth in the response to Question 43 ("What is the price of our common stock?") in the Amended and Restated Offer Circular is incorporated herein by reference. No trading market exists for the Eligible Options or the Recent Options. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON Item 3 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) The Company is also the filing person. The information set forth under Item 2(a) above is incorporated by reference. The information set forth in the second paragraph of the response to Question 46 ("How does the Offer relate to Qwest's directors and executive officers?") in the Amended and Restated Offer Circular is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION Item 4 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) The following information is incorporated herein by reference: (i) the terms and conditions set forth in the Election Form; and (ii) the following information set forth in the Amended and Restated Offer Circular: the information set forth under the caption "Summary of Offer Expiring November 30, 2001"; the responses to Questions 10 through 31 under the caption "Terms of the Offer - The Offer"; the information set forth under the caption "Terms of the Offer - Terms and Conditions of New Options to be granted in June 2002," including, without limitation, the responses to Questions 32 through 37; the responses to Questions 40 through 42 and Questions 45 through 47 under the caption "Terms of the Offer - Other Provisions; Administration"; and the information set forth under the caption "Terms of the Offer - Federal Income Tax and Social Security Consequences," including, without limitation, the responses to Questions 50 through 54. (b) The information set forth in the response to Question 46 ("How does the Offer relate to Qwest's directors and executive officers?") in the Amended and Restated Offer Circular is incorporated herein by reference. 2 ITEM 5. PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS Item 5 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (e) The information set forth in the response to Question 46 ("How does the Offer relate to Qwest's directors and executive officers?") in the Amended and Restated Offer Circular is incorporated herein by reference. The Qwest Communications International Inc. Equity Incentive Plan, filed as Exhibit (d)(1) hereto, the 1998 U S WEST Stock Plan, filed as Exhibit (d)(4) hereto, the 1998 U S WEST Stock Plan, as amended June 22, 1998, filed as Exhibit (d)(5) hereto, the 1998 U S WEST Stock Plan, as amended August 6, 1999, filed as Exhibit (d)(6) hereto, the 1999 U S WEST Stock Plan, filed as Exhibit (d)(7) hereto, the 1999 U S WEST Stock Plan, as amended August 6, 1999, filed as Exhibit (d)(8) hereto, and the U S WEST 1998 Broad Based Stock Option Plan dated June 12, 1998, filed as Exhibit (d)(9) hereto contain information regarding the Eligible Options and are incorporated herein by reference. The Qwest Communications International Inc. Equity Incentive Plan, filed as Exhibit (d)(1) hereto, contains information regarding the Recent Options, and is incorporated herein by reference. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS Item 6 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) The following information from the Amended and Restated Offer Circular is incorporated herein by reference: the information set forth under the caption "Summary of Offer Expiring November 30, 2001"; the information set forth under the caption "Terms of the Offer - Background and Reasons for the Offer," including the responses to Questions 1 through 5; the information contained in the response to Question 6 under the caption "Terms of the Offer - Benefits and Risks of the Offer"; and the information contained in the responses to Question 44 and 47 under the caption "Terms of the Offer - Other Provisions; Administration." (b) The following information is incorporated herein by reference: (i) the terms and conditions of the offer set forth in the Election Form; and (ii) the following information set forth in the Amended and Restated Offer Circular: the information set forth under the caption "Summary of Offer Expiring November 30, 2001"; the information set forth in the response to Question 6 under the caption "Terms of the Offer - Benefits and Risks of the Offer"; the information set forth under the caption "Terms of the Offer - The Offer," including, without limitation, the information in the responses to Questions 10 through 31; and the information in the response to Question 32 under the caption "Terms of the Offer - Description of Terms and Conditions of New Options to be Granted in June 2002." 3 (c) The information set forth in the response to Question 46 ("How does the Offer relate to Qwest's directors and executive officers?") and in the response to Question 48 ("Is Qwest contemplating any other transactions?") in the Amended and Restated Offer Circular is incorporated herein by reference. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Item 7 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) The following information set forth in the Amended and Restated Offer Circular is incorporated herein by reference: the information set forth under the caption "Summary of Offer Expiring November 30, 2001"; the information set forth under the caption the "Terms of the Offer - Terms and Conditions of New Options to be granted in June 2002", including without limitation, the information set forth in the responses to Questions 32 through 37; and the information set forth in the responses to Question 42 and Question 45 under the caption "Terms of the Offer - Other Provisions; Administration." (b) The following information is incorporated herein by reference: (i) the terms and conditions set forth in the Election Form; and (ii) the information set forth in the responses to Question 12 ("What are the conditions to the Offer?") and Question 14 ("How may I accept the Offer?") in the Amended and Restated Offer Circular. (d) Not applicable. ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY Item 8 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) The information set forth in the response to Question 46 ("How does the Offer relate to Qwest's directors and executive officers?") in the Amended and Restated Offer Circular is incorporated herein by reference. (b) The information set forth in the response to Question 46 ("How does the Offer relate to Qwest's directors and executive officers?") in the Amended and Restated Offer Circular is incorporated herein by reference. ITEM 9. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED (a) Not applicable. 4 ITEM 10. FINANCIAL STATEMENTS Item 10 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) the following information is incorporated herein by reference: (1) the information set forth in the Amended and Restated Offer Circular in the response to Question 44 ("What information is available regarding Qwest?") and under "Additional Information; Incorporation of Documents by Reference"; (2) Audited financial statements of Qwest and its consolidated subsidiaries for the fiscal years ended December 31, 1999 and December 31, 2000 as shown on pages F-13 through F-47 of Exhibit 13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as amended on Form 10-K/A, filed with the SEC on August 20, 2001; (3) pages 1 to 14 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, filed with the SEC on August 14, 2001; (4) Exhibit 12 - "Computation of Ratios of Earnings to Fixed Charges" - to the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as amended on Form 10-K/A, filed with the SEC on August 20, 2001, and the ratios of earnings to fixed charges included in Attachment E to the Amended and Restated Offer Circular; and (5) the book value per share data included in Attachment E to the Amended and Restated Offer Circular. (b) Not applicable. ITEM 11. ADDITIONAL INFORMATION Item 11 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: (a) The following information set forth in the Amended and Restated Offer Circular is incorporated herein by reference: (i) the information set forth in the responses to Question 44 ("What information is available regarding Qwest?"), Question 46 ("How does the Offer relate to Qwest's directors and executive officers?") and Question 49 ("Are there any regulatory requirements or other approvals that Qwest must comply with or obtain?"); and (ii) the information contained in the section encaptioned "Additional Information; Incorporation of Documents by Reference." (b) Not applicable. 5 ITEM 12. EXHIBITS Item 12 of the Tender Offer Statement is hereby amended and restated to read in its entirety as follows: *(a)(1) Exchange Offer Circular dated October 31, 2001, with exhibits (which include (i) the Prospectus for the Qwest Communications International Inc. Equity Incentive Plan in Attachment A, (ii) the Forms of Nonqualified Stock Option Agreements in Attachments B through D, and (iii) Selected Financial Data in Attachment E) *(a)(2) Form of Original Election Form and Release Agreement *(a)(3) Form of Statement of Employee Stock Option Holdings *(a)(4) Form of Confirmation Card *(a)(5) Press Release issued on October 31, 2001 *(a)(6) Text of October 31, 2001 E-mail Message to Employees Announcing Exchange Offer *(a)(7) Form of October 31, 2001 Cover Letter Accompanying Exchange Offer Documents and to appear on the Qwest Communications International Inc. Human Resources Website *(a)(8) Form of October 31, 2001 Cover Letter Included in Mailing of Exchange Offer Documents *(a)(9) Addendum to Offer Circular for Non-U.S. Employees *(a)(10) Questions and Answers to appear on the Qwest Communications International Inc. Human Resources Website (October 31, 2001) *(a)(11) Qwest Human Resources Website Full Screen Message (October 31, 2001) *(a)(12) Reminder Message to Employees to Review Offering Circular contained on Qwest Human Resources Website *(a)(13) Form of Reminder of Deadline *(a)(14) Transcription of Recorded Message on Stock Administration Toll Free Phone Line (October 31, 2001) **(a)(15) The Company's Annual Report on Form 10-K for the year ended December 31, 2000, filed with the Securities and Exchange Commission (the "SEC") on March 16, 2001, as amended on Form 10-K/A, filed with the SEC on August 20, 2001 (incorporated herein by reference) 6 **(a)(16) Audited financial statements for Qwest and its consolidated subsidiaries for the fiscal years ended December 31, 1999 and December 31, 2000 in Pages F-13 to F-47 of Exhibit 13 of the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as amended on Form 10-K/A, filed with the SEC on August 20, 2001 (incorporated herein by reference) **(a)(17) The Company's Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2001 and June 30, 2001, filed with the SEC on May 15, 2001, and August 14, 2001, respectively (each incorporated herein by reference) **(a)(18) The Company's Current Reports on Forms 8-K filed with the SEC on March 22, 2001, March 29, 2001, April 5, 2001, April 25, 2001, April 27, 2001, May 17, 2001, June 5, 2001 (as amended by the Company's Current Report on Form 8-K/A filed with the SEC on June 5, 2001), June 8, 2001, June 20, 2001, June 21, 2001, July 20, 2001, July 26, 2001 (as amended by the Company's Current Report on Form 8-K/A filed with the SEC on July 26, 2001) August 7, 2001 (as amended by the Company's Current Report on Form 8-K/A filed with the SEC on August 13, 2001), September 10, 2001 and October 31, 2001 (each incorporated herein by reference) (a)(19) Amended and Restated Offer Circular dated November 2, 2001, with exhibits (which include (i) the Prospectus for the Qwest Communications International Inc. Equity Incentive Plan in Attachment A, (ii) the Forms of Nonqualified Stock Option Agreements in Attachments B through D, and (iii) Selected Financial Data in Attachment E) (a)(20) Updated Election Form and Release Agreement (November 2, 2001) (a)(21) November 2, 2001 Addendum to Exchange Offer Circular (Former U S WEST Employees) (a)(22) Text of November 2, 2001 E-mail Message to Employees (a)(23) November 2, 2001 Letter to Employees regarding U S WEST options to appear on Human Resources Website (a)(24) Form of November 2, 2001 Cover Letter Accompanying Exchange Offer Documents and to appear on the Qwest Communications International Inc. Human Resources Website (November 2, 2001) (a)(25) Form of November 2, 2001 Cover Letter Included in Mailing of Exchange Offer Documents (Former U S WEST Employees) 7 (a)(26) Updated Frequently Asked Questions to appear on Qwest Communications International Inc. Human Resources Website (Former U S WEST Employees) (a)(27) Updated Qwest Human Resources Website Full Screen Message (November 2, 2001) (a)(28) Transcription of Updated Recorded Message on Stock Plan Administration Toll Free Phone Line (November 2, 2001) (a)(29) Instructions on How to Accept Exchange Offer to appear on Qwest Human Resources Website (b) Not applicable *(d)(1) Qwest Communications International Inc. Equity Incentive Plan *(d)(2) Form of Nonqualified Stock Option Agreement *(d)(3) Form of Restricted Stock Agreement (d)(4) 1998 U S WEST Stock Plan (d)(5) 1998 U S WEST Stock Plan, as amended June 22, 1998 (d)(6) 1998 U S WEST Stock Plan, as amended August 6, 1999 (d)(7) 1999 U S WEST Stock Plan (d)(8) 1999 U S WEST Stock Plan as amended August 6, 1999 (d)(9) U S WEST 1998 Broad Based Stock Option Plan dated June 12, 1998 (g) Not applicable. (h) Not applicable ----------------------------------- * Previously filed as exhibit to Schedule TO ** Incorporated by reference 8 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Amendment No. 1 to Tender Offer Statement is true, complete and correct. QWEST COMMUNICATIONS INTERNATIONAL INC. By: /s/ YASH RANA ----------------------------------- Yash Rana Associate General Counsel and Assistant Secretary Date: November 2, 2001 9 EXHIBIT INDEX Exhibit Number Description of Document ------- ---------------------------------------------------------------------- (a)(19) Amended and Restated Offer Circular dated November 2, 2001, with exhibits (which include (i) the Prospectus for the Qwest Communications International Inc. Equity Incentive Plan in Attachment A, (ii) the Forms of Nonqualified Stock Option Agreements in Attachments B through D, and (iii) Selected Financial Data in Attachment E) (a)(20) Updated Election Form and Release Agreement (November 2, 2001) (a)(21) November 2, 2001 Addendum to Exchange Offer Circular (Former U S WEST Employees) (a)(22) Text of November 2, 2001 E-mail Message to Employees (a)(23) November 2, 2001 Letter to Employees regarding U S WEST options to appear on Human Resources Website (a)(24) Form of November 2, 2001 Cover Letter Accompanying Exchange Offer Documents and to appear on the Qwest Communications International Inc. Human Resources Website (Former U S WEST Employees) (a)(25) Form of November 2, 2001 Cover Letter Included in Mailing of Exchange Offer Documents (Former U S WEST Employees) (a)(26) Updated Frequently Asked Questions to appear on Qwest Communications International Inc. Human Resources Website (November 2, 2001) (a)(27) Updated Qwest Human Resources Website Full Screen Message (November 2, 2001) (a)(28) Transcription of Updated Recorded Message on Stock Plan Administration Toll Free Phone Line (November 2, 2001) (a)(29) Instructions on How to Accept Exchange Offer to appear on Qwest Human Resources Website (d)(4) 1998 U S WEST Stock Plan (d)(5) U S WEST 1998 Stock Plan, as amended June 22, 1998 (d)(6) 1998 U S WEST Stock Plan, as amended August 6, 1999 (d)(7) 1999 U S WEST Stock Plan (d)(8) 1999 U S WEST Stock Plan as amended August 6, 1999 (d)(9) U S WEST 1998 Broad Based Stock Option Plan dated June 12, 1998 10 EX-99.A.19 3 ex_a-19.txt EXHIBIT 99(A)(19) This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933, as amended. QWEST COMMUNICATIONS INTERNATIONAL INC. OFFER TO EXCHANGE CERTAIN OUTSTANDING QWEST STOCK OPTIONS EXPIRES NOVEMBER 30, 2001 AMENDED AND RESTATED OFFER CIRCULAR Qwest Communications International Inc. ("Qwest," "we" or "us") is offering our employees the right to exchange certain outstanding stock options for the right to receive a new stock option grant under our Equity Incentive Plan. This offer is referred to as the "Offer." The terms and conditions of the Offer and the right to receive new options are described in this Amended and Restated Offer Circular (the "Offer Circular"). You may participate in the Offer only if we or one of our affiliates employ you at the expiration time of the Offer. You are not eligible to participate in the Offer, however, if you are a union employee or one of our senior officers. Even if you are eligible, you do not have to accept the Offer. If you are eligible to participate in the Offer, you may elect to tender in the Offer any or all of your nonqualified stock options with an exercise price equal to or greater than $35 per share that were granted either (1) under our Equity Incentive Plan or (2) under one of U S WEST, Inc.'s stock plans that was converted into a Qwest stock option in our merger with U S WEST, Inc. ("U S WEST") on June 30, 2000. If you elect to tender any of those options in the Offer, you must also tender all Qwest stock options granted to you on or after May 29, 2001 whether or not those options have an exercise price of $35 or more. Also, if you want to tender any option of a particular stock option grant, you must tender all stock options outstanding under that grant (whether or not vested). If you want to accept the Offer, your election to accept the Offer must be received by the expiration time of the Offer. The expiration time of the Offer is 5:00 p.m., Mountain Standard Time, on November 30, 2001. We may, however, extend the expiration time. This Offer Circular includes more detailed instructions for making an election to accept the Offer. The last time you received options, we sent you all the option information you need to complete the election form. If you have options that were granted under one of the U S WEST stock plans, you received a conversion notice in connection with the merger regarding the conversion and assumption of your U S WEST options. For your convenience, we are also sending to the address we have for you an option statement showing the options that you can exchange. Any options that you tender in the Offer will terminate at the expiration time of the Offer. If you elect to accept the Offer, you release all of your rights with respect to the options that you tender in the Offer and we will grant new options to you on June 3, 2002 (or, if this is not a trading day, the first trading day after June 3, 2002). We will extend the grant date of the new options if we extend the expiration time of the Offer. However, if you exchange any options and your employment terminates for any reason whatsoever before the date that the new options are actually granted, or if you are on unpaid leave on that date, you will not receive any new options, and any options that you tendered in the Offer will not be reinstated. Your election to accept the Offer does not in any way change your status as an at-will employee. That means that you are not guaranteed employment for any period of time. If you accept the Offer, you are ineligible to receive any additional stock option grants until after the new stock options referred to below are granted. Subject to the employment requirement described in the preceding paragraph, if you accept the Offer we will grant you new options covering the same number of shares as the number of shares that are subject to the options that you elect to tender in the Offer. This number of shares may be adjusted, however, for stock splits, recapitalizations and similar events. The new options will be nonqualified stock options and will have a per share exercise price equal to the closing market price of our common stock on the date that the new options are granted. The new options will vest, subject to your continued employment, in four equal installments on each of the first four anniversaries of the date that the new options are granted and will be subject to a new ten year term. The other terms and conditions of the new options are described in more detail in this Offer Circular. We must provide you with detailed information because the Offer is a legal proceeding. While we recognize that you may feel intimidated by the length of this Offer Circular, it is important that you read the detailed terms of the Offer that are contained in the "Terms of the Offer" section in this Offer Circular. Also be sure to read the "Risk Factors" section in this Offer Circular. Capitalized terms used in this Offer Circular are defined in this Offer Circular. The Date of this Amended and Restated Offer Circular is November 2, 2001. TABLE OF CONTENTS Summary of Offer Expiring November 30, 2001...................................1 Risk Factors..................................................................4 Terms of the Offer............................................................7 Background and Reasons for the Offer..................................7 Benefits and Risks of the Offer.......................................8 The Offer.............................................................9 Description of Terms and Conditions of New Options to be Granted in June 2002.........................................................18 Other Provisions; Administration.....................................22 Federal Income Tax and Social Security Consequences..................27 Additional Information; Incorporation Of Documents By Reference.............30 Attachments: A. Prospectus for Qwest Equity Incentive Plan.......................A-1 B. Form of Nonqualified Stock Option Agreement A....................B-1 C. Form of Nonqualified Stock Option Agreement B....................C-1 D. Form of Nonqualified Stock Option Agreement C....................D-1 E. Selected Financial Data .........................................E-1 INDEX OF DEFINED TERMS Page ---- Cancelled Options ............................................................2 Company.......................................................................1 Election Form.................................................................2 Eligible Options..............................................................1 Exchange......................................................................1 FICA.........................................................................28 KPN..........................................................................27 New Option Agreement.........................................................18 New Option Grant Date.........................................................3 New Options...................................................................2 Offer................................................................Cover Page Qwest................................................................Cover Page Recent Options................................................................1 SEC..........................................................................27 U S WEST.............................................................Cover Page i SUMMARY OF OFFER EXPIRING NOVEMBER 30, 2001 The following is a summary of some of the key terms and conditions of the Offer. It is important that you read the detailed terms of the Offer that are contained in the "Terms of the Offer" section in this Offer Circular. You should also be sure to read the "Risk Factors" section in this Offer Circular. o Reasons for the Offer. In September 2000, we granted most of our non-union employees stock options under our Equity Incentive Plan to buy 200 shares of our common stock. You may also hold other stock options that were granted under our Equity Incentive Plan or under one of U S WEST's stock plans that were converted into Qwest stock options in our merger with U S WEST by merger on June 30, 2000. Unfortunately, because of the current economic condition and the decline in our stock price most of the stock options held by our employees no longer provide the incentives that we intended when we granted them. To help provide you with the right incentives, our Board of Directors approved this option exchange program. You, of course, do not have to accept the Offer. In making your decision, be sure to bear in mind the factors described under "Risk Factors" below. o Employees eligible for the Offer. You must be an employee of the Company at the expiration time of the Offer in order to participate in the Offer. Union employees and certain senior officers are not, however, eligible to participate in the Offer. The term "Company" is used in this Offer Circular to mean Qwest and/or any other corporation or entity, or any subsidiary or division thereof, that is affiliated with Qwest though stock ownership and is designated as an "Affiliate Corporation" by our Board of Directors. o Options eligible for the Offer. If you accept the Offer, the options that you elect to tender in the Offer will be exchanged (the "Exchange") for the conditional right to be granted new options. You may only tender nonqualified stock options with an exercise price equal to or greater than $35 per share that were granted under either (1) our Equity Incentive Plan or (2) under one of U S WEST's stock plans that were converted into Qwest stock options in our merger with U S WEST by merger on June 30, 2000. However, if you do elect to tender any options with an exercise price of $35 or higher, you must also tender all Qwest stock options granted to you on or after May 29, 2001, whether or not those options have a per share exercise price of $35 or higher. Also, if you want to tender any option of a particular stock option grant, you must tender all stock options outstanding under that grant (whether or not vested). (If you have exercised a portion of a stock option grant, that portion is not considered outstanding.) Stock options granted under our Equity Incentive Plan or the U S WEST stock plans that have a per share exercise price of $35 or higher are referred to as "Eligible Options" because they are eligible to be tendered in the Offer. Qwest stock options granted on or after May 29, 2001 are referred to as "Recent Options" because they have been granted in about the last six months and they must be tendered if you want to accept the Offer. For details of the Offer, see the "Terms of the Offer" section of this Offer Circular generally. The right to a new grant of options is conditional because you must be a full-time, non-union employee of the Company on the date that the new options are granted in order to receive a new option grant. o Additional information about the Offer. The last time you received options, we sent you all the option information you need to complete the election form. If you have options that were granted under one of the U S WEST stock plans, you received a conversion notice in connection with the merger regarding the conversion and assumption of your U S WEST options. For your convenience, we are also sending to the address we have for you an option statement showing the options that 1 you can exchange. If you need another copy of the option statement or if you have other questions, you may contact the Qwest Stock Administration department at StockAdmin2@Qwest.com or at the following address or telephone number: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. We understand that the decision whether or not to participate in the Offer will be a challenging one for many employees. The Offer does carry considerable risk, and there are no guarantees as to our future stock performance. So, the decision to participate in the Offer must be your personal decision, and it will depend largely on your assumptions about the future overall economic environment, the performance of the overall market and companies in our sector and our own business, performance and stock price. o How to Accept the Offer. First, review the information in this Offer Circular and the documents referred to in this Offer Circular. Then, complete, sign and date the Election Form and Release Agreement (the "Election Form") referred to in the response to Question 14 below. The Election Form must be filed with us in the manner and within the time period indicated in that response. By accepting the Offer, you also: (1) tender all of your Recent Options; (2) agree to the cancellation of the options that you tender in the Offer including your Recent Options; and (3) release all of your rights and remedies with respect to the options that you tender in the Offer, including your Recent Options, except the conditional right to the grant of new options as described in this Offer Circular. Your release will be void if we withdraw the Offer before the expiration time of the Offer. o Expiration Time. The Offer will expire at 5:00 p.m., Mountain Standard Time, on November 30, 2001. We may, however, extend the Offer. If you want to accept the Offer for all or a portion of your outstanding Eligible Options and agree to tender all of your Recent Options, we must receive your election before the expiration time of the Offer; otherwise, you will be deemed to have rejected the Offer. o Consequences of Not Accepting the Offer. As indicated above, you do not have to accept the Offer. If you decline, or if you do not timely return a valid election to accept the Offer, your Eligible Options and Recent Options will remain outstanding subject to their existing terms. o Grant of New Options. If you accept the Offer, the Eligible Options that you elect to exchange as well as all of your Recent Options will terminate at the expiration time of the Offer. These terminated Eligible Options and Recent Options are referred to as your "Cancelled Options." You will then have a conditional right to receive a new option grant from us. The new options that we will grant are referred to as "New Options." The right to a grant of New Options is conditional because you must be a full-time, non-union employee of the Company on the date that the New Options are granted in order to receive a New Option grant. Your New Options will cover the same number of shares as the number of shares that are subject to your Eligible Options and Recent Options that are cancelled in the Exchange. The per share exercise price of the 2 New Options will be the closing market price of a share of our common stock on the New Option Grant Date. The New Options will be subject to a new ten year term and a new four year vesting schedule. For the Eligible Options that were granted under our Equity Incentive Plan, other than the exercise price, new option term and new vesting schedule, we expect that the terms and conditions of the New Options will be substantially similar to those of the corresponding Cancelled Options. However, there are differences between the customary terms of the Eligible Options that were granted under the U S WEST stock plans and the terms of the options that we now generally grant under the Equity Incentive Plan. Therefore, the terms and conditions of the New Options for the Eligible Options that were granted under the U S WEST stock plans may be different from those of the corresponding Cancelled Options because all of the New Options will be granted under our Equity Incentive Plan. It is very important that you read this Offer Circular and all of the documents referred to in this Offer Circular as attachments in making your decision to participate in the Exchange. The New Options will be granted on June 3, 2002. If June 3, 2002 is not a trading day, the New Option Grant date will be the first trading day after June 3, 2002. If we extend the Offer, we will adjust the New Option Grant Date to correspond to the new expiration time of the Offer. The date that the New Options are granted is referred to as the "New Option Grant Date." If you accept the Offer, you are ineligible to receive any additional stock option grants until after the New Option Grant Date. Our Board of Directors has approved the Offer. However, you must make your own decision to accept or reject the Offer. None of our Board of Directors, our management, or our affiliates makes any recommendation whether you should accept or reject the Offer. We have not authorized anyone to make any recommendation on our behalf as to whether you should accept the Offer. You should rely only on the information contained in this Offer Circular and the information contained in the documents expressly referred to in this Offer Circular. We have not authorized anyone to give you any information or to make any representations in connection with the Offer other than the information and the representations contained in this Offer Circular and in the documents expressly referred to in this Offer Circular. If anyone makes any recommendation or representation to you or gives you any information that is not contained in this Offer Circular or in the documents expressly referred to in this Offer Circular, even if that person is an employee or other representative of the Company, you must not rely upon that recommendation, representation or other information as having been authorized by the Company. If you have any questions about the impact of the Offer on your financial status, you should consult your financial advisor. 3 RISK FACTORS The value of your Eligible Options and Recent Options may be greater or lesser than the New Options offered to you in the Exchange. As noted below, the New Options will be subject to a new four-year vesting schedule. In certain circumstances, you will not be granted New Options even if you tendered Eligible Options and Recent Options that terminated in connection with the Exchange. If you accept the Offer, your Eligible Options and Recent Options will terminate. If you accept the Offer, your Eligible Options that you elect to exchange and all of your Recent Options (if any) will terminate at the expiration time of the Offer and, as described in more detail in the response to Question 19 below, you release all of your rights with respect to your Cancelled Options (except the right to receive New Options on the terms and subject to the conditions described in this Offer Circular). If you accept the Offer, you are ineligible to receive any additional stock option grants until after the New Option Grant Date. If you terminate employment with Qwest before the New Option Grant Date, you will not receive any New Options. You have no right to continued employment with the Company. If you resign, quit or die, or if your employment with the Company terminates for any reason whatsoever before the New Option Grant Date, or if you are on unpaid leave on the New Option Grant Date, we will not grant you any New Options and you will not have a right to any of your Cancelled Options. You will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. On September 10, 2001, we announced (1) that the Company would reduce its workforce by about 4,000 jobs by the end of the first quarter of 2002, and (2) that the Company would also eliminate about 1,000 staff positions while adding about 1,000 quota-bearing sales executives in its global business markets unit. Therefore, the Company currently expects to eliminate a total of about 5,000 positions through attrition and layoffs by the end of the first quarter of 2002. Only a portion of those layoffs have occurred. We expect the remainder of the layoffs to occur periodically over the next few months and during the first quarter of 2002. We could announce additional layoffs, or otherwise terminate your employment, before the New Option Grant Date or before your New Options are vested. A layoff constitutes a termination of your employment with the Company. If you are laid off before your New Options are granted on the New Option Grant Date, your Cancelled Options cannot be reinstated and will be lost forever, and you will not receive any New Options that would have been granted on the New Option Grant Date. Even if you receive New Options, they may not vest before a termination of employment. You will not receive any other consideration, amount or benefit for your Cancelled Options. The New Options could have a higher exercise price than your Eligible Options and Recent Options. The new grant could be at a higher exercise price than your Eligible Options or Recent Options, which would reduce the value of the New Options. The per share exercise price of the New Options will be the closing market price of our common stock on the New Option Grant Date. Therefore, because we will not grant the New Options until the New Option Grant Date, the New Options may have a higher exercise price than any Cancelled Options or a price not significantly lower than their current exercise price. This risk of a higher exercise price may be even greater for your Recent Options because, due to their recent grant, they may have a much lower exercise price than any of your Eligible Options. This is important because the value of the New Options increases as the exercise price decreases. In light of this and other risks of tendering, you may be better off keeping your Eligible Options and Recent Options rather than tendering them in the Exchange. We recommend that you obtain current market quotations for our common stock before deciding whether to participate in the Exchange. 4 The New Options may not be granted if a change of control occurs before the New Option Grant Date. If a change of control of Qwest or certain reorganizations of Qwest occur before the New Options are granted, or if we sell a business unit or subsidiary in which you work, it is possible that the acquiror or purchaser in that transaction would decide not to issue New Options. It is also possible that your employment by the Company would be terminated before the New Option Grant Date or before the New Option vests. In each case, that means you would not receive any value from any New Options and your Cancelled Options would not be reinstated. In addition, the announcement of a change of control transaction regarding, or reorganization of, Qwest could have a substantial effect on our stock price, including substantial price appreciation, which could reduce or eliminate the potential benefits of the New Options. The New Options are subject to a new vesting schedule. The New Options will vest over four years from the New Option Grant Date. Therefore, if you accept the Offer and your employment terminates before your New Options are vested, your unvested New Options will terminate even though the Cancelled Options that you exchanged had already vested or may have vested if you had not exchanged them. The New Options may have different terms than the Cancelled Options. Each New Option will be evidenced by an option agreement in a form similar to the applicable form attached to this Circular as Attachment B, C, or D. We will use the form of option agreement attached as Exhibit B for New Options that are issued in exchange for Cancelled Options that were granted under our Equity Incentive Plan before February 1, 2000. We will use the form of option agreement attached as Exhibit C for New Options that are issued in exchange for Cancelled Options that were granted under our Equity Incentive Plan on or after February 1, 2000 but before June 30, 2000. We will use the form of option agreement attached as Exhibit D for New Options that are issued in exchange for Cancelled Options that were granted under our Equity Incentive Plan on or after June 30, 2000 and Cancelled Options that were granted under the U S WEST stock plans. However, we reserve the authority to adjust the number of shares subject to, or to be subject to, and the exercise price and other terms of the New Options, before and after they are granted, consistent with the authority that our Board of Directors has with respect to stock options granted under our Equity Incentive Plan. In the period before the New Option Grant Date, we may make these adjustments or terminate rights without prior notice to you. As highlighted in the responses to Questions 35-37 below, New Options that are issued in exchange for Cancelled Options that were granted under one of the U S WEST stock plans will have different terms than the provisions of your Cancelled Options. These terms may include materially less favorable change in control, termination of employment, and other provisions. Our Board of Directors has approved the Offer. However, you must make your own decision to accept or reject the Offer. None of our Board of Directors, our management, or our affiliates makes any recommendation whether you should accept or reject the Offer. We have not authorized anyone to make any recommendation on our behalf as to whether you should accept the Offer. You should rely only on the information contained in this Offer Circular and the information contained in the documents expressly referred to in this Offer Circular. We have not authorized anyone to give you any information or to make any representations in connection with the Offer other than the information and the representations contained in this Offer Circular and in the documents expressly referred to in this Offer Circular. 5 If anyone makes any recommendation or representation to you or gives you any information that is not contained in this Offer Circular or in the documents expressly referred to in this Offer Circular, even if that person is an employee or other representative of the Company, you must not rely upon that recommendation, representation or other information as having been authorized by the Company. If you have any questions about the impact of the Offer on your financial status, you should consult your financial advisor. 6 TERMS OF THE OFFER The precise terms and conditions of the Offer are contained in the responses to the following questions: o Background and Reasons for the Offer: Questions 1 through 5 o Benefits and Risks of the Offer: Questions 6 through 9 o The Offer: Questions 10 through 31 o Description of Terms and Conditions of New Options to be Granted in June 2002: Questions 32 through 39 o Other Provisions; Administration: Questions 40 through 49 o Federal Income Tax and Social Security Consequences: Questions 50 through 54 Capitalized terms not otherwise defined in this section have the meanings given to them elsewhere in this Offer Circular. See the Index of Defined Terms on page i. Background and Reasons for the Offer This section generally describes why we are making the Offer and answers some questions that you may have regarding the general structure of the Offer. 1. Why is Qwest making the Offer? We are making this Offer because we believe that your stock options no longer provide the incentives we had intended. Many of our employees have stock options with exercise prices significantly above our current and recent trading prices. We are offering this program on a voluntary basis to allow our employees to choose whether to keep their current stock options at their current exercise prices, or to cancel certain of those options for a conditional promise to be granted New Options at a price not now known. We are not required to make this Offer. The Offer gives you a conditional opportunity to receive options that over time may have a greater potential to increase in value. We believe that, under the circumstances, this is the most efficient way to incent employees to increase shareowner value. 2. Why is Qwest making the Offer at this time? Our Board of Directors determined that this was an appropriate time to make the Offer. We believe that, under the circumstances, this is the most effective way to incent our employees to increase shareowner value. 3. How did you arrive at the $35 price for determining Eligible Options? In establishing the $35 price, our Board of Directors considered, among other things, current and recent trading prices of our common stock and that of other communications companies, current economic conditions, prospects for a recovery in the national and regional economy, and the levels of intended incentives. 7 4. Why can't Qwest just reprice my options, as I have seen done at other companies? Simply amending a stock option grant to reduce its exercise price potentially results in accounting charges for us that would reduce our reported income. Also, repricing does not impose any new requirements on optionholders, such as a new vesting schedule, so many investors see repricings as a "one way" street that benefits optionholders but not their company. The new vesting terms of New Options are intended to ease these concerns and balance the benefits of this Offer to the Company. 5. Why can't I just be granted additional new options? Granting additional options will result in the issuance of additional shares that would "dilute" the current ownership of shareowners. Our Board of Directors determined that, under the circumstances, the Offer was the most effective way to incent our employees without unduly diluting our shareowners. Benefits and Risks of the Offer This section generally describes some of the potential benefits and risks of the Offer. 6. How does the Offer potentially benefit the Company? We believe the Eligible Options held by our employees do not provide the incentives we had intended. We believe that this program provides the right incentives for our employees to increase shareowner value. Also, the shares that were reserved for issuance under the Plan with respect to any Cancelled Options will again become part of the pool of shares that are available for award grants under the Plan, including the grant of the New Options. 7. Are my New Options guaranteed to be more valuable? No. Generally, your New Options will potentially be more valuable than your Cancelled Options only if they are granted at an exercise price that is less than the exercise price of your Cancelled Options. The exercise price of the New Options will be determined as described in the response to Question 33 below. There is no guarantee that your New Options will have an exercise price that is less than the exercise price of your Cancelled Options. Your New Options will increase in value if the market price of our common stock increases. We cannot guarantee stock price performance. 8. What are the risks of the Offer? The Offer involves risks as described in the "Risk Factors" section of this Offer Circular, which include, among others, the risk that the New Options could be less valuable than the Cancelled Options surrendered if the exercise price of the New Options is greater than the exercise price of your Eligible Options and Recent Options, and the risk that because the New Options will vest over four years from the New Option Grant Date, you may not be employed by the Company to receive any value on the New Option Grant Date or on the dates on which the New Options vest. Therefore, it is important that you read all of the details, terms and conditions contained in this Offer Circular so that you can make an informed decision as to whether to accept this Offer. 8 9. What other companies have instituted a program like the Offer? Many companies, including Nortel and Sprint Corp., have adopted similar option exchange programs rather than amending outstanding options to reprice them or granting additional options. Other companies like Microsoft and Cisco have instead granted more options to employees. We believe that is not appropriate in our case for the reasons given above. The Offer This section describes the terms of the Offer, including the deadline for accepting the Offer, eligibility rules, how to accept the Offer, which options may be tendered in the Offer, and other terms and conditions of the Offer. The terms of the Offer set forth in this Offer Circular control if there is any inconsistency between this Offer Circular and any other document. 10. What is the deadline for the Offer? If you want to accept the Offer, the deadline for submitting your Election Form is 5:00 p.m., Mountain Standard Time, on November 30, 2001, unless we, in our sole discretion, extend the Offer. If you do not return your Election Form before that deadline, you will not be allowed to participate in the Exchange. 11. Who is eligible to participate in the Offer? You are eligible to participate in the Offer only if (1) you are a full-time employee of the Company at the expiration time of the Offer, (2) you are a non-union employee at that time, and (3) you are not a selected senior officer of Qwest at that time. If you are employed by the Company in Japan or Hong Kong, or if you are a Qwest employee expatriated to KPNQwest, you will be eligible to participate in the Offer if you satisfy the eligibility criteria described in the previous paragraph. Otherwise, if you are employed outside of the United States, you will not be eligible to participate in the Offer. 12. What are the conditions to the Offer? The Offer is conditioned on your being employed with the Company as described in the response to Question 11 above, except that your employment is determined as of the New Option Grant Date. In addition, the Offer is conditioned on your satisfactorily completing and returning to us your election form by 5:00 p.m., Mountain Standard Time, on November 30, 2001, as described in the response to Question 14 below. If you resign, quit or die, or if your employment with the Company terminates for any reason whatsoever before the New Option Grant Date, or if you are on unpaid leave on the New Option Grant Date, we will not grant you any New Options and you will not have a right to any of your Cancelled Options. You will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. 13. What stock options may I tender/exchange in the Offer? If you are eligible to participate in the Offer, you may tender in the Exchange any nonqualified stock option with an exercise price of $35 or more per share that was originally granted either (1) under our Equity Incentive Plan or (2) under one of the U S WEST stock plans that was converted into 9 a Qwest stock option in our merger with U S WEST on June 30, 2000. The stock options that may be tendered in the Exchange are referred to as "Eligible Options". You cannot exchange options that you received as an employee of LCI International Inc. or Icon CMT Corp. because those stock options have a post-conversion exercise price that is less than $35 per share. In addition to any other options that may qualify as Eligible Options, if you received an option grant under our Equity Incentive Plan for 200 shares on September 7, 2000, those options will qualify as Eligible Options. If you choose to participate in the Offer by tendering some or all of your Eligible Options, you must also exchange all stock options granted to you on or after May 29, 2001 whether or not those options otherwise qualify as Eligible Options (these are referred to as your "Recent Options"). Also, if you want to tender any portion of a particular stock option grant, you must tender all stock options outstanding under that grant (whether or not vested). To determine whether your U S WEST options have a POST-conversion exercise price of $35 or more, you must first apply the conversion ratio in the merger (which was 1.72932:1). As a result of the conversion ratio, U S WEST options with a PRE-conversion exercise price of $60.53 would be eligible for the exchange. That is, you can only exchange your Qwest options that were originally granted by U S WEST if the original exercise price of those options (before giving effect to the merger) was $60.53 or higher. 14. How may I accept the Offer? Read Offer Circular and Election Form. To accept the Offer, you should first review this Offer Circular and the documents referred to in this Offer Circular. You should then obtain the Election Form. You may print an Election Form from the Q or you may request one from Qwest Stock Administration at StockAdmin2@Qwest.com or at the following address or telephone or fax number: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 fax: 303-992-1174 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. Assemble Option Information. You should then assemble the option information that you will need to complete the Election Form. The last time you received options, we sent you all the option information you need to complete the election form. If you have options that were granted under one of the U S WEST stock plans, you received a conversion notice in connection with the merger regarding the conversion and assumption of your U S WEST options. For your convenience, we are also sending to the address we have for you an option statement showing the options that you can exchange. If you need another copy, please contact Qwest Stock Administration at the email address, mailing address or telephone number given above. You are responsible for confirming that the options included in 10 your option statement satisfy the eligibility requirements described in the response to Question 13 above and for confirming that all of your Eligible Options and Recent Options are reflected in your statement. Any discrepancies should promptly be reported to Qwest Stock Administration at the email address, mailing address or telephone number given above. Complete, Sign and Date Election Form. You should then complete, sign and date the Election Form. If you want to accept the Offer, you must indicate on the Election Form that you accept the Offer and agree to the terms of the release set forth in the Election Form. That is, you should indicate whether you accept the Offer with respect to all of your Eligible Options or indicate the grants of Eligible Options that you want to exchange. You must list on the Election Form all the Eligible Options that you want to exchange, except that, if you want to exchange all your Eligible Options, you may check the box on the Election Form to indicate that you elect to exchange all your Eligible Options. In either case, if you elect to exchange any Eligible Option you will be deemed to have elected to exchange all your Recent Options whether or not you list them on the Election Form. Return Election Form. You should then mail, hand deliver or fax the completed, signed and dated Election Form to Qwest at the following address for receipt prior before 5:00 p.m., Mountain Standard Time, on November 30, 2001, or any later expiration time to which the Offer has been extended: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 fax: 303-992-1174 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. We cannot accept Election Forms by e-mail or any other means of delivery other than those means identified above. For your convenience, a postage-paid pre-addressed envelope is included with your package of Offer materials that is being sent to you for you to use to return your Election Form to us. If you do not use the enclosed pre-addressed envelope to return this form to Qwest, you must pay all mailing or courier costs to deliver this form to Qwest. The method by which you deliver the signed Election Form to Qwest is at your option and risk, even if you use the pre-addressed envelope, and delivery will be effective only when the form is actually received by Qwest. In all cases, you should allow sufficient time to ensure timely delivery. If we do not receive a valid Election Form from you prior to the deadline described in the response to Question 10, you will be deemed to have rejected the Exchange Offer. If you do not receive an Election Form or need additional information, please visit the Q or contact Qwest Stock Administration. If you request an Election Form, be sure to allow at least two business days for delivery to you. Neither we nor any other person is obligated to give you notice of any defects or irregularities in any election, nor will anyone incur any liability for failure to give any such 11 notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of elections. Our determination of these matters will be final and binding. Qwest Stock Administration intends to return a confirmation of receipt card to you by mail that you will fill out and send in with your election form to confirm that your election form has been received. This card only means that we have received something from you. It does not mean that you completed the Election Form correctly. Other. If the Election Form is signed by trustees, executors, administrators, guardians, attorneys-in-fact or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless we have waived this requirement, submit evidence satisfactory to Qwest of their authority to act in this capacity. Your election to accept or reject the Offer will become irrevocable upon the expiration time of the Offer. Be sure to read your Election Form. The effectiveness of any election that you may make to accept the Offer is subject to the eligibility conditions described in the responses to Question 11 above. Your election to participate in the Exchange pursuant to the terms and conditions described in this Offer Circular constitutes your acceptance of the terms and conditions of the Offer. Our acceptance for cancellation of the Eligible Options that you elect to tender and any Recent Options will constitute a binding agreement between you and us on the terms and subject to the conditions of the Offer Circular. The Offer does not apply with respect to any options that you may own other than your Eligible Options and Recent Options. You are responsible for the method of delivery of your Election Form and ensuring that we receive your Election Form before the expiration time of the Offer. You should allow sufficient time to ensure timely delivery of your Election Form. If you miss the deadline, you will not be allowed to participate in the Offer. 15. Can I choose which options I want to tender? If you have only one Eligible Option grant, you must either accept or reject the Offer as to that entire grant. That is, you cannot accept the Offer as to only a portion of your option. For example, you cannot accept the Offer with respect to the unvested portion of your option but reject the Offer with respect to the vested portion of your option. If you accept the Offer for your Eligible Option, you will be deemed to have accepted the Offer for all your Recent Options, whether or not you indicate that you intend to tender any or all of your Recent Options. If you have multiple Eligible Option grants, you may choose to tender one or more of your Eligible Option grants in the Exchange. However, as to any particular Eligible Option grant, you must either accept or reject the Offer as to that entire grant. Although you can specify which of your Eligible Options you want to tender, you cannot tender only a portion of any particular grant. For example, if you have one Eligible Option for 100 shares, you cannot accept the Offer with respect to only 50 of those shares but reject the Offer with respect to the other 50 shares, even if the Eligible Option has already vested as to those 50 other shares. In any case, if you accept the Offer for any of your Eligible Options, you must accept the Offer for all your Recent Options. 12 If you own any Recent Options, some of your Recent Options may also qualify as Eligible Options (in other words, they were granted under our Equity Incentive Plan with an exercise price of $35 or higher). Because your election to tender any of your Eligible Options will require you to tender all of your Recent Options, you will not have any choice as to whether to tender any Eligible Options that are also Recent Options. For example, assume that you have both an Eligible Option for 100 shares granted two years ago and an Eligible Option for 200 shares granted two months ago. The Eligible Option granted two months ago would also be a Recent Option. Therefore, if you choose to tender the Eligible Option for 100 shares granted two years ago, you will also have to tender the Eligible Option for 200 shares granted two months ago because that option also constitutes a Recent Option. However, if you only choose to tender the Eligible Option for 200 shares that was granted two months ago, you will not have to tender the Eligible Option for 100 shares granted two years ago because that option does not qualify as a Recent Option. As noted above, you may not partially tender any particular Eligible Option grant. For example, if you have both a grant of an Eligible Option for 100 shares and a grant of an Eligible Option for 300 shares (neither of which are Recent Options), you may elect to cancel both, either or neither of these grants. However, you may not elect to tender just 50 shares of the 100 share grant or partially tender either option grant. Likewise, if an option grant is partially vested and partially unvested, you cannot choose to tender only the unvested portion. 16. Can I tender options that I have already exercised? No. The Offer applies only to the portions of your Eligible Options that are unexercised and outstanding as of the expiration time of the Offer. It does not apply in any way to shares that you purchased by exercising options or to any portion of an Eligible Option that you exercise before the expiration time of the Offer. If you have exercised an Eligible Option in its entirety, that option is no longer outstanding and is therefore not included in the Offer. However, if you have exercised an Eligible Option grant in part, the remaining outstanding unexercised portion of the option grant is included in the Offer and may be tendered in the Exchange. For example, if you have an Eligible Option for 100 shares, but you have already exercised it with respect to 50 shares, you may tender the unexercised portion of the Eligible Option relating to the 50 remaining shares. 17. Do I have to pay money or taxes if I accept the Offer? No. Whether or not you accept the Offer, you will not have to make any payments to us until you exercise your stock options. If you accept the Offer, there will be no federal income taxes consequences for the Exchange. See the responses to Questions 50-54 below. 13 18. What if I change my mind? If you file an Election Form and want to change or withdraw your election, you may do so by filing a new Election Form indicating your new acceptance or rejection of the Offer in accordance with the procedures described above so that we receive your new Election Form before the expiration time of the Offer. We will rely on the last Election Form that you validly file and we receive before the expiration time of the Offer. If you want to change your election and you need a new Election Form, you may print one from the Q or you may request one from Qwest Stock Administration at StockAdmin2@Qwest.com or at the following address or telephone or fax number: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 fax: 303-992-1174 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. If you request an Election Form, be sure to allow at least two business days for delivery to you. 19. What is the release that is included in the Election Form? By signing your Election Form and indicating that you accept the Offer, you agree to cancel the designated Eligible Options and your Recent Options and agree to the provisions of a release set forth in the Election Form. The release will operate as an unconditional release by you and your trustees, executors, administrators, guardians, attorneys-in-fact or others acting in a fiduciary or representative capacity of all rights and remedies relating to your Cancelled Options. By agreeing to the release, you agree that your exchanged Eligible Options and Recent Options, and all of your rights with respect to your exchanged Eligible Options and Recent Options, automatically terminate at the expiration time of the Offer. You retain, of course, your conditional right to receive New Options on the terms and conditions described in this Offer Circular. 20. Can the Offer be modified? Yes. Prior to the expiration time of the Offer, we may, in our sole discretion, extend, modify or revoke the Offer. We will notify you if the Offer is revoked. You will also be notified (and given an opportunity to change any Election Form that you may have previously filed) if we modify the Offer in any material manner. The New Option Grant Date is scheduled to be June 3, 2002. If June 3, 2002 is not a trading day, the New Option Grant date will be the first trading day after June 3, 2002. If we extend the Offer, we will adjust the New Option Grant Date to correspond to the new expiration time of the Offer. Subject to our right to modify or revoke the Offer, the only condition to participating in the Offer is that you must be eligible (as described in the responses to Question 11 above) 14 to participate in the Exchange as of the expiration time of the Offer. See the response to Question 37 below for conditions applicable to New Option grants. We are not aware of any jurisdiction where the Exchange, the Offer, or the grant of New Options would violate applicable law. If we become aware of any jurisdiction where the Exchange or the Offer would violate applicable law, we will revoke the Offer in cases where applicable law cannot be satisfied. We may, where necessary, make New Option grants conditional on any required legal filings or approvals, modify the terms of the New Options to the extent necessary to satisfy applicable law, and we may delay the grant of New Options in cases where filings or approvals are required and have not been obtained. 21. What happens if I accept the Offer but my employment terminates before the expiration time of the Offer? If you accept the Offer but you cease to be a full-time employee of the Company before the expiration time of the Offer or you are not otherwise eligible to participate (see the responses to Questions 11 and 12 above), the release that you gave in accepting the Offer will be void and your Eligible Options and your Recent Options will be treated as if they had not been tendered or cancelled. 22. What happens if I accept the Offer but my employment terminates before the New Option Grant Date? If your employment with the Company is terminated by you or by the Company for any reason whatsoever after the expiration time of the Offer and before the New Option Grant Date, or if you are on unpaid leave on the New Option Grant Date, you will not have a right to any Cancelled Options, and you will not have a right to the New Options that would have otherwise been granted to you on the New Option Grant Date. You should carefully consider this issue, particularly if you are thinking about retiring or resigning before the New Option Grant Date. Therefore, if you are not a full-time employee of the Company at the expiration time of the Offer and on the New Option Grant Date, you will not receive any New Options in exchange for your Cancelled Options. You also will not receive any other consideration for the Cancelled Options or with respect to New Options that would have otherwise been granted to you. This result is the same even if you are terminated by the Company for no reason or are laid off or the subject of a workforce reduction. 23. What happens if I accept the Offer but I go on leave before the expiration time of the Offer? If you take a leave of absence, you will be treated as being employed by the Company for purposes of the Offer while on leave for as long as your leave is a paid leave of absence. Examples of paid leaves generally include workers compensation leave, short term disability with pay (including approved maternity or paternity leave), long term disability, military leave, and birth/adoption/guardianship leave. If you are on an unpaid leave of absence at the expiration time of the Offer, then you will not be eligible to participate in the Offer unless we are required by law to still treat you as an employee for this purpose. Examples of unpaid leave generally include surplus transition leave, personal unpaid leave, family and medical leave (other than approved maternity and paternity leave), and educational leave. 15 24. What happens if I accept the Offer but my employment terminates before the New Option Grant Date? If you die or if your employment with the Company terminates for any reason whatsoever before the New Option Grant Date, or you are on unpaid leave on the New Option Grant Date, we will not grant you any New Options and you will not have a right to any of your Cancelled Options. If you are on an unpaid leave of absence on the New Option Grant Date, you will not be granted New Options and you will not have a right to any of your Cancelled Options unless we are required by law to still treat you as an employee for this purpose. In either case, you will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. 25. What will happen to my Eligible Options and Recent Options if I do not accept the Offer? Participation in the Offer is entirely voluntary. If you do not accept the Offer (or if you do not accept the Offer with respect to all of your Eligible Options), your Eligible Options that you do not elect to tender in the Offer will remain outstanding in accordance with their terms. However, if you accept the Offer with respect to any of your Eligible Options in any grant, you must also exchange all your other Eligible Options that were included in the same grant and all of your Recent Options. If you do not accept the Offer, your Recent Options granted on or after May 29, 2001 will also remain outstanding in accordance with their terms. 26. Will I be eligible to receive future grants of options under Qwest's benefit plans? If you accept the Offer, you are ineligible to receive any additional stock option grants until after the New Option Grant Date. This is because it would result in potential accounting charges that we wish to avoid. If you do not accept the Offer, you continue to be eligible for additional option grants. In other words, the six month ineligibility period for grants will not apply to you. However, we do not have any current intention to issue options on a broad basis in 2002 (other than the New Options). 27. How does the Offer affect my overall compensation? You might choose to think of your paycheck as your short-term compensation, your potential quarterly bonus as your mid-term compensation and your stock options as your long-term compensation. Taken together, these components represent a comprehensive compensation package. You should also consider the employment and related compensation commitment described in the response to Question 37 below. 28. Is there any tax consequence to my participation in the Exchange? If you exchange your Eligible Options and Recent Options (if any) for New Options, you will not be required under current law to recognize income for United States federal income tax purposes at the time of the Exchange or at the date that the New Options are granted. See the responses to Questions 50-54 below. 16 29. If I accept the Offer, will the grant and exercise of New Options affect my benefits under Company-sponsored retirement plans? No. The New Options will not affect those benefits. Income that you would have recognized if you had exercised your Eligible Options or Recent Options in the ordinary course would have been excluded from your compensation for purposes of determining your benefits under other Company-sponsored retirement plans. Similarly, income recognized in connection with exercising your New Options will be excluded from your compensation for purposes of determining your benefits under Company-sponsored retirement plans. Any value associated with an option grant is also excluded from your compensation for these purposes. 30. What happens if Qwest is subject to a change in control, asset sale, merger or other reorganization before the New Options are granted? If a change in control or certain other reorganization of Qwest occurs before we grant the New Options, we expect that the successor or purchaser would agree to assume or substitute other outstanding options of Qwest and would agree to assume the obligation to issue New Options. However, we cannot guarantee that any successor or purchaser would agree to assume existing options or any obligation to issue New Options. Therefore, it is possible that you may not receive any New Options, securities of the surviving company or other consideration in exchange for your Cancelled Options if Qwest is subject to a change in control, sells assets or otherwise reorganizes before the New Options are granted. In addition, the announcement of a change in control transaction regarding Qwest before the New Option Grant Date could have a substantial effect on our stock price, including substantial stock price appreciation, which could reduce or eliminate potential benefits provided by the Offer. The preceding paragraph describes the general consequences of a change in control or other reorganization of Qwest generally. You may also be affected if Qwest or an affiliate sells a subsidiary, a division or a part of the Company for which you work. In those circumstances, if you were transferred to the acquiring company, the acquiring company would likely not have to agree to issue New Options under the Offer. Consequently, if you are employed by the subsidiary or in the division or business that is sold and you do not continue to be employed by the Company following the sale, then the sale will constitute the termination of your employment with the Company for purposes of the Offer and the New Options. In those circumstances, you would not be entitled to receive options to purchase stock or securities of the acquiring company or any other consideration in exchange for your Cancelled Options. We also reserve the right to take any action, including entering into a merger, asset purchase or sale or similar transaction, or shutting down a business unit, whether or not it adversely affects the grant of the New Options under the Offer or the likelihood that the New Options will be granted. 31. After the grant of my New Option, what happens if my options again end up "underwater"? There is no guarantee that your New Options will have an exercise price that is less than the exercise price of your Cancelled Options or that the market price of Qwest common stock will ever exceed the exercise price of your New Options. We cannot guarantee stock price performance. Furthermore, we currently do not expect to make a similar stock option exchange offer in the future. 17 Description of Terms and Conditions of New Options to be Granted in June 2002 This section provides important information regarding the New Options to be granted as part of the Offer. The information in this section is qualified in its entirety by the more detailed information set forth in the form of Nonqualified Option Agreement that will evidence each grant of New Options (the applicable "New Option Agreement") and by the more detailed information set forth in our Equity Incentive Plan. All of the New Options, including those that relate to Cancelled Options that were originally granted under one of the U S WEST stock plans, will be granted under and subject to the terms and conditions of our Equity Incentive Plan. You may obtain a copy of our Equity Incentive Plan by request without charge from Qwest. It is also available from the SEC (see "Additional Information; Incorporation of Documents by Reference" section below). Copies of the forms of New Option Agreements that may be used in connection with the Exchange are attached as Attachments B, C and D to this Offer Circular. As described below, for Eligible Options that were originally granted under our Equity Incentive Plan, the form of New Option Agreement that will be used to evidence any particular New Option will depend on the change in control provisions that applied to the corresponding Cancelled Option. For Eligible Options that were originally granted under any of the U S WEST stock plans and assumed by us in the merger, all New Options will be evidenced by the form of New Option Agreement attached as Attachment D. You should read our Equity Incentive Plan and all applicable attachments to this Offer Circular. Our Equity Incentive Plan or the applicable New Option Agreement will control if any discrepancy exists between the information presented in this Offer Circular with respect to the New Options and the terms of our Equity Incentive Plan or the applicable New Option Agreement. 32. If I accept the Offer, how many New Options will I be granted? If you timely accept the Offer, you are eligible to participate in the Exchange and you are a full-time employee of the Company on the New Option Grant Date, you will be granted New Options with respect to the same number of shares as the number of shares covered by your Cancelled Options. For example, if you tender an Eligible Option that covered 100 shares, which had been exercised as to 20 shares prior to the expiration time of the Offer, and was outstanding as to 80 shares at the time it terminated pursuant to the Exchange, your New Option would cover 80 shares. In general, if we increase or decrease the number, or change the rights and privileges, of our outstanding shares of common stock by payment of a stock dividend, stock split or other distribution upon the shares payable in common stock, or through a subdivision, combination, consolidation, reclassification or recapitalization involving our outstanding common stock, we will proportionately adjust the number, rights and privileges of the securities to be subject to New Options as if they had been outstanding under our Equity Incentive Plan on the date that any of these events occur. The mere issuance of additional shares by Qwest in an acquisition or other transaction, however, typically would not result in any such adjustment. We do not guarantee that you will receive any value if you accept the Offer. The value you receive will depend on, among other things, the exercise price of your Cancelled Options, the exercise price of your New Options, whether or not you remain employed by the Company or the New Options otherwise vest, and the market price of our common stock when you sell the shares that you acquire when you exercise your New Options. 18 33. What will be the exercise price of the New Options? The per share exercise price of the New Options will be the closing market price of our common stock as reported by the New York Stock Exchange on the New Option Grant Date. The New Option Grant Date will be June 3, 2002 or, if that day is not a trading day, the first trading day after June 3, 2002. If we extend the Offer, we will adjust the New Option Grant Date to correspond to the new expiration time of the Offer. 34. When will the New Options vest? If you accept the Offer, the New Options that you are granted will vest and become exercisable over four years as follows: (1) one-fourth of the New Options will vest on the first anniversary of the New Option Grant Date, (2) one-fourth of the New Options will vest on the second anniversary of the New Option Grant Date, (3) one-fourth of the New Options will vest on the third anniversary of the New Option Grant Date and (4) one-fourth of your New Options will vest on the fourth anniversary of the New Option Grant Date, subject, in each case, to your continued employment by the Company through the applicable vesting date. All New Options will be subject to this vesting schedule, regardless of the fact that all or a portion of your Cancelled Options may have already vested. For example, assume that you decide to tender the one Eligible Option that you own for 200 shares. At the expiration time of the Offer the option is 25% vested. Assuming that you are still employed on the New Option Grant Date (assuming it is June 3, 2002), we will grant you a New Option for 200 shares. Your New Option will vest in four equal installments, with 25% vesting on June 3, 2003, June 3, 2004, June 3, 2005 and June 3, 2006. The fact that your Eligible Option was already 25% vested when it was cancelled does not affect the vesting schedule of your New Option. 35. What are the termination provisions of the New Options? New Options will each be subject to a new ten year option term beginning on New Option Grant Date. For Eligible Options that were originally granted under our Equity Incentive Plan, the New Options will remain subject to the same provisions regarding early termination upon a termination of employment as your Cancelled Options, subject of course to the new vesting requirements. For Eligible Options that were originally granted under one of the U S WEST stock plans, the New Options will be subject to the termination of employment provisions that are included in the form of New Option Agreement attached as Attachment D. The termination of employment provisions in that form generally provide as follows: o if your employment terminates other than because of death, disability, or a termination by the Company for "cause", the unvested portion of the New Options will terminate and the vested portion will remain exercisable for up to three months; o if your employment terminates by reason of death or disability, the unvested portion of the New Options will terminate and the vested portion will remain exercisable for a period of up to twenty-four months; and 19 o if your employment is terminated for cause, the new Options will terminate immediately whether or not they are vested. In each case, these termination provisions are subject to earlier expiration of the option. (See Section 6 of Exhibit D for the specific provisions and also refer to the response to Question 37 below). These termination provisions (including, without limitation, the definitions of "disability" and "cause" used for purposes of the New Option grants) may be different from the provisions that applied to the corresponding Cancelled Options. For example, you may have been entitled to materially more favorable vesting and/or exercise rights upon your retirement or in case of your death or disability under your original U S WEST stock plan options than under your New Options if you accept the Offer. 36. What will be the change in control provisions of my New Option? For Eligible Options that were originally granted under our Equity Incentive Plan, the New Options granted in exchange for your Cancelled Options will be subject to the same change in control provisions as your Cancelled Options. If your Cancelled Options contain different change in control provisions, your New Option Agreements will be different and will reflect these different provisions. For Eligible Options that were originally granted under the U S WEST stock plans, the New Options granted in exchange for your Cancelled Options will be subject to the change in control provisions that are contained in Section 7 of the form of New Option Agreement attached as Attachment D, regardless of the change in control provisions in those Cancelled Options. The New Options generally: o will become fully vested if there is both a change in control (as defined in the Equity Incentive Plan) and we subsequently terminate your employment other than for "cause"; o will also become fully vested on any of the following events: o a merger or consolidation of Qwest with or into another corporation or other reorganization, or o the sale of all or substantially all of Qwest's assets, if, Qwest, or the successor or purchaser, as the case may be, does not assume the outstanding options or substitute new options for the outstanding options; and o will terminate subject to certain accelerated vesting and notice provisions under our Equity Incentive Plan if Qwest or the successor or purchaser does not assume or substitute the options in the circumstances above. As a result of the terms of the New Options you may have been entitled to materially more favorable terms (including vesting) in the event of a merger, asset sale, or change in control under your original U S WEST stock plans options than will apply to New Options. 20 37. What will be the other terms and conditions of my New Options? You must make an employment commitment to receive a New Option. That is, Section 7.2(f) of our Equity Incentive Plan requires that you reaffirm on the New Option Grant Date your agreement to remain in the employ of the Company for a continuous period of at least one year after that date at your rate of compensation then in effect, even though the Company may terminate your employment and change your compensation before, during or after the one-year period. You made this reaffirmation when you received your other options from the Company granted under our Equity Incentive Plan. If you do not make that reaffirmation when you receive a New Option, you will not be granted any New Options and you will not have a right to any of your Cancelled Options. If we determine that we will not require separate written affirmations, your acceptance of your New Option will constitute your affirmation of the employment agreement referred to above. The New Options will be subject to a new ten year term, starting on the New Option Grant Date, subject to earlier termination provisions. If you tender Eligible Options that were originally granted under our Equity Incentive Plan, other than the new exercise price, new option term and new vesting schedule, we expect that your New Options will otherwise be subject to substantially the same terms and conditions as the corresponding Cancelled Options. If you tender Eligible Options that were originally granted under the U S WEST stock plans, the terms and conditions of the New Options may be materially different from those that applied to your corresponding Cancelled Options. For example, and without limitation, all New Options: o will immediately terminate (whether or not vested) if you engage in certain activity in competition with us, in activity that is contrary or harmful to the interests of Qwest, in conduct related to your employment that could lead to criminal or civil penalties or in conduct in violation of our policies; if you disclose or misuse any confidential information or material concerning us; or if you participate in a hostile takeover attempt; o will generally be subject to amendments without your consent unless the amendment adversely affects your New Option; and o require the exercise price to be paid only in United States dollars by certified check or bank cashier's check, or by wire transfer, unless we have in place procedures allowing for a cashless exercise. Under a cashless exercise, you may pay the exercise price of a New Option by tendering shares of Qwest stock that you have owned for more than six months or by delivering to us a copy of irrevocable instructions to a stockbroker to sell stock or to authorize a loan from the stockbroker to you and to deliver promptly to us an amount sufficient to pay the exercise price of your option. In addition to the terms and conditions described above in the responses to Questions 35 and 36 above, there may be additional differences in the terms of the New Options as compared to the terms of your Cancelled Options that were originally granted under one of the U S WEST stock plans. If you own options that were granted under the U S WEST stock plans, you should carefully read the stock option agreements that evidence your U S WEST stock plan options and the U S WEST stock plans and compare those provisions to the provisions of our Equity Incentive Plan and the form of New Option Agreement attached as Attachment D. 21 You will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. 38. What is a stock option? A stock option is a right granted by a corporation to an individual or entity to buy a specified number of shares of the company's stock at a fixed price during a specified period of time. 39. What is an "exercise price"? An exercise price, also called the strike price or grant price, is the fixed price that you pay to buy your shares when you exercise your stock option. Other Provisions; Administration This section describes certain other aspects of the Offer, including the fact that the Offer does not confer any employment rights, certain administrative information regarding the Offer and, since Qwest is making the Offer, certain information about Qwest. 40. Does the Offer give me any rights to continued employment by the Company? No. The Offer does not have any effect on your employment status or give you any right to continued employment with the Company or any of its affiliates. You will remain an at-will employee regardless of whether you elect to participate in the Exchange. That means that you are not guaranteed employment for any period of time. If you die or if your employment with the Company terminates for any reason whatsoever before the New Option Grant Date, or if you are on unpaid leave on the New Option Grant Date, we will not grant you any New Options and you will not have a right to any of your Cancelled Options. If you are on an unpaid leave of absence on the New Option Grant Date, you will not be granted New Options and you will not have a right to any of your Cancelled Options unless we are required by law to still treat you as an employee for this purpose. In either case, you will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. If we sell a subsidiary or any other event or transaction occurs that results in a Qwest affiliate or subsidiary not continuing as such an affiliate or subsidiary after the event or transaction, and you are employed by the affected affiliate or subsidiary, you will be deemed to have terminated employment with the Company for purposes of the Exchange and any of your New Options unless, after the event or transaction, you are otherwise employed by Qwest or another entity that is then a Qwest subsidiary or affiliate. 41. How do I make a claim for payment of other benefits I may be owed? If you accept the Offer, you generally will not have to take any other action to receive the grant of New Options in exchange for your Cancelled Options. If, however, you believe that you are being denied a benefit to which you are entitled, 22 you should file a written request with Qwest Stock Administration. The request should include the reasons for your claim. Any written claim request should be sent to: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 10th Floor Denver, Colorado 80202 42. Who will administer and pay the costs of administering the Exchange? We will make all administrative decisions regarding the Exchange. Without limiting that authority, we have the authority, in our sole discretion, to determine all questions as to form of documents and the validity, eligibility, and acceptance of any election to participate in the Offer. Our determination on these matters will be final and binding on all persons. We reserve the right to waive any condition of the Offer. We are not obligated to give any notice of any defects or irregularities in Election Forms, nor will anyone incur any liability if you fail to return a valid Election Form. We will pay the expenses of administering the Exchange and the grant of New Options. We will not retain, nor will we pay any fees or commissions for, any broker, dealer, or other person to solicit elections to accept the Offer. Any such solicitation is prohibited. 43. What is the price of our common stock? Shares of our common stock are traded on the New York Stock Exchange under the symbol "Q." On November 1, 2001, the closing price of a share of our common stock was $12.00. The following table presents the high and low sales prices per share of Qwest common stock for the periods indicated, as reported on the New York Stock Exchange:
Period High Low ------ ---- --- Year Ending December 31, 2001: First Quarter $ 47.5000 $ 33.2500 Second Quarter $ 40.9000 $ 29.8200 Third Quarter $ 31.1500 $ 16.5000 Fourth Quarter (to November 1, 2001) $ 18.9000 $ 11.5500 Year Ended December 31, 2000: First Quarter $ 64.0000 $ 37.0000 Second Quarter $ 54.2500 $ 39.5000 Third Quarter $ 57.8750 $ 44.5000 Fourth Quarter $ 51.4375 $ 32.3750 Year Ended December 31, 1999: First Quarter $ 37.4063 $ 25.6250 Second Quarter $ 48.0625 $ 32.5625 Third Quarter $ 35.9375 $ 26.1250 Fourth Quarter $ 44.0000 $ 29.8750
You should obtain current market quotations for our common stock before you decide whether you should accept the Offer. The value of our common stock will fluctuate in the future and we cannot and do not predict any future values for our common stock. 23 44. What information is available regarding Qwest? Qwest is making the Offer. We are a leading broadband Internet communications company that provides advanced communication services, data, multimedia and Internet-based services on a national and global basis; and wireless services, local telecommunications and related services and directory services in a 14-state local service area. A Fortune 100 company, we principally serve large and mid-size business and government customers on a national and international basis, as well as residential and small business customers primarily in our 14-state local service area. We are incorporated under the laws of the State of Delaware and have our principal executive offices at 1801 California Street, Denver, Colorado 80202, telephone number 303-992-1400. Attachment E to this Offer Circular summarizes certain of our consolidated financial data. Additional information about us, including certain more detailed financial statements, is available from the documents referred to and incorporated by reference under "Additional Information: Incorporation of Documents by Reference" below. 45. How many Eligible Options are there? The Offer is being made only with respect to your Eligible Options and Recent Options that are outstanding as of the expiration time of the Offer. As of September 30, 2001, there were 1,664,535,549 shares of Qwest common stock outstanding and there were outstanding stock options and other awards covering up to an additional 121,190,582 shares of Qwest common stock (note that the awards referred to in the response to Question 46 below are not included in this number because the awards were not granted until October 24, 2001). Of the shares subject to those stock options and other awards, approximately 35.7 million shares (approximately 2.1% of the outstanding shares) were subject to the Eligible Options originally granted under our Equity Incentive Plan, approximately 3.4 million shares (approximately 0.2% of the outstanding shares) were subject to Eligible Options originally granted under the U S WEST stock plans, and approximately 1.8 million shares (approximately 0.1% of the outstanding shares) were subject to the Recent Options outstanding at that time. (None of the awards referred to in the response to Question 46 below and granted on October 24, 2001 constitute Eligible Options or Recent Options that can be exchanged in the Offer.) 46. How does the Offer relate to Qwest's directors and executive officers? Our directors and certain senior officers are not eligible to participate in the Exchange. Our directors and executive officers, and their positions and offices, are as follows: Philip F. Anschutz (Chairman of the Board), Joseph P. Nacchio (Chairman and Chief Executive Officer, and Director), Linda G. Alvarado (Director), Craig R. Barrett (Director), Hank Brown (Director), Thomas J. Donohue (Director), Jordan L. Haines (Director), Cannon Y. Harvey (Director), Peter S. Hellman (Director), Vinod Khosla (Director), Marilyn Carlson Nelson (Director), Frank P. Popoff (Director), Craig D. Slater (Director), W. Thomas Stephens (Director), Joel M. Arnold (Executive Vice President - Global 24 Accounts), Clifford S. Holtz (Executive Vice President National Business Accounts), Afshin Mohebbi (President and Chief Operating Officer), James A. Smith (Executive Vice President - National Consumer Markets), Robin R. Szeliga (Executive Vice President and Chief Financial Officer), and Drake S. Tempest (Executive Vice President, General Counsel, Chief Administrative Officer and Secretary). The address of each director and executive officer is c/o Qwest Communications International Inc., 1801 California Street, Denver, Colorado 80202. Please see our proxy statement for our annual meeting of shareholders held on May 2, 2001 for more information regarding the compensation of directors and certain executive officers and the amount of Qwest securities that our directors and executive officers beneficially owned, for periods or as of the dates set forth in that statement. This proxy statement is available upon request as described below under "Additional Information; Incorporation of Documents by Reference." There were no stock option or stock transactions involving our directors and executive officers within the 60 days before the commencement of the Offer, except for the grants of the stock options and restricted stock described in the following paragraph. Our Board approved certain stock option and restricted stock grants on October 24, 2001. Those grants were made to persons who are not eligible to participate in the Offer. Messrs. Nacchio, Mohebbi, Arnold, Holtz, Smith and Tempest and Ms. Szeliga were granted new stock options covering 7,250,000 shares, 1,000,000 shares, 500,000 shares, 175,000 shares, 250,000 shares, 600,000 shares, and 600,000 shares of our common stock, respectively, each with an exercise price of $16.81 per share. Messrs. Arnold and Tempest and Ms. Szeliga were each granted restricted stock awards covering 100,000, 200,000 and 100,000 shares, respectively. The stock option grants have maximum ten-year terms and vest in four equal annual installments of 25% on each of the first four anniversaries of the date of grant beginning on October 24, 2002, except that Mr. Nacchio's stock options vest in four installments as follows: 2,500,000 shares on August 1, 2004, 500,000 shares on December 1, 2004, 2,500,000 shares on August 1, 2005 and 1,750,000 shares on December 1, 2005; and Mr. Mohebbi's stock options vest in two installments as follows: 500,000 shares on April 1, 2004 and 500,000 shares on April 1, 2005. The shares of restricted stock vest in four equal annual installments of 25% on February 1, 2003, February 1, 2004, February 1, 2005 and February 1, 2006. These option grants and restricted stock awards are evidenced by award agreements in the forms customarily used by us. These forms are attached as exhibits to the Tender Offer Statement on Schedule TO that we filed with the Securities and Exchange Commission and that is referred to in the "Additional Information; Incorporation of Documents by Reference" section below. In connection with the award grants identified in the preceding paragraph, Mr. Nacchio's employment agreement with us was extended through December 31, 2005 and each of Messrs. Nacchio's and Mohebbi's annual base salary was adjusted effective as of January 1, 2002 to $1,500,000 and $850,000, respectively. Each of their annual bonus targets (expressed as a percentage of base salary) for 2002 will be 250% and 200%, respectively, of base salary. In addition, we loaned Mr. Mohebbi $4,000,000, interest free, that will be forgiven over five years, in 20% installments so long as he remains satisfactorily employed. 25 47. What are the general accounting consequences to the Company of the Exchange? We believe that we will not incur any compensation expense solely as a result of the transactions contemplated by the Exchange because we will not grant any New Options until a date that occurs more than six months and one day after the expiration time of the Offer (the New Options are scheduled to be granted on June 3, 2002 or later). Further, the exercise price of all New Options will equal the closing market price of our common stock on the New Option Grant Date. If we were to grant any options before the scheduled New Option Grant Date to any option holder electing to participate in the Exchange, our grant of those options (assuming the applicable per share exercise price is less than the exercise price of the options tendered in the Exchange) would be treated for financial reporting purposes as a variable award to the extent that the number of shares subject to the newly-granted options is equal to or less than the number of the option holder's option shares tendered in the Exchange. In this event, we would be required to record as compensation expense the amount by which the market value of the shares subject to the newly granted options exceeds the exercise price of those shares. This compensation expense would accrue as a variable accounting charge to our earnings over the period that the newly granted options are outstanding. We would have to adjust this compensation expense periodically during the option term based on increases or decreases in the market value of the shares subject to the newly granted options. Similar accounting rules will trigger a variable accounting charge to our earnings if outstanding options are terminated and, within the six-month period preceding the termination, other stock options were granted at an exercise price that is less than the exercise price of the terminated options. To avoid this potential accounting charge, we are requiring that you tender all of your Recent Options in the Exchange if you want to tender any of your Eligible Options. 48. Is Qwest contemplating any other transactions? We must disclose whether we are contemplating certain types of transactions in connection with the Offer. Except as otherwise disclosed below and elsewhere in this Offer Circular and in our filings with the Securities and Exchange Commission (the "SEC"), and while we reserve the right to contemplate and effect any of these transactions from time to time, we currently have no plans or proposals that relate to or would result in: o an extraordinary transaction, such as a merger, reorganization or liquidation, involving us or any of our subsidiaries; o any purchase, sale or transfer of a material amount of our assets or the assets of any of our subsidiaries; o any material change in our present dividend rate or policy, or our indebtedness or capitalization; o any change in our present Board of Directors or executive officers, including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on our Board or to change any material term of the employment contract of any executive officer; 26 o any other material change in our corporate structure or business; o our common stock being de-listed from a national securities exchange; o our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended; o the suspension of our obligation to file reports under Section 15(d) of the Securities Exchange Act of 1934, as amended; o the acquisition by any person of any of our securities or the disposition of any of our securities (other than as a result of the exercise of stock options or the payment of other award granted under our incentive compensation plans); or o any changes in our articles of incorporation, bylaws of other governing instruments or any actions that could impede the acquisition of control of Qwest. On October 18, 2001, we announced an agreement to purchase approximately 14 million shares of KPNQwest common stock from the other major shareholder in KPNQwest, Koninklijke KPN N.V. ("KPN"). The agreed upon purchase price was $4.58 per share. After completion of the purchase, we will own approximately 47.5% of the voting power of the KPNQwest stock. As part of the agreement, KPN granted an option to us to purchase some or all of KPN's shares in KPNQwest in March of 2002. The purchase, which is subject to several conditions including antitrust pre-clearance in the United States of America and several European jurisdictions, and KPNQwest shareholder approval of certain amendments to the KPNQwest articles of association, is expected to be completed before December 31, 2001. We will continue to account for our proportionate share of KPNQwest's operations under the equity method of accounting. 49. Are there any regulatory requirements or other approvals that Qwest must comply with or obtain? We are not aware of any license or regulatory permits that are important to our business that might be adversely affected by the exchange and cancellation of Eligible Options and Recent Options or the issuance of New Options as contemplated by the Offer. In addition, we are not aware of any approval that is required from any government authority or agency for the cancellation of Eligible Options and Recent Options and the grant of New Options as contemplated by the Offer, other than those that we have obtained or that we expect to obtain. Federal Income Tax and Social Security Consequences Questions 50 through 53 below discuss the material United States federal income tax and Social Security considerations that relate to the Exchange. Question 54 below comments on state, local and foreign tax matters. We cannot and do not guarantee any particular tax consequences. You should consult your own tax advisors. The Company may withhold any amounts required by law (including U.S. federal, state or local, or foreign, income, employment or other taxes) to be withheld with respect to the Exchange and the exercise of New Options. In the event that the Company does not elect for any reason to withhold amounts necessary to satisfy any applicable tax withholding obligations that arise, the Company may withhold such amounts from compensation otherwise payable to you or you must pay or provide for the payment of such amounts to the Company. The amount of tax withheld by the Company may not be sufficient to pay the actual tax liability due, and you will be responsible for any shortfall. 27 50. What is the tax effect of the Exchange? If you accept the Offer, there will be no federal income tax consequences with respect to the cancellation of your exchanged Eligible Options and Recent Options or with respect to the grant of your New Options. 51. What is the income tax effect of the New Option grants and shares I receive when I exercise my vested New Options? The New Options granted to you will not be taxed for income tax purposes until the year in which you exercise the New Options. The amount of income that you will recognize with respect to the shares distributed will equal the excess of the fair market value of a share of our common stock over the exercise price paid for the shares (the "spread"). The income that you recognize with respect to the exercise of New Options will constitute ordinary income, not capital gain. You will pay federal income tax based on the tax rates in effect for the year in which you exercise your New Options, rather than based on the tax rates in effect for the year 2001 or 2002. We will be entitled to a business expense deduction equal to the amount of ordinary income that you recognize with respect to the exercised New Option. We will be allowed the deduction in the year in which you recognize ordinary income. The fair market value of our common stock that you receive when you exercise your New Options will be the "tax basis" for the stock. If you later sell the stock, any gain or loss that you realize from the sale (determined based on your tax basis in the stock) will be taxable to you either as short-term or long-term capital gain or loss, depending on how long you own the shares before you sell them. Generally, you must own the shares for more than one year before you sell them in order to qualify for long-term capital gain treatment. 52. What are the tax withholding requirements with respect to the New Options? The Federal Insurance Contributions Act ("FICA") imposes two types of taxes - Social Security tax (at 6.2%) and Medicare tax (at 1.45%) - on both employers and employees for wages paid to employees. The Social Security tax is a percentage of wages up to the Social Security wage base limitation, which is $80,400 for the year 2001. The Social Security wage base is adjusted annually. Once you have paid Social Security tax for a given year on an amount of wages from a particular employer equal to the wage base limitation, no further Social Security tax is payable on that year's wages from that employer. Currently, there is no wage base limitation for Medicare tax purposes. Thus, all wages paid to you are subject to Medicare tax. Income tax withholding is also required on wages paid to employees. The Company will withhold federal income taxes on the "spread" upon the exercise of your options at the supplemental wage withholding rate (currently 27.5%). State and local income tax withholding also may be required, depending on your state of employment. For purposes of the following illustration, the state tax withholding rate is assumed to be 6%. (The California supplemental wage withholding rate is 6%.) 28 The "spread" on the New Options will be treated as wages received for FICA and income tax purposes in the year(s) of exercise. Income taxes and FICA taxes will be withheld at the time(s) of exercise. The amount of income tax withholding may not be sufficient to cover your actual income tax liability. For Example: Assume that you accept the Offer and that you are granted 300 New Options for your exchanged Eligible Options at a per share exercise price of $15. Further assume that you exercise 100 of your vested New Options when the fair market value of a share is $20. You will recognize $500 of ordinary income in that year. Required withholding would be as follows: $38.25 for FICA (assuming the Social Security wage base had not been met at the time of payment) (7.65% of $500 = $38.25); $137.50 for federal income taxes (27.5% of $500 = $137.50); and $30 for state income taxes (at an assumed state withholding rate of 6%, 6% of $500 = $30). Thus, the total withholding obligation would be $205.75 ($38.25 + 137.50 + $30 = $205.75). We may make provisions and take whatever steps as we may deem necessary or appropriate to withhold all federal, state, local and other taxes required by law to be withheld with respect to the exercise of any New Option. For example, we may deduct the amount of any required withholding taxes from any other amount then or thereafter payable to you or may require you to pay to us in cash the amount required to be withheld. 53. Could a change in tax law affect my benefits? Yes. Congress may change the relevant tax and Social Security law at any time, and these changes may be retroactive to before the date of enactment. These changes may have a material effect on the benefit you expect to receive by electing to participate in or by not electing to participate in the Exchange. 54. What are the local and foreign income tax consequences of the New Options? We are unaware of any state and local income tax consequences in the United States of the Exchange and the grant and exercise of New Options that differ from the United States federal income tax consequences described and cross-referenced above. Foreign taxes are beyond the scope of this discussion. If you reside in a jurisdiction outside of the United States, you should consult with your own tax advisors. 29 ADDITIONAL INFORMATION; INCORPORATION OF DOCUMENTS BY REFERENCE If you have any questions with respect to the Offer, the New Options, or any other matters discussed in this Offer Circular, please contact Qwest Stock Administration at StockAdmin2@Qwest.com or at the following address or telephone or fax number: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 fax: 303-992-1174 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. We are a reporting company under the Securities Exchange Act of 1934, as amended, and are required to file periodic and other reports with the SEC. These reports include financial material and other information about Qwest. We have filed a Tender Offer Statement on Schedule TO with the SEC with respect to the Offer. This Offer Circular does not contain all of the information included in the Schedule TO and its exhibits. The following documents that we have filed with the SEC are incorporated by reference into this Offer Circular: o Our Annual Report on Form 10-K for the year ended December 31, 2000 (as amended by our Annual Report on Form 10-K/A filed with the SEC on August 20, 2001); o Our Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2001 and June 30, 2001; and o Our Current Reports on Forms 8-K filed with the SEC on March 22, 2001, March 29, 2001, April 5, 2001, April 25, 2001, April 27, 2001, May 17, 2001, June 5, 2001 (as amended by our Current Report on Form 8/K-A filed with the SEC on June 5, 2001), June 8, 2001, June 20, 2001, June 21, 2001, July 20, 2001, July 26, 2001 (as amended by our Current Report on Form 8/K-A filed with the SEC on July 26, 2001), August 7, 2001 (as amended by our Current Report on Form 8/K-A filed with the SEC on August 13, 2001), September 10, 2001 and October 31, 2001. We also incorporate by reference into this Offer Circular additional documents that we may file with the SEC between the date of this Offer Circular and the expiration time of the Offer. These include periodic reports, such as quarterly reports on Form 10-Q and current reports on Form 8-K. Copies of the foregoing documents can be inspected and copied at: o the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549; and 30 o the SEC Midwest Regional Office, CitiCorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60061. You may also obtain copies of these documents by mail at prescribed rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Reports, proxy statements and other information concerning Qwest can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, 18th Floor, New York, New York 10005, and at the offices of the Pacific Exchange, 301 Pine Street, San Francisco, California 94104. You also may view the Schedule TO and the incorporated documents at the SEC's Internet web site at: http://www.sec.gov or on the Q. You may also obtain without charge, upon oral or written request, a copy of the Schedule TO and any document that has been incorporated by reference (except the exhibits to any such document) into this Offer Circular or any other report or document required to be given to you under SEC Rule 428(b). You may also request Qwest documents from Qwest Stock Administration at StockAdmin2@Qwest.com or at the following address or telephone or fax number: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 fax: 303-992-1174 31 ATTACHMENT A PROSPECTUS FOR QWEST EQUITY INCENTIVE PLAN ------------------------------------------ THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. QWEST COMMUNICATIONS INTERNATIONAL INC. EQUITY INCENTIVE PLAN, AS AMENDED October 31, 2001 GENERAL ------- EQUITY INCENTIVE PLAN The Company adopted the Qwest Communications International Inc. Equity Incentive Plan (the "Plan") effective June 23, 1997, as amended. The purpose of the Plan is to provide employees, consultants and non-employee directors selected for participation in the Plan with additional incentives to remain in the long-term service of Qwest and to create in such employees, consultants and non-employee directors a more direct interest in the future success of Qwest by relating incentive compensation to increases in stockholder value. The Plan has been amended and restated several times. The most recent amendment and restatement was effective as of October 4, 2000. This Prospectus summarizes the principal terms of the Plan. Because this Prospectus is only a summary, it does not describe every detailed provision in the Plan document. If there is any conflict between the Plan document and this Prospectus, the Plan document will always control. A holder of an award granted under the Plan who has a question about any Plan provision should refer to the Plan document. The Plan permits the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, stock units, stock bonuses and other stock grants to selected employees (including employees who are members of the Company's board of directors (the "Board")) of the Company and affiliated companies, selected consultants to the Company and affiliated companies and selected members of the Board who are not employees of the Company or an affiliated company ("non-employee directors"). The maximum number of shares of the Company's common stock ("Common Stock") that may be subject to awards under the Plan at any time is equal to 10% of the total number of shares that are issued and outstanding at such time (determined as of the close of trading on the New York Stock Exchange on the trading day immediately preceding such time), reduced by the number of shares subject to outstanding awards granted under the Plan and outstanding options granted under any Plan or arrangement of the Company or a subsidiary of the Company (excluding the Company's Employee Stock Purchase Plan) at such time. The maximum number of shares as to which incentive stock options may be granted is 75 million. The number of shares is subject to adjustment on account of stock splits, stock dividends and other changes in the Common Stock. Shares of Common Stock covered by unexercised non-qualified or incentive stock options that expire, terminate or are canceled, together with shares of Common Stock that are forfeited pursuant to a restricted stock grant or any other award (other than an option) under the Plan or that are used to pay withholding taxes or the option exercise price, will again be available for grant under the Plan. Participation. The Plan provides that awards may be made to eligible employees and consultants who are responsible for the Company's growth and profitability. The Plan also provides that non-qualified options may be granted from time to time to non-employee directors. The Company currently considers all A-1 of its employees, consultants and non-employee directors to be eligible for grant of awards under the Plan. As of October 26, 2001, there are approximately 64,000 eligible employees. Administration. The Plan is ordinarily administered by a subcommittee of the Company's Compensation Committee (the "Committee"), which operates under the authority of and serves at the permission of the Board. The Board may change the specific members of the Board who serve on the Committee at will. The Committee must be structured at all times so that it satisfies the "non-employee director" requirement of Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"). To the extent practicable, the Company intends to satisfy the similar requirement for administration by "outside" directors under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to grants to employees whose compensation is subject to Section 162(m) of the Code. The Committee has the sole discretion to determine the employees, consultants and non-employee directors to whom awards may be granted under the Plan, the manner in which such awards will vest, and all other terms and conditions of the awards. The Committee may, however, delegate to specific officers of Qwest the power and authority to grant awards under the Plan to specific groups of employees and consultants and may condition or restrict such delegated power and authority as the Committee determines in its sole discretion. The Committee has delegated the power and authority to the Company's Chairman and Chief Executive Officer to grant awards to employees and consultants who are not subject to Section 16(b) of the Exchange Act. The Committee determines grants to non-employee directors. The Committee or its delegee may grant awards under the Plan to employees, consultants and non-employee directors in such numbers and at such times during the term of the Plan as the Committee shall determine, except that the maximum number of shares subject to one or more options or stock appreciation rights granted during any calendar year to any employee, consultant or non-employee director is 40,000,000 shares of Common Stock, and except that incentive options may be granted only to employees. In granting options, stock appreciation rights, restricted stock and stock units, the Committee will take into account such factors as it may deem relevant in order to accomplish the Plan's purposes, including one or more of the following: the extent to which performance goals have been met, the duties of the respective employees, consultants and non-employee directors and their present and potential contributions to the Company's success. The Board may assume or change the administration of the Plan from time to time. Exercise of Options. The Committee or its delegee determines the exercise price for each option; however, incentive stock options must have an exercise price that is at least equal to the fair market value of the Common Stock on the date the incentive stock option is granted (and at least equal to 110% of fair market value in the case of an incentive stock option granted to an employee who owns Common Stock having more than 10% of the combined voting power of all classes of the Company's stock). An option holder may exercise an option by written notice and payment of the exercise price (i) in cash or certified funds, (ii) by the surrender of a number of shares of Common Stock already owned by the option holder for at least six months with a fair market value equal to the exercise price, or (iii) through a broker's transaction by directing the broker to sell all or a portion of the Common Stock to pay the exercise price or make a loan to the option holder to permit the option holder to pay the exercise price. The Company may permit option holders who are subject to the withholding of federal and state income tax as a result of exercising an option to satisfy the income tax withholding obligation through the withholding of a portion of the Common Stock to be received upon exercise of the option. Non Transferability of Options and Other Awards. Except as provided otherwise by the Committee or its delegee at the time of grant or thereafter, options, stock appreciation rights, stock units and restricted stock awards granted under the Plan are not transferable other than by will or by the laws of descent and distribution. Effect of a Termination of Services on Options and Other Awards. Except as provided otherwise by the Committee or its delegatee at the time that an Option is granted, an option typically will terminate, to the extent that it is not exercisable upon or prior to a termination of service with the Company. The Plan, and agreements under it, however, also provide that even if it is exercisable, the Option will terminate if a termination is by the Company for cause (as defined) or will terminate within limited post-termination exercise periods that differ depending on whether a termination of service resulted from A-2 an option holder's death, Disability, or termination by the Company for any reason other than for cause, Disability or death, subject in all cases to earlier expiration at the end of the Option period. Stock Appreciation Rights held by participants upon a termination of service typically are exercisable within the same time periods as, and upon the same conditions with respect to reasons for a termination of services, as are specified for options. With respect to Restricted Stock Awards, the Plan generally provides that upon a participant's death, Disability or retirement in accordance with the Company's established retirement policy, all required periods of service and other restrictions applicable to Restricted Stock Awards held by the participant will lapse with respect to a pro rata part of each Award held by the participant based on the ratio between the number of full months of employment or continued service completed at the time of termination of service from the grant of each Award to the total number of months of employment or continued service required for the Award to be non forfeitable. The remaining portion will be forfeited and the shares subject to the forfeiture must be immediately returned to Qwest. If a participant's service terminates for any other reason, the Restricted Stock Award, to the extent that it has not become non-forfeitable, will be forfeited, and the shares subject to the forfeiture must be immediately returned to Qwest. You should refer to your own award agreement for the specific consequences of a termination of your services. Forfeiture of Option in Other Circumstances. The option agreements under the Plan generally provide that if a grantee competes with the Company or otherwise harms the interests of the Company (including, for example but without limitation, engaging in criminal conduct, violating the Company's policies, or disclosing or misusing confidential information), the Option will terminate. Refer to your own award agreement for the specific provisions applicable to your Option. Change in Control. Options and other awards granted under the Plan may vest upon or, in connection with a termination of employment, after a "change in control" of the Company depending on the terms of the option or other award described in the agreement or other instrument documenting the option or other award or the resolutions of the Committee or its delegee that grant the option or other award. A "change in control" occurs if either (i) any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act), other than Anschutz Company, The Anschutz Corporation, any entity or organization controlled by Philip F. Anschutz (collectively, the "Anschutz Entities") or a trustee or other fiduciary holding securities under an employee benefit plan of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of fifty percent (50%) or more of either (A) the then-outstanding shares of Stock ("Outstanding Shares") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Power") or (ii) at any time during any period of three consecutive years (not including any period prior to June 23, 1997), individuals who at the beginning of such period constitute the Board (and any new director whose election by the Board or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority thereof. Merger and Reorganization. Except as provided otherwise by the Committee or its delegee at the time an award is granted, upon the occurrence of (i) the reorganization (other than a bankruptcy reorganization), merger or consolidation of the Company (other than a reorganization, merger or consolidation in which the Company is the continuing company and that does not result in any reclassification or change in the outstanding shares of Common A-3 Stock), (ii) the sale of all or substantially all of the assets of the Company (other than a sale in which the Company continues as a holding company of an entity that conducts the business formerly conducted by the Company), or (iii) the dissolution or liquidation of the Company, the Plan and all outstanding options will terminate automatically when the event occurs if the Company gives the option holders 30 days' prior written notice of the event. Notice will also be given to holders of other awards. Notice is not required for a merger or consolidation or for a sale of the Company if the Company, the successor, or the purchaser makes adequate provision for the assumption of the outstanding options and awards or the substitution of new options and awards on terms comparable to the outstanding options and awards. When the notice is given, all outstanding options fully vest and can be exercised prior to the event and other awards become exercisable and payable. Amendment and Termination. The Board may amend the Plan in any respect at any time provided stockholder approval is obtained when necessary or when the Board concludes it to be desirable, but no amendment can impair any option, stock appreciation right, award or unit previously granted or deprive an option holder, without his or her consent, of any Common Stock previously acquired. The Plan will terminate in 2007 unless sooner terminated by the Board. Plan termination will not affect then outstanding options or other awards Plan termination will not affect then outstanding options or other awards. ERISA AND FEDERAL INCOME TAX CONSEQUENCES The following discussion of the federal income tax consequences of participation in the Plan for a typical grantee is only a summary and does not cover, among other things, foreign, state, or local tax consequences or estate and gift tax consequences of participation in the Plan. Differences in grantees' financial situations may cause the tax consequences of participation in the Plan to vary. Therefore, each grantee is urged to consult his or her own legal counsel, accountant, or other tax advisor regarding the tax consequences of participation in the Plan to him or her. Grant and Exercise of Nonqualified Options. A grantee will not recognize any compensation upon the grant of a nonqualified option. Upon exercise of the nonqualified option, the amount by which the fair market value of the shares at the time of exercise exceeds the exercise price must be treated as compensation received by the grantee. If, however, the sale of the Common Stock at a profit would subject the grantee to liability under Section 16(b) of the Exchange Act ("Section 16(b)"), the grantee will recognize compensation equal to the excess of (i) the fair market value of the Common Stock on the earlier of the date that is six months after the date of exercise or the date the grantee can sell the Common Stock without Section 16(b) liability over (ii) the exercise price. The grantee can make an election under section 83(b) of the Code to measure the compensation as of the date the non-qualified option is exercised. See "Exercise of Options With Stock" below for the consequences of using previously acquired stock to exercise a nonqualified option. Grantees must make appropriate arrangements with the Company to pay the applicable federal, state, or local tax withholding resulting from the receipt of compensation. The Company will be entitled to a deduction, in an amount equal to the compensation recognized by the grantee, for the Company's taxable year that ends with or within the taxable year in which the grantee recognizes compensation, if and to the extent such amount is an ordinary and necessary business expense, satisfies the test of reasonable compensation, and satisfies the requirements of Code section 162(m) described below. The grantee's basis for the Stock will be equal to the sum of (1) the exercise price of the shares and (2) the compensation includable in income with respect to the exercise of such Option, if any. The holding period will begin on the day after the day the Option is exercised. Grant and Exercise of Incentive Options. A grantee will not recognize any income upon the grant or exercise of an incentive option, nor will the Company be allowed a corresponding deduction. See, "Exercise Of Options With Stock" below for the consequences of using previously acquired stock to exercise an incentive option. See, "Alternative Minimum Tax" below for the application of the alternative minimum tax to the exercise of an incentive option. A-4 If the grantee holds the shares for at least two years after the incentive option was granted and at least one year after the incentive option was exercised (the "Incentive Option Holding Period"), any gain or loss upon a taxable disposition of the shares will be long-term capital gain or loss. The grantee's basis, for purposes of determining gain or loss, is equal to the exercise price. If the grantee disposes of any shares before the end of the Incentive Option Holding Period, the disposition will be treated as a "disqualifying disposition." If the grantee makes a disqualifying disposition of any shares, the value of the Common Stock on the date the incentive option was exercised over the exercise price, limited to the amount received upon the disposition, will be treated as ordinary income rather than as capital gain. Any gain in excess of the value of the Common Stock on the date the incentive option was exercised over the exercise price will be treated as long-term or short-term capital gain, depending on how long the Common Stock was held. If the grantee receives less than the exercise price, the loss will be a short-term or long-term capital loss, depending on how long the Common Stock was held. Upon a disqualifying disposition, the Company will be allowed a deduction in an amount equal to the ordinary income recognized by the grantee, provided that such amount is an ordinary and necessary business expense, meets the reasonable compensation test, and satisfies the requirements of Code section 162(m) as described below. Exercise of Options With Stock. Nonqualified Options. If a grantee exercises a nonqualified option by paying the exercise price with shares of Common Stock, the grantee will be treated as having made a nontaxable exchange of the number of shares surrendered for an equal number of shares received (the "Exchange Stock"). The basis and holding period of the Exchange Stock received will be the same as the basis and holding period of the Common Stock surrendered. All shares received in excess of the Exchange Stock (the "Excess Stock") are treated as compensation to the grantee, and the Company will have a corresponding deduction to the extent the amount is an ordinary and necessary business expense, satisfies the test of reasonable compensation, and satisfies the requirements of Code section 162(m) described below. In general, the amount of compensation is equal to the fair market value of the Excess Stock on the date the nonqualified option is exercised. However, a grantee who is subject to Section 16(b) should refer to the first paragraph of "Grant and Exercise of Non-Qualified Options" for the effect of Section 16(b). The grantee must make appropriate arrangements with the Company to pay the applicable federal, state, or local tax withholding resulting from the receipt of compensation. The Excess Stock has a basis equal to the compensation included in income with respect to the acquisition of such Excess Stock and a holding period that begins on the day after the date the nonqualified option is exercised. For example, if a grantee exercises a nonqualified option by surrendering 20 shares of Common Stock and receives 50 shares of Stock, 20 of the 50 shares will be treated as Exchange Stock; the remaining 30 shares will be treated as Excess Stock. When shares of Common Stock acquired through the exercise of a nonqualified option are disposed of, the shares constituting Excess Stock are deemed to be the first disposed of; the next shares disposed of are the shares of Exchange Stock having the lowest basis; the shares of Exchange Stock having the highest basis are deemed to be the last shares disposed of. Incentive Options. If a grantee exercises an incentive option by paying the exercise price with either (1) shares of Common Stock previously acquired pursuant to an incentive option that have been held for all requisite holding periods or (2) shares of Common Stock not acquired pursuant to an incentive option, the grantee will be treated as having received Exchange Stock (the number of shares received equal to the number of shares surrendered) and Excess Stock (the remaining number of shares received). The Exchange Stock will have a basis and holding period that are the same as the basis and holding period of the Common Stock surrendered. The Excess Stock will have a basis of zero and its holding period will begin on the day after the date the incentive option is exercised. There will be no gain or loss on the transaction; however, the A-5 bargain element (the difference between the fair market value of the Common Stock and the exercise price) will be treated as an item of adjustment as described under "Alternative Minimum Tax" below. Moreover, both the Exchange Stock and the Excess Stock must be held for the Incentive Option Holding Period to avoid a disqualifying disposition. If a grantee exercises an incentive option by paying the exercise price with shares of Common Stock previously acquired pursuant to an incentive option that have not been held for the Incentive Option Holding Period, the grantee will have made a disqualifying disposition of the Common Stock surrendered. The grantee will be treated as having first disposed of the shares with the lowest basis. The grantee will have compensation equal to the difference between the fair market value of the Stock (on the date the previous incentive option was exercised) and the amount paid for the Common Stock. The Exchange Stock received will have a basis equal to the basis of the Common Stock surrendered (increased by the amount of compensation recognized by the grantee) and a holding period that will be the same as the holding period of the Common Stock surrendered. The Excess Stock will have a basis of zero and its holding period will begin on the day after the day the incentive option is exercised. Other than the recognition of income as a result of the disqualifying disposition, there will be no gain or loss; however, the difference between the fair market value of the Common Stock and the exercise price will be treated as an item of adjustment as described under "Alternative Minimum Tax" below. The Exchange Stock and Excess Stock received must be held for the Incentive Option Holding Period to avoid a disqualifying disposition of the Exchange Stock and Excess Stock received. When shares of Common Stock acquired through the exercise of an incentive option with Common Stock are disposed of, the shares constituting Excess Stock are deemed to be the first disposed of; the next shares disposed of are the shares of Exchange Stock having the lowest basis; the shares of Exchange Stock having the highest basis are deemed to be the last shares disposed of. The rules regarding the exercise of incentive options with previously acquired Common Stock are complex; moreover, they are set forth in proposed Treasury Regulations, which are subject to change. ANY GRANTEE WHO CONTEMPLATES EXERCISING AN OPTION BY PAYING THE EXERCISE PRICE WITH PREVIOUSLY ACQUIRED STOCK IS STRONGLY URGED TO CONSULT WITH HIS/HER OWN TAX ADVISOR PRIOR TO MAKING SUCH AN EXERCISE. Restricted Stock. The federal income tax consequences of a grant of Restricted Stock depend on whether the grantee elects, under Code section 83(b), to be taxed at the date of grant of the shares. If the section 83(b) election is not made, the grantee will not recognize taxable income at the time of grant of the Restricted Stock. When the restrictions on the shares lapse, if the Common Stock is then transferable or is no longer subject to a substantial risk of forfeiture, the grantee will recognize ordinary income in an amount equal to the fair market value of the Restricted Stock at that time. If the shares are forfeited before the restrictions lapse, the grantee will not recognize any income with respect to the forfeited shares. If the section 83(b) election is made, the grantee will recognize ordinary income at the time of grant of the Restricted Stock in an amount equal to the fair market value of the shares at that time, determined without regard to any restrictions. If the shares are forfeited before the restrictions lapse, the grantee will not be entitled to a deduction on account of the forfeiture. A grantee is subject to withholding of applicable federal (and generally, state and local) tax at the time he recognizes income as a result of the grant of Restricted Stock or the lapse of the restrictions. Dividends received by the grantee prior to that time are taxed as additional compensation, not as dividend income. The grantee's tax basis in the Restricted Stock is the amount recognized as ordinary income with respect to the shares. The grantee's gain or loss upon a subsequent taxable disposition of the shares is a capital gain or loss if the grantee holds the shares as capital assets. A-6 The Company will be entitled to a deduction in the same amount as the income recognized by the grantee from the grant of the Restricted Stock or the lapse of restrictions for the Company's taxable year that ends with or within the grantee's taxable year. The Company is also entitled to a deduction for any dividends paid before the grantee recognizes income. The Company's deduction is subject to the condition that such amounts are an ordinary and necessary business expense, meet the reasonable compensation test, and satisfy the requirements of Code section 162(m), as described below. Stock Appreciation Rights. A grantee will not recognize any income on the grant of a Stock Appreciation Right. Upon the exercise of the Stock Appreciation Right, the grantee will recognize compensation and the Company will be entitled to a tax deduction. The amount of the compensation and deduction equals the fair market value of the Common Stock and cash acquired on the date the Stock Appreciation Right is exercised. However, if the sale of any Common Stock received upon exercise of a Stock Appreciation Right would subject the grantee to liability under Section 16(b), the grantee will be taxed on the value of the Stock on the earlier of (a) the date that is six months after the date the Stock Appreciation Right was exercised or (b) the date the grantee could sell the Stock at a profit without being subject to suit under Section 16(b). The grantee may, however, make an election under Code section 83(b) to be taxed at the time the Stock Appreciation Right is exercised. Stock Units. In general, stock units are not subject to tax when they are granted. When a grantee receives payment for a stock unit, the amount paid is treated as compensation. The compensation is equal to the amount of cash paid or, if the payment is made in shares of Common Stock, the fair market value of the Common Stock on the date the Common Stock is distributed. However, if the sale of any Common Stock received with respect to a stock unit would subject the grantee to liability under Section 16(b), the grantee will be taxed on the value of the Common Stock on the earlier of (a) the date that is six months after the date the Common Stock is distributed, or (b) the date the grantee could sell the Common Stock at a profit without being subject to suit under Section 16(b). The grantee may, however, make an election under Code section 83(b) to be taxed at the time the Common Stock is distributed. The Company will be entitled to a deduction, in an amount equal to the compensation recognized by the grantee, for the Company's taxable year that ends with or within the taxable year in which the grantee recognizes compensation, if and to the extent such amount is an ordinary and necessary business expense, satisfies the test of reasonable compensation, and satisfies the requirements of Code section 162(m) described below. The grantee's basis for the Common Stock will be equal to the compensation recognized by the grantee with respect to the Common Stock, and the grantee's holding period will begin just after the day as of which the compensation with respect to the Common Stock is determined. If the Common Stock distributed is subject to restrictions, the tax consequences are the same as described in "Restricted Stock" above. Stock Bonus. A grantee who receives a bonus of Common Stock that is not subject to restrictions will recognize compensation, subject to applicable tax withholding, equal to the fair market value of the Common Stock on the date it is distributed less any amount paid for the Common Stock. However, if the sale of any Common Stock received as a bonus would subject the grantee to liability under Section 16(b), the grantee will be taxed on the value of the Common Stock on the earlier of (a) the date that is six months after the date the Common Stock was distributed or (b) the date the grantee could sell the Common Stock at a profit without being subject to suit under Section 16(b). The grantee may, however, make an election under Code section 83(b) to be taxed at the time the Common Stock is distributed. The Company will be entitled to a deduction, in an amount equal to the compensation recognized by the grantee, for the Company's taxable year that ends with or within the taxable year in which the grantee recognizes compensation, if and to the extent such amount is an ordinary and necessary business expense, satisfies the test of reasonable compensation, and satisfies the requirements of Code section 162(m) described below. The grantee's basis for the Common Stock A-7 will be equal to the amount paid for the Common Stock plus the compensation recognized by the grantee with respect to the Common Stock, and the grantee's holding period will begin just after the day as of which the compensation with respect to the Common Stock is determined. If the Common Stock distributed as a stock bonus is restricted, the tax consequences are the same as described in "Restricted Stock" above. Disposition of Stock. Upon a taxable disposition of shares of Common Stock acquired under the Plan, any amount received by the grantee in excess of his basis for the Common Stock will generally be treated as long- or short-term capital gain, depending upon the holding period of the shares. If upon disposition the grantee receives an amount that is less than his basis, the loss will generally be treated as a long- or short-term capital loss, depending upon the holding period of the shares. Alternative Minimum Tax. The amount by which the fair market value of Common Stock acquired upon exercise of an incentive option exceeds the exercise price is an item of adjustment for purposes of the alternative minimum tax, although if such Common Stock is disposed of in the same year in which the incentive option is exercised, such amount will avoid characterization as an item of adjustment. In the event of any long-term capital gain on sale or exchange of shares of Common Stock acquired under the Plan, the amount of such gain will be included in minimum taxable income. Computation of the alternative minimum tax is complex and depends on the financial situation of each taxpayer. Grantees are urged to consult their own tax advisors with respect to this matter. Change In Control. The value of the acceleration of vesting and payment upon certain changes in control may be treated as an "excess parachute payment" within the meaning of Code section 280G for certain grantees and such grantees may be subject to an excise tax equal to 20% of the "excess parachute payment." The Company would not be entitled to a deduction for any amount treated as an "excess parachute payment." Tax Code Limitations on Deductibility. Code section 162(m) limits the deductibility, for federal income tax purposes, of compensation paid to certain employees of the Company to $1 million with respect to any such employee during any taxable year of the Company. However, certain exceptions apply to this limitation, including exceptions for compensation paid because of the attainment of certain performance goals. The Company will endeavor to comply with the requirements of the Code with respect to the grant and payment of performance based awards under the Plan so as to be eligible for the performance based exception, but it may not be possible in all cases to satisfy the requirements for the exception and the Company may, in its sole discretion, determine that in one or more cases it is in the Company's best interests not to satisfy the requirements of the Code for the exception. "ERISA" Provisions. The Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and is not a "qualified" plan as defined in Code section 401(a). The information contained in this Section, ERISA AND FEDERAL INCOME TAX CONSEQUENCES, is based on existing law, which is subject to change. Accounting Treatment. The accounting treatment for options is different from the federal income tax treatment for the Company. Generally, the grant of an option does not affect net income so long as the option price is equal to or greater than the market value on the date of grant. Options granted at a price less than the market value on the date of grant are deemed to be compensatory and the amount of the discount is deducted from net income of the Company during the vesting period of the option. Participants in the Plan may obtain information about the Plan and the administrators of the Plan by writing to the Company at 1801 California Street, Suite 5200, Denver, Colorado or calling (303) 992-1400. A-8 SALE OF STOCK Affiliates of the Company (persons who, directly or indirectly through one or more intermediaries, control, are controlled by, or are under common control with the Company) are restricted in the resale of Common Stock by the provisions of Rule 144 promulgated under the Securities Act of 1933. Restrictions include a limitation on the amount of Common Stock which may be resold in any three-month period, a limitation on the manner of sale and an obligation to file a notice with the Securities and Exchange Commission. An affiliate may also sell Common Stock pursuant to a separate, current registration statement. DOCUMENTS INCORPORATED BY REFERENCE The following documents filed with the Securities and Exchange Commission are incorporated by reference into this Prospectus: (1) The Company's annual report on Form 10-K for year ended December 31, 2000 (as amended by the Company's Annual Report on Form 10-K/A filed on August 20, 2001). (2) The Company's quarterly reports on Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001. (3) The Company's current reports on Form 8-K filed on March 22, 2001, March 29, 2001, April 5, 2001, April 25, 2001, April 27, 2001, May 17, 2001, June 5, 2001 (as amended by our Current Report on Form 8/K-A filed with the SEC on June 5, 2001), June 8, 2001, June 20, 2001, June 21, 2001, July 20, 2001, July 26, 2001 (as amended by our Current Report on Form 8/K-A filed with the SEC on July 26, 2001), August 7, 2001 (as amended by our Current Report on Form 8/K-A filed with the SEC on August 13, 2001), September 10, 2001 and October 31, 2001. (4) The description of Common Stock of the Company is incorporated by reference to the Company's registration statement filed with the Commission on Form S-4/A (Registration No. 333-49915) filed under the Securities Act of 1993 on May 13, 1998. (5) All documents filed by Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus (but before the Company files a post-effective amendment indicating that all securities offered by this Prospectus have been sold or that Company has de-registered all securities remaining unsold) will be deemed to be incorporated by reference into this Prospectus (and such documents will be a part of this Prospectus) from the date that such documents are filed with the Securities and Exchange Commission. These documents generally include the Company's annual, quarterly, and current financial and other reports filed with the Securities and Exchange Commission. The Company hereby undertakes to provide without charge to each person, including any beneficial owner of the Company's securities, to whom this Prospectus is delivered, upon oral or written request of such person, a copy of any and all information incorporated by reference in this Prospectus, an annual report to stockholders of the Company and copies of all reports, proxy statements and other communications delivered to its security holders generally, except exhibits to such information which is incorporated by reference (unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates). Such requests may be made by contacting: ROBIN R. SZILEGA EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER QWEST COMMUNICATIONS INTERNATIONAL INC. 1801 CALIFORNIA STREET, SUITE 5200 DENVER, COLORADO 80202 (303) 992-1400 A-9 ATTACHMENT B FORM OF NONQUALIFIED STOCK OPTION AGREEMENT A (Form of Agreement to be used for New Options that correspond to Eligible Options that were granted before February 1, 2000.) ------------------------------------------------------------------------------- NON-QUALIFIED STOCK OPTION AGREEMENT This Option Agreement (the "Agreement") is made as of the _____ day of June, 2002, between Qwest Communications International Inc., a Delaware Corporation (the "Company"), and (the "Optionee"). WHEREAS, pursuant to the Qwest Communications International Inc. Equity Incentive Plan, the Company desires to afford the Optionee the opportunity to purchase shares of Common Stock, par value $.01 per share (the "Common Shares"), of the Company. NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS: CONFLICTS. Capitalized terms used and not otherwise defined herein shall have the meanings given thereto in the Plan. The terms and provisions of the Plan (including but not limited to Section 7.2 of the Plan) are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Agreement, the terms and provisions of the Plan shall govern and control. 2. GRANT OF OPTIONS. The Company hereby grants to the Optionee the right and option (the "Option" or "Options") to purchase up to, but not exceeding the aggregate, Common Shares, subject to adjustment under Article IV of the Plan, on the terms and conditions herein set forth. 3. PURCHASE PRICE. The purchase price of each Common Share covered by the Option shall be $_____ (the "Purchase Price"), subject to adjustment under Article IV of the Plan. 4. TERM OF OPTIONS. The term of the Option shall be ten (10) years from the date hereof, subject to earlier termination as provided in Sections 6 and 8 hereof and in the Plan. 5. VESTING OF OPTIONS. The Option, subject to the terms, conditions and limitations contained herein, shall vest and become exercisable with respect to the Common Shares in installments of 25% one year from the date hereof and in additional installments of 25% on each subsequent anniversary thereafter; provided that, with respect to each such installment, the Optionee has remained in continuous employment with the Company from the date hereof through the date such installment is designated to vest. B-1 Notwithstanding the vesting schedule set forth in the Plan and this Agreement governing the terms of the Options, the Options will vest and become immediately exercisable upon the occurrence of a Change in Control, or in the event of the Optionee's death or Disability. 6. TERMINATION OF EMPLOYMENT. (a) Except as set forth in the Plan, in the event the Optionee's employment with the Company is terminated for reasons other than due to death, disability, or cause, the Option shall remain exercisable for a period of up to three months after cessation of employment, to the extent exercisable at the time of cessation of employment. In the event the Optionee's employment with the Company terminates by reason of death or disability, the Option shall remain exercisable for a period of up to twenty-four (24) months after cessation of employment, to the extent exercisable at the time of cessation of employment. In the event the Optionee's employment with the Company is terminated by the Company for cause, the Option shall immediately lapse as of the date of such termination whether or not exercisable on such date. Upon any cessation of the Optionee's employment with the Company, the Option shall lapse as to any Common Shares for which it has yet to become exercisable as of the date of cessation of employment. (b) The word "Company" as used in this Section 6 and 7 shall include the Company and any Affiliated Corporation of the Company. (c) For purposes of this Agreement, "cause" shall mean willful misconduct, a willful failure to perform the Optionee's duties, insubordination, theft, dishonesty, conviction of a felony or any other willful conduct that is materially detrimental to the Company or such other cause as the Board of Directors of the Company in good faith reasonably determines provides cause for the discharge of the Optionee. 7. FORFEITURE OF OPTION. Notwithstanding any other provision of this Agreement, if the Optionee engages in any activity in competition with any activity of the Company, or otherwise contrary or harmful to the interests of the Company, including but not limited to (i) conduct related to the Optionee's employment for which either criminal or civil penalties against the Optionee may be sought, (ii) violation of Company policies, including without limitation, the Company's insider trading policy, (iii) accepting employment with or serving as a consultant, or advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former or future employee of the Company, (iv) disclosing or misusing any confidential information or material concerning the Company, or (v) participating in a hostile takeover attempt, then this Option shall become void, shall be forfeited and shall terminate effective the date on which the Optionee enters into such activity, unless the Option was terminated sooner by operation of another term or condition of this Agreement or the Plan. 8. TRANSFERABILITY OF OPTION. Except to the extent permitted by the Committee in accordance with the provisions of the Plan, the Optionee may not voluntarily or involuntarily pledge, hypothecate, assign, sell or otherwise transfer the Option except by will or the laws of descent and distribution, and during the Optionee's lifetime, the Option shall be exercisable only by the Optionee. 9. NO RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a shareholder with respect to any Common Shares until the date of issuance to the Optionee of a certificate evidencing such Common Shares. No adjustments, other than as provided in Article IV of the Plan, shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions for which the record date is prior to the date the certificate for such Common Shares is issued. B-2 10. REGISTRATION: GOVERNMENTAL APPROVAL. The Option granted hereunder is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration, or qualifications of Common Shares issuable upon exercise of the Option is required by any securities exchange or under any state or Federal law, rule or regulation, or the consent or approval of any governmental regulatory body or other person is necessary or desirable as a condition of, or in connection with, the issuance of Common Shares, no Common Shares shall be issued, in whole or in part, unless such listing, registration, qualification, consent or approval has been effected or obtained free of any conditions or with such conditions as are acceptable to the Committee. 11. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company, Attention: Manager, Stock Administration. Such notice shall state the election to exercise the Option and the number of Common Shares in respect of which the Option is being exercised, shall be signed by the person or persons so exercising the Option and shall be accompanied by payment in full of the Purchase Price for such Common shares. Payment of such Purchase Price shall be made in United States dollars by certified check or bank cashier's check payable to the order of the Company or by wire transfer to such account as may be specified by the Company for this purpose. Subject to such procedures and rules as may be adopted from time to time by the Committee, the Optionee may also pay such Purchase Price by (i) tendering to the Company Common Shares with an aggregate Fair Market Value on the date of exercise equal to such Purchase Price provided that such Common Shares must have been held by the Optionee for more than six (6) months, (ii) delivery to the Company of a copy of irrevocable instructions to a stockbroker to sell Common Shares or to authorize a loan from the stockbroker to the Optionee and to deliver promptly to the Company an amount sufficient to pay such Purchase Price, or (iii) any combination of the methods of payment described in clauses (i) and (ii) and in the preceding sentence. The certificate for Common Shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option. All Common Shares purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable. 12. INCOME TAX WITHHOLDING. The Company may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the exercise of the Option and the issuance of the Common Shares, including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, or requiring the Optionee, or the beneficiary or legal representative of the Optionee, to pay to the Company the amount required to be withheld or to execute such documents as the Company deems necessary or desirable to enable it to satisfy its withholding obligations. 13. NON-QUALIFIED STOCK OPTION. The Option granted hereunder is not intended to be an "incentive stock option" within the meaning of Section 422 of the Code. 14. BINDING EFFECT. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. B-3 15. GOVERNING LAW. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware. 16. HEADINGS. Headings are for the convenience of the parties and are not deemed to be part of this Agreement. 17. EXECUTION. This Agreement is voidable by the Company if the Optionee does not execute the Agreement within 30 days of execution by the Company. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above. QWEST COMMUNICATIONS INTERNATIONAL INC. By: ------------------------------------- OPTIONEE: ----------------------------------------- B-4 ATTACHMENT C FORM OF NONQUALIFIED STOCK OPTION AGREEMENT B (Form of Agreement to be used for New Options that correspond to Eligible Options that were granted on or after February 1, 2000 but before June 30, 2000.) ------------------------------------------- NON-QUALIFIED STOCK OPTION AGREEMENT This Option Agreement (the "Agreement") is made as of the _____ day of June, 2002, between Qwest Communications International Inc., a Delaware Corporation (the "Company"), and (the "Optionee"). WHEREAS, pursuant to the Qwest Communications International Inc. Equity Incentive Plan, the Company desires to afford the Optionee the opportunity to purchase shares of Common Stock, par value $.01 per share (the "Common Shares"), of the Company. NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS: CONFLICTS. Capitalized terms used and not otherwise defined herein shall have the meanings given thereto in the Plan. The terms and provisions of the Plan (including but not limited to Section 7.2 of the Plan) are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Agreement, the terms and provisions of the Plan shall govern and control. 2. GRANT OF OPTIONS. The Company hereby grants to the Optionee the right and option (the "Option" or "Options") to purchase up to, but not exceeding in the aggregate, ___________ Common Shares, subject to adjustment under Article IV of the Plan, on the terms and conditions herein set forth. 3. PURCHASE PRICE. The purchase price of each Common Share covered by the Option shall be $_____ (the "Purchase Price"), subject to adjustment under Article IV of the Plan. 4. TERM OF OPTIONS. The term of the Option shall be ten (10) years from the date hereof, subject to earlier termination as provided in Sections 6 and 8 hereof and in the Plan. 5. VESTING OF OPTIONS. The Option, subject to the terms, conditions and limitations contained herein, shall vest and become exercisable with respect to the Common Shares in installments of 25% one year from the date hereof and in additional installments of 25% on each subsequent anniversary thereafter; provided that, with respect to each such installment, the Optionee has remained in continuous employment with the Company from the date hereof through the date such installment is designated to vest. C-1 Notwithstanding the vesting schedule set forth above, the Options will vest and become immediately exercisable in the event of the Optionee's death or Disability and under the circumstances described in Section 7 below. 6. TERMINATION OF EMPLOYMENT. (a) Except as set forth in the Plan, in the event the Optionee's employment with the Company is terminated for reasons other than due to death, Disability, or cause, the Option shall remain exercisable for a period of up to three months after cessation of employment, to the extent exercisable at the time of cessation of employment. In the event the Optionee's employment with the Company terminates by reason of death or Disability, the Option shall remain exercisable for a period of up to twenty-four (24) months after cessation of employment, to the extent exercisable at the time of cessation of employment. In the event the Optionee's employment with the Company is terminated by the Company for cause, the Option shall immediately lapse as of the date of such termination whether or not exercisable on such date. Upon any cessation of the Optionee's employment with the Company, the Option shall lapse as to any Common Shares for which it has yet to become exercisable as of the date of cessation of employment. (b) For purposes of this Agreement, "cause" shall mean willful misconduct, a willful failure to perform the Optionee's duties, insubordination, theft, dishonesty, conviction of a felony or any other willful conduct that is materially detrimental to the Company or such other cause as the Board of Directors of the Company in good faith reasonably determines provides cause for the discharge of the Optionee. 7. CHANGE OF CONTROL (a) For purposes of this Agreement, "change in control" shall have the meaning set forth in the Plan. (b) In the event there is both a change in control and subsequent termination of the Optionee's employment with the Company (i) by the Company for reasons other than cause or (ii) by the Optionee because of a material diminution of his duties and responsibilities, in each case following a change in control, the Option shall vest in full and become immediately exercisable on the date of such termination, and shall remain vested and exercisable during the remaining term thereof. 8. FORFEITURE OF OPTION. Notwithstanding any other provision of this Agreement, if the Optionee engages in any activity in competition with any activity of the Company, or otherwise contrary or harmful to the interests of the Company, including but not limited to (i) conduct related to the Optionee's employment for which either criminal or civil penalties against the Optionee may be sought, (ii) violation of Company policies, including without limitation, the Company's insider trading policy, (iii) accepting employment with or serving as a consultant, or advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former or future employee of the Company, (iv) disclosing or misusing any confidential information or material concerning the Company, or (v) participating in a hostile takeover attempt, then this Option shall become void, shall be forfeited and shall terminate effective the date on which the Optionee enters into such activity, unless the Option was terminated sooner by operation of another term or condition of this Agreement or the Plan. 9. TRANSFERABILITY OF OPTION. Except to the extent permitted by the Committee in accordance with the provisions of the Plan, the Optionee may not voluntarily or involuntarily pledge, hypothecate, assign, sell or otherwise transfer the Option except by will or the laws of descent and distribution, and during the Optionee's lifetime, the Option shall be exercisable only by the Optionee. C-2 10. NO RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a shareholder with respect to any Common Shares until the date of issuance to the Optionee of a certificate evidencing such Common Shares. No adjustments, other than as provided in Article IV of the Plan, shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions for which the record date is prior to the date the certificate for such Common Shares is issued. 11. REGISTRATION: GOVERNMENTAL APPROVAL. The Option granted hereunder is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration, or qualifications of Common Shares issuable upon exercise of the Option is required by any securities exchange or under any state or Federal law, rule or regulation, or the consent or approval of any governmental regulatory body or other person is necessary or desirable as a condition of, or in connection with, the issuance of Common Shares, no Common Shares shall be issued, in whole or in part, unless such listing, registration, qualification, consent or approval has been effected or obtained free of any conditions or with such conditions as are acceptable to the Committee. 12. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company, Attention: Manager, Stock Administration. Such notice shall state the election to exercise the Option and the number of Common Shares in respect of which the Option is being exercised, shall be signed by the person or persons so exercising the Option and shall be accompanied by payment in full of the Purchase Price for such Common shares. Payment of such Purchase Price shall be made in United States dollars by certified check or bank cashier's check payable to the order of the Company or by wire transfer to such account as may be specified by the Company for this purpose. Subject to such procedures and rules as may be adopted from time to time by the Committee, the Optionee may also pay such Purchase Price by (i) tendering to the Company Common Shares with an aggregate Fair Market Value on the date of exercise equal to such Purchase Price provided that such Common Shares must have been held by the Optionee for more than six (6) months, (ii) delivery to the Company of a copy of irrevocable instructions to a stockbroker to sell Common Shares or to authorize a loan from the stockbroker to the Optionee and to deliver promptly to the Company an amount sufficient to pay such Purchase Price, or (iii) any combination of the methods of payment described in clauses (i) and (ii) and in the preceding sentence. The certificate for Common Shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option. All Common Shares purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable. 13. INCOME TAX WITHHOLDING. The Company may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the exercise of the Option and the issuance of the Common Shares, including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, or requiring the Optionee, or the beneficiary or legal representative of the Optionee, to pay to the Company the amount required to be withheld or to execute such documents as the Company deems necessary or desirable to enable it to satisfy its withholding obligations. C-3 14. NON-QUALIFIED STOCK OPTION. The Option granted hereunder is not intended to be an "incentive stock option" within the meaning of Section 422 of the Code. 15. BINDING EFFECT. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. 16. GOVERNING LAW. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware. 17. HEADINGS. Headings are for the convenience of the parties and are not deemed to be part of this Agreement. 18. EXECUTION. This Agreement is voidable by the Company if the Optionee does not execute the Agreement within 30 days of execution by the Company. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above. QWEST COMMUNICATIONS INTERNATIONAL INC. By: ------------------------------------- OPTIONEE: ----------------------------------------- C-4 ATTACHMENT D FORM OF NONQUALIFIED STOCK OPTION AGREEMENT C (Form of Agreement to be used for New Options that correspond to Eligible Options that were granted on or after June 30, 2000, ------------------------------------------------------------- Eligible Options that were granted under the U S WEST Plans, ------------------------------------------------------------ or to Recent Options.) ---------------------- NON-QUALIFIED STOCK OPTION AGREEMENT This Option Agreement (the "Agreement") is made as of the _____ day of June, 2002, between Qwest Communications International Inc., a Delaware Corporation (the "Company"), and (the "Optionee"). WHEREAS, pursuant to the Qwest Communications International Inc. Equity Incentive Plan, the Company desires to afford the Optionee the opportunity to purchase shares of Common Stock, par value $.01 per share (the "Common Shares"), of the Company. NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS: CONFLICTS. Capitalized terms used and not otherwise defined herein shall have the meanings given thereto in the Plan. The terms and provisions of the Plan are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Agreement, the terms and provisions of the Plan shall govern and control. 2. GRANT OF OPTIONS. The Company hereby grants to the Optionee the right and option (the "Option" or "Options") to purchase up to, but not exceeding in the aggregate, ___________ Common Shares, on the terms and conditions herein set forth. 3. PURCHASE PRICE. The purchase price of each Common Share covered by the Option shall be $_____ (the "Purchase Price"). 4. TERM OF OPTIONS. The term of the Option shall be ten (10) years from the date hereof, subject to earlier termination as provided in Sections 6 and 8 hereof. 5. VESTING OF OPTIONS. The Option, subject to the terms, conditions and limitations contained herein, shall vest and become exercisable with respect to the Common Shares in installments of 20% one year from the date hereof and in additional installments of 20% on each subsequent anniversary thereafter; provided that, with respect to each such installment, the Optionee has remained in continuous employment with the Company from the date hereof through the date such installment is designated to vest. D-1 Notwithstanding the vesting schedule set forth above, the Options will vest and become immediately exercisable in the event of the Optionee's death or Disability and under the circumstances described in Section 7 below. Notwithstanding anything to the contrary in any other agreement, plan or other document, the Optionee agrees that no provision in any severance, separation, change of control, retention, employment or other plan or agreement between the Optionee and any of U S WEST, Inc. and its subsidiaries or of which the Optionee was a beneficiary shall affect the terms of the Option granted hereunder. 6. TERMINATION OF EMPLOYMENT. (a) Except as set forth in the Plan, in the event the Optionee's employment with the Company is terminated for reasons other than due to death, Disability, or cause, the Option shall remain exercisable for a period of up to three months after cessation of employment, to the extent exercisable at the time of cessation of employment. In the event the Optionee's employment with the Company terminates by reason of death or Disability, the Option shall remain exercisable for a period of up to twenty-four (24) months after cessation of employment, to the extent exercisable at the time of cessation of employment. In the event the Optionee's employment with the Company is terminated by the Company for cause, the Option shall immediately lapse as of the date of such termination whether or not exercisable on such date. Upon any cessation of the Optionee's employment with the Company, the Option shall lapse as to any Common Shares for which it has yet to become exercisable as of the date of cessation of employment. (b) For purposes of this Agreement, "cause" shall mean willful misconduct, a willful failure to perform the Optionee's duties, insubordination, theft, dishonesty, conviction of a felony or any other willful conduct that is materially detrimental to the Company or such other cause as the Board of Directors of the Company in good faith reasonably determines provides cause for the discharge of the Optionee. 7. CHANGE OF CONTROL (a) For purposes of this Agreement, "change in control" shall have the meaning set forth in the Plan. (b) In the event there is both a change in control and subsequent termination by the Company of the Optionee's employment with the Company for reasons other than cause, the Option shall vest in full and become immediately exercisable on the date of such termination, and shall remain vested and exercisable during the remaining term thereof. 8. FORFEITURE OF OPTION. Notwithstanding any other provision of this Agreement, if the Optionee engages in any activity in competition with any activity of the Company, or otherwise contrary or harmful to the interests of the Company, including but not limited to (i) conduct related to the Optionee's employment for which either criminal or civil penalties against the Optionee may be sought, (ii) violation of Company policies, including without limitation, the Company's insider trading policy, (iii) accepting employment with or serving as a consultant, or advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former or future employee of the Company, (iv) disclosing or misusing any confidential information or material concerning the Company, or (v) participating in a hostile takeover attempt, then this Option shall become void, shall be forfeited and shall terminate effective the date on which the Optionee enters into such activity, unless the Option was terminated sooner by operation of another term or condition of this Agreement or the Plan. D-2 9. TRANSFERABILITY OF OPTION. Except to the extent permitted by the Committee in accordance with the provisions of the Plan, the Optionee may not voluntarily or involuntarily pledge, hypothecate, assign, sell or otherwise transfer the Option except by will or the laws of descent and distribution, and during the Optionee's lifetime, the Option shall be exercisable only by the Optionee. 10. NO RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a shareholder with respect to any Common Shares until the date of issuance to the Optionee of a certificate evidencing such Common Shares. No adjustments, other than as provided in Article IV of the Plan, shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions for which the record date is prior to the date the certificate for such Common Shares is issued. 11. REGISTRATION: GOVERNMENTAL APPROVAL. The Option granted hereunder is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration, or qualifications of Common Shares issuable upon exercise of the Option is required by any securities exchange or under any state or Federal law, rule or regulation, or the consent or approval of any governmental regulatory body or other person is necessary or desirable as a condition of, or in connection with, the issuance of Common Shares, no Common Shares shall be issued, in whole or in part, unless such listing, registration, qualification, consent or approval has been effected or obtained free of any conditions or with such conditions as are acceptable to the Committee. 12. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company, Attention: Manager, Stock Administration. Such notice shall state the election to exercise the Option and the number of Common Shares in respect of which the Option is being exercised, shall be signed by the person or persons so exercising the Option and shall be accompanied by payment in full of the Purchase Price for such Common shares. Payment of such Purchase Price shall be made in United States dollars by certified check or bank cashier's check payable to the order of the Company or by wire transfer to such account as may be specified by the Company for this purpose. Subject to such procedures and rules as may be adopted from time to time by the Committee, the Optionee may also pay such Purchase Price by (i) tendering to the Company Common Shares with an aggregate Fair Market Value on the date of exercise equal to such Purchase Price provided that such Common Shares must have been held by the Optionee for more than six (6) months, (ii) delivery to the Company of a copy of irrevocable instructions to a stockbroker to sell Common Shares or to authorize a loan from the stockbroker to the Optionee and to deliver promptly to the Company an amount sufficient to pay such Purchase Price, or (iii) any combination of the methods of payment described in clauses (i) and (ii) and in the preceding sentence. The certificate for Common Shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option. All Common Shares purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable. D-3 13. INCOME TAX WITHHOLDING. The Company may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to the exercise of the Option and the issuance of the Common Shares, including, but not limited to, deducting the amount of any such withholding taxes from any other amount then or thereafter payable to the Optionee, or requiring the Optionee, or the beneficiary or legal representative of the Optionee, to pay to the Company the amount required to be withheld or to execute such documents as the Company deems necessary or desirable to enable it to satisfy its withholding obligations. 14. NON-QUALIFIED STOCK OPTION. The Option granted hereunder is not intended to be an "incentive stock option" within the meaning of Section 422 of the Code. 15. BINDING EFFECT. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. 16. GOVERNING LAW. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware. 17. HEADINGS. Headings are for the convenience of the parties and are not deemed to be part of this Agreement. 18. EXECUTION. This Agreement is voidable by the Company if the Optionee does not execute the Agreement within 30 days of execution by the Company. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above. QWEST COMMUNICATIONS INTERNATIONAL INC. By: ------------------------------------- OPTIONEE: ----------------------------------------- D-4
ATTACHMENT E SELECTED FINANCIAL DATA Qwest Communications International Inc. Summary Financial Data (Dollars in millions, except per share amounts) Nine Months Six Months Ended Ended Year Ended December 31, ------------- ------------- ---------------------------- September 30, 2001 June 30, 2001 2000 1999 ------------- ------------- ------------- ------------- Gross revenue $15,039 $10,273 $16,610 $13,182 Gross profit $9,696 $6,627 $11,687 $9,192 (Loss) income from continuing operations ($3,429) ($3,287) ($81) $1,102 Net (loss) income ($3,494) ($3,352) ($81) $1,342 Basic earnings (loss) per common share: (Loss) income before extraordinary item and cumulative effect of change in accounting principle ($2.06) ($1.98) ($0.06) $1.26 Extraordinary item - early retirement of debt, net of tax (0.04) (0.04) 0.00 0.00 Cumulative effect of change in accounting principle, net of tax 0.00 0.00 0.00 0.28 ------------- ------------- ------------- ------------- Basic (loss) earnings per common share ($2.10) ($2.02) ($0.06)$ 1.54 ============= ============= ============= ============= Diluted earnings per common share: (Loss) income before extraordinary item and cumulative effect of change in accounting principle ($2.06) ($1.98) ($0.06) $1.25 Extraordinary item - early retirement of debt, net of tax (0.04) (0.04) 0.00 0.00 Cumulative effect of change in accounting principle, net of tax 0.00 0.00 0.00 0.27 ------------- ------------- ------------- ------------- Diluted (loss) earnings per common share ($2.10) ($2.02) ($0.06) $1.52 ============= ============= ============= ============= Current assets $6,052 $6,417 $5,199 $4,192 Noncurrent assets $68,648 $67,489 $68,302 $19,080 Current liabilities $9,685 $11,940 $9,893 $6,766 Noncurrent liabilities $27,817 $24,680 $22,304 $15,251 Book value per common share $22.35 $22.42 $24.70 $1.43 Ratios of earnings to fixed charges (1) ($123) ($150) 1.05 3.19
Note (1): For the nine months ended June 30, 2001 and the six months ended June 30, 2001, the ratio of earnings to fixed charges was calculated as a negative ratio. As a result, disclosed above is the calculation of the coverage deficiency. For the purposes of this calculation we have included the impact of the $3.048 billion write-down of the investment on KPNQwest that occurred during the second quarter of 2001, as an add-back of Qwest's share of losses in its equity method affiliates. E-1
EX-99.A.20 4 ex_a-20.txt EXHIBIT 99(A)(20) QWEST COMMUNICATIONS INTERNATIONAL INC. OFFER TO EXCHANGE CERTAIN OUTSTANDING QWEST STOCK OPTIONS ELECTION FORM AND RELEASE AGREEMENT Instructions: o Before you complete or return this form, you should read the Amended and Restated Offer Circular dated November 2, 2001 (the "Exchange Offer Circular"), that accompanies this form. You may obtain a copy of the Exchange Offer Circular on the Qwest website. The Exchange Offer Circular contains important information about the terms and risks of the Exchange Offer, and explains many of the terms used in this form. For purposes of this form, "Eligible Options" means all outstanding options granted to you under the Qwest Equity Incentive Plan or under the U S WEST stock plans with a current exercise price equal to or greater than $35 per share, and "Recent Options" means all outstanding options granted to you by Qwest on or after May 29, 2001. o After you have read the Exchange Offer Circular, please complete this form and return it to Qwest. You may return the form by mail, courier, hand delivery (during normal business hours) or fax to the following address: Qwest Communications International Inc. 555 17th Street, 7th Floor, Denver, Colorado 80202 Attention: Qwest Stock Administration Fax No.: 303-992-1174 For your convenience, a postage-paid, pre-addressed envelope was included with your package of Exchange Offer materials for you to use to return this form to Qwest. o We cannot accept election forms by e-mail or any other means of delivery other than those means identified above. If you do not use the enclosed pre-addressed envelope to return this form to Qwest, you must pay all mailing or courier costs to deliver this form to Qwest. The method by which you deliver the signed election form to Qwest is at your option and risk, even if you use the pre-addressed envelope, and delivery will be effective only when the form is actually received by Qwest. In all cases, you should allow sufficient time to ensure timely delivery. o Qwest is not obligated to give you notice of any defects or irregularities in your elections on this form, nor will anyone incur any liability for failure to give any such notice. Qwest will determine, in its discretion, all questions as to the form and validity, including time of receipt, of elections. Qwest's determination of these matters will be final and binding. o If you need additional information, please read the Exchange Offer Circular or contact Qwest Stock Administration at StockAdmin2@Qwest.com, at the address given above or at 866-437-0007 (during normal business hours). o DEADLINE: If you wish to accept the Exchange Offer, we must receive this election form at our offices no later than 5:00 p.m., Mountain Standard Time, on November 30, 2001, unless we extend the deadline for the Exchange Offer. If we do not receive an election form from you prior to this deadline, you will be deemed to have rejected the Exchange Offer. A. Exchange Offer Election. I hereby (check the applicable box - if no election is checked, you will be deemed to have rejected the Exchange Offer): |_| Accept the Exchange Offer with respect to all of my Eligible Options and all of my Recent Options. I further agree to be bound by the terms of the release and other terms and conditions set forth in Section C of this form. (Sign under Section B of this form and return this form to Qwest.) |_| Accept the Exchange Offer only with respect to the specific grants of my Eligible Options identified below and with respect to all of my Recent Options (whether or not identified below). I further agree to be bound by the terms of the release and other terms and conditions set forth in Section C of this form. (Fill in the following table to indicate the Eligible Option grant(s) that you elect to exchange in the Exchange Offer. If you elect to exchange any portion of a particular option grant, you must exchange all of the unexercised options (whether or not vested) that are a part of that grant. If you elect to exchange any Eligible Option, you will be deemed to have elected to exchange all of your Recent Options, whether or not you list the Recent Options below. If you do not list all of your Eligible Options that you wish to exchange, you will be deemed to have rejected the Exchange Offer with respect to each of your Eligible Options (other than Recent Options) that you do not list. After completing the table, sign under Section B of this form and return this form to Qwest.)
Grant Number Number of Options Exercise Price Number of Options (Optional) Date of Grant Originally Granted Per Option Currently Outstanding ---------- ------------- ------------------ ---------- ---------------------
|_| Reject the Exchange Offer and withdraw any previous elections. My Eligible Options and Recent Options will remain outstanding as described in the response to Question 25 in the Exchange Offer Circular. (Sign under Section B and return this form to Qwest.) B. Signature (All Persons). I hereby represent and confirm to Qwest that: --------------------------- o I have full power and authority to sign and deliver this election and release form and to tender any Eligible Options and/or Recent Options pursuant to the terms of the Exchange Offer; o I have received and read, and I understand, the Exchange Offer Circular and its attachments and this election and release form (collectively referred to in this form as the "Offer Documents"); o I have had adequate time and opportunity to ask questions of the Company about the Exchange Offer and the Offer Documents, and to seek advice from my independent legal, tax and/or financial advisors concerning the Exchange Offer and the Offer Documents; o I understand that the Offer Documents contain all of the terms of the Exchange Offer in their entirety, and that I have not relied on any other documents or oral representations from Qwest or any of its officers, directors, employees, representatives, affiliates or agents in deciding to accept or reject the Exchange Offer; o I understand that if I elect to exchange any of my Eligible Options, I must also exchange all of my Recent Options in the Exchange Offer; o Qwest has not made any recommendation to me as to whether I should accept or reject the Exchange Offer, and any election to accept the Exchange Offer is wholly voluntary; o the information set forth in my Statement of Employee Stock Option Holdings is correct; and o my election to accept or reject the Exchange Offer is correctly set forth in Section A above. I understand that the Exchange Offer will expire at 5:00 p.m., Mountain Standard Time, on November 30, 2001 (the "Expiration Time"), unless Qwest subsequently extends the Expiration Time. I understand that I may not revoke my election to accept or reject the Exchange Offer after the Expiration Time. I understand that I can withdraw or change my elections on this form at any time prior to the Expiration Time only by completing and signing a new election form 2 and returning it to Qwest prior to the Expiration Time. If I submit a new election form to Qwest prior to the Expiration Time, I understand that my previous election(s) will be cancelled, and that the elections marked on the new election form will be effective for all purposes relating to the Exchange Offer. I understand and agree that my employment with Qwest is and will continue to be on an at-will basis, and that my employment status with Qwest is not affected in any way by the Exchange Offer or by anything contained in the Offer Documents. I also understand that if I alter or modify this form in any way (other than by checking the box corresponding to my election in Part A, completing the table in Part A (if applicable) to identify the Eligible Options that I want to exchange in the Exchange Offer, and completing the signature block below), my alterations and/or modifications will not be effective and will not be binding on Qwest. This form will be deemed to have been executed and delivered within the State of Delaware, United States of America, and the rights and obligations of the parties hereunder, and the Offer Documents, will be construed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflict of laws. The parties agree that the application of Delaware law to this form, the Exchange Offer and the Offer Documents is fair and equitable. If I have accepted the Exchange Offer (as indicated in Section A of this form) as to any of my Eligible Options or Recent Options, I agree to be bound by the terms of, and acknowledge that I have read and understand, the release and other terms and conditions set forth in Section C of this form, which are hereby incorporated by reference. This form must be completed and signed in the space below. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or another person acting in a fiduciary or representative capacity, the signer's full title must be specified, and proper evidence of the authority of such person to act in such capacity must be submitted with this form. ---------------------- ---------------------- ------------ --------------- Signature Print Name Date Social Security Number C. Release and Other Terms and Conditions (For Persons Accepting the Exchange Offer Only) ----------------------------------------------------------------------------- By accepting the Exchange Offer (by marking such election in Section A of this form), and by my signature in Section B of this form, I hereby agree with Qwest as follows: o Subject to all of the terms and conditions of the Exchange Offer, I hereby tender all Eligible Options that I have elected to exchange, and all Recent Options that I am required to exchange, pursuant to the Exchange Offer (such exchanged options are referred to in this form as "Cancelled Options"), and I agree that, subject to acceptance by Qwest, all of my Cancelled Options will automatically terminate effective as of the Expiration Time of the Exchange Offer; o Upon acceptance of the Cancelled Options by Qwest, I, on my own behalf and on behalf of my heirs, dependents, executors, administrators and assigns, hereby release Qwest and its successors, assigns, affiliates, representatives, directors, officers and employees, past and present (collectively referred to in this form as "Released Persons"), with respect to and from any and all claims, damages, agreements, obligations, actions, suits, proceedings and liabilities of whatever kind and nature, whether now known or unknown, suspected or unsuspected (collectively referred to in this form as "Claims"), which I now own or hold or at any time previously owned or held against any of the Released Persons and that relate to or are in any way connected with the Cancelled Options. I acknowledge that I may later discover claims or facts that are in addition to or are different from those which I now know or believe to exist with respect to the Cancelled Options. Nevertheless, I hereby waive any Claim relating to or connected with the Cancelled Options that might arise as a result of such different or additional claims or facts. I fully understand the significance and consequence of this release. 3 o I have not previously assigned or transferred to any person (other than Qwest) any interest in the Cancelled Options, and I agree to defend, indemnify and hold harmless all Released Persons from and against any claim based on or in connection with any purported assignment or transfer. o Qwest will be required to issue replacement options in exchange for my Cancelled Options only if I am an eligible employee of Qwest on the grant date for the replacement options, and otherwise only in accordance with the terms set forth in the Exchange Offer Circular. If I retire or my employment with Qwest otherwise terminates for any reason (whether voluntary or involuntary, or at my election or Qwest's election) before Qwest issues any replacement options pursuant to the Exchange Offer, I understand and agree that I will not be entitled to receive any replacement options, and that all of my Cancelled Options will not be reinstated, and will remain cancelled. o If Qwest is involved in a merger, change of control or other reorganization event prior to the date upon which Qwest proposes to issue the replacement options pursuant to the Exchange Offer, it is possible that I will not receive any replacement options, securities of the surviving corporation or other consideration in exchange for my Cancelled Options or in exchange for any replacement options that Qwest otherwise would have granted to me pursuant to the Exchange Offer. o Any replacement options issued in exchange for my Cancelled Options will be evidenced by a new instrument of grant to be issued by Qwest under the Equity Incentive Plan. o The Offer Documents comprise the entire agreement and final understanding concerning the Exchange Offer and my Cancelled Options, and the Offer Documents supersede and replace all prior agreements, proposed or otherwise, whether written or oral, between Qwest and me concerning the subject matter thereof. Qwest will not be bound by any representation, promise or agreement that is not specifically contained in the Offer Documents. o Qwest reserves the right, under the circumstances set forth in the Exchange Offer Circular, to terminate or amend the offer, or to postpone its acceptance and cancellation of any Cancelled Options. o If any provision of the Offer Documents or this election and release form is found to be invalid, such finding will not affect the validity and enforceability of the other provisions of such documents, so long as the essential economic provisions of this form and the Exchange Offer can still be given effect. o I agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force to the basic terms and intent of this form and the Exchange Offer and which are not inconsistent with their respective terms. -------------------------------------------------------------------------------- FOR COMPANY USE ONLY Accepted and Agreed on Behalf of the Company: Qwest Communications International Inc. (To be completed by Qwest after the Exchange to certify that the Exchange has been completed.) ------------------------------- ----------------------- ----------------- Signature Title Date -------------------------------------------------------------------------------- (End of document.) 4
EX-99.A.21 5 ex_a-21.txt EXHIBIT 99(A)(21) QWEST COMMUNICATIONS INTERNATIONAL INC. OFFER TO EXCHANGE CERTAIN OUTSTANDING QWEST STOCK OPTIONS ADDENDUM TO OFFER CIRCULAR November 2, 2001 On November 2, 2001, we announced that we are extending the Qwest Communications International Inc. Offer to Exchange Certain Qwest Stock Options (the "Offer") to include outstanding stock options originally granted under U S WEST, Inc.'s ("U S WEST") stock plans. The U S WEST stock options that are now subject to the Offer were converted into Qwest stock options in our merger with U S WEST and have a post-conversion exercise price of $35 or more. This Addendum supplements and should be read in connection with the Offer Circular dated October 31, 2001 (the "Offer Circular"). We have amended and restated the Offer Circular to reflect the changes included in this Addendum. The amended and restated Offer Circular is available on the Q at http://theq.qwest.net/departments/hr/circular.pdf [LINK TO AMENDED AND RESTATED OFFERING CIRCULAR] or you may request a copy from our Stock Administration department at StockAdmin2@Qwest.com or at the address or telephone number given below. Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 Tel: 866-437-0007 Unless modified by this Addendum, terms that are capitalized in this Addendum have the same meaning as in the Offer Circular. Summary of Changes: o Eligible Options now include outstanding nonqualified stock options originally granted under the U S WEST stock plans with an exercise price of $35 or more. Qwest assumed these options in the merger with U S WEST. o If you tender Eligible Options that were granted under the U S WEST stock plans, the corresponding New Options will be subject to new terms and conditions. All of the New Options will be granted under our Equity Incentive Plan and those New Options that correspond to options granted under the U S WEST stock plans will be evidenced by and subject to the terms and conditions of the form of New Option Agreement attached to the Offer Circular as Exhibit D. Supplement to Offer Circular: The following supplements the Offer Circular to explain the provisions of the Offer as they relate to the options grated under the U S WEST stock plans. The following discussion replaces any inconsistent provisions of the Offer Circular relating to options originally granted under the U S WEST stock plans. 1. Eligible Options. If you are eligible to participate in the Offer, you may tender in the Exchange any nonqualified stock option with an exercise price of $35 or more per share that was originally granted either (1) under our Equity Incentive Plan or (2) under one of the U S WEST stock plans that was converted into a Qwest stock option in our acquisition of U S WEST by merger on June 30, 2000. The stock options that may be tendered in the Exchange are referred to as "Eligible Options." If you choose to participate in the Offer by tendering some or all of your Eligible Options, you must also exchange all stock options granted to you on or after May 29, 2001 whether or not those options otherwise qualify as Eligible Options (these are referred to as your "Recent Options"). Also, if you want to tender any portion of a particular stock option grant, you must tender all stock options outstanding under that grant (whether or not vested). To determine whether your U S WEST options have a POST-conversion exercise price of $35 or more, you must first apply the conversion ratio in the merger (which was 1.72932:1). As a result of the conversion ratio, U S WEST options with a PRE-conversion exercise price of $60.53 would be eligible for the exchange. That is, you can only exchange your Qwest options that were originally granted by U S WEST if the original exercise price of those options (before giving effect to the merger) was $60.53 or higher. The last time you received options, we sent you all the option information you need to complete the election form. If you have options that were granted under one of the U S WEST stock plans, you received a conversion notice in connection with the merger regarding the conversion and assumption of your U S WEST options. For your convenience, we are also sending to the address we have for you an option statement showing the options that you can exchange. If you need another copy, please contact Qwest Stock Administration at the email address, mailing address or telephone number given above. You are responsible for confirming that the options included in your option statement satisfy the eligibility requirements described in the first sentence of the foregoing paragraph and for confirming that all of your Eligible Options and Recent Options are reflected in your statement. Any discrepancies should promptly be reported to Qwest Stock Administration at the email address, mailing address or telephone number given above. 2. Additional Risk Factor - New Options May Have Less Favorable Terms than Options Granted under the U S WEST Stock Plans. We will use the form of option agreement attached as Exhibit D to the Offer Circular for New Options that are issued in exchange for Cancelled Options that were previously granted under the U S WEST stock plans. We reserve the authority to adjust the number of shares subject to or to be subject to, and the exercise price and other terms of the New Options, before and after they are granted, consistent with the authority that our Board of Directors has under our Equity Incentive Plan. In the period before the New Option Grant Date, we may make these adjustments or terminate rights without prior notice to you. As highlighted below in this Addendum, New Options that are issued in exchange for Cancelled Options that were granted under one of the U S WEST stock plans will have different terms than the provisions of your Cancelled Options. These terms may include materially less favorable change of control, termination of employment, and other provisions. 3. New Options That Correspond to U S WEST Options. All of the New Options, including those that relate to Cancelled Options that were originally granted under one of the U S WEST stock plans, will be granted under and subject to the terms and conditions of our Equity Incentive Plan. You may obtain a copy of our Equity Incentive Plan by request without charge from Qwest. It is also available from the SEC (see the "Additional Information; Incorporation of Documents by Reference" section of the Circular). Copies of the forms of New Option Agreements that may be used in connection with the Exchange are attached 2 as Attachments B, C and D to the Offer Circular. For Eligible Options that were originally granted under either of the U S WEST stock plans and assumed by us in the merger, all New Options will be evidenced by the form of New Option Agreement attached as Attachment D. You should read our Equity Incentive Plan and all applicable attachments to the Offer Circular. 4. New Option Termination Provisions. New Options will each be subject to a new ten year option term beginning on New Option Grant Date. For Eligible Options that were originally granted under our Equity Incentive Plan, the New Options will remain subject to the same termination of employment provisions as your Cancelled Options, subject of course to the new vesting requirements. For Eligible Options that were originally granted under one of the U S WEST stock plans, the New Options will be subject to the termination of employment provisions that are included in the form of New Option Agreement attached to the Offer Circular as Attachment D. The termination of employment provisions in that form generally provide as follows: o if your employment terminates other than because of death, disability, or a termination by the Company for "cause," the unvested portion of the New Options will terminate to the extent that they are not vested and the vested portion will remain exercisable for up to three months; o if your employment terminates by reason of death or disability, the unvested portion of the New Options will terminate and the vested portion will remain exercisable for a period of up to twenty-four months; and o if your employment is terminated for cause, the new Options will terminate immediately whether or not they are vested. In each case, these termination provisions are subject to earlier expiration of the option. (See Section 6 of Exhibit D to the Offer Circular for the specific provisions and also refer to the following sections of this Addendum). These termination provisions (including, without limitation, the definitions of "disability" and "cause" used for purposes of the New Option grants) may be different from the provisions that applied to the corresponding Cancelled Options. For example, you may have been entitled to materially more favorable vesting and/or exercise rights upon your retirement or in case of your death or disability under your original U S WEST plan options than under your New Options if you accept the Offer. 5. New Option Change in Control Provisions. For Eligible Options that were originally granted under our Equity Incentive Plan, the New Options granted in exchange for your Cancelled Options will be subject to the same change in control provisions as your Cancelled Options. If your Cancelled Options contain different change in control provisions, your New Option Agreements will be different and will reflect these different provisions. 3 For Eligible Options that were originally granted under the U S WEST stock plans, the New Options granted in exchange for your Cancelled Options will be subject to the change of control provisions that are contained in Section 7 of the form of New Option Agreement attached as Attachment D to the Offer Circular, regardless of the change in control provisions in those Cancelled Options. The New Options generally: o will become fully vested if there is both a change in control (as defined in the Equity Incentive Plan) and we subsequently terminate your employment other than for "cause;" o will also become fully vested on any of the following events: o a merger or consolidation of Qwest with or into another corporation or other reorganization, or o the sale of all or substantially all of Qwest's assets, will terminate subject to certain accelerated vesting and notice provisions under our Equity Incentive Plan if Qwest or the successor or purchaser does not assume or substitute the options in the circumstances above. o if Qwest or the successor or purchaser does not assume or substitute the options in those circumstances, Qwest may terminate the options subject to certain accelerated vesting and notice provisions under our Equity Incentive Plan. As a result of the terms of the New Options you may have been entitled to materially more favorable terms (including vesting) in the event of a merger, asset sale, or change in control under your original U S WEST Plan options than will apply to New Options. 6. Other Terms and Conditions of New Options. The New Options will be subject to a new ten year term, starting on the New Option Grant Date, subject to earlier termination provisions. If you tender Eligible Options that were originally granted under our Equity Incentive Plan, other than the new exercise price, new option term and new vesting schedule, we expect that your New Options will otherwise be subject to substantially the same terms and conditions as the corresponding Cancelled Options. If you tender Eligible Options that were originally granted under the U S WEST stock plans, the terms and conditions of the New Options may be materially different from those that applied to your corresponding Cancelled Options. For example, and without limitation, all New Options: o will immediately terminate (whether or not vested) if you engage in certain activity in competition with us, in activity that is contrary or harmful to the interests of Qwest, in conduct related to your employment that could lead to criminal or civil penalties, or conduct in violation of our policies; if you disclose or misuse any confidential information or material concerning us; or if you participate in a hostile takeover attempt; o will be generally subject to amendments without your consent unless the amendment adversely affects your New Option; and 4 o require the exercise price to be paid only in United States dollars by certified check or bank cashier's check, or by wire transfer, unless we have in place procedures allowing for a cashless exercise. Under a cashless exercise, you may pay the exercise price of a New Option by tendering shares of Qwest stock that you have owned for more than six months or by delivering to us a copy of irrevocable instructions to a stockbroker to sell stock or to authorize a loan from the stockbroker to you and to deliver promptly to us an amount sufficient to pay the exercise price of your option. In addition to the terms and conditions described above in this Addendum, there may be additional differences in the terms of the New Options as compared to the terms of your Cancelled Options that were originally granted under one of the U S WEST stock plans. If you own options that were granted under the U S WEST stock plans, you should carefully read the stock option agreements that evidence your U S WEST stock plan options and the U S WEST stock plans and compare those provisions to the provisions of our Equity Incentive Plan and the form of New Option Agreement attached as Attachment D to the Offer Circular. You will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. 7. Stock Price; Total Number of Eligible Options. On November 1, 2001, the closing price of a share of our common stock was $12.00. The lowest trading price of our common stock in the current calendar quarter (to November 1, 2001) is $11.55 per share. You should obtain current market quotations for our common stock before you decide whether you should accept the Offer. The value of our common stock will fluctuate in the future and we cannot and do not predict any future values for our common stock. The Offer is being made only with respect to your Eligible Options and Recent Options that are outstanding as of the expiration time of the Offer. As of September 30, 2001, there were 1,664,535,549 shares of Qwest common stock outstanding and there were outstanding stock options and other awards covering up to an additional 121,190,582 shares of Qwest common stock (note that the awards referred to in the response to Question 46 below are not included in this number because the awards were not granted until October 24, 2001). Of the shares subject to those stock options and other awards, approximately 35.7 million shares (approximately 2.1% of the outstanding shares) were subject to the Eligible Options originally granted under our Equity Compensation Plan, approximately 3.4 million shares (approximately 0.2% of the outstanding shares) were subject to the Eligible Options originally granted under the U S WEST stock plans, and approximately 1.8 million shares (approximately 0.1% of the outstanding shares) were subject to the Recent Options outstanding at that time. (None of the awards referred to in the response to Question 46 below and granted on October 24, 2001 constitute Eligible Options or Recent Options that can be exchanged in the Offer.) The date of this Addendum to Offer Circular is November 2, 2001. Our Board of Directors has approved the Offer. However, you must make your own decision to accept or reject the Offer. None of our Board of Directors, our management, or our affiliates makes any recommendation whether you should accept or reject the Offer. 5 We have not authorized anyone to make any recommendation on our behalf as to whether you should accept the Offer. You should rely only on the information contained in the Amended and Restated Offer Circular and the information contained in the documents expressly referred to in the Amended and Restated Offer Circular. We have not authorized anyone to give you any information or to make any representations in connection with the Offer other than the information and the representations contained in the Amended and Restated Offer Circular and in the documents expressly referred to in the Amended and Restated Offer Circular. If anyone makes any recommendation or representation to you or gives you any information that is not contained in the Amended and Restated Offer Circular or in the documents expressly referred to in the Amended and Restated Offer Circular, even if that person is an employee or other representative of the Company, you must not rely upon that recommendation, representation or other information as having been authorized by the Company. If you have any questions about the impact of the Offer on your financial status, you should consult your financial advisor. 6 EX-99.A.22 6 ex_a-22.txt EXHIBIT 99(A)(22) [Text of November 2, 2001 Email Message to Employees] On October 31, 2001, Qwest announced the start of a voluntary stock option exchange program for certain outstanding stock options issued under our Equity Incentive Plan. As of today, we have extended the stock option exchange program to include certain outstanding options that were previously issued by U S WEST. Like the Qwest options that were originally covered by the exchange offer, you may only exchange former U S WEST options if they have a post-conversion exercise price of $35 or more. Please click here to access a letter from Joe Nacchio that explains the change and includes links to the Q, where you can find more information: http://theq.qwest.net/departments/hr/newnacchioletter.pdf [LINK TO LETTER TO EMPLOYEES] Click here to access an amended and restated version of the Offer Circular: http://theq.qwest.net/departments/hr/circular.pdf [LINK TO AMENDED AND RESTATED OFFER CIRCULAR] Click here to access a revised form of the Election Form and Release: http://theq.qwest.net/departments/hr/electform.pdf [LINK TO ELECTION FORM] Click here to access an updated version of frequently asked questions (FAQ's) about the exchange offer: http://theq.qwest.net/departments/hr/electquestions.html [LINK TO EXCHANGE OFFER QUESTIONS AND ANSWERS] If you do not own any former U S WEST options, you do not have to read these documents. The terms of the exchange offer have not been changed with respect to your options issued under the Qwest Equity Incentive Plan. EX-99.A.23 7 ex_a-23.txt EXHIBIT 99(A)(23) [NOVEMBER 2, 2001 LETTER TO EMPLOYEES REGARDING U S WEST OPTIONS TO APPEAR ON HR WEBSITE] November 2, 2001 To Qwest Employees Eligible to Participate in the Stock Option Exchange Offer: On October 31, 2001, we announced the start of a voluntary stock option exchange program for certain outstanding stock options issued under our Equity Incentive Plan. As of today, we have extended the stock option exchange program to include certain outstanding options that were previously issued by U S WEST. If you do not have stock options that were originally issued by U S WEST, the terms of the exchange program have not changed with respect to your options and the following information does not apply to you. If you have stock options that were originally issued by U S WEST and converted to Qwest options with the acquisition on June 30, 2000, you may elect to exchange the former U S WEST stock options in accordance with the terms and conditions set forth in the exchange offer materials. You may exchange former U S WEST options, however, only if they have a post-conversion exercise price of $35 or more. On the Q you will find the following documents that you should review before making your decision: o Amended and Restated Offer Circular o Addendum to Offer Circular o Election Form and Release Agreement o Frequently Asked Questions o Instructions for Returning the Election Form You can access these documents by clicking on http://theq.qwest.net/departments/hr/index.html. [LINK TO HR WEBSITE] If you have already accessed and printed a copy of the Offer Circular on the Q prior to today, and you simply want to update that information, you can access a supplement to the original Offer Circular by clicking on http://theq.qwest.net/departments/hr/supplement.pdf. [LINK TO EXCHANGE OFFER ADDENDUM] You should read that supplement carefully in connection with the original Offer Circular and related offer materials. We have also prepared an updated version of the original Offer Circular, which includes both the original information and the information contained in the supplement. You can access the updated Offer Circular by clicking on http://theq.qwest.net/departments/hr/circular.pdf. [LINK TO AMENDED AND RESTATED OFFER CIRCULAR] You can also access an updated version of frequently asked questions (FAQ's) about the exchange offer by clicking on http://theq.qwest.net/departments/hr/electquestions.html. [LINK TO EXCHANGE 0FFER QUESTIONS AND ANSWERS] We have also updated the Election Form and Release Agreement used to accept the offer. You can access the new form (which includes the former U S WEST options) by clicking on http://theq.qwest.net/departments/hr/electform.pdf. [LINK TO ELECTION FORM] You should access and print a new election form if you want to accept the exchange offer with respect to any former U S WEST options. If you have any former U S WEST options, we will also mail the amended and restated Offer Circular, the new Election Form, and additional information to your home. You should receive a package of these materials in the next couple of weeks. I encourage you to read and consider these materials carefully to make the decision that is right for you. Joseph P. Nacchio EX-99.A.24 8 ex_a-24.txt EXHIBIT 99(A)(24) [LOGO] ride the light(SM) Qwest(R) [FORM OF NOVEMBER 2, 2001 COVER LETTER ACCOMPANYING EXCHANGE OFFER DOCUMENTS AND TO APPEAR ON QWEST HR WEBSITE (FORMER U S WEST EMPLOYEES)] November 2, 2001 Dear Fellow Qwest Employee: I'm delighted to share good news with you today. As you know, it has been our policy at Qwest to grant stock options to our employees as an incentive to return value to our shareholders for their investment. As our employees focus on meeting the needs of our customers, our company prospers, our shareholders benefit and so will our employees. Qwest is an entrepreneurial company and we want you to have a stake in our future success. Because of a weakening economy and a bear market for stocks, especially in the telecom sector, many of the stock options held by our employees no longer provide the incentive that we intended when we granted them. With this in mind, our board of directors approved a voluntary stock option exchange offer. Under this program, you can exchange all or a portion of the Qwest stock options that you own that were granted by Qwest or by U S WEST with an exercise price of $35 or more, subject to certain conditions. The U S WEST options were assumed by us in connection with the merger on June 30, 2000. To determine whether your U S WEST options have a POST-conversion exercise price of $35 or more you must first apply the conversion ratio in the merger (which was 1.72932:1). As a result of the conversion ratio, U S WEST options with a PRE-conversion exercise price of $60.53 would be eligible for the exchange. That is, you can only exchange your Qwest options that were originally granted by U S WEST if the original exercise price of those options (before giving effect to the merger) was $60.53 or higher. As summarized below and detailed in the linked plan documents, in exchange for your eligible options, you will receive the same number of options (in the case of the U S WEST options, on an as-converted basis) based on our share price next June. The new options cannot be issued now because accounting rules would require us to take a charge against our earnings. The last time you received options, we sent you all the option information you need to complete the election form. If you have options granted under one of the U S WEST plans, you received a conversion notice in connection with the merger regarding the conversion and assumption of your U S WEST options. For your convenience, we are also sending to you at the address we have for you an option statement showing the options that you can exchange. You do not have to accept the exchange offer. The exchange offer involves risks. Before you make any decisions, you should carefully review the risks and all the terms and conditions of the exchange offer that are contained in the exchange offer documents available on the Q at http://theq.qwest.net/departments/hr/index.html. [LINK TO HR WEBSITE] This stock option program is a legal matter that requires every eligible employee to receive or have access to detailed information that will help you make an informed decision. Please take the time to review the documents, including the Questions and Answers and program summaries on the Q. If you still have questions, you may call 866-437-0007. If you want to take advantage of the exchange offer, you must complete and return the election form by 5:00 P.M. (MST) Friday, November 30, 2001. The election form, including instructions about how to return the form, is available on the Q at http://theq.qwest.net/departments/hr/electFormQ.html. [LINK TO QUESTION REGARDING ELECTION FORM] If you don't want to exchange your options, you don't need to do anything. I want to highlight some of the important elements of the exchange offer: o The offer is available only to full-time active employees (however, it is not available to occupational, union employees nor to the senior team). o If you are an eligible employee and accept the exchange offer for any of your eligible options, you must exchange all of the other eligible options (whether or not vested) that are in the same option grant or grants after May 29, 2001, whether or not those options qualify as eligible options (your "recent options"). o Upon the exchange of the options, the options you have exchanged will terminate and be cancelled. They will not be reinstated even if you later change your mind. o If you resign, quit, die or if your employment with the Company terminates for any reason whatsoever before we grant you the new options, or if you are on unpaid leave on that date, we will not grant you any new options and you will not have a right to any of your cancelled options that you exchanged. 2 o You cannot exchange options that you received as an employee of LCI International, Inc. or Icon CMT Corp. because those options have post-conversion exercise prices of less than $35. We will grant new options to you on the "new option date" -which will be June 3, 2002 or, if we extend the exchange offer beyond November 30, 2001, a business day that is no earlier than six months and one day after your options are cancelled, as set by our board of directors. You must be an eligible employee through the new option date to receive the new options. The new options: o Will be for a number of shares equal to the number of shares subject to the eligible options and recent options that were cancelled in the exchange offer. o Will have a per share exercise price equal to the closing market price of a share of our common stock on the new option date. In addition, we expect that the new options: o Will have a new 10-year term beginning on the new option date. o Will be subject to a new four-year vesting schedule, with one-fourth of the new options vesting on each of the first, second, third and fourth anniversaries of the new option date (subject, in each case, to your continued employment). If you tender options in the exchange that were originally granted by Qwest, the corresponding new options will have substantially the same other terms and conditions as the cancelled options. If you tender options that were originally granted by U S WEST, there may be other differences between the terms of your U S WEST options and the terms of the new options that you will receive. For more information on these and other key points of the offer, you should carefully read the Amended and Restated Offer Circular. After reading the stock exchange offer documents, you may review the answers to some commonly asked questions on the Q at http://theq.qwest.net/departments/hr/electquestions.html, [LINK TO ELECTION FORM QUESTIONS AND ANSWERS] or you may contact us by e-mail at stockadmin2@qwest.com. Although our board of directors approved the exchange offer, the board is not permitted to recommend whether or not you should accept the offer. You are solely responsible for deciding whether to participate and for making sure that you properly complete your election form and that we receive it before 5:00 P.M. (MST) Friday, November 30, 2001. Make sure that you allow enough time before the deadline to ensure that we receive your election form. If we do 3 not receive your election form until after the deadline or you did not properly complete the election form, your election form will be rejected and you will not be able to exchange any of your options. Please go to the following Web site to access the exchange offer documents on the Q. Amended and Restated Offering Circular (this explains the terms of the program): http://theq.qwest.net/departments/hr/circular.pdf [LINK TO AMENDED AND RESTATED OFFER CIRCULAR] Election Form and Release Agreement: http://theq.qwest.net/departments/hr/electform.pdf [LINK TO ELECTION FORM] We are pleased to offer you the opportunity to participate in this program. I encourage you to learn all you can about it, consider it carefully, and make a decision that is right for you. Sincerely, Joseph P. Nacchio 4 EX-99.A.25 9 ex_a-25.txt EXHIBIT 99(A)(25) [FORM OF SECOND LETTER DATED NOVEMBER 2, 2001 INCLUDED IN MAILING OF EXCHANGE OFFER DOCUMENTS (FORMER U S WEST EMPLOYEES)] November 2, 2001 Dear Fellow Qwest Employee: Our board of directors has approved a voluntary stock option exchange offer. Under this program, you can exchange all or a portion of the stock options that you own that were granted by Qwest with an exercise price of $35 or more, subject to certain conditions. You may also exchange all or a portion of your stock options that were issued by U S WEST, which were converted to Qwest options with the acquisition on June 30, 2000, if they have a post-conversion exercise price of $35 or more. Details about the offer are on the Q. If you want to take advantage of the exchange offer, you must complete, sign, date and return the enclosed Election Form and Release by 5:00 p.m. (MST) Friday, November 30, 2001. Instructions about how to return the form are available on the Q. If you don't want to exchange your options, you don't need to do anything. This stock option exchange program is a legal matter that requires every eligible employee to receive or have access to detailed information that will help you make an informed decision. Please take the time to review the documents, including the Questions & Answers and program summaries on the Q. If you still have questions, you may call 866-437-0007. This package contains: o An Amended and Restated Offer Circular (dated November 2, 2001) that describes the offer and gives you detailed information to help you make an informed decision o A Statement of Employee Stock Option Holdings showing the options that you may exchange o An Election Form and Release for you to complete, sign, date and return, if you decide to exchange any of your eligible options o A confirmation card for you to send to us so that the Qwest Stock Administration Department can stamp and return it to you that it has received your Election Form and Release o A postage-paid, pre-addressed envelope for you to use in returning to us your completed, signed and dated Election Form and Release and your confirmation card As summarized below and detailed in the offer documents, should you choose to participate in the offer, in exchange for your eligible options, you will receive the same number of options based on our share price next June. I want to highlight some of the important elements of the exchange offer: o The offer is available only to full-time active employees (however, it is not available to occupational, union employees nor to the senior team). o If you are an eligible employee and accept the exchange offer for any of your eligible options, you must exchange all of the other eligible options (whether or not vested) that are in the same option grant or grants after May 29, 2001, whether or not those options qualify as eligible options (your "recent options"). o Upon the exchange of the options, the options you have exchanged will terminate and be cancelled. They will not be reinstated even if you later change your mind. o If you resign, quit, die or if your employment with the Company terminates for any reason whatsoever before we grant you the new options, or if you are on unpaid leave on that date, we will not grant you any new options and you will not have a right to any of your cancelled options that you exchanged. o You cannot exchange options that you received as an employee of the former LCI or Icon CMT companies because those options have post conversion exercise prices below $35. We will grant new options to you on the "new option date" -which will be June 3, 2002 or, if we extend the exchange offer beyond November 30, 2001, a business day that is no earlier than six months and one day after your options are cancelled, as set by our board of directors. You must be an eligible employee through the new option date to receive the new options. The new options: o Will be for a number of shares equal to the number of shares subject to the eligible options and recent options that were cancelled in the exchange offer (in the case of the U S WEST options, on an as converted basis). o Will have a per share exercise price equal to the closing market price of a share of our common stock on the new option date. In addition, we expect that the new options: o Will have a new 10-year term beginning on the new option date. 2 o Will be subject to a new four-year vesting schedule, with one-fourth of the new options vesting on each of the first, second, third and fourth anniversaries of the new option date (subject, in each case, to your continued employment). If you tender options granted by Qwest in the exchange, the corresponding new options will have substantially the same other terms and conditions as the cancelled options. If you tender options that were originally granted by U S WEST and have been converted into Qwest options, there may be other differences between the terms of your U S WEST options and the terms of the new options that you will receive if you elect to exchange your former U S WEST options. For more information on these and other key points of the offer, you should carefully read the Amended and Restated Offer Circular. Although our board of directors approved the exchange offer, the board is not permitted to recommend whether or not you should accept the offer. You are solely responsible for deciding whether to participate and for making sure that you properly complete your election form and that we receive it before 5:00 P.M. (MST) Friday, November 30, 2001. Make sure that you allow enough time before the deadline to ensure that we receive your election form. If we do not receive your election form until after the deadline or you did not properly complete the election form, your election form will be rejected and you will not be able to exchange any of your options. Please go to the following Web site to access the exchange offer documents on the Q. Amended and Restated Offering Circular (this explains the terms of the program): http://theq.qwest.net/departments/hr/circular.pdf [LINK TO AMENDED AND RESTATED OFFER CIRCULAR] Election Form and Release Agreement: http://theq.qwest.net/departments/hr/electform.pdf [LINK TO ELECTION FORM] Thank you for your prompt attention to this offer. We hope that you will carefully review and consider the enclosed materials and those on the Q, and make an informed decision that's right for you. Best regards, Joe Nacchio 3 EX-99.A.26 10 ex_a-26.txt EXHIBIT 99(A)(26) QWEST COMMUNICATIONS INTERNATIONAL INC. OFFER TO EXCHANGE CERTAIN OUTSTANDING QWEST STOCK OPTIONS QUESTIONS AND ANSWERS REGARDING THE EXCHANGE OFFER Qwest Communications International Inc. ("Qwest," "we" or "us") has announced the Qwest Communications International Inc. Offer to Exchange Certain Outstanding Qwest Stock Options (the "Offer"). The Offer also applies to certain options that were granted by U S WEST, Inc. and that were converted into Qwest stock options at the time of the merger. We understand that the decision whether or not to participate in the Offer will be a challenging one for many employees. The Offer does carry considerable risk, and there are no guarantees as to our future stock performance. So, the decision to participate in the Offer must be your personal decision, and it will depend largely on your assumptions about the future overall economic environment, the performance of the overall market and companies in our sector and our own business, performance and stock price. This document is intended to answer some of the more frequently asked questions regarding the Offer. These questions and answers have generally been taken from the Amended and Restated Offer Circular (the "Offer Circular") that is being distributed in connection with the Offer. However, these questions and answers do not reflect all of the information contained in the Offer Circular or in the Election Form and Release Agreement that is being distributed in connection with the Offer. It is important that you read the entire Offer Circular and the Election Form and Release Agreement. If you need another copy of the Offer Circular or the Election Form and Release Agreement, you may print one on the Q at the link given below or you may contact our Stock Administration department at StockAdmin2@Qwest.com or at the address or telephone number given below.
Offer Circular: http://theq.qwest.net/departments/hr/circular.pdf [LINK TO AMENDED AND RESTATED OFFER CIRCULAR] ------------------------------------------------- Election Form and Release Agreement: http://theq.qwest.net/departments/hr/electform.pdf [LINK TO ELECTION FORM] --------------------------------------------------
Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer.
For questions regarding: See: ------------------------ ---- Background and Reasons for the Offer Questions 1 through 5 Benefits and Risks of the Offer Questions 6 through 9 The Offer Questions 10 through 31
1
Terms and Conditions of New Options Questions 32 through 39 Other Provisions and Administration Questions 40 through 49 Federal Income Tax and Social Security Consequences Questions 50 through 54
Our Board of Directors has approved the Offer. However, you must make your own decision to accept or reject the Offer. None of our Board of Directors, our management, or our affiliates makes any recommendation whether you should accept or reject the Offer. We have not authorized anyone to make any recommendation on our behalf as to whether you should accept the Offer. You should rely only on the information contained in the Offer Circular and the information contained in the documents expressly referred to in the Offer Circular. If there is any inconsistency between this document and the Offer Circular, the Offer Circular controls. We have not authorized anyone to give you any information or to make any representations in connection with the Offer other than the information and the representations contained in the Offer Circular and in the documents expressly referred to in the Offer Circular. If anyone makes any recommendation or representation to you or gives you any information that is not contained in the Offer Circular or in the documents expressly referred to in the Offer Circular, even if that person is an employee or other representative of Qwest or one of our affiliates, you must not rely upon that recommendation, representation or other information as having been authorized by us. If you have any questions about the impact of the Offer on your financial status, you should consult your financial advisor. Background and Reasons for the Offer This section generally describes why we are making the Offer and answers some questions that you may have regarding the general structure of the Offer. 1. Why is Qwest making the Offer? We are making the Offer because we believe that your stock options no longer provide the incentives we had intended. Many of our employees have stock options with exercise prices significantly above our current and recent trading prices. We are offering this program on a voluntary basis to allow our employees to choose whether to keep their current stock options at their current exercise prices, or to cancel certain of those options for a conditional promise to be granted new options in the Offer ("New Options") at a price not now known. We are not required to make the Offer. The Offer gives you a conditional opportunity to receive options that over time may have a greater potential to increase in value. We believe that, under the circumstances, this is the most efficient way to incent employees to increase shareowner value. 2. Why is Qwest making the Offer at this time? Our Board of Directors determined that this was an appropriate time to make the Offer. We believe that, under the circumstances, this is the most effective way to incent our employees to increase shareowner value. 2 3. How did you arrive at the $35 price for determining Eligible Options? In establishing the $35 price, our Board of Directors considered, among other things, current and recent trading prices of our common stock and that of other communications companies, current economic conditions, prospects for a recovery in the national and regional economy, and the levels of intended incentives. 4. Why can't Qwest just reprice my options, as I have seen done at other companies? Simply amending a stock option grant to reduce its exercise price potentially results in accounting charges for us that would reduce our reported income. Also, repricing does not impose any new requirements on optionholders, such as a new vesting schedule, so many investors see repricings as a "one way" street that benefits optionholders but not their company. The new vesting terms of New Options are intended to ease these concerns and balance the benefits of the Offer to the Company. The term "Company" is used in this document to mean Qwest and/or any other corporation or entity, or any subsidiary or division thereof, that is affiliated with Qwest though stock ownership and is designated as an "Affiliate Corporation" by our Board of Directors. 5. Why can't I just be granted additional new options? Granting additional options will result in the issuance of additional shares that would "dilute" the current ownership of shareowners. Our Board of Directors determined that, under the circumstances, the Offer was the most effective way to incent our employees without unduly diluting our shareowners. Benefits and Risks of the Offer This section generally describes some of the potential benefits and risks of the Offer. 6. How does the Offer potentially benefit the Company? We believe the Eligible Options (as defined in the response to Question 13) held by our employees do not provide the incentives we had intended. We believe that this program provides the right incentives for our employees to increase shareowner value. Also, the shares that were reserved for issuance under the Plan with respect to any Eligible Options and Recent Options (as defined in the response to Question 13) that are cancelled in connection with the Offer will again become part of the pool of shares that are available for award grants under the Plan, including the grant of the New Options. 7. Are my New Options guaranteed to be more valuable? No. Generally, your New Options will potentially be more valuable than your Eligible Options and Recent Options that are cancelled in connection with the Offer (if you accept the Offer, the options that you tender and that are cancelled in the Offer are referred to as your "Cancelled Options") Cancelled Options only if they are granted at an exercise price that is less than the exercise price of your Cancelled Options. The exercise price of the New Options will be determined as described in the response to Question 33 below. There is no guarantee that your New Options will have an exercise price that is less than the exercise price of your Cancelled Options. Your New Options will increase in value if the market price of our common stock increases. We cannot guarantee stock price performance. 3 8. What are the risks of the Offer? The Offer involves risks as described in the "Risk Factors" section of the Offer Circular, which include, among others, the risk that the New Options could be less valuable than the Cancelled Options surrendered if the exercise price of the New Options is greater than the exercise price of your Eligible Options and Recent Options, and the risk that because the New Options will vest over four years from the date that the New Options are granted (the "New Option Grant Date" - see the response to Question 20), you may not be employed by the Company to receive any value on the New Option Grant Date or on the dates on which the New Options vest. Therefore, it is important that you read all of the details, terms and conditions contained in the Offer Circular so that you can make an informed decision as to whether to accept the Offer. You should also be sure to read the entire "Risk Factors" section of the Offer Circular. 9. What other companies have instituted a program like the Offer? Many companies, including Nortel and Sprint Corp., have adopted similar option exchange programs rather than amending outstanding options to reprice them or granting additional options. Other companies like Microsoft and Cisco have instead granted more options to employees. We believe that is not appropriate in our case for the reasons given above. The Offer This section generally describes the terms of the Offer, including the deadline for accepting the Offer, eligibility rules, how to accept the Offer, which options may be tendered in the Offer, and the other general terms and conditions of the Offer. 10. What is the deadline for the Offer? If you want to accept the Offer, the deadline for submitting your Election Form and Release Agreement (your "Election Form") that is being distributed to you in connection with the Offer is 5:00 p.m., Mountain Standard Time, on November 30, 2001, unless we, in our sole discretion, extend the Offer. If you do not return your Election Form before that deadline, you will not be allowed to participate in the Offer. 11. Who is eligible to participate in the Offer? You are eligible to participate in the Offer only if (1) you are a full-time employee of the Company at the expiration time of the Offer, (2) you are a non-union employee at that time, and (3) you are not a selected senior officer of Qwest at that time. If you are employed by the Company in Japan or Hong Kong, or if you are a Qwest employee expatriated to KPNQwest, you will be eligible to participate in the Offer if you satisfy the eligibility criteria described in the previous paragraph. Otherwise, if you are employed outside of the United States, you will not be eligible to participate in the Offer. 12. What are the conditions to the Offer? The Offer is conditioned on your being employed with the Company as described in the response to Question 11 above, except that your employment is determined as of the New Option 4 Grant Date. In addition, the Offer is conditioned on your satisfactorily completing and returning to us your election form by 5:00 p.m., Mountain Standard Time, on November 30, 2001, as described in the response to Question 14 below. If you resign, quit or die, or if your employment with the Company terminates for any reason whatsoever before the New Option Grant Date, or if you are on unpaid leave on the New Option Grant Date, we will not grant you any New Options and you will not have a right to any of your Cancelled Options. You will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. 13. What stock options may I tender/exchange in the Offer? If you are eligible to participate in the Offer, you may tender any nonqualified stock option with an exercise price of $35 or more per share that was originally granted either (1) under our Equity Incentive Plan or (2) under one of the U S WEST stock plans and that was converted into a Qwest stock option in our merger with of U S WEST on June 30, 2000. These stock options that may be tendered in the Offer are referred to as "Eligible Options." You cannot exchange options that you received as an employee of LCI International Inc. or Icon CMT Corp. because those stock options have a post-conversion exercise price that is less than $35 per share. In addition to any other options that may qualify as Eligible Options, if you received an option grant under our Equity Incentive Plan for 200 shares on September 7, 2000, those options will qualify as Eligible Options. If you choose to participate in the Offer by tendering some or all of your Eligible Options, you must also exchange all stock options granted to you on or after May 29, 2001 whether or not those options otherwise qualify as Eligible Options (these are referred to as your "Recent Options"). Also, if you want to tender any portion of a particular stock option grant, you must tender all stock options outstanding under that grant (whether or not vested). To determine whether your U S WEST options have a post-conversion exercise price of $35 or more, you must first apply the conversion ratio in the merger (which was 1.72932:1). As a result of the conversion ratio, U S WEST options with a pre-conversion exercise price of $60.53 would be eligible for the exchange. That is, you can only exchange your Qwest options that were originally granted by U S WEST if the original exercise price of those options (before giving effect to the merger) was $60.53 or higher. 14. How may I accept the Offer? Read Offer Circular. To accept the Offer, you should first review the Offer Circular and the documents referred to in the Offer Circular. You should then obtain the Election Form. You may print an Election Form from the Q or you may request one from Qwest Stock Administration at StockAdmin2@Qwest.com or at the following address or telephone or fax number: 5 Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 fax: 303-992-1174 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. Assemble Option Information. You should then assemble the option information that you will need to complete the Election Form. The last time you received options, we sent you all the option information you need to complete the election form. If you have options that were granted under one of the U S WEST stock plans, you received a conversion notice in connection with the merger regarding the conversion and assumption of your U S WEST options. For your convenience, we are also sending to the address we have for you an option statement showing the options that you can exchange. If you need another copy, please contact Qwest Stock Administration at the email address, mailing address or telephone number given above. You are responsible for confirming that the options included in your option statement satisfy the eligibility requirements described in the response to Question 13 above and for confirming that all of your Eligible Options and Recent Options are reflected in your statement. Any discrepancies should promptly be reported to Qwest Stock Administration at the email address, mailing address or telephone number given above. Complete, Sign and Date Election Form. You should then complete, sign and date the Election Form. If you want to accept the Offer, you must indicate on the Election Form that you accept the Offer and agree to the terms of the release set forth in the Election Form. That is, you should indicate whether you accept the Offer with respect to all of your Eligible Options or indicate the grants of Eligible Options that you want to exchange. You must list on the Election Form all the Eligible Options that you want to exchange, except that, if you want to exchange all your Eligible Options, you may check the box on the Election Form to indicate that you elect to exchange all your Eligible Options. In either case, if you elect to exchange any Eligible Option you will be deemed to have elected to exchange all your Recent Options whether or not you list them on the Election Form. Return Election Form. You should then mail, hand deliver or fax the completed, signed and dated Election Form to Qwest at the following address for receipt prior before 5:00 p.m., Mountain Standard Time, on November 30, 2001, or any later expiration time to which the Offer has been extended: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 fax: 303-992-1174 6 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. We cannot accept Election Forms by e-mail or any other means of delivery other than those means identified above. For your convenience, a postage-paid pre-addressed envelope is included with your package of Offer materials that is being sent to you for you to use to return your Election Form to us. If you do not use the enclosed pre-addressed envelope to return this form to Qwest, you must pay all mailing or courier costs to deliver this form to Qwest. The method by which you deliver the signed Election Form to Qwest is at your option and risk, even if you use the pre-addressed envelope, and delivery will be effective only when the form is actually received by Qwest. In all cases, you should allow sufficient time to ensure timely delivery. If we do not receive a valid Election Form from you prior to the deadline described in the response to Question 10, you will be deemed to have rejected the Exchange Offer. If you do not receive an Election Form or need additional information, please visit the Q or contact Qwest Stock Administration. If you request an Election Form, be sure to allow at least two business days for delivery to you. Neither we nor any other person is obligated to give you notice of any defects or irregularities in any election, nor will anyone incur any liability for failure to give any such notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of elections. Our determination of these matters will be final and binding. Qwest Stock Administration intends to return a confirmation of receipt card to you by mail that you will fill out and send in with your election form to confirm that your election form has been received. This card only means that we have received something from you. It does not mean that you completed the Election Form correctly. Other. If the Election Form is signed by trustees, executors, administrators, guardians, attorneys-in-fact or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless we have waived this requirement, submit evidence satisfactory to Qwest of their authority to act in this capacity. Your election to accept or reject the Offer will become irrevocable upon the expiration time of the Offer. Be sure to read your Election Form. The effectiveness of any election that you may make to accept the Offer is subject to the eligibility conditions described in the responses to Question 11 above. Your election to participate in the Offer pursuant to the terms and conditions described in the Offer Circular constitutes your acceptance of the terms and conditions of the Offer. Our acceptance for cancellation of the Eligible Options that you elect to tender and any Recent Options will constitute a binding agreement between you and us on the terms and subject to the conditions of the Offer Circular. The Offer does not apply with respect to any options that you may own other than your Eligible Options and Recent Options. You are responsible for the method of delivery of your Election Form and ensuring that we receive your Election Form before the expiration time of the Offer. You should allow 7 sufficient time to ensure timely delivery of your Election Form. If you miss the deadline, you will not be allowed to participate in the Offer. 15. Can I choose which options I want to tender? If you have only one Eligible Option grant, you must either accept or reject the Offer as to that entire grant. That is, you cannot accept the Offer as to only a portion of your option. For example, you cannot accept the Offer with respect to the unvested portion of your option but reject the Offer with respect to the vested portion of your option. If you accept the Offer for your Eligible Option, you will be deemed to have accepted the Offer for all your Recent Options, whether or not you indicate that you intend to tender any or all of your Recent Options. If you have multiple Eligible Option grants, you may choose to tender one or more of your Eligible Option grants in the Offer. However, as to any particular Eligible Option grant, you must either accept or reject the Offer as to that entire grant. Although you can specify which of your Eligible Options you want to tender, you cannot tender only a portion of any particular grant. For example, if you have one Eligible Option for 100 shares, you cannot accept the Offer with respect to only 50 of those shares but reject the Offer with respect to the other 50 shares, even if the Eligible Option has already vested as to those 50 other shares. In any case, if you accept the Offer for any of your Eligible Options, you must accept the Offer for all your Recent Options. If you own any Recent Options, some of your Recent Options may also qualify as Eligible Options (in other words, they were granted under our Equity Incentive Plan with an exercise price of $35 or higher). Because your election to tender any of your Eligible Options will require you to tender all of your Recent Options, you will not have any choice as to whether to tender any Eligible Options that are also Recent Options. For example, assume that you have both an Eligible Option for 100 shares granted two years ago and an Eligible Option for 200 shares granted two months ago. The Eligible Option granted two months ago would also be a Recent Option. Therefore, if you choose to tender the Eligible Option for 100 shares granted two years ago, you will also have to tender the Eligible Option for 200 shares granted two months ago because that option also constitutes a Recent Option. However, if you only choose to tender the Eligible Option for 200 shares that was granted two months ago, you will not have to tender the Eligible Option for 100 shares granted two years ago because that option does not qualify as a Recent Option. As noted above, you may not partially tender any particular Eligible Option grant. For example, if you have both a grant of an Eligible Option for 100 shares and a grant of an Eligible Option for 300 shares (neither of which are Recent Options), you may elect to cancel both, either or neither of these grants. However, you may not elect to tender just 50 shares of the 100 share grant or partially tender either option grant. Likewise, if an option grant is partially vested and partially unvested, you cannot choose to tender only the unvested portion. 8 16. Can I tender options that I have already exercised? No. The Offer applies only to the portions of your Eligible Options that are unexercised and outstanding as of the expiration time of the Offer. It does not apply in any way to shares that you purchased by exercising options or to any portion of an Eligible Option that you exercise before the expiration time of the Offer. If you have exercised an Eligible Option in its entirety, that option is no longer outstanding and is therefore not included in the Offer. However, if you have exercised an Eligible Option grant in part, the remaining outstanding unexercised portion of the option grant is included in the Offer and may be tendered in the Offer. For example, if you have an Eligible Option for 100 shares, but you have already exercised it with respect to 50 shares, you may tender the unexercised portion of the Eligible Option relating to the 50 remaining shares. 17. Do I have to pay money or taxes if I accept the Offer? No. Whether or not you accept the Offer, you will not have to make any payments to us until you exercise your stock options. If you accept the Offer, there will be no federal income taxes consequences for the exchange (the "Exchange") of options for the opportunity to be granted new options in the Offer. See the responses to Questions 50-54 below. 18. What if I change my mind? If you file an Election Form and want to change or withdraw your election, you may do so by filing a new Election Form indicating your new acceptance or rejection of the Offer in accordance with the procedures described above so that we receive your new Election Form before the expiration time of the Offer. We will rely on the last Election Form that you validly file and we receive before the expiration time of the Offer. If you want to change your election and you need a new Election Form, you may print one from the Q or you may request one from Qwest Stock Administration at StockAdmin2@Qwest.com or at the following address or telephone or fax number: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 tel: 866-437-0007 fax: 303-992-1174 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the Offer. If you request an Election Form, be sure to allow at least two business days for delivery to you. 9 19. What is the release that is included in the Election Form? By signing your Election Form and indicating that you accept the Offer, you agree to cancel the designated Eligible Options and your Recent Options and agree to the provisions of a release set forth in the Election Form. The release will operate as an unconditional release by you and your trustees, executors, administrators, guardians, attorneys-in-fact or others acting in a fiduciary or representative capacity of all rights and remedies relating to your Cancelled Options. By agreeing to the release, you agree that your exchanged Eligible Options and Recent Options, and all of your rights with respect to your exchanged Eligible Options and Recent Options, automatically terminate at the expiration time of the Offer. You retain, of course, your conditional right to receive New Options on the terms and conditions described in the Offer Circular. 20. Can the Offer be modified? Yes. Prior to the expiration time of the Offer, we may, in our sole discretion, extend, modify or revoke the Offer. We will notify you if the Offer is revoked. You will also be notified (and given an opportunity to change any Election Form that you may have previously filed) if we modify the Offer in any material manner. The date that New Options will be granted is referred to as the "New Option Grant Date." The New Option Grant Date is scheduled to be June 3, 2002. If June 3, 2002 is not a trading day, the New Option Grant date will be the first trading day after June 3, 2002. If we extend the Offer, we will adjust the New Option Grant Date to correspond to the new expiration time of the Offer. Subject to our right to modify or revoke the Offer, the only condition to participating in the Offer is that you must be eligible (as described in the responses to Question 11 above) to participate in the Exchange as of the expiration time of the Offer. See the response to Question 37 below for conditions applicable to New Option grants. We are not aware of any jurisdiction where the Exchange, the Offer, or the grant of New Options would violate applicable law. If we become aware of any jurisdiction where the Exchange or the Offer would violate applicable law, we will revoke the Offer in cases where applicable law cannot be satisfied. We may, where necessary, make New Option grants conditional on any required legal filings or approvals, modify the terms of the New Options to the extent necessary to satisfy applicable law, and we may delay the grant of New Options in cases where filings or approvals are required and have not been obtained. 21. What happens if I accept the Offer but my employment terminates before the expiration time of the Offer? If you accept the Offer but you cease to be a full-time employee of the Company before the expiration time of the Offer or you are not otherwise eligible to participate (see the responses to Questions 11 and 12 above), the release that you gave in accepting the Offer will be void and your Eligible Options and your Recent Options will be treated as if they had not been tendered or cancelled. 10 22. What happens if I accept the Offer but my employment terminates before the New Option Grant Date? If your employment with the Company is terminated by you or by the Company for any reason whatsoever after the expiration time of the Offer and before the New Option Grant Date, or if you are on unpaid leave on the New Option Grant Date, you will not have a right to any Cancelled Options, and you will not have a right to the New Options that would have otherwise been granted to you on the New Option Grant Date. You should carefully consider this issue, particularly if you are thinking about retiring or resigning before the New Option Grant Date. Therefore, if you are not a full-time employee of the Company at the expiration time of the Offer and on the New Option Grant Date, you will not receive any New Options in exchange for your Cancelled Options. You also will not receive any other consideration for the Cancelled Options or with respect to New Options that would have otherwise been granted to you. This result is the same even if you are terminated by the Company for no reason or are laid off or the subject of a workforce reduction. 23. What happens if I accept the Offer but I go on leave before the expiration time of the Offer? If you take a leave of absence, you will be treated as being employed by the Company for purposes of the Offer while on leave for as long as your leave is a paid leave of absence. Examples of paid leaves generally include workers compensation leave, short term disability with pay (including approved maternity or paternity leave), long term disability, military leave, and birth/adoption/guardianship leave. If you are on an unpaid leave of absence at the expiration time of the Offer, then you will not be eligible to participate in the Offer unless we are required by law to still treat you as an employee for this purpose. Examples of unpaid leave generally include surplus transition leave, personal unpaid leave, family and medical leave (other than approved maternity and paternity leave), and educational leave. 24. What happens if I accept the Offer but my employment terminates before the New Option Grant Date? If you die or if your employment with the Company terminates for any whatsoever before the New Option Grant Date, or you are on unpaid leave on the New Option Grant Date, we will not grant you any New Options and you will not have a right to any of your Cancelled Options. If you are on an unpaid leave of absence on the New Option Grant Date, you will not be granted New Options and you will not have a right to any of your Cancelled Options unless we are required by law to still treat you as an employee for this purpose. In either case, you will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. 25. What will happen to my Eligible Options and Recent Options if I do not accept the Offer? Participation in the Offer is entirely voluntary. If you do not accept the Offer (or if you do not accept the Offer with respect to all of your Eligible Options), your Eligible Options that you do not elect to tender in the Offer will remain outstanding in accordance with their terms. However, if 11 you accept the Offer with respect to any of your Eligible Options in any grant, you must also exchange all your other Eligible Options that were included in the same grant and all of your Recent Options. If you do not accept the Offer, your Recent Options granted on or after May 29, 2001 will also remain outstanding in accordance with their terms. 26. Will I be eligible to receive future grants of options under Qwest's benefit plans? If you accept the Offer, you are ineligible to receive any additional stock option grants until after the New Option Grant Date. This is because it would result in potential accounting charges that we wish to avoid. If you do not accept the Offer, you continue to be eligible for additional option grants. In other words, the six month ineligibility period for grants will not apply to you. However, we do not have any current intention to issue options on a broad basis in 2002 (other than the New Options). 27. How does the Offer affect my overall compensation? You might choose to think of your paycheck as your short-term compensation, your potential quarterly bonus as your mid-term compensation and your stock options as your long-term compensation. Taken together, these components represent a comprehensive compensation package. You should also consider the employment and related compensation commitment described in the response to Question 37 below. 28. Is there any tax consequence to my participation in the Exchange? If you exchange your Eligible Options and Recent Options (if any) for New Options, you will not be required under current law to recognize income for United States federal income tax purposes at the time of the Exchange or at the date that the New Options are granted. See the responses to Questions 50-54 below. 29. If I accept the Offer, will the grant and exercise of New Options affect my benefits under Company-sponsored retirement plans? No. The New Options will not affect those benefits. Income that you would have recognized if you had exercised your Eligible Options or Recent Options in the ordinary course would have been excluded from your compensation for purposes of determining your benefits under other Company-sponsored retirement plans. Similarly, income recognized in connection with exercising your New Options will be excluded from your compensation for purposes of determining your benefits under Company-sponsored retirement plans. Any value associated with an option grant is also excluded from your compensation for these purposes. 30. What happens if Qwest is subject to a change in control, asset sale, merger or other reorganization before the New Options are granted? If a change of control or certain other reorganization of Qwest occurs before we grant the New Options, we expect that the successor or purchaser would agree to assume or substitute other outstanding options of Qwest and would agree to assume the obligation to issue New Options. However, we cannot 12 guarantee that any successor or purchaser would agree to assume existing options or any obligation to issue New Options. Therefore, it is possible that you may not receive any New Options, securities of the surviving company or other consideration in exchange for your Cancelled Options if Qwest is subject to a change of control, sells assets or otherwise reorganizes before the New Options are granted. In addition, the announcement of a change in control transaction regarding Qwest before the New Option Grant Date could have a substantial effect on our stock price, including substantial stock price appreciation, which could reduce or eliminate potential benefits provided by the Offer. The preceding paragraph describes the general consequences of a change of control or other reorganization of Qwest generally. You may also be affected if Qwest or an affiliate sells a subsidiary, a division or a part of the Company for which you work. In those circumstances, if you were transferred to the acquiring company, the acquiring company would likely not have to agree to issue New Options under the Offer. Consequently, if you are employed by the subsidiary or in the division or business that is sold and you do not continue to be employed by the Company following the sale, then the sale will constitute the termination of your employment with the Company for purposes of the Offer and the New Options. In those circumstances, you would not be entitled to receive options to purchase stock or securities of the acquiring company or any other consideration in exchange for your Cancelled Options. We also reserve the right to take any action, including entering into a merger, asset purchase or sale or similar transaction, or shutting down a business unit, whether or not it adversely affects the grant of the New Options under the Offer or the likelihood that the New Options will be granted. 31. After the grant of my New Option, what happens if my options again end up "underwater"? There is no guarantee that your New Options will have an exercise price that is less than the exercise price of your Cancelled Options or that the market price of Qwest common stock will ever exceed the exercise price of your New Options. We cannot guarantee stock price performance. Furthermore, we currently do not expect to make a similar stock option exchange offer in the future. Description of Terms and Conditions of New Options to be Granted in June 2002 This section generally describes the New Options to be granted as part of the Offer. The information in this section is qualified in its entirety by the more detailed information set forth in the form of Nonqualified Option Agreement that will evidence each grant of New Options (the applicable "New Option Agreement"), by the more detailed information set forth in our Equity Incentive Plan, and, as with other sections of this document, by the information contained in the Offer Circular. All of the New Options, including those that relate to Cancelled Options that were originally granted under one of the U S WEST stock plans, will be granted under and subject to the terms and conditions of our Equity Incentive Plan. You may obtain a copy of our Equity Incentive Plan by request without charge from Qwest. It is also available from the SEC (see "Additional Information; Incorporation of Documents by Reference" section in the Offer Circular). Copies of the forms of New Option Agreements that may be used in connection with the Exchange are attached as Attachments B, C and D to the Offer Circular. As described below, for Eligible Options that were originally granted under our Equity Incentive Plan, the form of New Option Agreement that will be used to 13 evidence any particular New Option will depend on the change in control provisions that applied to the corresponding Cancelled Option. For Eligible Options that were originally granted under any of the U S WEST stock plans and assumed by us in the merger, all New Options will be evidenced by the form of New Option Agreement attached as Attachment D to the Offer Circular. You should read our Equity Incentive Plan and all applicable attachments to the Offer Circular. Our Equity Incentive Plan or the applicable New Option Agreement will control if any discrepancy exists between the information presented in this document or the Offer Circular with respect to the New Options and the terms of our Equity Incentive Plan or the applicable New Option Agreement. 32. If I accept the Offer, how many New Options will I be granted? If you timely accept the Offer, you are eligible to participate in the Exchange and you are a full-time employee of the Company on the New Option Grant Date, you will be granted New Options with respect to the same number of shares as the number of shares covered by your Cancelled Options. For example, if you tender an Eligible Option that covered 100 shares, which had been exercised as to 20 shares prior to the expiration time of the Offer, and was outstanding as to 80 shares at the time it terminated pursuant to the Exchange, your New Option would cover 80 shares. In general, if we increase or decrease the number, or change the rights and privileges, of our outstanding shares of common stock by payment of a stock dividend, stock split or other distribution upon the shares payable in common stock, or through a subdivision, combination, consolidation, reclassification or recapitalization involving our outstanding common stock, we will proportionately adjust the number, rights and privileges of the securities to be subject to New Options as if they had been outstanding under our Equity Incentive Plan on the date that any of these events occur. The mere issuance of additional shares by Qwest in an acquisition or other transaction, however, typically would not result in any such adjustment. We do not guarantee that you will receive any value if you accept the Offer. The value you receive will depend on, among other things, the exercise price of your Cancelled Options, the exercise price of your New Options, whether or not you remain employed by the Company or the New Options otherwise vest, and the market price of our common stock when you sell the shares that you acquire when you exercise your New Options. 33. What will be the exercise price of the New Options? The per share exercise price of the New Options will be the closing market price of our common stock as reported by the New York Stock Exchange on the New Option Grant Date. The New Option Grant Date will be June 3, 2002 or, if that day is not a trading day, the first trading day after June 3, 2002. If we extend the Offer, we will adjust the New Option Grant Date to correspond to the new expiration time of the Offer. 34. When will the New Options vest? If you accept the Offer, the New Options that you are granted will vest and become exercisable over four years as follows: (1) one-fourth of the New Options will vest on the first anniversary of the New Option Grant Date, (2) one-fourth of the New Options will vest on the second anniversary of the New Option Grant Date, (3) one-fourth of the New Options will vest 14 on the third anniversary of the New Option Grant Date and (4) one-fourth of your New Options will vest on the fourth anniversary of the New Option Grant Date, subject, in each case, to your continued employment by the Company through the applicable vesting date. All New Options will be subject to this vesting schedule, regardless of the fact that all or a portion of your Cancelled Options may have already vested. For example, assume that you decide to tender the one Eligible Option that you own for 200 shares. At the expiration time of the Offer the option is 25% vested. Assuming that you are still employed on the New Option Grant Date (assuming it is June 3, 2002), we will grant you a New Option for 200 shares. Your New Option will vest in four equal installments, with 25% vesting on June 3, 2003, June 3, 2004, June 3, 2005 and June 3, 2006. The fact that your Eligible Option was already 25% vested when it was cancelled does not affect the vesting schedule of your New Option. 35. What are the termination provisions of the New Options? New Options will each be subject to a new ten year option term beginning on New Option Grant Date. For Eligible Options that were originally granted under our Equity Incentive Plan, the New Options will remain subject to the same provisions regarding early termination upon a termination of employment as your Cancelled Options, subject of course to the new vesting requirements. For Eligible Options that were originally granted under one of the U S WEST stock plans, the New Options will be subject to the termination of employment provisions that are included in the form of New Option Agreement attached as Attachment D to the Offer Circular. The termination of employment provisions in that form generally provide as follows: o if your employment terminates other than because of death, disability, or a termination by the Company for "cause", the unvested portion of the New Options will terminate and the vested portion will remain exercisable fort up to three months; o if your employment terminates by reason of death or disability, the unvested portion of the New Options will terminate and the vested portion will remain exercisable for a period of up to twenty-four months; and o if your employment is terminated for cause, the new Options will terminate immediately whether or not they are vested. In each case, these termination provisions are subject to earlier expiration of the option. (See Section 6 of Attachment D to the Offer Circular for the specific provisions and also refer to the response to Question 37 below). These termination provisions (including, without limitation, the definitions of "disability" and "cause" used for purposes of the New Option grants) may be different from the provisions that applied to the corresponding Cancelled Options. For example, you may have been entitled to materially more favorable vesting and/or exercise rights upon your retirement or in case of your death or disability under your original U S WEST stock plan options than under your New Options if you accept the Offer. 15 36. What will be the change of control provisions of my New Option? For Eligible Options that were originally granted under our Equity Incentive Plan, the New Options granted in exchange for your Cancelled Options will be subject to the same change in control provisions as your Cancelled Options. If your Cancelled Options contain different change in control provisions, your New Option Agreements will be different and will reflect these different provisions. For Eligible Options that were originally granted under the U S WEST stock plans, the New Options granted in exchange for your Cancelled Options will be subject to the change in control provisions that are contained in Section 7 of the form of New Option Agreement attached as Attachment D to the Offer Circular, regardless of the change in control provisions in those Cancelled Options. The New Options generally: o will become fully vested if there is both a change in control (as defined in the Equity Incentive Plan) and we subsequently terminate your employment other than for "cause"; o will also become fully vested on any of the following events: o a merger or consolidation of Qwest with or into another corporation or other reorganization, or o the sale of all or substantially all of Qwest's assets, if, Qwest, or the successor or purchaser, as the case may be, does not assume the outstanding options or substitute new options for the outstanding options; and o will terminate subject to certain accelerated vesting and notice provisions under our Equity Incentive Plan if Qwest or the successor or purchaser does not assume or substitute the options in the circumstances above. As a result of the terms of the New Options, you may have been entitled to materially more favorable terms (including vesting) in the event of a merger, asset sale, or change in control under your original U S WEST stock plans options than will apply to New Options. 37. What will be the other terms and conditions of my New Options? You must make an employment commitment to receive a New Option. That is, Section 7.2(f) of our Equity Incentive Plan requires that you reaffirm on the New Option Grant Date your agreement to remain in the employ of the Company for a continuous period of at least one year after that date at your rate of compensation then in effect, even though the Company may terminate your employment and change your compensation before, during or after the one-year period. You made this reaffirmation when you received your other options from the Company granted under our Equity Incentive Plan. If you do not make that reaffirmation when you receive a New Option, you will not be granted any New Options and you will not have a right to any of your Cancelled Options. If we determine that we will not require separate written affirmations, your acceptance of your New Option will constitute your affirmation of the employment agreement referred to above. 16 The New Options will be subject to a new ten year term, starting on the New Option Grant Date, subject to earlier termination provisions. If you tender Eligible Options that were originally granted under our Equity Incentive Plan, other than the new exercise price, new option term and new vesting schedule, we expect that your New Options will otherwise be subject to substantially the same terms and conditions as the corresponding Cancelled Options. If you tender Eligible Options that were originally granted under the U S WEST stock plans, the terms and conditions of the New Options may be materially different from those that applied to your corresponding Cancelled Options. For example, and without limitation, all New Options: o will immediately terminate (whether or not vested) if you engage in certain activity in competition with us, in activity that is contrary or harmful to the interests of Qwest, in conduct related to your employment that could lead to criminal or civil penalties or in conduct in violation of our policies; if you disclose or misuse any confidential information or material concerning us; or if you participate in a hostile takeover attempt; o will generally be subject to amendments without your consent unless the amendment adversely affects your New Option; and o require the exercise price to be paid only in United States dollars by certified check or bank cashier's check, or by wire transfer, unless we have in place procedures allowing for a cashless exercise. Under a cashless exercise, you may pay the exercise price of a New Option by tendering shares of Qwest stock that you have owned for more than six months or by delivering to us a copy of irrevocable instructions to a stockbroker to sell stock or to authorize a loan from the stockbroker to you and to deliver promptly to us an amount sufficient to pay the exercise price of your option. In addition to the terms and conditions described in the responses to Questions 35 and 36 above, there may be additional differences in the terms of the New Options as compared to the terms of your Cancelled Options that were originally granted under one of the U S WEST stock plans. If you own options that were granted under the U S WEST stock plans, you should carefully read the stock option agreements that evidence your U S WEST stock plan options and the U S WEST stock plans and compare those provisions to the provisions of our Equity Incentive Plan and the form of New Option Agreement attached as Attachment D to the Offer Circular. You will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. 38. What is a stock option? A stock option is a right granted by a corporation to an individual or entity to buy a specified number of shares of the company's stock at a fixed price during a specified period of time. 17 39. What is an "exercise price"? An exercise price, also called the strike price or grant price, is the fixed price that you pay to buy your shares when you exercise your stock option. Other Provisions; Administration This section describes certain other aspects of the Offer, including the fact that the Offer does not confer any employment rights, certain administrative information regarding the Offer and, since Qwest is making the Offer, certain information about Qwest. 40. Does the Offer give me any rights to continued employment by the Company? No. The Offer does not have any effect on your employment status or give you any right to continued employment with the Company or any of its affiliates. You will remain an at-will employee regardless of whether you elect to participate in the Exchange. That means that you are not guaranteed employment for any period of time. If you die or if your employment with the Company terminates for any reason whatsoever before the New Option Grant Date, or if you are on unpaid leave on the New Option Grant Date, we will not grant you any New Options and you will not have a right to any of your Cancelled Options. If you are on an unpaid leave of absence on the New Option Grant Date, you will not be granted New Options and you will not have a right to any of your Cancelled Options unless we are required by law to still treat you as an employee for this purpose. In either case, you will not receive any other consideration for your Cancelled Options or with respect to the New Options that you otherwise would have received. If we sell a subsidiary or any other event or transaction occurs that results in a Qwest affiliate or subsidiary not continuing as such an affiliate or subsidiary after the event or transaction, and you are employed by the affected affiliate or subsidiary, you will be deemed to have terminated employment with the Company for purposes of the Exchange and any of your New Options unless, after the event or transaction, you are otherwise employed by Qwest or another entity that is then a Qwest subsidiary or affiliate. 41. How do I make a claim for payment of other benefits I may be owed? If you accept the Offer, you generally will not have to take any other action to receive the grant of New Options in exchange for your Cancelled Options. If, however, you believe that you are being denied a benefit to which you are entitled, you should file a written request with Qwest Stock Administration. The request should include the reasons for your claim. Any written claim request should be sent to: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 10th Floor Denver, Colorado 80202 42. Who will administer and pay the costs of administering the Exchange? We will make all administrative decisions regarding the Exchange. Without limiting that authority, we have the authority, in our sole discretion, to determine all questions as to form of documents and the validity, eligibility, and acceptance of any election to participate in the Offer. Our determination on these matters will be final and binding on 18 all persons. We reserve the right to waive any condition of the Offer. We are not obligated to give any notice of any defects or irregularities in Election Forms, nor will anyone incur any liability if you fail to return a valid Election Form. We will pay the expenses of administering the Exchange and the grant of New Options. We will not retain, nor will we pay any fees or commissions for, any broker, dealer, or other person to solicit elections to accept the Offer. Any such solicitation is prohibited. 43. What is the price of our common stock? Shares of our common stock are traded on the New York Stock Exchange under the symbol "Q." On November 1, 2001, the closing price of a share of our common stock was $12.00. The following table presents the high and low sales prices per share of Qwest common stock for the periods indicated, as reported on the New York Stock Exchange:
Period High Low ------ ---- --- Year Ending December 31, 2001: First Quarter $ 47.5000 $ 33.2500 Second Quarter $ 40.9000 $ 29.8200 Third Quarter $ 31.1500 $ 16.5000 Fourth Quarter (to October 30, 2001) $ 18.9000 $ 11.5500 Year Ended December 31, 2000: First Quarter $ 64.0000 $ 37.0000 Second Quarter $ 54.2500 $ 39.5000 Third Quarter $ 57.8750 $ 44.5000 Fourth Quarter $ 51.4375 $ 32.3750 Year Ended December 31, 1999: First Quarter $ 37.4063 $ 25.6250 Second Quarter $ 48.0625 $ 32.5625 Third Quarter $ 35.9375 $ 26.1250 Fourth Quarter $ 44.0000 $ 29.8750
You should obtain current market quotations for our common stock before you decide whether you should accept the Offer. The value of our common stock will fluctuate in the future and we cannot and do not predict any future values for our common stock. 19 44. What information is available regarding Qwest? Qwest is making the Offer. We are a leading broadband Internet communications company that provides advanced communication services, data, multimedia and Internet-based services on a national and global basis; and wireless services, local telecommunications and related services and directory services in a 14-state local service area. A Fortune 100 company, we principally serve large and mid-size business and government customers on a national and international basis, as well as residential and small business customers primarily in our 14-state local service area. We are incorporated under the laws of the State of Delaware and have our principal executive offices at 1801 California Street, Denver, Colorado 80202, telephone number 303-992-1400. Attachment E to the Offer Circular summarizes certain of our consolidated financial data. Additional information about us, including certain more detailed financial statements, is available from the documents referred to and incorporated by reference under "Additional Information: Incorporation of Documents by Reference" in the Offer Circular. 45. How many Eligible Options are there? The Offer is being made only with respect to your Eligible Options and Recent Options that are outstanding as of the expiration time of the Offer. As of September 30, 2001, there were 1,664,535,549 shares of Qwest common stock outstanding and there were outstanding stock options and other awards covering up to an additional 121,190,582 shares of Qwest common stock (note that the awards referred to in the response to Question 46 below are not included in this number because the awards were not granted until October 24, 2001). Of the shares subject to those stock options and other awards, approximately 35.7 million shares (approximately 2.1% of the outstanding shares) were subject to the Eligible Options originally granted under our Equity Incentive Plan, approximately 3.4 million shares (approximately 0.2% of the outstanding shares) were subject to Eligible Options originally granted under the U S WEST stock plans, and approximately 1.8 million shares (approximately 0.1% of the outstanding shares) were subject to the Recent Options outstanding at that time. (None of the awards referred to in the response to Question 46 below and granted on October 24, 2001 constitute Eligible Options or Recent Options that can be exchanged in the Offer.) 46. How does the Offer relate to Qwest's directors and executive officers? Our directors and certain senior officers are not eligible to participate in the Exchange. Our directors and executive officers, and their positions and offices, are as follows: Philip F. Anschutz (Chairman of the Board), Joseph P. Nacchio (Chairman and Chief Executive Officer, and Director), Linda G. Alvarado (Director), Craig R. Barrett (Director), Hank Brown (Director), Thomas J. Donohue (Director), Jordan L. Haines (Director), Cannon Y. Harvey (Director), Peter S. Hellman (Director), Vinod Khosla (Director), Marilyn Carlson Nelson (Director), Frank P. Popoff (Director), Craig D. Slater (Director), W. Thomas Stephens (Director), Joel M. Arnold (Executive Vice President - Global 20 Accounts), Clifford S. Holtz (Executive Vice President National Business Accounts), Afshin Mohebbi (President and Chief Operating Officer), James A. Smith (Executive Vice President - National Consumer Markets), Robin R. Szeliga (Executive Vice President and Chief Financial Officer), and Drake S. Tempest (Executive Vice President, General Counsel, Chief Administrative Officer and Secretary). The address of each director and executive officer is c/o Qwest Communications International Inc., 1801 California Street, Denver, Colorado 80202. Please see our proxy statement for our annual meeting of shareholders held on May 2, 2001 for more information regarding the compensation of directors and certain executive officers and the amount of Qwest securities that our directors and executive officers beneficially owned, for periods or as of the dates set forth in that statement. This proxy statement is available upon request as described under "Additional Information; Incorporation of Documents by Reference" in the Offer Circular. There were no stock option or stock transactions involving our directors and executive officers within the 60 days before the commencement of the Offer, except for the grants of the stock options and restricted stock described in the following paragraph. Our Board approved certain stock option and restricted stock grants on October 24, 2001. Those grants were made to persons who are not eligible to participate in the Offer. Messrs. Nacchio, Mohebbi, Arnold, Holtz, Smith and Tempest and Ms. Szeliga were granted new stock options covering 7,250,000 shares, 1,000,000 shares, 500,000 shares, 175,000 shares, 250,000 shares, 600,000 shares, and 600,000 shares of our common stock, respectively, each with an exercise price of $16.81 per share. Messrs. Arnold and Tempest and Ms. Szeliga were each granted restricted stock awards covering 100,000, 200,000 and 100,000 shares, respectively. The stock option grants have maximum ten-year terms and vest in four equal annual installments of 25% on each of the first four anniversaries of the date of grant beginning on October 24, 2002, except that Mr. Nacchio's stock options vest in four installments as follows: 2,500,000 shares on August 1, 2004, 500,000 shares on December 1, 2004, 2,500,000 shares on August 1, 2005 and 1,750,000 shares on December 1, 2005; and Mr. Mohebbi's stock options vest in two installments as follows: 500,000 shares on April 1, 2004 and 500,000 shares on April 1, 2005. The shares of restricted stock vest in four equal annual installments of 25% on February 1, 2003, February 1, 2004, February 1, 2005 and February 1, 2006. These option grants and restricted stock awards are evidenced by award agreements in the forms customarily used by us. These forms are attached as exhibits to the Tender Offer Statement on Schedule TO that we filed with the Securities and Exchange Commission and that is referred to in the "Additional Information; Incorporation of Documents by Reference" section of the Offer Circular. In connection with the award grants identified in the preceding paragraph, Mr. Nacchio's employment agreement with us was extended through December 31, 2005 and each of Messrs. Nacchio's and Mohebbi's annual base salary was adjusted effective as of January 1, 2002 to $1,500,000 and $850,000, respectively. Each of their annual bonus targets (expressed as a percentage of base salary) for 2002 will be 250% and 200%, respectively, of base salary. In addition, we loaned Mr. Mohebbi $4,000,000, interest free, that will be forgiven over five years, in 20% installments so long as he remains satisfactorily employed. 21 47. What are the general accounting consequences to the Company of the Exchange? We believe that we will not incur any compensation expense solely as a result of the transactions contemplated by the Exchange because we will not grant any New Options until a date that occurs more than six months and one day after the expiration time of the Offer (the New Options are scheduled to be granted on June 3, 2002 or later). Further, the exercise price of all New Options will equal the closing market price of our common stock on the New Option Grant Date. If we were to grant any options before the scheduled New Option Grant Date to any option holder electing to participate in the Exchange, our grant of those options (assuming the applicable per share exercise price is less than the exercise price of the options tendered in the Exchange) would be treated for financial reporting purposes as a variable award to the extent that the number of shares subject to the newly-granted options is equal to or less than the number of the option holder's option shares tendered in the Exchange. In this event, we would be required to record as compensation expense the amount by which the market value of the shares subject to the newly granted options exceeds the exercise price of those shares. This compensation expense would accrue as a variable accounting charge to our earnings over the period that the newly granted options are outstanding. We would have to adjust this compensation expense periodically during the option term based on increases or decreases in the market value of the shares subject to the newly granted options. Similar accounting rules will trigger a variable accounting charge to our earnings if outstanding options are terminated and, within the six-month period preceding the termination, other stock options were granted at an exercise price that is less than the exercise price of the terminated options. To avoid this potential accounting charge, we are requiring that you tender all of your Recent Options in the Exchange if you want to tender any of your Eligible Options. 48. Is Qwest contemplating any other transactions? We must disclose whether we are contemplating certain types of transactions in connection with the Offer. Except as otherwise disclosed below and elsewhere in the Offer Circular and in our filings with the Securities and Exchange Commission (the "SEC"), and while we reserve the right to contemplate and effect any of these transactions from time to time, we currently have no plans or proposals that relate to or would result in: o an extraordinary transaction, such as a merger, reorganization or liquidation, involving us or any of our subsidiaries; o any purchase, sale or transfer of a material amount of our assets or the assets of any of our subsidiaries; o any material change in our present dividend rate or policy, or our indebtedness or capitalization; o any change in our present Board of Directors or executive officers, including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on our Board or to change any material term of the employment contract of any executive officer; 22 o any other material change in our corporate structure or business; o our common stock being de-listed from a national securities exchange; o our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended; o the suspension of our obligation to file reports under Section 15(d) of the Securities Exchange Act of 1934, as amended; o the acquisition by any person of any of our securities or the disposition of any of our securities (other than as a result of the exercise of stock options or the payment of other award granted under our incentive compensation plans); or o any changes in our articles of incorporation, bylaws of other governing instruments or any actions that could impede the acquisition of control of Qwest. On October 18, 2001, we announced an agreement to purchase approximately 14 million shares of KPNQwest common stock from the other major shareholder in KPNQwest, Koninklijke KPN N.V. ("KPN"). The agreed upon purchase price was $4.58 per share. After completion of the purchase, we will own approximately 47.5% of the voting power of the KPNQwest stock. As part of the agreement, KPN granted an option to us to purchase some or all of KPN's shares in KPNQwest in March of 2002. The purchase, which is subject to several conditions including antitrust pre-clearance in the United States of America and several European jurisdictions, and KPNQwest shareholder approval of certain amendments to the KPNQwest articles of association, is expected to be completed before December 31, 2001. We will continue to account for our proportionate share of KPNQwest's operations under the equity method of accounting. 49. Are there any regulatory requirements or other approvals that Qwest must comply with or obtain? We are not aware of any license or regulatory permits that are important to our business that might be adversely affected by the exchange and cancellation of Eligible Options and Recent Options or the issuance of New Options as contemplated by the Offer. In addition, we are not aware of any approval that is required from any government authority or agency for the cancellation of Eligible Options and Recent Options and the grant of New Options as contemplated by the Offer, other than those that we have obtained or that we expect to obtain. Federal Income Tax and Social Security Consequences Questions 50 through 53 below discuss the material United States federal income tax and Social Security considerations that relate to the Exchange. Question 54 below comments on state, local and foreign tax matters. We cannot and do not guarantee any particular tax consequences. You should consult your own tax advisors. The Company may withhold any amounts required by law (including U.S. federal, state or local, or foreign, income, employment or other taxes) to be withheld with respect to the Exchange and the exercise of New Options. In the event that the Company does not elect for any reason to withhold amounts necessary to satisfy any applicable tax withholding obligations that arise, the Company may withhold such amounts from compensation otherwise payable to you or you must pay or provide for the payment of such amounts to the Company. The amount of tax withheld by the Company may not be sufficient to pay the actual tax liability due, and you will be responsible for any shortfall. 23 50. What is the tax effect of the Exchange? If you accept the Offer, there will be no federal income tax consequences with respect to the cancellation of your exchanged Eligible Options and Recent Options or with respect to the grant of your New Options. 51. What is the income tax effect of the New Option grants and shares I receive when I exercise my vested New Options? The New Options granted to you will not be taxed for income tax purposes until the year in which you exercise the New Options. The amount of income that you will recognize with respect to the shares distributed will equal the excess of the fair market value of a share of our common stock over the exercise price paid for the shares (the "spread"). The income that you recognize with respect to the exercise of New Options will constitute ordinary income, not capital gain. You will pay federal income tax based on the tax rates in effect for the year in which you exercise your New Options, rather than based on the tax rates in effect for the year 2001 or 2002. We will be entitled to a business expense deduction equal to the amount of ordinary income that you recognize with respect to the exercised New Option. We will be allowed the deduction in the year in which you recognize ordinary income. The fair market value of our common stock that you receive when you exercise your New Options will be the "tax basis" for the stock. If you later sell the stock, any gain or loss that you realize from the sale (determined based on your tax basis in the stock) will be taxable to you either as short-term or long-term capital gain or loss, depending on how long you own the shares before you sell them. Generally, you must own the shares for more than one year before you sell them in order to qualify for long-term capital gain treatment. 52. What are the tax withholding requirements with respect to the New Options? The Federal Insurance Contributions Act ("FICA") imposes two types of taxes - Social Security tax (at 6.2%) and Medicare tax (at 1.45%) - on both employers and employees for wages paid to employees. The Social Security tax is a percentage of wages up to the Social Security wage base limitation, which is $80,400 for the year 2001. The Social Security wage base is adjusted annually. Once you have paid Social Security tax for a given year on an amount of wages from a particular employer equal to the wage base limitation, no further Social Security tax is payable on that year's wages from that employer. Currently, there is no wage base limitation for Medicare tax purposes. Thus, all wages paid to you are subject to Medicare tax. Income tax withholding is also required on wages paid to employees. The Company will withhold federal income taxes on the "spread" upon the exercise of your options at the supplemental wage withholding rate (currently 27.5%). State and local income tax withholding also may be required, depending on your state of employment. For purposes of the following illustration, the state tax withholding rate is assumed to be 6%. (The California supplemental wage withholding rate is 6%.) 24 The "spread" on the New Options will be treated as wages received for FICA and income tax purposes in the year(s) of exercise. Income taxes and FICA taxes will be withheld at the time(s) of exercise. The amount of income tax withholding may not be sufficient to cover your actual income tax liability. For Example: Assume that you accept the Offer and that you are granted 300 New Options for your exchanged Eligible Options at a per share exercise price of $15. Further assume that you exercise 100 of your vested New Options when the fair market value of a share is $20. You will recognize $500 of ordinary income in that year. Required withholding would be as follows: $38.25 for FICA (assuming the Social Security wage base had not been met at the time of payment) (7.65% of $500 = $38.25); $137.50 for federal income taxes (27.5% of $500 = $137.50); and $30 for state income taxes (at an assumed state withholding rate of 6%, 6% of $500 = $30). Thus, the total withholding obligation would be $205.75 ($38.25 + 137.50 + $30 = $205.75). We may make provisions and take whatever steps as we may deem necessary or appropriate to withhold all federal, state, local and other taxes required by law to be withheld with respect to the exercise of any New Option. For example, we may deduct the amount of any required withholding taxes from any other amount then or thereafter payable to you or may require you to pay to us in cash the amount required to be withheld. 53. Could a change in tax law affect my benefits? Yes. Congress may change the relevant tax and Social Security law at any time, and these changes may be retroactive to before the date of enactment. These changes may have a material effect on the benefit you expect to receive by electing to participate in or by not electing to participate in the Exchange. 54. What are the local and foreign income tax consequences of the New Options? We are unaware of any state and local income tax consequences in the United States of the Exchange and the grant and exercise of New Options that differ from the United States federal income tax consequences described and cross-referenced above. Foreign taxes are beyond the scope of this discussion. If you reside in a jurisdiction outside of the United States, you should consult with your own tax advisors. 25
EX-99.A.27 11 ex_a-27.txt EXHIBIT 99.A.27 [UPDATED HR WEBSITE FULL SCREEN MESSAGE (November 2, 2001)] Qwest is offering full-time, non-union employees the opportunity to participate in a voluntary stock option exchange program. You cannot exchange options that were granted to you as an employee of LCI International, Inc. or ICON CMT Corp. The deadline for participating in this program is 5 p.m. (Mountain Standard Time) November 30, 2001. Details about the program are available by clicking on the icons on this page. [LINK TO NOVEMBER 2, 2001 COVER LETTER TO EMPLOYEES] [LINK TO LETTER TO FORMER U S WEST OPTION HOLDERS] [LINK TO AMENDED AND RESTATED OFFER CIRCULAR] [LINK TO ADDENDUM TO OFFER CIRCULAR] [LINK TO ELECTION FORM] [LINK TO FREQUENTLY ASKED QUESTIONS] [LINK TO INSTRUCTIONS FOR RETURNING THE ELECTION FORM] EX-99.A.28 12 ex_a-28.txt EXHIBIT 99(A)(28) [Transcription of Updated Recorded Message on Stock Administration Toll Free Phone Line] Welcome to the Qwest Stock Option Exchange information line. If you're a member of either the CWA or the IBEW union, this message does not apply to you or the provisions covered by your collective bargaining agreements. If you are a Qwest full-time, non-union employee, this stock option exchange program has been designed for you and requires your careful consideration. The program allows employees to exchange options [PAUSE] currently priced at $35 or more [PAUSE] for new options...with a new exercise price to be set in June 2002. Of course, whether you exchange your options or not is completely up to you. We make no recommendation regarding the offer. You should consult with a financial advisor or do your own analysis to decide whether the program is right for you. For convenience, we will be mailing eligible employees information about the new stock option exchange program at their homes in early November. Eligible employees also are receiving an e-mail describing the program, and all information is available on the Q. You cannot exchange options that were granted to you as an employee of LCI International Inc. or ICON CMT Corp. Only options that were granted under the Qwest Equity Incentive Plan, or under the former U S WEST plans, are eligible options under the exchange program. Because of the size of the mailing, you may not receive the materials for several days. If you have not received the mailing by Monday, November 12, you may send an e-mail to stockadmin2@qwest.com. We will send to your company e-mail a copy of your option statement. If you have any questions or need additional copies of materials, please go to the Q. If you have other questions, please review our FAQs on the Q Web site, or if you are calling between 8 a.m. and 7 p.m. mountain standard time, you may stay on the line to speak to a representative. Thanks for calling! EX-99.A.29 13 ex_a-29.txt EXHIBIT 99(A)(29) [Instructions on How to Accept Exchange Offer to Appear on Qwest Human Resources Website] How may I accept the Qwest Exchange Offer? We are frequently asked how an employee can accept the Qwest option exchange offer. The following information is intended to answer only that question. This document does not contain all of the information from the Amended and Restated Offer Circular (the "Offer Circular"), the Election Form and Release Agreement (the "Election Form"), and the other documents that are being distributed in connection with the offer. Before you decide whether to accept the exchange offer, it is important that you carefully read and consider the entire Offer Circular, the Election Form and the other documents that we have distributed to explain the offer. If you need another copy of the Offer Circular or the Election Form, you may print one from the Q at the links given below, or you may contact our Stock Administration department at StockAdmin2@Qwest.com or at the address or telephone number given below. Offer Circular: http://theq.qwest.net/departments/hr/circular.pdf [LINK TO AMENDED AND RESTATED OFFER CIRCULAR] Election Form and Release Agreement: http://theq.qwest.net/departments/hr/electform.pdf [LINK TO ELECTION FORM] Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 Tel: 866-437-0007 If you request an Election Form, be sure to allow at least two business days for delivery to you. The offer is a voluntary one. You must make your own decision to accept or reject the offer. If you have any questions about the impact of the offer on your financial status, you should consult your financial advisor. Now, if after reading the Offer Circular and the Election Form, you decide you want to accept the offer, you should: o Assemble Option Information. You should then assemble the option information that you will need to complete the Election Form. The last time you received options, we sent you all the option information you need to complete the election form. If you have options that were granted under one of the U S WEST stock plans, you received a conversion notice in connection with the merger regarding the conversion and assumption of your U S WEST options. For your convenience, we are also sending to you at the address we have for you an option statement showing the options that you can exchange. If you need another copy, please contact Qwest Stock Administration at the email address, address or telephone number given above. You are responsible for confirming that the options included in your option statement satisfy the eligibility requirements described in the response to Question 13 in the Offer Circular and for confirming that all of your Eligible Options and Recent Options are reflected in your statement. Any discrepancies should promptly be reported to Qwest Stock Administration at the email address, address or telephone number given above. o Complete, Sign and Date the Election Form. You should next complete, sign and date the Election Form. If you want to accept the offer, you must indicate on the Election Form that you accept the offer and agree to the terms of the release set forth in the Election Form. You should indicate whether you accept the offer with respect to all of your Eligible Options or indicate the grants of Eligible Options that you want to exchange. You must list on the Election Form all the Eligible Options that you want to exchange, except that, if you want to exchange all your Eligible Options, you may check the box on the Election Form to indicate that you elect to exchange all your Eligible Options. In either case, if you elect to exchange any Eligible Option you will be deemed to have elected to exchange all your Recent Options as well, whether or not you list them on the Election Form. If the Election Form is signed by trustees, executors, administrators, guardians, attorneys-in-fact or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless we have waived this requirement, submit evidence satisfactory to Qwest of their authority to act in this capacity. o Return Election Form. You should then mail, hand deliver or fax the completed, signed and dated Election Form to Qwest at the following address for receipt prior to 5:00 p.m., Mountain Standard Time, on November 30, 2001, or any later expiration time to which the offer has been extended: Qwest Stock Administration Qwest Communications International Inc. 555 17th Street, 7th Floor Denver, Colorado 80202 Fax: 303-992-1174 A Qwest Stock Administration representative will generally be available at that location (during normal business hours) or through that telephone number from 8:00 a.m. to 7:00 p.m., Mountain Standard Time, each business day until the expiration time of the offer. We cannot accept Election Forms by e-mail or any other means of delivery other than those means identified above. For your convenience, a postage-paid, pre-addressed envelope has been included with your package of offer materials that is being sent to you for you to use to return your Election Form to us. If you do not use the enclosed pre-addressed envelope to return this form to Qwest, you must pay all mailing or courier costs to deliver this form to Qwest. The method by which you deliver the signed Election Form to Qwest is at your option and risk, even if you use the pre-addressed envelope, and delivery will be effective only when the form is actually received by Qwest. In all cases, you should allow sufficient time to ensure timely delivery. If we do not receive a valid Election Form from you prior to the deadline, you will be deemed to have rejected the exchange offer. Neither we nor any other person is obligated to give you notice of any defects or irregularities in any election, nor will anyone incur any liability for failure to give any such notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of elections. Our determination of these matters will be final and binding. 2 Qwest Stock Administration intends to return a confirmation of receipt card to you by mail that you will fill out and send in with your Election Form to confirm that your Election Form has been received. This card only means that we have received something from you. It does not mean that you completed the Election Form correctly. Your election to accept or reject the offer will become irrevocable upon the expiration time of the offer. Be sure to read your Election Form. The effectiveness of any election that you may make to accept the offer is subject to all of the terms and conditions of the offer as set forth in the Offer Circular and the Election Form. 3 EX-99.D.4 14 ex_d-4.txt EXHIBIT 99(D)(4) 1998 U S WEST STOCK PLAN I. PURPOSE. This 1998 U S WEST Stock Plan (the "Plan"), is intended to promote the long term success of USW-C, Inc. (to be renamed "U S WEST, Inc.") (the "Company") by affording certain eligible employees, executive officers, non-employee directors of the Company and its Subsidiaries (as defined below) and certain outside consultants or advisors to the Company and its affiliates with an opportunity to acquire a proprietary interest in the Company, in order to incentivize such persons and to align the financial interests of such persons with the stockholders of the Company. II. DEFINITIONS. The following defined terms are used in the Plan: A. "Agreement" shall mean the agreement or grant letter accepted by the Participant as described in Section VIII of the Plan between the Company and a Participant under which the Participant receives an Award pursuant to this Plan. B. "Award" shall mean individually, collectively or in tandem, an incentive award granted under the Plan, whether in the form of Options, SARs, Stock Awards or Phantom Units. C. "Board" or "Board of Directors" shall mean the Board of Directors of the Company. D. "Change of Control" shall mean any of the following: 1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) who is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; or 2. any period of two (2) consecutive calendar years during which there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds ( 2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or 3. the Company becomes a party to a merger or consolidation in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or 4. any other event that a majority of the Board of Directors, in its sole discretion, shall determine constitutes a Change of Control. E. "Code" shall mean the Internal Revenue Code of 1986, as amended. F. "Committee" shall mean the Human Resources Committee or the Employee Benefits Committee or their delegates, as applicable, pursuant to provisions of Section III of the Plan. G. "Common Stock" shall mean the common stock, $.01 par value, of the Company. H. "Company" shall mean USW-C, Inc., a Delaware corporation to be renamed "U S WEST, Inc.", and any successor thereof. I. "Director Compensation" shall mean all cash or stock remuneration payable to an Outside Director for service to the Company as a director, other than reimbursement for expenses or Common Stock received upon exercise of an Option, and shall include retainer fees for service on, and fees for attendance at meetings of, the Board and any committees thereof. J. "Disabled" or "Disability" shall mean long-term disability as determined under the provisions of any U S WEST disability plan maintained for the benefit of eligible employees of the Company or any Related Entity, provided, however, that in the case of an Incentive Option, "disability" shall have the meaning specified in Section 22(e)(3) of the Code. K. "Disinterested Person" shall have the meaning set forth in Rule 16b-3(c)(2)(i) and its successor promulgated under the Exchange Act. L. "Dividend Equivalent Rights" shall mean the right to receive the amount of any dividends that are paid on an equivalent number of shares of Common Stock underlying an Option or Phantom Unit, which shall be payable either in cash or in the form of additional Phantom Units or Stock. M. "Effective Date" shall mean , 1998, the date on which the Plan was approved by the stockholders of the Company. 2 N. "Eligible Employee" shall mean any employee of the Company or any Related Entity who is so employed on the date of the grant of an Award. O. "Eligible Non-Employee" shall mean any consultant or advisor to the Company or any Related Entity, including any member of the State Executive Board(s) of the Company or any Related Entity that the Committee selects to receive an Award. P. "Employee Benefits Committee" shall mean a committee of the Company consisting of employees of the Company or any Related Entity appointed by the Human Resources Committee and which shall administer the Plan as provided in Section III hereof. Q. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. R. "Executive Officers" shall mean any Officer of the Company or any Related Entity who, at the time of an Award, is subject to the reporting requirements of Section 16(a) of the Exchange Act. S. "Fair Market Value" shall mean the closing price of a share of Common Stock as reported on the New York Stock Exchange for the applicable date, or if there were no sales on such date, on the last day on which there were sales. T. "Human Resources Committee" shall mean the human resources committee of the Board or any other committee of the Board appointed by the Board to administer the Plan in lieu of the Human Resources Committee, which committee shall consist of no fewer than three (3) persons, each of whom shall be a Disinterested Person. U. "Incentive Option" shall mean an incentive stock option under the provisions of Section 422 of the Code. V. "Indexed" shall mean the periodic adjustment of an Option Price based upon adjustment criteria determined by the Committee, but in no event shall the Option Price be adjusted to an amount less than the original Option Price. W. "Nonqualified Option" shall mean an Option which does not qualify under Section 422 of the Code. X. "Officer" shall mean any executive of the Company or any Related Entity who participates in the Company's executive compensation programs. Y. "Option" shall mean an option granted by the Company to purchase Common Stock pursuant to the provisions of this Plan, including Incentive Options, Nonqualified Options and Reload Options. 3 Z. "Optionee" shall mean a Participant to whom one or more Options have been granted. AA. "Option Price" shall mean the price per share payable to the Company for shares of Common Stock upon the exercise of an Option. AB. "Outside Director" shall mean an individual not employed by the Company or any Related Entity and who serves on the Board. AC. "Parent Corporation" shall mean any corporation within the meaning of Section 424(e) of the Code. AD. "Participant" shall mean an Eligible Employee, Eligible Non-Employee, Executive Officer or Outside Director who is granted an Award. AE. "Phantom Unit" shall mean a notional account representing a value equivalent to one share of Common Stock on the Award date. AF. "Plan" shall mean the 1998 U S WEST, Inc. Stock Plan. AG. "Related Entity" shall mean any Parent Corporation or Subsidiary of the Company. AH. "Reload Option" shall mean the right to receive a further Option for a number of shares equal to the number of shares of Common Stock surrendered by the Optionee upon exercise of the original Option as provided in Section IX.E of the Plan. AI. "Restricted Period" shall mean the period of time from the date of grant of Restricted Stock until the lapse of restrictions attached thereto under the terms of the Agreement granting such Restricted Stock, pursuant to the provisions of the Plan or by action of the Committee. AJ. "Restricted Stock" shall mean an Award made by the Committee entitling the Participant to acquire, at no cost or for a purchase price determined by the Committee at the time of grant, shares of Common Stock which are subject to restrictions in accordance with the provisions of Section XII hereof. AK. "Retirement" shall mean with respect to any Eligible Employee, that such person has terminated employment with the Company or any Related Entity other than "for cause" (as defined in subsection IX.H.(v)) and (i) such person is eligible to receive an immediate service pension benefit under the U S WEST Pension Plan, or (ii) such person would be eligible to receive an immediate service pension under the U S WEST Pension Plan, as amended and restated 4 effective January 1, 1993, had that plan not been amended and restated effective January 1, 1997, or (iii) such person specifically is treated as "retired" for purposes of the Plan under any individually negotiated, custom, written agreement or arrangement between the Company or any Related Entity and the Eligible Employee. "Retirement" shall not apply to any Eligible Non-Employee. AL. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. AM. "Separation" shall mean the separation of U S WEST Communications Group and U S WEST Media Group into two separate companies pursuant to the terms of the Separation Agreement dated , 1998 between the Company and U S WEST, Inc. (to be renamed "MediaOne Group, Inc."). AN. "Stock Appreciation Right" or "SAR" shall mean a grant entitling the Participant to receive an amount in cash or shares of Common Stock or a combination thereof having a value equal to (or if the Committee shall so determine at the time of a grant, less than) the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the date of grant (or over the Option Price, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee having sole discretion to determine the form or forms of payment at the time of grant of the SAR. AO. "Stock Awards" shall mean any Award which is in the form of Restricted Stock and any outright grants of Common Stock approved by the Committee pursuant to the Plan. AP. "Subsidiary" shall mean with respect to any Award other than an Incentive Option, any corporation, joint venture or partnership in which the Company owns, directly or indirectly, (i) with respect to a corporation, stock possessing twenty percent (20%) or more of the total combined voting power of all classes of stock in the corporation or (ii) in the case of a joint venture or partnership, the Company possesses a twenty percent (20%) interest in the capital or profits of such joint venture or partnership. In the case of any Incentive Option, Subsidiary shall mean any corporation within the meaning of Section 424(f) of the Code. AQ. "Vested" shall mean the status that results with respect to an Option or other Award which may be immediately exercised under the terms of the Agreement granting such Option or other Award, pursuant to the provisions of the Plan or by action of the Committee. 5 III. ADMINISTRATION. A. The Plan shall be administered by the Human Resources Committee with respect to Officers, Executive Officers and Outside Directors and by the Employee Benefits Committee with respect to all other Eligible Employees and Eligible Non-Employees. The Human Resources Committee may adopt such rules, regulations and guidelines as it determines necessary for the administration of the Plan. Subject to any such rules, regulations and guidelines adopted by the Human Resources Committee, the Employee Benefits Committee shall have the power to adopt rules, regulations and guidelines to permit such Committee to administer the Plan with respect to Eligible Employees (other than Officers and Executive Officers) and with respect to Eligible Non-Employees. B. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company or such Related Entity whose employees have benefited from the Plan, as determined by the Committee. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company or a Related Entity against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's gross negligence or willful misconduct. C. In furtherance of and not in limitation of the Committee's discretionary authority, subject to the provisions of the Plan, the Committee shall have the authority to: 1. determine the Participants to whom Awards shall be granted and the number of and terms and conditions upon which Awards shall be granted (which need not be the same for all Awards or types of Awards); 2. establish, in its sole discretion, annual or long-term financial goals of the Company, Related Entity, or division, department, or group of the Company or Related Entity, or individual goals which the Committee shall consider in granting Awards, if any; 3. determine the satisfaction of performance goals established by the Committee based upon periods of time or any combinations thereof; 4. determine the time when Awards shall be granted, the Option Price of each Option, the period(s) during which Options shall be exercisable (whether in whole or in part), the restrictions to be applicable to Awards, and the other terms and provisions of Awards; 6 5. modify grants of Awards pursuant to Paragraph D. of this Section III or rescind grants of Awards pursuant to Section IX.H(v), respectively; 6. provide the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securities to be issued upon exercise of an Option, the lapse of restrictions on Restricted Stock and the vesting of Phantom Units (other than an Incentive Option) to meet the obligation of withholding for income, social security and other taxes incurred by a Participant upon such exercise or required to be withheld by the Company in connection with such exercise; 7. adopt, modify and rescind rules and regulations and guidelines relating to the Plan; 8. adopt modifications to the Plan and procedures, as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company or a Related Entity operates in order to assure the legality of Awards granted under the Plan to Participants who reside in such countries; 9. obtain the approval of the stockholders of the Company with respect to Awards consisting of Phantom Units or Restricted Stock; provided, however, no action shall be proposed to stockholders without the approval of the Board of Directors; and 10. make all determinations, perform all other acts, exercise all other powers and establish any other procedures determined by the Committee to be necessary, appropriate or advisable in administering the Plan and to maintain compliance with any applicable law. D. The Committee may at any time, in its sole discretion, accelerate the exercisability of any Awards and waive or amend any and all restrictions and conditions of any Awards. E. Subject to and not inconsistent with the express provisions of the Plan, the Code and Rule 16b-3 of the Exchange Act, the Committee shall have the authority to require, as a condition to the granting of any Option, SAR or other Award (to the extent applicable) to any Executive Officer of the Company or any Related Entity that the Executive Officer receiving such Option, SAR or other Award agree not to sell or otherwise dispose of such Option, SAR or other Award or Common Stock acquired pursuant to such Option, SAR or other Award (to the extent applicable) or any other "derivative security" (as defined by Rule 16a-1(c) under the Exchange Act) for a period of six (6) months following the 7 later of (i) the date of the grant of such Option, SAR or other Award (to the extent applicable) or (ii) the date when the other Option Price of such Option, SAR or other Award is fixed, if such Option Price is not fixed at the date of grant of such Option, SAR or other Award. IV. DECISIONS FINAL. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. V. ARBITRATION. Any agreement may contain, among other things, provisions that require arbitration of any and all disputes between a Participant and the Company or any Related Entity, in a form or forms acceptable to the Committee, in its sole discretion. VI. DURATION OF THE PLAN. The Plan shall remain in effect for a period of ten (10) years from the Effective Date, unless terminated by the Board pursuant to Section XX. VII. SHARES AVAILABLE; LIMITATIONS. A. Up to 2,400,000 shares of Common Stock may be granted in calendar year 1998 and the maximum aggregate number of shares of Common Stock that may be granted in any other calendar year for all purposes under the Plan shall be percent ( %), respectively, of the shares outstanding (excluding shares held in the Company's treasury) on the first day of such calendar year, provided, however, that in the event that fewer than the full aggregate number of shares available for issuance in any calendar year are issued in such year, the shares not issued shall be added to the shares available for issuance in any subsequent year or years. If, for any reason, any shares of Common Stock as to which Options, SARs, Restricted Stock, or Phantom Units have been granted cease to be subject to exercise or purchase hereunder (other than the exercise of SARs for cash), the underlying shares of Common Stock shall thereafter be available for grants to Participants under the Plan during any calendar year. Awards granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of the Common Stock or (ii) issued shares of Common Stock reacquired by the Company, in each situation, as the Board of Directors or the Committee may determine from time to time at its sole discretion. 8 B. The maximum number of shares of Common Stock that shall be subject to the grant of an Award in any calendar year for Awards other than Options or SARs shall not exceed one-third ( 1/3) of the total number of shares of Common Stock subject to Awards granted under the Plan for such calendar year. C. The maximum number of shares of Common Stock with respect to which Awards may be granted to any individual Participant in any calendar year may not exceed five hundred thousand (500,000). D. The cumulative number of shares of Common Stock that may be issued under this Plan in connection the exercise of Incentive Options shall not exceed ten million (10,000,000). VIII. GRANT OF AWARDS. A. The Committee shall determine the type or types of Award(s) to be made to each Participant. Awards may be granted singly, in combination or in tandem subject to restrictions set forth in Section IX.C for Incentive Options. The types of Awards that may be granted under the Plan are Options, with or without Reload Options, SARs, Stock Awards and Phantom Units, and with respect to Phantom Units and Restricted Stock, with or without Dividend Equivalent Rights. B. Each grant of an Award under this Plan shall be evidenced by an Agreement dated as of the date of the grant of the Award, other than Stock Awards consisting of an outright grant of shares of Common Stock. This Agreement shall set forth the terms and conditions of the Award, as may be determined by the Committee, and if the Agreement relates to the grant of an Option, shall indicate whether the Option that it evidences, is intended to be an Incentive Option or a Nonqualified Option. Each grant of an Award is conditioned upon the acceptance by the Participant of the terms of the Agreement. Unless otherwise extended by the Committee, a Participant shall have ninety (90) days from the date of the Agreement to accept its terms. IX. OPTIONS. The Committee, in its sole discretion, may grant Incentive Options or Nonqualified Options to Eligible Employees, Officers and Executive Officers and Nonqualified Options to Eligible Non-Employees. Any Options granted to a Participant under the Predecessor Plan which remain outstanding as of the Effective Date shall be governed by the terms and conditions of the Plan, except to the extent the provisions of the Plan are inconsistent with the terms of the Options granted under the Predecessor Plans, in which event the applicable provisions of the Predecessor Plans shall govern; provided, however, that in no event shall there be a modification of the terms of any Incentive Option granted under the Predecessor Plan. The terms and conditions of the Options granted under this Section IX shall be determined from time to time by the Committee, as set forth in the Agreement granting the Option, and subject to the following conditions: 9 A. NONQUALIFIED OPTIONS. The Option Price for each share of Common Stock issuable pursuant to a Nonqualified Option may be an amount at or above the Fair Market Value on the date such Option is granted, may be Indexed from the original Option Price and may be granted with or without Dividend Equivalent Rights; provided, however, that with respect to Nonqualified Options granted to any Executive Officer, no Dividend Equivalent Rights may be granted. B. INCENTIVE OPTIONS. The Option Price for each share of Common Stock issuable pursuant to an Incentive Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date such Option is granted and may be Indexed from the original Option Price. C. INCENTIVE OPTIONS; SPECIAL RULES. Options granted in the form of Incentive Options shall be subject to the following provisions: 1. GRANT. No Incentive Option shall be granted pursuant to this Plan more than ten (10) years after the Effective Date. 2. ANNUAL LIMIT. The aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Common Stock with respect to which one or more Incentive Options are exercisable for the first time by any Optionee during any calendar year under the Plan or under any other stock plan of the Company or any Related Entity shall not exceed $100,000 or such other maximum amount permitted under Section 422 of the Code. Any Option purporting to constitute an Incentive Option in excess of such limitation shall constitute a Nonqualified Option. 3. 10% STOCKHOLDER. If any Optionee to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, an individual described in Section 422(b)(6) of the Code, then the following special provisions shall be applicable to the Option granted to such individual: (a) the Option Price of shares subject to such Incentive Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (b) the Option shall not have a term in excess of (5) years from the date of grant. D. OTHER OPTIONS. The Committee may establish rules with respect to, and may grant to Eligible Employees, Options to comply with any amendment to the Code made after the Effective Date providing for special tax benefits for stock options. 10 E. RELOAD OPTIONS. Without in any way limiting the authority of the Committee to make Awards hereunder, the Committee shall have the authority to grant Reload Options. Any such Reload Option shall be subject to such other terms and conditions as the Committee may determine. Notwithstanding the above, (i) the Committee shall have the right, in its sole discretion, to withdraw a Reload Option to the extent that the grant thereof will result in any adverse accounting consequences to the Company and (ii) no additional Reload Options shall be granted upon the exercise of a Reload Option. F. TERM OF OPTION. No Option shall be exercisable after the expiration of ten (10) years from the date of grant of the Option. G. EXERCISE OF STOCK OPTION. Each Option shall be exercisable in one or more installments as the Committee in its sole discretion may determine at the time of the Award and as provided in the Agreement. The right to purchase shares shall be cumulative so that when the right to purchase any shares has accrued such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option, subject to rules on sequential exercise for Incentive Options pursuant to Paragraph C.2. of this Section IX. The Option Price shall be payable (i) in cash or by an equivalent means acceptable to the Committee, (ii) by delivery (constructive or otherwise) to the Company of shares of Common Stock owned by the Optionee or (iii) by any combination of the above as provided in the Agreement. Shares delivered to the Company in payment of the Option Price shall be valued at the Fair Market Value on the date of the exercise of the Option. H. VESTING. The Agreement shall specify the date or dates on which the Optionee may begin to exercise all or a portion of his Option. Subsequent to such date or dates, the Option shall be deemed vested and fully exercisable. (i) DEATH. In the event of the death of any Optionee, all Options held by such Optionee on the date of his death shall become Vested Options and the estate of such Optionee, shall have the right, at any time and from time to time within one year after the date of death, or such other period, if any, as the Committee in its sole discretion may determine, to exercise the Options of the Optionee (but not after the earlier of the expiration date of the Option or, in the case of an Incentive Option, one (1) year from the date of death). (ii) DISABILITY. If the employment of any Optionee is terminated because of Disability, all Options held by such Optionee on the date of his or her termination shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option or, in the case of Incentive Options where tax-advantaged treatment is desired, one year from the date of termination of employment. 11 (iii) RETIREMENT. Upon an Optionee's Retirement, all Options held by such Optionee on the date of his or her Retirement shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued, unless the Committee, in its sole discretion, determines otherwise. Unless the Committee, in its sole discretion, determines otherwise, the Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. In the case of Incentive Options where tax-advantaged treatment is desired, the Optionee shall have the right to exercise Vested Options three months from the date of Retirement. (iv) OTHER TERMINATION. If the employment with the Company or a Related Entity of an Optionee is terminated for any reason other than for death or Disability and other than "for cause" as defined in subparagraph (v) below, such Optionee shall have the right, in the case of a Vested Option, for a period of three (3) months after the date of such termination or such longer period as determined by the Committee, to exercise any such Vested Option, but in any event not after the expiration date of any such Option. (v) TERMINATION FOR CAUSE. Notwithstanding any other provision of the Plan to the contrary, if the Optionee's employment is terminated by the Company or any Related Entity "for cause" (as defined below), such Optionee shall immediately forfeit all rights under his Options except as to the shares of Common Stock already purchased prior to such termination. Termination "for cause" shall mean (unless another definition is agreed to in writing by the Company and the Optionee) termination by the Company because of: (a) the Optionee's willful and continued failure to substantially perform his duties (other than any such failure resulting from the Optionee's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Optionee by the Company, which demand specifically identifies the manner in which the Company believes the Optionee has not substantially performed his duties, (b) the willful conduct of the Optionee which is demonstrably and materially injurious to the Company or Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee for a felony by a court of competent jurisdiction. X. FOREIGN OPTIONS AND RIGHTS. The Committee may make Awards of Options to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees who are subject to the tax laws of nations other than the United States, which Awards may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action which it deems advisable to obtain approval of such Option by the appropriate foreign governmental entity; provided, however, that no such Award may be granted pursuant to this Section X and no action may be taken which would result in a violation of the Exchange Act, the Code or any other applicable law. 12 XI. STOCK APPRECIATION RIGHTS. The Committee shall have the authority to grant SARs to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees either alone or in connection with an Option. SARs granted in connection with an Option shall be granted either at the time of grant of the Option or by amendment to the Option. SARs granted in connection with an Option shall be subject to the same terms and conditions as the related Option and shall be exercisable only at such times and to such extent as the related Option is exercisable. A SAR granted in connection with an Option may be exercised only when the Fair Market Value of the Common Stock of the Company exceeds the Option Price of the related Option. A SAR granted in connection with an Option shall entitle the Participant to surrender to the Company unexercised the related Option, or any portion thereof and to receive from the Company cash and/or shares of Common Stock equal to that number of shares of Common Stock having an aggregate value equal to the excess of (i) the Fair Market Value of one share of Common Stock on the day of the surrender of such Option over (ii) the Option Price per share of Common Stock multiplied by (iii) the number of shares of Common Stock that may be exercised under the Option, or surrendered; provided, however, that no fractional shares shall be issued. A SAR granted singly shall entitle the Participant to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value of a share of Common Stock on the date of the grant of the SAR multiplied by (iii) the number of SARs exercised. Payment of any fractional shares of Common Stock shall be made in cash. A SAR shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. XII. RESTRICTED STOCK. The Committee may, in its sole discretion, grant Restricted Stock to Eligible Employees, Eligible Non-Employees, Officers or Executive Officers subject to the provisions below. A. RESTRICTIONS. A stock certificate representing the number of shares of Restricted Stock granted shall be held in custody by the Company for the Participant's account. The Participant shall have all rights and privileges of a stockholder as to such Restricted Stock, including the right to receive dividends and the right to vote such shares, except that, subject to the provisions of Paragraph B. below, the following restrictions shall apply: (i) the Participant shall not be entitled to delivery of the certificate until the expiration of the Restricted Period; (ii) none of the shares of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed 13 of during the Restricted Period; (iii) the Participant shall, if requested by the Company, execute and deliver to the Company, a stock power endorsed in blank. The Restricted Period shall lapse upon a Participant becoming Disabled or the death of a Participant. If a Participant ceases to be an employee of the Company or a Related Entity prior to the expiration of the Restricted Period applicable to such shares, except as a result of the death or Disability of the Participant, shares of Restricted Stock still subject to restrictions shall be forfeited unless otherwise determined by the Committee, and all rights of the Participant to such shares shall terminate without further obligation on the part of the Company. Upon the forfeiture (in whole or in part) of shares of Restricted Stock, such forfeited shares shall become shares of Common Stock held in the Company's treasury without further action by the Participant. B. TERMS AND CONDITIONS. The Committee shall establish the terms and conditions for Restricted Stock pursuant to Section III of the Plan, including whether any shares of Restricted Stock shall have voting rights or a right to any dividends that are declared. Terms and conditions established by the Committee need not be the same for all grants of Restricted Stock. The Committee may provide for the restrictions to lapse with respect to a portion or portions of the Restricted Stock at different times or upon the occurrence of different events, and the Committee may waive, in whole or in part, any or all restrictions applicable to a grant of Restricted Stock. Restricted Stock Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. C. DELIVERY OF RESTRICTED SHARES. At the end of the Restricted Period as herein provided, a stock certificate for the number of shares of Restricted Stock with respect to which the restrictions have lapsed shall be delivered (less any shares delivered pursuant to Section XIX.C in satisfaction of any withholding tax obligation), free of all such restrictions, except applicable securities law restrictions, to the Participant or the Participant's estate, as the case may be. The Company shall not be required to deliver any fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value (measured as of the date the restrictions lapse) of such fractional share to the Participant or the Participant's estate, as the case may be. Notwithstanding the foregoing, the Committee may authorize the delivery of the Restricted Stock to a Participant during the Restricted Period, in which event any stock certificates in respect of shares of Restricted Stock thus delivered to a Participant during the Restricted Period applicable to such shares shall bear an appropriate legend referring to the terms and conditions, including the restrictions, applicable thereto. 14 XIII. PHANTOM UNITS. A. GENERAL. The Committee may, in its sole discretion, grant the right to earn Phantom Units to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees. The Committee shall determine the criteria for the earning of Phantom Units, pursuant to Section III of the Plan. Upon satisfaction of such criteria, a Phantom Unit shall be deemed a Vested Award. A Phantom Unit granted by the Committee shall provide for payment in shares of Common Stock. A Phantom Unit shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. Shares of Common Stock issued pursuant to this Section XIII may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. The Committee shall determine whether a Participant granted a Phantom Unit shall be entitled to a Dividend Equivalent Right. B. UNFUNDED CLAIM. The establishment of Phantom Units under the Plan are unfunded obligations of the Company. The interest of a Participant in any such units shall be considered a general unsecured claim against the Company to the extent that the conditions for the earning of the Phantom Units have been satisfied. Nothing contained herein shall be construed as creating a trust or fiduciary relationship between the Participant, the Company or the Committee. C. ISSUANCE OF COMMON STOCK. Upon a Phantom Unit becoming a Vested Award, unless a Participant has elected to defer under Paragraph D. below, shares of Common Stock representing the Phantom Units shall be distributed to the Participant, unless the Committee, with the consent of the Participant, provides for the payment of the Phantom Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the Participant. D. DEFERRAL OF PHANTOM UNITS. Prior to the year with respect to which a Phantom Unit may become a Vested Award, the Participant may elect not to receive Common Stock upon the vesting of such Phantom Unit and for the Company to continue to maintain the Phantom Unit on its books of account. In such event, the value of a Phantom Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. E. FINANCIAL HARDSHIP. Notwithstanding any other provision hereof, at the written request of a Participant who has elected to defer pursuant to Paragraph D. above, the Committee, in its sole direction, upon a finding that continued deferral will result in financial hardship to the Participant, may authorize the payment of all or a part of a Participant's Vested Phantom Units in a single installment or the acceleration of payment of any multiple installments thereof; provided, however, that distributions will not be made under this paragraph if such distribution would result in liability of an Executive Officer under Section 16 of the Exchange Act. 15 F. DISTRIBUTION UPON DEATH. The Committee shall pay the Fair Market Value of the Phantom Units of a deceased Participant to the estate of the Participant, as soon as practicable following the death of the Participant. The value of the Phantom Units for the purpose of such distribution shall be based upon the Fair Market Value of shares of Common Stock underlying the Phantom Units on the date of the Participant's death. XIV. STOCK AWARDS TO OUTSIDE DIRECTORS. Each Outside Director shall be granted a Stock Award consisting of 400 shares of Common Stock, without restrictions, on the date of the Annual Meeting of the Company's stockholders following the first anniversary date of such Outside Director's initial election to the Board, and a like amount on each of the next four Annual Meeting dates for a total maximum Stock Award of 2,000 shares of Common Stock. XV. OUTSIDE DIRECTOR'S COMPENSATION. A. PAYMENT IN COMMON STOCK. Each Outside Director may elect to receive payment of all or any portion of Director Compensation comprised of retainer fees for service on the Board and any committees thereof in Common Stock. The amount of Common Stock then issuable shall be based on the Fair Market Value of the Common Stock on the dates such retainer fees are otherwise due and payable to the Outside Director. When any fees are paid in Common Stock under this Section XV.A, any fractional shares of Common Stock shall be paid in cash. Certificates evidencing such Common Stock shall be delivered promptly following such date. If an Outside Director elects to receive payment of retainer fees in Common Stock as described in this Section XV.A, the election shall be (i) in writing, (ii) delivered to the Secretary of the Company at least six months in advance of the payment date, and (iii) irrevocable. B. DEFERRAL OF PAYMENT. Each Outside Director may elect to defer the receipt of Common Stock payable pursuant to Section XV.A, in which event such Outside Director shall receive an equivalent number of Phantom Units with Dividend Equivalent Rights. Any such Phantom Units shall become Vested Awards at such time as the Outside Director no longer serves as a member of the Board. If an Outside Director elects to defer receipt of Common Stock and receive Phantom Units pursuant to this Section XV.B, the election shall be (i) in writing, (ii) delivered to the Secretary of the Company in the year preceding the year in which the Director Compensation would otherwise be paid and at least six months in advance of the date when Common Stock would otherwise be issued, and (iii) irrevocable. 16 C. DIRECTOR STOCK OPTIONS. On , 1998 and on the first business day of each calendar year thereafter, each Director shall be granted an Option to purchase three thousand (3,000) shares Common Stock, such Options (i) to become Vested Options in increments of 40 percent upon grant and 30 percent on the first and second anniversaries following the date of grant or, if earlier, in full upon the retirement of the Director, (ii) to remain exercisable notwithstanding the retirement of the Director from the Board (but in no event after the expiration date of the Option), and (iv) to expire ten years from the date of grant. XVI. FEDERAL SECURITIES LAW. With respect to grants of Awards to Directors and Executive Officers, the Company intends that the provisions of this Plan and all transactions effected in accordance with Plan shall comply with Rule 16b-3 under the Exchange Act. Accordingly, the Committee shall administer and interpret the Plan to the extent practicable, to maintain compliance with such rule. XVII. CHANGE OF CONTROL; ACCELERATION. Upon the occurrence of a Change of Control: A. in the case of all outstanding Options and SARs, each such Option and SAR shall automatically become immediately fully exercisable by the Participant; B. restrictions applicable to Restricted Stock shall automatically be deemed lapsed and conditions applicable to Phantom Units shall automatically be deemed waived, and the Participants who receive such grants shall become immediately entitled to receipt of the Common Stock subject to such grants; and C. the Human Resources Committee, in its discretion, shall have the right to accelerate payment of any deferrals of Vested Phantom Units. XVIII. ADJUSTMENT OF SHARES. A. In the event there is any change in the Common Stock by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company, the number or kind of shares or interests subject to an Award and the per share price or value thereof shall be appropriately adjusted by the Committee at the time of such event, provided that each Participant's economic position with respect to the Award shall not, as a result of such adjustment, be worse than it had been immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be rounded up to the next whole share of Common Stock. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an "incentive stock option" for purposes of Section 422 of the Code. 17 B. In the event of an acquisition by the Company of another corporation where the Company assumes outstanding stock options or similar obligations of such corporation, the number of Awards available under the Plan shall be appropriately increased to reflect the number of such options or other obligations assumed. XIX. SUBSTITUTE OPTIONS. Options, shares of Restricted Stock and Phantom Units issued in substitution of outstanding options for U S WEST Communications Group Stock, restricted shares of U S WEST Communications Group Stock and phantom units with respect to U S WEST Communications Group Stock pursuant to the terms of the Employee Matters Agreement to be entered into by the Company and U S WEST, Inc. (to be renamed "MediaOne Group, Inc.") in connection with the Separation shall be administered pursuant to the provisions of the Plan to the extent not inconsistent with the terms of the grant of such options, restricted stock and phantom units and such Employee Matters Agreement. XX. MISCELLANEOUS PROVISIONS. A. ASSIGNMENT OR TRANSFER. Except as otherwise permitted by this Section XIX.A, no grant of any "derivative security" (as defined in the rules issued under Section 16 of the Exchange Act) made under the Plan or any rights or interests therein shall be assignable or transferable except by last will and testament or the laws of descent and distribution. No grant of any such derivative security shall be assignable or transferrable pursuant to a domestic relations order. An Optionee who is an Officer or an Outside Director may assign or transfer an Option (other than an Incentive Option) as a gift to one or more members of his or her immediate family or to trusts maintained for the benefit of such immediate family members if such assignment or transfer is not pursuant to a domestic relations order and (i) such assignment or transfer is expressly approved in advance by the Committee or its delegate(s) or (ii) such Option was granted to the Optionee on or after , 199 , and the Agreement pertaining to such Option expressly permits the assignment or transfer of the Option. B. INVESTMENT REPRESENTATION; LEGENDS. The Committee may require each Participant acquiring shares of Common Stock pursuant to an Award to represent to and agree with the Company in writing that such Participant is acquiring the shares without a view to distribution thereof. No shares of Common Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of stop-orders and restrictive legends on certificates for Common Stock as it deems appropriate. 18 C. WITHHOLDING TAXES. In the case of distributions of Common Stock or other securities hereunder, the Company, as a condition of such distribution, may require the payment (through withholding from the Participant's salary, payment of cash by the Participant, reduction of the number of shares of Common Stock or other securities to be issued (except in the case of an Incentive Option), or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such distribution. D. COSTS AND EXPENSES. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Award nor to any Participant receiving an Award. E. OTHER INCENTIVE PLANS. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. F. EFFECT ON EMPLOYMENT. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Participant except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Participant and (ii) any Participant to remain in the employ of the Company or any Related Entity. G. NONCOMPETITION. Any Agreement may contain, among other things, provisions prohibiting Participants from competing with the Company or any Related Entity in a form or forms acceptable to the Committee, in its sole discretion. H. GOVERNING LAW. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. XXI. AMENDMENT OR TERMINATION OF PLAN. The Board shall have the right to amend, modify, suspend or terminate the Plan at any time, provided that, with respect to Incentive Options, no amendment shall be made that (i) decreases the minimum Option Price in the case of any Incentive Option, or (ii) modifies the provisions of the Plan with respect to Incentive Options, unless such amendment is made by or with the approval of the stockholders or unless the Board receives an opinion of counsel to the Company that stockholder approval is not necessary with respect to any modifications relating to Incentive Options; and provided further that no amendment shall be made that (i) increases the number of shares of Common Stock that may be issued under the Plan, or (ii) permits the Option Price for any Option to be less than Fair Market Value on the date such Option is granted, 19 unless such amendment is made by or with the approval of stockholders. No amendment, modification, suspension or termination of the Plan shall alter or impair any Awards previously granted under the Plan, without the consent of the holder thereof. 20 EX-99.D.5 15 ex_d-5.txt EXHIBIT 99(D)(5) 1998 U S WEST STOCK PLAN as amended June 22, 1998 I. Purpose. This 1998 U S WEST Stock Plan (the "Plan"), is intended to promote the long term success of U S WEST, Inc. (the "Company") by affording certain eligible employees, executive officers, non-employee directors of the Company and its Subsidiaries (as defined below) and certain outside consultants or advisors to the Company and its affiliates with an opportunity to acquire a proprietary interest in the Company, in order to incentivize such persons and to align the financial interests of such persons with the stockholders of the Company. This Plan became effective upon consummation of the Separation (defined below). II. Definitions. The following defined terms are used in the Plan: A. "Agreement" shall mean the agreement or grant letter accepted by the Participant as described in Section VIII of the Plan between the Company and a Participant under which the Participant receives an Award pursuant to this Plan. B. "Award" shall mean individually, collectively or in tandem, an incentive award granted under the Plan, whether in the form of Options, SARs, Stock Awards or Phantom Units. C. "Board" or "Board of Directors" shall mean the Board of Directors of the Company. D. "Change of Control" shall mean any of the following: 1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) who is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; or 2. any period of two (2) consecutive calendar years during which there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or 3. the Company becomes a party to a merger or consolidation in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or 4. any other event that a majority of the Board of Directors, in its sole discretion, shall determine constitutes a Change of Control. E. "Code" shall mean the Internal Revenue Code of 1986, as amended. F. "Committee" shall mean the Human Resources Committee or the Employee Benefits Committee or their delegates, as applicable, pursuant to provisions of Section III of the Plan. G. "Common Stock" shall mean the common stock, $.01 par value, of the Company. H. "Company" shall mean U S WEST, Inc., a Delaware corporation (previously known as "USW-C, Inc."), and any successor thereof. I. "Director Compensation" shall mean all cash or stock remuneration payable to an Outside Director for service to the Company as a director, other than reimbursement for expenses or Common Stock received upon exercise of an Option, and shall include retainer fees for service on, and fees for attendance at meetings of, the Board and any committees thereof. J. "Disabled" or "Disability" shall mean long-term disability as determined under the provisions of any U S WEST disability plan maintained for the benefit of eligible employees of the Company or any Related Entity, provided, however, that in the case of an Incentive Option, "disability" shall have the meaning specified in Section 22(e)(3) of the Code. K. "Disinterested Person" shall have the meaning set forth in Rule 16b-3(c)(2)(i) and its successor promulgated under the Exchange Act. L. "Dividend Equivalent Rights" shall mean the right to receive the amount of any dividends that are paid on an equivalent number of shares of Common Stock underlying an Option or Phantom Unit, which shall be payable either in cash or in the form of additional Phantom Units or Stock. M. "Effective Date" shall mean the later of the date of the Separation or the date on which the Plan was approved by the stockholders of the Company. 2 N. "Eligible Employee" shall mean any employee of the Company or any Related Entity who is so employed on the date of the grant of an Award. O. "Eligible Non-Employee" shall mean any consultant or advisor to the Company or any Related Entity, including any member of the State Executive Board(s) of the Company or any Related Entity that the Committee selects to receive an Award. P. "Employee Benefits Committee" shall mean a committee of the Company consisting of employees of the Company or any Related Entity appointed by the Human Resources Committee and which shall administer the Plan as provided in Section III hereof. Q. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. R. "Executive Officers" shall mean any Officer of the Company or any Related Entity who, at the time of an Award, is subject to the reporting requirements of Section 16(a) of the Exchange Act. S. "Fair Market Value" shall mean the closing price of a share of Common Stock as reported on the New York Stock Exchange for the applicable date, or if there were no sales on such date, on the last day on which there were sales. T. "Human Resources Committee" shall mean the human resources committee of the Board or any other committee of the Board appointed by the Board to administer the Plan in lieu of the Human Resources Committee, which committee shall consist of no fewer than three (3) persons, each of whom shall be a Disinterested Person. U. "Incentive Option" shall mean an incentive stock option under the provisions of Section 422 of the Code. V.(1) "Indexed" shall mean the periodic adjustment of an Option Price based upon adjustment criteria determined by the Committee, but in no event shall the Option Price be adjusted to an amount less than the original Option Price. V.(2) "Initial Grant Date" shall mean the later of (i) June 22, 1998, or (ii) the date on which a new Outside Director is elected to the Board. W. "Nonqualified Option" shall mean an Option which does not qualify under Section 422 of the Code. 3 X. "Officer" shall mean any executive of the Company or any Related Entity who participates in the Company's executive compensation programs. Y. "Option" shall mean an option granted by the Company to purchase Common Stock pursuant to the provisions of this Plan, including Incentive Options, Nonqualified Options and Reload Options. Z. "Optionee" shall mean a Participant to whom one or more Options have been granted. AA. "Option Price" shall mean the price per share payable to the Company for shares of Common Stock upon the exercise of an Option. AB. "Outside Director" shall mean an individual not employed by the Company or any Related Entity and who serves on the Board. AC. "Parent Corporation" shall mean any corporation within the meaning of Section 424(e) of the Code. AD. "Participant" shall mean an Eligible Employee, Eligible Non- Employee, Executive Officer or Outside Director who is granted an Award. AE. "Phantom Unit" shall mean a notional account representing a value equivalent to one share of Common Stock on the Award date. AF. "Plan" shall mean the 1998 U S WEST Stock Plan. AG. "Related Entity" shall mean any Parent Corporation or Subsidiary of the Company. AH. "Reload Option" shall mean the right to receive a further Option for a number of shares equal to the number of shares of Common Stock surrendered by the Optionee upon exercise of the original Option as provided in Section IX.E of the Plan. AI. "Restricted Period" shall mean the period of time from the date of grant of Restricted Stock until the lapse of restrictions attached thereto under the terms of the Agreement granting such Restricted Stock, pursuant to the provisions of the Plan or by action of the Committee. AJ. "Restricted Stock" shall mean an Award made by the Committee entitling the Participant to acquire, at no cost or for a purchase price determined by the Committee at the time of grant, shares of Common Stock which are subject to restrictions in accordance with the provisions of Section XII hereof. 4 AK. "Retirement" shall mean with respect to any Eligible Employee, that such person has terminated employment with the Company or any Related Entity other than "for cause" (as defined in subsection IX.H.(v)) and (i) such person is eligible to receive an immediate service pension benefit under the U S WEST Pension Plan, or (ii) such person would be eligible to receive an immediate service pension under the U S WEST Pension Plan, as amended and restated effective January 1, 1993, had that plan not been amended and restated effective January 1, 1997, or (iii) such person specifically is treated as "retired" for purposes of the Plan under any individually negotiated, custom, written agreement or arrangement between the Company or any Related Entity and the Eligible Employee. "Retirement" shall not apply to any Eligible Non-Employee. AL. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. AM. "Separation" shall mean the separation of U S WEST Communications Group and U S WEST Media Group into two separate companies pursuant to the terms of the Separation Agreement between the Company and MediaOne Group, Inc. (previously known as "U S WEST, Inc."). AN. "Stock Appreciation Right" or "SAR" shall mean a grant entitling the Participant to receive an amount in cash or shares of Common Stock or a combination thereof having a value equal to (or if the Committee shall so determine at the time of a grant, less than) the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the date of grant (or over the Option Price, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee having sole discretion to determine the form or forms of payment at the time of grant of the SAR. AO. "Stock Awards" shall mean any Award which is in the form of Restricted Stock and any outright grants of Common Stock approved by the Committee pursuant to the Plan. AP. "Subsidiary" shall mean with respect to any Award other than an Incentive Option, any corporation, joint venture or partnership in which the Company owns, directly or indirectly, (i) with respect to a corporation, stock possessing twenty percent (20%) or more of the total combined voting power of all classes of stock in the corporation or (ii) in the case of a joint venture or partnership, the Company possesses a twenty percent (20%) interest in the capital or profits of such joint venture or partnership. In the case of any Incentive Option, Subsidiary shall mean any corporation within the meaning of Section 424(f) of the Code. 5 AQ. "Vested" shall mean the status that results with respect to an Option or other Award which may be immediately exercised under the terms of the Agreement granting such Option or other Award, pursuant to the provisions of the Plan or by action of the Committee. III. Administration. A. The Plan shall be administered by the Human Resources Committee with respect to Officers, Executive Officers and Outside Directors and by the Employee Benefits Committee with respect to all other Eligible Employees and Eligible Non-Employees. The Human Resources Committee may adopt such rules, regulations and guidelines as it determines necessary for the administration of the Plan. Subject to any such rules, regulations and guidelines adopted by the Human Resources Committee, the Employee Benefits Committee shall have the power to adopt rules, regulations and guidelines to permit such Committee to administer the Plan with respect to Eligible Employees (other than Officers and Executive Officers) and with respect to Eligible Non-Employees. B. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company or such Related Entity whose employees have benefited from the Plan, as determined by the Committee. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company or a Related Entity against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's gross negligence or willful misconduct. C. In furtherance of and not in limitation of the Committee's discretionary authority, subject to the provisions of the Plan, the Committee shall have the authority to: 1. determine the Participants to whom Awards shall be granted and the number of and terms and conditions upon which Awards shall be granted (which need not be the same for all Awards or types of Awards); 2. establish, in its sole discretion, annual or long-term financial goals of the Company, Related Entity, or division, department, or group of the Company or Related Entity, or individual goals which the Committee shall consider in granting Awards, if any; 6 3. determine the satisfaction of performance goals established by the Committee based upon periods of time or any combinations thereof; 4. determine the time when Awards shall be granted, the Option Price of each Option, the period(s) during which Options shall be exercisable (whether in whole or in part), the restrictions to be applicable to Awards, and the other terms and provisions of Awards; 5. modify grants of Awards pursuant to Paragraph D. of this Section III or rescind grants of Awards pursuant to Section IX.H(v), respectively; 6. provide the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securities to be issued upon exercise of an Option, the lapse of restrictions on Restricted Stock and the vesting of Phantom Units (other than an Incentive Option) to meet the obligation of withholding for income, social security and other taxes incurred by a Participant upon such exercise or required to be withheld by the Company in connection with such exercise; 7. adopt, modify and rescind rules and regulations and guidelines relating to the Plan; 8. adopt modifications to the Plan and procedures, as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company or a Related Entity operates in order to assure the legality of Awards granted under the Plan to Participants who reside in such countries; 9. obtain the approval of the stockholders of the Company with respect to Awards consisting of Phantom Units or Restricted Stock; provided, however, no action shall be proposed to stockholders without the approval of the Board of Directors; and 10. make all determinations, perform all other acts, exercise all other powers and establish any other procedures determined by the Committee to be necessary, appropriate or advisable in administering the Plan and to maintain compliance with any applicable law. D. The Committee may at any time, in its sole discretion, accelerate the exercisability of any Awards and waive or amend any and all restrictions and conditions of any Awards. 7 E. Subject to and not inconsistent with the express provisions of the Plan, the Code and Rule 16b-3 of the Exchange Act, the Committee shall have the authority to require, as a condition to the granting of any Option, SAR or other Award (to the extent applicable) to any Executive Officer of the Company or any Related Entity that the Executive Officer receiving such Option, SAR or other Award agree not to sell or otherwise dispose of such Option, SAR or other Award or Common Stock acquired pursuant to such Option, SAR or other Award (to the extent applicable) or any other "derivative security" (as defined by Rule 16a-1(c) under the Exchange Act) for a period of six (6) months following the later of (i) the date of the grant of such Option, SAR or other Award (to the extent applicable) or (ii) the date when the other Option Price of such Option, SAR or other Award is fixed, if such Option Price is not fixed at the date of grant of such Option, SAR or other Award. IV. Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. V. Arbitration. Any agreement may contain, among other things, provisions that require arbitration of any and all disputes between a Participant and the Company or any Related Entity, in a form or forms acceptable to the Committee, in its sole discretion. VI. Duration of the Plan. The Plan shall remain in effect for a period of five (5) years from the Effective Date, unless terminated by the Board pursuant to Section XX. VII. Shares Available; Limitations. A. Up to 4,800,000 shares of Common Stock may be granted in calendar year 1998 and the maximum aggregate number of shares of Common Stock that may be granted in any other calendar year for all purposes under the Plan shall be one percent (1.0%) of the shares outstanding (excluding shares held in the Company's treasury) on the first day of such calendar year, provided, however, that in the event that fewer than the full aggregate number of shares available for issuance in any calendar year are issued in such year, the shares not issued shall be added to the shares available for issuance in any subsequent year or years. If, for any reason, any shares of Common Stock as to which Options, SARs, Restricted Stock, or Phantom Units have been granted cease to be subject to exercise or purchase hereunder (other than the exercise of SARs for cash), the underlying shares of Common Stock shall thereafter be available for grants to Participants 8 under the Plan during any calendar year. Awards granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of the Common Stock or (ii) issued shares of Common Stock reacquired by the Company, in each situation, as the Board of Directors or the Committee may determine from time to time at its sole discretion. B. The maximum number of shares of Common Stock that shall be subject to the grant of an Award in any calendar year for Awards other than Options or SARs shall not exceed one-third (1/3) of the total number of shares of Common Stock subject to Awards granted under the Plan for such calendar year. C. The maximum number of shares of Common Stock with respect to which Awards may be granted to any individual Participant in any calendar year may not exceed eight hundred thousand (800,000). D. The cumulative number of shares of Common Stock that may be issued under this Plan in connection the exercise of Incentive Options shall not exceed ten million (10,000,000). VIII. Grant of Awards. A. The Committee shall determine the type or types of Award(s) to be made to each Participant. Awards may be granted singly, in combination or in tandem subject to restrictions set forth in Section IX.C for Incentive Options. The types of Awards that may be granted under the Plan are Options, with or without Reload Options, SARs, Stock Awards and Phantom Units, and with respect to Phantom Units and Restricted Stock, with or without Dividend Equivalent Rights. B. Each grant of an Award under this Plan shall be evidenced by an Agreement dated as of the date of the grant of the Award, other than Stock Awards consisting of an outright grant of shares of Common Stock. This Agreement shall set forth the terms and conditions of the Award, as may be determined by the Committee, and if the Agreement relates to the grant of an Option, shall indicate whether the Option that it evidences, is intended to be an Incentive Option or a Nonqualified Option. Each grant of an Award is conditioned upon the acceptance by the Participant of the terms of the Agreement. Unless otherwise extended by the Committee, a Participant shall have ninety (90) days from the date of the Agreement to accept its terms. IX. Options. The Committee, in its sole discretion, may grant Incentive Options or Nonqualified Options to Eligible Employees, Officers and Executive Officers and Nonqualified Options to Eligible Non-Employees. Any Options granted to a Participant under the Predecessor Plan which remain outstanding as of the 9 Effective Date shall be governed by the terms and conditions of the Plan, except to the extent the provisions of the Plan are inconsistent with the terms of the Options granted under the Predecessor Plans, in which event the applicable provisions of the Predecessor Plans shall govern; provided, however, that in no event shall there be a modification of the terms of any Incentive Option granted under the Predecessor Plan. The terms and conditions of the Options granted under this Section IX shall be determined from time to time by the Committee, as set forth in the Agreement granting the Option, and subject to the following conditions: A. Nonqualified Options. The Option Price for each share of Common Stock issuable pursuant to a Nonqualified Option may be an amount at or above the Fair Market Value on the date such Option is granted, may be Indexed from the original Option Price and may be granted with or without Dividend Equivalent Rights; provided, however, that with respect to Nonqualified Options granted to any Executive Officer, no Dividend Equivalent Rights may be granted. B. Incentive Options. The Option Price for each share of Common Stock issuable pursuant to an Incentive Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date such Option is granted and may be Indexed from the original Option Price. C. Incentive Options; Special Rules. Options granted in the form of Incentive Options shall be subject to the following provisions: 1. Grant. No Incentive Option shall be granted pursuant to this Plan more than ten (10) years after the Effective Date. 2. Annual Limit. The aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Common Stock with respect to which one or more Incentive Options are exercisable for the first time by any Optionee during any calendar year under the Plan or under any other stock plan of the Company or any Related Entity shall not exceed $100,000 or such other maximum amount permitted under Section 422 of the Code. Any Option purporting to constitute an Incentive Option in excess of such limitation shall constitute a Nonqualified Option. 3. 10% Stockholder. If any Optionee to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, an individual described in Section 422(b)(6) of the Code, then the following special provisions shall be applicable to the Option granted to such individual: (a) the Option Price of shares subject to such Incentive Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and 10 (b) the Option shall not have a term in excess of (5) years from the date of grant. D. Other Options. The Committee may establish rules with respect to, and may grant to Eligible Employees, Options to comply with any amendment to the Code made after the Effective Date providing for special tax benefits for stock options. E. Reload Options. Without in any way limiting the authority of the Committee to make Awards hereunder, the Committee shall have the authority to grant Reload Options. Any such Reload Option shall be subject to such other terms and conditions as the Committee may determine. Notwithstanding the above, (i) the Committee shall have the right, in its sole discretion, to withdraw a Reload Option to the extent that the grant thereof will result in any adverse accounting consequences to the Company and (ii) no additional Reload Options shall be granted upon the exercise of a Reload Option. F. Term of Option. No Option shall be exercisable after the expiration of ten (10) years from the date of grant of the Option. G. Exercise of Stock Option. Each Option shall be exercisable in one or more installments as the Committee in its sole discretion may determine at the time of the Award and as provided in the Agreement. The right to purchase shares shall be cumulative so that when the right to purchase any shares has accrued such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option, subject to rules on sequential exercise for Incentive Options pursuant to Paragraph C.2. of this Section IX. The Option Price shall be payable (i) in cash or by an equivalent means acceptable to the Committee, (ii) by delivery (constructive or otherwise) to the Company of shares of Common Stock owned by the Optionee or (iii) by any combination of the above as provided in the Agreement. Shares delivered to the Company in payment of the Option Price shall be valued at the Fair Market Value on the date of the exercise of the Option. H. Vesting. The Agreement shall specify the date or dates on which the Optionee may begin to exercise all or a portion of his Option. Subsequent to such date or dates, the Option shall be deemed vested and fully exercisable. (i) Death. In the event of the death of any Optionee, all Options held by such Optionee on the date of his death shall become Vested Options and the estate of such Optionee, shall have the right, at any time and from time to time within one year after the date of death, or such other period, if any, as the Committee in its sole discretion may determine, to exercise the Options of the Optionee (but not after the earlier of the expiration date of the Option or, in the case of an Incentive Option, one (1) year from the date of death). 11 (ii) Disability. If the employment of any Optionee is terminated because of Disability, all Options held by such Optionee on the date of his or her termination shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option or, in the case of Incentive Options where tax-advantaged treatment is desired, one year from the date of termination of employment. (iii) Retirement. Upon an Optionee's Retirement, all Options held by such Optionee on the date of his or her Retirement shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued, unless the Committee, in its sole discretion, determines otherwise. Unless the Committee, in its sole discretion, determines otherwise, the Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. In the case of Incentive Options where tax-advantaged treatment is desired, the Optionee shall have the right to exercise Vested Options three months from the date of Retirement. (iv) Other Termination. If the employment with the Company or a Related Entity of an Optionee is terminated for any reason other than for death or Disability and other than "for cause" as defined in subparagraph (v) below, such Optionee shall have the right, in the case of a Vested Option, for a period of three (3) months after the date of such termination or such longer period as determined by the Committee, to exercise any such Vested Option, but in any event not after the expiration date of any such Option. (v) Termination For Cause. Notwithstanding any other provision of the Plan to the contrary, if the Optionee's employment is terminated by the Company or any Related Entity "for cause" (as defined below), such Optionee shall immediately forfeit all rights under his Options except as to the shares of Common Stock already purchased prior to such termination. Termination "for cause" shall mean (unless another definition is agreed to in writing by the Company and the Optionee) termination by the Company because of: (a) the Optionee's willful and continued failure to substantially perform his duties (other than any such failure resulting from the Optionee's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Optionee by the Company, which demand specifically identifies the manner in which the Company believes the Optionee has not substantially performed his duties, (b) the willful conduct of the Optionee which is demonstrably and materially injurious to the Company or Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee for a felony by a court of competent jurisdiction. 12 X. Foreign Options and Rights. The Committee may make Awards of Options to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees who are subject to the tax laws of nations other than the United States, which Awards may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action which it deems advisable to obtain approval of such Option by the appropriate foreign governmental entity; provided, however, that no such Award may be granted pursuant to this Section X and no action may be taken which would result in a violation of the Exchange Act, the Code or any other applicable law. XI. Stock Appreciation Rights. The Committee shall have the authority to grant SARs to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees either alone or in connection with an Option. SARs granted in connection with an Option shall be granted either at the time of grant of the Option or by amendment to the Option. SARs granted in connection with an Option shall be subject to the same terms and conditions as the related Option and shall be exercisable only at such times and to such extent as the related Option is exercisable. A SAR granted in connection with an Option may be exercised only when the Fair Market Value of the Common Stock of the Company exceeds the Option Price of the related Option. A SAR granted in connection with an Option shall entitle the Participant to surrender to the Company unexercised the related Option, or any portion thereof and to receive from the Company cash and/or shares of Common Stock equal to that number of shares of Common Stock having an aggregate value equal to the excess of (i) the Fair Market Value of one share of Common Stock on the day of the surrender of such Option over (ii) the Option Price per share of Common Stock multiplied by (iii) the number of shares of Common Stock that may be exercised under the Option, or surrendered; provided, however, that no fractional shares shall be issued. A SAR granted singly shall entitle the Participant to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value of a share of Common Stock on the date of the grant of the SAR multiplied by (iii) the number of SARs exercised. Payment of any fractional shares of Common Stock shall be made in cash. A SAR shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. XII. Restricted Stock. The Committee may, in its sole discretion, grant Restricted Stock to Eligible Employees, Eligible Non-Employees, Officers or Executive Officers subject to the provisions below. 13 A. Restrictions. A stock certificate representing the number of shares of Restricted Stock granted shall be held in custody by the Company for the Participant's account. The Participant shall have all rights and privileges of a stockholder as to such Restricted Stock, including the right to receive dividends and the right to vote such shares, except that, subject to the provisions of Paragraph B. below, the following restrictions shall apply: (i) the Participant shall not be entitled to delivery of the certificate until the expiration of the Restricted Period; (ii) none of the shares of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period; (iii) the Participant shall, if requested by the Company, execute and deliver to the Company, a stock power endorsed in blank. The Restricted Period shall lapse upon a Participant becoming Disabled or the death of a Participant. If a Participant ceases to be an employee of the Company or a Related Entity prior to the expiration of the Restricted Period applicable to such shares, except as a result of the death or Disability of the Participant, shares of Restricted Stock still subject to restrictions shall be forfeited unless otherwise determined by the Committee, and all rights of the Participant to such shares shall terminate without further obligation on the part of the Company. Upon the forfeiture (in whole or in part) of shares of Restricted Stock, such forfeited shares shall become shares of Common Stock held in the Company's treasury without further action by the Participant. B. Terms and Conditions. The Committee shall establish the terms and conditions for Restricted Stock pursuant to Section III of the Plan, including whether any shares of Restricted Stock shall have voting rights or a right to any dividends that are declared. Terms and conditions established by the Committee need not be the same for all grants of Restricted Stock. The Committee may provide for the restrictions to lapse with respect to a portion or portions of the Restricted Stock at different times or upon the occurrence of different events, and the Committee may waive, in whole or in part, any or all restrictions applicable to a grant of Restricted Stock. Restricted Stock Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. C. Delivery of Restricted Shares. At the end of the Restricted Period as herein provided, a stock certificate for the number of shares of Restricted Stock with respect to which the restrictions have lapsed shall be delivered (less any shares delivered pursuant to Section XIX.C in satisfaction of any withholding tax obligation), free of all such restrictions, except applicable securities law restrictions, to the Participant or the Participant's estate, as the case may be. The Company shall not be required to deliver any fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value (measured as of the date the restrictions lapse) of such fractional share to the Participant or the Participant's estate, as the case may be. Notwithstanding the foregoing, the Committee may authorize the delivery of the Restricted Stock to a Participant during the Restricted Period, in which event any stock certificates in respect of shares of Restricted Stock thus delivered 14 to a Participant during the Restricted Period applicable to such shares shall bear an appropriate legend referring to the terms and conditions, including the restrictions, applicable thereto. XIII. Phantom Units. A. General. The Committee may, in its sole discretion, grant the right to earn Phantom Units to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees. The Committee shall determine the criteria for the earning of Phantom Units, pursuant to Section III of the Plan. Upon satisfaction of such criteria, a Phantom Unit shall be deemed a Vested Award. A Phantom Unit granted by the Committee shall provide for payment in shares of Common Stock. A Phantom Unit shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. Shares of Common Stock issued pursuant to this Section XIII may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. The Committee shall determine whether a Participant granted a Phantom Unit shall be entitled to a Dividend Equivalent Right. B. Unfunded Claim. The establishment of Phantom Units under the Plan are unfunded obligations of the Company. The interest of a Participant in any such units shall be considered a general unsecured claim against the Company to the extent that the conditions for the earning of the Phantom Units have been satisfied. Nothing contained herein shall be construed as creating a trust or fiduciary relationship between the Participant, the Company or the Committee. C. Issuance of Common Stock. Upon a Phantom Unit becoming a Vested Award, unless a Participant has elected to defer under Paragraph D. below, shares of Common Stock representing the Phantom Units shall be distributed to the Participant, unless the Committee, with the consent of the Participant, provides for the payment of the Phantom Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the Participant. D. Deferral of Phantom Units. Prior to the year with respect to which a Phantom Unit may become a Vested Award, the Participant may elect not to receive Common Stock upon the vesting of such Phantom Unit and for the Company to continue to maintain the Phantom Unit on its books of account. In such event, the value of a Phantom Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. E. Financial Hardship. Notwithstanding any other provision hereof, at the written request of a Participant who has elected to defer pursuant to Paragraph D. above, the Committee, in its sole direction, upon a finding that continued deferral will result in financial hardship to the Participant, may 15 authorize the payment of all or a part of a Participant's Vested Phantom Units in a single installment or the acceleration of payment of any multiple installments thereof; provided, however, that distributions will not be made under this paragraph if such distribution would result in liability of an Executive Officer under Section 16 of the Exchange Act. F. Distribution upon Death. The Committee shall pay the Fair Market Value of the Phantom Units of a deceased Participant to the estate of the Participant, as soon as practicable following the death of the Participant. The value of the Phantom Units for the purpose of such distribution shall be based upon the Fair Market Value of shares of Common Stock underlying the Phantom Units on the date of the Participant's death. XIV. Stock Awards to Outside Directors. Each Outside Director shall be granted a Stock Award on his or her Initial Grant Date consisting of 3,000 shares of Restricted Stock, which shall vest in 20% increments, with the first 600 shares vesting six months after the Initial Grant Date, the next 600 shares vesting one year after the Initial Grant Date, and the remaining shares vesting at a rate of 600 shares per year thereafter for the next three years. XV. Outside Director's Compensation. A. Payment in Common Stock. Each Outside Director may elect to receive payment of all or any portion of Director Compensation comprised of retainer fees for service on the Board and any committees thereof in Common Stock. The amount of Common Stock then issuable shall be based on the Fair Market Value of the Common Stock on the dates such retainer fees are otherwise due and payable to the Outside Director. When any fees are paid in Common Stock under this Section XV.A, any fractional shares of Common Stock shall be paid in cash. Certificates evidencing such Common Stock shall be delivered promptly following such date. If an Outside Director elects to receive payment of retainer fees in Common Stock as described in this Section XV.A, the election shall be (i) in writing, (ii) delivered to the Secretary of the Company at least six months in advance of the payment date, and (iii) irrevocable. B. Deferral of Payment. Each Outside Director may elect to defer the receipt of Common Stock payable pursuant to Section XV.A, in which event such Outside Director shall receive an equivalent number of Phantom Units with Dividend Equivalent Rights. Any such Phantom Units shall become Vested Awards at such time as the Outside Director no longer serves as a member of the Board. If an Outside Director elects to defer receipt of Common Stock and receive Phantom Units pursuant to this Section XV.B, the election shall be (i) in writing, (ii) delivered to the Secretary of the Company in the year preceding the year in 16 which the Director Compensation would otherwise be paid and at least six months in advance of the date when Common Stock would otherwise be issued, and (iii) irrevocable. C. Director Stock Options. On his or her Initial Grant Date, each Outside Director shall be granted an Option to purchase thirty thousand (30,000) shares Common Stock, such Options to become Vested Options in 1/3 increments over three years, beginning one year after the Initial Grant Date. On the third anniversary of the Initial Grant Date, and each year thereafter, Outside Directors shall receive an annual grant of an Option to purchase ten thousand (10,000) shares of Common Stock, which Options shall become Vested Options one year after the date of each respective grant. Upon retirement of an Outside Director from the Board, all unvested Options shall become immediately vested and shall remain exercisable notwithstanding the retirement of the Director from the Board, until the expiration date of the Option, which shall occur ten years from the date of grant. D. Pension Replacement. After the Effective Date, no new pension benefits will be granted to Outside Directors; however, the Company will grandfather vested pension benefits accrued by Directors as of the Effective Date relating to service on the Board of U S WEST, Inc. prior to the Separation. In lieu thereof, Outside Directors shall receive a Stock Award consisting of the number of shares of Restricted Stock determined by dividing (a) the dollar amount equal to ten (10) times the amount of the annual retainer paid to Board members, by (b) the closing price on recipient's Initial Grant Date for Common Stock listed on the New York Stock Exchange as reported in the Wall Street Journal, which Stock Award shall be subject to the following vesting schedule: (i) 50% of the Stock Award shall vest five years after the recipient's Initial Grant Date, and (ii) the remainder shall vest at a rate of 10% per year thereafter for the next five years. XVI. Federal Securities Law. With respect to grants of Awards to Directors and Executive Officers, the Company intends that the provisions of this Plan and all transactions effected in accordance with Plan shall comply with Rule 16b-3 under the Exchange Act. Accordingly, the Committee shall administer and interpret the Plan to the extent practicable, to maintain compliance with such rule. XVII. Change of Control; Acceleration. Upon the occurrence of a Change of Control: A. in the case of all outstanding Options and SARs, each such Option and SAR shall automatically become immediately fully exercisable by the Participant; 17 B. restrictions applicable to Restricted Stock shall automatically be deemed lapsed and conditions applicable to Phantom Units shall automatically be deemed waived, and the Participants who receive such grants shall become immediately entitled to receipt of the Common Stock subject to such grants; and C. the Human Resources Committee, in its discretion, shall have the right to accelerate payment of any deferrals of Vested Phantom Units. XVIII. Adjustment of Shares. A. In the event there is any change in the Common Stock by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company, the number or kind of shares or interests subject to an Award and the per share price or value thereof shall be appropriately adjusted by the Committee at the time of such event, provided that each Participant's economic position with respect to the Award shall not, as a result of such adjustment, be worse than it had been immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be rounded up to the next whole share of Common Stock. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an "incentive stock option" for purposes of Section 422 of the Code. B. In the event of an acquisition by the Company of another corporation where the Company assumes outstanding stock options or similar obligations of such corporation, the number of Awards available under the Plan shall be appropriately increased to reflect the number of such options or other obligations assumed. XIX. Substitute Options. Options, shares of Restricted Stock and Phantom Units issued in substitution of outstanding options for U S WEST Communications Group Stock, restricted shares of U S WEST Communications Group Stock and phantom units with respect to U S WEST Communications Group Stock pursuant to the terms of the Employee Matters Agreement entered into by the Company and MediaOne Group, Inc. (previously known as "U S WEST, Inc.") shall be administered pursuant to the provisions of the Plan to the extent not inconsistent with the terms of the grant of such options, restricted stock and phantom units and such Employee Matters Agreement. 18 XX. Miscellaneous Provisions. A. Assignment or Transfer. Except as otherwise permitted by this Section, no grant of any "derivative security" (as defined in the rules issued under Section 16 of the Exchange Act) made under the Plan or any rights or interests therein shall be assignable or transferable except by last will and testament or the laws of descent and distribution. No grant of any such derivative security shall be assignable or transferable pursuant to a domestic relations order. An Optionee who is an Officer or an Outside Director may assign or transfer an Option (other than an Incentive Option) as a gift to one or more members of his or her immediate family or to trusts maintained for the benefit of such immediate family members if such assignment or transfer is not pursuant to a domestic relations order and (i) such assignment or transfer is expressly approved in advance by the Committee or its delegate(s) or (ii) such Option was granted to the Optionee on or after August 15, 1996, and the Agreement pertaining to such Option expressly permits the assignment or transfer of the Option. B. Investment Representation; Legends. The Committee may require each Participant acquiring shares of Common Stock pursuant to an Award to represent to and agree with the Company in writing that such Participant is acquiring the shares without a view to distribution thereof. No shares of Common Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of stop-orders and restrictive legends on certificates for Common Stock as it deems appropriate. C. Withholding Taxes. In the case of distributions of Common Stock or other securities hereunder, the Company, as a condition of such distribution, may require the payment (through withholding from the Participant's salary, payment of cash by the Participant, reduction of the number of shares of Common Stock or other securities to be issued (except in the case of an Incentive Option), or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such distribution. D. Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Award nor to any Participant receiving an Award. E. Other Incentive Plans. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. F. Effect on Employment. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Participant except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as 19 imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Participant and (ii) any Participant to remain in the employ of the Company or any Related Entity. G. Noncompetition. Any Agreement may contain, among other things, provisions prohibiting Participants from competing with the Company or any Related Entity in a form or forms acceptable to the Committee, in its sole discretion. H. Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. XXI. Amendment or Termination of Plan. The Board shall have the right to amend, modify, suspend or terminate the Plan at any time, provided that, with respect to Incentive Options, no amendment shall be made that (i) decreases the minimum Option Price in the case of any Incentive Option, or (ii) modifies the provisions of the Plan with respect to Incentive Options, unless such amendment is made by or with the approval of the stockholders or unless the Board receives an opinion of counsel to the Company that stockholder approval is not necessary with respect to any modifications relating to Incentive Options; and provided further that no amendment shall be made that (i) increases the number of shares of Common Stock that may be issued under the Plan, (ii) permits the Option Price for any Option to be less than Fair Market Value on the date such Option is granted, or (iii) extends the period during which awards may be granted under the Plan beyond five (5) years from the Effective Date, unless such amendment is made by or with the approval of stockholders. No amendment, modification, suspension or termination of the Plan shall alter or impair any Awards previously granted under the Plan, without the consent of the holder thereof. 20 EX-99.D.6 16 ex_d-6.txt EXHIBIT 99(D)(6) 1998 U S WEST STOCK PLAN I. Purpose. This 1998 U S WEST Stock Plan, as amended (the "Plan"), is intended to promote the long term success of U S WEST, Inc. by affording certain eligible employees, executive officers, non-employee directors of the Company (as defined below) and its Subsidiaries (as defined below) and certain outside consultants or advisors to the Company and its affiliates with an opportunity to acquire a proprietary interest in the Company, in order to incentivize such persons and to align the financial interests of such persons with the stockholders of the Company. This Plan became effective upon consummation of the Separation (defined below). II. Definitions. The following defined terms are used in the Plan: A. "Agreement" shall mean the agreement or grant letter accepted by the Participant as described in Section VIII of the Plan between the Company and a Participant which is a condition subsequent to the grant of an Award to a Participant pursuant to this Plan. B. "Award" shall mean individually, collectively or in tandem, an incentive award granted under the Plan, whether in the form of Options, SARs, Stock Awards or Phantom Units. C. "Board" or "Board of Directors" shall mean the Board of Directors of the Company. D. Except as excluded below, "Change of Control" shall mean any of the following: 1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) who is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; or 2. any period of two (2) consecutive calendar years during which there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or 3. the Company becomes a party to a merger or consolidation in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or 4. any other event that a majority of the Board of Directors shall determine constitutes a Change of Control; provided, however, that, except as the Board of Directors otherwise determines, a Change of Control for purposes of the Plan does not include the Merger contemplated in the Agreement and Plan of Merger (the "Qwest Merger"), dated as of July 18, 1999, or as later amended, between the Company and Qwest Communications International Inc. ("Qwest"). E. "Code" shall mean the Internal Revenue Code of 1986, as amended. F. Reserved. G. "Common Stock" shall mean the common stock, $.01 par value, of the Company. H. "Company" shall mean U S WEST, Inc, a Delaware corporation (previously known as "USW-C, Inc."), and any successor thereof. I. "Director Compensation" shall mean all cash or stock remuneration payable to an Outside Director for service to the Company as a director, other than reimbursement for expenses, the Stock Award granted pursuant to Section XIV, the Stock Award granted pursuant to Section XV.D, or Common Stock received upon exercise of an Option, and shall include retainer fees for service on, and fees for attendance at meetings of, the Board and any committees thereof. 2 J. "Disabled" or "Disability" shall mean long-term disability as determined under the provisions of any U S WEST disability plan maintained for the benefit of eligible employees of the Company or any Related Entity, provided, however, that in the case of an Incentive Option, "disability" shall have the meaning specified in Section 22(e)(3) of the Code. K. Reserved. L. "Dividend Equivalent Rights" shall mean the right to receive the amount of any dividends that are paid on an equivalent number of shares of Common Stock underlying an Option or Phantom Unit, which shall be payable either in cash or in the form of additional Phantom Units or Stock. M. "Effective Date" shall mean the later of the date of the Separation or the date on which the Plan was approved by the stockholders of the Company. N. "Eligible Employee" shall mean any employee of the Company or any Related Entity who is so employed on the date of the grant of an Award. O. "Eligible Non-Employee" shall mean any consultant or advisor who has provided bona fide services to the Company or any Related Entity and is selected by the HRC or EBC to receive an Award; provided that services rendered by such consultant or advisor were not in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities. P. "Employee Benefits Committee" or "EBC" shall mean a committee of the Company consisting of employee(s) of the Company or any Related Entity appointed by the Board at the recommendation of the Human Resources Committee and which shall administer the Plan with respect to Eligible Employees and Eligible Non-Employees other than Officers, Executive Officers and Outside Directors as provided in Section III hereof. Q. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. R. "Executive Officers" shall mean any Officer of the Company or any Related Entity who, at the time of an Award, is subject to the reporting requirements of Section 16(a) of the Exchange Act. S. "Fair Market Value" shall mean the closing price of a share of Common Stock as reported on the New York Stock Exchange for the applicable date, or if there were no sales on such date, on the last day prior to the applicable date on which there were sales. 3 T. "Human Resources Committee" or "HRC" shall mean the human resources committee of the Board or any other committee of the Board appointed by the Board to administer the Plan in lieu of the HRC, which committee shall consist of no fewer than three (3) persons, each of whom shall be a Non-Employee Director. U. "Incentive Option" shall mean an incentive stock option under the provisions of Section 422 of the Code. V.(1) "Indexed" shall mean the periodic adjustment of an Option Price based upon adjustment criteria determined by the HRC or EBC, but in no event shall the Option Price be adjusted to an amount less than the original Option Price. V.(2) "Initial Grant Date" shall mean, with respect to an Outside Director, the later of (i) June 22, 1998, or (ii) the date on which a new Outside Director is elected to the Board. V.(3) "Non-Employee Director" shall have the meaning set forth in Rule 16b-3(b)(3) or any successor rule issued under the Exchange Act. W. "Nonqualified Option" shall mean an Option which does not qualify under Section 422 of the Code. X. "Officer" shall mean any executive of the Company or any Related Entity who participates in the Company's executive compensation programs. Y. "Option" shall mean an option granted by the Company to purchase Common Stock pursuant to the provisions of this Plan, including Incentive Options, Nonqualified Options and Reload Options. Z. "Optionee" shall mean a Participant to whom one or more Options have been granted. AA. "Option Price" shall mean the price per share payable to the Company for shares of Common Stock upon the exercise of an Option. AB. "Outside Director" shall mean an individual not employed by the Company or any Related Entity and who serves on the Board. AC. "Parent Corporation" shall mean any corporation within the meaning of Section 424(e) of the Code. AD. "Participant" shall mean an Eligible Employee, Eligible Non-Employee, Executive Officer or Outside Director to whom an Award is granted. 4 AE. "Phantom Units" shall mean units held in a notional account in which each unit represents a value equivalent to one share of Common Stock on the Award date. AF. "Plan" shall mean the 1998 U S WEST Stock Plan, as amended. AG. "Related Entity" shall mean any Parent Corporation or Subsidiary of the Company. AH. "Reload Option" shall mean the right to receive a further Option for a number of shares equal to the number of shares of Common Stock surrendered by the Optionee upon exercise of the original Option as provided in Section IX.E of the Plan. AI. "Restricted Period" shall mean the period of time from the date of grant of Restricted Stock until the lapse of restrictions attached thereto under the terms of the Agreement granting such Restricted Stock, pursuant to the provisions of the Plan or by action of the EBC or HRC, as appropriate. AJ. "Restricted Stock" shall mean an Award made by the HRC or EBC entitling the Participant to acquire, at no cost or for a purchase price determined by the HRC or EBC at the time of grant, shares of Common Stock which are subject to restrictions in accordance with the provisions of Section XII hereof. AK. "Retirement" shall mean with respect to any Eligible Employee, that such person has terminated employment with the Company or any Related Entity other than "for cause" (as defined in subsection IX.H.(v)) and (i) such person is eligible to receive an immediate service pension benefit under the U S WEST Pension Plan, or (ii) such person would be eligible to receive an immediate service pension under the U S WEST Pension Plan, as amended and restated effective January 1, 1993, had that plan not been amended and restated effective January 1, 1997, or (iii) such person specifically is treated as "retired" for purposes of the Plan under any individually negotiated, written agreement or arrangement between the Company or any Related Entity and the Eligible Employee. "Retirement" shall not apply to any Eligible Non-Employee. AL. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. AM. "Separation" shall mean the separation of U S WEST Communications Group and U S WEST Media Group into two separate companies pursuant to the terms of the Separation Agreement between the Company and MediaOne Group, Inc. (previously known as "U S WEST, Inc."). 5 AN. "Stock Appreciation Right" or "SAR" shall mean a grant entitling the Participant to receive an amount in cash or shares of Common Stock or a combination thereof having a value equal to (or if the HRC or the EBC, as the case may be, shall so determine at the time of a grant, less than) the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the date of grant (or over the Option Price, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of shares with respect to which the Stock Appreciation Right shall have been exercised, with the HRC or the EBC, as the case may be, to determine the form or forms of payment at the time of grant of the SAR. AO. "Stock Awards" shall mean any Award which is in the form of Restricted Stock and any outright grants of Common Stock approved by the HRC or the EBC, as the case may be, pursuant to the Plan. AP. "Subsidiary" shall mean with respect to any Award other than an Incentive Option, any corporation, joint venture, limited liability company ("LLC") or partnership in which the Company owns, directly or indirectly, (i) with respect to a corporation, stock possessing twenty percent (20%) or more of the total combined voting power of all classes of stock in the corporation, (ii) in the case of a joint venture or partnership, the Company possesses a twenty percent (20%) interest in the capital or profits of such joint venture or partnership, or (iii) in the case of an LLC, a twenty percent (20%) or greater interest in units in the LLC. In the case of any Incentive Option, Subsidiary shall mean any corporation within the meaning of Section 424(f) of the Code. AQ. "Vested" shall mean the status of that portion of an Option or other Award that may be immediately exercised under the terms of the Agreement granting such Option or other Award, pursuant to the provisions of the Plan, or by action of the HRC for Officers, Executive Officers and Outside Directors or EBC for all other Eligible Employees and Eligible Non-Employees. III. Administration. A. The HRC, with respect to Officers, Executive Officers and Outside Directors and the EBC through the power delegated it by the Board, with respect to other Eligible Employees and Eligible Non-Employees, shall have sole and exclusive discretion to interpret and administer the Plan. The HRC may adopt such rules, regulations, procedures and guidelines as it determines necessary for the administration of the Plan. Subject to any such rules, regulations, procedures and guidelines adopted by the HRC, the EBC shall have the power to adopt rules, regulations, procedures and guidelines to administer the Plan with respect to Eligible Employees (other than Officers and Executive Officers) and with respect to Eligible Non-Employees. 6 B. The HRC and the EBC may delegate to one or more of their members, or to one or more agents, such administrative duties as they may deem advisable, and the HRC and the EBC, or any person to whom they have delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the HRC and the EBC or such person may have under the Plan. The HRC and the EBC, as the case may be, may employ such legal or other counsel, consultants and agents as they may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the HRC or the EBC in the engagement of such counsel, consultant or agent shall be paid by the Company or such Related Entity whose employees have benefited from the Plan, as determined by the HRC or the EBC, as the case may be. The Company shall indemnify members of the HRC and the EBC and any of their respective agents who are employees of the Company or a Related Entity against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's gross negligence or willful misconduct. C. In furtherance of and not in limitation of the discretionary authority granted to the HRC and the EBC, subject to the provisions of the Plan, the HRC and the EBC shall have the authority to: 1. determine the Participants to whom Awards shall be granted and the number of and terms and conditions upon which Awards shall be granted (which need not be the same for all Awards or types of Awards); 2. establish annual or long-term financial goals of the Company, any Related Entity, or division, department, or group of the Company or any Related Entity, or individual goals which the HRC and the EBC, as the case may be, shall consider in granting Awards, if any; 3. determine the satisfaction of performance goals based upon periods of time or any combinations thereof; 4. determine the time when Awards shall be granted, the Option Price of each Option, the period(s) during which Options shall be exercisable (whether in whole or in part), the restrictions to be applicable to Awards, and the other terms and provisions of Awards; 5. modify grants of Awards pursuant to Paragraph D. of this Section III; 6. provide the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securities to be issued upon exercise of an Option, the lapse of restrictions on Restricted Stock and the vesting of Phantom Units (other than an Incentive Option) 7 to meet the obligation of withholding for income, social security and other taxes incurred by a Participant upon such exercise or required to be withheld by the Company in connection with such exercise; 7. adopt, modify and rescind their respective rules, regulations, procedures and guidelines relating to the Plan; 8. adopt modifications to the Plan and procedures, as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company or a Related Entity operates in order to assure the legality of Awards granted under the Plan to Participants who reside in such countries; 9. obtain the approval of the stockholders of the Company with respect to Awards consisting of Phantom Units or Restricted Stock; provided, however, no action shall be proposed to stockholders without the approval of the Board of Directors; and 10. make all determinations, perform all other acts, exercise all other powers and establish any other rules, regulations, procedures, and guidelines determined by the HRC and the EBC, respectively, to be necessary, appropriate or advisable in administering the Plan and to maintain compliance with any applicable law. D. The HRC or the EBC, as the case may be, may at any time accelerate the exercisability or define any other aspect of the grant of or conditions of grants of any Awards and waive or amend any and all restrictions and conditions of any Awards. E. Subject to and not inconsistent with the express provisions of the Plan, the Code and Rule 16b-3 of the Exchange Act, the HRC shall have the authority to require, as a condition to the granting of any Option, SAR or other Award (to the extent applicable) to any Executive Officer of the Company or any Related Entity that the Executive Officer receiving such Option, SAR or other Award agree not to sell or otherwise dispose of such Option, SAR or other Award or Common Stock acquired pursuant to such Option, SAR or other Award (to the extent applicable) or any other "derivative security" (as defined by Rule 16a-1(c) under the Exchange Act) for a period of six (6) months following the later of (i) the date of the grant of such Option, SAR or other Award (to the extent applicable) or (ii) the date when the other Option Price of such Option, SAR or other Award is fixed, if such Option Price is not fixed at the date of grant of such Option, SAR or other Award. 8 IV. Decisions Final. Any decision, interpretation or other action made or taken in good faith by the HRC, with respect to Officers, Executive Officers and Outside Directors, and the EBC, with respect to all other Eligible Employees and Eligible Non-Employees, arising out of or in connection with the Plan shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. V. Arbitration. Any Agreement may contain, among other things, provisions that require arbitration of any and all disputes between a Participant and the Company or any Related Entity, in a form or forms acceptable to the HRC, with respect to Officers, Executive Officers and Outside Directors, and the EBC, with respect to all other Eligible Employees and Eligible Non-Employees. VI. Duration of the Plan. The Plan shall remain in effect for a period of five (5) years from the Effective Date, unless terminated by the Board pursuant to Section XXI, but shall continue to govern any Awards outstanding as of the end of that period. VII. Shares Available; Limitations. A. Up to 4,800,000 shares of Common Stock may be granted in calendar year 1998 and the maximum aggregate number of shares of Common Stock that may be granted in any other calendar year for all purposes under the Plan shall be one percent (1.0%) of the shares outstanding (excluding shares held in the Company's treasury) on the first day of such calendar year, provided, however, that in the event that fewer than the full aggregate number of shares available for issuance in any calendar year are issued in such year, the shares not issued shall be added to the shares available for issuance in any subsequent year or years. If, for any reason, any shares of Common Stock as to which Options, SARs, Restricted Stock, or Phantom Units have been granted cease to be subject to exercise or purchase hereunder (other than the exercise of SARs for cash), the underlying shares of Common Stock shall thereafter be available for grants to Participants under the Plan during any calendar year. Awards granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of the Common Stock or (ii) issued shares of Common Stock reacquired by the Company, in each situation, as the Board of Directors or the HRC may determine from time to time. B. The maximum number of shares of Common Stock that shall be subject to the grant of an Award in any calendar year for Awards other than Options or SARs shall not exceed one-third (1/3) of the total number of shares of Common Stock subject to Awards granted under the Plan for such calendar year. 9 C. The maximum number of shares of Common Stock with respect to which Awards may be granted to any individual Participant in any calendar year may not exceed 2,500,000. D. The cumulative number of shares of Common Stock that may be issued under this Plan in connection with the exercise of Incentive Options shall not exceed ten million (10,000,000). VIII. Grant of Awards. A. The HRC shall determine the type or types of Award(s) to be made to Officers, Executive Officers and Non-Employee Directors, and the EBC shall determine the type or types of Award(s) to be made to all other Eligible Employees and Eligible Non-Employees. Awards may be granted singly, in combination or in tandem subject to restrictions set forth in Section IX.C for Incentive Options. The types of Awards that may be granted under the Plan are Options, with or without Reload Options, SARs, Stock Awards and Phantom Units, and with respect to Phantom Units and Restricted Stock, with or without Dividend Equivalent Rights. B. Each grant of an Award under this Plan shall be conditioned upon the acceptance of an Agreement dated as of the date of the grant of the Award, other than Stock Awards consisting of an outright grant of shares of Common Stock. This Agreement shall set forth the terms and conditions of the Award, as may be determined by the HRC, with respect to Officers, Executive Officers and Non-Employee Directors, and the EBC, with respect to all other Eligible Employees and Eligible Non-Employees. If the Agreement relates to the grant of an Option, it shall indicate whether the Option that it evidences, is intended to be an Incentive Option or a Nonqualified Option. Each grant of an Award is conditioned upon the subsequent acceptance by the Participant of the terms of the Agreement. Unless otherwise extended by the HRC, with respect to Officers, Executive Officers and Non-Employee Directors, or the EBC, with respect to all other Eligible Employees and Eligible Non-Employees, a Participant shall have ninety (90) days from the date of the Agreement to accept its terms. IX. Options. The HRC may grant Incentive Options or Nonqualified Options to Officers and Executive Officers, and the EBC may grant Incentive Options or Nonqualified Options to all other Eligible Employees and Nonqualified Options to Eligible Non-Employees. Any Options granted to a Participant under the predecessor plan which remain outstanding as of the Effective Date shall be governed by the terms and conditions of the Plan, except to the extent that the provisions of the Plan are inconsistent with the terms of, and have a materially adverse effect on the economic value of the Options granted under the predecessor plans, in which event the applicable provisions of the predecessor plans shall govern, unless 10 otherwise agreed to by the Optionee; provided, however, that in no event shall there be a modification of the terms of any Incentive Option granted under the predecessor plan. The terms and conditions of the Options granted under this Section IX shall be determined from time to time by the HRC, with respect to Officers, Executive Officers and Non-Employee Directors, and the EBC, with respect to all other Eligible Employees and Eligible Non-Employees, as set forth in the Agreement granting the Option, and subject to the following conditions: A. Nonqualified Options. The Option Price for each share of Common Stock issuable pursuant to a Nonqualified Option may be an amount at or above the Fair Market Value on the date such Option is granted, may be Indexed from the original Option Price and may be granted with or without Dividend Equivalent Rights; provided, however, that with respect to Nonqualified Options granted to any Executive Officer, no Dividend Equivalent Rights may be granted. B. Incentive Options. The Option Price for each share of Common Stock issuable pursuant to an Incentive Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date such Option is granted and may be Indexed from the original Option Price. C. Incentive Options; Special Rules. Options granted in the form of Incentive Options shall be subject to the following provisions: 1. Grant. No Incentive Option shall be granted pursuant to this Plan more than ten (10) years after the Effective Date. 2. Annual Limit. The aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Common Stock with respect to which one or more Incentive Options are exercisable for the first time by any Optionee during any calendar year under the Plan or under any other stock plan of the Company or any Related Entity shall not exceed $100,000 or such other maximum amount permitted under Section 422 of the Code. Any portion of an Option purporting to constitute an Incentive Option in excess of such limitation shall constitute a Nonqualified Option. 3. 10% Stockholder. If any Optionee to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, an individual described in Section 422(b)(6) of the Code, then the following special provisions shall be applicable to the Option granted to such individual: (a) the Option Price of shares subject to such Incentive Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (b) the Option shall not have a term in excess of (5) years from the date of grant. 11 D. Other Options. The HRC may grant, with respect to Officers and Executive Officers, and Directors, and the EBC may grant, with respect to all other Eligible Employees and Eligible Non-Employees, and establish rules with respect to Options to comply with any amendment to the Code made after the Effective Date providing for special tax benefits for stock options. E. Reload Options. Without in any way limiting the authority of the HRC or the EBC to make Awards hereunder, both the HRC and the EBC shall have the authority to grant Reload Options. Any such Reload Option shall be subject to such other terms and conditions as the HRC or the EBC, as the case may be, may determine. Notwithstanding the above, (i) the HRC and the EBC shall have the right to withdraw a Reload Option to the extent that the grant thereof will result in any adverse accounting consequences to the Company and (ii) no additional Reload Options shall be granted upon the exercise of a Reload Option. F. Term of Option. No Option shall be exercisable after the expiration of ten (10) years from the date of grant of the Option. G. Exercise of Stock Option. Each Option shall be exercisable in one or more installments as the HRC or the EBC, as the case may be, may determine at the time of the Award and as provided in the Agreement. The right to purchase shares shall be cumulative so that when the right to purchase any shares has accrued such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. The Option Price shall be payable (i) in cash or by an equivalent means acceptable to the HRC or the EBC, as the case may be (ii) by delivery (constructive or otherwise) to the Company of shares of Common Stock owned by the Optionee or (iii) by any combination of the above as provided in the Agreement. Shares delivered to the Company in payment of the Option Price shall be valued at the Fair Market Value on the date of the exercise of the Option. H. Vesting. The HBC and the EBC, as the case may be, shall establish the vesting schedules for Awards. The Agreement shall specify the date or dates on which the Optionee may begin to exercise all or a portion of his Option. Subsequent to such date or dates, the applicable portion of the Option shall be deemed Vested and fully exercisable. (i) Death. In the event of the death of any Optionee, all Options held by such Optionee on the date of his death shall become Vested Options and the estate of such Optionee, shall have the right, at any time and from time to time within one year after the date of death, or such other period, if any, as the HRC or the EBC, as the case may be, may determine, to exercise the Options of the Optionee (but not after the earlier of the expiration date of the Option or, in the case of an Incentive Option, one (1) year from the date of death). 12 (ii) Disability. If the employment of any Optionee is terminated because of Disability, all Options held by such Optionee on the date of his or her termination shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options over time in accordance with the vesting schedule established at the time such Options were issued. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. (iii) Retirement. Upon an Optionee's Retirement, all Options held by such Optionee on the date of his or her Retirement shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options over time in accordance with the vesting schedule established at the time such Options were issued, unless the HRC or the EBC, as the case may be, determines otherwise. Unless the HRC or the EBC, as the case may be, , determines otherwise, the Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. In the case of Incentive Options where tax-advantaged treatment is desired, the Optionee shall have the right to exercise Vested Options three months from the date of Retirement. (iv) Other Termination. If the employment with the Company or a Related Entity of an Optionee is terminated for any reason other than for death or Disability and other than "for cause" as defined in subparagraph (v) below, such Optionee shall have the right, in the case of a Vested Option, for a period of three (3) months after the date of such termination or such longer period as determined by the HRC or the EBC, as the case may be, to exercise any such Vested Option, but in any event not after the expiration date of any such Option. (v) Termination For Cause. Notwithstanding any other provision of the Plan to the contrary, if the Optionee's employment is terminated by the Company or any Related Entity "for cause" (as defined below), such Optionee shall immediately forfeit all rights under his Options except as to the shares of Common Stock already purchased prior to such termination. Termination "for cause" shall mean (unless another definition is agreed to in writing by the Company and the Optionee) termination by the Company because of: (a) the Optionee's willful and continued failure to substantially perform his duties (other than any such failure resulting from the Optionee's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Optionee by the Company, which demand specifically identifies the manner in which the Company believes the Optionee has not substantially performed his duties, (b) the willful conduct of the Optionee which is demonstrably and materially injurious to the Company or Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee for a felony by a court of competent jurisdiction. 13 X. Foreign Options and Rights. The HRC or the EBC, as the case may be, may make Awards of Options to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees who are subject to the tax laws of nations other than the United States, which Awards may have terms and conditions as determined by the HRC or the EBC, as the case may be, as necessary to comply with applicable foreign laws. The HRC or the EBC, as the case may be, may take any action which it deems advisable to obtain approval of such Option by the appropriate foreign governmental entity; provided, however, that no such Award may be granted pursuant to this Section X and no action may be taken which would result in a violation of the Exchange Act, the Code or any other applicable law. XI. Stock Appreciation Rights. The HRC or the EBC, as the case may be, shall have the authority to grant SARs to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees either alone or in connection with an Option. SARs granted in connection with an Option shall be granted either at the time of grant of the Option or by amendment to the Option. SARs granted in connection with an Option shall be subject to the same terms and conditions as the related Option and shall be exercisable only at such times and to such extent as the related Option is exercisable. A SAR granted in connection with an Option may be exercised only when the Fair Market Value of the Common Stock of the Company exceeds the Option Price of the related Option. A SAR granted in connection with an Option shall entitle the Participant to surrender to the Company unexercised the related Option, or any portion thereof and to receive from the Company cash and/or shares of Common Stock equal to that number of shares of Common Stock having an aggregate value equal to the excess of (i) the Fair Market Value of one share of Common Stock on the day of the surrender of such Option over (ii) the Option Price per share of Common Stock multiplied by (iii) the number of shares of Common Stock that may be exercised under the Option, or surrendered; provided, however, that no fractional shares shall be issued. A SAR granted singly shall entitle the Participant to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value of a share of Common Stock on the date of the grant of the SAR multiplied by (iii) the number of SARs exercised. Payment of any fractional shares of Common Stock shall be made in cash. A SAR shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. XII. Restricted Stock. The HRC or the EBC, as the case may be, may grant Restricted Stock to Eligible Employees, Eligible Non-Employees, Officers or Executive Officers subject to the provisions below. 14 A. Restrictions. A stock certificate representing the number of shares of Restricted Stock granted shall be held in custody by the Company for the Participant's account. The Participant shall have all rights and privileges of a stockholder as to such Restricted Stock, including the right to receive dividends and the right to vote such shares, except that, subject to the provisions of Paragraph B. below, the following restrictions shall apply: (i) the Participant shall not be entitled to delivery of the certificate until the expiration of the Restricted Period; (ii) none of the shares of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period; (iii) the Participant shall, if requested by the Company, execute and deliver to the Company, a stock power endorsed in blank. The Restricted Period shall lapse upon a Participant becoming Disabled or the death of a Participant. If a Participant ceases to be an employee of the Company or a Related Entity prior to the expiration of the Restricted Period applicable to such shares, except as a result of the death or Disability of the Participant, shares of Restricted Stock still subject to restrictions shall be forfeited unless otherwise determined by the HRC or the EBC, as the case may be, and all rights of the Participant to such shares shall terminate without further obligation on the part of the Company. Upon the forfeiture (in whole or in part) of shares of Restricted Stock, such forfeited shares shall become shares of Common Stock held in the Company's treasury without further action by the Participant. B. Terms and Conditions. The HRC or the EBC, as the case shall be, shall establish the terms and conditions for Restricted Stock pursuant to Section III of the Plan, including whether any shares of Restricted Stock shall have voting rights or a right to any dividends that are declared. Terms and conditions established by the HRC or the EBC, as the case may be, need not be the same for all grants of Restricted Stock. The HRC or the EBC, as the case may be, may provide for the restrictions to lapse with respect to a portion or portions of the Restricted Stock at different times or upon the occurrence of different events, and the HRC or the EBC, as the case may be, may waive, in whole or in part, any or all restrictions applicable to a grant of Restricted Stock. Restricted Stock Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the HRC or the EBC. C. Delivery of Restricted Shares. At the end of the Restricted Period as herein provided, a stock certificate for the number of shares of Restricted Stock with respect to which the restrictions have lapsed shall be delivered (less any shares delivered pursuant to Section XIX.C in satisfaction of any withholding tax obligation), free of all such restrictions, except applicable securities law restrictions, to the Participant or the Participant's estate, as the case may be. The Company shall not be required to deliver any 15 fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value (measured as of the date the restrictions lapse) of such fractional share to the Participant or the Participant's estate, as the case may be. Notwithstanding the foregoing, the HRC or the EBC, as the case may be, may authorize the delivery of the Restricted Stock to a Participant during the Restricted Period, in which event any stock certificates in respect of shares of Restricted Stock thus delivered to a Participant during the Restricted Period applicable to such shares shall bear an appropriate legend referring to the terms and conditions, including the restrictions, applicable thereto. XIII. Phantom Units. A. General. The HRC or the EBC, as the case may be, may grant the right to earn Phantom Units to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees. The HRC or the EBC, as the case may be, shall determine the criteria for the earning of Phantom Units, pursuant to Section III of the Plan. Upon satisfaction of such criteria, a Phantom Unit shall be deemed a Vested Award. A Phantom Unit granted by the HRC or the EBC, as the case may be, shall provide for payment in shares of Common Stock. A Phantom Unit shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. Shares of Common Stock issued pursuant to this Section XIII may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the HRC or the EBC, as the case may be. The HRC or the EBC, as the case may be, shall determine whether a Participant granted a Phantom Unit shall be entitled to a Dividend Equivalent Right. B. Unfunded Claim. The establishment of Phantom Units under the Plan are unfunded obligations of the Company. The interest of a Participant in any such units shall be considered a general unsecured claim against the Company to the extent that the conditions for the earning of the Phantom Units have been satisfied. Nothing contained herein shall be construed as creating a trust or fiduciary relationship between the Participant, the Company or the HRC or the EBC, as the case may be. C. Issuance of Common Stock. Upon a Phantom Unit becoming a Vested Award, unless a Participant has elected to defer under Paragraph D. below, shares of Common Stock representing the Phantom Units shall be distributed to the Participant, unless the HRC or the EBC, as the case may be, with the consent of the Participant, provides for the payment of the Phantom Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the Participant. D. Deferral of Phantom Units. Prior to the year with respect to which a Phantom Unit may become a Vested Award, the Participant may elect not to receive Common Stock upon the vesting of such Phantom Unit and for the Company 16 to continue to maintain the Phantom Unit on its books of account. In such event, the value of a Phantom Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. E. Financial Hardship. Notwithstanding any other provision hereof, at the written request of a Participant who has elected to defer pursuant to Paragraph D. above, the HRC or the EBC, as the case may be, in its sole direction, upon a finding that continued deferral will result in financial hardship to the Participant, may authorize the payment of all or a part of a Participant's Vested Phantom Units in a single installment or the acceleration of payment of any multiple installments thereof; provided, however, that distributions will not be made under this paragraph if such distribution would result in liability of an Executive Officer under Section 16 of the Exchange Act. F. Distribution upon Death. The HRC or the EBC, as the case may be, shall pay the Fair Market Value of the Phantom Units of a deceased Participant to the estate of the Participant, as soon as practicable following the death of the Participant. The value of the Phantom Units for the purpose of such distribution shall be based upon the Fair Market Value of shares of Common Stock underlying the Phantom Units on the date of the Participant's death. XIV. Stock Awards to Outside Directors. Each Outside Director shall be granted a Stock Award on his or her Initial Grant Date consisting of 3,000 shares of Restricted Stock, which shall vest in 20% increments, with the first 600 shares vesting six months after the Initial Grant Date, the next 600 shares vesting one year after the Initial Grant Date, and the remaining shares vesting at a rate of 600 shares per year thereafter for the next three years. XV. Compensation for Outside Directors. A. Payment in Common Stock. In lieu of cash, each Outside Director may elect to receive payment of all or any portion of Director Compensation comprised of retainer fees for service on, and fees for attendance at meetings of, the Board and any committees thereof in Common Stock. The amount of Common Stock then issuable shall be based on the Fair Market Value of the Common Stock on the dates such retainer fees are otherwise due and payable to the Outside Director. When any fees are paid in Common Stock under this Section XV.A, any fractional shares of Common Stock shall be paid in cash. Certificates evidencing such Common Stock shall be delivered promptly following such date. If an Outside Director elects to receive payment of Director Compensation in Common Stock as described in this Section XV.A, the election shall be (i) in writing, (ii) delivered to the Secretary of the Company at least six months in advance of the payment date, and (iii) irrevocable. 17 B. Deferral of Payment. Each Outside Director may elect to defer the receipt of vested shares of Restricted Stock granted pursuant to Section XIV and/or the Common Stock payable pursuant to Section XV.A, in which event such Outside Director shall receive an equivalent number of Phantom Units with Dividend Equivalent Rights. Any such Phantom Units shall become Vested Awards at such time as the Outside Director no longer serves as a member of the Board. If an Outside Director elects to defer receipt of vested shares of Restricted Stock and/or Common Stock and receive Phantom Units pursuant to this Section XV.B, the election shall be made in accordance with the deferral election procedures specified in the U S WEST, Inc. Deferred Compensation Plan for Nonemployee Directors. Outside Directors who elect to defer the receipt of Director Compensation (excluding the Stock Awards granted pursuant to Sections XIV and XV.D) shall receive additional Phantom Units equal to 5% of the portion of Director Compensation deferred pursuant to this Section. C. Director Stock Options. On his or her Initial Grant Date, each Outside Director shall be granted an Option to purchase thirty thousand (30,000) shares Common Stock, such Options to become Vested Options in 1/3 increments over three years, beginning one year after the Initial Grant Date. On the third anniversary of the Initial Grant Date, and each year thereafter, Outside Directors shall receive an annual grant of an Option to purchase ten thousand (10,000) shares of Common Stock, which Options shall become Vested Options one year after the date of each respective grant. Upon retirement of an Outside Director from the Board, all unvested Options shall become immediately vested and shall remain exercisable notwithstanding the retirement of the Director from the Board, until the expiration date of the Option, which shall occur ten years from the date of grant. D. Pension Replacement. After the Effective Date, no new pension benefits will be granted to Outside Directors; however, the Company will grandfather vested pension benefits accrued by Directors as of the Effective Date relating to service on the Board of U S WEST, Inc. prior to the Separation. In lieu thereof, Outside Directors shall receive a Stock Award consisting of the number of shares of Restricted Stock determined by dividing (a) the dollar amount equal to ten (10) times the amount of the annual retainer paid to Board members, by (b) the closing price on recipient's Initial Grant Date for Common Stock listed on the New York Stock Exchange as reported in the Wall Street Journal, which Stock Award shall be subject to the following vesting schedule: (i) 50% of the Stock Award shall vest five years after the recipient's Initial Grant Date, and (ii) the remainder shall vest at a rate of 10% per year thereafter for the next five years. XVI. Federal Securities Law. With respect to grants of Awards to Directors and Executive Officers, the Company intends that the provisions of this Plan and all transactions effected in accordance with Plan shall comply with Rule 16b-3 under the Exchange 18 Act. Accordingly, the HRC shall administer and interpret the Plan with respect to Directors and Executive Officers to the extent practicable, to maintain compliance with such rule. XVII. Change of Control; Acceleration. Upon the occurrence of a Change of Control or, within one year after the closing of the Qwest Merger, involuntary termination of a Participant, other than a termination "for cause" as defined in Paragraph IX.H.(v), , then: A. in the case of all outstanding Options and SARs, each such Option and SAR shall automatically become immediately fully exercisable by the Participant; B. restrictions applicable to Restricted Stock shall automatically be deemed lapsed and conditions applicable to Phantom Units shall automatically be deemed waived, and the Participants who receive such grants shall become immediately entitled to receipt of the Common Stock subject to such grants; and C. the HRC shall have the right to accelerate payment of any deferrals of Vested Phantom Units. XVIII. Adjustment of Shares. A. In the event there is any change in the Common Stock by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company, the number or kind of shares or interests subject to an Award and the per share price or value thereof shall be appropriately adjusted by the HRC or the EBC, as the case may be, at the time of such event, provided that each Participant's economic position with respect to the Award shall not, as a result of such adjustment, be worse than it had been immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be rounded up to the next whole share of Common Stock. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an "incentive stock option" for purposes of Section 422 of the Code. B. In the event of an acquisition by the Company of another corporation where the Company assumes outstanding stock options or similar obligations of such corporation, the number of Awards available under the Plan shall be appropriately increased to reflect the number of such options or other obligations assumed. 19 XIX. Substitute Options. Options, shares of Restricted Stock and Phantom Units issued in substitution of outstanding options for U S WEST Communications Group Stock, restricted shares of U S WEST Communications Group Stock and phantom units with respect to U S WEST Communications Group Stock pursuant to the terms of the Employee Matters Agreement entered into by the Company and MediaOne Group, Inc. (previously known as "U S WEST, Inc.") shall be administered pursuant to the provisions of the Plan to the extent not inconsistent with the terms of the grant of such options, restricted stock and phantom units and such Employee Matters Agreement. XX. Miscellaneous Provisions. A. Assignment or Transfer. Except as otherwise permitted by this Section, no grant of any "derivative security" (as defined in the rules issued under Section 16 of the Exchange Act) made under the Plan or any rights or interests therein shall be assignable or transferable except by last will and testament or the laws of descent and distribution. No grant of any such derivative security shall be assignable or transferable pursuant to a domestic relations order. An Optionee who is an Officer or an Outside Director may assign or transfer an Option (other than an Incentive Option) as a gift to one or more members of his or her immediate family or to trusts maintained for the benefit of such immediate family members if such assignment or transfer is not pursuant to a domestic relations order and (i) such assignment or transfer is expressly approved in advance by the HRC or its delegate(s) or (ii) such Option was granted to the Optionee on or after August 15, 1996, and the Agreement pertaining to such Option expressly permits the assignment or transfer of the Option. B. Investment Representation; Legends. The HRC may require each Participant acquiring shares of Common Stock pursuant to an Award to represent to and agree with the Company in writing that such Participant is acquiring the shares without a view to distribution thereof. No shares of Common Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange requirements have been satisfied. The HRC may require the placing of stop-orders and restrictive legends on certificates for Common Stock as it deems appropriate. C. Withholding Taxes. In the case of distributions of Common Stock or other securities hereunder, the Company, as a condition of such distribution, may require the payment (through withholding from the Participant's salary, payment of cash by the Participant, reduction of the number of shares of Common Stock or other securities to be issued (except in the case of an Incentive Option), or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such distribution. 20 D. Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Award nor to any Participant receiving an Award. E. Other Incentive Plans. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. F. Effect on Employment. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Participant except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Participant and (ii) any Participant to remain in the employ of the Company or any Related Entity. G. Noncompetition. Any Agreement may contain, among other things, provisions prohibiting Participants from competing with the Company or any Related Entity in a form or forms acceptable to the HRC or the EBC, as the case may be. H. Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. XXI. Amendment or Termination of Plan. The Board shall have the right to amend, modify, suspend or terminate the Plan at any time, provided that, with respect to Incentive Options, no amendment shall be made that (i) decreases the minimum Option Price in the case of any Incentive Option, or (ii) modifies the provisions of the Plan with respect to Incentive Options, unless such amendment is made by or with the approval of the stockholders or unless the Board receives an opinion of counsel to the Company that stockholder approval is not necessary with respect to any modifications relating to Incentive Options; and provided further that no amendment shall be made that (i) increases the number of shares of Common Stock that may be issued under the Plan, (ii) permits the Option Price for any Option to be less than Fair Market Value on the date such Option is granted, or (iii) extends the period during which awards may be granted under the Plan beyond five (5) years from the Effective Date, unless such amendment is made by or with the approval of stockholders. No amendment, modification, suspension or termination of the Plan shall reduce the economic value of, alter or impair any Awards previously granted under the Plan, without the consent of the holder thereof. 21 DESCRIPTION OF SEPARATION This Plan became effective upon consummation of the separation of old U S WEST, Inc. ("Old U S WEST") into two, independent, publicly traded companies (the "Separation"). Prior to the Separation, Old U S WEST conducted its business through two groups, the U S WEST Communications Group and the U S WEST Media Group. Upon consummation of the Separation, USW-C, Inc. (which was renamed "U S WEST, Inc." at Separation and referred to in this Prospectus as "U S WEST" or the "Company") became a separately-traded company which engages in the business formerly conducted by the U S WEST Communications Group and the domestic directories business of the U S WEST Media Group. The Separation occurred in June of 1998. ADDITIONAL INFORMATION U S WEST is subject to certain informational requirements under the Exchange Act and has incorporated herein by reference the following documents filed by U S WEST into this Prospectus: (i) U S WEST's Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Form 10-K/A filed March 24, 1999; (ii) U S WEST's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999; (iii) U S WEST's Current Reports on Form 8-K filed January 13, 1999, January 15, 1999, January 22, 1999, February 23, 1999, February 25, 1999, February 26, 1999, April 7, 1999, April 22, 1999, May 12, 1999, May 18, 1999, May 21, 1999, May 26, 1999, June 18, 1999, June 22, 1999, July 7, 1999, July 21, 1999 and July 26, 1999, as amended by Form 8-K/A filed July 27, 1999; (iv) U S WEST's Proxy Statement on Schedule 14A filed March 24, 1999; and (v) the description of Common Stock and preferred stock purchase rights of U S WEST contained in U S WEST's Registration Statement on Form 8-A filed on May 1, 1998 (as amended by Form 8-A/A filed May 12, 1998). All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or 15(d) of the Act after the date of this Prospectus shall be deemed to be incorporated in this Prospectus from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in this Prospectus or in any subsequently filed documents which also is or is deemed to be incorporated by reference in this Prospectus modifies or supersedes such statements. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. U S WEST shall provide, without charge, to any Participant to whom a Prospectus is delivered, upon written or oral request, a copy of the Annual Report on Form 10-K for its latest fiscal year (or for fiscal year ended December 31, 1998), an updated version of this prospectus and any or all of the documents that are incorporated by reference herein. Requests should be directed to the Corporate Secretary, U S WEST, 1801 California Street, Denver, Colorado 80202, Telephone (303) 672-2700. 22 CERTAIN FEDERAL INCOME TAX EFFECTS It is the opinion of the Company that the following are certain income tax consequences of participation in the Plan. This section is only a summary, does not purport to be complete and, among other things, does not cover state and local tax treatment. Furthermore, differences in financial situation may cause Federal, state and local tax consequences to vary. Therefore, consultation with an accountant, legal counsel or other financial advisor regarding tax consequences is urged. 1. Incentive Options. An employee who receives an Incentive Option pursuant to the Plan does not recognize any taxable income upon the grant of such option. Similarly, the exercise of an Incentive Option generally does not give rise to federal income tax to the employee, provided that (i) the federal "alternative minimum tax," which depends on the employee's particular tax situation, does not apply and (ii) the employee is employed by U S WEST from the date of grant of the option until three months prior to the exercise thereof, except where such employment terminates by reason of disability (where the three month period is extended to one year) or death (where this requirement does not apply). If an employee exercises an Incentive Option after these requisite periods, the Incentive Option will be treated as a Nonqualified Option and will be subject to the rules described below under "Non-Qualified Options, Stock Appreciation Rights and Phantom Units." If, after exercising an Incentive Option, an employee disposes of the shares so acquired more than two years from the date of grant and more than one year from the date of transfer of the shares pursuant to the exercise of such Incentive Option (the "applicable holding period"), the employee generally will recognize a capital gain or loss equal to the difference, if any, between the amount received for the shares and the exercise price. If, however, an employee does not hold the shares so acquired for the applicable holding period, thereby making a "disqualifying disposition," the employee would recognize ordinary income equal to the excess of the fair market value of the shares at the time the Incentive Option was exercised over the exercise price; the balance of any income received at the time of such disqualifying disposition would be capital gain (provided the employee held such shares as a capital asset at such time). If the disqualifying disposition is a sale or exchange that would permit a loss to be recognized under the Code (were a loss in fact to be realized), and the sales proceeds are less than the fair market value of the shares on the date of exercise, the employee's ordinary income therefrom would be limited to the gain (if any) realized on the sale. An employee who exercises an Incentive Option by delivering shares previously acquired pursuant to the exercise of another Incentive Option before the expiration of their applicable holding period is treated as making a 23 "disqualifying disposition" of such shares. Upon the exercise of an Incentive Option with previously acquired shares after the applicable holding period, it appears, despite some uncertainty, that the employee would not recognize gain or loss with respect to such previously acquired shares. 2. Nonqualified Options, Stock Appreciation Rights and Phantom Units. An individual who receives a grant of a Nonqualified Option, a SAR, or a phantom unit will not recognize any taxable income upon such grant. However, the individual generally will recognize ordinary income upon exercise of a Nonqualified Option in an amount equal to the excess of the fair market value of the shares at the time of exercise over the exercise price. Similarly, upon the receipt of cash or shares pursuant to the exercise of a SAR, the individual generally will recognize ordinary income in an amount equal to the sum of the cash and the fair market value of the shares received; likewise, upon the vesting of a phantom unit, the individual generally will recognize ordinary income in an amount equal to the fair market value of the shares, plus cash, if any, received. As a result of Section 16(b) of the Exchange Act, under certain circumstances, the timing of income recognition may be deferred (i.e., the "Deferral Period") for any individual who is an officer or director of U S WEST or a beneficial owner of more than ten percent (10%) of any class of equity securities of U S WEST. Absent a Section 83(b) election (as described below), recognition of income by the individual will be deferred until the expiration of the Deferral Period, if any. An individual who exercises a Nonqualified Option by delivering U S WEST Common Stock to U S WEST, other than U S WEST Common Stock previously acquired pursuant to the exercise of an Incentive Option which is treated as a "disqualifying disposition" as described above, will not recognize gain or loss with respect to the exchange of such U S WEST Common Stock, even if the fair market value of the shares so delivered is different from the individual's tax basis. The individual, however, will be taxed as described above with respect to the exercise of the Nonqualified Option as if he or she had paid the exercise price in cash. 3. Restricted Stock. Absent a written election pursuant to Section 83(b) of the Code filed with the IRS within 30 days after the date of transfer of such shares (a "Section 83(b) election"), an individual who receives restricted stock under the Plan generally will recognize ordinary income at the earlier of the time at which (i) the shares become transferable or (ii) the restrictions that impose a substantial risk of forfeiture of such shares lapse, in an amount equal to the excess of the fair market value (on such date) of such shares over the consideration paid for such restricted stock, if any. If a Section 83(b) election is made, the individual will recognize ordinary income, as of the transfer date, in an amount equal to the excess of the fair market value of the shares as of that date over the price paid for such award, if any. 24 4. Consequences to Company. U S WEST will not be allowed a federal income tax deduction upon the grant or exercise of an Incentive Option or the disposition, after the applicable holding period, of the shares acquired upon exercise of an Incentive Option. In the event of a disqualifying disposition of shares acquired upon exercise of an Incentive Option, U S WEST generally will be entitled to a deduction in an amount equal to the ordinary income included by the employee, provided that such amount constitutes an ordinary and necessary business expense to U S WEST and is reasonable and the limitations of Sections 280G and 162(m) of the Code (discussed below) do not apply. A federal income tax deduction generally will be allowed to U S WEST in an amount equal to the ordinary income included by the employee with respect to his or her Nonqualified Option, SAR, phantom unit, or restricted stock, provided that such amount constitutes an ordinary and necessary business expense to U S WEST and is reasonable and the limitations of Sections 280G and 162(m) of the Code do not apply. 5. Change of Control. In general, if the total amount of payments to an individual that are contingent upon a "change of control" of U S WEST (as defined in Section 280G of the Code), including payments under the Plan that vest upon a "change of control," equals or exceeds three times the individual's "base amount" (generally, such individual's average annual compensation for the five calendar years preceding the change of control), then, subject to certain exceptions, the payments may be treated as "parachute payments" under the Code, in which case a portion of such payments would be non-deductible to U S WEST and the individual would be subject to a 20% excise tax on such portion of the payments. 6. Certain Limitations on Deductibility of Executive Compensation. With certain exceptions, Section 162(m) of the Code denies a deduction to publicly held corporations for compensation paid to certain executive officers in excess of $1 million per executive per taxable year. One such exception applies to certain performance-based compensation provided that such compensation has been approved by stockholders in a separate vote and certain other requirements are met. U S WEST believes that certain awards granted under the Plan should qualify for the performance-based compensation exception to Section 162(m). RESALE RESTRICTIONS Resale restrictions imposed by federal and/or state securities laws may restrict certain Participants from transferring securities received under the Plan. For example, Participants who hold "restricted securities" or are deemed "affiliates," as those terms are defined in Rule 144 under the Securities Act, may not sell securities issued by U S WEST to the public except pursuant to (a) 25 an effective resistration statement filed by U S WEST with the SEC under the Securities Act; or (b) an exemption from the registration requirements of the Securities Act. Rule 144 provides an exemption for resale, subject to certain conditions, such as a holding period, availability of public information, limitation on amount of securities sold, manner of sale, and notice of sale. This prospectus is not available for any resale. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 The Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan is administered by the HRC with respect to Officers, Executive Officers and Outside Directors and by the EBC with respect to all other Eligible Employees an Eligible Non-Employees. The HRC consists of non-employee Board members appointed by the Board. The EBC consists of the Vice President-Law and Corporate Human Resources of U S WEST and other officers of U S WEST designated by the Vice President-Law and Corporate Human Resources. EXPERTS The financial statements and schedules incorporated by reference in this Prospectus have been audited by Arthur Andersen LLP, independent public accounts, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 26 EX-99.D.7 17 ex_d-7.txt EXHIBIT 99(D)(7) USWEST [logo] 1999 U S WEST STOCK PLAN I. Purpose. This 1999 U S WEST Stock Plan, as amended (the "Plan"), is intended to promote the long term success of U S WEST, Inc. or its successor (the "Company") by affording certain eligible employees of the Company and its Subsidiaries (as defined below) and certain outside consultants or advisors to the Company and its affiliates with an opportunity to acquire a proprietary interest in the Company, in order to incentivize such persons and to align the financial interests of such persons with the stockholders of the Company. This Plan became effective upon approval by the Board of Directors (defined below). II. Definitions. The following defined terms are used in the Plan: A. "Agreement" shall mean the agreement or grant letter accepted by the Participants as described in Section VIII of the Plan between the Company and a Participant which is a condition subsequent to the grant of an Award to a Participant pursuant to this Plan. B. "Award" shall mean individually, collectively or in tandem, an incentive award granted under the Plan, whether in the form or Options, SARs, Stock Awards or Phantom Units. C. "Board" or "Board of Directors" shall mean the Board of Directors of the Company. D. Except as excluded below, "Change of Control" shall mean any of the following: 1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) who is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all of the Company's than outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; or 2. any period of two (2) consecutive calendar years during which there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or 3. the Company becomes a party to a merger or consolidation in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or 4. any other event that a majority of the Board of Directors shall determine constitutes a Change of Control; provided, however, that except as the Board of Directors otherwise determines, a Change of Control for purposes of the Plan does not include the merger contemplated in the Agreement and Plan of Merger (the "Qwest Merger"), dated as of July 18, 1999, or as later amended, between the Company and Qwest Communications International Inc., a Delaware corporation ("Qwest"). E. "Code" shall mean the Internal Revenue Code of 1986, as amended. F. "Committee" shall mean the Employee Benefits Committee of the Company consisting of employee(s) of the Company or any Related Entity appointed by the Board at the recommendation of the Human Resources Committee or its delegate(s), as applicable, to exercise the delegated authority of the Human Resources Committee, as set forth under Section III of the Plan. G. "Common Stock" shall mean the common stock, $.01 par value, of the Company. H. "Company" shall mean U S WEST, Inc., a Delaware corporation (previously known as "USW-C, Inc."), and any successor thereof. I. "Director" shall mean any member of the Board of Directors of the Company. J. "Disabled" or "Disability" shall mean long-term disability as determined under the provisions of any U S WEST disability plan maintained for the benefit of eligible employees of the Company or any Related Entity. K. "Dividend Equivalent Rights" shall mean the right to receive the amount of any dividends that are paid on an equivalent number of shares of Common Stock underlying an Option or Phantom Unit, which shall be payable either in cash or in the form of additional Phantom Units or Stock. L. "Effective Date" shall mean the date on which the Plan was approved by the Board of Directors. M. "Eligible Employee" shall mean any employee of the Company or any Related Entity who is not a Director or an Executive Officer (defined below) and who is so employed on the date of the grant of an Award. N. "Eligible Non-Employee" shall mean any consultant or advisor who is not a Director and who has provided bona fide services to the Company or any Related Entity and is selected by the Committee to receive an Award; provided that services rendered by such consultant or advisor were not in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities as those terms are used in the Form S-8 issued under the Securities Act. O. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. P. "Executive Officer" shall mean any officer of the Company or any Related Entity who, at the time of an Award, is subject to the reporting requirements of Section 16(a) of the Exchange Act. Q. "Fair Market Value" shall mean the closing price of a share of Common Stock as reported on the New York Stock Exchange for the applicable date, or if there were no sales on such date, on the last day prior to the applicable date on which there were sales. R. "Incentive Option" shall mean an incentive stock option under the provisions of Section 422 of the Code. 2 S. "Indexed" shall mean the periodic adjustment of an Option Price based upon adjustment criteria determined by the Committee, but in no event shall the Option Price be adjusted to an amount less than the original Option Price. T. "Nonqualified Option" shall mean an Option which does not qualify under Section 422 of the Code. U. "Option" shall mean an option granted by the Company to purchase Common Stock pursuant to the provisions of this Plan, including Incentive Options, Nonqualified Options and Reload Options. V. "Optionee" shall mean a Participant to whom one or more Options have been granted. W. "Option Price" shall mean the price per share payable to the Company for shares of Common Stock upon the exercise of an Option. X. "Parent Corporation" shall mean any corporation within the meaning of Section 424(e) of the Code. Y. "Participant" shall mean an Eligible Employee or Eligible Non-Employee to whom an Award is granted. Z. "Phantom Unit" shall mean a national account representing a value equivalent to one share of Common Stock on the Award date. AA. "Plan" shall mean the 1999 U S WEST Stock Plan, as amended. AB. "Related Entity" shall mean any Parent Corporation or Subsidiary of the Company. AC. "Reload Option" shall mean the right to receive a further Option for a number of shares equal to the number of shares of Common Stock surrendered by the Optionee upon exercise of the original Option as provided in Section IX.E. of the Plan. AD. "Restricted Period" shall mean the period of time from the date of grant of Restricted Stock until the issue of restrictions matched thereto under the terms of the Agreement granting such Restricted Stock pursuant to the provisions of the Plan or by action of the Committee. AE. "Restricted Stock" shall mean an Award made by the Committee entitling the Participant to acquire, at no cost or for a purchase price determined by the Committee at the time of grant, shares of Common Stock which are subject to restrictions in accordance with the provisions of Section XII hereof. AF. "Retirement" shall mean with respect to any Eligible Employee, that such person has terminated employment with the Company or any Related Entity other than "for cause" (as defined in subsection IX.H.(v)) and (i) such person is eligible to receive an immediate service pension benefit under the U S WEST Pension Plan, or (ii) such person would be eligible to receive an immediate service pension under the U S WEST Pension Plan, as amended and restated effective January 1, 1993, had that plan not been amended and restated effective January 1, 197, or (iii) such person specifically is treated as "retired" for purposes of the Plan under any individually negotiated, written agreement or arrangement between the Company or any Related Entity and the Eligible Employee. "Retirement" shall not apply to any Eligible Non-Employee. AG. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. 3 AH. "Stock Appreciation Right" or "SAR" shall mean a grant entitling the Participant to receive an amount in cash or shares of Common Stock or a combination thereof having a value equal to (or if the Committee shall so determine at the time of a grant, less than) the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the date of grant (or over the Option Price, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee to determine the form or forms of payment at the time of grant of the SAR. AI. "Stock Awards" shall mean any Award which is in the form of Restricted Stock and any outright grants of Common Stock approved by the Committee pursuant to the Plan. AJ. "Subsidiary" shall mean with respect to any Award other than an Incentive Option, any corporation, joint venture, limited liability company ("LLC"), or partnership in which the Company owns, directly or indirectly, (i) with respect to a corporation, stock possessing twenty percent (20%) or more of the total combined voting power of all classes of stock in the corporation, (ii) in the case of a joint venture or partnership, the Company possesses a twenty percent (20%) interest in the capital or profits of such joint venture or partnership, or (iii) in the case of an LLC, a twenty percent (20%) or more interest in units in the LLC. In the case of any Incentive Option, Subsidiary shall mean any corporation within the meaning of Section 424(f) of the Code. AK. "Vested" shall mean the states of that portion of an Option or other Award that may be immediately exercised under the terms of the Agreement granting such Option or other Award, pursuant to the provisions of the Plan, or by action of the Committee. III. Administration A. The Committee shall have sale and exclusive discretion to interpret and administer the Plan. The Committee shall have the power to adopt rules, regulations and guidelines relating to the administration of the Plan. B. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company or such Related Entity whose employees have benefited from the Plan, as determined by the Committee. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company or a Related Entity against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's gross negligence or willful misconduct. C. In furtherance of and not in limitation of the Committee's discretionary authority, subject to the provisions of the Plan, the Committee shall have the authority to: 1. determine the Participants to whom Awards shall be granted and the number of and terms and conditions upon which Awards shall be granted (which need not be the same for all Awards or types of Awards); 2. establish annual or long-term financial goals of the Company, any Related Entity, or division, department, or group of the Company or Related Entity, or individual goals which the Committee shall consider in granting Awards, if any; 4 3. determine the satisfaction of performance goals established by the Committee based upon periods of time or any combinations thereof. 4. determine the time when Awards shall be granted, the Option Price of each Option, the period(s) during which Options shall be exercisable (whether in whole or in part), the restrictions to be applicable to Awards, and the other terms and provisions of Awards; 5. modify grants of Awards pursuant to Paragraph D. of this Section III; 6. provide the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securities to be issued upon exercise of an Option, the lapse of restrictions on Restricted Stock and the vesting of Phantom Units (other than an Incentive Option) to meet the obligation of withholding for income, social security and other taxes incurred by a Participant upon such exercise or required to be withheld by the Company in connection with such exercise; 7. adopt, modify and rescind rules, regulations, procedures, and guidelines relating to the Plan; 8. adopt modifications to the Plan and procedures, as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company or a Related Entity operates in order to assure the legality of Awards granted under the Plan to Participants who reside in such countries; and 9. make all determinations, perform all other acts, exercise all other powers and establish any other rules, regulations, procedures, and guidelines determined by the Committee to be necessary, appropriate or advisable in administering the Plan and to maintain compliance with any applicable law. D. The Committee may at any time accelerate the exercisability or define any other aspect of the grant of or the conditions of the grant of any Awards and waive or amend any and all restrictions and conditions of any Awards. IV. Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. V. Arbitration. Any Agreement may contain, among other things, provisions that require arbitration of any and all disputes between a Participant and the Company or any Related Entity, in a form or forms acceptable to the Committee. VI. Duration of the Plan. The Plan shall remain in effect for a period of five (5) years from the Effective Date, unless terminated by the Board pursuant to Section XVII but shall continue to govern any Awards outstanding as of the end of that period. 5 VII. Shares Available; Limitations. Up to 12,000,000 shares of Common Stock may be granted under this Plan. If, for any reason, any shares of Common Stock as to which Options, SARs, Restricted Stock, or Phantom Units have been granted cease to be subject to exercise or purchase hereunder (other than the exercise of SARs for cash), the underlying shares of Common Stock shall thereafter be available for grants to Participants under the Plan. Absent an amendment of this provision by the Committee, no Incentive Options shall be granted under this Plan and no shares of Common Stock may be issued under this Plan in connection with the exercise of Incentive Options. Awards granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of the Common Stock or (ii) issued shares of Common Stock reacquired by the Company, in each situation, as the Board of Directors of the Committee may determine from time to time. VIII. Grant of Awards. A. The Committee shall determine the type of Award(s) to be made to each Participant. Awards may be granted singly, in combination or in tandem subject to restrictions set forth in Section IX.C. for Incentive Options. The types of Awards that may be granted under the Plan are Options, with or without Reload Options, SARs, Stock Awards and Phantom Units, and with respect to Phantom Units and Restricted Stock, with or without Dividend Equivalent Rights. B. Each grant of an Award under this Plan shall be conditioned upon the acceptance of an Agreement dated as of the date of the grant of the Award, other than Stock Awards consisting of an outright grant of shares of Common Stock. This Agreement shall set forth the terms and conditions of the Award, as may be determined by the Committee, and will be subject to amendments, modification or alteration by the Committee pursuant to Section III.D. of this Plan and without the Participant's execution of such amendment, modification or alteration. If the Agreement relates to the grant of an Option, it shall indicate whether the Option that it evidences, is intended to be an Incentive Option or a Nonqualified Option. Each grant of an Award is conditioned upon the subsequent acceptance by the Participant of the terms of the Agreement. Unless otherwise extended by the Committee, a Participant shall have ninety (90) days from the date of the Agreement to accept its terms. IX. Options. The Committee may grant Incentive Options or Nonqualified Options to Eligible Employees and Nonqualified Options to Eligible Non-Employees. The terms and conditions of the Options granted under this Section IX shall be determined from time to time by the Committee, as set forth in the Agreement granting the Option, and subject to the following conditions: A. Nonqualified Options. The Option Price for each share of Common Stock issuable pursuant to a Nonqualified Option may be an amount at or above the Fair Market Value on the date such Option is granted, may be indexed from the original Option Price and may be granted with or without Dividend Equivalent Rights. All agreements granting options under Section IX.A. shall state that the Options issued pursuant to the Agreement are not intended to qualify for tax benefits under Section 422 of the Code. B. Incentive Options. The Option Price for each share of Common Stock issuable pursuant to an Incentive Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date such Option is granted and may be Indexed from the original Option Price. C. Incentive Options; Special Rules. Options granted in the form of Incentive Options shall be subject to the following provisions. 1. Grant. No Incentive Option shall be granted pursuant to this Plan more than ten (10) years after the Effective Date. 6 2. Annual Limits. The aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Common Stock with respect to which one or more Incentive Options are exercisable for the first time by any Optionee during any calendar year under the Plan or under any other stock plan of the Company or any Related Entity shall not exceed $100,000 or such other maximum amount permitted under Section 422 of the Code. Any portion of an Option purporting to constitute an Incentive Option in excess of such limitation shall constitute a Nonqualified Option. 3. 10% Stockholder. If any Optionee to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, an individual described in Section 422(b)(6) of the Code, then the following special provisions shall be applicable to the Option granted to such individual. (a) the Option Price of shares subject to such Incentive Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (b) the Option shall not have a term in excess of (5) years from the date of grant. 4. Shareholder Approval. If required by law to issue Incentive Options, shareholder approval of the Plan shall be obtained within twelve (12) months before or after adoption of the Plan. D. Other Options - Special Tax Benefits. The Committee may establish rules with respect to, and may grant to Eligible Employees, Options to comply with any amendment to the Code made after the Effective Date providing for special tax benefits for stock options. E. Reload Options. Without in any way limiting the authority of the Committee to make Awards hereunder, the Committee shall have the authority to grant Reload Options. Any such Reload Option shall be subject to such other terms and conditions as the Committee may determine. Notwithstanding the above, (i) the Committee shall have the right to withdraw a Reload Option to the extent that the grant thereof will result in any adverse accounting consequences to the Company and (ii) no additional Reload Options shall be granted upon the exercise of a Reload Option. F. Term of Option. No Option shall be exercisable after the expiration of ten (10) years from the date of grant of the Option. G. Exercise of Stock Option. Each Option shall be exercisable in one or more installments as the Committee may determine at the time of the Award and as provided in the Agreement. The right to purchase shares shall be cumulative so that when the right to purchase any shares has accrued such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. The Option Price shall be payable (i) in cash or by an equivalent means acceptable to the Committee, (ii) by delivery (constructive or otherwise) to the Company of shares of Common Stock owned by the Optionee or (iii) by any combination of the above as provided in the Agreement. Shares delivered to the Company in payment of the Option Price shall be valued at the Fair Market Value on the date of the exercise of the Option. H. Vesting. The Committee shall establish the vesting schedules for awards. The Agreement shall specify the date or dates on which the Optionee may begin to exercise all or a portion of his Option. Subsequent to such date or dates, the applicable portion of the Option shall be deemed Vested and fully exercisable. (i) Death. In the event of the death of any Optionee, all Options held by such Optionee on the date of his death shall become Vested Options and the estate of such Optionee shall have the right, at any time and from time to time within one year after the date of death, or such other period, if any, as the Committee may determine, to exercise the Options of the Optionee (but not after the earlier of the expiration date of the Option or, in the case of an Incentive Option, one (1) year from the date of death). 7 (ii) Disability. If the employment of any Optionee is terminated because of Disability, all Options held by such Optionee on the date of his or her termination shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options over time in accordance with the vesting schedule established at the time such Options were issued. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. (iii) Retirement. Upon an Optionee's Retirement, all Options held by such Optionee on the date of his or her Retirement shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options over time in accordance with the vesting schedule established at the time such Options were issued, unless the Committee determines otherwise. Unless the Committee determines otherwise, the Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. In the case of Incentive Options where tax-advantaged treatment is desired, the Optionee shall have the right to exercise Vested Options three months from the date of Retirement. (iv) Other Termination. If the employment with the Company or a Related Entity of an Optionee is terminated for any reason other than for death or Disability and other than "for cause" as defined in subparagraph (v) below, such Optionee shall have the right, in the case of a Vested Option, for a period of three (3) months after the date of such termination or such longer period as determined by the Committee, to exercise any such Vested Option, but in any event not after the expiration date of any such Option. (v) Termination For Cause. Notwithstanding any other provision of the Plan to the contrary, if the Optionee's employment is terminated by the Company or any Related Entity "for cause" (as defined below), such Optionee shall immediately forfeit all rights under his Options except as to the shares of Common Stock already purchased prior to such termination. Termination "for cause" shall mean (unless another definition is agreed to in writing by the Company and the Optionee) termination by the Company because of: (a) the Optionee's willful and continued failure to substantially perform his duties (other than any such failure resulting from the Optionee's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Optionee by the Company, which demand specifically identifies the manner in which the Company believes the Optionee has not substantially performed his duties, (b) the willful conduct of the Optionee which is demonstrably and materially injurious to the Company or Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee for a felony by a court of competent jurisdiction. X. Foreign Options and Rights. The Committee may make Awards of Options to Eligible Employees and Eligible Non-Employees who are subject to the tax laws of nations other than the United States, which Awards may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action it deems advisable to obtain approval of such Option by the appropriate foreign governmental entity; provided, however, that no such Award may be granted pursuant to this Section X and no action may be taken that would result in a violation of the Exchange Act, the Code or any other applicable law. XI. Stock Appreciation Rights. The Committee shall have the authority to grant SARs to Eligible Employees and Eligible Non-Employees either alone or in connection with an Option. SARs granted in connection with an Option shall be granted either at the time of grant of the Option or by amendment to the Option. SARs granted in connection with an Option shall be subject to the same terms and conditions as the related Option and shall be exercisable only at such times and to such extent as the related Option is exercisable. A SAR granted in connection with an Option may be exercised only when the Fair Market Value of the Common Stock of the Company exceeds the Option Price of the related Option. A SAR granted in connection with an Option shall entitle the Participant to surrender to the Company unexercised the related Option, or any portion thereof and to receive from the Company cash and/or shares of Common Stock equal to that number of 8 shares of Common Stock having an aggregate value equal to the excess of (i) the Fair Market Value of one share of Common Stock on the day of the surrender of such Option over (ii) the Option Price per share of Common Stock multiplied by (iii) the number of shares of Common Stock that may be exercised under the Option, or surrendered; provided, however, that no fractional shares shall be issued. A SAR granted singly shall entitle the Participant to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value of a share of Common Stock on the date of the grant of the SAR multiplied by (iii) the number of SARs exercised. Payment of any fractional shares of Common Stock shall be made in cash. A SAR shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. XII. Restricted Stock. The Committee may grant Restricted Stock to Eligible Employees and Eligible Non-Employees subject to the provisions below. A. Restrictions. A stock certificate representing the number of shares of Restricted Stock granted shall be held in custody by the Company for the Participant's account. The Participant shall have all rights and privileges of a stockholder as to such Restricted Stock, including the right to receive dividends and the right to vote such shares, except that, subject to the provisions of Paragraph B. below, the following restrictions shall apply: (i) the Participant shall not be entitled to delivery of the certificate until the expiration of the Restricted Period; (ii) none of the shares of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period; (iii) the Participant shall, if requested by the Company, execute and deliver to the Company, a stock power endorsed in blank. The Restricted Period shall lapse upon a Participant becoming Disabled or the death of a Participant. If a Participant ceased to be an employee of the Company or a Related Entity prior to the expiration of the Restricted Period applicable to such shares, except as a result of the death or Disability of the Participant, shares of Restricted Stock still subject to restrictions shall be forfeited unless otherwise determined by the Committee, and all rights of the Participant to such shares shall terminate without further obligation on the part of the Company. Upon the forfeiture (in whole or in part) of shares of Restricted Stock, such forfeited shares shall become shares of Common Stock held in the Company's treasury without further action by the Participant. B. Terms and Conditions. The Committee shall establish the terms and conditions for Restricted Stock pursuant to Section III of the Plan. Terms and conditions established by the Committee need not be the same for all grants of Restricted Stock. The Committee may provide for the restrictions to lapse with respect to a portion or portions of the Restricted Stock at different times or upon the occurrence of different events, and the Committee may waive, in whole or in part, any or all restrictions applicable to a grant of Restricted Stock. Restricted Stock Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. C. Delivery of Restricted Shares. At the end of the Restricted Period as herein provided, a stock certificate for the number of shares of Restricted Stock with respect to which the restrictions have lapsed shall be delivered (less any shares delivered pursuant to Section XVLC in satisfaction of any withholding tax obligation), free of all such restrictions, except applicable securities law restrictions, to the Participant or the Participant's estate, as the case may be. The Company shall not be required to deliver any fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value (measured as of the date the restrictions lapse) of such factional share to the Participant or the Participant's estate, as the case may be. Notwithstanding the foregoing, the Committee may authorize the delivery of the Restricted Stock to a Participant during the Restricted Period, in which event any stock certificates in respect of shares of Restricted Stock thus delivered to a Participant during the Restricted Period applicable to such shares shall bear an appropriate legend referring to the terms and conditions, including the restrictions, applicable thereto. 9 XIII. Phantom Units. A. General. The Committee may grant the right to earn Phantom Units to Eligible Employees and Eligible Non-Employees. The Committee shall determine the criteria for the earning of Phantom Units, pursuant to Section III of the Plan. Upon satisfaction of such criteria, a Phantom Unit shall be deemed a Vested Award. A Phantom Unit granted by the Committee shall provide for payment in shares of Common Stock. A Phantom Unit shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. Shares of Common Stock issued pursuant to this Section XIII may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. The Committee shall determine whether a Participant granted a Phantom Unit shall be entitled to a Dividend Equivalent Right. B. Unfunded Claim. The establishment of Phantom Units under the Plan are unfunded obligations of the Company. The interest of a Participant in any such units shall be considered a general unsecured claim against the Company to the extent that the conditions for the earning of the Phantom unit have been satisfied. Nothing contained herein shall be construed as creating a trust or fiduciary relationship between the Participant, the Company or the Committee. C. Issuance of Common Stock. Upon a Phantom Unit becoming a Vested Award, unless a Participant has elected to defer under Paragraph D. below, shares of Common Stock representing the Phantom Units shall be distributed to the Participant, unless the Committee, with the consent of the Participant, provides for the payment of the Phantom Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the Participant. D. Deferral of Phantom Units. Prior to the year with respect to which a Phantom Unit may become a Vested Award, the Participant may elect not to receive Common Stock upon the vesting of such Phantom Unit and for the Company to continue to maintain the Phantom Unit on its books of account. In such event, the value of a Phantom Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. E. Financial Hardship. Notwithstanding any other provision hereof, at the written request of a Participant who has elected to defer pursuant to Paragraph D. above, the Committee, in its sole discretion, upon a finding that continued deferral will result in financial hardship to the Participant, may authorize the payment of all or a part of a Participant's Vested Phantom Units in a single installment or the acceleration of payment of any multiple installments thereof; provided, however, that distributions will not be made under this paragraph if such distribution would result in liability of an Executive Officer under Section 16 of the Exchange Act. F. Distribution upon Death. The Committee shall pay the Fair Market Value of the Phantom Units of a deceased Participant to the estate of the Participant, as soon as practicable following the death of the Participant. The value of the Phantom Units for the purpose of such distribution shall be based upon the Fair Market Value of shares of Common Stock underlying the Phantom Units on the date of the Participant's death. XIV. Change of Control; Acceleration. Upon the occurrence of a Change of Control or, within one year after the closing of the Qwest Merger, the involuntary termination of a Participant, other than a termination "for cause" as defined in Section DCH.(v) of this Plan, then: A. in the case of all outstanding Options and SARs, each such Option and SAR shall automatically become immediately fully exercisable by the Participant; B. restrictions applicable to Restricted Stock shall automatically be deemed lapsed and conditions applicable to Phantom Units shall automatically be deemed waived, and the Participants who receive such grants shall become immediately entitled to receipt of the Common Stock subject to such grants; and 10 C. the Employee Benefits Committee, in its discretion, shall have the right to accelerate payment of any deferrals of Vested Phantom Units. XV. Adjustment of Shares. A. In the event there is any change in the Common Stock by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company, the number or kind of shares or interests subject to an Award and the per share price or value thereof shall be appropriately adjusted by the Committee at the time of such event, provided that each Participant's economic position with respect to the Award shall not, as a result of such adjustment, be worse than it had been immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be rounded up to the next whole share of Common Stock. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an "incentive stock option" for purposes of Section 422 of the Code. B. In the event of an acquisition by the Company of another corporation where the Company assumes outstanding stock options or similar obligations of such corporation, the number of Awards available under the Plan shall be appropriately increased to reflect the number of such options or other obligations assumed. XVI. Miscellaneous Provisions. A. Assignment or Transfer. Except as otherwise permitted by this Section, no grant of any "derivative security" (as defined in the rules issued under Section 16 of the Exchange Act) made under the Plan, or any rights or interests therein shall be assignable or transferable except by last will and testament or the laws of descent and distribution. No grant of any such derivative security shall be assignable or transferable pursuant to any domestic relations order. B. Investment Representation; Legends. The Committee may require each Participant acquiring shares of Common Stock pursuant to an Award to represent to and agree with the Company in writing that such Participant is acquiring the shares without a view to distribution thereof. No shares of Common Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of stop-orders and restrictive legends on certificates for Common Stock as it deems appropriate. C. Withholding Taxes. In the case of distributions of Common Stock or other securities hereunder, the Company, as a condition of such distribution, may require the payment (through withholding from the Participant's salary, payment of cash by the Participant, reduction of the number of shares of Common Stock or other securities to be issued (except in the case of an Incentive Option), or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such distribution. D. Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Award nor to any Participant receiving an Award. E. Other Incentive Plans. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. F. Effect on Employment. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Participant except to the extent 11 specifically provided herein or therein. Nothing contained in the Plan or any agreement related herein or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Participant and (ii) any Participant to remain in the employ of the Company or any Related Entity. G. Noncompetition. Any Agreement may contain, among other things, provisions prohibiting Participants from competing with the Company or any Related Entity in a form or forms acceptable to the Committee. H. Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. XVII. Amendment or Termination of Plan. The Committee shall have the right to amend, modify, suspend or terminate the Plan or any Awards at any time. 12 EX-99.D.8 18 ex_d-8.txt EXHIBIT 99(D)(8) 1999 U S WEST STOCK PLAN I. Purpose. This 1999 U S WEST Stock Plan, as amended (the "Plan"), is intended to promote the long term success of U S WEST, Inc. or its successor (the "Company") by affording certain eligible employees of the Company and its Subsidiaries (as defined below) and certain outside consultants or advisors to the Company and its affiliates with an opportunity to acquire a proprietary interest in the Company, in order to incentivize such persons and to align the financial interests of such persons with the stockholders of the Company. This Plan became effective upon approval by the Board of Directors (defined below). II. Definitions. The following defined terms are used in the Plan: A. "Agreement" shall mean the agreement or grant letter accepted by the Participant as described in Section VIII of the Plan between the Company and a Participant which is a condition subsequent to the grant of an Award to a Participant pursuant to this Plan. B. "Award" shall mean individually, collectively or in tandem, an incentive award granted under the Plan, whether in the form of Options, SARs, Stock Awards or Phantom Units. C. "Board" or "Board of Directors" shall mean the Board of Directors of the Company. D. Except as excluded below, "Change of Control" shall mean any of the following: 1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) who is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; or 2. any period of two (2) consecutive calendar years during which there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or 3. the Company becomes a party to a merger or consolidation in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or 4. any other event that a majority of the Board of Directors shall determine constitutes a Change of Control; provided, however, that, except as the Board of Directors otherwise determines, a Change of Control for purposes of the Plan does not include the merger contemplated in the Agreement and Plan of Merger (the "Qwest Merger"), dated as of July 18, 1999, or as later amended, between the Company and Qwest Communications International Inc., a Delaware corporation ("Qwest"). E. "Code" shall mean the Internal Revenue Code of 1986, as amended. F. "Committee" shall mean the Employee Benefits Committee of the Company consisting of employee(s) of the Company or any Related Entity appointed by the Board at the recommendation of the Human Resources Committee or its delegate(s), as applicable, to exercise the delegated authority of the Human Resources Committee, as set forth under Section III of the Plan. G. "Common Stock" shall mean the common stock, $.01 par value, of the Company. H. "Company" shall mean U S WEST, Inc., a Delaware corporation (previously known as "USW-C, Inc."), and any successor thereof. I. "Director" shall mean any member of the Board of Directors of the Company. J. "Disabled" or "Disability" shall mean long-term disability as determined under the provisions of any U S WEST disability plan maintained for the benefit of eligible employees of the Company or any Related Entity. 2 K. "Dividend Equivalent Rights" shall mean the right to receive the amount of any dividends that are paid on an equivalent number of shares of Common Stock underlying an Option or Phantom Unit, which shall be payable either in cash or in the form of additional Phantom Units or Stock. L. "Effective Date" shall mean the date on which the Plan was approved by the Board of Directors. M. "Eligible Employee" shall mean any employee of the Company or any Related Entity who is not a Director or an Executive Officer (defined below) and who is so employed on the date of the grant of an Award. N. "Eligible Non-Employee" shall mean any consultant or advisor who is not a Director and who has provided bona fide services to the Company or any Related Entity and is selected by the Committee to receive an Award; provided that services rendered by such consultant or advisor were not in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities as those terms are used in the Form S-8 issued under the Securities Act. O. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. P. "Executive Officer" shall mean any officer of the Company or any Related Entity who, at the time of an Award, is subject to the reporting requirements of Section 16(a) of the Exchange Act. Q. "Fair Market Value" shall mean the closing price of a share of Common Stock as reported on the New York Stock Exchange for the applicable date, or if there were no sales on such date, on the last day prior to the applicable date on which there were sales. R. "Incentive Option" shall mean an incentive stock option under the provisions of Section 422 of the Code. S. "Indexed" shall mean the periodic adjustment of an Option Price based upon adjustment criteria determined by the Committee, but in no event shall the Option Price be adjusted to an amount less than the original Option Price. T. "Nonqualified Option" shall mean an Option which does not qualify under Section 422 of the Code. U. "Option" shall mean an option granted by the Company to purchase Common Stock pursuant to the provisions of this Plan, including Incentive Options, Nonqualified Options and Reload Options. 3 V. "Optionee" shall mean a Participant to whom one or more Options have been granted. W. "Option Price" shall mean the price per share payable to the Company for shares of Common Stock upon the exercise of an Option. X. "Parent Corporation" shall mean any corporation within the meaning of Section 424(e) of the Code. Y. "Participant" shall mean an Eligible Employee or Eligible Non-Employee to whom an Award is granted. Z. "Phantom Unit" shall mean a notional account representing a value equivalent to one share of Common Stock on the Award date. AA. "Plan" shall mean the 1999 U S WEST Stock Plan, as amended. AB. "Related Entity" shall mean any Parent Corporation or Subsidiary of the Company. AC. "Reload Option" shall mean the right to receive a further Option for a number of shares equal to the number of shares of Common Stock surrendered by the Optionee upon exercise of the original Option as provided in Section IX.E of the Plan. AD. "Restricted Period" shall mean the period of time from the date of grant of Restricted Stock until the lapse of restrictions attached thereto under the terms of the Agreement granting such Restricted Stock, pursuant to the provisions of the Plan or by action of the Committee. AE. "Restricted Stock" shall mean an Award made by the Committee entitling the Participant to acquire, at no cost or for a purchase price determined by the Committee at the time of grant, shares of Common Stock which are subject to restrictions in accordance with the provisions of Section XII hereof. AF. "Retirement" shall mean with respect to any Eligible Employee, that such person has terminated employment with the Company or any Related Entity other than "for cause" (as defined in subsection IX.H.(v)) and (i) such person is eligible to receive an immediate service pension benefit under the U S WEST Pension Plan, or (ii) such person would be eligible to receive an immediate service pension under the U S WEST Pension Plan, as amended and restated effective January 1, 1993, had that plan not been amended and restated effective 4 January 1, 1997, or (iii) such person specifically is treated as "retired" for purposes of the Plan under any individually negotiated, written agreement or arrangement between the Company or any Related Entity and the Eligible Employee. "Retirement" shall not apply to any Eligible Non-Employee. AG. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. AH. "Stock Appreciation Right" or "SAR" shall mean a grant entitling the Participant to receive an amount in cash or shares of Common Stock or a combination thereof having a value equal to (or if the Committee shall so determine at the time of a grant, less than) the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the date of grant (or over the Option Price, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee to determine the form or forms of payment at the time of grant of the SAR. AI. "Stock Awards" shall mean any Award which is in the form of Restricted Stock and any outright grants of Common Stock approved by the Committee pursuant to the Plan. AJ. "Subsidiary" shall mean with respect to any Award other than an Incentive Option, any corporation, joint venture, limited liability company ("LLC"), or partnership in which the Company owns, directly or indirectly, (i) with respect to a corporation, stock possessing twenty percent (20%) or more of the total combined voting power of all classes of stock in the corporation, (ii) in the case of a joint venture or partnership, the Company possesses a twenty percent (20%) interest in the capital or profits of such joint venture or partnership, or (iii) in the case of an LLC, a twenty percent (20%) or more interest in units in the LLC. In the case of any Incentive Option, Subsidiary shall mean any corporation within the meaning of Section 424(f) of the Code. AK. "Vested" shall mean the status of that portion of an Option or other Award that may be immediately exercised under the terms of the Agreement granting such Option or other Award, pursuant to the provisions of the Plan, or by action of the Committee. III. Administration. A. The Committee shall have sole and exclusive discretion to interpret and administer the Plan. The Committee shall have the power to adopt rules, regulations and guidelines relating to the administration of the Plan. B. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the 5 Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company or such Related Entity whose employees have benefited from the Plan, as determined by the Committee. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company or a Related Entity against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's gross negligence or willful misconduct. C. In furtherance of and not in limitation of the Committee's discretionary authority, subject to the provisions of the Plan, the Committee shall have the authority to: 1. determine the Participants to whom Awards shall be granted and the number of and terms and conditions upon which Awards shall be granted (which need not be the same for all Awards or types of Awards); 2. establish annual or long-term financial goals of the Company, any Related Entity, or division, department, or group of the Company or Related Entity, or individual goals which the Committee shall consider in granting Awards, if any; 3. determine the satisfaction of performance goals established by the Committee based upon periods of time or any combinations thereof; 4. determine the time when Awards shall be granted, the Option Price of each Option, the period(s) during which Options shall be exercisable (whether in whole or in part), the restrictions to be applicable to Awards, and the other terms and provisions of Awards; 5. modify grants of Awards pursuant to Paragraph D. of this Section III; 6. provide the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securities to be issued upon exercise of an Option, the lapse of restrictions on Restricted Stock and the vesting of Phantom Units (other than an Incentive Option) to meet the obligation of withholding for income, social security and other taxes incurred by a Participant upon such exercise or required to be withheld by the Company in connection with such exercise; 6 7. adopt, modify and rescind rules, regulations, procedures, and guidelines relating to the Plan; 8. adopt modifications to the Plan and procedures, as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company or a Related Entity operates in order to assure the legality of Awards granted under the Plan to Participants who reside in such countries; and 9. make all determinations, perform all other acts, exercise all other powers and establish any other rules, regulations, procedures, and guidelines determined by the Committee to be necessary, appropriate or advisable in administering the Plan and to maintain compliance with any applicable law. D. The Committee may at any time accelerate the exercisability or define any other aspect of the grant of or the conditions of the grant of any Awards and waive or amend any and all restrictions and conditions of any Awards. IV. Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. V. Arbitration. Any Agreement may contain, among other things, provisions that require arbitration of any and all disputes between a Participant and the Company or any Related Entity, in a form or forms acceptable to the Committee. VI. Duration of the Plan. The Plan shall remain in effect for a period of five (5) years from the Effective Date, unless terminated by the Board pursuant to Section XVII but shall continue to govern any Awards outstanding as of the end of that period. VII. Shares Available; Limitations. Up to 12,000,000 shares of Common Stock may be granted under this Plan. If, for any reason, any shares of Common Stock as to which Options, SARs, Restricted Stock, or Phantom Units have been granted cease to be subject to exercise or purchase hereunder (other than the exercise of SARs for cash), the underlying shares of Common Stock shall thereafter be available for grants to 7 Participants under the Plan. Absent an amendment of this provision by the Committee, no Incentive Options shall be granted under this Plan and no shares of Common Stock may be issued under this Plan in connection with the exercise of Incentive Options. Awards granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of the Common Stock or (ii) issued shares of Common Stock reacquired by the Company, in each situation, as the Board of Directors or the Committee may determine from time to time. VIII. Grant of Awards. A. The Committee shall determine the type or types of Award(s) to be made to each Participant. Awards may be granted singly, in combination or in tandem subject to restrictions set forth in Section IX.C for Incentive Options. The types of Awards that may be granted under the Plan are Options, with or without Reload Options, SARs, Stock Awards and Phantom Units, and with respect to Phantom Units and Restricted Stock, with or without Dividend Equivalent Rights. B. Each grant of an Award under this Plan shall be conditioned upon the acceptance of an Agreement dated as of the date of the grant of the Award, other than Stock Awards consisting of an outright grant of shares of Common Stock. This Agreement shall set forth the terms and conditions of the Award, as may be determined by the Committee, and will be subject to amendment, modification or alteration by the Committee pursuant to Section III.D of this Plan and without the Participant's execution of such amendment, modification or alteration. If the Agreement relates to the grant of an Option, it shall indicate whether the Option that it evidences, is intended to be an Incentive Option or a Nonqualified Option. Each grant of an Award is conditioned upon the subsequent acceptance by the Participant of the terms of the Agreement. Unless otherwise extended by the Committee, a Participant shall have ninety (90) days from the date of the Agreement to accept its terms. IX. Options. The Committee may grant Incentive Options or Nonqualified Options to Eligible Employees and Nonqualified Options to Eligible Non-Employees. The terms and conditions of the Options granted under this Section IX shall be determined from time to time by the Committee, as set forth in the Agreement granting the Option, and subject to the following conditions: A. Nonqualified Options. The Option Price for each share of Common Stock issuable pursuant to a Nonqualified Option may be an amount at or above the Fair Market Value on the date such Option is granted, may be Indexed from the original Option Price and may be granted with or without Dividend Equivalent Rights. All agreements granting options under Section IX.A shall state that the Options issued pursuant to the Agreement are not intended to qualify for tax benefits under Section 422 of the Code. 8 B. Incentive Options. The Option Price for each share of Common Stock issuable pursuant to an Incentive Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date such Option is granted and may be Indexed from the original Option Price. C. Incentive Options; Special Rules. Options granted in the form of Incentive Options shall be subject to the following provisions: 1. Grant. No Incentive Option shall be granted pursuant to this Plan more than ten (10) years after the Effective Date. 2. Annual Limit. The aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Common Stock with respect to which one or more Incentive Options are exercisable for the first time by any Optionee during any calendar year under the Plan or under any other stock plan of the Company or any Related Entity shall not exceed $100,000 or such other maximum amount permitted under Section 422 of the Code. Any portion of an Option purporting to constitute an Incentive Option in excess of such limitation shall constitute a Nonqualified Option. 3. 10% Stockholder. If any Optionee to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, an individual described in Section 422(b)(6) of the Code, then the following special provisions shall be applicable to the Option granted to such individual: (a) the Option Price of shares subject to such Incentive Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (b) the Option shall not have a term in excess of (5) years from the date of grant. 4. Shareholder Approval. If required by law to issue Incentive Options, shareholder approval of the Plan shall be obtained within twelve (12) months before or after adoption of the Plan. D. Other Options - Special Tax Benefits. The Committee may establish rules with respect to, and may grant to Eligible Employees, Options to comply with any amendment to the Code made after the Effective Date providing for special tax benefits for stock options. E. Reload Options. Without in any way limiting the authority of the Committee to make Awards hereunder, the Committee shall have the authority to 9 grant Reload Options. Any such Reload Option shall be subject to such other terms and conditions as the Committee may determine. Notwithstanding the above, (i) the Committee shall have the right to withdraw a Reload Option to the extent that the grant thereof will result in any adverse accounting consequences to the Company and (ii) no additional Reload Options shall be granted upon the exercise of a Reload Option. F. Term of Option. No Option shall be exercisable after the expiration of ten (10) years from the date of grant of the Option. G. Exercise of Stock Option. Each Option shall be exercisable in one or more installments as the Committee may determine at the time of the Award and as provided in the Agreement. The right to purchase shares shall be cumulative so that when the right to purchase any shares has accrued such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. The Option Price shall be payable (i) in cash or by an equivalent means acceptable to the Committee, (ii) by delivery (constructive or otherwise) to the Company of shares of Common Stock owned by the Optionee or (iii) by any combination of the above as provided in the Agreement. Shares delivered to the Company in payment of the Option Price shall be valued at the Fair Market Value on the date of the exercise of the Option. H. Vesting. The Committee shall establish the vesting schedules for awards. The Agreement shall specify the date or dates on which the Optionee may begin to exercise all or a portion of his Option. Subsequent to such date or dates, the applicable portion of the Option shall be deemed Vested and fully exercisable. (i) Death. In the event of the death of any Optionee, all Options held by such Optionee on the date of his death shall become Vested Options and the estate of such Optionee shall have the right, at any time and from time to time within one year after the date of death, or such other period, if any, as the Committee may determine, to exercise the Options of the Optionee (but not after the earlier of the expiration date of the Option or, in the case of an Incentive Option, one (1) year from the date of death). (ii) Disability. If the employment of any Optionee is terminated because of Disability, all Options held by such Optionee on the date of his or her termination shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options over time in accordance with the vesting schedule established at the time such Options were issued. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. (iii) Retirement. Upon an Optionee's Retirement, all Options held by such Optionee on the date of his or her Retirement shall be retained by 10 such Optionee, and such Options that are not yet Vested Options shall become Vested Options over time in accordance with the vesting schedule established at the time such Options were issued, unless the Committee determines otherwise. Unless the Committee determines otherwise, the Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. In the case of Incentive Options where tax-advantaged treatment is desired, the Optionee shall have the right to exercise Vested Options three months from the date of Retirement. (iv) Other Termination. If the employment with the Company or a Related Entity of an Optionee is terminated for any reason other than for death or Disability and other than "for cause" as defined in subparagraph (v) below, such Optionee shall have the right, in the case of a Vested Option, for a period of three (3) months after the date of such termination or such longer period as determined by the Committee, to exercise any such Vested Option, but in any event not after the expiration date of any such Option. (v) Termination For Cause. Notwithstanding any other provision of the Plan to the contrary, if the Optionee's employment is terminated by the Company or any Related Entity "for cause" (as defined below), such Optionee shall immediately forfeit all rights under his Options except as to the shares of Common Stock already purchased prior to such termination. Termination "for cause" shall mean (unless another definition is agreed to in writing by the Company and the Optionee) termination by the Company because of: (a) the Optionee's willful and continued failure to substantially perform his duties (other than any such failure resulting from the Optionee's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Optionee by the Company, which demand specifically identifies the manner in which the Company believes the Optionee has not substantially performed his duties, (b) the willful conduct of the Optionee which is demonstrably and materially injurious to the Company or Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee for a felony by a court of competent jurisdiction. X. Foreign Options and Rights. The Committee may make Awards of Options to Eligible Employees and Eligible Non-Employees who are subject to the tax laws of nations other than the United States, which Awards may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action it deems advisable to obtain approval of such Option by the appropriate foreign governmental entity; provided, however, that no such Award 11 may be granted pursuant to this Section X and no action may be taken that would result in a violation of the Exchange Act, the Code or any other applicable law. XI. Stock Appreciation Rights. The Committee shall have the authority to grant SARs to Eligible Employees and Eligible Non-Employees either alone or in connection with an Option. SARs granted in connection with an Option shall be granted either at the time of grant of the Option or by amendment to the Option. SARs granted in connection with an Option shall be subject to the same terms and conditions as the related Option and shall be exercisable only at such times and to such extent as the related Option is exercisable. A SAR granted in connection with an Option may be exercised only when the Fair Market Value of the Common Stock of the Company exceeds the Option Price of the related Option. A SAR granted in connection with an Option shall entitle the Participant to surrender to the Company unexercised the related Option, or any portion thereof and to receive from the Company cash and/or shares of Common Stock equal to that number of shares of Common Stock having an aggregate value equal to the excess of (i) the Fair Market Value of one share of Common Stock on the day of the surrender of such Option over (ii) the Option Price per share of Common Stock multiplied by (iii) the number of shares of Common Stock that may be exercised under the Option, or surrendered; provided, however, that no fractional shares shall be issued. A SAR granted singly shall entitle the Participant to receive the excess of (i) the Fair Market Value of a share of Common Stock on the date of exercise over (ii) the Fair Market Value of a share of Common Stock on the date of the grant of the SAR multiplied by (iii) the number of SARs exercised. Payment of any fractional shares of Common Stock shall be made in cash. A SAR shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. XII. Restricted Stock. The Committee may grant Restricted Stock to Eligible Employees and Eligible Non-Employees subject to the provisions below. A. Restrictions. A stock certificate representing the number of shares of Restricted Stock granted shall be held in custody by the Company for the Participant's account. The Participant shall have all rights and privileges of a stockholder as to such Restricted Stock, including the right to receive dividends and the right to vote such shares, except that, subject to the provisions of Paragraph B. below, the following restrictions shall apply: (i) the Participant shall not be entitled to delivery of the certificate until the expiration of the Restricted Period; (ii) none of the shares of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period; (iii) the Participant shall, if requested by the Company, execute and deliver to the Company, a stock power endorsed in blank. The Restricted Period shall lapse upon a Participant becoming Disabled or 12 the death of a Participant. If a Participant ceases to be an employee of the Company or a Related Entity prior to the expiration of the Restricted Period applicable to such shares, except as a result of the death or Disability of the Participant, shares of Restricted Stock still subject to restrictions shall be forfeited unless otherwise determined by the Committee, and all rights of the Participant to such shares shall terminate without further obligation on the part of the Company. Upon the forfeiture (in whole or in part) of shares of Restricted Stock, such forfeited shares shall become shares of Common Stock held in the Company's treasury without further action by the Participant. B. Terms and Conditions. The Committee shall establish the terms and conditions for Restricted Stock pursuant to Section III of the Plan. Terms and conditions established by the Committee need not be the same for all grants of Restricted Stock. The Committee may provide for the restrictions to lapse with respect to a portion or portions of the Restricted Stock at different times or upon the occurrence of different events, and the Committee may waive, in whole or in part, any or all restrictions applicable to a grant of Restricted Stock. Restricted Stock Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. C. Delivery of Restricted Shares. At the end of the Restricted Period as herein provided, a stock certificate for the number of shares of Restricted Stock with respect to which the restrictions have lapsed shall be delivered (less any shares delivered pursuant to Section XVI.C in satisfaction of any withholding tax obligation), free of all such restrictions, except applicable securities law restrictions, to the Participant or the Participant's estate, as the case may be. The Company shall not be required to deliver any fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value (measured as of the date the restrictions lapse) of such fractional share to the Participant or the Participant's estate, as the case may be. Notwithstanding the foregoing, the Committee may authorize the delivery of the Restricted Stock to a Participant during the Restricted Period, in which event any stock certificates in respect of shares of Restricted Stock thus delivered to a Participant during the Restricted Period applicable to such shares shall bear an appropriate legend referring to the terms and conditions, including the restrictions, applicable thereto. XIII. Phantom Units. A. General. The Committee may grant the right to earn Phantom Units to Eligible Employees and Eligible Non-Employees. The Committee shall determine the criteria for the earning of Phantom Units, pursuant to Section III of the Plan. Upon satisfaction of such criteria, a Phantom Unit shall be deemed a Vested Award. A Phantom Unit granted by the Committee shall provide for payment in shares of Common Stock. A Phantom Unit shall become a Vested Award upon (i) a 13 Participant becoming Disabled, or (ii) the death of a Participant. Shares of Common Stock issued pursuant to this Section XIII may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. The Committee shall determine whether a Participant granted a Phantom Unit shall be entitled to a Dividend Equivalent Right. B. Unfunded Claim. The establishment of Phantom Units under the Plan are unfunded obligations of the Company. The interest of a Participant in any such units shall be considered a general unsecured claim against the Company to the extent that the conditions for the earning of the Phantom Units have been satisfied. Nothing contained herein shall be construed as creating a trust or fiduciary relationship between the Participant, the Company or the Committee. C. Issuance of Common Stock. Upon a Phantom Unit becoming a Vested Award, unless a Participant has elected to defer under Paragraph D. below, shares of Common Stock representing the Phantom Units shall be distributed to the Participant, unless the Committee, with the consent of the Participant, provides for the payment of the Phantom Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the Participant. D. Deferral of Phantom Units. Prior to the year with respect to which a Phantom Unit may become a Vested Award, the Participant may elect not to receive Common Stock upon the vesting of such Phantom Unit and for the Company to continue to maintain the Phantom Unit on its books of account. In such event, the value of a Phantom Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. E. Financial Hardship. Notwithstanding any other provision hereof, at the written request of a Participant who has elected to defer pursuant to Paragraph D. above, the Committee, in its sole direction, upon a finding that continued deferral will result in financial hardship to the Participant, may authorize the payment of all or a part of a Participant's Vested Phantom Units in a single installment or the acceleration of payment of any multiple installments thereof; provided, however, that distributions will not be made under this paragraph if such distribution would result in liability of an Executive Officer under Section 16 of the Exchange Act. F. Distribution upon Death. The Committee shall pay the Fair Market Value of the Phantom Units of a deceased Participant to the estate of the Participant, as soon as practicable following the death of the Participant. The value of the Phantom Units for the purpose of such distribution shall be based upon the Fair Market Value of shares of Common Stock underlying the Phantom Units on the date of the Participant's death. 14 XIV. Change of Control; Acceleration. Upon the occurrence of a Change of Control or, within one year after the closing of the Qwest Merger, the involuntary termination of a Participant, other than a termination "for cause" as defined in Section IX.H.(v) of this Plan, then: A. in the case of all outstanding Options and SARs, each such Option and SAR shall automatically become immediately fully exercisable by the Participant; B. restrictions applicable to Restricted Stock shall automatically be deemed lapsed and conditions applicable to Phantom Units shall automatically be deemed waived, and the Participants who receive such grants shall become immediately entitled to receipt of the Common Stock subject to such grants; and C. the Employee Benefits Committee, in its discretion, shall have the right to accelerate payment of any deferrals of Vested Phantom Units. XV. Adjustment of Shares. A. In the event there is any change in the Common Stock by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company, the number or kind of shares or interests subject to an Award and the per share price or value thereof shall be appropriately adjusted by the Committee at the time of such event, provided that each Participant's economic position with respect to the Award shall not, as a result of such adjustment, be worse than it had been immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be rounded up to the next whole share of Common Stock. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an "incentive stock option" for purposes of Section 422 of the Code. B. In the event of an acquisition by the Company of another corporation where the Company assumes outstanding stock options or similar obligations of such corporation, the number of Awards available under the Plan shall be appropriately increased to reflect the number of such options or other obligations assumed. XVI. Miscellaneous Provisions. A. Assignment or Transfer. Except as otherwise permitted by this Section, no grant of any "derivative security" (as defined in the rules issued under Section 16 of the Exchange Act) made under the Plan or any rights or 15 interests therein shall be assignable or transferable except by last will and testament or the laws of descent and distribution. No grant of any such derivative security shall be assignable or transferable pursuant to a domestic relations order. B. Investment Representation; Legends. The Committee may require each Participant acquiring shares of Common Stock pursuant to an Award to represent to and agree with the Company in writing that such Participant is acquiring the shares without a view to distribution thereof. No shares of Common Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of stop-orders and restrictive legends on certificates for Common Stock as it deems appropriate. C. Withholding Taxes. In the case of distributions of Common Stock or other securities hereunder, the Company, as a condition of such distribution, may require the payment (through withholding from the Participant's salary, payment of cash by the Participant, reduction of the number of shares of Common Stock or other securities to be issued (except in the case of an Incentive Option), or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such distribution. D. Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Award nor to any Participant receiving an Award. E. Other Incentive Plans. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. F. Effect on Employment. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Participant except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Participant and (ii) any Participant to remain in the employ of the Company or any Related Entity. G. Noncompetition. Any Agreement may contain, among other things, provisions prohibiting Participants from competing with the Company or any Related Entity in a form or forms acceptable to the Committee. H. Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. 16 XVII. Amendment or Termination of Plan. The Committee shall have the right to amend, modify, suspend or terminate the Plan or any Awards at any time. ADDITIONAL INFORMATION U S WEST is subject to certain informational requirements under the Exchange Act and has incorporated herein by reference the following documents filed by U S WEST into this Prospectus: (i) U S WEST's Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Form 10-K/A filed March 24, 1999; (ii) U S WEST's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999; (iii) U S WEST's Current Reports on Form 8-K filed January 13, 1999, January 15, 1999, January 22, 1999, February 23, 1999, February 25, 1999, February 26, 1999, April 7, 1999, April 22, 1999, May 12, 1999, May 18, 1999, May 21, 1999, May 26, 1999, June 18, 1999, June 22, 1999, July 7, 1999, July 21, 1999 and July 26, 1999, as amended by Form 8-K/A filed July 27, 1999; (iv) U S WEST's Proxy Statement on Schedule 14A filed March 24, 1999; and (v) the description of Common Stock and preferred stock purchase rights of U S WEST contained in U S WEST's Registration Statement on Form 8-A filed on May 1, 1998 (as amended by Form 8-A/A filed May 12, 1998). All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus shall be deemed to be incorporated in this Prospectus from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in this Prospectus or in any subsequently filed documents which also is or is deemed to be incorporated by reference in this Prospectus modifies or supersedes such statements. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. U S WEST shall provide, without charge, to any Participant to whom a Prospectus is delivered, upon written or oral request, a copy of an updated version of this prospectus and any or all of the documents that are incorporated by reference herein. Requests for such documents or for additional information about the Plan or its administrators should be directed to the Corporate Secretary, U S WEST, 1801 California Street, Denver, Colorado 80202, Telephone (303) 672-2700. CERTAIN FEDERAL INCOME TAX EFFECTS It is the opinion of the Company that the following are certain income tax consequences of participation in the Plan. This section is only a summary, does not purport to be complete and, among other things, does not cover state and local tax treatment. Furthermore, differences in financial situation may cause Federal, state and local tax consequences to vary. Therefore, consultation with an accountant, legal counsel or other financial advisor regarding tax consequences is urged. 17 1. Nonqualified Options, Stock Appreciation Rights and Phantom Units. An individual who receives a grant of a Nonqualified Option, a SAR, or a phantom unit will not recognize any taxable income upon such grant. However, the individual generally will recognize ordinary income upon exercise of a Nonqualified Option in an amount equal to the excess of the fair market value of the shares at the time of exercise over the exercise price. Similarly, upon the receipt of cash or shares pursuant to the exercise of a SAR, the individual generally will recognize ordinary income in an amount equal to the sum of the cash and the fair market value of the shares received; likewise, upon the vesting of a phantom unit, the individual generally will recognize ordinary income in an amount equal to the fair market value of the shares, plus cash, if any, received. An individual who exercises a Nonqualified Option by delivering U S WEST Common Stock to U S WEST will not recognize gain or loss with respect to the exchange of such U S WEST Common Stock, even if the fair market value of the shares so delivered is different from the individual's tax basis. The individual, however, will be taxed as described above with respect to the exercise of the Nonqualified Option as if he or she had paid the exercise price in cash. 2. Restricted Stock. Absent a written election pursuant to Section 83(b) of the Code filed with the IRS within 30 days after the date of transfer of such shares (a "Section 83(b) election"), an individual who receives restricted stock under the Plan generally will recognize ordinary income at the earlier of the time at which (i) the shares become transferable or (ii) the restrictions that impose a substantial risk of forfeiture of such shares lapse, in an amount equal to the excess of the fair market value (on such date) of such shares over the consideration paid for such restricted stock, if any. If a Section 83(b) election is made, the individual will recognize ordinary income, as of the transfer date, in an amount equal to the excess of the fair market value of the shares as of that date over the price paid for such award, if any. 3. Consequences to Company. A federal income tax deduction generally will be allowed to U S WEST in an amount equal to the ordinary income included by the employee with respect to his or her Nonqualified Option, SAR, phantom unit, or restricted stock, provided that such amount constitutes an ordinary and necessary business expense to U S WEST and is reasonable and the limitations of Sections 280G and 162(m) of the Code do not apply. 4. Change of Control. In general, if the total amount of payments to an individual that are contingent upon a "change of control" of U S WEST (as 18 defined in Section 280G of the Code), including payments under the Plan that vest upon a "change of control," equals or exceeds three times the individual's "base amount" (generally, such individual's average annual compensation for the five calendar years preceding the change of control), then, subject to certain exceptions, the payments may be treated as "parachute payments" under the Code, in which case a portion of such payments would be non-deductible to U S WEST and the individual would be subject to a 20% excise tax on such portion of the payments. RESALE RESTRICTIONS Resale restrictions imposed by federal and/or state securities laws may restrict certain Participants from transferring securities received under the Plan. For example, Participants who hold "restricted securities" or are deemed "affiliates," as those terms are defined in Rule 144 under the Securities Act, may not sell securities issued by U S WEST to the public except pursuant to (a) an effective registration statement filed by U S WEST with the SEC under the Securities Act; or (b) an exemption from the registration requirements of the Securities Act. Rule 144 provides an exemption for resale, subject to certain conditions, such as a holding period, availability of public information, limitation on amount of securities sold, manner of sale, and notice of sale. This prospectus is not available for any resale. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 The Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan is administered by the Employee Benefits Committee. The Employee Benefits Committee consists of the Senior Vice President-Law and Corporate Human Resources of U S WEST and other officers of U S WEST designated by the Senior Vice President-Law and Corporate Human Resources. EXPERTS The financial statements and schedules incorporated by reference in this Prospectus have been audited by Arthur Andersen LLP, independent public accounts, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 19 EX-99.D.1 19 ex_d-9.txt EXHIBIT 99(D)(1) U S WEST 1998 BROAD BASED STOCK OPTION PLAN I. Purpose. The U S WEST 1998 Broad Based Stock Option Plan (the "Plan"), is intended to promote the long term success of U S WEST, Inc. (the "Company"), by affording certain Eligible Employees of the Company with an opportunity to acquire a proprietary interest in the Company, in order to provide incentives to employees and to align the financial interests of these employees with the shareholders of the Company. This Plan is a successor plan of the U S WEST Communications Group 1997 Stock Option Plan (the "Predecessor Plan"). This Plan is effective only upon consummation of the Separation (as defined herein). II. Separate Plan. The Plan is separate and distinct from the U S WEST 1998 Stock Plan. III. Definitions. The following defined terms are used in this Plan: A. "Agreement" shall mean the agreement accepted by the Participant as described in Section VIII of this Prospectus between the Company and a Participant, under which the Participant receives an Option pursuant to the Plan. B. "Board" or "Board of Directors" shall mean the Board of Directors of the Company. C. "Change of Control" shall mean any of the following: 1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) who is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; 2. any period of two (2) consecutive calendar years during which there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or 3. the Company becomes a party to a merger or consolidation in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or 4. any other event that a majority of the Board of Directors, in its sole discretion, shall determine constitutes a Change of Control. D. "Code" shall mean the Internal Revenue Code of 1986, as amended. E. "Committee" shall mean the Employee Benefits Committee or its delegates, as applicable, pursuant to provisions of Section IV of this Prospectus. F. "Common Stock" shall mean the common stock, $.01 par value, issued by the Company. G. "Company" shall mean U S WEST, Inc., a Delaware corporation (previously known as "USW-C, Inc."), and any successor thereof. H. "Disabled" or "Disability" shall mean long-term disability as determined under the provisions of any U S WEST disability plan maintained for the benefit of Eligible Employees of the Company or any Related Entity. I. "Eligible Employee" shall mean any employee of the Company or any Related Entity, excluding Officers, who the Committee selects to receive an Option and who is so employed on the date of the grant of an Option. J. "Employee Benefits Committee" shall mean a committee of the Company which shall administer the Plan as provided in Section IV hereof, and consisting of employees of the Company or any Related Entity who are appointed by the Human Resources Committee. 2 K. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. L. "Fair Market Value" shall mean the closing price of a share of stock as reported on the New York Stock Exchange for the applicable date, or if there were no sales on such date, on the last day on which there were sales. M. "Human Resources Committee" shall mean the Human Resources Committee of the Board. N. "Nonqualified Option" shall mean an Option that does not qualify as an incentive stock option under Section 422 of the Code. O. "Officer" shall mean any executive of the Company or any Related Entity who is eligible to participate in the Company's executive compensation programs. P. "Option" shall mean an option granted by the Company to purchase Common Stock pursuant to the provisions of this Prospectus. Q. "Optionee" shall mean a Participant to whom one or more Options have been granted. R. "Option Price" shall mean the price per share payable to the Company for shares of Common Stock upon the exercise of an Option. S. "Parent Corporation" shall mean any corporation within the meaning of Section 424(e) of the Code. T. "Participant" shall mean an Eligible Employee. U. "Plan" shall mean the U S WEST 1998 Broad Based Stock Option Plan, as described in this Prospectus. V. "Related Entity" shall mean any Parent Corporation or Subsidiary of the Company. W. "Retirement" shall mean, with respect to any Eligible Employee, that such person has terminated employment with the Company or any Related Entity other than "for cause" (as defined in subsection IX.C.(v)) and (i) such person is eligible to receive an immediate service pension benefit under the U S WEST Pension Plan or (ii) such person would be eligible to receive an immediate service pension benefit under the U S WEST Pension Plan, as amended and restated effective January 1, 1993, had that plan not been amended and restated effective 3 January 1, 1997 or (iii) such person specifically is treated as "retired" for purposes of the Plan under any individually negotiated, custom, written agreement or arrangement between the Company or any Related Entity and the Eligible Employee. "Retirement" shall not apply to any Eligible Non-Employee. X. "Securities Act" shall mean the Securities Act of 1933 as amended. Y. "Subsidiary" shall mean any corporation, joint venture or partnership in which the Company owns, directly or indirectly, (i) with respect to a corporation, stock possessing twenty percent (20%) or more of the total combined voting power of all classes of stock in the corporation or (ii) in the case of a joint venture or partnership, the Company possesses a twenty percent (20%) interest in the capital or profits of such joint venture or partnership. Z. "Vested" shall mean the status that results with respect to an Option that may be exercised immediately under the terms of the Agreement granting such Option pursuant to the provisions of the Plan or by action of the Committee. IV. Administration. A. The Plan shall be administered by the Committee. The Committee may adopt such rules, regulations and guidelines as it determines necessary for the administration of the Plan. B. The Committee may delegate to one or more of its members, or to one or more agents, such duties as it may deem advisable, and may itself or through its delegate employ an advisor to render advice with respect to any responsibility it may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred in the engagement of such counsel, consultant or agent shall be paid by the Company or such Related Entity whose employees have benefited from the Plan, as determined by the Committee. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company or a Related Entity against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's gross negligence or willful misconduct. C. In furtherance of and not in limitation of the Committee's discretionary authority, the Committee shall have the authority to: 4 1. determine the Participants to whom Options shall be granted and the number of and terms and conditions upon which Options shall be granted (which need not be the same for all Options); 2. determine the time when Options shall be granted, the Option Price of each Option, the period(s) during which Options shall be exercisable (whether in whole or in part), the restrictions to be applicable to Options, and the other terms and provisions of Options; 3. modify grants of Options pursuant to Paragraph D of this Section IV or rescind grants of Options pursuant to Section IX(C)(v), respectively; 4. provide the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock to be issued upon exercise of an Option, to meet the obligation of withholding for income tax, social security and other taxes incurred by a Participant upon such exercise or required to be withheld by the Company in connection with such exercise; 5. adopt, modify and rescind rules, regulations and guidelines relating to the Plan; 6. adopt modifications to the Plan and procedures as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company or a Related Entity operates to assure the legality of Options granted under the Plan to Participants who reside in such countries; 7. make all determinations, perform all other acts, exercise all other powers and establish any other procedures determined by the Committee to be necessary, appropriate or advisable in administering the Plan and to maintain compliance with any applicable law. D. The Committee may at any time, in its sole discretion, accelerate the exercisability of any Options and waive or amend any and all restrictions and conditions of any Options. V. Decisions Final. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. 5 VI. Arbitration. Any agreement may contain, among other things, provisions that require binding arbitration of any and all disputes between a Participant and the Company or any Related Entity, in a form or forms acceptable to the Committee, in its sole discretion. VII. Shares Available Limitations. A. Up to 6,000,000 shares of Common Stock may be granted under the Plan. VIII. Stock Option Agreements. Each grant of an Option under this Plan shall be evidenced by an Agreement dated as of the date of the grant of the Option. Agreements under the Predecessor Plan are hereby assumed by the Company and shall be deemed Agreements under this Plan. Such Agreement shall set forth the terms and conditions of the Option, as may be determined by the Committee. Each grant of an Option is conditioned upon the acceptance by the Participant of the terms of the Agreement. Unless otherwise extended by the Committee, a Participant shall have ninety (90) days from the date of the Agreement to accept its terms. IX. Option Terms. A. Term of Option. No Option shall be exercisable after the expiration of ten (10) years from the date of grant of the Option. B. Exercise of Stock Option. Each Option shall be exercisable in one or more installments as the Committee in its sole discretion may determine at the time of the Option grant and as provided in the Agreement. The right to purchase shares shall be cumulative so that when the right to purchase any shares has accrued such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. The Option Price shall be payable (i) in cash or by an equivalent means acceptable to the Committee, (ii) by delivery (constructive or otherwise) to the Company of shares of Common Stock owned by the Optionee or (iii) by any combination of the above as provided in the Agreement. Shares delivered to the Company in payment of the Option Price shall be valued at the Fair Market Value on the date of the exercise of the Option. C. Vesting. The Agreement shall specify the date or dates on which 6 the Optionee may begin to exercise all or a portion of his Option. Subsequent to such date or dates, the Option shall be deemed Vested and fully exercisable. (i) Death. In the event of the death of any Optionee, all Options held by such Optionee on the date of his or her death shall become Vested Options and the estate of such Optionee, shall have the right, at any time and from time to time within one year after the date of death, or such other period, if any, as the Committee in its sole discretion may determine, to exercise the Options of the Optionee (but not after the expiration date of the Option). (i) Disability. If the employment of any Optionee is terminated because of Disability, all Options held by such Optionee on the date of his or her termination shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. (iii) Retirement. Upon an Optionee's Retirement, all Options held by such Optionee on the date of his or her Retirement shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued, unless the Committee, in its sole discretion, determines otherwise. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. (iv) Other Termination. If the employment with the Company or a Related Entity of an Optionee is terminated for any reason other than for death, Disability or Retirement and other than "for cause" as defined in subparagraph (v) below, such Optionee shall have the right, in the case of a Vested Option, for a period of three (3) months after the date of such termination or such longer period as determined by the Committee, to exercise any such Vested Option, but in any event not after the expiration date of any such Option. (v) Termination For Cause. Notwithstanding any other provision of the Plan to the contrary, if the Optionee's employment is terminated by the Company or any Related Entity 7 "for cause" (as defined below), such Optionee immediately shall forfeit all rights under his or her Options except as to the shares of Common Stock already purchased prior to such termination. Termination "for cause" shall mean (unless another definition is agreed to in writing by the Company and the Optionee) termination by the Company because of: (a) the Optionee's willful and continued failure substantially to perform his or her duties (other than any such failure resulting from the Optionee's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Optionee by the Company, which demand specifically identifies the manner in which the Company believes the Optionee has not substantially performed his or her duties, (b) the willful conduct of the Optionee that is demonstrably and materially injurious to the Company or Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee for a felony by a court of competent jurisdiction. X. Foreign Options and Rights. The Committee may grant Options to Eligible Employees who are subject to the tax laws of nations other than the United States, which Options may have terms and conditions as determined by the Committee as necessary and appropriate to comply with applicable foreign laws. The Committee may take any action which it deems advisable to obtain approval of such Option by the appropriate foreign governmental entity; provided, however, that no such Option may be granted pursuant to this Section X and no action may be taken that would result in a violation of the Exchange Act, the Code or any other applicable law. XI. Change of Control Acceleration. Upon the occurrence of a Change of Control each outstanding Option automatically and immediately shall become fully exercisable by the Participant. XII. Adjustment of Shares. In the event there is any change in the Common Stock by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company, the number or kind of shares or interests subject to an Option and the per share price or value thereof shall be adjusted by the Committee appropriately at the time of such event, provided that each Participant's economic position with respect to the Option shall not, as a result of such adjustment, be worse than it had been immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be rounded up to the next whole share of Common Stock. 8 XIII. Miscellaneous Provisions. A. Assignment or Transfer. No grant of any "derivative security" (as defined by Rule 16a-1(c) under the Exchange Act) made under the Plan or any rights or interests therein shall be assignable or transferable by a Participant except by last will and testament or the laws of descent and distribution and except to the extent it is otherwise permissible under the Exchange Act. No grant of any "derivative security" shall be assignable or transferable pursuant to a domestic relations order. During the lifetime of a Participant, Options granted hereunder shall be exercisable only by the Participant, the Participant's guardian or his or her legal representative. B. Investment Representation; Legends. No shares of Common Stock shall be issued pursuant to an Option until all applicable securities law and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of stop-orders and restrictive legends on certificates for Common Stock as it deems appropriate. C. Withholding Taxes. The Company, as a condition of the distribution of Common Stock hereunder, may require the payment (through withholding from the Participant's salary, payment of cash by the Participant, reduction of the number of shares of Common Stock or other securities to be issued, or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such distribution. D. Costs and Expenses. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Option or against any Participant receiving an Option. E. Other Incentive Plans. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. F. Effect on Employment. Nothing contained in this Plan or any related agreement or referred to in the Plan shall affect, or be construed as affecting, the terms of employment of any Participant except to the extent specifically provided. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Participant or (ii) any Participant to remain in the employ of the Company or any Related Entity. G. Noncompetition. Any Agreement may contain, among other things, provisions prohibiting Participants from competing with the Company or any 9 Related Entity in a form or forms acceptable to the Committee, in its sole discretion. H. Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. XIV. Amendment or Termination of Plan. The Committee shall have the right to amend, modify, suspend or terminate the Plan at any time. DESCRIPTION OF SEPARATION This Plan is effective only upon consummation of the separation of U S WEST, Inc. ("Old U S WEST") into two independent companies (the "Separation"). Old U S WEST currently conducts its business through two groups, the U S WEST Communications Group and the U S WEST Media Group. Upon consummation of the Separation, USW-C, Inc. (to be renamed "U S WEST, Inc." at Separation and referred to in this Prospectus as "U S WEST" or the Company) will become a separately-traded company and will conduct the business of the U S WEST Communications Group and the domestic directories business of the U S WEST Media Group. The Separation is expected to occur in June of 1998. 10