VERIZON COMMUNICATIONS INC. LONG-TERM INCENTIVE PLAN PERFORMANCE STOCK UNIT AGREEMENT 2005-07 AWARD CYCLE

Exhibit 10.1

VERIZON COMMUNICATIONS INC. LONG-TERM INCENTIVE PLAN
PERFORMANCE STOCK UNIT AGREEMENT
2005–07 AWARD CYCLE

AGREEMENT between Verizon Communications Inc. (“Verizon” or the “Company”) and you (the “Participant”) and your heirs and beneficiaries.

1. Purpose of Agreement. The purpose of this Agreement is to provide a grant of performance stock units (“PSUs”) to the Participant.

2. Agreement. This Agreement is entered into pursuant to the terms of the 2001 Verizon Communications Inc. Long-Term Incentive Plan (the “Plan”), and evidences the grant of a performance stock award in the form of PSUs pursuant to the Plan. This Agreement is intended to comply with the requirements of Section 162(m) of the Code and the Treasury Department Regulations thereunder. The PSUs and this Agreement (including the covenants set forth in Exhibit A (the “Covenants”), which are incorporated into and shall be a part of the Agreement) are subject to the terms and provisions of the Plan. By executing this Agreement, the Participant agrees to be bound by the terms and provisions of the Plan, this Agreement and by the actions of the Human Resources Committee of Verizon Communication’s Board of Directors or any successor thereto (the “Committee”), and any designee of the Committee. To the extent that there is a conflict between the terms of the Plan and the terms of this Agreement, the terms of this Agreement shall control.

3. Contingency. The grant of PSUs is contingent on the Participant’s timely acceptance of this Agreement and satisfaction of the other conditions contained herein. If the Participant does not properly accept (or revokes acceptance of) this Agreement the Participant shall not be entitled to the PSUs regardless of the extent to which the vesting requirements in paragraph 5 (“Vesting”) are satisfied.

4. Number of Units. The Participant is granted the number of PSUs as specified on their account under the 2005 PSU grant, administered by Fidelity Investments. A PSU is a hypothetical share of Verizon’s common stock. The value of a PSU on any given date shall be equal to the closing price of Verizon’s common stock on the New York Stock Exchange as of such date. A PSU does not represent an equity interest in Verizon and carries no voting rights. A Dividend Equivalent Unit (“DEU”) or fraction thereof shall be added to each PSU each time that a dividend is paid on Verizon’s common stock. The amount of each DEU shall be equal to the dividend paid on a share of Verizon’s common stock. The DEU shall be converted into PSUs or fractions thereof based upon the average of the high and low sales prices of Verizon’s common stock traded on the New York Stock Exchange on the dividend payment date of each declared dividend on Verizon’s common stock, and such PSUs or fractions thereof shall be added to the Participant’s PSU balance.

5. Vesting.

(a) General. The Participant shall vest in the PSUs to the extent provided in paragraph 5(b) (“Performance Requirement”) only if the Participant satisfies the requirements of paragraph 5(c) (“Three-Year Continuous Employment Requirement”), except as otherwise provided in paragraph 7 (“Early Cancellation/Accelerated Vesting of PSUs”).

(b) Performance Requirement.

(1) General. The PSUs shall vest based on the average annual total shareholder return (“TSR”) of Verizon’s common stock during the three-year period beginning January 1, 2005, and ending at the close of business on December 31, 2007 (the “Award Cycle”), relative to the combined

 

weighted average annual TSR of the companies in the Standard & Poor’s 500 (“S&P 500^®”) Index and the companies in the Industry Peer Company (“IPC”) Index during the same three-year period. No PSUs shall vest unless the Committee determines that certain threshold performance requirements have been satisfied. The formula for determining the total number of PSUs that may vest and become payable (the “Payout Formula”) will equal the number of units that you are granted as described in paragraph 4 (plus any additional PSUs added with respect to DEUs credited over the Award Cycle) times the Total Vested Percentage (as defined below). For example, if (a) you are granted 1,000 PSUs, and (b) those PSUs are credited with an additional 150 PSUs as a result of DEUs paid over the Award Cycle, and (c) the Total Vested Percentage is 96%, you will generally vest in (1,000 PSUs + 150 PSUs from DEUs) times 96%, or 1,104 PSUs, which shall be payable in cash as described in paragraph 6. Please note that the Committee retains the discretion to determine the Total Vested Percentage, the Verizon S&P 500 Vested Percentage, the Verizon IPC Vested Percentage and the extent to which you are eligible to receive DEUs with respect to dividends declared after your separation from employment pursuant to paragraph 7(b)(1), and the Committee’s exercise of this discretion shall be final, conclusive and binding.

(2) Definitions. For purposes of the performance requirement and Payout Formula set forth in paragraph 5(b)(1)—

(i) “Total Vested Percentage” shall be equal to (i) 40% of the average annual Verizon S&P 500 Vested Percentage during the Award Cycle, plus (ii) 60% of the average annual Verizon IPC Vested Percentage during the Award Cycle.

(ii) “Verizon S&P 500 Vested Percentage” shall be an amount (between 0% and 200%), as determined by the Committee, for each year in the Award Cycle as provided in the following table:

(iii) “Verizon S&P 500 TSR Position” shall be, as determined by the Committee, Verizon’s rank among companies in the S&P 500 Index in terms of TSR, expressed as a percentage equal to the number of companies in the S&P 500 Index (including Verizon) with a TSR less than or equal to that of Verizon divided by the total number of companies in such index. The Committee retains the discretion to determine the Verizon S&P 500 TSR Position for any period, and the Committee’s exercise of this discretion shall be final, conclusive and binding.

(iv) “Verizon IPC Vested Percentage” shall be an amount (between 0% and 200%), as determined by the Committee, for each year in the Award Cycle as provided in the following table:

(v) “Verizon IPC TSR Position” shall be, as determined by the Committee, where Verizon would rank among companies in an Industry Peer Company Index in terms of TSR if Verizon were included in such index, expressed as a percentage equal to the number of companies in the IPC Index (including Verizon) with a TSR less than or equal to that of Verizon divided by the total number of companies in such index. The Committee retains the discretion to substitute, add or eliminate companies in the Industry Peer Company Index and to determine the Verizon IPC TSR Position for any period, and the Committee’s exercise of this discretion shall be final, conclusive and binding.

(vi) “TSR” or “Total Shareholder Return” shall mean the change in the price of a share of common stock from the beginning of a period (as measured by the closing price of a share of such stock on the last trading day preceding the beginning of the period) until the end of such period (the “Measurement Period”)(as measured by the closing price of a share of such stock on the last trading day of the period), adjusted to reflect the reinvestment of dividends (if any) through the purchase of common stock and as may be necessary to take into account stock splits or other events similar to those described in Section 4.3 of the Plan. Measurement Periods may vary between and/or during an Award Cycle, and may or may not be coextensive with the Award Cycle. The Committee retains the discretion to determine and to change the Measurement Periods which shall be used to calculate TSRs for the Award Cycle, both before and during the Award Cycle, and the Committee’s exercise of this discretion shall be final, conclusive and binding.

(c) Three-Year Continuous Employment Requirement. Except as otherwise determined by the Committee, or except as otherwise provided in paragraph 7(b), the PSUs shall vest only if the Participant is continuously employed by the Company from the date the PSUs are granted through the end of the Award Cycle.

(d) Transfer. Transfer of employment from Verizon to a Related Company (as defined in paragraph 13), from a Related Company to Verizon, or from one Related Company to another Related Company shall not constitute a separation from employment hereunder, and service with a Related Company shall be treated as service with the Company for purposes of the three-year continuous employment requirement in paragraph 5(c).

6. Payment. All payments under this Agreement shall be made in cash. As soon as practicable after the end of the Award Cycle (but in no event later than March 15, 2008), except as described in paragraph 7(c), the value of the vested PSUs (minus any withholding for taxes) shall be paid to the Participant (subject, however, to any deferral application that the Participant has made under the deferral plan (if any) then available to the Participant). The amount of cash that shall be paid (plus withholding for taxes and any applicable deferral election) shall equal the number of vested PSUs times the closing price of Verizon’s common stock on the New York Exchange as of the last trading day in the Award Cycle. If the Participant dies before any payment due hereunder is made, such payment shall be made to the Participant’s beneficiary. Once a payment has been made with respect to a PSU, the PSU shall be canceled.

7. Early Cancellation/Accelerated Vesting of PSUs. Subject to the provisions of paragraph 7(c) and 5, PSUs may vest or be forfeited before vesting as follows:

(a) Retirement Before July 1, 2005, Voluntary Separation On or Before December 31, 2007 or Discharge for Cause On or Before December 31, 2007.

(1) If the Participant (i) Retires (as defined in paragraph 7(b)(4)) before July 1, 2005, (ii) quits on or before December 31, 2007, (iii) is terminated for Cause (as defined below) on or before December 31, 2007, or (iv) separates from employment on or before December 31, 2007 under circumstances not described in paragraph 7(b), all then-unvested PSUs shall be canceled immediately and shall not be payable.

(2) For purposes of this Agreement, “Cause” means (i) grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Participant; fraud, misappropriation or embezzlement involving the Company; or a material breach of the Verizon Code of Business Conduct or any of the Covenants set forth in Exhibit A to this Agreement, all as determined by the Executive Vice President – Human Resources of Verizon in his or her discretion, and the exercise of such discretion shall be final, conclusive and binding, or (ii) commission of any felony of which the Participant is finally adjudged guilty by a court of competent jurisdiction.

(b) Retirement After June 30, 2005, Involuntary Termination Without Cause On or Before December 31, 2007, Termination Due to Death or Disability On or Before December 31, 2007.

(1) This paragraph 7(b) shall apply if the Participant:

(i) Retires (as defined below) after June 30, 2005, or

(ii) Separates from employment by reason of an involuntary termination without Cause (as determined by the Executive Vice President – Human Resources of Verizon), death, or disability (as defined below) on or before the last day of the Award Cycle. “Disability” shall mean the total and permanent disability of the Participant as defined by, or determined under, the Company’s long-term disability benefit plan.

(2) If the Participant separates from employment prior to the end of the Award Cycle under circumstances described in paragraph 7(b)(1), the Participant’s then-unvested PSUs shall be subject to the vesting provisions set forth in paragraph 5(a), except that the three-year continuous employment requirement set forth in paragraph 5(c) shall not apply, provided that the Participant does not commit a material breach of any of the Covenants and provided that the Participant executes a release satisfactory to the Company waiving any claims he may have against the Company.

(3) Any PSUs that vest pursuant to paragraph 7(b)(2) shall be payable as soon as practicable after the end of the Award Cycle (but in no event later than March 15, 2008), except as described in paragraph 7(c). However, the Committee retains the discretion to determine whether and the extent to which the Participant