**Exhibit 10.1**

 

**SUREWEST COMMUNICATIONS**

 

**2000 EQUITY INCENTIVE PLAN**

 

As Adopted Effective January 31, 2000

 

As Amended Effective May 17, 2002 and February 25, 2004

 

As Amended and Restated December 12, 2008

 

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SUREWESTCOMMUNICATIONS

2000EQUITY INCENTIVE PLAN

TABLE OF CONTENTS

 
| ARTICLE 1. | INTRODUCTION |                                           | 1      |
|------------|--------------|------------------------------------------------|--------|
|       |         |                                           |   |
| ARTICLE 2. | DEFINITIONS  |                                           | 2      |
|       | 2.1          | Account                                        |   | 3 |
|       | 2.2          | Affiliate                                      |   | 3 |
|       | 2.3          | Alternate Payee                                |   | 3 |
|       | 2.4          | Appendix                                       |   | 3 |
|       | 2.5          | Award                                          |   | 4 |
|       | 2.6          | Beneficiary                                    |   | 4 |
|       | 2.7          | Benefit                                        |   | 5 |
|       | 2.8          | Board or Board of  Directors                   |   | 5 |
|       | 2.9          | Change in Control                              |   | 5 |
|       | 2.9          | Change in Control                              |   | 5 |
|       | 2.10         | Code or IRC                                    |   | 7 |
|       | 2.11         | Committee                                      |   | 7 |
|       | 2.12         | Company or SureWest                            |   | 7 |
|       | 2.13         | Company Contributions                          |   | 8 |
|       | 2.14         | Consultant                                     |   | 8 |
|       | 2.15         | Deferred or Supplemental  Compensation         |   | 8 |
|       | 2.16         | Disabled or Disability                         |   | 8 |
|       | 2.17         | Earnings                                       |   | 8 |
|       | 2.18         | Economic Emergency or  Unforeseeable Emergency |   | 9 |
|       | 2.19         | Election or Deferral  Election                 |   | 9 |
|       | 2.20         | Employee                                       |   | 9 |
|       | 2.21         | ERISA                                          |   | 10 |
|       | 2.22         | Exchange Act                                   |   | 10 |
|       | 2.23         | Exercise Price                                 |   | 10 |
|       | 2.24         | Fair Market Value                              |   | 10 |
|       | 2.25         | Investment Vehicle                             |   | 11 |
|       | 2.26         | ISO or Incentive Stock  Option                 |   | 11 |
|       | 2.27         | NSO or Nonstatutory Stock  Option              |   | 11 |
|       | 2.28         | Option                                         |   | 11 |
|       | 2.29         | Optionee                                       |   | 11 |
|       | 2.30         | Outside Director                               |   | 11 |
|       | 2.31         | Parent                                         |   | 12 |
|       | 2.32         | Participant                                    |   | 12 |
|       | 2.33         | Performance Share                              |   | 12 |
|       | 2.34         | Performance Share Agreement                    |   | 12 |
|       | 2.35         | Plan                                           |   | 12 |
|            |              |                                                |        |  |  |

 

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|       | 2.36                        | QDRO or Qualified Domestic  Relations Order |   | 12 |
|------------|-----------------------------|---------------------------------------------|--------|----|
|       | 2.37                        | Restricted Share or Restricted Stock        |   | 13 |
|       | 2.38                        | Restricted Stock Agreement                  |   | 13 |
|       | 2.39                        | SAR or Stock Appreciation  Right            |   | 13 |
|       | 2.40                        | SAR Agreement                               |   | 13 |
|       | 2.41                        | Separation from Service                     |   | 13 |
|       | 2.42                        | Separation Without Cause                    |   | 14 |
|       | 2.43                        | Share                                       |   | 15 |
|       | 2.44                        | Stock Option Agreement                      |   | 15 |
|       | 2.45                        | Stock Unit                                  |   | 16 |
|       | 2.46                        | Stock Unit Agreement                        |   | 16 |
|       | 2.47                        | Subsidiary                                  |   | 16 |
|       | 2.48                        | Unforeseeable Event                         |   | 16 |
|       |                        |                                        |   |
| ARTICLE 3. | ADMINISTRATION              |                                        | 16     |
|       | 3.1                         | Committee Composition                       |   | 16 |
|       | 3.2                         | Committee Responsibilities                  |   | 17 |
|       | 3.3                         | Committee for Non-Officer  Grants           |   | 17 |
|       | 3.4                         | Deference to Committee  Decisions           |   | 17 |
|       | 3.5                         | Claims and Appeals  Procedures              |   | 17 |
|       |                        |                                        |   |
| ARTICLE 4. | SHARES AVAILABLE FOR GRANTS |                                        | 18     |
|       | 4.2                         | Forfeited Shares                            |   | 18 |
|       | 4.3                         | Dividend Equivalents                        |   | 18 |
|       |                        |                                        |   |
| ARTICLE 5. | ELIGIBILITY                 |                                        | 19     |
|       | 5.1                         | Incentive Stock Options                     |   | 19 |
|       | 5.2                         | Other Grants                                |   | 19 |
|       |                        |                                        |   |
| ARTICLE 6. | OPTIONS                     |                                        | 19     |
|       | 6.1                         | Stock Option Agreement                      |   | 19 |
|       | 6.2                         | Number of Shares                            |   | 20 |
|       | 6.3                         | Exercise Price                              |   | 20 |
|       | 6.4                         | Exercisability and Term                     |   | 20 |
|       | 6.5                         | Effect of Change in  Control                |   | 20 |
|       | 6.6                         | Modification or Assumption  of Options      |   | 20 |
|       | 6.7                         | Buyout Provisions                           |   | 21 |
|       |                        |                                        |   |
| ARTICLE 7. | PAYMENT FOR OPTION SHARES   |                                        | 21     |
|       | 7.1                         | General                                     |   | 21 |
|       | 7.2                         | Surrender of Stock                          |   | 21 |
|       | 7.3                         | Exercise/Sale                               |   | 22 |
|       | 7.5                         | Promissory Note                             |   | 22 |
|            |                             |                                             |        |    |  |

 

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|                             | 7.6                                                               | Other Forms of Payment                           |   | 22 |
|----------------------------------|-------------------------------------------------------------------|--------------------------------------------------|--------|----|
|                             |                                                              |                                             |   |
| ARTICLE 8.                       | AUTOMATIC GRANTS TO OUTSIDE  DIRECTORS                            |                                             | 22     |
|                             |                                                              |                                             |   |
| ARTICLE 9.                       | STOCK APPRECIATION RIGHTS                                         |                                             | 23     |
|                             | 9.1                                                               | SAR Agreement                                    |   | 23 |
|                             | 9.2                                                               | Number of Shares                                 |   | 23 |
|                             | 9.3                                                               | Exercise Price                                   |   | 23 |
|                             | 9.4                                                               | Exercisability and Term                          |   | 23 |
|                             | 9.5                                                               | Effect of Change in  Control                     |   | 24 |
|                             | 9.6                                                               | Exercise of SARs                                 |   | 24 |
|                             | 9.7                                                               | Modification or Assumption  of SARs              |   | 24 |
|                             |                                                              |                                             |   |
| ARTICLE 10.                      | RESTRICTED SHARES                                                 |                                             | 24     |
|                             | 10.1                                                              | Restricted Stock Agreement                       |   | 24 |
|                             | 10.2                                                              | Payment for Awards                               |   | 25 |
|                             | 10.3                                                              | Vesting Conditions                               |   | 25 |
|                             | 10.4                                                              | Voting and Dividend Rights                       |   | 25 |
|                             |                                                              |                                             |   |
| ARTICLE 11.                      | STOCK UNITS                                                       |                                             | 25     |
|                             | 11.1                                                              | Stock Unit Agreement                             |   | 25 |
|                             | 11.2                                                              | Payment for Awards                               |   | 26 |
|                             | 11.3                                                              | Vesting Conditions                               |   | 26 |
|                             | 11.4                                                              | Voting and Dividend Rights                       |   | 26 |
|                             | 11.5                                                              | Form and Time of  Settlement of Stock Units |   | 27 |
|                             | 11.6                                                              | Death of Recipient                               |   | 27 |
|                             | 11.7                                                              | Creditors’ Rights                           |   | 27 |
|                             |                                                              |                                             |   |
| ARTICLE 12.                      | PERFORMANCE SHARES                                                |                                             | 27     |
|                             | 12.1                                                              | Performance Share  Agreement                     |   | 27 |
|                             | 12.2                                                              | Grant of Performance  Shares                     |   | 28 |
|                             | 12.3                                                              | Modification of Grant                            |   | 28 |
|                             | 12.4                                                              | Terms of the Grant                               |   | 29 |
|                             | 12.5                                                              | Payment of Performance  Shares                   |   | 29 |
|                             |                                                              |                                             |   |
| ARTICLE 13.                      | PROTECTION AGAINST DILUTION                                       |                                             | 30     |
|                             | 13.1                                                              | Adjustments                                      |   | 30 |
|                             | 13.2                                                              | Dissolution or Liquidation                       |   | 31 |
|                             | 13.3                                                              | Reorganizations                                  |   | 31 |
|                             |                                                              |                                             |   |
| ARTICLE 14.                      | CONVERSION OF AWARDS TO  NONQUALIFIED DEFERRED COMPENSATION, ETC. |                                             |   |
| SUBJECT TO IRC SECTION 409A |                                                              | 31                                               |
|                             | 14.1                                                              | Committee Discretion  Regarding Conversion       |   | 31 |
|                                  |                                                                   |                                                  |        |    |  |

 

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|        | 14.2                                          | Timing of Election to  Defer Compensation                    |   | 32     |
|-------------|-----------------------------------------------|--------------------------------------------------------------|--------|--------|
|        | 14.3                                          | Modification of Certain  Elections                           |   | 32     |
|        | 14.4                                          | Investment Earnings on  Deferred Award                       |   | 33     |
|        | 14.5                                          | Anti-Alienation                                              |   | 36     |
|        | 14.5.                                         | Anti-Alienation                                              |   | 36     |
|        | 14.6.                                         | Payment of Deferred or  Supplemental Compensation            |   | 36     |
|        | 14.7                                          | Payment Delays                                               |   | 37     |
|        |                                          |                                                         |   |
| ARTICLE 15. | AWARDS UNDER OTHER PLANS                      |                                                         | 37     |
|        |                                          |                                                         |   |
| ARTICLE 16. | PAYMENT OF DIRECTOR’S FEES IN SECURITIES |                                                         | 37     |
|        | 16.1                                          | Effective Date                                               |   | 37     |
|        | 16.2                                          | Elections to Receive NSOs,  Restricted Shares or Stock Units |   | 37     |
|        | 16.3                                          | Number and Terms of NSOs,  Restricted Shares or Stock Units  |   | 38     |
|        |                                          |                                                         |   |   |
| ARTICLE 17. | LIMITATION ON RIGHTS                          |                                                         | 38     |
|        | 17.1                                          | Retention Rights                                             |   | 38     |
|        | 17.2                                          | Shareholders’ Rights                                    |   | 38     |
|        | 17.3                                          | Regulatory Requirements                                      |   | 38     |
|        |                                          |                                                         |   |
| ARTICLE 18. | WITHHOLDING TAXES                             |                                                         | 39     |
|        | 18.1                                          | General                                                      |   | 39     |
|        | 18.2                                          | Share Withholding                                            |   | 39     |
|        | 18.3                                          | Income and Wage Reporting                                    |   | 39     |
|        |                                          |                                                         |   |
| ARTICLE 19. | ADDITIONAL AND MISCELLANEOUS  PROVISIONS      |                                                         | 39     |
|        | 19.1                                          | Term of the Plan                                             |   | 39     |
|        | Termination                                   |                                                         | 39     |
|        | 19.3                                          | Automatic Termination                                        |   | 40     |
|        | 19.4                                          | Integration                                                  |   | 40     |
|        | 19.5                                          | Successor Employer                                           |   | 40     |
|        | 19.6                                          | Beneficiary Designation  After Plan Amendment or             |   | 40     |
|        |                                          |                                                         |   |
| ARTICLE 20. | LIMITATION ON PARACHUTE PAYMENTS              |                                                         | 40     |
|        | 20.1                                          | Scope of Limitation                                          |   | 40     |
|        | 20.2                                          | Basic Rule                                                   |   | 41     |
|        | 20.3                                          | Reduction of Payments                                        |   | 41     |
|        | 20.4                                          | Overpayments and  Underpayments                              |   | 42     |
|        | 20.5                                          | Related Corporations                                         |   | 42     |
|        | 20.6                                          | Change in Control Agreements                                 |   | 42     |
|        |                                          |                                                         |   |
| ARTICLE 21. | EXECUTION                                     |                                                         | 43     |
|             |                                               |                                                              |        |        |  |

 

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**SUREWEST COMMUNICATIONS**

**2000 EQUITY INCENTIVE PLAN**

 

**ARTICLE 1.****                                                    ****INTRODUCTION.**

 

This is an Amendment and Restatement of the Equity Incentive Planadopted by the Board of Directors (“Board”) of SureWest Communications (“SureWest”or “Company”) effective January 31, 2000 (“Plan” or “Equity Incentive Plan”).  The Board amended the Plan effective December 13,2001, May 17, 2002 and February 25, 2004.  The purpose of the Plan is to promote thelong-term success of the Company and to create shareholder value by (a) encouragingEmployees, Outside Directors and Consultants (sometimes “Participants”) tofocus on critical long-range objectives, (b) encouraging the attractionand retention of Employees, Outside Directors and Consultants with exceptionalqualifications and ( c) linking Employees, Outside Directors and Consultantsdirectly to shareholder interests through increased share ownership.  The Plan seeks to achieve this purpose byproviding for Awards in the form of Restricted Shares, Stock Units, PerformanceShares, Options (which may constitute Incentive Stock Options or NonstatutoryStock Options) or Stock Appreciation Rights. The Plan shall be governed by, and construed in accordance with, thelaws of the State of California (except their choice-of-law provisions).

 

The principal purpose of this Amendment and Restatement of the Plan in2008 (sometimes “2008 Restatement”) is to modify Article 14 and otherprovisions of the Plan that concern the deferral of compensation.  More specifically, the Company intends thatthe deferral provisions of the Plan shall constitute a nonqualified deferredcompensation arrangement (“Arrangement” or “Deferral Arrangement” that complieswith the tax and substantive rules of federal and California laws,including the Internal Revenue Code of 1986 as amended “IRC” or “Code”).

 

In particular, the Company intends that thedocumentation and operation of the deferral provisions of the Plan shall complywith IRC Section 409A.  Morespecifically, the Company intends that any deferral of compensation under thisPlan shall be documented and implemented in accord with relevantpronouncements, including final Treasury Regulations (“Treas Regs.”) Section 1.409A-1et seq.  The Company intends to adhere toIRC Section 409A and Treas. Regs. Section 1.409A-1 et seq. withrespect to any Awards which may constitute or involve nonqualified deferred compensation, e.g. thegrant of certain Options at a discount from Fair Market Value.

 

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The Company believes that, prior to the effective date of the finalTreas. Regs. under IRC Section 409A, any deferral of compensation occurredin a manner that complies with then-applicable legal guidance.  The Company intends that, to the extent ofrelief available from inadvertent noncompliance with IRC Section 409A, theCompany shall correct any deficiencies in the form or operation of the Plan.

 

If any Awards made to (or elections made by) Employees provide for thedeferral of payment to Separation from Service or beyond and if such Awards orelections create or impose significant administrative burdens, such Awardsshall be treated as part of an arrangement subject to the Employee RetirementIncome Security Act of 1974 as amended (“ERISA”).

 

In light of the foregoing, the Company intends that any deferral ofcompensation by Employees under this Plan shall be limited to individuals whoare highly compensated or who are members of a select group of management.  The Company also intends that such deferralsby Employees shall constitute an unfunded “top hat” arrangement exempt from thefiduciary, funding, vesting, and plan termination insurance provisions of TitleI and Title IV of ERISA.

 

The Company intends that the deferral of compensation under this Planmay be elective or nonelective.  Inelective deferrals, an Employee, Outside Director or Consultant determines howmuch, if any, compensation is subject to deferral under this Plan.  Additionally, in elective deferrals, theEmployee, Outside Director or Consultant determines the time, manner and formof paying compensation within the limits imposed by the Plan.  By contrast, in nonelective deferrals, theCompany determines how much, if any, of a Participant’s compensation is subjectto deferral under this Plan.  Similarly,in nonelective deferrals, the Company establishes criteria for determining whenthe Participant’s interest in the compensation no longer shall be subject to asubstantial risk of forfeiture. Moreover, in nonelective deferrals, the Company determines the time,manner and form of paying compensation within the limits imposed by this Plan.

 

**ARTICLE 2.****                                                    ****DEFINITIONS.**

 

When used in this Plan document or in an Appendix hereto or in an Awardor Agreement under this Plan, the capitalized terms below have the followingmeaning unless the Plan Administrator in its sole discretion determines thatthe context in which the term appears requires a different meaning,interpretation or construction.

 

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**2.1****                              ****Account**

 

“Account” refers to the balance credited to an Employee, OutsideDirector or Consultant (“Participant”) under this Plan at any time, as electiveor nonelective deferrals, including amounts credited as hypothetical CompanyContributions for Deferred or Supplemental Compensation and any Earningscredited on such amounts.  “Account”refers to the bookkeeping entries established and maintained by the Company forthe purpose of recording (i) the amounts of compensation deferred, (ii) anyinvestment earnings, losses, interest accruals or administrative expenses withrespect to those amounts, and (iii) any distributions.

 

**2.2****                              ****Affiliate**

 

“Affiliate” refers to any entity other than a Subsidiary, if theCompany and/or one or more Subsidiaries own not less than 50% of such entity.

 

**2.3****                              ****Alternate Payee**

 

The spouse, former spouse, child or other dependent of a Participantunder a Qualified Domestic Relations Order (QDRO).  Where applicable, the term “spouse” shallinclude “registered domestic partner,” and the term “former spouse” shallinclude “former registered domestic partner.”

 

**2.4****                              ****Appendix**

 

One or more appendices to this Plan or to an Award which may fix,establish, designate or describe any of the following:

 

(A)                              The amount of hypothetical CompanyContributions, if any, to be added as elective or nonelective deferrals(sometimes individually or collectively Supplemental Compensation) to aParticipant’s Account,

 

(B)                                The amount to be added hypothetically asEarnings on the Supplemental Compensation in an Account,

 

(C)                                The time when forfeitable SupplementalCompensation in an Account shall vest and when vested Supplemental Compensationin an Account shall be paid or become payable,

 

(D)                               The time when the forfeitable Earnings in anAccount shall vest and when vested Earnings in an Account shall be paid orbecome payable,

 

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(E)                                 The form of payment of the vestedSupplemental Compensation in an Account,

 

(F)                                 The form of payment of the vested Earnings inan Account,

 

(G)                                The Beneficiary who is to receive anyundistributed balance in the vested Account in the event of the death of aParticipant; and

 

(H)                               Investment preferences expressed by aParticipant, Beneficiary or Alternate Payee within the limits established underthe Plan.

 

**2.5****                              ****Award**

 

“Award” refers to an Option, Stock Appreciation Right, Restricted Share,Stock Unit or Performance Share under the Plan. As a general rule, an Award shall specify whether an Option, StockAppreciation Right or other equity-based compensation under this Plan shallinclude any feature for the deferral of compensation under Article 14 orrelated provisions of the Plan.  If anAward provides only a right to receive cash or stock immediately upon exercise,the Award generally shall not be considered to provide a deferral ofcompensation.  A right to receivesubstantially nonvested stock upon exercise of any right granted in an Awardshall not be considered a deferral of compensation.  Similarly, a right to pay an exercise pricewith previously acquired shares shall not be considered a deferral ofcompensation.  By contrast, certainrights to dividends or other distributions may involve a deferral ofcompensation, such as accumulations that offset an exercise price or thatincrease an amount payable to a Participant under a Stock AppreciationRight.  Under all circumstances, a determinationof whether an Award provides for the deferral of compensation shall be made ina manner consistent with IRC Section 409A and Treas. Regs. Section 1.409A-1(b)(5).

 

**2.6****                              ****Beneficiary**

 

“Beneficiary” refers to the person or entity selected to receive anyportion of an Account that has not been distributed from the Plan at the timeof the death of a Participant.  Thebeneficiary or beneficiaries designated in an Appendix or similar form shallreceive the undistributed vested Supplemental Compensation and Earnings, ifany, in a Account in the event of the death of a Participant.  If more than one designated beneficiarysurvives, payments shall be made equally to the surviving beneficiaries, unlessotherwise provided in an Appendix or similar form.  A contingent beneficiary is a beneficiarydesignated to receive benefits if the primary beneficiary does not survive theParticipant for a period of at least 30 days. Any Beneficiary designation shall be in a written form provided orapproved by the Plan Administrator.  Ifan Employee, Outside 

 

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Director or Consultant fails to designate a Beneficiary or nodesignated Beneficiary survives, the Plan Administrator may direct payment ofBenefits to the following person or persons related to the Participant in theorder given below:

 

(i)                                                             spouse or registered domestic partner,

(ii)                                                          descendants, *perstirpes*,

(iii)                                                       parents,

(iv)                                                      brothers and sisters, or

(v)                                                         estate of the Participant.

** **

**2.7****                              ****Benefit**

 

“Benefit” refers to the amount vested in the Participant under thisPlan.  The Participant’s Benefit shallconsist of the putative accumulation of hypothetical Company Contributions ofSupplemental or Deferred Compensation, plus Earnings (generally measured by theamounts payable under an Investment Vehicle) which are allocable to theParticipant’s Account, less applicable contract surrender charges, similar feesor other reductions, if any.

 

**2.8****                              ****Board or Board of Directors**

 

“Board” refers to the Company’s Board of Directors, as constituted fromtime to time.

 

**2.9****                              ****Change in Control**

 

A “Change in Control” shall be deemed to haveoccurred if (A) any “person” (as such term is used in Section 13(d) and14(d) of the Exchange Act), other than a trustee or other fiduciaryholding securities under an employee benefit plan of the Company, is or becomesthe “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),directly or indirectly, of securities of the Company representing Thirty-fivepercent (35%) or more of the combined voting power of the Company’s thenoutstanding voting securities; (B) there is a merger or consolidation ofthe Company in which the Company does not survive as an independent publiccompany; or ( C) the business or businesses of the Company for which a Participant’sservices are principally performed are disposed of by the Company pursuant to apartial or complete liquidation of the Company, a sale of assets (includingstock of a Subsidiary) of the Company, or otherwise.  A transaction shall not constitute a Changein Control if its sole purpose is to change the state of the Company’sincorporation or to create a holding company that will be owned insubstantially the same proportions by the persons who held the Company’ssecurities immediately before such transaction.

 

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*a.*                                      *Specifications*.

 

For purposes of the deferral of compensation under this Plan, a Changein Control refers to one or more of the following three events as described inTreas. Regs. Section 1.409A-3: 1) a change in ownership of the Company; 2)a change in the effective control of the Company; or 3) a change in theownership of a substantial portion of the assets of the Company.  To qualify as a Change in Control, the eventmust be objectively determinable.  To theextent required by IRC Sections 409A or Treas. Regs. Section 1.409A-3, anyrequirement that any person, such as a Committee or the full Board ofDirectors, certify the occurrence of a Change in Control must be strictlyministerial and not involve any discretionary authority.  An acceleration of payment will be treated asoccurring because of a Change in Control if the acceleration arises because ofthe Company’s exercise of discretion to terminate the Deferral Arrangement anddistribute the Supplemental Compensation and Earnings within 12 months of theChange in Control.

 

*b.*                                      *Identification of RelevantEntities*.

 

To constitute a Change in Control as to the Participant, the Change inControl must relate to (I) the Company, i.e. the corporation for whom theParticipant is performing services at the time of the Change in Control, (II) anothercorporation, if any, that is liable for the payment of the SupplementalCompensation or Earnings (or all corporations liable for the payment if morethan one corporation is liable) or (III) an entity that controls theCompany.

 

*c.**                                      **Change in Ownership*.

 

The phrase Achange in ownership@ shall be construed and interpreted in amanner consistent with Treas. Regs. Section 1.409A-3.  As a general rule, a change in the ownershipof the Company occurs on the date that any one person, or more than one personacting as a group, acquires ownership of stock of the Company that, togetherwith stock held by such person or group, constitutes more than 50 percent ofthe total fair market value or total voting power of the stock of the Company.

 

*d.*                                      *Change in Effective Control*.

 

A change in the effective control of the Company occurs on the datethat a majority of members of the Company’s Board of Directors is replacedduring any 12-month period by Directors whose appointment or election isopposed or not endorsed by a majority of the members of the Company’s Boardprior to the start of the 12-month period preceding the appointment orelection.

 

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*e.**                                      **Change in Ownership ofAssets*.

 

A change in the ownership of a substantial portion of the Company’sassets occurs on the date that any one person, or more than one person actingas a group, acquires in one or more transactions (or has acquired during the12-month period ending on the date of the most recent acquisition by suchperson or persons) assets from the Company that have a total gross fair marketvalue equal to or more than forty percent (40%) of the total gross fair marketvalue of all of the assets of the Company immediately prior to such acquisitionor acquisitions.  For this purpose, grossfair market value means the value of the assets of the Company, or the value ofthe assets being disposed of, determined without regard to any liabilitiesassociated with such assets.

 

*f.**                                         **Scope of Acceleration*.

 

The acceleration of payment upon a Change in Control shall apply, if atall, to the entire amount of Supplemental Compensation and Earnings in aParticipant=s Account under the Deferral Arrangement andshall constitute a complete termination of the Deferral Arrangement withrespect to affected Participants.

 

**2.10****                       ****Code or IRC**

 

“Code” or “IRC” means the Internal Revenue Code of 1986, as amended.

 

**2.11****                       ****Committee**

 

“Committee” means the Compensation Committee of the Board, as describedin Article 3.   In discussing theadministration of the Plan, references herein to the Company or to the PlanAdministrator shall be deemed to be references to the Committee.

 

**2.12****                       ****Company or SureWest**

 

“Company” or “SureWest” means SureWest Communications, a Californiacorporation.

 

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**2.13****                       ****Company Contributions**

 

“Company Contributions” refers to amounts (not otherwise payable to orfor a Participant in any year) which are credited hypothetically to theParticipant’s Account pursuant to the Deferral Arrangement under this Plan.

 

**2.14****                       ****Consultant**

 

“Consultant” means a consultant or adviser who provides bona fideservices to the Company, a Parent, a Subsidiary or an Affiliate as anindependent contractor.  Service as a Consultantshall be considered employment for all purposes of the Plan, except as providedin Section 5.1, regarding Incentive Stock Options.

 

**2.15****                       ****Deferred or SupplementalCompensation**

 

“Deferred Compensation” or “Supplemental Compensation” refers to amountsthe payment of which is postponed pursuant to the Deferral Arrangement underthis Plan.

 

**2.16****                       ****Disabled or Disability**

 

The Participant is considered “Disabled” or afflicted with a “Disability”if the Participant (I) is unable to engage in any substantial gainfulactivity by reason of any medically determinable physical or mental impairmentwhich can be expected to result in death or can be expected to last for acontinuous period of not less than 12 months; or (II) by reason of anymedically determinable physical or mental impairment which can be expected toresult in death or can be expected to last for a continuous period of not lessthan 12 months, is receiving income replacement benefits for a period of notless than three months under an accident and health plan covering employees ofthe Company.

 

**2.17****                       ****Earnings**

 

“Earnings” refers to putative amounts which increaseor decrease an Participant’s Account in accord with investment income, gains orlosses attributable to hypothetical Company Contributions placed into an Investment Vehicle.  For any period in which the Company does notinvest hypothetical Company Contributions in an Investment Vehicle, Earningsshall be computed at a rate of five percent (5%) compounded annually.

 

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**2.18****                       ****Economic Emergency orUnforeseeable Emergency**

 

“Economic Emergency” or “Unforeseeable Emergency” refers to anunforeseeable event causing severe financial hardship to the Participant andresulting from an illness or accident involving the Participant or Beneficiary,the Participant’s or Beneficiary’s spouse or registered domestic partner, or adependent, as defined in Code Section 152(a), of the Participant orBeneficiary; loss of the Participant’s or Beneficiary’s property due to casualty(including the need to rebuild a home following damage to a home notsufficiently covered by insurance, for example, as a result of a naturaldisaster); imminent foreclosure of or eviction from the Participant’s orBeneficiary’s primary residence; funeral expenses of a spouse, domestic partneror dependent; or other similar extraordinary and unforeseeable circumstancesarising as a result of events beyond the Participant’s or Beneficiary’scontrol.  An event will not constitute anUnforeseeable Emergency to the extent costs, losses or liabilities may berelieved through (A) reimbursement or compensation from insurance orotherwise, (B) liquidation of assets in a manner that does not causesevere financial hardship or ( C) cessation of deferrals under the Arrangement.

 

**2.19****                       ****Election or DeferralElection**

 

“Election” or “Deferral Election” refers tothe choice to postpone payment of Company Contributions or other components ofSupplemental Compensation.  The electivedeferral component of this Plan provides the Participant with the opportunityto make elections with respect to the amount, time, manner, form or medium ofpayment of Supplemental Compensation. With respect to an Participant=sfirst year of eligibility to participate in the Deferral Arrangement, to theextent required by law, the Participant shall specify irrevocably all suchitems no later than 30 days after the Participant first becomes eligible toparticipate.  With respect to eachsubsequent year of participation, the Participant shall specify such itemsirrevocably no later than the time the Participant begins to acquire a legallybinding right to the Company Contributions or other elements of SupplementalCompensation with respect to such year, i.e. generally prior to the start ofthe year in which the Participant will render the services for which he or shewill earn an Award or other Supplemental Compensation.  Nothing herein prohibits the Participantafter an irrevocable election from 1) further postponing scheduled payments tothe extent permitted by IRC Section 409Aor Treas. Regs. Section 1.409A-1 et seq. or 2) expressing certainpreferences such as instructions with respect to the investment of amounts setaside by the Company in the Participant’s Account.

 

**2.20****                       ****Employee**

 

“Employee” means a common-law employee of the 

 

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Company, a Parent, a Subsidiary or an Affiliate.  An individual is a common-law employee forperiods of time during which the Company, a Parent, a Subsidiary or an Affiliatehas an obligation to withhold and actually withholds income and employmenttaxes through its ordinary payroll system.

 

**2.21****                       ****ERISA**

 

“ERISA” refers to the Employee Retirement Income Security Act of 1974,as amended, 29 U.S. Code Section 1001 et seq.

 

**2.22****                       ****Exchange Act**

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

**2.23****                       ****Exercise Price**

 

“Exercise Price,” in the case of an Option, means the amount for whichone Share may be purchased upon exercise of such Option, as specified in theapplicable Stock Option Agreement.  “ExercisePrice,” in the case of an SAR, means an amount, as specified in the applicableSAR Agreement, which is subtracted from the Fair Market Value of one Share indetermining the amount payable upon exercise of such SAR.

 

**2.24****                       ****Fair Market Value**

 

“Fair Market Value” means the market price ofShares, determined by the Committee in good faith on such basis as it deemsappropriate and consistent with relevant laws, including IRC Section 409Aand Treas. Regs. Section 1.409A-1 et seq. Fair Market Value may mean (i) if the Company’s common stock islisted on a securities exchange or is traded over the NASDAQ National MarketSystem, the closing sales price of one Share on such exchange or other suchsystem on an applicable date or, in the absence of reported sales on such date,the closing sales price on the immediately preceding date on which sales werereported, or (ii) if the Company’s common stock is not listed on a securities exchange or traded over the NASDAQNational Market System, the mean between the bid and offered prices of theShare as quoted by the National Association of Securities Dealer throughNASDAQ, provided, that if the Committee determines that the fair market valueis not properly reflected by such NASDAQ quotations, the Fair Market Value willmean the fair market value as determined by such other method as the Committeedetermines in good faith to 

 

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be reasonable.  Suchdetermination shall be conclusive and binding on all persons.

 

**2.25****                       ****Investment Vehicle**

 

“Investment Vehicle” refers to one or more individual or groupinvestment vehicles, including mutual funds, fixed, variable or hybrid annuitycontracts, insurance contracts or securities, if any, by which the Company maymeasure, anticipate and provide for its obligations to a Participant,Beneficiary or Alternate Payee pursuant to the Deferral Arrangement under thisPlan.  The Company shall be the owner ofany Investment Vehicle.  Although theCompany may allow the Participant to measure the value of his or her Account byreference to the value of the Investment Vehicle, the Participant’s onlyinterest in the Investment Vehicle or in the assets underlying the InvestmentVehicle shall be as a general unsecured creditor of the Company.

 

**2.26****                       ****ISO or Incentive StockOption**

 

“ISO” or AIncentive Stock Option@ refers to a call option (i.e. an option topurchase shares of Company stock) described in Section 422(b) of theCode.

 

**2.27****                       ****NSO or Nonstatutory Stock Option**

 

“NSO” or ANonstatutory Stock Option@ refers to a call option (i.e. an option topurchase shares of Company stock) that is not described in Sections 422 or 423of the Code.

 

**2.28****                       ****Option**

 

“Option” means an ISO or NSO granted under the Plan and entitling theholder to purchase shares of Company stock.

** **

**2.29****                       ****Optionee**

 

“Optionee” means an individual or estate who holds an Option or SAR.

 

**2.30****                       ****Outside Director**

 

“Outside Director” means a member of the Board who is not anEmployee.  Service as an Outside Directorshall be considered employment for all purposes of the Plan, except as providedin Section 5.1, regarding Incentive Stock Options.

 

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**2.31****                       ****Parent**

 

“Parent” means any corporation (other than the Company) in an unbrokenchain of corporations ending with the Company, if each of the corporationsother than the Company owns stock possessing 50% or more of the total combinedvoting power of all classes of stock in one of the other corporations in suchchain.  A corporation that attains thestatus of a Parent on a date after the adoption of the Plan shall be considereda Parent commencing as of such date.

 

**2.32****                       ****Participant**

 

“Participant” means an individual or estate who holds an Award or whodefers payment of all or part of the compensation in an Award under the Plan.

 

**2.33****                       ****Performance Share**

 

“Performance Share” means an Award to a Participant under Article 12of the Plan.

** **

**2.34****                       ****Performance Share Agreement**

 

“Performance Share Agreement” means the agreement between the Companyand a Participant which contains the terms, conditions and restrictionspertaining to such Performance Share.

 

**2.35****                       ****Plan**

 

“Plan” means this SureWest Communications 2000 Equity Incentive Plan,as modified from time to time.

 

**2.36****                       ****QDRO or Qualified DomesticRelations Order**

 

“QDRO” or “Qualified Domestic Relations Order” refers to DomesticRelations Order which creates or recognizes the existence of an Alternate Payee’sright to, or assigns to an Alternate Payee the right to, receive all or aportion of the vested or unvested compensation under this Plan.  The term Domestic Relations Order or DROmeans any judgment, decree, or order (including approval of a propertysettlement agreement), which (I) relates to the 

 

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provision of child support, alimony, or marital property rights to anAlternate Payee, (II) is made pursuant to a State domestic relations law(including a community property law), (III) except as required by law,makes the Alternate Payee responsible for the payment of income taxes onamounts the Alternate Payee receives, (IV) satisfies any applicablerequirements of ERISA or the IRC and (V) absent fraud or concealment,issues prior to the death of the Participant — unless later issuance ispermitted or required by law.

 

**2.37****                       ****Restricted Share****orRestricted Stock**

 

“Restricted Share” or ARestricted Stock@ means a Share awarded under the Plan.

 

**2.38****                       ****Restricted Stock Agreement**

 

ARestricted Stock Agreement” means the agreement between the Company andthe recipient of a Restricted Share which contains the terms, conditions andrestrictions pertaining to such Restricted Share.

 

**2.39****                       ****SAR or Stock AppreciationRight**

 

“SAR” or AStock Appreciation Right@ refers to an item of compensation grantedunder the Plan the value of which increases with gains in the Fair Market Valueor price of shares of Company stock.

 

**2.40****                       ****SAR Agreement**

 

“SAR Agreement” means the agreement between the Company and an Optioneewhich contains the terms, conditions and restrictions pertaining to his or herSAR.

 

**2.41****                       ****Separation from Service**

 

“Separation from Service,” “Termination of Employment” or “Severancefrom Employment” refers to the complete cessation of a Participant’s servicewith the Company as contemplated by IRC Section 409A(a)(2) and Treas.Regs. Section 1.409A-1 et seq.  As ageneral rule, an Employee separates from service with the Company if theEmployee dies, retires, or otherwise has a termination of employment with theCompany.  For purposes of the payment andelection provisions of this Plan, an employment relationship is treated ascontinuing while the Participant is on military leave, sick leave, or otherbona fide leave of absence if the period of such leave does not exceed sixmonths.  If the leave is longer than 

 

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six months, the employment relationship generally is viewed ascontinuing while the Participant retains a right to reemployment with theCompany.

 

A Participant who is an Outside Director or Consultant is considered tohave a Separation from Service with the Company upon the expiration of thecontract (or in the case of more than one contract, all contracts) under whichservices are performed for the Company if the expiration constitutes a good-faithand complete termination of the contractual relationship.  As a general rule, if compensation is payableupon the Separation of Service of a Participant who is an Outside Director orConsultant, such compensation shall be paid no earlier than 12 months after theday on which the contract expires under which the Outside Director orConsultant performs services for the Company (or, in the case of more than onecontract, all such contracts expire); additionally, such compensation shall notbe paid to the Outside Director or Consultant if, after the expiration of thecontract (or contracts) and before the date scheduled for payment under thepreceding clause, the Outside Director or Consultant performs services for theCompany in any capacity.

 

**2.42****                       ****Separation Without Cause**

 

An involuntary Separation from Service causedby the actual or constructive termination of an Employee’s employment by theCompany for reasons other than the Employee’s conviction for embezzlement,vandalism or other misdemeanor or felony against the Company.  An actual separation may occur by discharge,lay-off, workforce reduction or other action initiated by the Company.  A constructive separation may occur upon asignificant adverse change (a) which the Employee, reasonably and in goodfaith, perceives in his situation within the Company, even if such adverse change does notconstitute a constructive termination of employment within the meaning offederal or California labor or employment laws, and (b) which isattributable to circumstances such as (1) a substantial change in theorganization, operation, leadership or governance of the Company, even if notconstituting a Change in Control as defined above, (2) termination oralteration of a sensitive primary reporting relationship involving the Employeeor (3) a material modification of the duties, Compensation, terms orconditions of the Employee’s employment.

 

A Separation Without Cause includes a Separation from Service for goodreason, within the meaning of final Treas. Regs. Section 1.409A-1(n)(2).  A Separation from Service for good reason mayoccur under limited bona fide conditions or actions which are initiated by theCompany and which result in a material negative change to the Employee’semployment or other service relationship. Such conditions or actions include but are not limited to changes in theEmployee’s duties to be performed, the conditions under which 

 

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such duties are to be performed or the compensation to be received fromperforming such services.

 

Without limiting the foregoing, a voluntarySeparation from Service shall be treated as a Separation Without Cause andtherefore an involuntary Separation within the meaning of Treas. Regs. Section 1.409A-1(n)(1) underthe following circumstances.  Thevoluntary Separation occurs within two years following the initial existence ofone or more of the following conditions arising without the advance writtenconsent of the Employee: 1) a material diminution of the Employee’s basecompensation, 2) a material diminution of the Employee’s authority, duties orresponsibilities, 3) a material diminution in the authority, duties orresponsibilities of the person or persons to whom the Employee reports,including a change resulting in the Employee’s no longer reporting directly tothe Board or similar governing body of the Company, 4) a material diminution inthe budget over which the Employee retains authority, 5) a material change inthe geographic location at which the Employee must perform services, and 6) anyactions or inactions that constitute a material breach of the agreement underwhich the Employee renders services to the Company.  Additionally, the amount, time and form ofpayment upon a voluntary Separation Without Cause should be substantiallyidentical to the amount, time and form of payment upon an actual involuntarySeparation Without Cause, to the extent such a right exists.  Moreover, the Employee should provide noticeto the Company of the action or inaction of the Company that has resulted (oris likely to result) in a material negative change in the circumstances underwhich the Employee renders service to the Company.  The Employee should provide such noticewithin 90 days after the Employee determines that the action or inaction of theCompany has resulted (or is likely to result) in a material negative change in the circumstances under which the Employeerenders service to the Company.  Thenotice should give the Company 30 days within which to remedy the situation(s) towhich the Employee refers.

 

**2.43****                       ****Share**

 

“Share” means one share of the common stock of the Company.

 

**2.44****                       ****Stock Option Agreement**

 

“Stock Option Agreement” means the agreement between the Company and anOptionee that contains the terms, conditions and restrictions pertaining to hisor her Option.

 

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**2.45        StockUnit**

 

“Stock Unit” means a bookkeeping entry representing the equivalent ofone Share, as awarded under the Plan.  AStock Unit includes a Restricted Stock Unit, which is a Stock Unit issued orgranted under terms and conditions specified by the Committee in a Stock UnitAgreement.

 

**2.46        StockUnit Agreement**

 

“Stock Unit Agreement” means the agreement between the Company and therecipient of a Stock Unit which contains the terms, conditions and restrictionspertaining to such Stock Unit.

 

**2.47        Subsidiary**

 

“Subsidiary” means any corporation (other than the Company) in anunbroken chain of corporations beginning with the Company, if each of thecorporations other than the last corporation in the unbroken chain owns stockpossessing 50% or more of the total combined voting power of all classes ofstock in one of the other corporations in such chain.  A corporation that attains the status of aSubsidiary on a date after the adoption of the Plan shall be considered aSubsidiary commencing as of such date.

 

**2.48        UnforeseeableEvent**

 

With respect to a delay in making any payment when due under this Planor under applicable law, as a general rule, the term Unforeseeable Event refersto conditions described in final Treas. Regs. Section 1.409A-1(b)(4), includinga threat or jeopardy to the solvency of the Company or its ability to continueas a going concern (or a threat or jeopardy to the solvency of a related entityresponsible for the payment or such related entity’s ability to continue as agoing concern) and also refers to administrative impracticability of paymentif, as of the date upon which the Participant obtains a legally binding rightto the compensation, the threat, jeopardy, insolvency or impracticability wasunforeseeable and if actual payment occurs as soon as administrativelypracticable.

 

**ARTICLE 3.****                                                    ****ADMINISTRATION.**

 

**3.1**          **Committee Composition.** The Plan shall be administered by theCommittee.  The Committee shall consistexclusively of two or more directors of 

 

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the Company, who shall be appointed by the Board.  In addition, the composition of the Committeeshall satisfy:

 

(a)           Such requirements asthe Securities and Exchange Commission may establish for administrators actingunder plans intended to qualify for exemption under Rule 16b-3 (or itssuccessor) under the Exchange Act; and

 

(b)           Such requirements asthe Internal Revenue

Service may establish for Outside Directors acting under plans intendedto qualify for exemption under section 162(m)(4)(C) of the Code.

 

**3.2**          **Committee Responsibilities. **The Committee shall (a) selectthe Employees, Outside Directors and Consultants who are to receive Awardsunder the Plan, (b) determine the type, number, vesting requirements andother features and conditions of such Awards, ( c) interpret the Plan and (d) makeall other decisions relating to the operation of the Plan.  The Committee may adopt such rules orguidelines as it deems appropriate to implement the Plan.  The Committee’s determinations under the Planshall be final and binding on all persons.

 

**3.3**          **Committee for Non-Officer Grants. **The Board may also appoint asecondary committee of the Board, which shall be composed of two or moredirectors of the Company who need not satisfy the requirements of Section 3.1.  Such secondary committee may administer thePlan with respect to Employees and Consultants who are not considered officersor directors of the Company under Section 16 of the Exchange Act, maygrant Awards under the Plan to such Employees and Consultants and may determineall features and conditions of such Awards. Within the limitations of this Section 3.3, any reference in thePlan to the Committee shall include such secondary committee.

 

**3.4****                              ****Deference to CommitteeDecisions**.  The Plan Administrator has discretionaryauthority with respect to the construction and interpretation of the Plan.  In any dispute between or among theCommittee, Board, Company, Plan Administrator, Participant, Beneficiary orAlternate Payee, the court, arbitrator or other decision-maker with authorityto resolve the dispute shall defer to the Plan Administrator’s construction orinterpretation of the Plan or any Appendix, Award or Agreement hereunder.Similarly, the decision-maker shall defer to any findings of fact by the PlanAdministrator or other determinations with respect to the Participant’s,Beneficiary’s or Alternate Payee=s entitlement to Benefits hereunder.

 

**3.5****                              ****Claims and AppealsProcedures.**     Ifany Awards made

 

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to (or elections made by) Employees provide for the deferral of paymentto Separation from Service or beyond and if such Awards or elections create orimpose significant administrative burdens, such Awards shall be treated as partof an arrangement subject to ERISA; and the Committee shall establishadministrative claims and appeal procedures consistent with ERISA Section 503that a Participant, Beneficiary or Alternate Payee must exhaust beforeinitiating any civil action against the Company or related party with respectto the Plan.  The Committee shall providea copy of such procedures to any Employee who receives an Award or makes anelection subject to ERISA.

 

**ARTICLE 4.**                                                     **SHARES AVAILABLE FOR****GRANTS.**

 

**4.1**          **Basic Limitation.**  Shares issued pursuant to the Plan shall beauthorized but unissued shares.  Theaggregate number of Options, SARs, Stock Units, Restricted Shares andPerformance Shares awarded under the Plan shall not exceed Nine Hundred FiftyThousand (950,000) Shares until December 31, 2002, and commencing with thefirst business day of each calendar year thereafter beginning with January 2,2003, such maximum number of Shares shall be increased by a number equal to onepercent (1%) of the number of Shares outstanding as of December 31 of theimmediately preceding calendar year.  Thelimitation of this Section 4.1 shall be subject to adjustment pursuant to Article 13.

 

**4.2**          **Forfeited Shares. **If Restricted Shares, Performance Shares or Shares issuedupon the exercise of Options are forfeited, then, to the extent if anypermitted by law, such Shares shall again become available for Awards under thePlan.  If Stock Units, Options or SARsare forfeited or terminate for any other reason before being exercised, then tothe extent if any permitted by law, the corresponding Shares shall again becomeavailable for Awards under the Plan.  IfStock Units are settled, then only the number of Shares (if any) actuallyissued in settlement of such Stock Units shall reduce the number availableunder Section 4.1 and the balance shall again become available for Awardsunder the Plan.  If SARs are exercised,then only the number of Shares (if any) actually issued in settlement of suchSARs shall reduce the number available under Section 4.1 and the balance shallagain become available for Awards under the Plan.  Despite the foregoing, the aggregate numberof Shares that may be issued under the Plan upon the exercise of ISOs shall notbe increased when Restricted Shares, Performance Shares or other Shares areforfeited.

 

**4.3**          **Dividend Equivalents. **Any dividend equivalents paid or credited under the Planshall not be applied against the number of Restricted Shares, PerformanceShares, Stock Units, Options or SARs available for Awards, whether or not suchdividend equivalents are converted into Stock Units.  As a 

 

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general rule, an Award shall specify rights to dividends or otherdistributions in any item of compensation granted under this Plan.

 

Awards made between December 31, 2004 and January 1, 2009reflect good-faith efforts to comply with U.S. Treasury pronouncements underIRC Section 409A. An Award made after December 31, 2008 shall specifywhether the dividends or other distributions constitute a feature for thedeferral of compensation.  For example,dividends or other distributions that offset an exercise price or that increasean amount payable under a Stock Appreciation Right may be considered a deferralof compensation.  A determination ofwhetherdividend ordistribution rights under an Award provide for the deferral of compensationshall be made in a manner consistent with IRC Section 409A and Treas.Regs. Section 1.409A-1(b)(5) and shall be treated in a manner thatcomplies with such laws.

 

**ARTICLE 5.****                                                    ****ELIGIBILITY.**

 

**5.1**          **Incentive Stock Options. **Only Employees who are common-lawemployees of the Company, a Parent or a Subsidiary shall be eligible for thegrant of ISOs.  In addition, an Employeewho owns more than 10% of the total combined voting power of all classes ofoutstanding stock of the Company or any of its Parents or Subsidiaries shallnot be eligible for the grant of an ISO unless the requirements set forth in Section 422(c)(5) ofthe Code are satisfied.

 

**5.2**          **Other Grants. **OnlyEmployees, Outside Directors and Consultants shall be eligible for the grant ofRestricted Shares, Performance Shares, Stock Units, NSOs or SARs.

 

**ARTICLE 6.****                                                    ****OPTIONS.**

 

**6.1**          **Stock Option Agreement. **Each grant of an Option under thePlan shall be evidenced by a Stock Option Agreement between the Optionee andthe Company.  Such Option shall besubject to all applicable terms of the Plan and may be subject to any otherterms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO oran NSO.  The provisions of the variousStock Option Agreements entered into under the Plan need not be identical.  Options may be granted in consideration of areduction in the Optionee’s other compensation. A Stock Option Agreement may provide that a new Option will be grantedautomatically to the Optionee when he or she exercises a prior Option and paysthe Exercise Price in the form described in Section 7.2.

 

Option Agreements made between December 31, 2004 and January 1,2009 reflect good-faith efforts to comply with U.S. Treasury pronouncements 

 

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under IRC Section 409A. Option Agreements entered after December 31,2008 shall identify any feature of the Option or Agreement constituting deferredcompensation subject to IRC Section 409A. Additionally, any Option orAgreement made after December 31, 2008 shall comply with IRC Section 409Aand Treas. Regs. Section 1.409A-1 et seq.

 

**6.2**          **Number of Shares. **Each Stock Option Agreement shall specify the number ofShares subject to the Option and shall provide for the adjustment of suchnumber in accordance with Article 13. Options granted to any Optionee in a single fiscal year of the Companyshall not cover more than 200,000 Shares, except that Options granted to a newEmployee in the fiscal year of the Company in which his or her service as anEmployee first commences shall not cover more than 25,000 Shares.  The limitations set forth in the precedingsentence shall be subject to adjustment in accordance with Article 13.

 

**6.3**          **Exercise Price. **Each Stock Option Agreement shall specify the Exercise Price;provided that the Exercise Price under an ISO shall in no event be less than100% of the Fair Market Value of a  Shareon the date of grant and the Exercise Price under an NSO shall in no event beless than 85% of the Fair Market Value of a Share on the date of grant.  Inthe case of an NSO, a Stock Option Agreement may specify an Exercise Price thatvaries in accordance with a predetermined formula while the NSO is outstanding.

 

**6.4**          **Exercisability and Term.** Each Stock Option Agreement shall specify thedate or event when all or any installment of the Option is to becomeexercisable.  The Stock Option Agreementshall also specify the term of the Option; provided that the term of an ISOshall in no event exceed 10 years from the date of grant.  A Stock Option Agreement may provide foraccelerated exercisability in the event of the Optionee’s death, disability orretirement or other events and may provide for expiration prior to the end ofits term in the event of the termination of the Optionee’s service.  Options may be awarded in combination withSARs, and such an Award may provide that the Options will not be exercisableunless the related SARs are forfeited.

 

**6.5**          **Effect of Change in Control. **The Committee may determine, atthe time of granting an Option or thereafter, that such Option shall becomeexercisable as to all or part of the Shares subject to such Option in the eventthat a Change in Control occurs with respect to the Company, subject to thelimitations that, in the case of an ISO, the acceleration of exercisabilityshall not occur without the Optionee’s written consent.

** **

**6.6**          **Modification or Assumption of Options. **Within the limitations of thePlan, the Committee may modify, extend or assume outstanding options or 

 

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may accept the cancellation of outstanding options (whether granted bythe Company or by another issuer) in return for the grant of new options forthe same or a different number of shares and at the same or a differentexercise price.  The foregoingnotwithstanding, no modification of an Option shall, without the consent of theOptionee, alter or impair his or her rights or obligations under such Option.

 

Any Option granted or modification or assumption between December 31,2004 and January 1, 2009 reflect good-faith efforts to comply with U.S.Treasury pronouncements under IRC Section 409A.  An Option granted after December 31,2008 shall indicate whether the Option or any modification or assumption towhich the Option is subject constitutes a deferred compensation feature of theAward.  Additionally, any Option,modification or assumption made after December 31, 2008 shall comply withIRC Section 409A and Treas. Regs. Section 1.409A-1 et seq.

 

**6.7**          **Buyout Provisions. **In a manner consistent with IRC Section 409A and Treas.Regs. Section 1.409A-1 et seq., the Committee may (a) offer to buyout for a payment in cash or cash equivalents an Option previously granted or (b) authorizean Optionee to elect to cash out an Option previously granted, in either caseat such time and based upon such terms and conditions as the Committee shallestablish.

 

**ARTICLE 7.****                                                    ****PAYMENT FOR OPTION****SHARES.**

 

**7.1**          **General Rule.** The entire Exercise Price of Shares issuedupon exercise of Options shall be payable in cash or cash equivalents at thetime when such  Shares are purchased,except as follows:

 

(a)           In the case of anISO granted under the Plan, payment shall be made only pursuant to the expressprovisions of the applicable Stock Option Agreement.  The Stock Option Agreement may specify thatpayment may be made in any form(s) described in this Article 7.

 

(b)           In the case of anNSO, the Committee may at any time accept payment in any form(s) describedin this Article 7.

 

**7.2**          **Surrender of Stock.** To the extent that this Section 7.2 isapplicable, all or any part of the Exercise Price may be paid by surrendering,or attesting to the ownership of, Shares that are already owned by theOptionee.  Such Shares shall be valued attheir Fair Market Value on the date when the new Shares are purchased under thePlan.  The Optionee shall not surrender,or attest to the ownership of, Shares in payment of the Exercise Price if suchaction would cause the Company to recognize compensation expense (or additional

 

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compensation expense) with respect to the Option for financialreporting purposes.

 

**7.3**          **Exercise/Sale.** To the extent that this Section 7.3 isapplicable, all or any part of the Exercise Price and any withholding taxes maybe paid by delivering (on a form prescribed by the Company) an irrevocabledirection to a securities broker approved by the Company to sell all or part ofthe Shares being purchased under the Plan and to deliver all or part of thesales proceeds to the Company.

 

**7.4**          **Exercise/Pledge. **To the extent that this Section 7.4 is applicable, allor any part of the Exercise Price and any withholding taxes may be paid bydelivering (on a form prescribed by the Company) an irrevocable direction topledge all or part of the Shares being purchased under the Plan to a securitiesbroker or lender approved by the Company, as security for a loan, and to deliverall or part of the loan proceeds to the Company.

 

**7.5**          **Promissory Note. **To the extent that this Section 7.5 is applicable, allor any part of the Exercise Price and any withholding taxes may be paid bydelivering (on a form prescribed by the Company) a full-recourse promissorynote.

 

**7.6**          **Other Forms of Payment. **To the extent that this Section 7.6is applicable, all or any part of the Exercise Price and any withholding taxesmay be paid in any other form that is consistent with applicable laws,regulations and rules.

 

**ARTICLE 8.****                                                    ****AUTOMATIC GRANTS TO OUTSIDEDIRECTORS.**

 

**[Deleted]**

 

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**ARTICLE 9.****                                                    ****STOCK APPRECIATION****RIGHTS.**

 

**9.1**          **SAR Agreement.**  Each grant of an SAR under the Plan shall beevidenced by an SAR Agreement between the Optionee and the Company.  Such SAR shall be subject to all applicableterms of the Plan and may be subject to any other terms that are notinconsistent with the Plan.  Theprovisions of the various SAR Agreements entered into under the Plan need notbe identical.  SARs may be granted inconsideration of a reduction in the Optionee’s other compensation.

 

SAR Agreements made between December 31, 2004 and January 1,2009 reflect good-faith efforts to comply with U.S. Treasury pronouncements underIRC Section 409A.  SAR Agreementsentered after December 31, 2008 shall identify any feature of the SAR orAgreement which constitutes deferred compensation subject to IRC Section 409A.  Additionally, any SAR or Agreement made afterDecember 31, 2008 shall comply with IRC Section 409A and Treas. Regs.Section 1.409A-1 et seq.

 

**9.2**          **Number of Shares.** Each SAR Agreement shall specify the number ofShares to which the SAR pertains and shall provide for the adjustment of suchnumber in accordance with Article 13. SARs granted to any Optionee in a single calendar year shall in no eventpertain to more than 200,000 Shares, except that SARs granted to a new Employeein the fiscal year of the Company in which his or her service as an Employeefirst commences shall not pertain to more than 25,000 Shares. The limitationsset forth in the preceding sentence shall be subject to adjustment inaccordance with Article 13.

 

**9.3**          **Exercise Price.** Each SAR Agreement shall specify the ExercisePrice.  An SAR Agreement may specify anExercise Price that varies in accordance with a predetermined formula while theSAR is outstanding.

 

**9.4**          **Exercisability and Term. **Each SAR Agreement shall specifythe date when all or any installment of the SAR is to become exercisable.  The SAR Agreement shall also specify the termof the SAR.  An SAR Agreement may providefor accelerated exercisability in the event of the Optionee’s death, disabilityor retirement or other events and may provide for expiration prior to the endof its term in the event of the termination of the Optionee’s service.  SARs may be awarded in combination withOptions, and such an Award may provide that the SARs will not be exercisableunless the related Options are forfeited. An SAR may be included in an ISO only at the time of grant but may beincluded in an NSO at the time of grant or thereafter.  An SAR granted under the Plan may providethat it will be exercisable only in the event of a Change in Control.

 

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**9.5**          **Effect of Change in Control. **The Committee may determine, atthe time of granting an SAR or thereafter, that such SAR shall become fullyexercisable as to all Shares subject to such SAR in the event that a Change inControl occurs with respect to the Company.

 

**9.6**          **Exercise of SARs. **Upon exercise of an SAR, the Optionee (or any person havingthe right to exercise the SAR after his or her death) shall receive from theCompany (a) Shares, (b) cash or ( c) a combination of Shares andcash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received uponexercise of SARs shall, in the aggregate, be equal to the amount by which theFair Market Value (on the date of surrender) of the Shares subject to the SARsexceeds the Exercise Price.  If, on thedate when an SAR expires, the Exercise Price under such SAR is less than theFair Market Value on such date but any portion of such SAR has not beenexercised or surrendered, then such SAR shall automatically be deemed to beexercised as of such date with respect to such portion.

 

**9.7**          **Modification or Assumption of SARs. **Within the limitations of the Planand the terms of a specific Award, the Committee may modify, extend or assumeoutstanding SARs or may accept the cancellation of outstanding SARs (whethergranted by the Company or by another issuer) in return for the grant of newSARs for the same or a different number of shares and at the same or adifferent exercise price.  The foregoing notwithstanding,no modification of an SAR shall, withoutthe consent of the Optionee, alter or impair his or her rights or obligationsunder such SAR.

 

Any Award, modification or assumption made between December 31,2004 and January 1, 2009 reflect good-faith efforts to comply with U.S.Treasury pronouncements under IRC Section 409A.  An Award issued after December 31, 2008shall indicate whether the modification or assumption to which an SAR issubject constitutes a deferred compensation feature of the Award.  Additionally, any Award, modification orassumption made after December 31, 2008 shall comply with IRC Section 409Aand Treas. Regs. Section 1.409A-1 et seq.

 

**ARTICLE 10.****                                             ****RESTRICTED SHARES.**

 

**10.1**        **Restricted Stock Agreement.** Each grant of Restricted Shares under the Planshall be evidenced by a Restricted Stock Agreement between the recipient andthe Company.  Such Restricted Sharesshall be subject to all applicable terms of the Plan and may be subject to anyother terms that are not inconsistent with the Plan.  The provisions of the various RestrictedStock Agreements entered into under the Plan need not be identical.

 

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Restricted Stock Agreements entered after December 31, 2008 shallidentify any feature of the Restrict Stock or Agreement constituting deferredcompensation subject to IRC Section 409A. Additionally, any Restricted Stock or Agreement made after December 31,2008 shall comply with IRC Section 409A and Treas. Regs. Section 1.409A-1et seq.

 

**10.2**        **Payment for Awards.** Restricted Shares may be sold or awarded underthe Plan for such consideration as the Committee may determine, including(without limitation) cash, cash equivalents, full-recourse promissory notes,past services and future services.

 

**10.3**        **Vesting Conditions.** Each Award of Restricted Shares may or may notbe subject to vesting.  Vesting shalloccur, in full or in installments, upon satisfaction of the conditionsspecified in the Restricted Stock Agreement. A Restricted Stock Agreement may provide for accelerated vesting in the event of theParticipant’s death, disability or retirement or other events permitted bylaw.  The Committee may determine, at thetime of granting Restricted Shares or thereafter, that all or part of suchRestricted Shares shall become vested in the event that a Change in Controloccurs with respect to the Company.

 

**10.4**        **Voting and Dividend Rights.** The holders of Restricted Shares awarded underthe Plan shall have the same voting, dividend and other rights as the Company’sother shareholders.  A Restricted StockAgreement, however, may require that the holders of Restricted Shares investany cash dividends received in additional Restricted Shares.  Such additional Restricted Shares shall besubject to the same conditions and restrictions as the Award with respect towhich the dividends were paid.

 

Restricted Share Awards made between December 31, 2004 and January 1,2009 reflect good-faith efforts to comply with U.S. Treasury pronouncementsunder IRC Section 409A.  An Awardmade after December 31, 2008 shall specify whether the dividends or otherdistributions thereunder constitute a feature for the deferral ofcompensation.  A determination of whetherdividend or distribution rights under an Award provide for the deferral ofcompensation shall be made in a manner consistent with IRC Section 409Aand Treas. Regs. Section 1.409A-1(b)(5) and shall be treated in amanner that complies with such laws.

 

**ARTICLE 11.****                                             ****STOCK UNITS.**

 

**11.1**        **Stock Unit Agreement.** Each grant of Stock Units under the Plan shall be evidenced by a StockUnit Agreement between the recipient and the Company.  Such Stock Units shall be subject to allapplicable terms of the Plan 

 

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and may be subject to any other terms that are not inconsistent withthe Plan.  The provisions of the variousStock Unit Agreements entered into under the Plan need not be identical.  Stock Units may be granted in considerationof a reduction in the recipient’s other compensation.

 

Stock Unit Agreements made between December 31, 2004 and January 1,2009 reflect good-faith efforts to comply with U.S. Treasury pronouncementsunder IRC Section 409A. Stock Unit Agreements entered after December 31,2008 shall identify any feature of the Stock Unit or Agreement constitutingdeferred compensation subject to IRC Section 409A.  Additionally, any Stock Unitor Agreement made after December 31, 2008shall comply with IRC Section 409A and Treas. Regs. Section 1.409A-1et seq.

 

**11.2**        **Payment for Awards. **Tothe extent that an Award is granted in the form of Stock Units, no cashconsideration shall be required of the Award recipients.

 

**11.3**        **Vesting Conditions. **EachAward of Stock Units may or may not be subject to vesting.  Vesting shall occur, in full or ininstallments, upon satisfaction of the conditions specified in the Stock UnitAgreement.  A Stock Unit Agreement mayprovide for accelerated vesting in the event of the Participant’s death,disability or retirement or other events. The Committee may determine, at the time of granting Stock Units orthereafter, that all or part of such Stock Units shall become vested in theevent that a Change in Control occurs with respect to the Company.

 

**11.4**        **Voting and Dividend Rights. **Theholders of Stock Units shall have no voting rights.  Prior to settlement or forfeiture, any StockUnit awarded under the Plan may, at the Committee’s discretion, carry with it aright to dividend equivalents.  Suchright entitles the holder to be credited with an amount equal to all cashdividends paid on one  Share while theStock Unit is outstanding.  Dividendequivalents may be converted into additional Stock Units.  Settlement of dividend equivalents may bemade in the form of cash, in the form of Shares, or in a combination ofboth.  Prior to distribution, anydividend equivalents which are not paid shall be subject to the same conditionsand restrictions as the Stock Units to which they attach.

 

Awards made between December 31, 2004 and January 1, 2009reflect good-faith efforts to comply with U.S. Treasury pronouncements underIRC Section 409A.  Awards made afterDecember 31, 2008 shall specify whether the dividends or otherdistributions constitute a feature for the deferral of compensation.  A determination of whether dividend ordistribution rights under 

 

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an Award provide for the deferral of compensation shall be made in amanner consistent with IRC Section 409A and Treas. Regs. Section 1.409A-1(b)(5).

 

**11.5**        **Form and Time of Settlement of Stock Units.** Settlement of vested Stock Units may be madein the form of (a) cash, (b) Shares or ( c) any combination of both,as determined by the Committee.  The actual number of Stock Units eligiblefor settlement may be larger or smaller than the number included in theoriginal Award, based on predetermined performance factors.  Methods of converting Stock Units into cash mayinclude (without limitation) a method based on the average Fair Market Value ofShares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments.  The distribution may occur or commence whenall vesting conditions applicable to the Stock Units have been satisfied orhave lapsed, or it may be deferred to any later date.  The amount of a deferred distribution may beincreased by an interest factor or by dividend equivalents.  Until an Award of Stock Units is settled, thenumber of such Stock Units shall be subject to adjustment pursuant to Article 13.

 

**11.6**        **Death of Recipient.** AnyStock Units Award that becomes payable after the recipient’s death shall bedistributed to the recipient’s beneficiary or beneficiaries.  Each recipient of a Stock Units Award underthe Plan shall designate one or more beneficiaries for this purpose by filingthe prescribed form with the Company.  Abeneficiary designation may be changed by filing the prescribed form with theCompany at any time before the Award recipient’s death.  If no beneficiary was designated or if nodesignated beneficiary survives the Award recipient, then any Stock Units Awardthat becomes payable after the recipient’s death shall be distributed to therecipient’s estate.

 

**11.7**        **Creditors’ Rights.** Aholder of Stock Units shall have no rights other than those of a generalcreditor of the Company.  Stock Unitsrepresent an unfunded and unsecured obligation of the Company, subject to theterms and conditions of the applicable Stock Unit Agreement.

 

**ARTICLE 12.               PERFORMANCE SHARES**

 

**12.1**        **Performance Share Agreement****.**  Each grant of Performance Shares under thePlan shall be evidenced by a Performance Share Agreement between theParticipant and the Company.  SuchPerformance Shares shall be subject to all applicable terms of the Plan and maybe subject to any other terms that are not inconsistent with the Plan. The provisions of the various 

 

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Performance Share Agreements entered into under the Plan need not beidentical.

 

Performance Share Agreements made between December 31, 2004 and January 1,2009 reflect good-faith efforts to comply with U.S. Treasury pronouncementsunder IRC Section 409A. Performance Share Agreements entered after December 31,2008 shall identify any feature of the Performance Share or Agreementconstituting deferred compensation subject to IRC Section 409A.  Additionally, any Performance Share orAgreement made after December 31, 2008 shall comply with IRC Section 409Aand Treas. Regs. Section 1.409A-1 et seq.

 

**12.2**        **Grant of Performance Shares****.**  Before, or within a reasonable time after(not to exceed any applicable legal limit including Section 409A of theInternal Revenue Code and applicable regulations) the grant of PerformanceUnits, the Committee shall:

(a)           determine objectiveperformance goals, which may consist of any one or more of the following goalsdeemed appropriate by the Committee: earnings (either in the aggregate or on aper-share basis), operating income, cash flow, including EBITDA (earningsbefore interest, taxes, depreciation and amortization), return on equity, pershare rate of return on the Shares (including dividends), general indicesrelative to levels of general customer service satisfaction, as measuredthrough various randomly-generated customer service surveys, market share (inone or more markets), customer retention rates, market penetration rates,revenues, reductions in expense levels, and the attainment by the Shares of aspecified market value for a specified period of time, in each case whereapplicable to be determined either on a Company-wide basis or in respect of anyone or more business units, and the amount of compensation under the goalsapplicable to such grant;

 

(b)           designate a periodfor the measurement of the extent to which performance goals are attained,which may begin prior to the date of grant (the “Performance Period”); and

 

(c)           assign a “PerformancePercentage” to each level of attainment of performance goals during thePerformance Period, with the percentage applicable to minimum attainment beingzero percent and the percentage applicable to maximum attainment to thedetermined by the Committee from time to time, but not in excess of 250%.

 

**12.3**        **Modification of Grant****.**  If a Participant is promoted, demoted, ortransferred to a different business unit of the Company during a Performance 

 

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Period, then, to the extent the Committee determines any one or more ofthe performance goals, Performance Period, or Performance Percentage are nolonger appropriate, the Committee may make any changes thereto as it deemsappropriate in order to make them appropriate. In addition, to the extent permitted by law including Section 409Aof the Internal Revenue Code and applicable regulations, the Committee retainsthe discretion to modify, change or alter Performance goals or targets,including decreasing or increasing grants, during the performance term ifcircumstances or conditions develop affecting the practicability, feasibilityor ability to achieve performance goals or targets which circumstances orconditions are beyond the reasonable control of the participant. Modificationsmade between December 31, 2004 and January 1, 2009 reflect good-faithefforts to comply with U.S. Treasury pronouncements under IRC Section 409A.Modifications made between December 31, 2004 and January 1, 2009reflect good-faith efforts to comply with U.S. Treasury pronouncements underIRC Section 409A. Modifications made after December 31, 2008 shallidentify any feature of the modification which constitutes deferredcompensation subject to IRC Section 409A. Any modifications made after December 31, 2008 shall comply withIRC Section 409A and Treas. Regs. Section 1.409A-1 et seq.

 

**12.4**        **Terms of the Grant****.**  When granted, Performance Shares may, butneed not, be identified with Shares subject to a specific Option, specificRestricted Shares, or specific SARs of the Participant granted under the Planin a number equal to or different from the number of the Performance Shares sogranted.  If Performance Shares are soidentified, then, unless otherwise provided in the applicable Award, theParticipant’s associated Performance Shares shall terminate upon (a) theexpiration, termination, forfeiture, or cancellation of the Option, RestrictedShares, or SARs with which the Performance Shares are identified, (b) theexercise of such Option or SARs, or 8 the date Restricted Shares becomenonforfeitable.

 

**12.5**        **Payment of Performance Shares****.**  Unless otherwise provided in the PerformanceShare Agreement, if the minimum performance goals applicable to suchPerformance Shares have been achieved during the applicable Performance Period,then the Company shall pay to the Participant that number of Shares equal tothe product of:

 

(a)           the sum of (i) numberof Performance Shares specified in the applicable Award agreement and (ii) thenumber of Shares that would have been issuable if such Performance Shares hadbeen Shares outstanding throughout the Performance Period and the stockdividends, cash dividends (except as otherwise provided in the PerformanceShare Agreement) and other property paid in respect of such shares had beenreinvested in additional Shares as of each dividend payment date,

 

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multiplied by

 

(b)           the PerformancePercentage achieved during such Performance Period.

 

The Committee may, in its discretion, determine that cash be paid inlieu of some or all of such Shares.  Theamount of cash payable in lieu of a Share shall be determined by valuing suchshares at its Fair Market Value on the business day next preceding the datesuch cash is to be paid.  Paymentspursuant to this Section shall be made as soon as administrativelypractical after the end of the applicable Performance Period.  Any Performance Shares with respect to whichthe performance goals shall not have been achieved by the end of the applicablePerformance period shall expire, unless circumstances or conditions specifiedin Section 12.3 arise or occur, in which event, the Committee retainsdiscretion to extend or modify the Performance Period, unless precluded by Section 409Aof the Internal Revenue Code and applicable regulations.

 

**ARTICLE 13.****                                                                     ****PROTECTION AGAINST****DILUTION.**

 

**13.1**        **Adjustments.**  In theevent of a subdivision of the outstanding Shares, a declaration of a dividendpayable in Shares, a declaration of a dividend payable in a form other thanShares in an amount that has a material effect on the price of Shares, acombination or consolidation of the outstanding Shares (by reclassification orotherwise) into a lesser number of Shares, a recapitalization, a spin-off or asimilar occurrence, the Committee shall make such adjustments as it, in its solediscretion, deems appropriate in one or more of:

 

(a)           The number ofOptions, SARs, Restricted Shares, Performance Shares and Stock Units availablefor future Awards under Article 4;

 

(b)           The limitations setforth in Sections 6.2 and 9.2;

 

(c)           The number of NSOsto be granted to Outside Directors under Article 8;

 

(d)           The number of  Shares covered by each outstanding Option andSAR;

 

(e)           The Exercise Priceunder each outstanding Option and SAR; or

 

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(f)            The number of StockUnits included in any prior Award which has not yet been settled.

 

Except as provided in this Article 13, a Participant shall have norights by reason of any issue by the Company of stock of any class orsecurities convertible into stock of any class, any subdivision orconsolidation of shares of stock of any class, the payment of any stockdividend or any other increase or decrease in the number of shares of stock ofany class.

 

**13.2**        **Dissolution or Liquidation.** To the extent not previously exercised orsettled, Options, SARs and Stock Units shall terminate immediately prior to thedissolution or liquidation of the Company, except to extent dissolution orliquidation is incident to a Change in Control, in which event provisionsrelating to Change in Control, shall govern disposition of Options, SARs andStock Units.

 

**13.3**        **Reorganizations. **In theevent that the Company is a party to a merger or other reorganization,outstanding Awards shall be subject to the agreement of merger or reorganizationSuch agreement shall provide for:

 

(a)           The continuation ofthe outstanding Awards by the Company, if the Company is a survivingcorporation;

 

(b)           The assumption ofthe outstanding Awards by the surviving corporation or its parent orsubsidiary;

 

(c)           The substitution bythe surviving corporation or its parent or subsidiary of its own awards for theoutstanding Awards;

 

(d)           Full exercisabilityor vesting and accelerated expiration of the outstanding Awards; or

 

(e)           Settlement of thefull value of the outstanding Awards in cash or cash equivalents followed bycancellation of such Awards.

 

**ARTICLE14.                  CONVERSIONOF AWARDS TO NONQUALIFIED DEFERRED COMPENSATION, ETC. SUBJECT TO IRC SECTION 409A**

 

**14.1        CommitteeDiscretion Regarding Conversion. **The Committee (inits sole discretion) may permit or require a Participant to:

 

(a)           Have cash thatotherwise would be paid to such Participant as a result of the exercise of anSAR or the settlement of Stock Units credited 

 

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to a deferred compensation account established for such Participant bythe Committee as an entry on the Company’s books;

 

(b)           Have Shares thatotherwise would be delivered to such Participant as a result of the exercise ofan Option or SAR converted into an equal number of Stock Units; or

 

(c)           Have Shares thatotherwise would be delivered to such Participant as a result of the exercise ofan Option or SAR or the settlement of Stock Units converted into amountscredited to a deferred compensation account established for such Participant bythe Committee as an entry on the Company’s books.  Such amounts shall be determined by referenceto the Fair Market Value of such Shares as of the date when they otherwisewould have been delivered to such Participant.

 

**14.2****                       ****Timing of Election to DeferCompensation**

 

As a general rule, any election to defer payment of (or otherwiseconvert) an Award under this Plan shall be made and become irrevocable prior tothe start of the calendar year in which an Employee, Outside Director orConsultant renders the services for which he or she obtains a legally bindingright (fixed or contingent) to receive the Award.  As an exception to the general rule, if anEmployee, Outside Director or Consultant has a legally binding right to anAward in a subsequent year that is subject to a condition requiring continuedservices fora period ofat least 12 months to avoid forfeiture of the Award, an election to deferpayment of such an Award may be made on or before the 30th day after theEmployee, Outside Director or Consultant obtains the legally binding right tothe Award, provided that the election is made at least 12 months in advance ofthe earliest date at which the forfeiture condition could lapse.

 

**14.3**                        **Modification of Certain Elections**

 

Except as provided under the Plan in a mannerconsistent with IRC Section 409A andTreas. Regs. Section 1.409A-1 etc., after an election to defer payment ofan Award has become irrevocable, neither the Company nor the Participant has aright to accelerate a payment date established with respect to SupplementalCompensation attributable to the Award or Earnings accrued thereon.  Any delays in a payment date, i.e. anyadditional deferral of payment, shall be made in accord with IRC Section 409A.  As a general rule, a postponement of ascheduled payment must be elected in writing at least one year before the firstday on which the scheduled payment would have been made.  Moreover, as a general rule, the postponementmust extend for a least 

 

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five years after the first day on which the scheduled payment wouldhave been made.

 

**14.4**        **Investment Earnings on Deferred Award**

 

14.4 a.               Forpurposes of measuring and satisfying the Company’s obligation to provide Benefits, the Company may cause ahypothetical Account to be maintained with respect to the SupplementalCompensation of a Participant and any Earnings thereon.

 

14.4 b.              The individual Account maintained for the Participant may reflect hypotheticalCompany Contributions for Supplemental Compensation.  The individual Account maintained for theParticipant also may reflect the hypothetical Earnings described in 1. or 2.below.

 

1.             If the Company doesnot designate anInvestmentVehicle for Supplemental Compensation with respect to a particular period, theindividual Account for the Participant shall reflect hypothetical Earnings onsuch Supplemental Compensation for that period in the amount of at least fivepercent (5%) compounded annually.

 

2.             In the alternative,if the Company does designate an Investment Vehicle for SupplementalCompensation with respect to a particularperiod, the individual Account maintained for the Participant shallreflect hypothetical Earnings for that period in the same amount as if theCompany had invested such amounts in the Investment Vehicle and the investmentoptions under such Investment Vehicle were identical to those preferred by theParticipant under Section 14.4c below. If the Company elects to invest the Company Contributions in anInvestment Vehicle, any such Investment Vehicle shall be the property only ofthe Company, and shall not be held in trust for the Participant or as securityfor the fulfillment of the Company’s obligation under the Plan.  Any such Investment Vehicle shall be subjectto the claims of the general creditors of the Company.  The Participant, Beneficiary or AlternatePayee shall not have any secured or preferred position with respect to suchInvestment Vehicle or have any claim against the Company except as an unsecuredgeneral creditor.  Nothing in the Planshall require the Company to invest Company Contributions or other amounts inany Investment Vehicle, to limit the Company’s selection of investment media,if any, or to segregate Company Contributions of Supplemental Compensation orEarnings from the Company’s general assets.

 

14.4 c.                     Subjectto such limitations as may from time to time be required by law, imposed by theCompany, or contained elsewhere in the Plan or Investment Vehicle, if any, theParticipant may 

 

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communicate, to the Company or its authorized representative, apreference as to how the Participant’s Account should be deemed to be investedamong such hypothetical investment options as may be available under theInvestment Vehicle.  Such direction shalldesignate the percentage (in any whole percent multiples) of each portion ofthe Participant’s Account which is requested to be deemed to be invested insuch categories of hypothetical investment options, and shall be subject to thefollowing rules:

 

1)             Any initial deemedinvestment direction shall be in writing or electronic medium in a formsupplied or approved by and filed with the Company or its authorized representativeby the Participant or his authorized representative.  Subsequent deemed investment directions maybe effected via toll-free telephone access, internet website or other meansarranged or approved by the Company.

 

2)             All amountscredited to the Participant’s Account shall be deemed to be invested inaccordance with the then effective deemed investment direction.  As of the effective date specified by theParticipant or the Company for any new deemed investment direction, or as soonthereafter as feasible, all or a portion of the Participant’s Account at thatdate shall be reallocated among the designated hypothetical investment optionsaccording to the percentages specified in the new deemed investment directionunless and until a subsequent deemed investment direction shall be filed andbecomeeffective.  An election concerning hypotheticalinvestment options shall continue indefinitely as provided in the Participant’smost recent investment election form (or other form specified by the Company),or as directed by the Participant via telephone, internet or other meansarranged or approved by the Company or its authorized representative.

 

3)             If the Companyreceives a Participant’s deemed investment direction which the Company or itsauthorized representative considers to be incomplete, unclear, or improper, theParticipant’s investment direction, if any, then in effect shall remain ineffect (or, in the case of a deficiency in an initial deemed investmentdirection, the Participant shall be considered to have declined to file adeemed investment direction), unless the Company provides for, and permitsaction to correct the deficiency.

 

4)             If the Companypossesses at any time directions as to the deemed investment of less than allof the Participant’s Account, the Participant shall be deemed to have directedthat the undesignated portion of the Account be deemed to be invested in afixed income, or similar hypothetical investment option, if any, availableunder the Arrangement or Investment Vehicle in the Company’s sole discretion.

 

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5)             To the extentpermitted by law, the Participant agrees to indemnify and hold harmless theCompany and its directors, officers, attorneys, agents and representatives fromany losses or damages of any kind relating to the deemed investment of theParticipant’s Account hereunder.

 

6)             Each reference inthis Plan to the Participant shall be deemed to include, where applicable, areference to a Beneficiary or Alternate Payee.

 

7)             Nothing in the Planshall require or prohibit the Company from selecting an actual or hypotheticalinvestment vehicle that constitutes a qualified default investment alternative(AQDIA@) within themeaning of ERISA Section 404 (c)(5) or to satisfy any notice or otherobligations imposed by that statute or by Department of Labor regulationsthereunder.

 

14.4d.                       Where applicable,Earnings on Supplemental Compensation will be credited from time to time — butno less frequently than once each year as of the last business day of such year— to the Participant’s Account based on interest accruals or investmentearnings as provided above.

 

14.4 e.                        The Benefit payable to aParticipant, Beneficiary or Alternate Payee shall equal the value of theportion of the Participant’s undistributed vested Account (i.e. accumulatedSupplemental Compensation adjusted for interest or Earnings).  As a general rule, the Benefit payable shallequal the value of payments receivable by the Company under the InvestmentVehicle which are allocable to the Participant based on the value of theParticipant’s vested Account balance (less contract surrender charges orsimilar reductions, if applicable). Assuming that the Company has complied substantially and consistentlywith the Participant’s hypothetical investment directions as provided above,the Company’s liability to pay benefits shall not exceed the value of paymentsunder the Investment Vehicle attributable to the Participant’s vested Accountbalance (less applicable surrender charges or similar reductions); and theCompany shall not be liable for losses arising from any decline, depreciationor shrinkage in the value of Investment Vehicles acquired or maintained underthe Plan.

 

14.4f.                        The Company mayprovide the Participant with periodic reports showing the value of his or herindividual Account as of the valuation date specified in the report.

 

14.4g.                       The establishmentof an individual

 

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Account for the Participant is for information purposes only, becauseany assets reflect in the Account or in any report regarding the Account arethe property of the Company only.

 

**14.5.       Anti-Alienation**

 

14.5a.                        No Participant,Beneficiary or Alternate Payee shall have any right to alienate, hypothecate,commute, sell, assign, pledge, transfer or otherwise convey or encumber anunvested or vested right to receive any payments hereunder.  Both unvested and vested rights are expresslydeclared to be nonassignable and nontransferable.  Any unpaid benefits, whether vested orunvested, shall not be subject to attachment, garnishment or execution, or betransferable by operation of law in the event of the bankruptcy or insolvencyof the Participant, Beneficiary or Alternate Payee, except to the extentotherwise required by law.

 

14.5b.                       Section 14.5a.shall not prevent the entry, implementation or issuance of a Qualified DomesticRelations Order, nor shall it prevent the Company or Participant from complyingwith any Qualified Domestic Relations Order to which this Plan or theParticipant’s Account may be subject.

 

14.5 c.                        The entry,implementation or issuance of a Qualified Domestic Relations Order shall notaccelerate vesting or payment of Supplemental Compensation or Earningsunder this Plan except to the extent, if any, required by such Order.

 

**14.6.       Paymentof Deferred or Supplemental Compensation**

 

Pursuant to the terms of a timely irrevocable election, in a mannerconsistent with IRC Section 409A and Treas. Regs. Section 1.409A-1etc., Supplemental Compensation and Earnings under the Deferral Arrangementshall be paid at a specified time (or pursuant to a fixed schedule) establishedunder the Plan at the time of the election. If no date or schedule is specified in an election, payment shall occurupon Separation from Service.  Despitethe foregoing, payment may occur upon Disability, Death, Change in Control,Unforeseeable Emergency or termination and complete liquidation of thePlan.  Benefits shall be paid in themedium and form specified in the election to the extent consistent with IRC Section 409Aand Treas. Regs. Section 1.409A-1 et seq. With respect to any Key Employee of the Company, Parent, Subsidiary orAffiliate the stock of which is publicly traded on an established securitiesmarket (or otherwise), references to payment upon Separation from Service shallbe deemed to refer to payment six months after the Key Employee’s terminationof employment (or if

 

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earlier the date of death of the Key Employee).  For purposes of the preceding sentence, KeyEmployee refers to an individual described in IRC Section 416(i) withoutregard to paragraph (5) thereof, regarding the treatment of beneficiaries.

 

**14.7        PaymentDelays**

 

The Company intends that a payment due under this Plan or underapplicable law may be delayed under Treas. Regs. Section 1.409A-1(b)(4) orother legal authority because of an Unforeseeable Event, i.e. if making thepayment when due is administratively impracticable or if making the paymentwhen due would jeopardize the solvency of the Company (or related entity responsiblefor the payment) and if, as of the date upon which the Participant obtained alegally binding right to the Supplemental Compensation, such impracticabilityor insolvency was unforeseeable by the Board and if actual payment occurs assoon as administratively practicable. The Company also intends that a payment due under this Plan or underapplicable law may be delayed for reasons such as a denial of deduction withrespect to computation of unrelated business taxable income, e.g. under IRC Section 162(m) ifapplicable, or if the payment would violate a loan covenant, a similarcontractual requirement, pertinent non-tax federal, state or local law or forother events or conditions described by the Commissioner of Internal RevenueService in generally applicable guidance published in the Internal RevenueBulletin.

 

**ARTICLE 15.       AWARDSUNDER OTHER PLANS.**

 

The Company may grant awards under other plans or programs.  Such awards may be settled in the form ofShares issued under this Plan.  SuchShares shall be treated for all purposes under the Plan like Shares issued insettlement of Stock Units and shall, when issued, reduce the number of  Shares available under Article 4.

 

**ARTICLE 16.**       **PAYMENT OF DIRECTOR’S FEES****IN SECURITIES.**

 

**16.1**         **Effective Date. **No provision of this Article 16shall be effective unless and until the Board has determined to implement suchprovision.

 

**16.2**         **Elections to Receive NSOs,Restricted Shares or****Stock Units.** An Outside Director may elect to receive hisor her annual retainer payments and/or meeting fees from the Company in theform of cash, NSOs, Restricted Shares or Stock Units, or a combination thereof,as determined by the Board.  Such NSOs,Restricted Shares and Stock Units shall be issued under the Plan.  An election under this Article 16 shallbe filed with the Company on the prescribed form.

 

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**16.3**         **Number and Terms of NSOs,Restricted Shares or****Stock Units.** The number of NSOs, Restricted Shares or StockUnits to be granted to Outside Directors in lieu of annual retainers andmeeting fees that would otherwise be paid in cash shall be calculated in amanner determined by the Board.  Theterms of such NSOs, Restricted Shares or Stock Units shall also be determinedby the Board.

 

**ARTICLE 17.       LIMITATIONON RIGHTS.**

 

**17.1**         **Retention Rights. **Neither the Plan nor any Awardgranted under the Plan shall be deemed to give any individual a right to remainan Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve theright to terminate the service of any Employee, Outside Director or Consultantat any time, with or without cause, subject to applicable laws, the Company’sarticles of incorporation and bylaws and a written employment agreement (ifany).

 

**17.2**         **Shareholders’ Rights. **A Participant shall have nodividend rights, voting rights or other rights as a shareholder with respect toany Shares covered by his or her Award prior to the time when a stockcertificate for such Shares is issued or, if applicable, the time when he orshe becomes entitled to receive such Shares by filing any required notice ofexercise and paying any required Exercise Price.  No adjustment shall be made for cash dividendsor other rights for which the record date is prior to such time, except asexpressly provided in the Plan.

 

**17.3**         **RegulatoryRequirements. **Any otherprovision of the Plan notwithstanding, the obligation of the Company to issueShares under the Plan shall be subject to all applicable laws, rules andregulations, including without limitation IRC Section 409A and Treas. Regs. Section 1.409A-1 et seq.and such approval by any regulatory body as may be required.  The Company reserves the right to restrict,in whole or in part, the delivery of Shares pursuant to any Award prior to thesatisfaction of all legal requirements relating to the issuance of such  Shares, to their registration, qualificationor listing or to an exemption from registration, qualification or listing.

 

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**ARTICLE 18.       WITHHOLDINGTAXES.**

 

**18.1**         **General. **To the extent required byapplicable federal, state, local or foreign law, a Participant or his or hersuccessor shall make arrangements satisfactory to the Company for the satisfactionof any withholding tax obligations that arise in connection with the Plan.  TheCompany shall not be required to issue any Shares or make any cash paymentunder the Plan until such obligations are satisfied.

 

**18.2**         **Share Withholding. **The Committee may permit aParticipant to satisfy all or part of his or her withholding or income taxobligations by having the Company withhold all or a portion of any Shares thatotherwise would be issued to his or her or by surrendering all or a portion ofany Shares that he or she previously acquired. Such Shares shall be valued at their Fair Market Value on the date whentaxes otherwise would be withheld in cash.

 

**18.3        Incomeand Wage Reporting**

 

As a general rule, all payments of the Participant’s interest in theSupplemental Compensation and Earnings thereon shall be reported to theInternal Revenue Service as income subject to ordinary income taxes (or, ifapplicable, only as wages subject to Social Security or other employment taxesfor the tax year in which the Participant becomes vested in such amounts).  To the extent permitted by law, Earningscredited to a Participant’s vested Account shall be reported as ordinary incometo the Participant only for the tax year in which such amounts are paid or madeavailable to the Participant.

 

 

**ARTICLE 19.       ADDITIONALAND MISCELLANEOUS PROVISIONS.**

 

**19.1**         **Term of the Plan.** The Plan, as set forth herein, shall becomeeffective on January 31, 2000.  ThePlan shall remain in effect until it is terminated under Section 19.2,except that no ISOs shall be granted on or after the 10th anniversary of the later of (a) the datewhen the Board adopted the Plan or (b) the date when the Board adopted themost recent increase in the number of Shares available under Article 4which was approved by the Company’s shareholders.

 

**19.2**         **Amendment or Termination.** The Board may, at any time and for any reason,amend or terminate the Plan.  Anyamendment of the Plan shall be in writing. Additionally, any amendment to the Plan shall be subject to the approvalof the Company’s shareholders only tothe extent required by applicable laws, regulations or rules.   No Awards shall be granted under the Planafter the

 

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termination thereof.  Thetermination of the Plan, or any amendment thereof, shall not affect any Awardpreviously granted under the Plan. Upon a complete termination and liquidationof the Deferral Arrangement, to the extent provided by IRC Section 409A,the full amount of the Participant’s Account shall be distributed in the mannerspecified in a timely deferral election, to the Participant, Beneficiary orAlternate Payee entitled to payment under the Plan or, if the election did notspecify a manner of payment, in a lump sum.

 

**19.3        AutomaticTermination.**  TheArrangement shall automatically terminate upon the dissolution of the Companyor upon the Company’s merger into or consolidation with any other entity whichdoes not specifically adopt and agree to continue the Arrangement; provided,however, that no such termination shall deprive the Participant, Beneficiary orAlternate Payee of any rights accrued under the Plan prior to the date oftermination.  Upon such automatictermination and complete liquidation of the Deferral Arrangement, to the extentprovided in IRC Section 409A, the full amount of the Participant’s Accountshall be distributed in the manner specified in a timely deferral election, tothe Participant, Beneficiary or Alternate Payee entitled to payment under thePlan or, if the election did not specify a manner of payment, in a lump sum.

 

**19.4        Integration.**  Subject to Plan provisions regarding writtenamendments, this Plan document, including Appendices hereto and Awardshereunder, contains the entire agreement between the Company and eachParticipant with respect to compensation under this Plan.

 

**19.5        Successor Employer.** Any entity which is a successor to the Company by reason of aconsolidation, merger, or purchase of substantially all of the assets of theCompany shall have the right to become a party to the Deferral Arrangement byadopting the same by resolution of the entity’s board of directors or otherappropriate governing body. If, within thirty (30) days from the effective dateof such consolidation, merger, or sale of assets, such new entity does notbecome a party hereto as provided herein, the Deferral Arrangement shall bedeemed to have terminated automatically.

 

**19.6       Beneficiary****Designation****After Plan Amendment or Termination.**  Nothing in this Article 19 or otherprovision of the Plan impairs the right of a Participant to change his or herBeneficiary designation prior to death or, if earlier, the distribution of hisor her vested Account.

 

**ARTICLE 20.       LIMITATIONON PARACHUTE****PAYMENTS.**

 

**20.1**         **Scope of Limitation.**  This Article 20 shall apply to an Awardonly if:

 

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(a)           The independentauditors most recently selected by the Board (the “Auditors”) determine thatthe after-tax value of such Award to the Participant, taking into account theeffect of all federal, state and local income taxes, employment taxes andexcise taxes applicable to the Participant (including the excise tax undersection 4999 of the Code), will be greater after the application of this Article 20than it was before the application of this Article 20, or

 

(b)           The Committee, atthe time of making an Award under the Plan or at any time thereafter, specifiesin writing that such Award shall be subject to this Article 20 (regardlessof the after-tax value of such Award to the Participant).

 

If this Article 20 applies to an Award, it shall supersede anycontrary provision of the Plan or of any Award granted under the Plan.

 

**20.2**        **Basic Rule. **In the event that the independentauditors most recently selected by the Board (the “Auditors”) determine thatany payment or transfer by the Company under the Plan to or for the benefit ofa Participant (a “Payment”) would be nondeductible by the Company for federalincome tax purposes because of the provisions concerning “excess parachutepayments” in Section 28OG of the Code, then the aggregate present value ofall Payments shall be reduced (but not below zero) to the Reduced Amount.  For purposes of this Article 20, the “ReducedAmount” shall be the amount, expressed as a present value, which maximizes theaggregate present value of the Payments without causing any Payment to benondeductible by the Company because of Section 28OG of the Code.

 

**20.3**        **Reduction of Payments. **If the Auditors determine that anyPayment would be nondeductible by the Company because of Section 28OG ofthe Code, then the Company shall promptly give the Participant notice to thateffect and a copy of the detailed calculation thereof and of the ReducedAmount, and the Participant may then elect, in his or her sole discretion,which and how much of the Payments shall be eliminated or reduced (as long asafter such election the aggregate present value of the Payments equals theReduced Amount) and shall advise the Company in writing of his or her electionwithin 10 days of receipt of notice.  Ifno such election is made by the Participant within such 10-day period, then theCompany may elect which and how much of the Payments shall be eliminated orreduced (as long as after such election the aggregate present value of thePayments equals the Reduced Amount) and shall notify the Participant promptlyof such election.  For purposes of this Article 20,present value shall be determined in accordance with Section 28OG(d)(4) ofthe Code.  All determinations made by theAuditors under this Article 20 shall be

 

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binding upon the Company and the Participant and shall be made within60 days of the date when a Payment becomes payable or transferable.  As promptly as practicable following suchdetermination and the elections hereunder, the Company shall pay or transfer toor for the benefit of the Participant such amounts as are then due to him orher under the Plan and shall promptly pay or transfer to or for the benefit ofthe Participant in the future such amounts as become due to him or her underthe Plan.

 

**20.4**        **Overpayments andUnderpayments. **As a result ofuncertainty in the application of Section 28OG of the Code at the time ofan initial determination by the Auditors hereunder, it is possible thatPayments will have been made by the Company that should not have been made (an “Overpayment”)or that additional Payments that will not have been made by the Company couldhave been made (an “Underpayment”), consistent in each case with thecalculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiencyby the Internal Revenue Service against the Company or the Participant that theAuditors believe has a high probability of success, determine that anOverpayment has been made, such Overpayment shall be treated for all purposesas a loan to the Participant which he or she shall repay to the Company,together with interest at the applicable federal rate provided in Section 7872(f)(2) ofthe Code; provided, however, that no amount shall be payable by the Participantto the Company if and to the extent that such payment would not reduce theamount subject to taxation under Section 4999 of the Code.  In the event that the Auditors determine thatan Underpayment has occurred, such Underpayment shall promptly be paid ortransferred by the Company to or for the benefit of the Participant, togetherwith interest at the applicable federal rate provided in Section 7872(f)(2) ofthe Code.

 

**20.5**        **Related Corporations.**  For purposes of this Article 20, theterm “Company” shall include affiliated corporations to the extent determinedby the Auditors in accordance with Section 28OG(d)(5) of the Code.

 

**20.6**        **Change in Control Agreements. **Nothingin this Section 20 shall be deemed to effect or impair the rights of anyparticipant to benefits under a separate change of control or separationagreement, such that if the benefits hereunder would exceed 280G limits ortheir statutory or regulatory equivalent, or such benefits in conjunction withother benefits or payments would exceed such limits or their statutory orregulatory equivalent, and the separation or change in control agreementprovides for the payment of such payments, or grosses up such payments, thenthe participant shall not be deprived of such benefit by anything set forth inthis section 20, and such benefits shall be calculated hereunder, for purposesof benefits under the agreement, in accordance with the terms of such agreement.

 

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**ARTICLE 21. EXECUTION.**

 

To record the adoption of this Amendment and Restatement of thePlan by the Board, the Company has caused its duly authorized officer toexecute this document in the name of the Company on the date set forth below.

 
|                         | **SUREWEST COMMUNICATIONS**  |
|------------------------------|------------------------------|
|                         | **A California Corporation** |
|                         |                         |
|                         |                         |
|                         | By:                          | /s/ Darla J. Yetter |
|                         |                         | Darla J. Yetter |
|                         |                         |
|                         | Title:                       | Corporate Secretary |
|                         |                         |
| Date: December 12, 2008 |                         |

 

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