Document:

Exhibit
10.1

 

THIRD
AMENDMENT TO CREDIT AGREEMENT

 

THIRD AMENDMENT TO CREDIT AGREEMENT (this “Third Amendment”), dated as of August 20, 2009, among
MICHAELS STORES, INC., a Delaware corporation (the “Borrower”),
the Lenders party to the Credit Agreement referred to below (the “Lenders”), and DEUTSCHE BANK AG NEW YORK BRANCH, as
administrative agent (in such capacity, the “Administrative
Agent”).  Unless otherwise
defined herein, capitalized terms used herein and defined in the Credit
Agreement are used herein as therein defined.

 

W  I  T
N  E  S  S  E  T  H :

 

WHEREAS, the Borrower, the Lenders, the
Administrative Agent, the Syndication Agent and the Co-Documentation Agents
have entered into a Credit Agreement, dated as of October 31, 2006 (as
amended, supplemented and/or otherwise modified to, but not including, the date
hereof, the “Credit Agreement”); and

 

WHEREAS, pursuant to Section 10.01 of
the Credit Agreement, the parties hereto wish to amend certain provisions of
the Credit Agreement as provided herein, subject to the terms and conditions
set forth below.

 

NOW, THEREFORE, it is agreed;

 

A.                                   Amendments to the Credit Agreement

 

1.                                       Section 1.01
of the Credit Agreement is hereby amended by (i) deleting the definitions
of “Commitment”, “Lender”, “Loan”,
“Loan Documents” and “Secured Hedge Agreement” appearing in said Section in
their entirety and (ii) inserting in appropriate alphabetical order the
following new definitions:

 

“Additional First Lien Intercreditor Agreement”
means an intercreditor agreement among the Administrative Agent, the Collateral
Agent and one or more Senior Representatives for holders of Permitted First
Priority Refinancing Debt providing that, inter alia, the
Liens on the Collateral as between the Collateral Agent (for the benefit of the
Secured Parties) and one or more Senior Representatives (for the benefit of the
holders of Permitted First Priority Refinancing Debt) shall be pari passu (but without regard to control of remedies), as
such intercreditor agreement may be amended, modified or supplemented from time
to time in accordance with the terms hereof and thereof.  The Additional First Lien Intercreditor
Agreement shall be in a form customary for transactions of the type
contemplated thereby and otherwise reasonably satisfactory to the Administrative
Agent and the Borrower and, to the extent agreed to by the Collateral Agent,
the Senior Representative for the applicable holders of Permitted First
Priority Refinancing Debt and the ABL Collateral Agent, may be in the form of
an amendment and restatement of the Intercreditor Agreement.

 

 

“Additional
Lender” means, at any time, any bank or other financial institution
or institutional lender (other than any such bank, financial institution or
institutional lender that is a Lender at such time) that agrees to provide any
portion of Credit Agreement Refinancing Indebtedness pursuant to a Refinancing
Amendment in accordance with Section 2.15, provided
that each Additional Lender shall be subject to the approval of the
Administrative Agent to the extent that each such Additional Lender is not then
an existing Lender, an Affiliate of a then existing Lender or an Approved Fund (such
approval not to be unreasonably withheld) and the Borrower.

 

“Appropriate Lender”
means, at any time, with respect to Loans of any Class, the Lenders of such
Class.

 

“Class” when
used with respect to Loans or a Borrowing, refers to whether such Loans, or the
Loans comprising such Borrowing, are Replacement Loans or Other Term Loans.

 

“Commitment” means, as to each Lender,
its Original Commitment, its New Commitment, its Replacement Commitment or its
Other Term Loan Commitment, as the context may require.

 

“Credit Agreement Refinancing Indebtedness” means (a) Permitted First
Priority Refinancing Debt, (b) Permitted Unsecured Refinancing Debt or (c) Indebtedness
incurred pursuant to a Refinancing Amendment, in each case, issued,
incurred or otherwise obtained (including by means of the extension or renewal
of existing Indebtedness) in exchange for, or to extend, renew, replace or
refinance, in whole or part, then existing Loans (including any successive
Credit Agreement Refinancing Indebtedness) (“Refinanced Debt”); provided that (i) such extending,
renewing or refinancing Indebtedness is in an original aggregate principal
amount (or accreted value, if applicable) not greater than the aggregate
principal amount (or accreted value, if applicable) of the Refinanced Debt
except by an amount equal to unpaid accrued interest and premium thereon plus
other reasonable amounts paid, and fees and expenses reasonably incurred, in
connection with such extending, renewing or refinancing Indebtedness, (ii) such
Indebtedness has a later maturity and a Weighted Average Life to
Maturity equal to or greater than the Refinanced Debt, and (iii) unless
such Credit Agreement Refinancing Indebtedness is incurred solely by means of
extending or renewing then existing Indebtedness described in clause (a) or
(b) above without resulting in any Net Proceeds, such Refinanced
Debt shall be repaid, defeased or satisfied and discharged with 100% of the Net
Proceeds from any Credit Agreement Refinancing Indebtedness, and all accrued
interest, fees and premiums (if any) in connection therewith shall be paid, on
the date such Credit Agreement Refinancing Indebtedness is issued, incurred or
obtained.

 

“Latest
Maturity Date” means, at any date of determination, the latest Maturity
Date applicable to any Loan or Commitment hereunder at such time, including the
latest maturity date of any Other Term Loan or any Other Term Commitment, in
each case as extended in accordance with this Agreement from time to time.

 

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“Lender” has the
meaning specified in the introductory paragraph to this Agreement and includes (i) each
Replacement Lender and its respective successors and assigns as permitted
hereunder and (ii) each Person that shall become a party hereto pursuant
to a Refinancing Amendment and its respective successors and assigns as
permitted hereunder, each of which is referred to herein as a “Lender”.

 

“Loan” means (a) the
making of an Original Loan by a Lender to the Borrower pursuant to Section 2.01(a),
(b) the making of an Additional New Loan by a Lender to the Borrower
pursuant to Section 2.01(c), (c) the conversion of an Original Loan
to a Converted New Loan by a Lender pursuant to Section 2.01(b), (d) the
making of a Replacement Loan by a Lender to the Borrower pursuant to Section 2.01(d) or
(e) the making of an Other Term Loan by a Lender or an Additional Lender to
the Borrower pursuant to Section 2.15.

 

“Loan Documents”
means, collectively, (a) this Agreement, (b) the Notes, (c) the
Guaranty, (d) the Intercreditor Agreement, (e) the Collateral
Documents and (f) on and after the execution and delivery thereof, the
Additional First Lien Intercreditor Agreement.

 

“Other Term
Commitments” means one or more term loan commitments hereunder that
fund Other Term Loans of the applicable Class hereunder pursuant to a
Refinancing Amendment.

 

“Other Term
Loans” means one or more Classes of term loans hereunder that result
from a Refinancing Amendment.

 

“Permitted First Priority
Refinancing Debt” means any secured Indebtedness incurred by the
Borrower in the form of one or more series of senior secured notes or loans; provided that (i) such Indebtedness is secured by (A) the
TL Priority Collateral on a pari passu first-lien basis (but without regard to
the control of remedies) with the Secured Obligations and (B) the ABL
Priority Collateral on a pari passu second-lien basis (but without regard to
the control of remedies) with the Secured Obligations, and is not secured by
any property or assets of the Borrower or any Subsidiary other than the
Collateral, (ii) such Indebtedness constitutes Credit Agreement
Refinancing Indebtedness in respect of any Class of Loans (including
portions of any Class of Loans), (iii) such Indebtedness (and the
Liens securing the same) are permitted by the terms of the ABL Credit Agreement
and the Intercreditor Agreement (in each case, to the extent the ABL Credit
Agreement and the Intercreditor Agreement are then in effect), (iv) such
Indebtedness does not mature or have scheduled amortization or payments of
principal prior to the date that is ninety-one (91) days after the Latest
Maturity Date at the time such Indebtedness is incurred, (v) the security agreements
relating to such Indebtedness are substantially the same as the Collateral
Documents (with such differences as are reasonably satisfactory to the
Administrative Agent), (vi) such Indebtedness is not guaranteed by any
Subsidiaries other than the Subsidiary Guarantors, and (vii) a Senior
Representative acting on behalf of the holders of such Indebtedness shall have

 

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become party to the Additional First Lien
Intercreditor Agreement, provided that if such Indebtedness is the initial
Permitted First Priority Refinancing Debt incurred by the Borrower, then the
Borrower, the Subsidiary Guarantors, the Administrative Agent, the Collateral
Agent and the Senior Representative for such Indebtedness shall have executed
and delivered the Additional First Lien Intercreditor Agreement.  Permitted First Priority Refinancing Debt
will include any Registered Equivalent Notes issued in exchange therefor.

 

“Permitted Refinancing”
means, with respect to any Person, any modification, replacement, refinancing,
refunding, renewal or extension of any Indebtedness of such Person; provided that (a) the principal
amount (or accreted value, if applicable) thereof does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness so modified,
replaced, refinanced, refunded, renewed or extended except by an amount equal
to unpaid accrued interest and premium thereon plus other reasonable amount
paid, and fees and expenses reasonably incurred, in connection with such
modification, replacement, refinancing, refunding, renewal or extension and by
an amount equal to any existing commitments unutilized thereunder, (b) such
modification, replacement, refinancing, refunding, renewal or extension has a
final maturity date equal to or later than the final maturity date of, and has
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being modified, replaced,
refinanced, refunded, renewed or extended, (c) at the time thereof, no
Default or Event of Default shall have occurred and be continuing, (d) if
such Indebtedness being modified, replaced, refinanced, refunded, renewed or
extended is subordinated in right of payment to the Obligations, such
modification, replacement, refinancing, refunding, renewal or extension is
subordinated in right of payment to the Obligations on terms at least as
favorable to the Lenders as those contained in the documentation governing the
Indebtedness being modified, replaced, refinanced, refunded, renewed or
extended, (e) the terms and conditions (including, if applicable, as to
collateral but excluding as to subordination, interest rate and redemption
premium) of any such modified, replaced, refinanced, refunded, renewed or
extended Indebtedness, taken as a whole, are not materially less favorable to
the Loan Parties or the Lenders than the terms and conditions of the
Indebtedness being modified, replaced, refinanced, refunded, renewed or
extended; provided that a
certificate of a Responsible Officer delivered to the Administrative Agent at
least five Business Days prior to the incurrence of such Indebtedness, together
with a reasonably detailed description of the material terms and conditions of
such Indebtedness or drafts of the documentation relating thereto, stating that
the Borrower has determined in good faith that such terms and conditions
satisfy the foregoing requirement shall be conclusive evidence that such terms
and conditions satisfy the foregoing requirement unless the Administrative
Agent notifies the Borrower within such five Business Day period that it
disagrees with such determination (including a reasonable description of the
basis upon which it disagrees), (f) any such modification, replacement,
refinancing, refunding, renewal or extension is incurred by the Person who is
the obligor of the Indebtedness being modified, refinanced, refunded, renewed
or extended, (g) in the case of a “Permitted Refinancing” of Permitted
First Priority Refinancing

 

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Debt, such Indebtedness meets the requirements of clauses (i), (iii),
(v), (vi) and (vii) of the definition of “Permitted First Priority
Refinancing Debt” and (h) in the case of a “Permitted Refinancing” of
Permitted Unsecured Refinancing Debt, such Indebtedness meets the requirements
of clauses (iv) and (v) of the definition of “Permitted Unsecured
Refinancing Debt”.

 

“Permitted Unsecured
Refinancing Debt” means unsecured Indebtedness incurred by the
Borrower in the form of one or more series of senior unsecured notes or loans;
provided that (i) such Indebtedness constitutes Credit Agreement
Refinancing Indebtedness in respect of any Class of Loans (including
portions of any Class of Loans), (iii) such Indebtedness does not
mature or have scheduled amortization or payments of principal prior to the
date that is ninety-one (91) days after the Latest Maturity Date at the time
such Indebtedness is incurred, (iv) such Indebtedness is not guaranteed by
any Subsidiaries other than the Subsidiary Guarantors, and (v) such
Indebtedness is not secured by any Lien on any property or assets of the
Company or any Subsidiary.  Permitted
Unsecured Refinancing Debt will include any Registered Equivalent Notes issued
in exchange therefor.

 

“Refinancing
Amendment” means an amendment to this Agreement in form and
substance reasonably satisfactory to the Administrative Agent and the Borrower
executed by each of (a) the Borrower, (b) the Administrative Agent
and (c) each Additional Lender and Lender that agrees to provide any
portion of the Credit Agreement Refinancing Indebtedness being incurred
pursuant thereto, in accordance with Section 2.15.

 

“Registered Equivalent
Notes” means, with respect to any notes originally issued in a Rule 144A
or other private placement transaction under the Securities Act of 1933,
substantially identical notes (having the same guarantees) issued in a dollar
for dollar exchange therefor pursuant to an exchange offer registered with the
SEC.

 

“Replacement Lender”
means each Lender with a Replacement Commitment and/or Replacement Loans.

 

“Secured Hedge Agreement”
means any Swap Contract permitted under Article 7 that is entered into by
and between any Loan Party or any Restricted Subsidiary and any Hedge Bank and
with respect to which, at or prior to the time that such Swap Contract is
entered into, the Borrower (or another Loan Party) and the Hedge Bank party
thereto (except in the case of the Administrative Agent) shall have delivered
written notice to the Administrative Agent that such Swap Contract has been
entered into and that it constitutes a “Secured Hedge Agreement” entitled to
the benefits of the Collateral Documents, the Intercreditor Agreement and (if
then in effect) the Additional First Lien Intercreditor Agreement.

 

“Senior Representative”
means, with respect to any series of Permitted First Priority Refinancing Debt,
the trustee, administrative agent, collateral agent,

 

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security agent or similar agent under the
indenture or agreement pursuant to which such Indebtedness is issued, incurred
or otherwise obtained, as the case may be, and each of their successors in such
capacities.

 

“Third Amendment” means the Third
Amendment to this Agreement, dated as of August 20, 2009.

 

“Third Amendment Effective
Date” has the meaning provided in the Third Amendment.

 

2.                                       The definition
of “Collateral and Guarantee Requirement”
appearing in Section 1.01 of the Credit Agreement is hereby amended by (i) replacing
the text “and (y) the Intercreditor Agreement” appearing in clause (a) of
said definition with the text “(y) the Intercreditor Agreement, and (z) if
then in effect, the Additional First Lien Intercreditor Agreement”, (ii) inserting
the text “and, if then in effect, the Additional First Lien Intercreditor
Agreement” immediately after the text “the Intercreditor Agreement” appearing
in the first parenthetical of clause (d) of said definition, (iii) replacing
the text “and the Intercreditor Agreement” appearing in clause (e) of said
definition with the text “, the Intercreditor Agreement and, if then in effect,
the Additional First Lien Intercreditor Agreement” and (iv) inserting the
text “and, if then in effect, the Additional First Lien Intercreditor Agreement”
immediately after the text “the Intercreditor Agreement” appearing in the
parenthetical of clause (g)(ii) of said definition.

 

3.                                       The definition
of “Disqualified Stock” appearing
in Section 1.01 of the Credit Agreement is hereby amended by replacing the
text “Maturity Date” appearing in clause (b) of said definition with the
text “Latest Maturity Date at the time such Disqualified Stock is first issued”.

 

4.                                       The definition
of “Permitted Collateral Liens”
appearing in Section 1.01 of the Credit Agreement is hereby amended by
replacing the text “and (ll)” appearing in clause (c) of said definition
with the text “, (ll) and (nn)”.

 

5.                                       The definition
of “Permitted Liens” appearing in Section 1.01
of the Credit Agreement is hereby amended by (i) deleting the word “and”
at the end of clause (ll) of said definition, (ii) replacing the period (“.”)
at the end of clause (mm) of said definition with the text “; and” and (iii) inserting
the following new clause (nn) at the end of said definition:

 

“(nn)                    Liens on the Collateral
securing Permitted First Priority Refinancing Debt (and Permitted Refinancings
thereof) permitted under Section 7.03(b)(xxii).”.

 

6.                                       Section 2.01
of the Credit Agreement is hereby amended by deleting the text “ (i)” appearing
in clause (b) of said Section and inserting a comma in lieu thereof.

 

7.                                       Section 2.02
of the Credit Agreement is hereby amended by (i) inserting the text “the
applicable Class of” immediately before the text “Loans,” appearing in the
first sentence of clause (b) of said Section and (ii) inserting
the word “Appropriate” immediately before the text “Lender shall make”
appearing in clause (b) of said Section.

 

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8.                                       Section 2.05
of the Credit Agreement is hereby amended by deleting clause (a)(i) of
said Section in its entirety and restating said clause as follows:

 

“(i)  The Borrower may, upon notice to
the Administrative Agent, at any time or from time to time voluntarily prepay
Loans in whole or in part without premium or penalty; provided that (1) such
notice must be received by the Administrative Agent not later than 12:30 p.m.
(New York, New York time) (A) three (3) Business Days prior to any
date of prepayment of Eurocurrency Rate Loans and (B) one (1) Business
Day prior to any date of prepayment of Base Rate Loans; (2) any prepayment
of Eurocurrency Rate Loans shall be in a principal amount of $2,500,000 or a
whole multiple of $500,000 in excess thereof; and (3) any prepayment of
Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple
of $100,000 in excess thereof or, in each case, if less, the entire principal
amount thereof then outstanding.  Each such
notice shall specify the date and amount of such prepayment, the Type(s) of
Loans to be prepaid and the manner in which such prepayment shall be applied to
scheduled repayments of Loans required pursuant to Section 2.07; provided
that in the event such notice fails to specify the manner in which the
respective prepayment shall be applied to scheduled repayments of such Loans
required pursuant to Section 2.07, such prepayment of such Loans shall be
applied in direct order of maturity to scheduled repayments thereof required
pursuant to Section 2.07.  The
Administrative Agent will promptly notify each Appropriate Lender of its
receipt of each such notice, and of the amount of such Lender’s Pro Rata Share
of such prepayment.  If such notice is
given by the Borrower, the Borrower shall make such prepayment and the payment
amount specified in such notice shall be due and payable on the date specified
therein.  Any prepayment of a
Eurocurrency Rate Loan shall be accompanied by all accrued interest thereon, together
with any additional amounts required pursuant to Section 3.05.  Each prepayment of the Loans pursuant to this
Section 2.05(a) shall be paid to the Appropriate Lenders in
accordance with their respective Pro Rata Shares.”.

 

9.                                       Section 2.05
of the Credit Agreement is hereby further amended by restating clause (b)(ii) of
said Section in its entirety as follows:

 

“(ii)                            (A) If the Borrower or any
Restricted Subsidiary incurs or issues any Indebtedness not expressly permitted
to be incurred or issued pursuant to Section 7.03, the Borrower shall
cause to be prepaid an aggregate principal amount of Loans in an amount equal
to 100% of all Net Proceeds received therefrom on or prior to the date which is
five (5) Business Days after the receipt of such Net Proceeds.  (B) If the Borrower incurs or issues any
Credit Agreement Refinancing Indebtedness (other than solely by means of extending or renewing then
existing Credit Agreement Refinancing Indebtedness of the type described in
clause (a) or (b) of the definition thereof without resulting in any
Net Proceeds), the Borrower shall prepay an aggregate principal amount
of Loans in an amount equal to 100% of the Net Proceeds of such Credit
Agreement Refinancing Indebtedness on the date such Credit Agreement
Refinancing Indebtedness is incurred or issued; provided,
that each prepayment of Loans required by this clause (B) shall be applied
first to the Class or Classes of Loans with the earliest

 

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Maturity Date until all
such Loans of such Class or Classes have been repaid in full and then to
the Class or Classes of Loans with the next earliest Maturity Date and so
on until 100% of the Net Proceeds from such Credit Agreement Refinancing
Indebtedness has been applied to the Loans as required by this clause (B).”.

 

10.                                 Section 2.05 of the Credit Agreement
is hereby further amended by (i) inserting the text “Appropriate”
immediately prior to the text “Lenders” appearing in clause (b)(iii) of
said Section and (ii) deleting the last sentence appearing in clause
(b)(iv) of said Section and inserting the following sentence in lieu
thereof:

 

“The
Administrative Agent will promptly notify each Appropriate Lender of the
contents of the Borrower’s prepayment notice and of such Appropriate Lender’s Pro
Rata Share of the prepayment.”.

 

11.                                 Section 2.06
of the Credit Agreement is hereby amended by (i) inserting the text “Original”
immediately before the text “Commitment” appearing in said Section and (ii) deleting
the text “Section 2.01” in said Section and inserting the text “Section 2.01(a)”
in lieu thereof.

 

12.                                 Article II
of the Credit Agreement is hereby amended by inserting the following new Section 2.15
immediately following Section 2.14 of said Article:

 

“SECTION 2.15. Refinancing Amendments.  At any time after the Third Amendment
Effective Date, the Borrower may obtain from any Lender or any Additional
Lender Credit Agreement Refinancing Indebtedness in respect of all or any
portion of the Loans then outstanding under this Agreement (which for this
purpose will be deemed to include any then outstanding Other Term Loans), in
the form of Other Term Loans or Other Term Commitments, in each case pursuant
to a Refinancing Amendment; provided that
such Credit Agreement Refinancing Indebtedness (i) will rank pari passu in right of payment and of security with the
other Loans and Commitments hereunder, (ii) have such pricing and optional
prepayment terms as may be agreed by the Borrower and the Lenders thereof, (iii) except
as otherwise provided in Section 2.05(b)(ii)(B) or as may be agreed
to by the Lenders and Additional Lenders providing such Credit Agreement
Refinancing Indebtedness in the respective Refinancing Amendment (but solely as
it relates to such Credit Agreement Refinancing Indebtedness waiving their pro
rata share of any applicable prepayment or repayment), each Class of
Other Term Loans shall be prepaid and repaid (or offered to be repaid in the
case of Section 2.05(c)) on a pro  rata basis with all
voluntary prepayments and mandatory prepayments (other than amortization
payments) of the other Classes of Loans and (iv) otherwise be treated
hereunder no more favorably, including with respect to covenants and events of
default, than the Refinanced Debt; provided  further that the terms and conditions applicable to such
Credit Agreement Refinancing Indebtedness may provide for any additional or
different financial or other covenants or other provisions that are agreed
between the Borrower and the Lenders thereof and applicable only during periods
after the Latest Maturity Date that is in effect on the date such Credit
Agreement Refinancing Indebtedness is issued, incurred or obtained.  The effectiveness of

 

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any Refinancing Amendment shall be subject to
the satisfaction on the date thereof of each of the conditions set forth in
Sections 4.01 (i), (j) and (k) and, to the extent reasonably
requested by the Administrative Agent, receipt by the Administrative Agent of (i) legal
opinions, board resolutions and officers’ certificates consistent with those
delivered on the Closing Date other than changes to such legal opinion
resulting from a change in law, change in fact or change to counsel’s form of
opinion reasonably satisfactory to the Administrative Agent and (ii) reaffirmation
agreements reasonably satisfactory to the Administrative Agent.  Each tranche of Credit Agreement Refinancing
Indebtedness incurred under this Section 2.15 shall be in an aggregate
principal amount that is not less than $50,000,000.  The Administrative Agent shall promptly
notify each Lender as to the effectiveness of each Refinancing Amendment.  Each of the parties hereto hereby agrees
that, upon the effectiveness of any Refinancing Amendment, this Agreement shall
be deemed amended to the extent (but only to the extent) necessary to (i) reflect
the existence and terms of the Credit Agreement Refinancing Indebtedness
incurred pursuant thereto (including any amendments necessary to treat the
Loans and Commitments subject thereto as Other Term Loans and/or Other Term
Commitments), (ii) provide certain class protection to the Lenders and
Additional Lenders providing such Credit Agreement Refinancing Indebtedness
with respect to voluntary prepayments and mandatory prepayments and (iii) make
such other changes to this Agreement and the other Loan Documents consistent
with the provisions and intent of the second paragraph of Section 10.01.  Any Refinancing Amendment may, without the
consent of any other Lenders, effect such amendments to this Agreement and the
other Loan Documents as may be necessary or appropriate, in the reasonable
opinion of the Administrative Agent and the Borrower, to effect the provisions
of this Section, and the Required Lenders hereby expressly authorize the
Administrative Agent to enter into any such Refinancing Amendment.”.

 

13.                                 Section 3.07
of the Credit Agreement is hereby amended by inserting the text “or all the
Lenders with respect to a certain Class of Loans” immediately following
the text “Section 10.01” appearing in clause (c) of said Section.

 

14.                                 Section 7.03
of the Credit Agreement is hereby amended by inserting the text “(including any
Indebtedness incurred pursuant to Section 2.15)” immediately after the
text “Restricted Subsidiary” appearing at the end of clause (b)(i) in said
Section.

 

15.                                 Section 7.03
of the Credit Agreement is hereby further amended by (i) deleting the text
“and” appearing at the end of clause (b)(xx) in said Section, (ii) replacing
the period (“.”) at the end of clause (b)(xxi) in said Section with a semi-colon
(“;”) and (iii) inserting the following new subclauses (xxii) and (xxiii)
at the end of clause (b) of said Section:

 

“(xxii) 
Permitted First Priority Refinancing Debt and any Permitted Refinancing
thereof; and

 

(xxiii) Permitted Unsecured Refinancing Debt and any Permitted
Refinancing thereof.”.

 

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16.                                 Section 7.12
of the Credit Agreement is hereby amended and restated as follows:

 

“SECTION 7.12.  Use of
Proceeds.  The Borrower shall not,
and shall not permit any of its Restricted Subsidiaries to, use the proceeds of
any Borrowing, whether directly or indirectly, in a manner inconsistent with
the uses set forth in the preliminary statements to this Agreement.  Notwithstanding the foregoing, (a) proceeds
of the Replacement Loans will not be used for any purpose other than the
repayment of principal of the outstanding Refinanced Loans on the Second
Amendment Effective Date and (b) proceeds of any Other Term Loans will not
be used for any purpose other than the repayment of principal and accrued and
unpaid interest and premium on Loans outstanding on the date of incurrence of
such Other Term Loans and payment of other reasonable amounts incurred and fees
and expenses reasonably incurred, in connection with such Other Term Loans.”.

 

17.                                 Section 8.01
of the Credit Agreement is hereby amended by replacing the text “and the
Intercreditor Agreement” appearing in clause (k) of said Section with
the text “, the Intercreditor Agreement and (if then in effect) the Additional
First Lien Intercreditor Agreement”.

 

18.                                 Section 9.01
of the Credit Agreement is hereby amended by replacing the text “the
Intercreditor Agreement” appearing in clause (b) of said Section with
the text “the Intercreditor Agreement and (if then in effect) the Additional
First Lien Intercreditor Agreement”.

 

19.                                 Section 9.11
of the Credit Agreement is hereby amended by replacing the text “the
Intercreditor Agreement” appearing in the introductory clause of said Section with
the text “the Intercreditor Agreement and (if then in effect) the Additional
First Lien Intercreditor Agreement”.

 

20.                                 Section 10.07
of the Credit Agreement is hereby amended by (i) inserting the text “of
any Class” immediately after the text “assigning Lender’s Commitment or Loans”
appearing in clause (b)(ii)(A) of said Section and (ii) inserting
the following sentence immediately after clause (b)(ii) in said Section:

 

“This paragraph (b) shall not prohibit any lender from assigning
all or a portion of its rights and obligations among separate Classes of Loans
or Commitments on a non-pro rata basis.”.

 

21.                                 Section 10.22
of the Credit Agreement is hereby amended by deleting clauses (ii) and (iii) appearing
in said Section in their entirety and inserting the following new clauses (ii) and
(iii) in lieu thereof:

 

“(ii) EACH LENDER AUTHORIZES AND
INSTRUCTS THE COLLATERAL AGENT AND THE ADMINISTRATIVE AGENT TO ENTER INTO THE
INTERCREDITOR AGREEMENT AND THE ADDITIONAL FIRST LIEN INTERCREDITOR AGREEMENT
ON BEHALF OF SUCH LENDER, AND TO TAKE ALL ACTIONS (AND EXECUTE ALL

 

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DOCUMENTS) REQUIRED (OR DEEMED ADVISABLE) BY IT IN ACCORDANCE WITH THE
TERMS OF THE INTERCREDITOR AGREEMENT OR THE ADDITIONAL FIRST LIEN INTERCREDITOR
AGREEMENT, AS THE CASE MAY BE.

 

(iii)                               THE PROVISIONS OF THIS SECTION 10.22
ARE NOT INTENDED TO SUMMARIZE ALL RELEVANT PROVISIONS OF (A) THE
INTERCREDITOR AGREEMENT, THE FORM OF WHICH IS ATTACHED AS AN EXHIBIT TO
THIS AGREEMENT OR (B) THE ADDITIONAL FIRST LIEN INTERCREDITOR AGREEMENT,
WHICH WILL BE IN THE FORM APPROVED BY THE ADMINISTRATIVE AGENT AS
PERMITTED BY THIS AGREEMENT.  REFERENCE
MUST BE MADE TO THE INTERCREDITOR AGREEMENT OR THE ADDITIONAL FIRST LIEN
INTERCREDITOR AGREEMENT ITSELF TO UNDERSTAND ALL TERMS AND CONDITIONS THEREOF.  EACH LENDER IS RESPONSIBLE FOR MAKING ITS OWN
ANALYSIS AND REVIEW OF EACH OF THE INTERCREDITOR AGREEMENT AND THE ADDITIONAL
FIRST LIEN INTERCREDITOR AGREEMENT AND THE TERMS AND PROVISIONS THEREOF, AND NO
AGENT (AND NONE OF ITS AFFILIATES) MAKES ANY REPRESENTATION TO ANY LENDER AS TO
THE SUFFICIENCY OR ADVISABILITY OF THE PROVISIONS CONTAINED IN THE
INTERCREDITOR AGREEMENT OR THE ADDITIONAL FIRST LIEN INTERCREDITOR AGREEMENT.”.

 

B.                                     Miscellaneous
Provisions

 

1.                                       In order to
induce the Lenders to enter into this Third Amendment, the Borrower hereby
represents and warrants to each of the Lenders that, as of the Third Amendment
Effective Date (as defined below):

 

(i)                                     This Third
Amendment has been duly authorized, executed and delivered by it and this Third
Amendment and the Credit Agreement (as modified hereby) constitute its legal,
valid and binding obligation, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors’ rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in
equity or at law.

 

(ii)                                  The representations and
warranties set forth in Article V of the Credit Agreement and in the other
Loan Documents are, both immediately before and after giving effect to this
Third Amendment, true and correct in all material respects both on and as of
the Third Amendment Effective Date with the same effect as though made on and
as of the Third Amendment Effective Date unless such representations and
warranties relate to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date.

 

(iii) there exists no Default or Event
of Default on the Third Amendment Effective Date, both immediately before and
after giving effect to this Third Amendment.

 

11

 

2.                                       (a) Except
as expressly set forth herein, this Third Amendment shall not by implication or
otherwise limit, impair, constitute a waiver of or otherwise affect the rights
and remedies of the Lenders or the Agents under the Credit Agreement or any
other Loan Document, and shall not alter, modify, amend or in any way affect
any of the terms, conditions, obligations, covenants or agreements contained in
the Credit Agreement or any other provision of the Credit Agreement or of any
other Loan Document, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. 
Nothing herein shall be deemed to entitle the Borrower to receive a
consent to, or a waiver, amendment, modification or other change of, any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances.

 

(b)                                 On and after
the Third Amendment Effective Date, each reference in the Credit Agreement to “this
Agreement”, “hereunder”, “hereof”, “herein”, or words of like import, and each
reference to the Credit Agreement in any other Loan Document shall be deemed a
reference to the Credit Agreement as modified hereby.  This Third Amendment shall constitute a “Loan
Document” for all purposes of the Credit Agreement and the other Loan
Documents.

 

3.                                       This Third
Amendment may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which counterparts when
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. 
Delivery by facsimile or other electronic imaging means of an executed
counterpart of a signature page to this Third Amendment shall be effective
as delivery of an original executed counterpart of this Third Amendment. A
complete set of counterparts executed by all the parties hereto shall be lodged
with the Borrower and the Administrative Agent.

 

4.                                       THIS
THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW
YORK.

 

5.                                       (a) This
Third Amendment shall become effective on the date (the “Third Amendment Effective Date”) when:

 

(i)                                     the Borrower,
the Administrative Agent and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and the
Borrower and Required Lenders shall have delivered (including by way of
facsimile transmission) their signed counterparts to the Administrative Agent;

 

(ii)                                  the
Administrative Agent shall have received payment from the Borrower, for the
account of each Lender that executes and delivers a counterpart signature page to
this Third Amendment prior to 12:00 noon, New York City time, on August 17,
2009, an amendment fee (an “Amendment Fee”) in an aggregate amount equal
to 0.025% of the aggregate principal amount of the Loans of such Lender.  The Amendment Fee shall be payable in
immediately available funds and, once paid, such fee or any part thereof shall
not be refundable; and

 

(iii)                               the Borrower
shall have paid all fees and other amounts due and payable pursuant to this
Third Amendment, including, to the extent invoiced, reimbursement or payment of
reasonable out-of-pocket expenses in connection with this Third Amendment

 

12

 

and
any other reasonable out-of-pocket expenses of the Administrative Agent
required to be paid or reimbursed pursuant to the Credit Agreement, including
the reasonable fees, charges and disbursements of counsel for the
Administrative Agent.

 

(b)                                 The Administrative
Agent shall notify the Borrower and the Lenders of the Third Amendment
Effective Date and such notice shall be conclusive and binding.

 

6.                                       By executing
and delivering a copy hereof, each Loan Party hereby agrees that all Loans
shall be fully guaranteed pursuant to the Guaranty to which it is party in
accordance with the terms and provisions thereof and shall be fully secured
pursuant to the applicable Collateral Documents.

 

7.                                       From and after
the Third Amendment Effective Date, all references in the Credit Agreement and
in the other Loan Documents to the Credit Agreement shall be deemed to be
references to the Credit Agreement as modified hereby.

 

*     *     *

 

13

 

IN WITNESS WHEREOF, the undersigned have
caused this Third Amendment to be duly executed and delivered as of the date
first above written.

 

	
   

  	
  MICHAELS
  STORES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Elaine D. Crowley

  
	
   

  	
   

  	
  Name:

  	
  Elaine
  D. Crowley

  
	
   

  	
   

  	
  Title:

  	
  Executive
  Vice President — Chief

  
	
   

  	
   

  	
   

  	
  Financial
  Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DEUTSCHE BANK AG NEW YORK BRANCH, Individually and
  as Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Enrique Landaeta

  
	
   

  	
   

  	
  Name:

  	
  Enrique
  Landaeta

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Omayra Laucella

  
	
   

  	
   

  	
  Name:

  	
  Omayra
  Laucella

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  

 

 

Each of the undersigned Guarantors
acknowledges and agrees to the terms of the Third Amendment.

 

	
   

  	
  AARON BROTHERS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elaine D. Crowley

  
	
   

  	
   

  	
  Name:

  	
  Elaine D. Crowley

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice
  President - CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS FINANCE COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elaine D. Crowley

  
	
   

  	
   

  	
  Name:

  	
  Elaine D. Crowley

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice
  President - CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS STORES PROCUREMENT
  COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elaine D. Crowley

  
	
   

  	
   

  	
  Name:

  	
  Elaine D. Crowley

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President
  - CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS STORES CARD SERVICES,
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elaine D. Crowley

  
	
   

  	
   

  	
  Name:

  	
  Elaine D. Crowley

  
	
   

  	
   

  	
  Title:

  	
  President - CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTISTREE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elaine D. Crowley

  
	
   

  	
   

  	
  Name:

  	
  Elaine D. Crowley

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice
  President - CFO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS OF CANADA, ULC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Elaine D. Crowley

  
	
   

  	
   

  	
  Name:

  	
  Elaine D. Crowley

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice
  President - CFO

  

 

 

	
   

  	
  SIGNATURE
  PAGE TO THE THIRD AMENDMENT, DATED AS OF THE DATE FIRST WRITTEN ABOVE, TO THE
  CREDIT AGREEMENT DATED AS OF OCTOBER 31, 2006, AMONG MICHAELS STORES, INC.,
  DEUTSCHE BANK AG NEW YORK BRANCH, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE
  BANK, N.A., AS SYNDICATION AGENT, AND BANK OF AMERICA, N.A. AND CREDIT
  SUISSE, AS CO-DOCUMENTATION AGENTS

  
	
   

  	
   

  
	
   

  	
  NAME
  OF INSTITUTION:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:Exhibit
10.1

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This
Amended and Restated Employment Agreement (the “Agreement”) is made and
entered into by and between Edward A. Mueller (“Executive”) and Qwest
Communications International Inc., a Delaware corporation (together with Qwest
Corporation, the “Company”).

 

WITNESSETH

 

WHEREAS,
Executive and the Company entered into an Amended Employment Agreement dated August
29, 2007, as amended by an Amendment to Amended Employment Agreement dated October
15, 2008 (together, the “Prior Agreement”); and

 

WHEREAS,
Executive and the Company wish to amend and restate the Prior Agreement as set
forth in this Agreement.

 

NOW,
THEREFORE, in consideration of the premises and the mutual covenants herein
contained Executive and the Company hereby agree as follows:

 

1.             Employment
Term

 

This
Agreement shall be in effect beginning on August 29, 2007 (the “Effective
Date”), and terminating upon the earlier of (i) three years (the “Initial
Term”) or (ii) the Date of Termination as defined in Paragraph 4.6(b).  If not terminated earlier, this Agreement
will automatically be renewed at the end of its Initial Term and on each
anniversary thereafter for a period of one year unless either party gives
written notice of cancellation to the other party at least 90 days prior to the
end of the Initial Term or anniversaries thereof.  The period of time from the Effective Date
through the date the Date of Termination is referred to as the “Employment
Term.”

 

2.             Employment

 

2.1           Engagement.  (a)  During
the Employment Term, Executive shall serve as Chief Executive Officer of the
Company, shall report directly to the Company’s Board of Directors (the “Board”),
and shall be responsible for the duties normally and customarily attendant to
such office.  Such duties,
responsibilities, power and authority shall include, without limitation,
responsibility for the management, operation, strategic direction, and overall
conduct of the business of the Company. 
All other employees of the Company shall report to the Executive and not
directly to the Board.  Executive also
shall render such other services and duties of an executive nature consistent
with the duties of the most senior executive officer of the Company as may from
time to time be designated by the Board. 
Executive shall be an employee of Qwest Corporation.

 

(b)           During the
Agreement Term, while Executive is employed by the Company, the Company shall
use its best efforts to cause Executive to be appointed to the Board as a
director and to be elected as Chairman and to include Executive in the Board’s
slate of nominees for election as a director at the applicable annual meeting
of the Company’s 

 

 

shareholders and shall recommend to the shareholders that Executive be
elected as a director of the Company.

 

2.2           Place of
Employment.  Executive’s
primary workplace shall be the Company’s offices in Denver, Colorado, except
for usual and customary travel on the Company’s business.  Executive will be required to maintain a
residence in the Denver, Colorado area during the Employment Term.

 

2.3           Exclusive
Employment.  During the
Employment Term, Executive shall devote his full business time to his duties
and responsibilities set forth in Paragraph 2.1.  Without limiting the generality of the
foregoing, Executive shall not, without the prior written approval of the
Board, during the Employment Term, render services of a business, professional
or commercial nature to any other person, firm or corporation, whether for
compensation or otherwise, except that Executive may (i) engage in civic,
philanthropic and community service activities, (ii) make and maintain outside
personal investments, and (iii) serve on the boards of the companies listed on Exhibit
A hereto and any other company pre-approved by the Board or any appropriate
committee of the Board so long as the foregoing activities do not materially
interfere with Executive’s ability to comply with this Agreement and are not
otherwise in conflict with the policies or interest of the Company.

 

3.             Compensation
and General Benefits

 

3.1           Base Salary.  During the Employment Term, the Company shall
pay Executive a base salary in an annualized amount equal to $1,200,000.00 (“Base
Salary”) payable pro rata according to the Company’s regular management
payroll processes, and subject to adjustment as hereinafter provided.

 

3.2           Bonus.  During the Employment Term, Executive shall
be eligible to participate in and to earn incentive or bonus awards under the
Company’s annual Management Bonus Plan or such successor incentive or bonus
plans that the Company may adopt from time to time for the benefit of its
senior executives (collectively referred to as the “Annual Bonus Plan”),
in accordance with the terms of the Annual Bonus Plan as in effect from time to
time. The target level for each annual bonus shall not be less than 200% of
Executive’s Base Salary for the year, provided that the Company achieves the
applicable objectives established by the Board for the year.  Executive shall receive a guaranteed minimum
bonus for 2007 (to be paid in March 2008 if Executive is employed by the
Company on the date of such payment), equal to the target level of Executive’s
Base Salary specified above prorated to reflect the number of days Executive
was employed by the Company in 2007. 
Executive’s 2007 bonus may be increased by the Compensation and Human
Resources Committee of the Board (“Committee”) in its sole discretion.
The guaranteed minimum bonus under this Section 3.2 shall be considered
eligible compensation for purposes of applicable Company benefit plans.

 

2

 

3.3           Equity
Incentive Compensation.  On
the Grant Date (as defined in the Equity Agreement between Executive and
Company dated August 10, 2007), the Company granted to Executive options and
restricted stock as set forth on Exhibit B hereto and may subsequently, in the
Company’s discretion, grant to Executive additional options, restricted stock,
or other equity-based compensation pursuant to the Company’s Equity Incentive
Plan (the “EIP”). The terms and conditions of the initial grants
provided for in this Paragraph 3.3 and of any subsequent grants of options,
restricted stock or other equity-based compensation will be determined by the
Committee at the time of such grants in accordance with the EIP and will be set
forth in grant agreements provided to Executive by the Company from time to
time.

 

3.4           Compensation
Reviews.  Executive’s compensation shall
be reviewed at least annually by the Committee for the purpose of considering
increases to Executive’s compensation. 
In conducting this review, the Committee shall consider appropriate
factors, including, without limitation, Executive’s individual performance, the
Company’s financial condition and strategic direction and compensation afforded
to senior executives of comparable corporations.  The Base Salary shall not be decreased
without the written consent of Executive.

 

3.5           Vacation.  Executive shall be entitled to 30 days paid
time off annually subject to the terms and conditions of the Company’s policy.

 

3.6           Employee
Benefits.  The
Executive and his eligible dependents shall be provided with health, retirement
and other employee benefits and perquisites on the same basis as such benefits
and are provided by the Company from time to time to the Company’s other senior
executives.

 

3.7           Reimbursement
of Expenses.  Upon
submission of appropriate documentation in accordance with Company policy, the
Company will promptly reimburse Executive for all reasonable expenses incurred
by Executive (i) in connection with the negotiation and preparation of the
Amended Employment Agreement dated August 29, 2007, between Executive and the
Company, which reimbursement shall not exceed $40,000, and (ii) in the
performance of his duties in accordance with the Company’s policies applicable
to senior executives.

 

3.8      Relocation
Expenses.  Company shall pay Executive’s reasonable
expenses related to the relocation of his primary residence to the Denver,
Colorado area, in accordance with the Company’s relocation policy applicable to
senior executives.  Company will also pay
reasonable out of pocket expenses of Executive’s travel between his current
primary residence and Denver, Colorado and will pay Executive such additional
amount as is necessary to provide Executive with an allowance of up to $5,000
per month for temporary housing and living expenses through February 15, 2008.   In addition, through June 30, 2008,
Executive’s wife and/or minor child are authorized to use the Company aircraft
to fly between Executive’s current primary residence and Denver, Colorado,
unaccompanied by Executive.  Notwithstanding,
Executive shall use his best efforts to relocate his permanent residence to
Denver, Colorado as soon as possible after selling his principal residence,
below.  The relocation payments shall
also include provision for the Company to purchase Executive’s current
principal residence as provided below.

 

3

 

If any payment of relocation expenses and any
imputed income relating to Executive’s travel or travel of Executive’s wife
and/or minor child pursuant to the previous paragraph between his current
primary residence and Denver as described in the previous paragraph (other than
payments with respect to the purchase of Executive’s principal residence) is
subject to federal or state income tax, the Company shall pay to the Executive
an additional amount such that after receipt of the additional amount, and
payment of all applicable taxes on the additional amount, the Executive shall
effectively incur no federal or state income tax with respect to such
payment.  In the event Executive does not sell his current
principal residence, the Company shall purchase, or cause Executive’s current
principal residence to be purchased, at such time as elected by Executive on or
prior to March 31, 2008, at the then-prevailing value as determined by taking
the average of the values determined by independent appraisers chosen by
Executive and the Company, with a third independent appraiser to be chosen by
the prior two appraisers to value the property between the two prior values if
there is a more than 5% difference between the values determined by the prior
two appraisers.

 

3.9           Use of
Corporate Aircraft.  In order to
provide enhanced security for the Executive, the Company will require the use
of Company aircraft for all travel (business and personal) by the Executive.  As a result of this requirement, the Company
authorizes that the Executive’s spouse and family members may accompany the Executive
on Company aircraft.  The Company will also make available to Executive
reasonable private ground transportation for all business travel and for all
travel to and from the airport.  All personal
use of Company aircraft by the Executive and family members and related ground transportation to and from the airport shall be
reasonable and shall be subject to annual review by the Committee.  All personal use of the Company aircraft by
Executive and all use of Company aircraft by the Executive’s spouse (unless determined to be business use and
substantiated as such consistent with Qwest policy) and other members of the
Executive’s family shall be imputed to the Executive as income in accordance with applicable Treasury regulations, except as
otherwise agreed by the Company and the Executive in writing.  The Executive shall also agree to use a
Timeshare Agreement for non-family members who the Executive may invite to
accompany him on Company aircraft, which will require the reimbursement by the
Executive to the Company for such use up to the maximum amount permitted under
FAR 91.501.

 

3.10         Home Security.  The Company shall require the Executive to
obtain and maintain an appropriate home security system to provide security for
the Executive at home in the Denver area and the Company shall reimburse the
Executive for reasonable costs associated with the installation and maintenance
of a home security system.

 

3.11         Flex Executive Benefits.  At the Executive’s initiative, the Company
has agreed that Executive shall no longer receive an annual $75,000 cash
payment for executive perquisites

 

4.             Termination of Employment

 

4.1           Termination Upon Death or Disability.  If Executive is unable to perform his duties
as a result of death or Disability prior to the expiration of the Employment
Term, Executive’s employment as Chief Executive Officer may be terminated and
Executive (or Executive’s estate, or other designated beneficiary(s) as shown
in the records of the Company in the case of death) shall be entitled to
receive (i) the Accrued Benefits (as defined in Paragraph 

 

4

 

4.2 below); and (ii) a
pro-rata amount of the annual bonus that Executive would be eligible to receive
under the terms and conditions of the Company’s Annual Bonus Plan for the year
in which Executive’s termination occurs. 
At its discretion, and only so long as Executive satisfies the
definition of “disability” contained in the Qwest Disability Plan as amended
from time to time (“the Plan”) Company may designate Executive as an
employee solely to preserve his eligibility for disability benefits under the
Plan.  Except as required by law, after
the Date of Termination, the Company shall have no obligation to make any other
payment, including severance or other compensation, of any kind to Executive
(or Executive’s estate, or other designated beneficiary(s) as shown in the
records of the Company in the case of death) upon a termination of employment
by death or Disability.

 

4.2           Voluntary Termination.  If Executive terminates
employment with the Company without Good Reason, Executive agrees to provide
the Company with thirty days’ prior written notice.  The Company, in its sole discretion following
its receipt of such written notice from Executive, may accelerate the
termination of Executive’s employment and the right to any further compensation
to a date prior to the 30th day after such written notice is given.  In the event that Executive’s employment is
terminated under this Paragraph 4.2, Executive shall receive payment for (i) any
earned but unpaid Base Salary or bonus; (ii) any accrued and unpaid vacation
pay through the Date of Termination; (iii) any unreimbursed business expenses;
and (iv) any other benefits the Executive is entitled to receive as of the Date
of Termination under the employee benefit plans of the Company, less required
withholdings for applicable income and employment taxes (“Accrued Benefits”).  Except as required by law, after the Date of
Termination, the Company shall have no obligation to make any other payment,
including severance or other compensation of any kind to Executive on account
of Executive’s termination of employment.

 

4.3           Termination for Cause.  The Company
may terminate Executive’s employment with the Company at any time for Cause in
accordance with Paragraph 4.6(a) below. 
In the event that Executive’s employment is terminated under this
Paragraph 4.3, Executive shall receive the Accrued Benefits.  Except as required by law, after the Date of
Termination, the Company shall have no obligation to make any other payment,
including severance or other compensation of any kind on account of Executive’s
termination of employment or to make any payment in lieu of notice to
Executive.  Except as required by law,
all benefits provided by the Company to Executive under this Agreement or
otherwise shall cease as of the Date of Termination.

 

4.4           Termination
Without Cause.  The Company
may, at any time and without prior written notice, terminate Executive without
Cause.  In the event that Executive’s
employment with the Company is terminated without Cause, Executive shall
receive the Accrued Benefits.  In
addition, if Executive’s employment with the Company is terminated without
Cause prior to the first anniversary of the Effective Date, Executive shall be
entitled to receive the following severance payments:  (a) a pro-rata amount of the annual bonus that
Executive would be eligible to receive under the Company’s Annual Bonus Plan
for the year in which Executive’s termination occurs, to be paid to Executive
on March 1 of the year following the Date of Termination; (b) an amount equal
to his annual Base Salary, less required withholdings for applicable income and
employment taxes, to be paid to Executive according to the Company’s regular
management payroll schedule over 12 months; and (c) an amount equal to
Executive’s 

 

5

 

Annual
Bonus at target to be paid to Executive on March 1 of the year following the
Date of Termination.  If Executive’s employment
is terminated after the first anniversary of the Effective Date, Executive
shall be entitled to receive the following severance payments: (x) a pro-rata
amount of the annual bonus that Executive would be eligible to receive under
the Company’s Annual Bonus Plan for the year in which Executive’s termination
occurs, to be paid to Executive on March 1 of the year following the Date of
Termination; (y) an amount equal to two times Executive’s annual Base Salary,
less required withholdings for applicable income and employment taxes, to be
paid to Executive according to the Company’s regular management payroll
schedule over 24 months; and (z) (i) an amount equal to Executive’s Annual
Bonus at target, to be paid to Executive on March 1 of the year following the
Date of Termination, and (ii) a second payment in an amount equal to his Annual
Bonus at target, to be paid to Executive on March 1 of the second year
following the Date of Termination.  Upon
a termination at any time pursuant to this paragraph 4.4, Executive shall also
be entitled to receive eighteen months of medical coverage for Executive and
his qualified beneficiaries under COBRA subsidized at active management
employee rates.  All payments under this
paragraph 4.4 are subject to the restrictions set forth in paragraphs 4.8 and
may be withheld in order to satisfy the requirements of Section 409A of the
Internal Revenue Code.  Executive’s
entitlement to the severance payments in this paragraph is conditioned on (i) Executive’s
executing and delivering to the Company of a release of claims against the
Company, in the form attached as Exhibit C, and on such release becoming
effective, and (ii) Executive’s compliance with the restrictive covenants set
forth in Articles 6 and 7.  Executive
agrees that the Company shall have a right of offset against all severance
payments for amounts owed to the Company by the Executive.  However, no such offset shall accelerate or
defer any benefit provided under this Agreement in violation of Code Section 409A.  Except as specifically provided in this
Paragraph 4.4 and except as required by law, all benefits provided by the
Company to Executive under this Agreement or otherwise shall cease as of the
Date of Termination.

 

4.5           Termination for Good Reason.  Notwithstanding anything in this Article 4 to
the contrary, Executive may voluntarily terminate his employment with the
Company for Good Reason.  If Executive
terminates his employment for Good Reason, he shall receive the benefits
detailed in Paragraph 4.4 (subject to the same conditions set forth in
Paragraph 4.4).

 

4.6           Certain Definitions.  For purposes of this Agreement, the following
terms shall have the meanings set forth below.

 

(a)           “Cause”
shall mean the occurrence of any one or more of the following events:

 

(1)           Commission of an act deemed by the Company in its
reasonable discretion to be an act of dishonesty, fraud, misrepresentation or
other act of moral turpitude that would reflect negatively upon Qwest or
compromise the effective performance of Executive’s duties;

 

(2)           Unlawful conduct that would reflect negatively upon
Qwest or compromise the effective performance of Executive’s duties, as
determined by the Company in its reasonable discretion;

 

6

 

(3)           Conviction of (or pleading nolo contendere to) any
felony or a misdemeanor involving moral turpitude;

 

(4)           Continued failure to substantially perform Executive’s
duties to the satisfaction of the Board (other than such failure resulting from
Executive’s incapacity due to physical or mental illness) after the Company
delivers written notice to Executive specifically identifying the manner in
which Executive has failed to substantially perform his or her duties and
Executive has been afforded a reasonable opportunity of at least 30 days to
substantially perform his duties; or

 

(5)           A willful violation of the Qwest Code of Conduct or
other Qwest policies that would reflect negatively upon Qwest or compromise the
effective performance of Executive’s duties as determined by the Company in its
reasonable discretion.

 

(b)           “Date of
Termination” shall mean (i) if Executive is terminated as Chief Executive
Officer by the Company for Disability, thirty days after written notice of such
termination is given to Executive (provided that Executive shall not have
returned to the performance of his duties on a full-time basis during such
30-day period); (ii) if Executive’s employment is terminated by the Company for
any other reason, the date on which a written notice of termination is given,
provided that, in the case of a termination for Cause under Paragraph 4.6(a)(iv)
above, Executive shall not have cured the matter or matters stated in the
notice of termination within the 30-day notice period provided in Paragraph 4.6(a)
above; (iii) if Executive terminates employment for Good Reason, the date of
Executive’s resignation; provided that the notice and cure provisions in
Paragraph 4.6(d) have been complied with; (iv) if Executive terminates
employment for other than a Good Reason, the date specified in Executive’s
notice in compliance with Paragraph 4.2; or (v) in the event of Executive’s
death, the date of death.

 

(c)           “Disability”
shall mean that Executive either (i) is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve months or (ii) is, by reason of
any medically determinable physical or mental impairment that can be expected
to result in death or can be expected to last for a continuous period of not
less than twelve months, receiving income replacement benefits for a period of
not less than three months under the Company’s Disability Plan.

 

(d)           “Good Reason”
shall mean Executive’s resignation from employment within 180 days after the
occurrence of one of the events enumerated in this Paragraph 4.6(d), provided,
however, that Executive must provide written notice to the Company within
ninety days after the occurrence of the event allegedly constituting Good
Reason, and the Company shall have thirty days after such notice is given to
cure:

 

7

 

(i)
a change of Executive’s title as Chairman and Chief Executive Officer or a
material reduction in Executive’s responsibilities without Executive’s written
consent;

 

(ii)
a reduction in Base Salary or target Annual Bonus at any time during the
Employment Term without Executive’s written consent;

 

(iii)
relocation of Executive’s primary workplace to any place more than 35 miles
from the Company’s offices in Denver, Colorado as of the Effective Date, except
for usual and customary travel by the Executive on the Company’s business to an
extent substantially consistent with the Executive’s business travel
obligations as of the Effective Date; or

 

(iv)
any material breach by the Company of any provision of this Agreement.

 

4.7           Notice of
Termination.  Any
termination of Executive’s employment by the Company or by Executive under this
Article 4 (other than in the case of death) shall be communicated by a written
notice (the “Notice of Termination”) to the other party hereto,
indicating the specific termination provision in this Agreement relied
upon.  If the termination provisions
relied upon require notice and an opportunity to cure, then the Notice of
Termination should set forth in reasonable detail any facts and circumstances
claimed to provide a basis for termination of Executive’s employment under the
provision so indicated.  The Notice of
Termination should specify a Date of Termination and shall be delivered within
the time periods set forth in the various subparagraphs of this Article 4, as
applicable (the “Notice Period”); provided,
however, that the Company may pay to Executive all Base Salary, benefits
and other rights due to Executive during the Notice Period instead of employing
Executive during such Notice Period.

 

4.8           Code Section 409A.  Notwithstanding anything herein to the
contrary, to the extent that the Board reasonably determines, in its sole
discretion, that any payment or benefit to be provided under Article 4 or
Paragraph 5.1 to or for the benefit of Executive would be subject to the
additional tax imposed under Section 409A(a)(1)(B) of the Internal Revenue Code
of 1986, as amended (the “Code”) or a successor or comparable provision,
the commencement of such payments and/or benefits shall be delayed until the
earlier of (i) the date that is six months following the Date of Termination or
(ii) the date of Executive’s death (such date is referred to herein as the “Distribution
Date”), provided, if at such time Executive is a “specified employee” of
the Company (as defined in Treasury Regulation Section 1.409A-1(i)) and if
amounts payable under this Article 4 or Paragraph 5.1 are on account of an “involuntary
separation from service” (as defined in Treasury Regulation Section 1.409A-1(m)),
Executive shall receive payments during the six-month period immediately
following the Date of Termination equal to the lesser of (x) the amount payable
under this Article 4 or Paragraph 5.1, as the case may be, or (y) two times the
compensation limit in effect under Code Section 401(a)(17) for the calendar
year in which the Termination Date occurs (with any amounts that otherwise
would have been payable under this Article 4 or Paragraph 5.1 during such
six-month period being paid on the first regular payroll date following the
six-month anniversary of the Date of Termination).  In the event that the Board determines that
the commencement of any of 

 

8

 

the employee benefits to be provided under Article 4 or Paragraph 5.1
are to be delayed pursuant to the preceding sentence, the Company shall require
Executive to bear the full cost of such employee benefits until the
Distribution Date at which time the Company shall reimburse Executive for all
such costs.  In no event shall any
payment or benefit provided under this Agreement that is subject to Code Section
409A and that is triggered upon the Executive’s termination of employment or
Date of Termination, regardless of the reason for such termination, be paid
unless such termination of employment or Date of Termination constitutes a
separation from service within the meaning of Code Section 409A.

 

5.             Change in
Control

 

5.1           Severance
Benefits.  If
Executive’s employment is terminated by the Company without Cause or by the
Executive for Good Reason, within two years after the occurrence of a Change in
Control, Executive shall be entitled to receive the Accrued Benefits and, in
lieu of the benefits set forth in Paragraph 4.4 or 4.5, as applicable, the
following severance payments, less required withholdings for applicable income
and employment taxes: 2.99 times his Base Salary, paid in a lump sum; 2.99
times Executive’s most recent target annual bonus, paid in a lump sum; and
eighteen months of medical coverage for Executive and his qualified
beneficiaries under COBRA subsidized at active management employee rates; provided,
however, that Executive’s entitlement to the severance payments in the
foregoing clause is conditioned on (i) Executive’s executing and delivering to
the Company of a release of claims against the Company, in the form attached as
Exhibit C, and on such release becoming effective, and (ii) Executive’s
compliance with the restrictive covenants set forth in Articles 6 and 7. Executive
agrees that the Company shall have a right of offset against all severance
payments for amounts owed to the Company by the Executive as of the Date of
Termination.

 

5.2           Change in
Control. A Change in Control will be deemed to have occurred if either (i) any
individual, entity, or group (within the meaning of section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934 (the “1934 Act”)), acquires
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of more than fifty percent (50%) of either (A) the then-outstanding
shares of Stock (“Outstanding Shares”) or (B) the combined voting power
of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (“Voting Power”) or (ii) at any
time during any 12-month period (not including any period prior to the
Effective Date), individuals who at the beginning of such period constitute the
Board (and any new director whose election by the Board or whose nomination for
election by the Company’s stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority thereof.

 

6.             Confidential
Information

 

During the term of this
Agreement and forever thereafter, Executive agrees to keep confidential all
information provided by the Company, including any trade secrets and any
information and material relating to any customer, vendor, licensor, licensee,
or other party transacting business with the Company (collectively, “Confidential
Information”), and not to 

 

9

 

release, use, or disclose
the Confidential Information, except in connection with performance of
Executive’s duties under this Agreement or with the prior written permission of
the Company.  Confidential Information
may be in any medium or form, including, without limitation, physical
documents, computer files or disks, videotapes, audiotapes, and oral
communications.  Executive further
covenants and agrees that every document, computer disk, computer software
program, notation, record, diary, memorandum, development, investigation, or
the like, and any method or manner of doing business, of the Company (or
containing other secret or Confidential Information of the Company) made or
acquired by Executive during Executive’s employment, is and shall be the sole
and exclusive property of the Company. 
Confidential Information does not include, however, information which (i)
is or becomes generally available to the public other than as a result of an
unauthorized disclosure by Executive, or (ii) the Executive is required to
disclose pursuant to court, administrative hearing officer or other judicial or
duly authorized governmental representative request or demand for such
disclosure, unless the Company has obtained an appropriate protective order
that prohibits such disclosure and the Company has advised the Executive of
such protective order prior to the Executive’s fulfillment of such request or
demand; provided, however, that no disclosure may be made by Executive pursuant
to this clause (ii) until Executive has promptly notified the Company of such
request or demand and the Company has had a reasonable opportunity to secure a
protective order prohibiting disclosure. 
In the event that such protective order is not obtained, Executive shall
furnish only that portion of such Confidential Information or take only such
action as is legally required and shall exercise Executive’s reasonable efforts
to obtain reliable assurance that confidential treatment shall be accorded any
such Confidential Information.

 

7.             Covenants
of Executive

 

7.1           Unfair
Competition.  Executive
agrees that, during the Employment Term and for a period of two years following
a termination of employment he will not, directly or indirectly, engage in any
business or activity which is in direct competition with the Company or of any
of its subsidiaries or affiliates in the telecommunications business.  The foregoing shall not apply to passive
investments by Executive of up to 2% of the voting stock of any publicly traded
company or 5% of the voting stock or other securities of any privately held
company, or to service by Executive on boards of directors of companies as
permitted under this Agreement, regardless of whether such company competes
with the Company.

 

7.2           Solicitation of
Employees.  During the
Employment Term and for a period of two years following a termination of
employment, Executive shall not, directly or indirectly, individually, or
together with or through any other person, firm, corporation or entity, (i) hire
any member of senior management of the Company (defined as an officer with a
title of vice president or higher) who is then in the employ of the Company, (ii)
solicit for hire any employee of the Company, provided, however, that general
solicitations not targeted to Company employees shall not be deemed to violate
this clause (ii), or (iii) interfere with the relationship between any of the
foregoing persons and the Company.  Subparagraph
(i) means, among other things, that Executive may not have any part in hiring a
member of Qwest’s senior management team even if Executive is contacted by the
Qwest employee first.

 

7.3           Solicitation of
Customers and Suppliers. 
Executive agrees that, during the Employment Term and for a period of
two years following a termination of employment other

 

10

 

than following a Change in Control, Executive shall not, directly or
indirectly, individually, or together through any other person, firm,
corporation or entity (i) use the Company’s Confidential Information to solicit
the business of any material customers of or suppliers to the Company, (ii) encourage
any person or entity which is a customer of the Company to cease, reduce, limit
or otherwise alter in a manner adverse to the Company its existing business or
contractual relationship with the Company, or (iii) otherwise interfere with
the relationship between any of the foregoing persons or entities and the
Company.

 

7.4           Compliance with
Company Policies.  Executive
agrees that, during the Employment Term, he shall comply with the Company’s
Code of Conduct and other policies and procedures reasonably established by the
Company from time to time, including but not limited to policies addressing
matters such as management, supervision, recruiting and diversity.

 

7.5           Cooperation.  For a period of two years
following termination of Executive’s employment under this Agreement, Executive
shall, upon Company’s reasonable request, cooperate and assist Company in any
dispute, controversy, or litigation in which Company may be involved and with
respect to which Executive obtained knowledge while employed by the Company or
any of its affiliates, successors, or assigns, including, but not limited to,
participation in any court or arbitration proceedings, giving of testimony,
signing of affidavits, or such other personal cooperation as counsel for the
Company shall request.  Any such
activities shall be scheduled, to the extent reasonably possible, to
accommodate Executive’s business and personal obligations at the time.

 

Recognizing that upon Executive’s separation from the Company,
participating in interviews or witness preparation sessions may be a burden,
the Company agrees to reimburse Executive for the time Executive spends
involved in interviews and witness preparation sessions requested by Qwest at a
rate equal to Executive’s final Base Salary, computed on an hourly basis
(assuming a 40 hour work week), for such time actually spent in such interviews
or witness preparation sessions.  In
addition, Company will reimburse Executive for reasonable expenses Executive
incurs in connection with such interviews and witness preparation sessions.  Company will not be obligated to reimburse
Executive for lost wages, lost opportunities, or other financial consequences
of such cooperation, or to make any other payment to Executive other than the
payments by the Company referred to in the two previous sentences of this
paragraph; provided, however, nothing in this paragraph shall impair or limit
any rights or entitlement Executive may have to indemnification and director’s
and officer’s liability insurance coverage. 
The parties further agree that Company will not, and will not be
obligated to, reimburse Executive for any time spent testifying in any
proceeding (including, but not limited to, appearances at depositions, hearings
and trials), although the Company will reimburse reasonable expenses for such
appearances, as provided above.  The
Company also shall pay the reasonable costs of an attorney Executive engages to
advise him in connection with the foregoing, but only if there is a conflict of
interest that would prevent the Company’s own outside or inside legal counsel
from adequately representing Executive’s interests as well as the Company’s
interests and with the Company’s prior approval.

 

Nothing
in this Agreement shall limit, restrict, preclude, require or influence
Executive’s testimony in any Proceeding or cause Executive not to provide
truthful testimony or information in any matter or in response to any inquiry
by a government official or representative.

 

11

 

Company’s obligation to reimburse Executive as described above is
conditional upon Executive providing, at all times, information that he
objectively, reasonably and in good faith believes to be truthful in connection
with any Proceeding.

 

7.6           Return of Business
Records and Equipment.  Upon
termination of Executive’s employment hereunder, Executive shall promptly
return to the Company: (i) all documents, records, procedures, books,
notebooks, and any other documentation in any form whatsoever, including but
not limited to written, audio, video or electronic, containing any information
pertaining to the Company which includes Confidential Information, including
any and all copies of such documentation then in Executive’s possession or
control regardless of whether such documentation was prepared or compiled by
Executive, Company, other employees of the Company, representatives, agents, or
independent contractors, and (ii) all equipment or tangible personal property
entrusted to Executive by the Company. 
Executive acknowledges that all such documentation, copies of such
documentation, equipment, and tangible personal property are and shall at all
times remain the sole and exclusive property of the Company.

 

7.7           Restricted Periods. 
The periods restricting Executive’s activities set forth in Article 6
and Paragraphs 7.1, 7.2 and 7.3 shall be extended by the length of any period
during which Executive is in breach of the terms and provisions of such Article
or Paragraphs.

 

7.8           Specific
Performance and Remedies.  The
parties hereby agree that irreparable damage would occur in the event any
provision of Article 6 or Paragraphs 7.1, 7.2 and 7.3 of this Agreement were
not performed in accordance with its terms. 
Executive hereby agrees that should Executive breach any covenant under Article
6 or Paragraphs 7.1, 7.2 and 7.3 of this Agreement or threaten to breach any
such covenant, Company shall be entitled (in addition to, and not in lieu of
any other right or remedy that may be available to it) to temporary and permanent
injunctive relief from an arbitrator or court of competent jurisdiction,
without posting any bond or other form of security and without the necessity of
proving actual damages. In view of the position of confidence which Executive
will enjoy with the Company and the anticipated relationship with the clients,
customers, and employees of the Company and its affiliates pursuant to his
employment hereunder, and recognizing both the access to confidential financial
and other information which Executive will have pursuant to his employment,
Executive expressly acknowledges that the restrictive covenants set forth in Article
6 and Paragraphs 7.1, 7.2 and 7.3 are material and essential conditions of
Executive’s employment with the Company without which the Company would not
have entered into this Agreement and are reasonable and necessary in order to
protect and maintain the proprietary interests and other legitimate business
interests of the Company and its affiliates. 
Executive further acknowledges that (i) it would be difficult to
calculate damages to the Company and its affiliates from any breach of his
obligations under any provision contained in Article 6 or Paragraphs 7.1, 7.2
and 7.3, (ii) that injury to the Company and its affiliates from any such
breach would be irreparable and impossible to measure, and (iii) that the
remedy at law for any breach or threatened breach of any provision contained in
Article 6 or Paragraphs 7.1, 7.2 and 7.3 would therefore be an inadequate
remedy and, accordingly, the Company shall, in addition to all other available
remedies (including without limitation seeking such damages as it can show it
and its affiliates has sustained by reason of such breach and/or the exercise
of all other rights it has under this Agreement), be entitled to injunctive and
other similar equitable remedies.

 

12

 

7.9           Scope and Duration of Restrictions.  The parties hereby expressly agree that the
duration and scope of restrictions set forth in Article 6 and Paragraphs 7.1,
7.2 and 7.3 are reasonable.  In the event
that any arbitrator or court of competent jurisdiction shall hold that the
duration or scope or other term of a restriction set forth in Article 6 or
Paragraphs 7.1, 7.2 and 7.3 is unreasonable or unenforceable under
circumstances now or hereafter existing, the maximum duration or scope of
restriction or other term reasonable under such circumstances shall be
substituted, and each party hereto shall petition any such arbitrator or court
to cause the maximum duration or scope of restriction or other term reasonable
under such circumstances to be so substituted for the duration or scope of
restriction or other term set forth herein.

 

8.             Indemnification and Advancement.  In the event Executive is made,
or threatened to be made, a party to any legal action or proceeding, by reason
of the fact that Executive is or was an employee or officer of the Company or
serves or served any other entity in any capacity at the Company’s request,
Executive shall be indemnified by the Company, and the Company shall advance
Executive’s related expenses when and as incurred, including but not limited to
attorney fees, as set forth in the current by-laws of the Company.  During his employment with the Company and thereafter so
long as the Executive may have liability arising out of his service as an
officer or director of the Company, the Company agrees to continue and maintain
a director’s and officer’s liability insurance policy covering the Executive
with coverage no less than that available to active directors and officers of
the Company.

 

9.             Warranties
and Representations.  Executive hereby represents and warrants to
the Company that he is not now under any obligation of a contractual or
quasi-contractual nature known to him that is inconsistent or in conflict with
this Agreement or that would prevent, limit or impair the performance by
Executive of his obligations hereunder; and has been or has had the opportunity
to be represented by legal counsel in the preparation, negotiation, execution
and delivery of this Agreement and understands fully the terms and provisions
hereof.

 

10.          Notices.  All notices required or
permitted to be given by either party hereunder shall be in writing and shall
be deemed sufficiently given if mailed by registered or certified mail, or
prepaid overnight courier to the party entitled thereto at the address stated
below, or to such changed address as the addressee may have given by a similar
notice, and shall be deemed received upon actual receipt:

 

	
  To
  the Company:

  	
  Qwest
  Communications International Inc.

  1801
  California Street, Ste. 5200

  Denver,
  Colorado 80202

  Attn:
  General Counsel

  
	
   

  	
   

  
	
  With
  a Copy to:

  	
  Gibson,
  Dunn & Crutcher LLP 

  1801
  California Street, Ste. 4200 

  Denver,
  Colorado 80202 

  Attn:
  Richard Russo, Esq.

  Edward
  A. Mueller 

  
	
   

  	
   

  
	
  To
  Executive:

  	
  At
  the address maintained in the Company’s business records

  

 

13

 

	
  With
  a Copy to:

  	
  Vedder,
  Price, Kaufman & Kammholz, P.C.

  222
  N. LaSalle Street, Ste. 2600

  Chicago,
  Illinois 60601

  Attn:
  Robert J. Stucker, Esq.

  

 

11.          General
Provisions

 

11.1         Waiver.  No waiver by any party hereto of any failure
of any other party to keep or perform any covenant or condition of this
Agreement shall be deemed to be a waiver of any preceding or succeeding breach
of the same, or any other covenant or condition.

 

11.2         Amendments.  No provision of this Agreement may be
amended, modified or waived unless such amendment, modification or waiver shall
be agreed to in writing and signed by Executive in his personal capacity and by
the Chairman of the Compensation and Human Resources Committee of the Board.

 

11.3         Severability.  In case any one or more of the provisions of
this Agreement shall be held by any court of competent jurisdiction or any
arbitrator selected in accordance with the terms hereof to be illegal, invalid
or unenforceable in any respect, such provision shall have no force and effect,
but such holding shall not affect the legality, validity or enforceability of
any other provision of this Agreement and such provision may be modified in
such manner as such court or arbitrator shall reasonably determine in order to
give maximum effect to the intent of the parties as expressed herein.

 

11.4         Assignment.  No right to or interest in any payments shall
be assignable by either party; provided; however, that this provision shall not
preclude Executive from designating one or more beneficiaries to receive any
amount that may be payable after his death and shall not preclude his executor
or administrator from assigning any right hereunder to the person or persons
entitled hereto.  Further, the Company
may assign this Agreement: (i) to an affiliate so long as such affiliate
assumes the Company’s obligations hereunder, or (ii) in connection with a
merger or consolidation involving the Company or a sale of substantially all
its assets or shares to the surviving corporation or purchaser as the case may
be, so long as such assignee assumes the Company’s obligations hereunder.

 

11.5         Successors and
Assigns.  This Agreement and the
obligations of the Company and Executive hereunder shall be binding upon and
shall be assumed by their respective successors including, without limitation,
any corporation or corporations acquiring the Company, whether by merger,
consolidation, sale or otherwise.

 

11.6         Governing Law; Venue;
Jurisdiction. This Agreement is deemed to be accepted and entered into in
Denver, Colorado.  Executive and the
Company intend and hereby acknowledge that jurisdiction over disputes with
regard to this Agreement, and over all aspects of the relationship between the
parties hereto, shall be governed by the laws of the State of Colorado without
giving effect to its rules governing conflicts of laws.  Executive agrees that in any proceeding to
enforce this Agreement, or in any dispute that arises between the Company and
the Executive regarding or relating to this Agreement and/or any aspect of
Executive’s employment relationship with the Company, venue and jurisdiction
are proper in the City and 

 

14

 

County of Denver, and (if federal jurisdiction exists) the United
States District Court for the District of Colorado, and Executive waives all
objections to jurisdiction and venue in any such forum and any defense that
such forum is not the most convenient forum.

 

11.7         No Representation.  No officer, employee or representative of the
Company has any authority to make any representation or promise in connection
with this Agreement or the subject matter hereto which is not contained herein,
and Executive agrees that he has not executed this Agreement in reliance upon
any such representation or promise.

 

11.8         Interpretation of
Agreement.  Each of the parties has
been represented by counsel in the negotiation and preparation of this
Agreement.  The parties agree that this
Agreement is to be construed as jointly drafted.  Accordingly, this Agreement will be construed
according to the fair meaning of its language, and the rule of construction
that ambiguities are to be resolved against the drafting party will not be
employed in the interpretation of this Agreement.

 

11.9         Headings.  The headings of paragraphs and subparagraphs
are included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.

 

11.10       Entire Agreement.  This document constitutes the entire
understanding and Agreement of the parties with respect to the subject matter
of this Agreement, and any and all prior agreements, understandings and
representations are hereby terminated and cancelled in their entirety and are
of no further force or effect.

 

11.11       Counterparts.  This Agreement may be executed in two or more
counterparts with the same effect as if the signatures to all such counterparts
was upon the same instrument, and all such counterparts shall constitute but
one instrument.

 

11.12       No Mitigation of
Damages.  Executive shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor shall the amount
of any payment provided for under this Agreement be reduced by any compensation
earned by Executive as a result of employment by another employer or by
retirement benefits after the Date of Termination.  The provisions of this Agreement, and any
payment provided for hereunder, shall not reduce any amounts otherwise payable,
or in any way diminish Executive’s then existing rights, or rights which would
accrue solely as a result of the passage of time, under any Company benefit
plan or other contract, plan or arrangement.

 

11.13       Dispute Resolution; Arbitration.  Executive and the Company agree that in the
event a dispute arises concerning or relating to Executive’s employment with
the Company, or any termination therefrom, the parties first shall attempt in
good faith to resolve such dispute through mediation.  If a resolution through mediation is not
reached, then such dispute shall be submitted to binding arbitration in
accordance with the employment arbitration rules of Judicial Arbitration and
Mediation Services (“JAMS”) by a single impartial arbitrator experienced
in employment law selected as follows: 
Company and Executive will attempt in good faith to agree upon impartial
arbitrator within thirty days of a request for arbitration.  If the parties cannot 

 

15

 

agree, they shall request a panel of ten arbitrators from JAMS and
select an arbitrator pursuant to the JAMS rules.  The arbitration shall take place in Denver,
Colorado, and both Executive and the Company agree to submit to the
jurisdiction of the arbitrator selected in accordance with JAMS’ rules and
procedures.  The Federal Arbitration Act,
as amended, 9 U.S.C. § 1 et seq., (“FAA”)
and not state law, shall govern the arbitrability of all claims, provided they
are enforceable under the FAA.  Other
than as set forth herein, the arbitrator shall have no authority to add to,
detract from, change, amend, or modify existing law.  The arbitrator shall have the authority to
order such discovery as is necessary for a fair resolution of the dispute.  The arbitrator shall also have the authority
to award any and all relief or remedies provided under the statute or other law
pursuant to which an asserted prevailing claim or defense is raised, as if the
matter were being decided in court. The arbitrator may award punitive damages,
if and only to the extent allowed by Title VII of the Civil Rights Act of 1964,
as amended; the Civil Rights Act of 1991, as amended; the Age Discrimination in
Employment Act of 1967, as amended; and the Americans with Disabilities Act of
1990, as amended; and the arbitrator shall be bound by any limitations on the
amount of punitive or other damages imposed by said statutes. The arbitrator
has no other authority to award punitive damages.  The arbitrator will apply applicable statutes
of limitation, including contractual statutes of limitations, will honor claims
of privilege recognized by law, and will take reasonable steps to protect
confidential or proprietary information, including the use of protective
orders. The prevailing party in any arbitration shall be entitled to receive
reasonable attorneys’ fees, only to the extent such fees are provided by the
statute or other law pursuant to which an asserted claim or defense is raised,
as if the matter were being decided in court. Reimbursement of arbitration or
legal fees and expenses under this Paragraph 11.13 shall be subject to the
following: (a) such reimbursement shall be available to the Executive for the
period during which this Agreement is enforceable; (b) no reimbursement
provided during the Executive’s taxable year shall affect reimbursements
provided in any other taxable year of the Executive; (c) reimbursement must be
made on or before the last day of the Executive’s taxable year following the
taxable year in which the expense was incurred; and (d) no reimbursement
provided under this Paragraph 11.13 shall be subject to liquidation or exchange
for another benefit.  The arbitrator’s
decision and award shall be final and binding, as to all Claims that were or
could have been raised in the arbitration, and judgment upon the award rendered
by the arbitrator may be entered by any court having jurisdiction thereof.  Executive will pay the arbitrator’s fees and
expenses up to $150 and Qwest will pay any arbitrator fees and expenses in
excess of such amount. Qwest will pay all of the arbitrator’s fees and expenses
if it commences the arbitration. The existence and subject matter of all
arbitration proceedings, including without limitation, any settlements or
awards there under, shall remain confidential and be subject to the
Confidentiality provision of this Agreement. Executive and Qwest agree that if
any term or portion of this Arbitration provision is, for any reason, held to
be invalid or unenforceable or to be contrary to public policy or any law, then
the invalid or unenforceable term or portion shall be severed in its entirety
from this Agreement and the remainder of this Arbitration provision shall not
be affected by any such invalidity or unenforceability but shall remain in full
force and effect, as if the invalid or unenforceable term or portion thereof
had not existed within the Arbitration provision.  Executive understands that Qwest would suffer
irreparable harm in the event of breached confidentiality, and such harm would
not be fully compensable in monetary damages. If any party hereto files a
judicial action asserting Claims subject to this Arbitration provision, and
another party successfully stays such action and/or compels arbitration of such
Claims, the party filing the initial judicial action shall pay the other 

 

16

 

party’s costs and expenses incurred in seeking such stay and/or
compelling arbitration, including reasonable attorneys’ fees.  THE COMPANY AND EXECUTIVE FURTHER AGREE THAT
THE DISPUTE RESOLUTION PROCEDURE AS PROVIDED IN THIS PARAGRAPH 11.13 SHALL BE
THE EXCLUSIVE AND BINDING METHOD FOR RESOLVING ANY SUCH DISPUTE AND WILL BE
USED INSTEAD OF ANY COURT ACTION, WHICH IS HEREBY EXPRESSLY WAIVED, EXCEPT FOR
ANY REQUEST BY EITHER PARTY HERETO FOR TEMPORARY OR PRELIMINARY INJUNCTIVE
RELIEF, OR A CHARGE OF DISCRIMINATION FILED WITH AN ADMINISTRATIVE AGENCY.

 

11.14  Conditional Repayment of Payments and
Benefits.  If Executive receives benefits under this
Agreement, and, within two years following Executive’s termination of
employment, Company determines that during Executive’s employment with Qwest, Executive engaged in
conduct that would have constituted “Cause” for termination (as defined in
paragraph 4.6(a) above), regardless of (i) when during Executive’s
employment with Qwest such conduct occurred, (ii) when Qwest knew or learns of
such conduct or should have known of such conduct, or (iii) what Qwest now
knows or should have known about Executive’s conduct, then Company shall provide to Executive (or, if applicable, Executive’s
estate or beneficiary) written notification of such determination, which
written notification shall expressly set forth the basis for Company’s
determination in reasonable detail. 
After Company provides this written notification to Executive, it may
stop or withhold any payments which have not been made under this Agreement.  If Executive disputes that such Cause exists
or existed, Executive and his counsel shall make a presentation to the Company
to request that Company withdraw such determination.  If the matter is not settled or resolved
after Executive’s presentation to the Company, either party may commence an
arbitration pursuant to the procedure set forth in Paragraph 11.13 of this
Agreement.  In addition, if Executive
breaches Executive’s obligations under Article 6 or Paragraphs 7.1, 7.2 or 7.3
of this Agreement, Company may stop or withhold any payments which have not
been made under this Agreement.

 

If the arbitrator finds that Cause exists or existed or
that Executive has breached Executive’s obligations under Article 6 or
Paragraphs 7.1, 7.2 or 7.3 of this Agreement, or if Executive does not timely
commence an action disputing Company’s Cause determination, Executive shall
make prompt repayment to Company of the cash payments provided under this
Agreement and other benefits received by Executive pursuant to this Agreement
(including, but not limited to, the value of any discounted COBRA coverage).  Consistent
with applicable law, any repayments shall include an interest factor equal to
the applicable federal short term interest rate pursuant to Internal Revenue
Code paragraph 1274.  Interest shall
begin to accrue on the 31st day after Executive (or, if applicable, Executive’s
estate or beneficiary) received Company’s written notification of its
determination that such Cause exists or existed, and shall continue to accrue
until complete repayment is made to Company.   If Company notifies Executive (or,
if applicable, Executive’s estate or
beneficiary) in writing of the determination that Cause for termination exists
prior to having made the payments required pursuant to this Agreement, such
payment shall not be made unless the Company withdraws its determination, if
the court determines that Cause did not exist, or if the parties agree
otherwise.

 

17

 

IN
WITNESS WHEREOF, the parties have executed this Agreement as of the dates set
forth below.

 

 

	
   

  	
  QWEST
  COMMUNICATIONS

  INTERNATIONAL INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Chairman
  of the Compensation and

  Human Resources Committee

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EDWARD
  A. MUELLER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  

 

18

 

Exhibit A

 

Board
Service

 

Cakebread
Winery of Napa Valley

The Clorox
Company

McKesson
Corporation

 

19

 

Exhibit B

 

Initial
Grant of Stock Options and Restricted Stock

 

Subject to the terms of the Equity Agreement between
Executive and the Company dated August 10, 2007 (the “Grant Date”), the
Executive was granted: (1) non-qualified options to acquire 2,083,000 shares of Common Stock (the “Option
Award”); and (2) shares of restricted Common Stock having an approximate value
of $7,500,000 (the “Restricted Stock Award”). 
The option price with respect to the Option
Award is the closing price per share of the Common Stock
reported on the New York Stock Exchange on the Grant Date. The number of shares
of restricted Common Stock was determined by dividing the dollar value above by
the closing price per share of the Common Stock reported on the New York Stock
Exchange on the Grant Date, then rounding to the nearest 1,000 shares.

 

20

 

EXHIBIT C

 

WAIVER
AND RELEASE AGREEMENT

 

1.                                       Release
and Waiver of Claims and Covenant Not to Sue.

 

As
a free and voluntary act, you hereby release and discharge and covenant not to
sue, Qwest Communications International Inc., any present or former subsidiary
or affiliated Company, any predecessor or successor, and the directors,
officers, employees, shareholders and agents of any or all of them,
(hereinafter “Qwest”), from any and all debts, obligations, claims, liability,
damages, punitive damages, demands, judgments and/or causes of action of any
kind whatsoever, including specifically but not exclusively:

 

·              all claims relating
to or arising out of your employment with Qwest;

 

·              all claims arising
out of your Employment Agreement or any other agreements between you and the
Company, except as specifically set forth herein;

 

·              all claims relating
to or arising from any claimed breach of an alleged oral or written employment
contract, quasi-contracts, implied contracts, payment for services, wages or
salary and/or promissory estoppel;

 

·              any alleged tort
claims;

 

·              any claims for libel
and/or slander;

 

·              all claims relating
to purported employment discrimination or civil rights violations or arising
under any federal or state employment statutes including, without limitation,
claims under Title VII of the Civil Rights Act of 1964, as amended; claims
under the Civil Rights Act of 1991; claims under the Age Discrimination in
Employment Act of 1967, as amended; claims under 42 U.S.C. § 1981, § 1981a, §
1983, § 1985, or § 1988; claims under the Family and Medical Leave Act of 1993;
claims under the Americans with Disabilities Act of 1990, as amended; claims
under the Rehabilitation Act of 1973; claims under the Fair Labor Standards Act
of 1938, as amended; claims under the Worker Adjustment and Retraining
Notification Act; claims under the Colorado Anti-Discrimination Act; and claims
under the Employee Retirement Income Security Act of 1974, as amended; or any
other applicable federal, state or local statute or ordinance, including claims
for attorneys’ fees;

 

·              any and all claims
which you might have or assert against Qwest (1) by reason of your employment
with and/or termination of employment from Qwest and all circumstances related
thereto; or (2) by reason of any other matter, cause, or dispute whatsoever between
you and Qwest which arose prior to the effective date of this Agreement.  This Agreement excludes any claims you may
make under (1) the applicable 

 

21

 

state
unemployment compensation laws, (2) applicable workers’ compensation statutes, (3)
for indemnification to the extent permitted or required by the bylaws of a
Qwest company, your Employment Agreement or applicable state law; (4) claims as
a shareholder of Qwest; (5) the right to enforce the severance and benefit
continuation provisions of your Employment Agreement and any other provision of
your Employment Agreement that by its terms extends beyond your termination of
employment; (6) claims for vested employee benefits; and (7) claims which arise
after the execution of this Agreement;

 

·              your right to seek
individual relief on your own behalf for any charges of discrimination filed
with any federal, state or local agency, pending or otherwise, arising from or
related to your employment or termination of employment with Qwest.

 

2.                                       By signing this
Waiver and Release Agreement, you confirm that that you are subject to the
Arbitration agreement set forth at paragraph 11.13 of your Employment
Agreement.

 

3.                                       You agree that
the severance payments and benefits provided by your Employment Agreement are
considerations to which you would not otherwise be entitled unless you sign
this Agreement, and that these considerations constitute payment in exchange
for signing this Agreement.

 

4.                                       If one or more
terms, provisions or parts of this Agreement are found by a court or arbitrator
to be invalid, illegal, or incapable of being enforced by any rule of law or
public policy, the terms, provisions or parts shall be modified to the extent
(but not more than is) necessary to make the provision enforceable.  You agree that if any portion of this
Agreement is found to be unenforceable or prohibited, the remainder of this
Agreement shall remain in full force and effect, unless the material terms and
intent of this Agreement are materially changed by the fact that a portion of
this Agreement is unenforceable or prohibited.

 

5.                                       You agree that
this Agreement shall not be admissible in any proceeding as evidence of any
improper conduct by Qwest against you and Qwest denies that it has taken any
improper action against you in violation of any federal, state, or local law or
common law principle.

 

6.                                       You acknowledge
that no promises or representations have been made to induce you to sign this
Agreement other than as expressly set forth herein and that you have signed
this Agreement as a free and voluntary act.

 

7.                                       You acknowledge
that this Waiver and Release Agreement means, in part, that you give up all
your rights to damages and/or money based upon any claims against Qwest of age
discrimination.  You do not waive your rights
to make claims for damages and/or money which arise after the date this
Agreement is signed.  Under the Age
Discrimination in Employment Act, you have the right within seven days of the
date you sign this Agreement to revoke your waiver of rights to claim damages
and/or money.  In the event you revoke
your agreement to be obligated to the terms of this Agreement, the benefits
offered herein shall be null and void, meaning you will receive no involuntary
termination 

 

22

 

benefits
under your Severance Agreement.  To be
effective, your revocation must be in writing and delivered to Executive Vice
President and Chief Human Resources Officer, Qwest Communications International,
Inc. 1801 California Street, Denver, Colorado 80202, within the seven-day
period.  If by mail, the revocation must
be (1) postmarked within the seven-day period, (2) properly addressed, and (3) sent
by certified mail, return receipt requested.

 

8.                                       You acknowledge
that you (a) have had sufficient opportunity (not less than 45 days) to review
this Waiver and Release Agreement, (b) have been encouraged to consult with and
have had sufficient opportunity to consult with your attorney and financial
advisor before signing this Waiver and Release Agreement, and (c) that you
understand and agree to all of the terms of this Waiver and Release Agreement.

 

AGREEMENT

 

I have read and I understand
the terms of the foregoing Waiver and Release, and I hereby agree to all of the
terms of the foregoing Agreement.

 

 

	
   

  	
   

  	
   

  
	
  Executive’s
  Signature

  	
   

  	
  (Date)

  

 

 

Please
return all pages of this signed agreement to:

 

Executive
Compensation

1801
California Street

23rd
Floor

Denver,
Colorado 80202

 

23

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