Document:

Exhibit 10.16

 Exhibit 10.16 
 

 
 PAETEC Holding Corp. 
 2008 Performance Bonus Plan 
 Introduction 
 The 2008 Performance Bonus Plan is established to provide effective incentives to enhance business performance and increase shareholder value. By aligning every
employee’s bonus opportunity to the same goals, we encourage teamwork, cooperation and positive results for our company and the interests of our shareholders. 
 Plan Participants 
 Participants in the Plan are all full-time and part-time non-commissioned employees. 
 Corporate Performance Measurement 
 The overall company bonus
pool will be funded based on how well PAETEC performs as a company for the plan year (fiscal 2008, ending December 31, 2008). Performance measures are based on combined PAETEC and McLeodUSA financials prior to and after the transaction close
(McLeodUSA pre-closing results from January 1, 2008 through February 8, 2008 will be combined with PAETEC’s actual results for fiscal 2008). The pool will be funded based on performance against the following metrics: 
  

	 	-	 	 60% adjusted EBITDA 

  

	 	-	 	 20% Revenue Growth 

  

	 	-	 	 20% Customer Satisfaction (Net Promoter Score) 

 For
any funding of the bonus pool to occur, PAETEC must meet the minimum threshold level for at least one objective. For the bonus pool to be fully funded at its “target” level, PAETEC must achieve the target level for all three corporate
objectives. The target bonus pool may be increased, up to a stated maximum amount, or decreased if PAETEC achieves higher or lower levels of adjusted EBITDA or revenue growth than are targeted. 
 REVENUE GROWTH 
 Revenue Growth is the
overall increase in our total revenues from 2007 to 2008. 
 ADJUSTED EBITDA 
 Adjusted EBITDA stands for Earnings Before (1) Interest, Taxes, Depreciation and Amortization, (2) the other items identified as being
deducted from adjusted EBITDA in the fiscal 2008 operating budget previously approved by the Board of Directors and (3) any items that are not contemplated by the previously approved operating budget which the compensation committee of the
Board of Directors determines are appropriate for exclusion consistent with the purpose of this Plan. EBITDA results for bonus are measured after the bonus expense has been recorded. 
 CUSTOMER SATISFACTION 
 The Net
Promoter Score (NPS) assessment is the measurement for customer satisfaction. 
  

 The total amount of available bonus cash as determined by the achievement of the Plan targets is expressed as a
percentage of total base wages of all eligible employees. Your bonus award target is a specified percentage of your base salary based on your employment classification level within the company. Your actual bonus payout for 2008, if any, will be
determined with reference to your target bonus, but will be subject to adjustment based on your individual performance toward achievement of specified individual, department or corporate goals. 
 Terms and Conditions 
 Timing of Bonus Payments

  

	–	A mid-year progress payment may be made after the completion of the first two fiscal quarters and funded based on estimated full-year company results. The final year-end funding of
the bonus pool is adjusted by the mid-year pool funding, if any, to reflect the actual full year company performance. Actual awards are always based on individual performance. Mid-year payments are not refundable. 

 New Hires and Promotions 
  

	–	Employees hired prior to May 1, 2008 are eligible for the mid-year progress payment. Employees hired prior to November 1, 2008 are eligible for the year-end bonus payment.
The bonus target is a percentage of W-2 base wages net of overtime, prior year’s bonus and any other additives beyond base wages for the bonus period. 

  

	–	Employees promoted or demoted to a different tier will have their bonus prorated based on the portion of earnings in each tier. 

 Terminations 
  

	–	An employee who terminates voluntarily from the Company prior to the bonus payout is not eligible for a bonus. 

  

	–	In cases of involuntary termination due to death, disability, or position elimination before completion by the employee of the first two fiscal quarters, in the case of the progress
bonus payment, or completion of the second two fiscal quarters, in the case of the year-end bonus payment, the employee will not be eligible for such bonus payment. In cases of involuntary termination due to death, disability, or position
elimination after completion by the employee of the first two fiscal quarters, in the case of the progress bonus payment, or completion of the second two fiscal quarters, in the case of the year-end bonus payment, the employee will be eligible for
such bonus payment. 

  

	–	An employee who is terminated involuntarily for any other reason prior to the bonus payout will not be eligible for such bonus payment. 

 Leave of Absence. 
  

	–	An employee whose status as an active employee is changed as a result of a leave of absence may be eligible for a pro rata bonus based on actual W-2 base wages net of overtime,
prior year’s bonus and any other additives beyond base wages for the bonus period. 

  

 Miscellaneous 
  

	–	Participation in the plan or the receipt of a bonus under the plan shall not give the recipient any right to continued employment (such employment shall be “at will”). In
addition, the receipt of a bonus with respect to any bonus period shall not entitle the recipient to any bonus with respect to any subsequent bonus period. 

  

	–	PAETEC shall have the right to deduct from all payments under this plan any Federal or state taxes required by law to be withheld with respect to such payments.

  

	–	PAETEC’s bonus program is discretionary. PAETEC reserves the right, at any time, to modify or amend this plan from time to time, or suspend it or terminate it entirely.Exhibit 10.18.2

 Exhibit 10.18.2 
 MCLEODUSA INCORPORATED 
 STOCK OPTION AGREEMENT 
 STOCK OPTION AGREEMENT (the “Agreement”) by and between McLeodUSA Incorporated (the “Company”) and [NAME] (the “Optionee”),
dated as of [DATE] (the “Date of Grant”) under the McLeodUSA Incorporated 2006 Omnibus Equity Plan (the “Plan”). 
  

	1.	Definitions. Capitalized terms which are not defined herein shall have the meaning set forth in the Plan. 

  

	2.	Number of Shares and Exercise Price. The Company hereby grants to the Optionee an option (the “Option”), subject to the terms and conditions set forth herein and in
the Plan, to purchase [            ] shares of Company Stock (“Shares”), subject to adjustment in accordance with Section 3 of the Plan, at a price (the “Exercise
Price”) of $[AMOUNT] per Share (subject to adjustment in accordance with Section 3 of the Plan). The Option is a nonqualified stock option. 

  

	3.	Term of Option and Conditions of Exercise. 

  

	 	(a)	Term of Option. Unless the Option is earlier terminated pursuant to this Agreement, the term of the Option shall commence on the Date of Grant and terminate upon the tenth
anniversary of the Date of Grant. 

  

	 	(b)	Option Vesting. Subject to the provisions of this Agreement and the Plan and the Optionee’s continued employment with the Company on the applicable vesting dates, the
Option will become exercisable with respect to [one fourth of Shares subject thereto immediately on the Date of Grant and with respect to an additional one fourth of such shares on each of the first three anniversaries of the Date of Grant] [one
fourth of Shares subject thereto on each of the first four anniversaries of the Date of Grant].(1) 

  

	 	(c)	Vesting Upon Change in Control. Notwithstanding the foregoing, any outstanding and unvested portion of the Option shall become fully vested and exercisable upon the
occurrence of a Change in Control. 

  

	 	(d)	Condition to Acceptance; Exercise. If, at the time of exercise of all or any portion of the Option, the Board or Committee determines that it is desirable to require the
Optionee to enter into the Company’s Stockholders Agreement, it shall be a condition to the exercise of the Option that the Optionee join such Stockholders Agreement by executing a joinder agreement in the form provided by the Company.

  
  

	(1)	Vesting schedule to be customized. 

  

	4.	Rights and Obligations Upon Termination of Employment or Service. 

  

	 	(a)	The entire Option (whether or not vested and exercisable) shall terminate and expire (and may not be exercised) at the commencement of business on the date of termination of the
Optionee’s employment with the Company for Cause. For purposes of this Agreement, “Cause” shall have the meaning set forth in an employment or similar agreement between the Company and the Optionee, or, if no such agreement is in
effect, shall mean a termination by the Company following the Optionee’s (i) engaging in a criminal act involving the Company; (ii) engaging in willful misconduct that the Committee determines in its good faith discretion is, or has
the potential to be, materially injurious to the Company, monetarily or otherwise including, without limitation, reputation; (iii) breach of fiduciary duty involving personal profit, including, without limitation, embezzlement, misappropriate
or conversion of assets or opportunities of the Company or any of its affiliates or subsidiaries; or (iv) material breach of the Company’s Code of Business Conduct and Ethics or other Company policy. 

  

	 	(b)	If the Optionee’s employment terminates due to the Optionee’s death or Disability, the Option will become fully vested immediately prior to such termination and shall
remain exercisable for one year thereafter (subject to Section 3(a)). For purposes of this Agreement, “Disability” shall have the meaning set forth in the Company’s long-term disability plan in which the Optionee participates,
or, if there is no such plan, shall be determined by the Committee in good faith. 

  

	 	(c)	If the Optionee’s employment with the Company terminates for any reason other than Cause, death or Disability, the vested portion of the Option shall remain exercisable for
ninety (90) days following the date of such termination (subject to Section 3(a)), and at the end of such period the vested portion of the Option shall terminate, unless such termination occurs prior to the first anniversary of the Date of
Grant, in which case (i) both the vested and unvested portion of the Option shall terminate immediately upon termination of employment and (ii) notwithstanding the provisions of Section 9(a)(2) of the Plan, the Repurchase Price shall
be the Original Cost, rather than the Fair Market Value. The unvested portion of the Option shall terminate and may not be exercised following the termination of the Optionee’s employment with the Company. 

  

	5.	Nontransferability of Option; Conditions to Transfer of Option Shares. The Option shall not be assignable or transferable otherwise than by a duly executed and attested will
or by the laws of descent and distribution; and the Option may be exercised, during the lifetime of the Optionee, only by the Optionee or the Optionee’s legal representative. 

  

	6.	Exercise of Option. The Option shall be exercised by a written notice delivered to the Secretary of the Company at the Company’s principal executive offices in
accordance with Section 8, specifying the portion of the Option to be exercised and accompanied by payment therefor. The exercise price for any Shares purchased pursuant to the exercise of the Option shall be paid in the manner set forth in the
Plan. 

  

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	7.	Rights as a Shareholder. 

  

	 	(a)	By accepting the Option, the Optionee acknowledges that the Optionee is and will be subject to the applicable provisions of the Plan with respect to Shares acquired pursuant to such
exercise, including, without limitation, the provisions of Section 9 of the Plan, and that the Optionee has read and understood such provisions and the provisions referenced therein. 

  

	 	(b)	Other Restrictions. Notwithstanding anything to the contrary contained herein, all repurchases of and payments for the Shares by the Company shall be subject to applicable
legal restrictions and any restrictions in the Company’s and its Affiliates’ debt and equity financing agreements. If any such restrictions prohibit the repurchase of or payment for the Shares hereunder, the Company shall make such
repurchases or payments as soon as it is permitted to do so under such restrictions. 

  

	8.	Notices. All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party, by confirmed facsimile
transmission or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 

 If to the
Optionee: 
 If to the Company:
                  One Martha’s Way 
 Hiawatha, Iowa 52233 
 Attention: Option Plan Administrator-HR 
 Either party may furnish to the other in writing a substitute address and phone and fax numbers for delivery of notice in accordance with Section 8. Notices and
communications shall be effective when actually received by the addressee. 
  

	9.	Incorporation of Plan; Acknowledgment. The Plan is hereby incorporated herein by reference and made a part hereof, and the Option and this Agreement are subject to all terms
and conditions of the Plan. In the event of any inconsistency between the Plan and this Agreement, the provisions of the Plan shall govern. By signing this Agreement, the Optionee acknowledges having received and read a copy of the Plan.

  

	10.	Adjustment of Option. The Option shall be subject to the adjustment provisions set forth in Section 3 of the Plan. 

  

	11.	Governing Law. This Agreement shall be governed by and construed according to the laws of the State of Delaware, without regard to the conflicts of law rules thereof.

  

	12.	Amendment and Termination. Rights and obligations under this Agreement shall not be adversely altered or impaired by termination or amendment of the Plan, except with the
consent of the Optionee. 

  

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	13.	Representations. 

  

	 	(a)	The Optionee hereby represents and warrants that, upon exercise of the Option, the Optionee will be acquiring Shares for investment solely for his own account and not with a view
to, or for resale in connection with, the distribution or other disposition thereof. The Optionee agrees and acknowledges that he will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any
Shares, or solicit any offers to purchase or otherwise acquire or take a pledge of any Shares, unless such offer, transfer, sale, assignment, pledge, hypothecation or other disposition complies with (A) the provisions of the Plan and this
Agreement and (B) the Securities Act or an exemption therefrom. 

  

	 	(b)	The Optionee acknowledges and represents that he has been advised by the Company that (i) the offer and sale of the Shares have not been registered under the Securities Act;
(ii) if acquired, the Shares must be held indefinitely and the Optionee must continue to bear the economic risk of the investment in the Shares; (iii) a restrictive legend with respect to the foregoing shall be placed on the certificates
representing the Shares; and (iv) a notation shall be made in the appropriate records of the Company indicating that the Shares are subject to restrictions on transfer and, if the Company should at some time in the future engage the services of
a securities transfer agent, appropriate stop-transfer instructions will be issued to such transfer agent with respect to the Shares. 

  

	14.	Condition to Grant. By accepting this Option, the Optionee hereby agrees that, notwithstanding any provision of the McLeodUSA Incorporated Employment Security Severance Plan,
the Optionee’s target bonus for purposes of calculating benefits under such plan shall be deemed to be 50% of the Optionee’s base salary, notwithstanding any higher target bonus for which the Optionee may otherwise be eligible.

  

	15.	Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original and said counterparts shall constitute but one and the same
instrument. 

 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year set forth first
above. 
  

			
	MCLEODUSA INCORPORATED
		
	By:	 	 
	Title:	 	

  

	
	
	  
	Optionee

  

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