Document:

Exhibit 10.2

 

LEVEL 3 COMMUNICATIONS, INC.

 

OUTPERFORM STOCK OPTION

 

AMENDED AND RESTATED MASTER AWARD AGREEMENT

 

Index of Defined Terms

 

	
   

  	
  Page No.

  
	
  Accounting
  Firm

  	
  7

  
	
   

  	
   

  
	
  Adjusted
  Price

  	
  1

  
	
   

  	
   

  
	
  Affiliate

  	
  11

  
	
   

  	
   

  
	
  Aggregate
  Percentage S&P Performance

  	
  1

  
	
   

  	
   

  
	
  Agreement

  	
  1

  
	
   

  	
   

  
	
  Annualized
  Percentage Company Stock Price Performance

  	
  4

  
	
   

  	
   

  
	
  Annualized
  Percentage S&P Performance

  	
  4

  
	
   

  	
   

  
	
  Award

  	
  1

  
	
   

  	
   

  
	
  Award
  Date

  	
  1

  
	
   

  	
   

  
	
  Award
  Letter

  	
  1

  
	
   

  	
   

  
	
  Award
  Shares

  	
  1

  
	
   

  	
   

  
	
  Cause

  	
  6

  
	
   

  	
   

  
	
  Change
  in Control

  	
  3

  
	
   

  	
   

  
	
  Code

  	
  5

  
	
   

  	
   

  
	
  Committee

  	
  1

  
	
   

  	
   

  
	
  Company

  	
  1

  
	
   

  	
   

  
	
  Duration

  	
  4

  
	
   

  	
   

  
	
  Excise
  Tax

  	
  7

  
	
   

  	
   

  
	
  Exercise
  Consideration

  	
  3

  
	
   

  	
   

  
	
  Exercise
  Date

  	
  1

  
	
   

  	
   

  
	
  Fair
  Market Value

  	
  10

  
	
   

  	
   

  
	
  Full
  Vesting Date

  	
  2

  
	
   

  	
   

  
	
  Grantee

  	
  13

  
	
   

  	
   

  
	
  Gross-Up
  Payment

  	
  7

  
	
   

  	
   

  
	
  Limited
  Exercise Number

  	
  2

  
	
   

  	
   

  
	
  Multiplier

  	
  4

  
	
   

  	
   

  
	
  NASDAQ

  	
  10

  
	
   

  	
   

  
	
  Outperform
  Percentage

  	
  4

  
	
   

  	
   

  
	
  Payment

  	
  7

  
	
   

  	
   

  
	
  Period

  	
  1

  
	
   

  	
   

  
	
  Permanent
  Total Disability

  	
  2

  
	
   

  	
   

  
	
  Plan

  	
  1

  
	
   

  	
   

  
	
  S&P
  End Number

  	
  4

  
	
   

  	
   

  
	
  S&P
  Start Number

  	
  4

  
	
   

  	
   

  
	
  Stock

  	
  3

  
	
   

  	
   

  
	
  Stock
  End Number

  	
  4

  
	
   

  	
   

  
	
  Stock
  Start Number

  	
  4

  
	
   

  	
   

  
	
  Trading
  Day

  	
  10

  
	
   

  	
   

  
	
  Underpayment

  	
  7

  

 

 

LEVEL 3 COMMUNICATIONS, INC.

OUTPERFORM STOCK OPTION

AMENDED AND RESTATED MASTER AWARD AGREEMENT

 

THIS AMENDED AND RESTATED OUTPERFORM STOCK
OPTION MASTER AWARD AGREEMENT (the “Agreement”) is dated August 19, 2002,
between Level 3 Communications, Inc., a Delaware corporation (the “Company”),
and the individual whose name appears on the signature page to this
Agreement (the “Grantee”), an “Employee” as deemed in the Company’s 1995 Stock
Plan (Amended and Restated as of April 1, 1998, and further amended on July 24,
2002) (the “Plan”).

 

WHEREAS, the Company, pursuant to a grant of
authority from the Compensation Committee of the Company’s Board of Directors
(the “Committee”), may, from time to time, grant to the Grantee a certain
number of “Outperform Stock Options” (each grant an “Award”), as described
below, pursuant to the Plan.

 

NOW, THEREFORE, the parties agree as follows:

 

1.             Grants
of Awards.  Pursuant to
the provisions of Section 8.1 of the Plan, the Company, from time to time
in its sole discretion, may grant Awards to the Grantee relating to a specified
number of Outperform Stock Options that, under certain circumstances and in
accordance with the terms hereof, may result in the Grantee having the right to
acquire shares of common stock of the Company, par value $.01 per share (the “Award
Shares”).  Each Award will be evidenced
by an Outperform Stock Option Award Letter (an “Award Letter”) in the form
attached as Exhibit A hereto (or such other form as approved by the
Company), which sets forth the date of the Award (the “Award Date”), the number
of Outperform Stock Options that are the subject of the Award, and the “Initial
Price” of the Award Shares covered by the Award.  This Agreement sets forth general terms and
conditions applicable to all Awards granted before, on, or after the date
hereof and supersedes and replaces all prior versions of the Master Award
Agreement, including those dated June 30, 1998, and March 1, 2001.

 

2.             Terms
and Conditions of Awards

 

2.1.          Adjustment of
Initial Price.  The “Adjusted
Price” shall be the Initial Price, adjusted upward or downward as of the date
of exercise of an Outperform Stock Option (the “Exercise Date”), by a
percentage equal to the aggregate percentage increase or decrease (expressed as
a whole percentage point followed by three decimal places) in the Standard and
Poor’s 500 Index over the period (the “Period”) beginning on the Trading Day
immediately preceding the relevant Award Date and ending on the Trading Day
immediately preceding the relevant Exercise Date (the “Aggregate Percentage S&P
Performance”).  For purposes of
determining the Aggregate Percentage S&P Performance with respect to any
Period, the Standard and Poor’s 500 Index as of the first day of the Period
shall be deemed to equal the closing value of such index on the Trading Day
immediately preceding the Award Date, and the Standard and Poor’s 500 Index on
the last day of the Period shall be deemed to equal the average closing value
of such index over the ten-consecutive-Trading Day period immediately preceding
the Exercise Date.  Notwithstanding
anything in this Agreement to the contrary, under no circumstances will the
Adjusted Price be less than the Initial Price. 
In addition, if at any time 

 

 

during which the provisions of this Section 2.1 would cause the
Adjusted Price to be less than the Initial Price, the Adjusted Price shall be
fixed at the Initial Price.

 

2.2.          Term.  The term of each Award shall be four (4) years
from the grant date set forth in the related Award Letter (subject to such
shorter period as set forth in Section 4 hereof), after which the Award
and any unexercised Outperform Stock Options thereunder shall expire.

 

2.3.          Vesting and
Exercisability.  Subject to Section 2.4
hereof, the Outperform Stock Options granted under an Award shall become vested
as follows:

 

(a)           With
respect to each Award in which the Award Date is before the date of this
Agreement, the Outperform Stock Options granted thereunder shall vest over a
period of two years after the Award Date at the rate of 1/8 of the total number
of Outperform Stock Options under the Award (rounded to the nearest whole
share) on the last day of each three (3) calendar months after the Award
Date, such that the last 1/8 of the Outperform Stock Options under the Award
will become fully vested on the day preceding the second anniversary of the
Award Date.  All vested Outperform Stock
Options granted on and prior to December 1, 1998, shall be fully
exercisable as of and after the Full Vesting Date.  All vested Outperform Stock Options granted
after December 1, 1998, shall be fully exercisable as of and after the
vesting date.

 

(b)           (i) With
respect to each Award in which the Award Date is on and after the date of this
Agreement, the Outperform Stock Options granted thereunder shall vest over a
period of two years after the Award Date, with the first 1/2 of the total
number of Outperform Stock Options under the Award (rounded to the nearest
whole share) vesting on the day preceding the first anniversary of the Award
Date, and the remainder vesting at the rate of 1/8 of the total number of
Outperform Stock Options (rounded to the nearest whole share) on the last day
of each three (3) calendar months after the first anniversary of the Award
Date, such that the last 1/8 of the Outperform Stock Options under the Award will
become fully vested on the day preceding the second anniversary of the Award
Date.  Subject to the provisions of Section 2.3(b)(ii),
vested Outperform Stock Options shall be fully exercisable as of and after the
vesting date.  (ii) Notwithstanding
the foregoing, for Grantees that have the title of Senior Vice President or
higher, a portion of the Outperform Stock Options granted pursuant to an Award
Letter will not be fully exercisable until the Full Vesting Date with respect
to the Award (that is, the second anniversary of the Award Date).  The Award Letter will indicate the number of
Outperform Stock Options that are subject to the further restriction on
exercise contained in this Section 2.3(b)(ii) (the “Limited Exercise
Number”).

 

(c)           For
purposes of this Agreement, the “Full Vesting Date” shall mean the second
anniversary of the Award Date.

 

2.4.          Accelerated
Vesting and Exercisability.

 

(a)           Notwithstanding
anything herein or in the Plan to the contrary, in the event that the Grantee
dies, retires (in accordance with the Company’s Retirement Benefit), or suffers
a “Permanent Total Disability” (as defined in the following sentence), each
Award and all Outperform Stock Options thereunder shall thereupon become fully
vested and fully exercisable.  

 

2

 

The Grantee shall be considered to have suffered a Permanent Total
Disability if the Committee determines that the Grantee is permanently unable
to earn any wages in the same or other employment.

 

(b)           Notwithstanding
anything herein or in the Plan to the contrary, and in accordance with the
authority granted to the Committee in Section 9.2(b) of the Plan, on
the effective date of a “Change in Control” (as defined in the Plan), (i) each
Award shall be canceled as to any unexercised Outperform Stock Options, and (ii) the
Company or its successor shall pay to the Grantee in consideration thereof an
amount of cash equal to the value of any unexercised Outperform Stock Options
(regardless of whether the Outperform Stock Options were theretofore vested),
assuming for this purpose that each Outperform Stock Option had been exercised
at the price and on the day during the prior 60-day period ending on the
effective date of the Change in Control which produces the highest such value,
and (iii) any required withholding related to such payment shall be
satisfied by withholding the appropriate amount of cash from such payment.

 

2.5.          Exercise.  Subject to the limitations in Sections 2.2
and 2.3 hereof, each Outperform Stock Option which is vested and exercisable
may be exercised by the Grantee, in whole or in part, by written, electronic,
or telephonic notice to the Company or its designated agent, in the form as may
be approved from time to time by the Committee. 
The notice must be delivered or made by the Grantee, unless (i) the
Grantee is disabled or otherwise incapacitated, in which case the notice must
be delivered or made by the Grantee’s court-appointed legal guardian, (ii) the
Grantee has died, in which case the notice must be delivered or made by a
court-appointed representative of the Grantee’s estate, or the heirs or
legatees to whom the Award has passed, or (iii) the Grantee has properly
transferred the Award in accordance with Section 5, in which case the
notice must be delivered or made by such transferee or the transferee’s legal
representative, estate, heirs or legatees, as applicable.  The notice must specify the Award and the
number of Award Shares with respect to such Award which are being exercised.  The Exercise Date shall be considered to be
the date on which the exercise notice is actually received by the Company or
its designated agent, or, if the exercise notice is actually received by the
Company or its designated agent after the close of trading of Company’s common
stock, par value $.01 per share, (the “Stock”), on the Trading Day following
the day the exercise notice is so received by the Company or its designated
agent.

 

2.6.          Consideration.  Upon exercise of Outperform Stock Options,
the Company shall deliver or pay to the Grantee with respect to and in
cancellation of each Outperform Stock Option exercised, consideration (the “Exercise
Consideration”) equal to the product obtained when (a) the Fair Market
Value (as defined in Section 9.1) of a share of Stock as of the day prior
to the Exercise Date , less the Adjusted Price for the relevant Award Shares,
is multiplied by (b) the Multiplier (as defined in Section 2.7 below)
..  The Exercise Consideration may be paid
in (a) cash, (b) Stock or (c) any combination of cash or Stock,
at the Committee’s sole and absolute discretion.  In the event that the Company elects to pay
some or all of the Exercise Consideration in Stock, the number of shares of
Stock to be delivered shall be determined by dividing that portion of the
Exercise Consideration to be paid in Stock by the Fair Market Value of a share
of Stock as of the day prior to the Exercise Date.  The payment of the Exercise Consideration
shall be, in each case, subject to withholding in accordance with Section 9.5.

 

3

 

2.7.          Multiplier.  For purposes of this Section 2.7, the
following terms are defined:

 

(a)                                  “S&P Start Number” means
the closing value of the Standard and Poor’s 500 Index on the Trading Day
immediately preceding the relevant Award Date.

 

(b)                                 “S&P End Number” means
the simple arithmetic average of the closing value of the Standard and Poor’s
500 Index over the ten-consecutive-Trading Day period immediately preceding the
Exercise Date.

 

(c)                                  “Stock Start Number” means
the Fair Market Value of the Stock on the Trading Day immediately preceding the
relevant Award Date.

 

(d)                                 “Stock End Number” means the
simple arithmetic average of the Fair Market Value of the Stock over the
ten-consecutive-Trading Day period immediately preceding the Exercise Date.

 

(e)                                  “Duration” means the length
of the relevant Period, measured in years and fractions of years (expressed as
a whole number followed by three decimal places).

 

(f)                                    “Annualized Percentage
S&P Performance” means the annualized increase (or decrease) between the
S&P Start Number and the S&P End Number over the Period (expressed as a
whole percentage point followed by three decimal places), captured by the
following formula:

 

	
  S&P End Number —
  S&P Start Number

  	
  x

  	
  100%

  
	
  S&P Start Number

  	
   

  	
  Duration

  

 

(g)                                 “Annualized Percentage
Company Stock Price Performance” means the annualized increase (or decrease)
between the Stock Start Number and the Stock End Number over the Period
(expressed as a whole percentage point followed by three decimal places),
captured by the following formula:

 

	
  Stock End Number —
  Stock Start Number

  	
  x

  	
  100%

  
	
  Stock Start Number

  	
   

  	
  Duration

  

 

The “Multiplier” shall be based on the “Outperform
Percentage,” which is the excess, if any, of the Annualized Percentage Company
Stock Price Performance over the Annualized Percentage S&P
Performance.  The Multiplier shall be
expressed as a whole number and decimals, rounded to three decimal places, and
be determined as follows:

 

4

 

(i)                                     With respect to each Award
that has an Award Date that is prior to the date of this Agreement:

 

	
  If the Outperform Percentage is:

  	
   

  	
  The Multiplier will equal:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  0% or less

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  More than 0% 

  but less than 11%

  	
   

  	
  The Outperform Percentage multiplied by 100 multiplied by 8/11 .
  (E.g., if Outperform Percentage = 5%, then the Multiplier = 5.000 times 8/11
  = 3.636)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11% or more

  	
   

  	
  8.000

  	
   

  

 

In no event will the Multiplier exceed 8.000
for Awards in which the Award Date is before the date of this Agreement.

 

(ii)                                  With respect to each Award
that has an Award Date that is on or after the date of this Agreement:

 

	
  If the Outperform Percentage is:

  	
   

  	
  The Multiplier will equal:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  0% or less

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  More than 0% 

  but less than 11%

  	
   

  	
  The Outperform Percentage multiplied by 100 multiplied by 4/11.
  (E.g., if Outperform Percentage = 5%, the Multiplier = 5.000 times 4/11 =
  1.818)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11% or more

  	
   

  	
  4.000

  	
   

  

 

In no event will the Multiplier exceed 4.000
for Awards in which the Award Date is on or after the date of this Agreement.

 

3.             Exempt
162(m) Treatment.  The
terms and conditions relating to Awards are designed so that each Award will
qualify as performance-based compensation within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Code”), and the provisions
of this Agreement shall be construed accordingly.  Consequently, if at the time of any purported
exercise of an Award by the Grantee, the Grantee is a “covered employee” within
the meaning of Section 162(m) of the Code, such purported exercise
shall not be effective prior to the time that the Company’s shareholders have
issued such approvals, and such other actions have been taken as may be
required, to qualify the Award as such performance-based compensation.

 

4.             Termination
of Employment/Expiration of Award.

 

4.1.          Unvested
Outperform Stock Options. 
Awards shall expire as to any unvested Outperform Stock Options as of
the date the Grantee ceases to be employed by the 

 

5

 

Company or any of its Affiliates for any reason (after taking into
account any accelerated vesting upon termination of employment pursuant to Section 2.4).

 

4.2.          Vested
Outperform Stock Options.  Each
Award shall expire as to all vested Outperform Stock Options on the earliest
of:

 

(a)           The
fourth anniversary of the related Award Date.

 

(b)           The
first anniversary of the Grantee’s death or Disability.

 

(c)           The
date the Grantee’s employment with the Company and all of its subsidiaries is
terminated by the Company for “Cause,” as defined in Section 4.3 below.

 

(d)           If
the Grantee ceases to be employed by the Company and all of its Affiliates for
any reason other than death, Disability or termination for “Cause,” the 180th
day following cessation of employment or the date the relevant Outperform Stock
Options first become exercisable, subject to Section 4.2(a) above.

 

4.3.          Cause.  The Grantee shall be considered to have been
terminated by the Company for Cause if the Grantee’s termination is on account
of (i) the Grantee’s conviction of or pleading guilty or no contest to a
felony, (ii) the habitual use of drugs (including alcohol) which adversely
affects Grantee’s job performance, or (iii) engaging in willful misconduct
or willful neglect which is injurious to the Company; provided, however, that
the Committee may in its discretion change from time to time the circumstances
which constitute Cause, so long as any such change is communicated to the
Grantee prior to any purported termination of the Grantee for Cause.  Whether the Grantee has been terminated for
the reasons listed in clauses (ii) or (iii) above shall be determined
in good faith by the Committee.  If the
Grantee voluntarily terminates Grantee’s employment at a time when
circumstances constituting Cause exist with respect to the Grantee (as
determined by the Committee good faith), the Committee may in its discretion
treat the Grantee’s termination as being by the Company for Cause.

 

5.             Non-Transferability.  Except as specifically allowed by the Committee
in writing, an Award and the related Outperform Stock Options shall not be
transferable other than by will or the laws of descent and distribution, and
Outperform Stock Options may be exercised, during the lifetime of the Grantee,
only (i) by the Grantee or (ii) on the Grantee’s behalf by a
court-appointed legal guardian.  More
particularly (but without limiting the generality of the foregoing), except as
provided above an Award, Outperform Stock Options, and the right to receive
Exercise Consideration may not be assigned, transferred, pledged or
hypothecated in any way, shall not be assignable by operation of law, and shall
not be subject to execution, attachment or similar process.  Any attempted assignment, transfer, pledge,
hypothecation or other disposition of an Award, Outperform Stock Options, or
the right to receive Exercise Consideration contrary to the provisions hereof
and the levy of any execution, attachment or similar process upon an Award,
Outperform Stock Options, or the right to receive Exercise Consideration shall
be null and void and without effect.

 

6

 

6.             Changes in Capital Structure,
Etc.  Section 9.1 of the Plan
shall apply to each Award, provided that no action may be taken by the Committee
pursuant thereto which would prevent a Pooling Transaction from qualifying as
such.

 

7.             Golden
Parachute Gross-Up.

 

(a)           In
the event it is determined (as hereafter provided) that any payment or
distribution by the Company to or for the benefit of the Grantee pursuant to
the terms of the Agreement, whether paid or payable or distributed or
distributable, including without limitation the lapse or termination of any
restriction on or the vesting or exercisability of an Award or Outperform Stock
Options granted under the Agreement (a “Payment”), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law, or any interest
or penalties with respect to such excise tax (such tax or taxes, together with
any such interest and penalties, are hereafter collectively referred to as the “Excise
Tax”), then the Grantee will be entitled to receive an additional payment or
payments (a “Gross-Up Payment”) in an amount equal to the Excise Tax plus any
penalties or taxes imposed on the Grantee by virtue of such Gross-Up Payment
such that, after payment by the Grantee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
upon the Gross-Up Payment, the Grantee retains the full value of an Award and
the Outperform Stock Options thereunder, with the exception of any regular
income taxes owed by the Grantee on account of exercise of Outperform Stock
Options.

 

(b)           Subject
to the provisions of Section 7(d) hereof, all determinations required
to be made under this Agreement, including whether an Excise Tax is payable by
the Grantee and the amount of such Excise Tax and whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, will be made by an outside “Big
4” or similar international accounting firm chosen by the Company (the “Accounting
Firm”).  The Grantee will direct the
Accounting Firm to submit its determination and detailed supporting calculations
to both the Company and the Grantee within 15 calendar days after the date of
the Change in Control, and any other such time or times as may be requested by
the Company or the Grantee.  If the
Accounting Firm determines that any Excise Tax is payable by the Grantee, the
Company will pay the required Gross-Up Payment to the Grantee within five
business days after receipt of such determination and calculations, but in no
event later than the end of the Grantee’s taxable year following the Grantee’s
taxable year in which such tax owed by such Grantee that is subject to the
Gross-Up Payment is remitted to the applicable taxing authority.  If the Accounting Firm determines that no
Excise Tax is payable by the Grantee, it will, at the same time as it makes
such determination, furnish the Grantee with an opinion (addressed to both the
Grantee and the Company) or other evidence reasonably acceptable to the Grantee
that the Grantee has substantial authority not to report any Excise Tax on the
Grantee’s federal, state, local income or other tax return.  Any determination by the Accounting Firm as
to the amount of the Gross-Up Payment will be binding upon the Company and the
Grantee.  As a result of the uncertainty
in the application of Section 4999 of the Code (or any successor provision
thereto) and the possibility of similar uncertainty regarding applicable state
or local tax law at the time of any determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made (an “Underpayment”), consistent with the
calculations required to be made hereunder. 
In the event that the Company 

 

7

 

exhausts or fails to pursue its remedies pursuant to Section 7(d) hereof
and the Grantee thereafter is required to make a payment of any Excise Tax, the
Grantee will direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Grantee as promptly as
possible.  The amount of any such
Underpayment will be promptly paid by the Company to, or for the benefit of,
the Grantee within five business days after receipt of such determination and
calculations, but in no event later than the end of the Grantee’s taxable year
following the Grantee’s taxable year in which such tax owed by such Grantee
that is subject to the Gross-Up Payment is remitted to the applicable taxing
authority.

 

(c)           The
Company and the Grantee will each provide the Accounting Firm access to and
copies of any books, records and documents in the possession of the Company or
the Grantee, as the case may be, reasonably requested by the Accounting Firm,
and otherwise cooperate with the Accounting Firm in connection with the
preparation and issuance of the determination contemplated by Section 7(b) hereof

 

(d)           The
federal, state and local income and other tax returns filed by the Grantee will
be prepared and filed on a consistent basis with the determination of the
Accounting Firm with respect to the Excise Tax payable by the Grantee.  The Grantee will make proper payment of the
amount of any Excise Tax, and at the request of the Company, provide to the
Company true and correct copies (with any amendments) of the Grantee’s federal
income tax return as filed with the Internal Revenue Service and corresponding
state and local tax returns, if relevant, as filed with the applicable taxing
authority, and such other documents reasonably requested by the Company,
evidencing such payment.  If prior to the
filing of the Grantee’s federal income tax return, or corresponding state and
local tax return, if relevant, the Accounting Firm determines that the amount
of the Gross-Up Payment should be reduced, the Grantee will within five
business days pay to the Company the amount of such reduction.

 

(e)           The
fees and expenses of the Accounting Firm for its services in connection with
the determinations and calculations contemplated by Sections 7(b) and (d) hereof
will be borne by the Company.  If such
fees and expenses are initially advanced by the Grantee, the Company will
reimburse the Grantee the full amount of such fees and expenses within five
business days after receipt from the Grantee of a statement therefor and
reasonable evidence of his payment thereof

 

(f)            The
Grantee will notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of a
Gross-Up Payment.  Such notification will
be given as promptly as practicable but no later than 10 business days after
the Grantee actually receives notice of such claim and the Grantee will further
apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid (in each case, to the extent known by the
Grantee).  The Grantee will not pay such
claim prior to the earlier of (a) the expiration of the 30-calendar-day
period following the date on which he gives such notice to the Company, and (b) the
date that any payment of an amount with respect to such claim is due.  If the Company notifies the Grantee in
writing prior to the expiration of such period that it desires to contest such
claim, the Grantee will (i) provide the Company with any written records
or documents in the Grantee’s possession relating to such claim reasonably
requested by the Company, (ii) take such action in connection with
contesting 

 

8

 

such claim as the Company will reasonably request in writing from time
to time, including without limitation accepting legal representation with
respect to such claim by an attorney competent in respect of the subject matter
and reasonably selected by the Company, (iii) cooperate with the Company
in good faith in order effectively to contest such claim, and (iv) permit
the Company to participate in any proceedings relating to such claim; provided,
however, that the Company will bear and pay directly all costs and expenses
(including interest and penalties) incurred in connection with such contest and
will indemnify and hold harmless the Grantee, on an after-tax basis, from and
against any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and payment of
costs and expenses.  Without limiting the
foregoing provisions of this Section 7(f), the Company may, at its option,
control all proceedings taken in connection with the contest of any claim
contemplated by this Section 7(f) and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim (provided,
however, that the Grantee may participate therein at his own cost and expense)
and may, at its option, either direct the Grantee to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Grantee agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company will determine; provided, however, that if the
Company directs the Grantee to pay the tax claimed and sue for a refund, the
Company will advance the amount of such payment to the Grantee on an
interest-free basis and will indemnify and hold the Grantee harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Grantee with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount.  Furthermore, the Company’s
control of any such contested claim will be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Grantee will be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.

 

(g)           If,
after the receipt by the Grantee of an amount advanced by the Company pursuant
to Section 7(f) hereof, the Grantee receives any refund with respect
to such claim, the Grantee will (subject to the Company’s complying with the
requirements of Section 7(f) hereof) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after any taxes applicable thereto).  If,
after the receipt by the Grantee of an amount advanced by the Company pursuant
to Section 7(f) hereof, a determination is made that the Grantee will
not be entitled to any refund with respect to such claim and the Company does
not notify the Grantee in writing of its intent to contest such denial or
refund prior to the expiration of 30 calendar days after such determination,
then such advance will be forgiven and will not be required to be repaid and
the amount of such advance will offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid pursuant to this Agreement.

 

(h)           If
Grantee takes action to enforce this Section 7 against the Company (which
for this purpose shall include making preparations for taking such enforcement
action), and such enforcement action is in whole or part successful (whether by
decision of a court or arbitrator, by settlement, by mutual agreement of
Grantee and the Company, or otherwise), the 

 

9

 

Company shall promptly pay directly or, at Grantee’s election, reimburse
Grantee for, all legal and other expert fees and expenses incurred by Grantee
in connection with such action.

 

8.             General.  Subject to the provisions of Section 2.6
with respect to the form of the payment of the Exercise Consideration, the
Company shall at all times during the term of this Agreement reserve and keep
available such number of shares of Stock as will be sufficient to satisfy the
requirements of this Agreement, shall pay all original issue and transfer taxes
with respect to the issue and transfer of shares of Stock pursuant hereto and
all other fees and expenses necessarily incurred by the Company in connection
therewith, and will from time to time use its best efforts to comply with all
laws and regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.

 

9.             Miscellaneous

 

9.1.          Fair Market
Value and Trading Day.  For purposes of
this Agreement, the “Fair Market Value” of the Stock shall mean as of any date
of determination (i) the closing price per share of Stock on the national
securities exchange on which the Stock is principally traded as of 4:15 pm New
York City Time, or (ii) if the Stock is not listed or admitted to trading
on any such exchange, the last sale price of a share of Stock as reported by
the NASD, Inc.  Automated Quotation
(“NASDAQ”) system, or (iii) if the Stock is not then listed on any
securities exchange and prices therefore are not then quoted in the NASDAQ
system, then the value determined by the Committee in good faith.  The term “Trading Day” means any day on which
the Stock is traded, as contemplated by subsection (i) or (ii) above.

 

9.2.          No Stockholder
Rights.  The Grantee shall not have any
of the rights of a stockholder with respect to the Award Shares resulting from
any Award prior to the issuance of Stock, if any, to the Grantee upon the due
exercise of the Outperform Stock Options.

 

9.3.          No Abrogation
of Company’s Rights.  Nothing in
this Agreement shall confer upon the Grantee any right to continued employment
with the Company or interfere in any way with the right of the Company to
terminate the Grantee’s employment at any time. 
The transfer of employment between any combination of the Company and
any Affiliate of the Company shall not be deemed a termination of employment.

 

9.4.          Effect of the
Plan.  The terms and provisions set
forth in the Plan are incorporated herein by reference as if they were set
forth herein; provided, however, that in the event of a direct conflict between
the terms of the Plan and the terms of this Agreement, the terms of this
Agreement shall govern.  Reference to
provisions of the Plan are to such provisions as they shall be subsequently
amended or renumbered; provided that no amendment to the Plan which adversely
affects an Award shall be effective as to that Award without the written
consent of the Grantee.  The Grantee
acknowledges that a current version of the Plan is available on the Company’s
intranet site, and the Company agrees to supply to the Grantee a paper copy of
the current version of the Plan upon the Grantee’s request.

 

9.5.          Withholding.  Notwithstanding anything contained herein to
the contrary, other than Subsection 2.4(b)(iii) and Section 7, no
payment shall be made to a Grantee upon the 

 

10

 

exercise of Outperform Stock Options until provision has been made for
the satisfaction of all required withholding in accordance with the Plan.

 

9.6.          Plan and
Agreement Govern.  Although
any information sent to or made available to the Grantee concerning the Plan
and this Award is intended to be an accurate summary of the terms and
conditions of the Award, this Agreement and the Plan are the authoritative
documents governing the Award and any inconsistency between the Agreement and
the Plan, on one hand, and any other summary information, on the other hand,
shall be resolved in favor of the Agreement and the Plan.

 

9.7.          Affiliate.  The term “Affiliate” shall have the mean
ascribed to it in the Plan.

 

11

 

IN WITNESS WHEREOF, this Agreement is executed by
the Grantee and by an authorized officer on behalf of the Company, as of the
date first above written.

 

	
  LEVEL 3 COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
  BY:

  	
   

  
	
   

  	
   

  
	
  ITS:

  	
   

  
	
   

  	
   

  
	
  GRANTEE:

  	
   

  
	
   

  	
  (Please sign)

  
	
   

  	
   

  
	
  Name:

  	
   

  
	
   

  	
  (Please print)

  
	
   

  	
   

  
	
  Date of Hire:

  	
   

  
				

 

12

 

EXHIBIT A

 

LEVEL 3 COMMUNICATIONS, INC.

OUTPERFORM STOCK OPTION AWARD LETTER

 

This Outperform Stock Option Award (the “Award”)
when taken together with the Amended and Restated Master Award Agreement
(version dated August 19, 2002) (“Master Agreement”) constitutes an award
to the individual whose name appears on the signature line below (“Grantee”) of
Outperform Stock Options with respect to the shares of common stock of Level 3
Communications, Inc.  (the “Common
Stock”) under the Level 3 Communications, Inc.  1995 Stock Plan (Amended and Restated as of April 1,
1998, and further amended on July 24, 2002).

 

The terms and conditions of this Award are set forth
below and in the Master Agreement, the provisions of which are incorporated
herein by reference.

 

A.                                   The date of
grant of this Award is
                    
(the “Award Date”).

 

B.                                     The number of
Outperform Stock Options with respect to which this Outperform Stock Option
Award Letter relates pursuant to Section 2.3(b)(i) of the Master
Agreement is
                    .

 

C.                                     The Initial
Price per share for each Award Share covered by this Award is
$                    .

 

D.                                    The Limited
Exercise Number for this Award pursuant to Section 2.3(b)(ii) of the
Master Agreement is
                    .(1)

 

 

 

	
  LEVEL 3 COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
  BY:

  	
   

  
	
  ITS:

  	
   

  
	
   

  	
   

  
	
  GRANTEE:

  	
   

  
			

 

(1)           Applies
only to Grantees with the title of Senior Vice President and above.

 

13Exhibit
10.3

 

LEVEL 3
COMMUNICATIONS, INC.

OSO
MASTER AWARD AGREEMENT

 

THIS OSO MASTER AWARD AGREEMENT (the “Agreement”)
is dated as of
                                                          ,
between Level 3 Communications, Inc., a Delaware corporation (the “Company”),
and the individual whose name appears  on
the signature page to this Agreement (the “Grantee”), an “Employee”
as defined in the Company’s 1995 Stock Plan (as amended from time to time) (the
“Plan”).

 

WHEREAS, the Company, pursuant to a grant of authority
from the Compensation Committee of the Company’s Board of Directors (the “Committee”),
may, from time to time, grant to the Grantee a certain number of outperform
stock appreciation rights, which are referred to as “OSOs” (each such
grant an “Award”), as described below, pursuant to the Plan.

 

NOW,
THEREFORE, the parties agree as follows:

 

1.             Grants of Awards. 
Pursuant to the provisions of Section 8.1 of the Plan, the Company,
from time to time in its sole discretion, may grant Awards to the Grantee
relating to a specified number of OSOs that, under certain circumstances and in
accordance with the terms hereof, may result in the Grantee having the right to
acquire shares of common stock of the Company, par value $.01 per share (the “Award
Shares”).  Each Award will be
evidenced by an Outperform Stock Appreciation Right Award Letter (an “Award
Letter”) in the form attached as Exhibit A hereto (or such other form
as approved by the Company), which sets forth the date of the Award (the “Award
Date”), the number of OSOs that are the subject of the Award, and the “Initial
Price” of the Award Shares covered by the Award.  This Agreement sets forth general terms and
conditions applicable to all Awards granted on, or after the date hereof.

 

2.             Terms and Conditions of Awards

 

2.1.          Adjustment of Initial Price. 
The “Adjusted Price” shall be the Initial Price, adjusted upward
or downward as of the Settlement Date, by a percentage equal to the aggregate
percentage increase or decrease (expressed as a whole percentage point followed
by three decimal places) in the Standard and Poor’s 500 Index over the period
(the “Period”) beginning on the Trading Day immediately preceding the
Award Date applicable to the Award and ending on the Trading Day immediately preceding
the relevant Settlement Date (the “Aggregate Percentage S&P Performance”).  For purposes of this Agreement, the “Settlement
Date” shall mean the earlier to occur of (i) the date set forth in
the applicable Award Letter as the Settlement Date of the Award and (ii) the
effective date of a Change in Control, as defined below.  For purposes of determining the Aggregate
Percentage S&P Performance with respect to any Period, the Standard and
Poor’s 500 Index as of the first day of the Period shall be deemed to equal the
closing value of such index on the Trading Day immediately preceding the Award
Date, and the Standard and Poor’s 500 Index on the last day of the Period shall
be deemed to equal the average closing value of such index over the
ten-consecutive-Trading Day period immediately preceding the Settlement
Date.  Notwithstanding anything in this
Agreement to the contrary, under no circumstances will the Adjusted Price be
less than the Initial Price on the Settlement Date.  In addition, if at any time during which the
provisions of this Section 2.1 

 

 

would cause the Adjusted
Price to be less than the Initial Price, the Adjusted Price shall be fixed at
the Initial Price.

 

2.2.          Term.  The term of
each Award shall expire on the earlier of the Settlement Date, the effective
date of a Change in Control or earlier as set forth in Section 4 hereof.

 

2.3.          Vesting.  Subject to Section 2.4
hereof, the OSOs granted under an Award shall vest on the Settlement Date.

 

2.4.          Accelerated Vesting upon Change in
Control.  Notwithstanding anything herein or in the
Plan to the contrary, and in accordance with the authority granted to the
Committee in Section 9.2(b) of the Plan, on the effective date of a “Change
in Control” (as defined in the Plan), (i) each Award shall be
canceled, and (ii) the Company or its successor shall pay to the Grantee
in consideration thereof an amount of cash equal to the value of any OSOs
(regardless of whether the OSOs were theretofore vested), assuming for this
purpose that the effective date of the Change in Control had been the day
during the prior 60-day period ending on the effective date of the Change in
Control which produces the highest such value, and (iii) any required
withholding related to such payment shall be satisfied by withholding the
appropriate amount of cash from such payment.

 

2.5.          Consideration. 
Vested OSOs shall be settled on the Settlement Date as set forth in this
Agreement.  As promptly as practicable,
the Company shall deliver or pay to the Grantee with respect to and in
cancellation of each vested OSO, consideration (the “Settlement
Consideration”) equal to the product obtained when (a) the Fair Market
Value (as defined in Section 9.1) of a share of Stock as of the day prior
to the Settlement Date, less the Adjusted Price for the relevant Award Shares,
is multiplied by (b) the Multiplier (as defined in Section 2.6
below); provided, that the Settlement
Consideration would be a positive number. 
The Settlement Consideration, if any, may be paid in (a) cash, (b) Stock
or (c) any combination of cash or Stock, at the Committee’s sole and
absolute discretion. In the event that the Company elects to pay some or all of
the Settlement Consideration in Stock, the number of shares of Stock to be
delivered shall be determined by dividing that portion of the Settlement
Consideration to be paid in Stock by the Fair Market Value of a share of Stock
as of the day prior to the Settlement Date. 
The payment of the Settlement Consideration, if any, shall be, in each
case, subject to withholding in accordance with Section 9.5.  For purposes of this Agreement, “Stock”
shall mean the Company’s common stock, par value $.01 per share.

 

2.6.          Multiplier. 
For purposes of this Section 2.6, the following terms are defined:

 

(a)           “S&P Start Number” means the closing value
of the Standard and Poor’s 500 Index on the Trading Day immediately preceding
the relevant Award Date.

 

(b)          “S&P End Number” means the simple
arithmetic average of the closing value of the Standard and Poor’s 500 Index
over the ten-consecutive-Trading Day period immediately preceding the
Settlement Date.

 

2

 

(c)           “Stock Start Number” means the Fair Market
Value of the Stock on the Trading Day immediately preceding the relevant Award
Date.

 

(d)          “Stock End Number” means the simple arithmetic
average of the Fair Market Value of the Stock over the ten-consecutive-Trading
Day period immediately preceding the Settlement Date.

 

(e)           “Duration” means the length of the relevant
Period, measured in years and fractions of years (expressed as a whole number
followed by three decimal places).

 

(f)             “Annualized Percentage S&P Performance”
means the annualized increase (or decrease) between the S&P Start Number
and the S&P End Number over the Period (expressed as a whole percentage
point followed by three decimal places), captured by the following formula:

 

	
  S&P End
  Number — S&P Start Number

  	
  x

  	
  100%

  
	
  S&P Start
  Number

  	
   

  	
  Duration

  

 

(g)          “Annualized Percentage Company Stock Price
Performance” means the annualized increase (or decrease) between the Stock
Start Number and the Stock End Number over the Period (expressed as a whole
percentage point followed by three decimal places), captured by the following
formula:

 

	
  Stock End Number
  — Stock Start Number

  	
  x

  	
  100%

  
	
  Stock Start
  Number

  	
   

  	
  Duration

  

 

The “Multiplier”
shall be based on the “Outperform Percentage,” which is the excess, if
any, of the Annualized Percentage Company Stock Price Performance over the
Annualized Percentage S&P Performance. 
The Multiplier shall be expressed as a whole number and decimals,
rounded to three decimal places, and be determined as follows:

 

With respect to
each Award that has an Award Date that is on or after the date of this
Agreement:

 

3

 

	
  If Outperform Percentage is:

  	
   

  	
  The Multiplier will equal:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  0% or less

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  More than 0%

  but less than 11%

  	
   

  	
  The Outperform Percentage multiplied by 100
  multiplied by 4/11. (E.g., if
  Outperform Percentage = 5%, the Multiplier = 5.000 times 4/11 =  1.818)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11% or more

  	
   

  	
  4.000

  	
   

  

 

In no event will
the Multiplier exceed 4.000 for Awards in which the Award Date is on or after
the date of this Agreement.

 

3.             Exempt 162(m) Treatment. 
The terms and conditions relating to Awards are designed so that each Award
will qualify as performance-based compensation within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the “Code”), and the
provisions of this Agreement shall be construed accordingly.  Consequently, if at the time of any purported
exercise of an Award by the Grantee, the Grantee is a “covered employee” within
the meaning of Section 162(m) of the Code, such purported exercise
shall not be effective prior to the time that the Company’s shareholders have
issued such approvals, and such other actions have been taken as may be
required, to qualify the Award as such performance-based compensation.

 

4.             Termination of Employment/Expiration of Award.

 

4.1.          Unvested OSOs. 
Except as set forth in Section 4.2 below, Awards shall expire as to
any unvested Awards as of the date the Grantee ceases to be employed by the
Company or any of its Affiliates for any reason .

 

4.2.          Death, Disability and Retirement. 
Notwithstanding the provisions of Section 4.1 above, if the Grantee
ceases to be employed by the Company as a result of the Grantee’s death, retirement (in accordance with the Company’s
Retirement Benefit then in effect), or “Permanent Total Disability” (as
defined in the following sentence), each Award shall not expire and
shall remain outstanding until the Settlement Date.  The Grantee shall be considered
to have suffered a Permanent Total Disability if the Committee determines that
the Grantee is permanently unable to earn any wages in the same or other
employment.

 

5.             Non-Transferability. 
Except as specifically allowed by the Committee in writing, an Award and
the related OSOs shall not be transferable other than by will or the laws of
descent and distribution, and OSOs may be exercised, during the lifetime of the
Grantee, only (i) by the Grantee or (ii) on the Grantee’s behalf by a
court-appointed legal guardian.  More
particularly (but without limiting the generality of the foregoing), except as
provided above an Award, OSOs, and the right to receive Settlement
Consideration may not be assigned, transferred, pledged or hypothecated in any
way, shall not be assignable by operation of law, and shall not be subject to
execution, attachment or similar process. 
Any attempted assignment, 

 

4

 

transfer, pledge,
hypothecation or other disposition of an Award, OSOs, or the right to receive
Settlement Consideration contrary to the provisions hereof and the levy of any
execution, attachment or similar process upon an Award, OSOs, or the right to
receive Settlement Consideration shall be null and void and without effect.

 

6.             Changes
in Capital Structure, Etc. 
Section 9.1
of the Plan shall apply to each Award, provided that no action may be taken by
the Committee pursuant thereto which would prevent a Pooling Transaction from
qualifying as such.

 

7.             Golden Parachute
Gross-Up.

 

                (a)           In the event it is determined (as
hereafter provided) that any payment or distribution by the Company to or for
the benefit of the Grantee pursuant to the terms of the Agreement, whether paid
or payable or distributed or distributable, including without limitation the
lapse or termination of any restriction on or the vesting of an Award or OSOs
granted under the Agreement (a “Payment”), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law, or any interest
or penalties with respect to such excise tax (such tax or taxes, together with
any such interest and penalties, are hereafter collectively referred to as the “Excise
Tax”), then the Grantee will be entitled to receive an additional payment
or payments (a “Gross-Up Payment”) in an amount equal to the Excise Tax
plus any penalties or taxes imposed on the Grantee by virtue of such Gross-Up
Payment such that, after payment by the Grantee of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Grantee retains the full value of an
Award and the OSOs thereunder, with the exception of any regular income taxes
owed by the Grantee on account of exercise of OSOs.

 

                (b)           Subject
to the provisions of Section 7(d) hereof, all determinations required
to be made under this Agreement, including whether an Excise Tax is payable by
the Grantee and the amount of such Excise Tax and whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, will be made by an outside “Big
4” or similar international accounting firm chosen by the Company (the “Accounting
Firm”).  The Grantee will direct the
Accounting Firm to submit its determination and detailed supporting
calculations to both the Company and the Grantee within 15 calendar days after
the effective date of the Change in Control, and any other such time or times
as may be requested by the Company or the Grantee.  If the Accounting Firm determines that any
Excise Tax is payable by the Grantee, the Company will pay the required
Gross-Up Payment to the Grantee within five business days after receipt of such
determination and calculations, but in no event later than the end of the
Grantee’s taxable year following the Grantee’s taxable year in which such tax
owed by such Grantee that is subject to the Gross-Up Payment is remitted to the
applicable taxing authority.  If the
Accounting Firm determines that no Excise Tax is payable by the Grantee, it
will, at the same time as it makes such determination, furnish the Grantee with
an opinion (addressed to both the Grantee and the Company) or other evidence
reasonably acceptable to the Grantee that the Grantee has substantial authority
not to report any Excise Tax on the Grantee’s federal, state, local income or
other tax return.  Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will be binding
upon the Company and the Grantee.  As a
result of the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the 

 

5

 

possibility of similar
uncertainty regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made (an
“Underpayment”), consistent with the calculations required to be made
hereunder.  In the event that the Company
exhausts or fails to pursue its remedies pursuant to Section 7(d) hereof
and the Grantee thereafter is required to make a payment of any Excise Tax, the
Grantee will direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Grantee as promptly as
possible.  The amount of any such Underpayment
will be promptly paid by the Company to, or for the benefit of, the Grantee
within five business days after receipt of such determination and calculations,
but in no event later than the end of the Grantee’s taxable year following the
Grantee’s taxable year in which such tax owed by such Grantee that is subject
to the Gross-Up Payment is remitted to the applicable taxing authority.

 

                (c)           The
Company and the Grantee will each provide the Accounting Firm access to and
copies of any books, records and documents in the possession of the Company or
the Grantee, as the case may be, reasonably requested by the Accounting Firm,
and otherwise cooperate with the Accounting Firm in connection with the
preparation and issuance of the determination contemplated by Section 7(b) hereof.

 

                (d)           The
federal, state and local income and other tax returns filed by the Grantee will
be prepared and filed on a consistent basis with the determination of the
Accounting Firm with respect to the Excise Tax payable by the Grantee.  The Grantee will make proper payment of the
amount of any Excise Tax, and at the request of the Company, provide to the
Company true and correct copies (with any amendments) of the Grantee’s federal
income tax return as filed with the Internal Revenue Service and corresponding
state and local tax returns, if relevant, as filed with the applicable taxing
authority, and such other documents reasonably requested by the Company,
evidencing such payment.  If prior to the
filing of the Grantee’s federal income tax return, or corresponding state and
local tax return, if relevant, the Accounting Firm determines that the amount
of the Gross-Up Payment should be reduced, the Grantee will within five
business days pay to the Company the amount of such reduction.

 

                (e)           The
fees and expenses of the Accounting Firm for its services in connection with
the determinations and calculations contemplated by Sections 7(b) and (d) hereof
will be borne by the Company.  If such
fees and expenses are initially advanced by the Grantee, the Company will
reimburse the Grantee the full amount of such fees and expenses within five
business days after receipt from the Grantee of a statement therefor and
reasonable evidence of his payment thereof.

 

                (f)            The
Grantee will notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of a
Gross-Up Payment.  Such notification will
be given as promptly as practicable but no later than 10 business days after
the Grantee actually receives notice of such claim and the Grantee will further
apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid (in each case, to the extent known by the
Grantee).  The Grantee will not pay such claim
prior to the earlier of (a) the expiration of the 30-calendar-day period
following 

 

6

 

the date on which he
gives such notice to the Company, and (b) the date that any payment of an
amount with respect to such claim is due. 
If the Company notifies the Grantee in writing prior to the expiration
of such period that it desires to contest such claim, the Grantee will (i) provide
the Company with any written records or documents in the Grantee’s possession relating
to such claim reasonably requested by the Company, (ii) take such action
in connection with contesting such claim as the Company will reasonably request
in writing from time to time, including without limitation accepting legal
representation with respect to such claim by an attorney competent in respect
of the subject matter and reasonably selected by the Company, (iii) cooperate
with the Company in good faith in order effectively to contest such claim, and (iv) permit
the Company to participate in any proceedings relating to such claim; provided, however, that
the Company will bear and pay directly all costs and expenses (including
interest and penalties) incurred in connection with such contest and will
indemnify and hold harmless the Grantee, on an after-tax basis, from and
against any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and payment of
costs and expenses.  Without limiting the
foregoing provisions of this Section 7(f), the Company may, at its option,
control all proceedings taken in connection with the contest of any claim
contemplated by this Section 7(f) and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim (provided,
however, that the Grantee may participate therein at his own cost and expense)
and may, at its option, either direct the Grantee to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Grantee agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company will determine; provided, however, that if the
Company directs the Grantee to pay the tax claimed and sue for a refund, the
Company will advance the amount of such payment to the Grantee on an
interest-free basis and will indemnify and hold the Grantee harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Grantee with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount.  Furthermore, the
Company’s control of any such contested claim will be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Grantee
will be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.

 

                (g)           If,
after the receipt by the Grantee of an amount advanced by the Company pursuant
to Section 7(f) hereof, the Grantee receives any refund with respect
to such claim, the Grantee will (subject to the Company’s complying with the
requirements of Section 7(f) hereof) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after any taxes applicable thereto).  If,
after the receipt by the Grantee of an amount advanced by the Company pursuant
to Section 7(f) hereof, a determination is made that the Grantee will
not be entitled to any refund with respect to such claim and the Company does
not notify the Grantee in writing of its intent to contest such denial or
refund prior to the expiration of 30 calendar days after such determination,
then such advance will be forgiven and will not be required to be repaid and
the amount of such advance will offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid pursuant to this Agreement.

 

7

 

                (h)           If
Grantee takes action to enforce this Section 7 against the Company (which
for this purpose shall include making preparations for taking such enforcement
action), and such enforcement action is in whole or part successful (whether by
decision of a court or arbitrator, by settlement, by mutual agreement of
Grantee and the Company, or otherwise), the Company shall promptly pay directly
or, at Grantee’s election, reimburse Grantee for, all legal and other expert
fees and expenses incurred by Grantee in connection with such action.

 

8.             General. 
Subject to the provisions of Section 2.5 with respect to the form
of the payment of the Settlement Consideration, the Company shall at all times
during the term of this Agreement reserve and keep available such number of
shares of Stock, as determined by the Compensation Committee from time to time,
as will be sufficient in the Compensation Committee’s good faith determination
to satisfy the requirements of this Agreement, shall pay all original issue and
transfer taxes with respect to the issue and transfer of shares of Stock
pursuant hereto and all other fees and expenses necessarily incurred by the
Company in connection therewith, and will from time to time use its best
efforts to comply with all laws and regulations which, in the opinion of
counsel for the Company, shall be applicable thereto.

 

9.             Miscellaneous

 

9.1.          Fair Market Value and Trading Day. 
For purposes of this Agreement, the “Fair Market Value” of the
Stock shall mean as of any date of determination (i) the closing price per
share of Stock on the national securities exchange on which the Stock is
principally traded as of 4:15 pm New York City Time, or (ii) if the Stock
is not listed or admitted to trading on any such exchange, the last sale price
of a share of Stock as reported by the NASD, Inc. Automated Quotation (“NASDAQ”)
system, or (iii) if the Stock is not then listed on any securities
exchange and prices therefore are not then quoted in the NASDAQ system, then
the value determined by the Committee in good faith.  The term “Trading Day” means any day
on which the Stock is traded, as contemplated by subsection (i) or (ii) above.

 

9.2.          No Stockholder Rights. 
The Grantee shall not have any of the rights of a stockholder with
respect to the Award Shares resulting from any Award prior to the issuance of
Stock, if any, to the Grantee upon the due exercise of the OSOs.

 

9.3.          No Abrogation of Company’s Rights. 
Nothing in this Agreement shall confer upon the Grantee any right to
continued employment with the Company or interfere in any way with the right of
the Company to terminate the Grantee’s employment at any time.  The transfer of employment between any
combination of the Company and any Affiliate of the Company shall not be deemed
a termination of employment.

 

9.4.          Effect of the Plan. 
The terms and provisions set forth in the Plan are incorporated herein
by reference as if they were set forth herein; provided,
however, that in the event of a direct
conflict between the terms of the Plan and the terms of this Agreement, the
terms of this Agreement shall govern. 
Reference to provisions of the Plan are to such provisions as they shall
be subsequently amended or renumbered; provided that no amendment to the Plan
which adversely affects an Award shall be effective as to that Award without
the written consent of the Grantee.  The
Grantee acknowledges that a current version of the Plan is available on the 

 

8

 

Company’s intranet site,
and the Company agrees to supply to the Grantee a paper copy of the current
version of the Plan upon the Grantee’s request.

 

9.5.          Withholding.  (a) Notwithstanding
anything contained herein to the contrary, other than Subsection 2.4 and Section 7,
the Company will not be obligated to issue the Settlement Consideration
unless the Grantee has paid (in cash or by certified or cashier’s check) to the
Company all withholding taxes required to be collected by the Company under
Federal, State, local or foreign law as a result of the issuance of the Deferred
Shares (“Withholding Taxes”).  The
Company shall be responsible for the determination of the amount of any
Withholding Taxes based on the value of the Settlement Consideration.  To the extent that the Grantee desires to pay
the Withholding Taxes in cash or by certified or cashier’s check, the Grantee
must deliver a Withholding Taxes Cash Payment Notification to the Company’s
stock OSO administrator substantially in the form of Exhibit B no later
than 45 days prior to the Settlement Date of any Award issued under this
Agreement.  To the extent that the
Grantee elects to pay the Withholding Taxes in cash or by certified or cashier’s
check, such payment must be received by the Company’s OSO administrator no
later than one (1) Business Day after the Settlement Date of any Award
that is the subject of the Withholding Taxes Cash Payment Notification.

 

(b) 
The Company, in its sole discretion, may permit the Grantee to pay any or all
Withholding Taxes through delivery of outstanding Stock or by the Company
withholding a portion of the Settlement Consideration issuable pursuant to this
Agreement.  The Grantee, however, will
have no absolute right to pay the Withholding Taxes with Stock, and, if such
payment is permitted by the Company, such payment must be made in strict
compliance with rules for such payments established by the Company.  As of the date of this Agreement, unless the
Company has received a properly executed and delivered Withholding Taxes Cash
Payment Notification from the Grantee, the Company currently intends to have
the Withholding Taxes paid through the withholding of Stock issuable upon
satisfaction of the terms and conditions set forth in this Agreement whenever
the Settlement Consideration is delivered by the Company in the form of shares
of Stock (a “net issuance”).  The
Stock that is withheld by the Company as part of the net issuance (the “Withheld
Shares”) will be sold on behalf of the Grantee as contemplated by Section 9.9
of this Agreement; provided,
however, that at the sole discretion of the Company, the Withheld Shares may be
retained by the Company and the Company will satisfy the Withholding Taxes from
the Company’s available cash. The Company reserves the right to change its
method with respect to the Grantee for the collection of Withholding Taxes that
may be owed by the Grantee at any time in its sole discretion, upon notice to
the Grantee, which notice may be written or electronic notice.

 

9.6.          Plan and Agreement Govern. 
Although any information sent to or made available to the Grantee
concerning the Plan and this Award is intended to be an accurate summary of the
terms and conditions of the Award, this Agreement and the Plan are the
authoritative documents governing the Award and any inconsistency between the
Agreement and the Plan, on one hand, and any other summary information, on the
other hand, shall be resolved in favor of the Agreement and the Plan.

 

                                                9.7.          Affiliate.  The term “Affiliate” shall have the
mean ascribed to it in the Plan.

 

9

 

                                                9.8.          Amendments.  Notwithstanding anything herein to the
contrary, this Agreement may be amended by the Committee from time to time
without the consent of the Grantee to the extent the Committee deems it
appropriate to cause this Agreement and/or each Award hereunder to comply with Section 409A
of the Internal Revenue Code of 1986, as amended (“Section 409A”)
(including the distribution requirements thereunder) or be exempt from Section 409A
and/or the tax penalty under Section 409A(a)(1)(B).

 

                                                9.9           Authorization to Trade.  By the execution of this Agreement, to the
extent that the Company elects to issue the Settlement Consideration as a net
issuance for the settlement of any Award of OSOs, and, the Grantee has not
properly executed and delivered to the Company’s OSO administrator a
Withholding Taxes Cash Payment Notification, the Grantee hereby irrevocably
instructs the Company and a broker of the Company’s choosing, to sell on behalf
of the Grantee at the “market price,” that number of shares of Stock required
to generate sufficient funds to equal the Withholding Taxes required to be paid
by the Grantee pursuant to Section 9.5. 
The Grantee represents to the Company and the broker that the Grantee is
entering into this Agreement in good faith. 
The Grantee shall have no ability to modify these instructions other
than by the proper execution and delivery to the Company’s OSO administrator of
a Withholding Taxes Cash Payment Notification. 
It is the Grantee’s intention that this provision comply with the
requirements of Rule 10b5-1 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934.

 

[Signature page follows]

 

10

 

IN
WITNESS WHEREOF, this Agreement is executed by the Grantee and by an authorized
officer on behalf of the Company, as of the date first above written.

 

	
  LEVEL
  3 COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
  BY:

  	
   

  
	
   

  	
   

  
	
  ITS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  GRANTEE:

  	
   

  
	
   

  	
  (Please sign)

  
	
   

  	
   

  
	
  Name:

  	
   

  
	
   

  	
  (Please print)

  
	
   

  	
   

  
	
  Date
  of Hire:

  	
   

  
				

 

11

 

EXHIBIT A

 

LEVEL 3 COMMUNICATIONS, INC.

OSO AWARD LETTER

 

                This OSO Award (the “Award”)
when taken together with the OSO Master Award Agreement dated as of
                                
and the individual whose name appears on the signature line below (the “Grantee”)
(the “Master Agreement”) constitutes an award to of outperform stock
appreciation rights that are referred to as OSOs under the Level 3
Communications, Inc. 1995 Stock Plan (as amended from time to time).

 

                The terms and conditions of this
Award are set forth below and in the Master Agreement, the provisions of which
are incorporated herein by reference.

 

A.                                   The date of grant of this Award is
                    
(the “Award Date”).

 

B.                                     The Initial Price per share for
each Award Share covered by this Award is
$                    .

 

C.                                     The Settlement Date of this
Award is
                            .

 

	
  LEVEL
  3 COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
  BY:

  	
   

  
	
  ITS:

  	
   

  
	
   

  	
   

  
	
  GRANTEE:

  	
   

  
			

 

12

 

EXHIBIT B

LEVEL 3 COMMUNICATIONS, INC.

WITHHOLDING TAXES CASH PAYMENT NOTIFICATION

 

                This Withholding Taxes Cash
Payment Notification is being delivered by the individual whose name appears on
the signature line below (the “Grantee”) in reference to an OSO Award
granted to the Grantee by Level 3 Communications, Inc. (the “Company”)
pursuant to that certain OSO Master Award Agreement dated as of
                                
between the Company and the Grantee (the “Master Agreement”).

 

                Capitalized terms used in this
Withholding Taxes Cash Payment Notification without definition have the meaning
given to those terms in the Master Agreement.

 

                This Withholding Taxes Cash
Payment Notification relates to the OSO Award granted to the Grantee pursuant
to the Award Letter issued to the Grantee dated
                                          ,
the Settlement Date of which OSO Award is
                                        
(the “Referenced OSO Award”).

 

                The Grantee hereby irrevocable
elects to pay any Withholding Taxes that are owed by the Grantee upon the
Settlement Date of the Referenced OSO Award in cash or by certified or cashier’s
check made payable to Level 3 Communications, Inc. within one (1) Business
Day of the Settlement Date of the Referenced OSO Award.  All payments of Withholding Taxes are to be
made to the Company’s OSO award administrator.*

 

                The Grantee hereby represents
and warrants to the Company that on the date hereof, the Grantee is not in
possession of material non-public information regarding the business or
financial condition of the Company and its subsidiaries.

 

                To the extent that the Grantee
is subject to the Company’s Insider Trading Policy’s restrictions on the
ability to trade the Company’s securities other than during an open trading
window, the Grantee expressly acknowledges that:  (a) the Grantee has executed this
Withholding Taxes Cash Payment Notification during an open trading window
pursuant to the Company’s Insider Trading Policy; and (b) the Grantee may
not sell any shares of Stock that are distributed to the Grantee upon the
expiration of the Referenced OSO Award, so long as the trading window is
closed.

 

	
  GRANTEE:

  	
   

  
	
   

  	
  (Please sign)

  
	
   

  	
   

  
	
  Name:

  	
   

  
	
   

  	
  (Please print)

  
	
   

  	
   

  
	
  Date of Hire:

  	
   

  
			

 

	
  Date:

  	
   

  

 

* Delivery
information with respect to the payment of Withholding Taxes must be obtained
from the Company’s OSO administrator.

 

13

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