THIS DOCUMENT CONSTITUTES A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
Dated August 6, 1999
Prospectus
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.
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.
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.
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.").
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.
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) 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.
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.
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
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.
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).
(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.
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.
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 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 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.
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 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.
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.
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.
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.
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
"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.
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)
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.