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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-14087
U S WEST, Inc.
A Delaware Corporation IRS Employer No. 84-0953188
1801 California Street, Denver, Colorado 80202
Telephone Number 303-672-2700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X_ No __
At July 31, 1998, 501,683,621 shares of common stock were outstanding.
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<PAGE>
U S WEST, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Item Page
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1998 and 1997 3
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
1. Legal Proceedings 24
2. Changes in Securities and Use of Proceeds 24
4. Submission of Matters to a Vote of Security Holders 25
5. Other Information 25
6. Exhibits and Reports on Form 8-K 31
</TABLE>
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) U S WEST, Inc.
<S> <C> <C> <C> <C>
- - ------------------------------------------------------ ---------------------------- ---------------------------
Three Months Ended Six Months Ended
June 30, June 30,
Dollars in millions (except per share 1998 1997 1998 1997
amounts)
- - ------------------------------------------------------ -------------- ------------- ------------- -------------
Operating revenues:
Local service $1,369 $1,194 $2,719 $2,425
Interstate access service 711 678 1,409 1,365
Intrastate access service 202 200 408 400
Long-distance network services 195 240 396 490
Directory services 313 296 620 583
Other services 263 222 510 434
-------------- ------------- ------------- -------------
Total operating revenues 3,053 2,830 6,062 5,697
Operating expenses:
Employee-related expenses 1,069 971 2,075 1,897
Other operating expenses 676 462 1,231 978
Taxes other than income taxes 89 102 190 214
Depreciation and amortization 535 539 1,067 1,075
-------------- ------------- ------------- -------------
Total operating expenses 2,369 2,074 4,563 4,164
-------------- ------------- ------------- -------------
Operating income 684 756 1,499 1,533
Interest expense 109 101 206 204
Gains on sales of rural telephone exchanges - 29 - 47
Other expense - net 33 17 58 39
-------------- ------------- ------------- -------------
Income before income taxes 542 667 1,235 1,337
Provision for income taxes 215 251 474 501
-------------- ------------- ------------- -------------
NET INCOME $ 327 $ 416 $ 761 $ 836
============== ============= ============= =============
EARNINGS PER SHARE:
Basic $0.67 $0.86 $1.56 $1.73
Diluted 0.67 0.85 1.55 1.71
Average shares outstanding (000s):
Basic 487,869 482,542 486,424 481,945
Diluted 491,944 493,884 490,521 493,143
PRO FORMA EARNINGS PER SHARE:
Basic $0.59 $0.75 $1.37 $1.52
Diluted 0.59 0.74 1.36 1.50
Pro forma average shares outstanding (000s):
Basic 501,516 498,883 501,411 498,286
Diluted 505,591 510,225 505,508 509,484
DIVIDENDS PER SHARE $0.535 $0.535 $1.07 $1.07
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (Unaudited) U S WEST, Inc.
<S> <C> <C>
- - ------------------------------------------------------------------------ ---------------- --------------------
June 30, December 31,
Dollars in millions 1998 1997
- - ------------------------------------------------------------------------ ---------------- --------------------
ASSETS
Current assets:
Cash and cash equivalents $ 730 $ 27
Accounts and notes receivable - net 1,706 1,717
Inventories and supplies 213 150
Deferred directory costs 263 257
Deferred tax asset 217 271
Prepaid and other 87 82
---------------- --------------------
Total current assets 3,216 2,504
Gross property, plant and equipment 34,565 33,651
Accumulated depreciation 20,074 19,343
---------------- --------------------
Property, plant and equipment - net 14,491 14,308
Other assets 890 855
---------------- --------------------
Total assets $ 18,597 $ 17,667
================ ====================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS U S WEST, Inc.
(Unaudited), continued
<S> <C> <C>
- - -------------------------------------------------------------------- ------------------- ---------------------
June 30, December 31,
Dollars in millions, except per share amounts 1998 1997
- - -------------------------------------------------------------------- ------------------- ---------------------
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $2,753 $ 497
Old U S WEST debt - 198
Accounts payable 1,187 1,377
Employee compensation 361 412
Dividends payable 268 259
Advanced billings and customer deposits 357 336
Other 1,064 1,120
------------------- ---------------------
Total current liabilities 5,990 4,199
Long-term debt 7,946 5,020
Postretirement and other postemployment
benefit obligations 2,539 2,534
Deferred income taxes 815 791
Deferred credits and other 827 756
Contingencies
Shareowners' equity
Preferred shares -$1.00 per share par value,
200,000,000 shares authorized, none issued
and outstanding
Common shares - $0.01 per share par value, 2,000,000,000 shares authorized,
501,396,458 and 484,515,415 issued and outstanding at June 30, 1998
and December 31, 1997, respectively 480 -
Pre-recapitalization equity - 4,367
------------------- ---------------------
Total shareowners' equity 480 4,367
------------------- ---------------------
Total liabilities and shareowners' equity $18,597 $ 17,667
=================== =====================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) U S WEST, Inc.
<S> <C> <C>
- - ----------------------------------------------------------------------------------- ------------- ------------
Six Months Ended June 30, 1998 1997
- - ----------------------------------------------------------------------------------- ------------- ------------
(Dollars in millions)
OPERATING ACTIVITIES
Net income $761 $836
Adjustments to net income:
Depreciation and amortization 1,067 1,075
Gains on sales of rural telephone exchanges - (47)
Deferred income taxes and amortization of investment tax credits 89 (10)
Changes in operating assets and liabilities:
Accounts receivable 11 22
Inventories, supplies and other current assets (88) (62)
Accounts payable and accrued liabilities (76) 259
Other - net 55 95
------------ ------------
Cash provided by operating activities 1,819 2,168
------------ ------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (1,283) (849)
Proceeds from disposals of property, plant and equipment 34 4
Purchase of PCS licenses (18) -
Proceeds from sales of rural telephone exchanges - 28
Other (34) -
------------ ------------
Cash used for investing activities (1,301) (817)
------------ ------------
FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term debt 2,060 (669)
Net (repayments of) proceeds from issuance of Old U S WEST debt (198) 11
Proceeds from issuance of long-term debt 3,066 -
Repayment of Old U S WEST debt in connection with the
Dex Alignment (3,829) -
Repayments of long-term debt (83) (86)
Dividends paid on common stock (519) (475)
Dividends paid to Old U S WEST (183) (161)
Payment to Old U S WEST for debt refinancing costs (140) -
Return of capital from Old U S WEST 13 -
Proceeds from issuance of common stock 44 38
Purchases of treasury stock (46) -
------------ ------------
Cash provided by (used for) financing activities 185 (1,342)
------------ ------------
CASH AND CASH EQUIVALENTS
Increase 703 9
Beginning balance 27 80
------------ ------------
Ending balance $730 $89
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 1998
(Dollars in millions, except per share amounts)
(Unaudited)
A. U S WEST Separation
On October 25, 1997, the Board of Directors of the former parent of U S WEST,
Inc., herein referred to as "Old U S WEST," adopted a proposal to separate Old U
S WEST into two independent companies (the "Separation"). Old U S WEST conducted
its businesses through two groups: the U S WEST Communications Group (the
"Communications Group"), which included the communications businesses of Old U S
WEST, and the U S WEST Media Group (the "Media Group"), which included the
multimedia businesses of Old U S WEST. On June 4, 1998, shareholders of Old U S
WEST voted in favor of the Separation, which became effective June 12, 1998 (the
"Separation Date"). At that time, the Communications Group became an independent
public company renamed "U S WEST, Inc." ("U S WEST" or the "Company") and Media
Group's directory business known as U S WEST Dex, Inc. ("Dex") was aligned with
U S WEST (the "Dex Alignment"). Old U S WEST has continued as an independent
public company comprised of the current businesses of Media Group other than Dex
and has been renamed "MediaOne Group, Inc." ("MediaOne Group").
The Separation was implemented pursuant to the terms of a separation agreement
(the "Separation Agreement") between U S WEST and MediaOne Group. In connection
with the Dex Alignment, (i) U S WEST distributed, as a dividend to holders of
MediaOne Group common stock, an aggregate of $850 in value of U S WEST common
stock and (ii) $3.9 billion of Old U S WEST debt, formerly allocated to Media
Group, was refinanced by U S WEST (the "Dex Indebtedness").
The Consolidated Financial Statements include the consolidated historical
results of operations, balance sheets and cash flows of the businesses that
comprise the Communications Group and Dex, as if such businesses operated as a
separate entity for all periods and as of all dates presented. However, certain
of the financial effects of the Separation and the Dex Alignment, including
interest expense associated with the refinancing of $3.9 billion of Dex
Indebtedness and the dilutive effects of the issuance of $850 of U S WEST common
stock, are not reflected in the accompanying Consolidated Statements of Income
prior to the Separation Date. These Consolidated Financial Statements should be
read in conjunction with the U S WEST, Inc. Unaudited Pro Forma Condensed
Combined Statements of Income which have been separately presented under Part II
- - - Item 5(B)-"Other Information - Pro Forma Financial Information."
Further information about the Separation is contained in Old U S WEST's proxy
statement mailed to all Old U S WEST shareowners on April 20, 1998.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
B. Summary of Significant Accounting Policies
Basis of Presentation. U S WEST is incorporated under the laws of the State of
Delaware. The Consolidated Financial Statements include the accounts of U S WEST
and its majority-owned subsidiaries. All significant intercompany amounts and
transactions have been eliminated. Investments in less than majority-owned
ventures are generally accounted for using the equity method.
Certain reclassifications within the Consolidated Financial Statements have been
made to conform to the current year presentation.
The Consolidated Financial Statements have been prepared pursuant to the interim
reporting rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally accompanying
financial statements prepared in accordance with generally accepted accounting
principles ("GAAP") have been condensed or omitted pursuant to such SEC rules
and regulations. In the opinion of management, the Consolidated Financial
Statements include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial information set forth
therein. It is suggested that these Consolidated Financial Statements be read in
conjunction with the 1997 U S WEST Combined Financial Statements and notes
thereto included in Annex G of Old U S WEST's proxy statement mailed to all Old
U S WEST shareowners on April 20, 1998.
C. Debt Refinancing
In connection with the Separation, U S WEST and MediaOne Group refinanced
substantially all of the indebtedness issued or guaranteed by Old U S WEST
through a combination of tender offers, prepayments, consent solicitations and
exchange offers (the "Refinancing").
In connection with the Refinancing and the Dex Alignment, in June 1998 U S WEST
Capital Funding, Inc. ("Capital Funding"), a wholly-owned financing subsidiary
of U S WEST, issued approximately $4.1 billion in new debt securities, of which
approximately $1.0 billion is commercial paper with an average rate of 5.82% and
$3.1 billion is long-term debt having the following rates and maturities:
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------- ------------------------ ------------------------
Effective Interest
Term Amount Rate (%)
------------------------- ------------------------ ------------------------
4 year $ 500 6.31 %
7 year 500 6.41 %
10 year 600 6.55 %
30 year 1,500 6.98 %
------------------------- ------------------------ ------------------------
</TABLE>
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
Approximately $3.83 billion in proceeds from the issuance of these securities
were used to repay Old U S WEST debt in connection with Dex Alignment. The
remaining proceeds were primarily used to fund U S WEST's share of operating
expenses and debt refinancing costs incurred by Old U S WEST that were directly
attributable to the Separation. The Company additionally refinanced
approximately $200, including $70 of Dex debt assumed in connection with the Dex
Alignment.
The Company maintains a commercial paper program to finance short-term cash flow
requirements as well as to maintain a presence in the short term debt market. At
June 30, 1998, U S WEST is permitted to borrow and has available up to
approximately $2.4 billion under lines of credit to meet the combined business
needs of its nonregulated subsidiaries, of which $1.4 billion matures in one
year and $1.0 billion matures in five years.
D. Asset Impairment
During second-quarter 1998, the Company recorded a non-cash charge of $21 (net
of a $14 tax benefit) related to the impairment of certain long-lived assets
associated with the Company's video operations in Omaha, Nebraska, which are
included in the communications and related services segment. The impaired assets
primarily consist of underground cable and hardware. Recent technological
advances have permitted the Company to pursue and use more economical Video
Digital Subscriber Line ("VDSL") technology in cable overbuild situations.
Because the projected future cash flows were less than the carrying values an
impairment loss was recognized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The amount of
impairment was determined based on the net present value of the future cash
flows of the business, discounted at the Company's cost of capital. The pretax
charge is recorded in "other operating expenses" within the Consolidated
Statements of Income.
E. Earnings Per Share
Certain of the financial effects of the Separation and the Dex Alignment,
including interest expense associated with the refinancing of $3.9 billion of
Dex Indebtedness by U S WEST and the dilutive effects of the issuance of $850 of
U S WEST common stock, are not reflected in the historical Consolidated
Statements of Income prior to the Separation Date. As a result, earnings per
share are presented on both a pro forma and historical basis.
The following reflects the computation of basic and diluted earnings per share
on a historical and pro forma basis. The unaudited pro forma earnings per share
amounts for 1998 and 1997 give effect to the Dex Indebtedness and the issuance
of shares in connection with the Dex Alignment as if such transactions had been
consummated as of January 1, 1998 and 1997, respectively. For a full
presentation of these pro forma adjustments please see Part II - Item 5(B) -
"Other Information - Pro Forma Financial Information."
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- - ------------------------------------------- ------------------------------- -----------------------------
Three Months Ended June 30, Six Months Ended
June 30,
Basic Earnings Per Share 1998 1997 1998 1997
- - ------------------------------------------- ---------------- -------------- --------------- -------------
Reported net income $327 $416 $761 $836
Pro forma adjustment (1) (31) (41) (72) (81)
================ ============== =============== =============
Pro forma income $296 $375 $689 $755
================ ============== =============== =============
Basic average shares (thousands) (2) 487,869 482,542 486,424 481,945
Pro forma adjustment (3) 13,647 16,341 14,987 16,341
---------------- -------------- --------------- -------------
Pro forma basic average shares 501,516 498,883 501,411 498,286
================ ============== =============== =============
Basic earnings per share $0.67 $0.86 $1.56 $1.73
Pro forma basic earnings per share 0.59 0.75 1.37 1.52
=========================================== ================ ============== =============== =============
- - ------------------------------------------- ------------------------------- ---- -----------------------------
Three Months Ended June 30, Six Months Ended
June 30,
Diluted Earnings Per Share 1998 1997 1998 1997
- - ------------------------------------------- ---------------- -------------- ----- -------------- -------------
Reported net income $327 $416 $761 $836
Interest on convertible zero coupon
subordinated notes, net of tax - 4 - 7
---------------- -------------- -------------- -------------
Income used for diluted earnings per share 327 420 761 843
Pro forma adjustment (1) (31) (41) (72) (81)
---------------- -------------- -------------- -------------
Pro forma income used for diluted earnings
per share $296 $379 $689 $762
================ ============== ============== =============
Basic average shares (thousands)(2) 487,869 482,542 486,424 481,945
Effect of dilutive securities:
Stock options 4,075 1,956 4,097 1,812
Convertible zero coupon notes - 9,386 - 9,386
---------------- -------------- -------------- -------------
Diluted average shares 491,944 493,884 490,521 493,143
Pro forma adjustment (3) 13,647 16,341 14,987 16,341
---------------- -------------- -------------- -------------
Pro forma diluted average shares 505,591 510,225 505,508 509,484
================ ============== ============== =============
Diluted earnings per share $0.67 $0.85 $1.55 $1.71
Pro forma diluted earnings per share 0.59 0.74 1.36 1.50
=========================================== ================ ============== ============== =============
<FN>
<F1>
(1) Reflects incremental (after-tax) interest expense associated with the Dex
Indebtedness from the beginning through the end of each period presented up
to the Separation Date.
<F2>
(2) Historical average shares assume a one-for-one conversion of historical
Communications Group common stock outstanding into shares of U S WEST as of
the Separation Date.
<F3>
(3) Reflects the issuance of approximately 16,341,000 shares (net of the
redemption of approximately 305,000 fractional shares) issued on June 15,
1998 in connection with the Dex Alignment as if the shares had been issued
at the beginning of each period indicated.
</FN>
</TABLE>
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
The dilutive securities represent the incremental weighted-average shares from
the assumed exercise of stock options and the assumed conversion of the zero
coupon subordinated notes, which were redeemed in August 1997.
F. Contingencies
U S WEST Communications, Inc. ("U S WEST Communications"), a wholly-owned
subsidiary of the Company that provides telecommunications services, has pending
regulatory actions in local regulatory jurisdictions that call for price
decreases, refunds or both.
Oregon. On May 1, 1996, the Oregon Public Utilities Commission ("OPUC") approved
a stipulation terminating prematurely U S WEST Communications' alternative form
of regulation ("AFOR") plan, and it then undertook a review of U S WEST
Communications' earnings. In May 1997, the OPUC ordered U S WEST Communications
to reduce its annual revenues by $97, effective May 1, 1997, and to issue a
one-time refund, including interest, of approximately $102 to reflect the
revenue reduction for the period May 1, 1996 through April 30, 1997. The
one-time refund is for interim rates which became subject to refund when U S
WEST Communications' AFOR plan was terminated on May 1, 1996.
U S WEST Communications filed an appeal of the order and asked for an immediate
stay of the refund with the Oregon Circuit Court which granted U S WEST
Communications' request for a stay, pending a full review of the OPUC's order.
On February 19, 1998, the Oregon Circuit Court entered a judgment in U S WEST
Communications' favor on most of the appealed issues. The OPUC appealed to the
Oregon Court of Appeals on March 19, 1998, and the appeal is pending. U S WEST
Communications continues to charge interim rates, subject to refund, during the
pendency of that appeal. The potential refund exposure, including interest, at
June 30, 1998, is not expected to exceed $245.
Utah. In another proceeding, the Utah Supreme Court has remanded a Utah Public
Service Commission ("UPSC") order to the UPSC for hearing, thereby establishing
two exceptions to the rule against retroactive ratemaking: 1) unforeseen and
extraordinary events, and 2) misconduct. The UPSC's initial order denied a
refund request from interexchange carriers ("IXCs") and other parties related to
the Tax Reform Act of 1986. The potential exposure, including interest, at June
30, 1998, is not expected to exceed $165.
State Regulatory Accruals. U S WEST Communications has accrued $173 at June 30,
1998, which represents its estimated liabilities for all state regulatory
proceedings, predominately the items discussed above. It is possible that the
ultimate liabilities could exceed the amounts accrued by up to approximately
$250. U S WEST Communications will continue to monitor and evaluate the risks
associated with its local regulatory jurisdictions, and will adjust estimates as
new information becomes available.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
In addition to its estimated liabilities for state regulatory proceedings, U S
WEST Communications has an accrued liability of approximately $170 at June 30,
1998 related to refunds in the state of Washington. Approximately $70 was
refunded to IXCs and independent local exchange carriers during the second
quarter. The remaining liability will be refunded to ratepayers beginning in the
third quarter.
G. Shareholder Rights Plan
The U S WEST Board of Directors has adopted a shareholder rights plan which, in
the event of a takeover attempt, would entitle existing shareowners to certain
preferential rights. The rights expire on June 1, 2008 and are redeemable by the
Company at any time prior to the date they would become effective.
H. New Accounting Standards
On June 15, 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and for Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 requires, among other
things, that all derivative instruments be recognized at fair value as either
assets or liabilities on the balance sheet and that changes in fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Standard is effective for fiscal years beginning after June 15, 1999,
though earlier adoption is permitted. The Company has not determined the future
effects of its adoption of the new standard.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts)
Some of the information presented in or in connection with this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. Factors that could
cause actual results to differ from expectations include: (i) greater than
anticipated competition from new entrants into the local exchange, intraLATA
toll, wireless, data and directories markets, (ii) changes in demand for the
Company's products and services, including optional custom calling features,
(iii) higher than anticipated employee levels, capital expenditures, and
operating expenses (such as costs associated with year 2000 remediation), (iv)
the loss of significant customers, (v) pending regulatory actions in state
jurisdictions, (vi) regulatory changes affecting the telecommunications
industries, including changes that could have an impact on the competitive
environment in the local exchange market, (vii) a change in economic conditions
in the various markets served by the Company's operations that could adversely
affect the level of demand for telephone, wireless, directories or other
services offered by the Company, (viii) greater than anticipated competitive
activity requiring new pricing for services, (ix) higher than anticipated
start-up costs associated with new business opportunities, (x) increases in
fraudulent activity with respect to wireless services, (xi) delays in the
Company's ability to begin offering interLATA long-distance services, (xii)
consumer acceptance of broadband services, including telephony, data, and
wireless services, or (xiii) delays in the development of anticipated
technologies, or the failure of such technologies to perform according to
expectations.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
Results of Operations - Three and Six Months Ended June 30, 1998 Compared with
1997
Net Income
Following are details of the Company's reported and pro forma net income, and
pro forma diluted earnings per share, normalized to exclude the effects of
certain nonrecurring and nonoperating items.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - --------------------------------- ---------- ----------- -------- -------- -------------------- ---------------
Three Months Ended Increase Six Months Ended Increase
June 30, (Decrease) June 30, (Decrease)
Net Income: 1998 1997(1) $ % 1998(1) 1997 $ %
- - --------------------------------- ---------- ----------- -------- -------- --------- ---------- -------- --------
Reported net income $327 $416 $(89) (21.4) $761 $836 $(75) (9.0)
Pro forma adjustment (2) (31) (41) 10 24.4 (72) (81) 9 11.1
---------- ---------- --------- -------- ---------- ---------- --------- -------
Pro forma income 296 375 (79) (21.1) 689 755 (66) (8.7)
Adjustments:
Separation costs 68 - 68 - 68 - 68 -
Asset impairment 21 - 21 - 21 - 21 -
Gains on sales of rural
telephone exchanges - (18) 18 - - (29) 29 -
========== ========== ========= ======== ========== ========== ========= =======
Normalized pro forma income $385 $357 $28 7.8 $778 $726 $52 7.2
========== ========== ========= ======== ========== ========== ========= =======
Pro forma diluted average
shares outstanding (3) 505,591 510,225 (4,634) (0.9) 505,508 509,484 (3,976) (0.8)
========== ========== ========= ======== ========== ========== ========= =======
Pro forma diluted earnings
per share $0.59 $0.74 $(0.15) (20.3) $1.36 $1.50 $(.14) (9.3)
Adjustments:
Separation costs 0.13 - 0.13 - 0.13 - 0.13 -
Asset impairment 0.04 - 0.04 - 0.04 - 0.04 -
Gains on sales of rural - - (0.06) 0.06 -
telephone exchanges - (0.04) 0.04
========== ========== ========= ======== ========== ========== ========= =======
Normalized pro forma diluted
earnings per share $0.76 $0.71 $0.05 7.0 $1.54 $1.44 $0.10 6.9
================================= ========== ========== ========= ======== ========== ========== ========= =======
(See "Note E - Earnings Per Share" - to the Consolidated Financial Statements.)
<FN>
<F1>
(1) Pro forma diluted earnings per share does not foot due to rounding.
<F2>
(2) Reflects incremental (after-tax) interest expense associated with the Dex
Indebtedness from the beginning through the end of each period presented up
to the Separation Date.
<F3>
(3) Average shares assumes a one-for-one conversion of historical
Communications Group common shares outstanding into shares of U S WEST as
of the Separation Date, adjusted to reflect the issuance of approximately
16,341,000 shares (net of the redemption of approximately 305,000
fractional shares) issued on June 15, 1998, in connection with the Dex
Alignment as if the shares had been issued at the beginning of each period
indicated.
</FN>
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
U S WEST normalized pro forma income increased by $28, or 7.8 percent, to $385,
and by $52, or 7.2 percent, to $778, during the three- and six-month periods
ended June 30, 1998 and 1997, respectively. Normalized pro forma diluted
earnings per share increased by $0.05, or 7.0 percent, to $0.76, and by $0.10,
or 6.9 percent, to $1.54, during the respective periods. The increases are
primarily due to higher demand for services partially offset by interstate
access rate reductions, increased start-up costs associated with growth
initiatives and higher expenses related to interconnection.
<TABLE>
<CAPTION>
Operating Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------ ------------------- ----------------- ------------------- -----------------
Three Months Increase Six Months Increase
Ended June (Decrease) Ended June (Decrease)
30, 30,
1998 1997 $ % 1998 1997 $ %
- - ------------------------------------ --------- --------- -------- -------- --------- ---------- -------- --------
Local service $1,369 $1,194 $175 14.7 $2,719 $2,425 $294 12.1
Interstate access service 711 678 33 4.9 1,409 1,365 44 3.2
Intrastate access service 202 200 2 1.0 408 400 8 2.0
Long-distance network services 195 240 (45) (18.8) 396 490 (94) (19.2)
Other services 273 231 42 18.2 528 450 78 17.3
--------- --------- -------- -------- --------- ---------- -------- --------
Communications and related
services 2,750 2,543 207 8.1 5,460 5,130 330 6.4
Directory services 313 296 17 5.7 620 583 37 6.3
Intersegment eliminations (10) (9) (1) 11.1 (18) (16) (2) 12.5
--------- --------- -------- -------- --------- ---------- -------- --------
Total $3,053 $2,830 $223 7.9 $6,062 $5,697 $365 6.4
==================================== ========= ========= ======== ======== == ========= ========== ======== ========
</TABLE>
Communications and Related Services
Local Service Revenues. Local service revenues increased $175, or 14.7 percent,
to $1,369, and $294, or 12.1 percent, to $2,719, during the three- and six-month
periods, respectively, primarily as a result of access line growth and increased
demand for new products and services, and existing central office features.
Excluding the non-recurring impact of a regulatory charge in last year's second
quarter, local services revenues increased by 8.1 percent and 9.1 percent for
the three- and six-month periods, respectively. Total reported access lines
increased 622,000, or 4.0 percent, during the past 12 months, of which 289,000
was attributable to second lines. Second line installations increased 24.5
percent. Access lines grew 656,000, or 4.2 percent, when adjusted for sales of
approximately 34,000 rural telephone access lines during the past twelve months.
Also contributing to the increase in revenues were the effects of rate increases
in various jurisdictions aggregating $14 in the second quarter and $31 for the
six months. Interim compensation revenues from IXCs as a result of Federal
Communications Commission ("FCC") payphone orders, which took effect in April
1997, also contributed to revenue growth in the first half of the year.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
Interstate Access Service Revenues. Interstate access service revenues increased
$33, or 4.9 percent, to $711, and $44, or 3.2 percent, to $1,409, during the
three- and six-month periods, respectively. The increases are primarily due to
the effects of a change in the classification of universal service fundings,
which increased revenues by $19 in the second quarter and $38 in the six-month
period. In 1997 these fundings were offset against interstate access service
revenues. Beginning in 1998 these fundings are recorded as access expense within
other operating expenses. Excluding the effects of the reclassification,
interstate access revenues during second quarter increased $14, or 2.1 percent,
and first-half revenues increased $6, or 0.4 percent, due to the effects of 1997
true-ups to sharing-related accruals. Increased demand for interstate access
services, as evidenced by increases of 7.3 percent and 6.7 percent in billed
interstate access minutes of use during the three- and six-month periods,
respectively, was essentially offset by price reductions.
Intrastate Access Service Revenues. Intrastate access service revenues increased
by $2, or 1.0 percent, to $202, and by $8, or 2.0 percent, to $408, during the
three- and six-month periods, respectively. The increases were primarily due to
higher demand for private line services and the effects of increases of 5.4
percent and 6.2 percent in intrastate billed access minutes of use during each
respective period. Largely offsetting the effects of increased demand were the
effects of net rate reductions aggregating $9 and $14 in the three- and
six-month periods, respectively, the majority of which were in the state of
Washington. Competitive effects are also adversely impacting intrastate access
revenue growth.
Long Distance Network Services Revenues. Long-distance network services revenues
decreased by $45, or 18.8 percent, in the second quarter and by $94, or 19.2
percent, in the first half of 1998. The decreases are primarily due to the
effects of competition and rate reductions of $13 in the second quarter and $27
in the first half of 1998 in several jurisdictions, most significantly in the
state of Washington. Also contributing to the decline were the implementation of
multiple toll carrier plans ("MTCPs") in various jurisdictions in 1997. The
MTCPs essentially allow independent telephone companies to act as toll carriers
and are net income neutral to the Company, with the reduction in toll revenues
largely offset by increased intrastate access service revenues and lower access
expense.
Other Services Revenues. Revenues from other services increased by $42, or 18.2
percent, in the second quarter and by $78, or 17.3 percent, in the first half of
1998, primarily as a result of greater sales of inside wire maintenance and
wireless communications services. Continued market penetration in voice
messaging services and increased sales of other unregulated products and
services also contributed to the increase.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
Directory Services
Revenues related to Yellow Pages directory advertising, which represent 99
percent of directory services revenues, increased $17, or 5.7 percent, to $313,
and $37, or 6.3 percent, to $620, in the three- and six-month periods,
respectively. The increases are driven by an average 6.1 percent increase in
revenue per local advertiser primarily resulting from price increases of 4.7
percent and an increase in volume and complexity of advertisements sold.
Intersegment Eliminations
Intersegment eliminations consist primarily of sales of customer lists, billing
and collection services and other services by U S WEST Communications to Dex at
market price. Also included are commercial property management services provided
by U S WEST Business Resources, Inc. to Dex.
Costs and Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------- -------------------- ----------------- ------------------- ----------------
Three Months Ended Increase Six Months Ended Increase
June 30, (Decrease) June (Decrease)
30,
1998 1997 $ % 1998 1997 $ %
- - ----------------------------------- ---------- --------- -------- -------- --------- --------- -------- -------
Employee-related expenses $1,069 $971 $98 10.1 $2,075 $1,897 $178 9.4
Other operating expenses (1) 676 462 214 46.3 1,231 978 253 25.9
Taxes other than income taxes 89 102 (13) (12.7) 190 214 (24) (11.2)
Depreciation and amortization 535 539 (4) (0.7) 1,067 1,075 (8) (0.7)
Interest expense(as reported) 109 101 8 7.9 206 204 2 1.0
Pro forma adjustment: 51 66 - - 117 131 - -
--------- --------- -------- -------- --------- --------- ------- --------
Interest expense (pro forma) 160 167 (7) (4.2) 323 335 (12) (3.6)
Gains on sales of rural telephone
exchanges - 29 (29) - - 47 (47) -
Other expense - net 33 17 16 94.1 58 39 19 48.7
- - ------------------------------------ --------- --------- -------- -------- -- --------- --------- ------- --------
<FN>
<F1>
(1) Includes separation expenses of $94 and an asset impairment charge of $35 during second-quarter 1998.
</FN>
</TABLE>
Employee-Related Expenses. Total employee-related expenses increased $98, or
10.1 percent, and $178, or 9.4 percent, during the three- and six-month periods,
respectively. The increases are primarily due to higher contract labor costs and
increased salaries and wages. The higher contract labor costs were largely a
result of systems development work (which includes expenses related to
interconnection and year 2000 costs) and marketing and sales efforts. Higher
salaries and wages were a result of workforce increases and wage increases.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
Other Operating Expenses. Excluding nonrecurring charges as described in Note 1
to the above table, other operating expenses increased by $85, or 18.4 percent,
and by $124, or 12.7 percent, during the three- and six-month periods,
respectively. The increases are primarily due to increased costs associated with
growth initiatives including marketing and advertising costs, and higher
interconnection expenses. Other operating expenses also increased $19 in the
second quarter and $38 in the first half of 1998 as compared to the same periods
in 1997 due to the aforementioned change in classification of universal service
funding expenses. Partially offsetting the increases were reduced access expense
(primarily due to the effects of competitive by-pass and the MTCPs) and a 1997
reserve adjustment associated with billing and collection activities performed
for IXCs.
Other operating expenses include $94 in costs that are directly attributable to
the Separation. These Separation costs include executive severance, legal and
financial advisory fees, securities registration fees, printing and mailing
costs, and internal systems and rearrangement costs.
U S WEST also recorded in other operating expenses a pretax charge of $35
related to the impairment of certain long-lived assets associated with the
Company's video operations in Omaha, Nebraska. Recent technological advances
have permitted the Company to pursue and use more economical VDSL technology in
cable overbuild situations. Because the projected future cash flows were less
than the carrying values an impairment loss was recognized in accordance with
SFAS No. 121. (See "Note D - Asset Impairment" - to the Consolidated Financial
Statements.)
Taxes Other Than Income Taxes. Taxes other than income taxes decreased primarily
as a result of adjustments related to the 1997 property tax accrual.
Interest Expense. The increase in interest expense for the second quarter as
reported reflects the impact of the Dex Indebtedness incurred since the
Separation Date, partially offset by the effects of lower average debt levels.
Pro forma interest expense reflects the full effects of the Dex Indebtedness as
if such indebtedness had occurred at the beginning of each period indicated. On
a pro forma basis, the decline in interest expense was primarily a result of
lower average debt levels.
Gains On Sale of Rural Telephone Exchanges. During the six-month period ended
June 30, 1997, the Company sold selected rural telephone exchanges in Iowa,
Nebraska, and South Dakota for pretax gains of $47.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
Other Expense - Net. Other expense increased primarily due to additional
interest expense associated with the Company's state regulatory liabilities.
Provision for Income Taxes
The effective tax rate for the first six months of 1998 is 38.4 percent as
compared to 37.5 percent during the first six months of 1997. The increase in
the effective tax rate is primarily due to the impact of certain expenses
related to the Separation, which are not deductible for tax purposes, and the
effects of lower amortization of investment tax credits. The effective tax rate
is expected to approximate 38 percent in 1998.
Liquidity and Capital Resources
Operating Activities
Cash provided by operating activities was $1,819 and $2,168 during the first six
months of 1998 and 1997, respectively. The decrease in operating cash flow
primarily reflects lower accounts payable financing, the effect of refunds in
regulatory jurisdictions, and higher tax payments. Partially offsetting the
decreases were the effects of business growth in both the communications and
directory businesses.
The Company's operating cash flow during the last half of 1998 will be affected
by the payment of approximately $170 of rate refunds in the state of Washington.
The rate refunds are for revenues that were collected subject to refund (with
interest) from May 1, 1996 through January 31, 1998. (See "Note F -
Contingencies" - to the Consolidated Financial Statements.)
Investing Activities
Total capital expenditures, on a cash basis, were $1,283 during the first six
months of 1998, of which the majority related to access line growth and
continued improvement of the telecommunications network. Expenditures associated
with entering wireless communications markets and meeting the requirements of
the Telecommunications Act of 1996, including interconnection and local number
portability, also impacted capital expenditures. In 1998, capital expenditures
are expected to approximate between $2.7 and $2.9 billion.
During the first-half of 1998 the Company paid $18 to purchase PCS licenses in
connection with its launch of PCS service in various markets.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations (Dollars in millions, except per share amounts), continued
Financing Activities
Debt Activity
Total debt increased by $4,984 as compared to December 31, 1997, of which
approximately $3.9 billion is attributable to the Dex Indebtedness. The Dex
Indebtedness was incurred at the Separation Date, with proceeds used to repay
Old U S WEST debt, offset by a reduction of shareowners'equity. Debt financing
was also the source of funds used for approximately $140 in debt refinancing
costs paid to Old U S WEST in addition to certain operating costs related to the
Separation. Higher capital expenditures also contributed to the increase in
debt.
The nonregulated activities of U S WEST, including Dex, are funded with
short-term advances. The net repayments on and proceeds from such short-term
advances were $(198) and $11, during the first six-months of 1998 and 1997,
respectively. Prior to the Separation Date, these short-term advances were
provided by Old U S WEST.
Prior to the Separation, Dex paid dividends to Old U S WEST equal to its net
income adjusted for the amortization of intangibles. These dividends totaled
$183 and $161 during the first six months of 1998 and 1997, respectively.
U S WEST Communications and U S WEST Capital Funding, Inc. Credit Ratings
On May 15, 1998, Standard & Poor's upgraded the senior unsecured debt of U S
WEST Communications from A to A+ and reaffirmed its commercial paper rating of
A1. In addition, Standard & Poor's has assigned credit ratings to the senior
unsecured debt and commercial paper of Capital Funding of A- and A2,
respectively.
During the first quarter of 1998, Moody's downgraded U S WEST Communications'
senior unsecured debt from Aa3 to A2 due to regulatory rulings and financial
challenges associated with the Separation. (See "Note F Contingencies" - to the
Consolidated Financial Statements.) U S WEST Communication's debt ratings,
including the P1 commercial paper rating, remained under review until May 15,
1998 when Moody's reaffirmed both ratings. In addition Moody's has assigned
credit ratings to the senior unsecured debt and commercial paper of Capital
Funding of A3 and P2, respectively.
On May 7, 1998, Duff & Phelps reaffirmed U S WEST Communications' senior
unsecured debt and commercial paper ratings of AA- and D-1+. In addition, Duff &
Phelps has assigned credit ratings to the senior unsecured debt and commercial
paper of Capital Funding of A and D-1, respectively.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
Year 2000 Costs
During 1997 U S WEST conducted a comprehensive high level review of its computer
systems and related software to ensure that systems properly recognize the year
2000 and continue to process data. The systems evaluated include (i) the Public
Switched Telephone Network (the "Network"), (ii) Information Technologies ("IT")
and (iii) individual Business Units (the "Business Units"). The Network, which
processes voice and data information relating to the core communications
business, relies on remote switches, central office and interoffice equipment,
and loop transport equipment that is predominately provided by
telecommunications network vendors. IT is comprised of the Company's internal
business systems that employ hardware and software with an enterprise-wide
scope, including operational, financial and administrative functions. The
Business Units, which include internal organizations such as finance,
procurement, Yellow Pages, operator services, wireless, data networks, real
estate, etc., employ systems that support desktop and departmental applications
that relate specifically to their business and are not generally part of the
Network or IT.
The Company's approach to year 2000 remediation activities is broken down into
five general phases: (i) inventory/assessment, (ii) planning, (iii) conversion,
(iv) testing/certification and (v) implementation.
With regard to the Network, the Company is working with telecommunications
network vendors to obtain compliant releases of hardware and software. The
Company is also working on a focused testing approach given the requirement that
Network testing must be done over multiple equipment configurations involving a
broad spectrum of services. The inventory/assessment and planning phases for the
Network are complete and management expects that the testing/certification phase
will be completed by December 1998, with implementation completed by July 1999.
To facilitate Network testing, the Company participates, along with other major
providers of telecommunications services, as a member of the Telco Year 2000
Forum (the "Forum"), an organization that addresses the year 2000 readiness of
network elements and network interoperability. The Forum has contracted with
Bellcore, a former affiliate engaged in telecommunications industry research,
development and maintenance activities, to engage in inter-region
interoperability testing.
Within IT, the Company has identified the applications that support its critical
business processes such as billing and collection, network monitoring, repair
and ordering. The inventory/assessment and planning phases for IT are complete
and management expects that conversion will be completed by the end of 1998 or
shortly thereafter, with testing and implementation continuing through 1999.
Within the Business Units, the Company is generally in the inventory/assessment
phase, though some Business Units have completed this phase and are into the
conversion and the testing/certification phase. Accordingly, a majority of the
Business Units are in the process of establishing project plans and associated
schedules to accomplish the remaining phases.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
The Company has spent approximately $40 through the second quarter of 1998 on
year 2000 projects and activities. The estimated total incremental costs for
year 2000 related projects and activities have increased from approximately $150
to approximately $200 through 1999, excluding capital expenditures. Additional
incremental capital expenditures over the same period will approximate $50-80.
Virtually all expenditures relate to U S WEST Communications and are being
funded through operations. Though year 2000 costs will directly impact the
reported level of future net income, the Company intends to manage its total
cost structure, including deferral of non-critical projects, in an effort to
mitigate the impact of year 2000 costs on its historical rate of earnings
growth.
Management cannot provide assurance that the result of its year 2000 compliance
efforts or the cost of such efforts will not differ materially from estimates.
Accordingly, business continuity and contingency plans are currently being
developed to address high risk areas as they are identified. These plans will be
in place by third-quarter 1999. Within Network, the Company is highly dependent
on the telecommunications network vendors to provide compliant hardware and
software in a timely manner, and on third parties that will assist the Company
in the focused testing of the Network. Within IT, the Company is dependent on
the development of software by experts, both internal and external, and the
availability of critical resources with the requisite skill sets. Failure by the
Company or by certain of its vendors to remediate year 2000 compliance issues
could result in disruption of the Company's operations, possibly impacting the
Network and the Company's ability to bill or collect revenues. However,
management believes that its efforts at remediation will be successful and that
the aforementioned "worst case" scenario is unlikely to develop.
The above discussion contains statements that are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company believes that its estimates are based on reasonable assumptions, there
can be no assurance that actual results will not differ materially from these
estimates.
Other Items
U S WEST from time to time engages in preliminary discussions regarding
restructurings, dispositions and other similar transactions. Any such
transaction may include, among other things, the transfer of certain assets,
businesses or interests, or the incurrence or assumption of indebtedness, and
could be material to the financial condition and results of operations of U S
WEST. There is no assurance that any such discussions will result in the
consummation of any such transaction.
U S WEST's principle collective bargaining agreements expire in August and
October 1998. As of August 12, 1998, settlement of these agreements has not been
reached.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in millions, except per share amounts), continued
Contingencies
U S WEST Communications has pending regulatory actions in local regulatory
jurisdictions that call for price decreases, refunds or both. (See "Note F -
Contingencies" - to the Consolidated Financial Statements.)
<PAGE>
Form 10-Q - Part II
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
U S WEST and its subsidiaries are subject to claims and proceedings arising in
the ordinary course of business. At U S WEST Communications, there are pending
certain regulatory actions in local regulatory jurisdictions that call for price
decreases, refunds or both. For a discussion of these actions, see "Note F -
Contingencies" - to the Consolidated Financial Statements.
Item 2. Changes in Securities and Use of Proceeds
(a) On June 12, 1998, the Company was separated from Old U S WEST in accordance
with the terms of the Separation Agreement dated as of June 5, 1998, by and
between the Company and Old U S WEST. Pursuant to the Separation Agreement,
Old U S WEST redeemed each outstanding share of U S WEST Communications
Group Common Stock for one share of Common Stock of the Company. The Common
Stock of the Company was registered with the SEC on Form S-4 filed on
February 6, 1998, as amended, and declared effective on April 10, 1998
(File No. 333-45765). The Separation was approved by shareholders of Old U
S WEST on June 4, 1998. For a further discussion of the Separation, please
refer to the Company's Form 8-K/A filed with the SEC on June 26, 1998.
(b) On June 29, 1998, Capital Funding issued $3.1 billion of Notes and
Debentures which were guaranteed as to principal and interest by U S WEST.
The Notes and Debentures were registered with the SEC on Form S-3 on May 6,
1998, as amended, and declared effective on May 22, 1998 (File Nos.
333-51907 and 333-51907-01). The Notes and Debentures were issued on June
24, 1998 with net proceeds of $3,065,632,000. The underwriting discount was
$22,900,000. The remaining difference represents the discounted price to
the public. The Company estimates its expenses at $1,270,000 ($1,032,500 of
which relates to the SEC filing fee). The net proceeds from the issuance of
the Notes and Debentures were used to repay existing commercial paper
indebtedness. For a listing of the managing underwriters, please refer to
the Company's Form 424(b)(2) filed with the SEC on June 26, 1998.
<PAGE>
Form 10-Q - Part II
Item 4. Submission of Matters to a Vote of Security Holders
Old U S WEST's 1998 annual meeting of shareowners was held on June 4, 1998. At
the meeting, the following items relating to the Company were submitted to a
vote of shareowners of Old U S WEST:
(a) A proposal to approve the Separation of Old U S WEST passed with a
total of 638,993,680 votes cast in favor of the Separation. Votes cast
against the Separation were 13,740,673.
(b) The 1998 New U S WEST Stock Plan was approved by 568,626,572 votes cast
in favor, 81,498,473 votes cast against, 8,457,506 votes abstained, and
81,441,326 votes delivered not voted.
(c) The New U S WEST Long-Term Incentive Plan was approved with a total of
594,733,335 votes cast in favor, 53,952,652 votes cast against,
9,896,583 votes abstained, and 81,441,307 votes delivered not voted.
(d) The New U S WEST Executive Short-Term Incentive Plan was approved by
565,332,811 votes cast in favor, 82,679,295 votes cast against,
10,570,433 votes abstained, and 81,441,338 votes delivered not voted.
Item 5. Other Information
A. Advance Notice Bylaw Procedure
The Company's Bylaws have an advance notice procedure for stockholders to bring
business before an annual meeting of stockholders. The advance notice procedure
requires that a stockholder interested in presenting a proposal for action at an
annual meeting of stockholders must deliver a written notice of the proposal,
together with certain specified information relating to such stockholder's stock
ownership and identity, to the Secretary of the Company at least 90 days before
the annual meeting. A copy of the Company's Bylaws was filed as an exhibit to
its Form 8-K/A dated June 26, 1998 and is available on the Commission's web site
at http://www.sec.gov.
Stockholder proposals intended for inclusion in the Company's 1999 Proxy
Statement should be sent to the Secretary of the Company at 1801 California
Street, Suite 5100, Denver, Colorado 80202, and must be received by December 21,
1998.
<PAGE>
Form 10-Q - Part II
Item 5. Other Information (continued)
B. Pro Forma Financial Information
The consolidated historical financial statements of U S WEST included
herein reflect the historical results of operations, balance sheets and cash
flows of the businesses that comprise Communications Group and Dex as if such
businesses operated as a separate entity for all periods presented. The
financial effects of the Dex Alignment, including the refinancing of the Dex
Indebtedness and the issuance of approximately 16,341,000 shares (net of the
redemption of approximately 305,000 fractional shares) of U S WEST common stock
in connection with the Dex Alignment, are reflected in the consolidated
financial statements since the Separation Date.
The following unaudited pro forma condensed combined statements of
income of U S WEST for the three and six months ended June 30, 1998 and 1997,
and years ended December 31, 1997 and 1996, give effect to the refinancing by U
S WEST of the Dex Indebtedness and the issuance of shares in connection with the
Dex Alignment (the "Separation Adjustments") as if such transactions had been
consummated as of the beginning of each period indicated.
The pro forma adjustments included herein are based on available
information and certain assumptions as of the Separation Date that management
believes are reasonable and are described in the accompanying notes. The
unaudited pro forma financial statements do not necessarily represent what U S
WEST's financial position or results of operations would have been had the
transactions occurred at such dates or to project U S WEST's results of
operations at or for any future date or period. In the opinion of management,
all adjustments necessary to present fairly the unaudited pro forma financial
information have been made. The unaudited pro forma financial statements should
be read in conjunction with the historical financial statements of U S WEST.
<PAGE>
Form 10-Q - Part II
Item 5. Other Information (continued)
U S WEST, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Dollars in millions (except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended June 30, 1998 Three Months Ended June 30, 1997
U S WEST Separation U S WEST U S WEST Separation U S WEST
Historical Adjustments Pro forma Historical Adjustments Pro forma
Operating revenues $3,053 - $3,053 $2,830 - $2,830
Operating expenses 2,369 - 2,369 2,074 - 2,074
------------------------------------------- -------------------------------------------
Operating income 684 - 684 756 - 756
Interest expense 109 $51(A) 160 101 $66(A) 167
Gains on sales of rural
telephone exchanges - - - 29 - 29
Other expense-net 33 - 33 17 - 17
------------------------------------------- -------------------------------------------
Income (loss) before
income taxes 542 (51) 491 667 (66) 601
Provision (benefit) for
income taxes 215 (20)(B) 195 251 (25)(B) 226
------------------------------------------- -------------------------------------------
Income (loss) $327 $(31) $296 $416 $(41) $375
=========================================== ===========================================
Basic earnings per
share(C) $0.67 - $0.59 $0.86 - $0.75
Average basic shares
outstanding (millions)(D)
487.9 13.6 501.5 482.6 16.3 498.9
Diluted earnings per
shares(C) $0.67 - $0.59 $0.85 - $0.74
Average diluted shares
outstanding (millions)(D)
492.0 13.6 505.6 493.9 16.3 510.2
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statements of Income.
<PAGE>
Form 10-Q - Part II
Item 5. Other Information (continued)
<TABLE>
<CAPTION>
U S WEST, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Dollars in millions (except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1998 Six Months Ended June 30, 1997
U S WEST Separation U S WEST U S WEST Separation U S WEST
Historical Adjustments Pro forma Historical Adjustments Pro forma
Operating revenues $6,062 - $6,062 $5,697 - $5,697
Operating expenses 4,563 - 4,563 4,164 - 4,164
------------------------------------------- -------------------------------------------
Operating income 1,499 1,499 1,533 1,533
Interest expense 206 $117(A) 323 204 $131(A) 335
Gains on sales of rural
telephone exchanges - - - 47 - 47
Other expense-net 58 - 58 39 - 39
------------------------------------------- -------------------------------------------
Income (loss) before
income taxes 1,235 (117) 1,118 1,337 (131) 1,206
Provision (benefit) for
income taxes 474 (45)(B) 429 501 (50)(B) 451
------------------------------------------- -------------------------------------------
Income (loss) $761 $(72) $689 $836 $(81) $755
=========================================== ===========================================
Basic earnings per
share(C) $1.56 - $1.37 $1.73 - $1.52
Average basic shares
outstanding (millions)(D)
486.4 15.0 501.4 482.0 16.3 498.3
Diluted earnings per
share(C) $1.55 - $1.36 $1.71 - $1.50
Average diluted shares
outstanding (millions)(D)
490.5 15.0 505.5 493.2 16.3 509.5
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statements of Income.
<PAGE>
Form 10-Q - Part II
Item 5. Other Information (continued)
<TABLE>
<CAPTION>
U S WEST, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Dollars in millions (except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1997 December 31, 1996
U S WEST Separation U S WEST U S WEST Separation U S WEST
Historical Adjustments Pro forma Historical Adjustments Pro forma
Operating revenues $11,479 - $11,479 $11,168 - $11,168
Operating expenses 8,703 - 8,703 8,356 - 8,356
------------------------------------------- -------------------------------------------
Operating Income 2,776 2,776 2,812 - 2,812
Interest expense 405 $262(A) 667 448 $262(A) 710
Gains on sales of rural
telephone exchanges 77 - 77 59 - 59
Gain on sale of investment
in Bellcore 53 - 53 - - -
Other expense-net 72 - 72 46 - 46
------------------------------------------- -------------------------------------------
Income (loss) before
income taxes(E) 2,429 (262) 2,167 2,377 (262) 2,115
Provision (benefit) for
income taxes 902 (100)(B) 802 876 (100)(B) 776
------------------------------------------- -------------------------------------------
Income (loss)(E) $1,527 $(162) $1,365 $1,501 $(162) $1,339
=========================================== ===========================================
Basic earnings per share(C)
$3.16 - $2.73 $3.14 - $2.71
Average basic shares
outstanding (millions)(D)
482.8 16.3 499.1 477.6 16.3 493.9
Diluted earnings per
share(C) $3.13 - $2.71 $3.10 - $2.68
Average diluted shares
outstanding (millions)(D)
491.3 16.3 507.6 488.6 16.3 504.9
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statements of Income.
<PAGE>
Form 10-Q - Part II
Item 5. Other Information (continued)
U S WEST, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
Dollars in millions
A. Reflects incremental interest expense associated with the Dex Indebtedness
from the beginning through the end of each period presented up to the
Separation Date.
B. Reflects the estimated income tax effects of the pro forma adjustments.
C. The financial effects of the Dex Alignment, including interest expense
associated with the refinancing of $3.9 billion of Dex Indebtedness by U S
WEST and the dilutive effects of the issuance of $850 of U S WEST common
stock, are reflected in the U S WEST historical Consolidated Statements of
Income since the Separation Date June 12, 1998.
D. Represents historical Communications Group average common shares
outstanding, adjusted to reflect the incremental impact of the issuance of
approximately 16,341,000 shares (net of the redemption of approximately
305,000 fractional shares) issued on June 15, 1998, in connection with the
Dex Alignment.
E. Amounts are before an extraordinary item and the cumulative effect of a
change in accounting principle.
<PAGE>
Form 10-Q - Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*3(i) Form of Restated Certificate of Incorporation of U S WEST, Inc.
(Exhibit 3-A to the Form S-4 Registration Statement No. 333-45765,
filed February 6, 1998, as amended).
*3(ii) Bylaws of U S WEST, Inc. (formerly "USW-C, Inc."), effective as of
June 12, 1998 (Exhibit 3(ii) to Form 8-K/A dated June 26, 1998,
File No. 1-14087).
*4(a) Form of Rights Agreement between U S WEST, Inc. (formerly "USW-C,
Inc.") and State Street Bank and Trust Company, as Rights Agent
(Exhibit 4-A to the Form S-4 Registration Statement No. 333-45765,
filed February 6, 1998, as amended).
*4(b) Form of Indenture among U S WEST Capital Funding, Inc., USW-C (renamed
"U S WEST, Inc.") and First National Bank of Chicago, as Trustee,
(Exhibit 4-A to Form S-3 Registration Statement No. 333-51907, filed
May 6, 1998, as amended).
*10(a) Separation Agreement between U S WEST, Inc. (renamed "MediaOne Group,
Inc.") and USW-C, Inc. (renamed "U S WEST, Inc."), dated June 5, 1998
(Exhibit 99.1 to Form 8-K/A dated June 26, 1998, File No. 1-14087).
*10(b) Employee Matters Agreement between U S WEST, Inc. (renamed "MediaOne
Group, Inc.") and USW-C, Inc. (renamed "U S WEST, Inc."), dated June 5,
1998 (Exhibit 99.2 to Form 8-K/A dated June 26, 1998, File No.
1-14087).
*10(c) Tax Sharing Agreement between U S WEST, Inc. (renamed "MediaOne Group,
Inc.") and USW-C, Inc. (renamed "U S WEST, Inc."), dated June 5, 1998
(Exhibit 99.3 to Form 8-K/A dated June 26, 1998, File No. 1-14087).
*10(d) 364-Day $3.5 Billion Credit Agreement with Morgan Guaranty Trust
Company of New York as Administrative Agent (Exhibit 10A to Form 10-Q
for the quarter ended March 31, 1998, File No. 1-14087).
*10(e) Five Year $1 Billion Credit Agreement with Morgan Guaranty Trust
Company of New York as Administrative Agent (Exhibit 10B to Form 10-Q
for the quarter ended March 31, 1998, File No. 1-14087).
10(f) Change of Control Agreement for the President and Chief Executive
Officer.
10(g) Form of Change of Control Agreement for Tier II Executives.
10(h) Form of Executive Severance Agreement.
*10(i) 1998 U S WEST Stock Plan (Exhibit 10-A to the Form S-4 Registration
Statement No. 333-45765, filed February 6, 1998, as amended).
<PAGE>
Form 10-Q - Part II
Item 6. Exhibits and Reports on Form 8-K (continued)
*10(j) U S WEST Long-Term Incentive Plan (Exhibit 10-D to the Form S-4
Registration Statement No. 333-45765, filed February 6, 1998, as
amended).
*10(k) U S WEST Executive Short-Term Incentive Plan (Exhibit 10-E to the Form
S-4 Registration Statement No. 333-45765, filed February 6, 1998,
as amended).
12 Statement regarding computation of earnings to fixed charges ratio of
U S WEST, Inc.
27 Financial Data Schedule
- - -------------------
* Previously filed.
(b) Reports on Form 8-K filed during the Second Quarter of 1998
(i) Form 8-K dated May 15, 1998 filing the unaudited pro forma condensed
combined financial statements of USW-C, Inc. (renamed "U S WEST, Inc.")
(ii) Form 8-K dated June 2, 1998 concerning a press release issued by U S
WEST Communications, Inc. regarding the New Mexico State Commission's
order to reduce rates.
(iii) Form 8-K dated June 17, 1998 concerning the Separation of Old U S WEST
into two independent companies.
(iv) Form 8-K/A, Amendment No. 1, dated June 26, 1998, amending Form 8-K
dated June 17, 1998, concerning the Separation of the Old U S WEST into
two independent companies.
(v) Form 8-K dated June 29, 1998 filing various documents in connection
with the Note and Debenture offering of U S WEST Capital Funding, Inc.
and the Company.
(vi) Form 8-K dated July 15, 1998 concerning a press released reporting
certain one-time charges for the second quarter of 1998.
(vii) Form 8-K dated July 28, 1998 concerning the Company's second quarter
earnings results.
(viii) Form 8-K/A dated July 29, 1998, amending Form 8-K dated July 28, 1998,
concerning the Company's second quarter earnings results.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U S WEST, Inc.
/s/ ALLAN R. SPIES
By:___________________________________
Allan R. Spies
Executive Vice President and Chief Financial Officer
August 12, 1998
EXHIBIT 10(f)
[CHANGE OF CONTROL AGREEMENT FOR
PRESIDENT AND CHIEF EXECUTIVE OFFICER]
June 22, 1998
Solomon D. Trujillo
Chief Executive Officer and President
U S WEST, Inc.
1801 California, Suite 5200
Denver, Colorado 80202
Dear Sol:
U S WEST, Inc., on behalf of itself, its subsidiaries and stockholders,
and any successor or surviving entity, wishes to encourage your continued
service and dedication in the performance of your duties, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in
Subsection I(i)) of the Company (as defined in Subsection I(k)). The Board of
Directors of the Company (the "Board") believes that the prospect of a pending
or threatened Change of Control inevitably creates distractions, personal risks
and uncertainties for its executives, and that it is in the best interests of U
S WEST, Inc. and its stockholders to minimize such distractions to certain
executives. The Board further believes that it is in the best interests of the
Company to encourage its executives' full attention and dedication to their
duties, both currently and in the event of any threatened or pending Change of
Control.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued retention of certain members of
the Company's management, including yourself, and the attention and dedication
of management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change of
Control.
In order to induce you ("Executive") to remain in the employ of the
Company, and in consideration of your continued service to the Company, the
Company agrees that you shall receive the benefits set forth in this letter
agreement (the "Agreement") in the event that your employment with the Company
is terminated subsequent to a Change of Control in the circumstances described
herein. For purposes of this Agreement, references to employment with the
Company shall include employment with a Subsidiary of the Company (as defined in
Subsection I(y)).
I. Definitions
The meaning of each defined term that is used in this Agreement is set
forth below.
(a) AAA. The American Arbitration Association.
(b) Additional Pay. The meaning of this term is set forth in Subsection
IV(b).
(c) Agreement. The meaning of this term is set forth in the third
paragraph of this Agreement.
(d) Agreement Payments. The meaning of this term is set forth in
Subsection IV(e)(i).
(e) Beneficiaries. The meaning of this term is set forth in Subsection
VI(c).
(f) Board. The meaning of this term is set forth in the first paragraph
of this Agreement.
(g) Business Combination. The meaning of this term is set forth in
Subsection I(i)(iii).
(h) Cause. For purposes of this Agreement, "Cause" shall mean
Executive's willful breach or failure to perform his employment duties. For
purposes of this Subsection I(h), no act, or failure to act, on the part of
Executive shall be deemed "willful" unless done, or omitted to be done, by
Executive not in good faith and without reasonable belief that such action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
Executive's employment shall not be deemed to have been terminated for Cause
unless and until the Company delivers to Executive a certificate of a resolution
duly adopted by the affirmative vote of not less than seventy-five percent (75%)
of the entire membership of the Board, at a meeting of the Board called and held
for such purpose (after reasonable notice to Executive and an opportunity for
Executive, together with Executive's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive has engaged in
such willful conduct and specifying the details of such willful conduct.
(i) Change of Control. For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred if there is a change of control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without limitation, such a
Change of Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2), as currently in effect, of the Exchange Act) is or becomes a
"beneficial owner" (as determined for purposes of Regulation 13D-G, as
currently in effect, under the Exchange Act), directly or indirectly,
of securities representing twenty percent (20%) or more of the total
voting power of all of the Company's then outstanding voting
securities. For purposes of this Agreement, the term "person" shall not
include: (i) the Company or any of its Subsidiaries; (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or any of its Subsidiaries; or (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities;
(ii) during any period of two (2) consecutive calendar years,
individuals who at the beginning of such period constitute the Board
and any new director(s) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office, who
either were directors at the beginning of such period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board, but excluding for this
purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A, as currently in effect, of
the Exchange Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a person other than the Board;
(iii) the stockholders of the Company approve a merger,
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless following such Business Combination: (i) all or substantially
all of the individuals and entities who were the "beneficial owners"
(as determined for purposes of Regulation 13D-G, as currently in
effect, of the Exchange Act) of the outstanding voting securities of
the Company immediately prior to such Business Combination beneficially
own, directly or indirectly, securities representing more than seventy
percent (70%) of the total voting power of the then outstanding voting
securities of the corporation resulting from such Business Combination
or the parent of such corporation (the "Resulting Corporation"); (ii)
no "person" (as such term is used in Sections 13(d) and 14(d)(2), as
currently in effect, of the Exchange Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or the Resulting Corporation, is the "beneficial owner" (as
determined for purposes of Regulation 13D-G, as currently in effect, of
the Exchange Act), directly or indirectly, of voting securities
representing twenty percent (20%) or more of the total voting power of
the then outstanding voting securities of the Resulting Corporation;
and (iii) at least a majority of the members of the board of directors
of the Resulting Corporation were members of the Board at the time of
the execution of the initial agreement, or at the time of the action of
the Board, providing for such Business Combination;
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company;
(v) any other event that a simple majority of the Board, in
its sole discretion, shall determine constitutes a Change of Control;
(j) Code. The meaning of this term is set forth in Subsection IV(e)(i).
(k) Company. The meaning of this term is set forth in Subsection VI(a).
(l) Controlled Group. For purposes of this Agreement, "Controlled
Group" shall mean the Company and all of the Company's Subsidiaries.
(m) Disability. For purposes of this Agreement, "Disability" shall mean
an illness, injury or similar incapacity which, 52 weeks after its commencement,
continues to render Executive unable to perform the material and substantial
duties of Executive's position or any occupation or employment for which
Executive is qualified or may reasonably become qualified by training, education
or experience. Any dispute as to the existence of a Disability upon which
Executive and the Company cannot agree shall be resolved by a qualified
independent physician selected by Executive (or, if Executive is unable to make
such selection, by any adult member of Executive's immediate family or
Executive's legal representative), and approved by the Company, such approval
not to be unreasonably withheld. The decision of such physician made in writing
to both the Company and Executive shall be final and conclusive for all purposes
of this Agreement.
(n) Employer. For purposes of this Agreement, "Employer" shall mean the
Company or the Subsidiary, as the case may be, with which Executive has an
employment relationship.
(o) Exchange Act. This term shall have the meaning set forth in
Subsection I(i).
(p) Executive. This term shall have the meaning set forth in the third
paragraph of this Agreement.
(q) Excise Tax. This term shall have the meaning set forth in
Subsection IV(e)(i).
(r) Good Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence, without Executive's prior express written consent, of any
of the following circumstances:
(i) The assignment to Executive of any duties materially
inconsistent with Executive's status or responsibilities as in effect
immediately prior to a Change of Control, including imposition of
travel obligations which differ materially from required business
travel immediately prior to the Change of Control;
(ii) Any material diminution in the status or responsibilities
of Executive's position from that which existed immediately prior to
the Change of Control, whether by reason of the Company ceasing to be a
public company under the Exchange Act, becoming a subsidiary of a
successor public company, or otherwise;
(iii) (A) A reduction in Executive's annual base salary as in
effect immediately before the Change of Control; or (B) the failure to
pay a bonus award to which Executive otherwise is entitled under any
short-term incentive plan(s) or program(s) or any long-term incentive
plan(s) or program(s) in which Executive participates, or any
companion, amended, successor or other incentive compensation plan(s)
or program(s), at the time such awards are usually paid;
(iv) A change in the principal place of Executive's
employment, as in effect immediately prior to the Change of Control, to
a location more than thirty-five (35) miles distant from the location
of such principal place at such time;
(v) Except as required by law, the failure by the Company to
continue in effect any incentive compensation or stock or stock option
plan in which Executive participates immediately prior to the Change of
Control, unless participation in an equivalent alternative compensation
or stock or stock option arrangement (embodied in an ongoing substitute
or alternative plan) has been provided to Executive, or the failure by
the Company to continue Executive's participation in any such
compensation or stock or stock option plan on a substantially
equivalent or more beneficial basis, both in terms of the nature and
amount of benefits provided and the level of Executive's participation
relative to other participants, as existed immediately prior to the
time of the Change of Control;
(vi) (A) Except as required by law, the failure by the Company
to continue to provide to Executive benefits substantially equivalent
or more beneficial, in the aggregate, to those enjoyed by Executive
under the qualified and non-qualified employee benefit and welfare
plans of the Company, including, without limitation, any pension,
deferred compensation, life insurance, medical, dental, health and
accident, disability, retirement or savings plan(s) or program(s) in
which Executive was eligible to participate immediately prior to the
Change of Control; (B) the taking of any action by the Company that
would, directly or indirectly, materially reduce or deprive Executive
of any other perquisite or benefit enjoyed by Executive immediately
prior to the Change of Control (including, without limitation,
Company-paid and/or reimbursed club memberships, financial counseling
fees and the like); or (C) the failure by the Company to treat
Executive under the Company's vacation policy, past practice or special
agreement in the same manner and to the same extent as was in effect
immediately prior to the Change of Control;
(vii) The failure of the Company to obtain a satisfactory
written agreement from any successor prior to consummation of the
Change of Control to assume and agree to perform this Agreement, as
contemplated in Subsection VI(a); or
(viii) Any purported termination by the Company of Executive's
employment that is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection III(b) or, if applicable,
Subsection I(h). For purposes of this Agreement, no such purported
termination shall be effective except as constituting Good Reason.
Executive's continued employment with the Company or any Subsidiary shall not
constitute a consent to, or a waiver of rights with respect to, any
circumstances constituting Good Reason hereunder.
(s) Gross-Up Payment. The meaning of this term is set forth in
Subsection IV(e)(i).
(t) Notice of Termination. The meaning of this term is set forth in
Subsection III(b).
(u) Other Payments. The meaning of this term is set forth in Subsection
IV(e)(i).
(v) Payments. The meaning of this term is set forth in Subsection
IV(e)(i).
(w) Resulting Corporation. The meaning of this term is set forth in
Subsection I(i)(iii).
(x) Retirement. For purposes of this Agreement, "Retirement" shall mean
Executive's voluntary termination of employment with the Company, other than for
Good Reason, and in accordance with the Company's retirement policy generally
applicable to its employees or in accordance with any prior or contemporaneous
retirement agreement or arrangement between Executive and the Company.
(y) Subsidiary. For purposes of this Agreement, "Subsidiary" shall mean
any corporation of which fifty percent (50%) or more of the voting stock is
owned, directly or indirectly, by the Company.
(z) Tax Consultant. The meaning of this term is set forth in Subsection
IV(e)(ii).
(aa) Terminate(d) or Termination. The meaning of this term is set forth
in Subsection III(a).
(bb) Termination Date. For purposes of this Agreement, "Termination
Date" shall mean:
(i) If Executive's employment is terminated for Disability,
thirty (30) calendar days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time
performance of his duties during such thirty-day period); and
(ii) If Executive's employment is terminated for Cause or Good
Reason or for any reason other than death or Disability, the date
specified in the Notice of Termination (which in the case of a
termination for Cause shall not be less than thirty (30) calendar days
and in the case of a termination for Good Reason shall not be less than
thirty (30) calendar days nor more than sixty (60) calendar days,
respectively, from the date such Notice of Termination is given).
II. Term of Agreement
(a) General. Upon execution by Executive, this Agreement shall commence
as of June 22, 1998. This Agreement shall continue in effect through December
31, 2001; provided, however, that commencing on January 1, 2002, and every third
January 1 thereafter, the term of this Agreement shall automatically be extended
for three (3) additional years unless, not later than ninety (90) calendar days
prior to the January 1 on which this Agreement otherwise automatically would be
extended, the Company shall have given notice to Executive that it does not wish
to extend this Agreement; provided further, however, that if a Change of Control
of the Company shall have occurred during the original or any extended term of
this Agreement, this Agreement shall continue in effect for a period of
thirty-six (36) months beyond the month in which the Change of Control occurred.
The term of this Agreement automatically shall be extended for three (3)
additional years from the date of any public announcement of an event that would
constitute a Change of Control as defined in this Agreement; provided however,
that if any such announced event is not consummated within that three (3) year
period, the original renewal term thereafter shall apply.
(b) Disposition of Employer. In the event Executive is employed by a
Subsidiary, the terms of this Agreement shall expire if such Subsidiary is sold
or otherwise disposed of prior to the date on which a Change of Control occurs,
unless Executive continues in employment with the Controlled Group after such
sale or other disposition. If Executive's Employer is sold or disposed of on or
after the date on which a Change of Control occurs, this Agreement shall
continue through its original term or any extended term then in effect.
(c) Deemed Change of Control. If Executive's employment with Employer
is terminated prior to the date on which a Change of Control occurs, and such
termination was at the request of a third party who has taken steps to effect a
Change of Control, or otherwise was in connection with the Change of Control,
then for all purposes of this Agreement, a Change of Control shall be deemed to
have occurred prior to such termination.
(d) Expiration of Agreement. No termination or expiration of this
Agreement shall affect any rights, obligations or liabilities of either party
that shall have accrued on or prior to the date of such termination or
expiration.
III. Termination Following Change of Control
(a) Entitlement to Benefits. If a Change of Control shall have
occurred, Executive shall be entitled to the benefits provided in Section IV
hereof upon the subsequent termination of his employment with the Company for
any reason within ninety (90) days after the date of the Change of Control. If a
Change of Control shall have occurred, and more than ninety (90) days from the
date of the Change of Control has elapsed, Executive shall be entitled to the
benefits provided in Section IV hereof upon the subsequent termination of his
employment with the Company within three (3) years after the date of the Change
of Control unless such termination is (i) a result of Executive's death,
Disability or Retirement, (ii) for Cause or (iii) by Executive other than for
Good Reason. A termination of Executive's employment that entitles Executive to
the payment of benefits under Section IV hereof shall be referred to hereinafter
as a "Termination."
(b) Notice of Termination. Any purported termination of Executive's
employment by either the Company or Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section VIII.
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice that indicates the specific provision(s) of this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision(s)
so indicated. If Executive's employment shall be terminated by the Company for
Cause or by Executive for other than Good Reason, the Company shall pay
Executive his full base salary through the Termination Date at the salary level
in effect at the time Notice of Termination is given and shall pay any amounts
to be paid to Executive pursuant to any other compensation or stock or stock
option plan(s), program(s) or employment agreement(s) then in effect, and the
Company shall have no further obligations to Executive under this Agreement.
If, within thirty (30) calendar days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the grounds for termination, then,
notwithstanding the meaning of "Termination Date" set forth in Subsection I(bb),
the Termination Date shall be the date on which the dispute is finally resolved,
whether by mutual written agreement of the parties or by a decision rendered
pursuant to Section XI; provided that the Termination Date shall be extended by
a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Company will
continue to pay Executive his full compensation including, without limitation,
base salary, bonus, incentive pay and equity grants, in effect when the notice
of the dispute was given, and continue Executive's participation in all benefits
plans or other perquisites in which Executive was participating, or which he was
enjoying, when the Notice of Termination giving rise to the dispute was given,
until the dispute is finally resolved. Amounts paid under this Subsection III(b)
are in addition to and not in lieu of all other amounts due to Executive under
this Agreement and shall not be offset against or reduce any other amounts due
to Executive under this Agreement.
IV. Compensation Upon a Termination
In accordance with Section III, following a Change of Control, upon
Executive's Termination, Executive shall be entitled to the following benefits,
provided that such Termination occurs during the three (3) year period
immediately following the date of the Change of Control:
(a) Standard Benefits. The Company shall pay to Executive, in cash, no
later than the second business day following the Termination Date:
(i) his full base salary through the Termination Date at the salary
level in effect on either (x) the day on which Notice of Termination is
given, or (y) the day immediately preceding the date of the Change of
Control, whichever is higher;
(ii) the full annual bonus payable to Executive under any past and
current year short-term incentive plan(s) or program(s) of the Company
in which Executive participates following a termination of employment
after a change of control, as defined in such plan(s) or program(s),
calculated on the basis of the extent to which the performance factors
targeted by the Human Resources Committee of the Board have been
achieved (for this purpose, the Company's performance through the
Termination Date shall be annualized based upon the actual number of
days elapsed from the beginning of the fiscal year in which the
Termination occurs through the Termination Date over a year of 360
days), which shall be deemed to be 100% unless the performance actually
achieved is greater than 100%, in which case the actual performance
levels shall be utilized. If a change of control has not occurred
within the meaning of such plan(s) or program(s), a change of control
shall be deemed to have occurred with respect to Executive for the
purpose of determining the bonus payable to Executive based on a Change
of Control occurring within the meaning of this Agreement; and
(iii) the annual grant value of any long-term incentive award payable
to Executive under any long-term incentive plan(s) or program(s) of the
Company in which Executive participates following a termination of
employment after a change of control, as defined in such plan(s) or
program(s). If the annual long term incentive award has not yet been
specified in any given year in which termination occurs, the annual
grant value will equal the immediate prior year's annual grant value.
If a change of control has not occurred within the meaning of such
plan(s) or program(s), a change of control shall be deemed to have
occurred with respect to Executive based on a Change of Control
occurring within the meaning of this Agreement.
The purpose of paragraphs (ii) and (iii) are to provide the value of
any past and current short term and long term incentive awards as if the
Executive had completed the entire year in which termination occurred. In
addition, the Company shall cause: (x) all unvested stock options held by
Executive on the Termination Date immediately to vest and be fully exercisable
as of the Termination Date; (y) any restrictions on all restricted stock held by
Executive on the Termination Date immediately to lapse and all shares of such
stock to fully vest as of the Termination Date; and (z) any accrued benefit or
deferred arrangement of the Company that Executive otherwise would become
entitled to if he continued employment with the Company immediately to vest as
of the Termination Date.
(b) Additional Benefits. The Company shall pay to Executive as
additional pay ("Additional Pay"), the product of (i) the lesser of (x) three
(3) or (y) the difference between sixty-five (65) and Executive's age as of the
date of the Notice of Termination (calculated to the nearest twelfth of a year),
multiplied by (ii) the sum of (x) Executive's annual base salary in effect
immediately prior to the Termination Date, (y) Executive's annual bonus amount
under any short-term incentive plan(s) or program(s) in which Executive
participates, such bonus amount to be calculated on the basis of the extent to
which the performance factors targeted by the Human Resources Committee of the
Board have been achieved (for this purpose, the Company's performance through
the Termination Date shall be annualized based upon the actual number of days
elapsed from the beginning of the fiscal year in which the Termination occurs
through the Termination Date over a year of 360 days), which shall be deemed to
be one hundred percent (100%) unless the performance actually achieved is
greater than one hundred percent (100%), in which case the actual performance
level shall be utilized, and (z) the dollar value of the most recent annual
grant to Executive prior to the Termination Date under any long-term incentive
plan(s), program(s) or grant(s) in which Executive participates, whether such
value is in the form of stock, stock options, Dividend Equivalent Units or any
other form of long term incentive compensation, such grant value to be
calculated as if the performance measures set forth in any such plan(s),
program(s) or grant(s) (e.g., Dividend Equivalent Units) for the applicable
performance period shall be deemed to be one hundred percent (100%). The Company
shall pay the Additional Pay to Executive in a lump sum, in cash, not later than
the fifteenth calendar day following the Termination Date. The Company also
shall provide Executive with office space and shared administrative support for
the three (3) year period immediately following the Termination Date, in the
county of Executive's residence, at a location to be designated by the Company,
which office space and support shall be similar to that currently provided by
the Company to retired senior officers. The Company shall maintain for Executive
for the three (3) year period immediately following the Termination Date, all
perquisites and benefits enjoyed by Executive immediately prior to the
Termination Date.
(c) Retirement Plan Benefits. If not already vested, Executive shall be
deemed fully vested as of the Termination Date in any Company retirement plan(s)
or other written agreement(s) between Executive and the Company relating to pay
or other benefits upon retirement in which Executive was a participant, party or
beneficiary immediately prior to the Change of Control, and any additional
plan(s) or agreement(s) in which such Executive became a participant, party or
beneficiary thereafter. In addition to the foregoing, for purposes of
determining the amounts to be paid to Executive under such plan(s) or
agreement(s), the years of service with the Company and the age of Executive
under all such plans and agreements shall be deemed increased by the lesser of
thirty-six (36) months or such shorter period of time as would render Executive
sixty-five (65) years of age. For purposes of this Subsection IV(c), the term
"plan(s)" includes, without limitation, the Company's qualified pension plan,
non-qualified and mid-career pension plans and any companion, successor or
amended plan(s), and the term "agreement(s)" encompasses, without limitation,
the terms of any offer letter(s) leading to Executive's employment with the
Company where Executive was a signatory thereto, any written amendment(s) to the
foregoing and any subsequent written agreement(s) on such matters. In the event
the terms of the plans referenced in this Subsection IV(c) do not for any reason
coincide with the provisions of this Subsection IV(c) (e.g., if plan amendments
would cause disqualification of qualified plans), Executive shall be entitled to
receive from the Company, under the terms of this Agreement, an amount equal to
all amounts he would have received, at the time he would have received such
amounts, had all such plans continued in existence as in effect on the date of
this Agreement after being amended to coincide with the terms of this Subsection
IV(c).
(d) Health and Other Benefits. Following the Termination Date, the
Company shall provide substantially the same level of health, vision and dental
benefits to Executive and Executive's eligible dependents that the Company would
provide to Executive and Executive's eligible dependents if Executive were first
eligible for retiree health, vision and dental benefits immediately prior to the
Change of Control. The eligibility of Executive's dependents shall be determined
by the terms of any retiree health, vision and dental benefit plan(s) or
program(s) in effect immediately prior to the Change of Control. Following the
Termination Date, (i) ownership of any Basic Executive Life Insurance held by
the Company for the benefit of Executive immediately shall be transferred to a
third party trustee and held in an irrevocable rabbi trust for the benefit of
Executive, and (ii) any collateral assignment by Executive to the Company under
any Supplemental Executive Life Insurance (SELI) owned by Executive shall be
subordinated to Executive's right to the maximum cash value under the SELI
measured against a death benefit equal to fifty percent (50%) of the SELI
coverage in effect immediately prior to the Change of Control, without the SELI
becoming a modified endowment contract.
(e) Gross-Up Payments.
(i) In the event any payment(s) or the value of any benefit(s)
received or to be received by Executive in connection with Executive's
Termination or contingent upon a Change of Control (whether received or
to be received pursuant to the terms of this Agreement (the "Agreement
Payments") or of any other plan, arrangement or agreement of the
Company, its successors, any person whose actions result in a Change of
Control or any person affiliated with any of them (or which, as a
result of the completion of the transaction(s) causing a Change of
Control, will become affiliated with any of them) ("Other Payments"
and, together with the Agreement Payments, the "Payments")), in the
opinion of the Tax Consultant (as defined below in Subsection
IV(e)(ii)), would be subject to an excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code") or any
other federal, state or local excise tax (any such excise or other tax,
together with any interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), as determined as provided below, the
Company shall pay to Executive an additional amount such that the net
amount retained by Executive, after deduction of the Excise Tax on
Agreement Payments and Other Payments and any federal, state and local
income and employment tax and Excise Tax upon the Payment(s) provided
for by this Subsection IV(e)(i), and any interest, penalties or
additions to tax payable by Executive with respect thereto, shall be
equal to the total present value of the Agreement Payments and Other
Payments at the time such Payments are to be made (the "Gross-Up
Payment(s)"). The intent of the parties is that the Company shall be
responsible in full for, and shall pay, any and all Excise Tax on any
Payments and Gross-Up Payment(s) and any and all income and employment
taxes (including, without limitation, penalties and interest) imposed
on any Gross-Up Payment(s) as well as any loss of deduction caused by
or related to the Gross-Up Payment(s).
(ii) All determinations required to be made under this
Subsection IV(e), including, without limitation, whether and when a
Gross-Up Payment is required, and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determinations,
unless otherwise set forth in this Agreement, shall be made by tax
consultant(s) selected by the Company and reasonably acceptable to
Executive ("Tax Consultant"). For purposes of determining the amount of
any Gross-Up Payment, Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made, and state
and local income taxes at the highest marginal rate of taxation in the
state and locality of Executive's residence on the Termination Date,
net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. The Company
shall cause the Tax Consultant to provide detailed supporting
calculations to the Company and Executive within fifteen (15) business
days after notice is given by Executive to the Company that any or all
of the Payments have occurred, or such earlier time as is requested by
the Company. Within two (2) business days after such notice is given to
the Company, the Company shall instruct the Tax Consultant to timely
provide the data required by this Subsection IV(e) to Executive. All
fees and expenses of the Tax Consultant shall be paid in full by the
Company. Any Excise Tax as determined pursuant to this Subsection IV(e)
shall be paid by the Company to the Internal Revenue Service or any
other appropriate taxing authority on Executive's behalf within five
(5) business days after receipt of the Tax Consultant's determination.
If the Tax Consultant determines that there is substantial authority
(within the meaning of Section 6662 of the Code) that no Excise Tax is
payable by Executive, the Tax Consultant shall furnish Executive with a
written opinion that failure to disclose or report the Excise Tax on
Executive's federal income tax return will not constitute a substantial
understatement of tax or be reasonably likely to result in the
imposition of a negligence or any other penalty. Any determination by
the Tax Consultant shall be binding upon the Company and Executive in
the absence of material mathematical or legal error. As a result of the
uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Tax Consultant hereunder, it is
possible that Gross-Up Payments will not have been made by the Company
that should have been made or that Gross-Up Payments have been made
that should not have been made, in each case, consistent with the
calculations required to be made hereunder. In the event the Company
exhausts its remedies pursuant to Subsection IV(e)(iii) below, and
Executive is thereafter required to make a payment of any Excise Tax or
any interest, penalties or addition to tax, the Tax Consultant shall
determine the amount of underpayment of Excise Taxes that has occurred
and any such underpayment and any interest, penalties or addition to
tax shall promptly be paid by the Company to the Internal Revenue
Service or other appropriate taxing authority on Executive's behalf or,
if such underpayment has been previously paid by Executive to the
appropriate taxing authority, to Executive. In the event the Tax
Consultant determines that an overpayment of Gross-Up Payment(s) has
occurred, any such overpayment shall be treated for all purposes as a
loan to Executive with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code, due and payable within ninety
(90) calendar days after written demand to Executive by the Company;
provided, however, that Executive shall have no duty or obligation
whatsoever to repay such loan if Executive's receipt of the
overpayment, or any portion thereof, is includible in Executive's
income and Executive's repayment of the same is not deductible by
Executive for federal and state income tax purposes.
(iii) Executive shall notify the Company in writing of any
claim of which he is aware by the Internal Revenue Service or state or
local taxing authority, that, if successful, would result in any Excise
Tax or an underpayment of any Gross-Up Payment(s). Such notice shall be
given as soon as practicable but no later than fifteen (15) business
days after Executive is informed in writing of the claim by the taxing
authority, and Executive shall provide written notice to the Company of
the nature of the claim, the administrative or judicial appeal period,
and the date on which any payment of the claim must be paid. Executive
shall not pay any portion of the claim prior to the expiration of the
thirty (30) day period following the date on which Executive gives such
notice to the Company (or such shorter period ending on the date that
any amount under the claim is due). If the Company notifies Executive
in writing prior to the expiration of such thirty (30) day period that
it desires to contest the claim, Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to the claim;
(B) take such action in connection with contesting
the claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation concerning the claim by an attorney
selected by the Company who is reasonably acceptable to
Executive; and
(C) cooperate with the Company in good faith in order
to effectively contest the claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including, without limitation, additional interest
and penalties and attorneys' fees) incurred in such contests and shall
indemnify and hold Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including, without limitation, interest and
penalties thereon) imposed as a result of such representation. Without
limitation upon the foregoing provisions of this Subsection IV(e)(iii),
except as provided below, the Company shall control all proceedings
concerning such contest and, in its sole opinion, may pursue or forego
any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority pertaining to the claim. At the
written request of the Company and upon payment to Executive of an
amount at least equal to the claim plus any additional amount necessary
to obtain the jurisdiction of the appropriate tribunal and/or court,
Executive shall pay the same to the appropriate taxing authority and
sue for a refund. Executive agrees to prosecute in cooperation with the
Company any contest of a claim to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided,
however, that if the Company requests Executive to pay the claim and
sue for a refund, the Company shall advance the full amount of such
payment to Executive, on an interest-free basis, and shall indemnify
and hold Executive harmless on an after-tax basis, from any Excise Tax
or income tax (including, without limitation, interest and penalties
thereon) imposed on such advance or for any imputed income on such
advance. Any extension of the statute of limitations relating to
assessment of any Excise Tax for the taxable year of Executive which is
the subject of the claim is to be limited solely to the claim.
Furthermore, the Company's control of the contest shall be limited to
issues for which a Gross-Up Payment would be payable hereunder.
Executive shall 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.
(iv) If, after the receipt by Executive of an amount advanced
by the Company pursuant to Subsection IV(e)(iii) above, Executive
receives from the taxing authority any refund of a claim or any
additional amount that was necessary to obtain jurisdiction, Executive
shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Executive of an amount advanced by
the Company pursuant to Subsection IV(e)(iii) above, a determination is
made that Executive shall not be entitled to any refund of the claim,
and the Company does not notify Executive in writing of its intent to
contest such denial of refund of a claim prior to the expiration of
thirty (30) calendar days after such determination, then the portion of
such advance attributable to a claim shall be forgiven by the Company
and shall not be required to be repaid by Executive. The amount of such
advance attributable to a claim shall offset, to the extent thereof,
the amount of the underpayment required to be paid by the Company to
Executive.
(v) If, after the advance by the Company of an additional
amount necessary to obtain jurisdiction, there is a final determination
made by the taxing authority that Executive is not entitled to any
refund of such amount, or any portion thereof, then such advance shall
be repaid to the Company by Executive within thirty (30) calendar days
after Executive receives notice of such final determination. A final
determination shall occur when the period to contest or otherwise
appeal any decision by an administrative tribunal or court of initial
jurisdiction has been waived or the time for contesting or appealing
the same has expired.
(f) Legal Fees and Expenses. The Company shall pay to Executive all
reasonable legal fees and expenses as and when incurred by Executive in
connection with this Agreement, including all such fees and expenses, if any,
incurred in contesting or disputing any Termination or in seeking to obtain or
enforce any right, payment or benefit provided by this Agreement, regardless of
the outcome, unless, in the case of a legal action brought by or in the name of
Executive, a decision is rendered pursuant to Section XI, or in any other proper
legal proceeding, that such action was not brought by Executive in good faith.
(g) No Mitigation. Executive shall not be required to mitigate the
amount of any payment or benefit provided for in this Section IV by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section IV be reduced by any compensation earned by
Executive as the result of employment with another employer or by retirement or
other benefits received from whatever source after the Termination Date or
otherwise, except as specifically provided in this Section IV. The Company's
obligation to make payments to Executive provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action that
the Company or Employer may have against Executive or other parties.
V. Death and Disability Benefits
In the event of the death or Disability of Executive after a Change of
Control , Executive, or in the case of death, Executive's Beneficiaries (as
defined below in Subsection VI.(c)), shall receive the benefits to which
Executive or his Beneficiaries are entitled under this Agreement and any and all
retirement plans, pension plans, disability policies and other applicable plans,
programs, policies, agreements or arrangements of the Company.
VI. Successors; Binding Agreement
(a) Obligations of Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company is required to perform it. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Company in the same amount and on the same
terms as Executive would be entitled hereunder if Executive had terminated
employment for Good Reason following a Change of Control, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Termination Date. As used in this
Agreement, the term "Company" shall mean U S WEST, Inc., including any surviving
entity or successor to all or substantially all of its business and/or assets
and the parent of any such surviving entity or successor.
(b) Enforceable by Beneficiaries. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees (the "Beneficiaries"). In the event of the death of Executive while any
amount would still be payable hereunder if such death had not occurred, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Executive's Beneficiaries.
(c) Employment. Except in the event of a Change of Control and,
thereafter, only as specifically set forth in this Agreement, nothing in this
Agreement shall be construed to: (i) limit in any way the right of the Company
or a Subsidiary to terminate Executive's employment at any time for any reason,
or for no reason; or (ii) be evidence of any agreement or understanding,
expressed or implied, that the Company or a Subsidiary will employ Executive in
any particular position, on any particular terms or at any particular rate of
remuneration.
VII. Confidential Information and Non-compete.
Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company, the Subsidiaries and their respective businesses, which shall have
been obtained during Executive's employment with the Employer and which shall
not be public knowledge (other than by acts by Executive or his representatives
in violation of this Agreement). After termination of Executive's employment
with the Company or any Employer within the Controlled Group, Executive shall
not, without prior written consent of the Company or the Employer, communicate
or divulge any such information, knowledge or data to anyone other than the
Company, the Employer or those designated by them. In no event shall an asserted
violation of this Section VII constitute a basis for deferring or withholding
any amounts otherwise payable to Executive under this Agreement.
Except as specifically set forth herein, the Executive agrees that for
a period of three years following the Termination date he will not (a) engage ,
directly or indirectly, whether as a principal, agent, distributor,
representative, consultant, employee, partner, stockholder, limited partner or
other investor (other than an investment of not more than (I) two percent (2%)
of the stock or equity of any corporation the capital stock of which is publicly
traded or (ii) two percent (2%) of the ownership interest of any limited
partnership or other entity) or otherwise, within the United States of America,
in any business which is competitive with the business of the Company, on the
Termination Date, or at any time during such three-year period, (b) solicit or
entice to endeavor to solicit or entice away from the Company or its
subsidiaries (or such successors) any person who was an officer, employee or
sales representative of the Company or its subsidiaries, either for his own
account or for any individual, firm or corporation, whether or not such person
would commit any breach of his or her contract of employment by reason of
leaving the service of the Company or its subsidiaries, and the Executive agrees
not to employ, directly or indirectly, any person who was an officer, employee
or sales representative of the Company or its subsidiaries or who by reason of
such position at any time is or may be likely to be in possession of any
confidential information or trade secrets relating to the business or products
of the Company or its subsidiaries, or (c) solicit or entice or endeavor to
solicit or entice away from the Company or its subsidiaries (or such successors)
any customer or prospective customer of the Company or its subsidiaries (or such
successors), either for his own account or for any individual, firm or
corporation. The Executive may submit a written request to the Board to reduce
the three year term of this non-competition obligation. The Board, by majority
vote, may grant the request, with or without modification, or deny the request,
in its sole and exclusive discretion.
VIII. Notice
All notices and communications, including, without limitation, any
Notice of Termination hereunder, shall be in writing and shall be given either
by hand delivery to the other party, by registered or certified mail, return
receipt requested, postage prepaid, or by overnight delivery service, addressed
as follows:
If to Executive:
Solomon D. Trujillo
Chief Executive Officer and President
U S WEST, Inc.
1801 California, Suite 5200
Denver, Colorado 80202
If to the Company:
U S WEST, Inc.
1801 California, Suite 5200
Denver, Colorado 80202
Attn.: Vice President - Law and Human Resources
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be deemed given
and effective when actually received by the addressee.
IX. Miscellaneous
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by Executive and the Company's Chief Executive Officer or other authorized
officer designated by the Board or an appropriate committee of the Board. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any conditions or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware. All references to sections of the Code or the Exchange
Act shall be deemed also to refer to any successor provisions of such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of the
Company under Sections IV and V shall survive the expiration of the term of this
Agreement. The obligations of the Executive under Section VII shall survive the
expiration of the term of this agreement for their respective terms.
X. Validity
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
<PAGE>
XI. Arbitration
Executive may agree in writing with the Company (in which case this
Article XI shall have effect but not otherwise) that any dispute that may arise
directly or indirectly in connection with this Agreement, Executive's employment
or the termination of Executive's employment, whether arising in contract,
statute, tort, fraud, misrepresentation, discrimination or other legal theory,
shall be resolved by arbitration in Denver, Colorado, under the applicable rules
and procedures of the AAA. The only legal claims between Executive and the
Company or any Subsidiary that would not be included in this agreement to
arbitration are claims by Executive for workers' compensation or unemployment
compensation benefits, claims for benefits under a Company or Subsidiary benefit
plan if the plan does not provide for arbitration of such disputes, and claims
by Executive that seek judicial relief in the form of specific performance of
the right to be paid until the Termination Date during the pendency of any
applicable dispute or controversy. If this Article XI is in effect, any claim
with respect to this Agreement, Executive's employment or the termination of
Executive's employment must be established by a preponderance of the evidence
submitted to an impartial arbitrator. A single arbitrator engaged in the
practice of law shall conduct any arbitration under the applicable rules and
procedures of the AAA. The arbitrator shall have the authority to order a
pre-hearing exchange of information by the parties including, without
limitation, production of requested documents, and examination by deposition of
parties and their authorized agents. If this Article XI is in effect, the
decision of the arbitrator: (i) shall be final and binding; (ii) shall be
rendered within ninety (90) days after the impanelment of the arbitrator; and
(iii) shall be kept confidential by the parties to such arbitration. The
arbitration award may be enforced in any court of competent jurisdiction. The
Federal Arbitration Act, 9 U.S.C. 1-15, not state law, shall govern the
arbitrability of all claims. Executive acknowledges that this Article XI shall
be applicable only in the event of a Change of Control and does not otherwise
supersede or modify any other agreement to arbitrate disputes in effect between
Executive and the Company.
If this Agreement sets forth the terms of our understanding on the
subject matter hereof, kindly sign both originals of this letter and return to
the Vice President - Law and Human Resources of the Company one of the fully
executed originals of this letter which will then constitute our Agreement on
this subject.
Sincerely,
U S WEST, Inc.
/s/ FRANK POPOFF
By:___________________________________
Frank Popoff
Chairman, Human Resources Committee of
the Board of Directors
/s/ SOLOMON D. TRUJILLO
- - --------------------------------------
Solomon D. Trujillo
EXHIBIT 10(g)
[FORM OF CHANGE OF CONTROL AGREEMENT
FOR TIER II EXECUTIVES]
Date
Executive Name
Executive Title
Company Name
Executive Address
Dear ___________:
U S WEST, Inc. (the "Company"), on behalf of itself, its subsidiaries
and shareholders, wishes to encourage your continued service and dedication in
the performance of your duties, notwithstanding the possibility, threat or
occurrence of a Change of Control of the Company (as defined in Subsection
I(h)). The Board of Directors of the Company (the "Board") believes that the
prospect of a pending or threatened Change of Control inevitably creates
distractions, personal risks and uncertainties for its executives, and that it
is in the best interests of the Company and its shareholders to minimize such
distractions to certain executives. The Board further believes that it is in the
best interests of the Company to encourage its executives' full attention and
dedication to their duties, both currently and in the event of any threatened or
pending Change of Control.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued retention of certain members of
the Company's management, including yourself, and the attention and dedication
of management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change of
Control.
In order to induce you (the "Executive") to remain in the employ of the
Company, and in consideration of your continued service to the Company, the
Company agrees that you shall receive the benefits set forth in this letter
agreement (the "Agreement") in the event that your employment with the Company
is terminated subsequent to a Change of Control in the circumstances described
herein. For purposes of this Agreement, references to employment with the
Company shall include employment with a Subsidiary of the Company (as defined in
Subsection I(w)).
I. Definitions
The meaning of each defined term that is used in this Agreement is set
forth below.
(a) AAA. The American Arbitration Association.
(b) Additional Pay. The meaning of this term is set forth in
Subsection IV(b).
(c) Agreement. The meaning of this term is set forth in the third
paragraph of this Agreement.
(d) Agreement Payments. The meaning of this term is set forth in
Subsection IV(e)(i).
(e) Beneficiaries. The meaning of this term is set forth in Subsection
VI(b).
(f) Board. The meaning of this term is set forth in the first
paragraph of this Agreement.
(g) Cause. For purposes of this Agreement, "Cause" shall mean the
Executive's willfully breaching or failing to perform his employment duties. For
purposes of this Subsection I(g), no act, or failure to act, on the part of the
Executive shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that such action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to the Executive a certificate of a
resolution duly adopted by the affirmative vote of not less than seventy-five
percent (75%) of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
the Executive has engaged in the conduct set forth in this Subsection I(g) and
specifying the particulars thereof in detail.
(h) Change of Control. For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred if there is a change of control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without limitation, such a
Change of Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) a
"beneficial owner" (as determined for purposes of Regulation 13D-G, as
currently in effect, under the Exchange Act), directly or indirectly,
of securities representing twenty percent (20%) or more of the total
voting power of all of the Company's then outstanding voting
securities. For purposes of this Agreement, the term "person" shall not
include: (i) the Company or any of its Subsidiaries; (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or any of its Subsidiaries; or (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities;
(ii) during any period of two (2) consecutive calendar years,
individuals who at the beginning of such period constitute the Board
and any new director(s) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office, who
either were directors at the beginning of such period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board, but excluding for this
purpose, any such threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A, as currently in effect, of the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board;
(iii) the stockholders of the Company approve a merger,
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case,
unless following such Business Combination: (i) all or substantially
all of the individuals and entities who were the "beneficial owners"
(as determined for purposes of Regulation 13D-G, as currently in
effect, of the Exchange Act) of the outstanding voting securities of
the Company immediately prior to such Business Combination beneficially
own, directly or indirectly, securities representing more than seventy
percent (70%) of the total voting power of the then outstanding voting
securities of the corporation resulting from such Business Combination
or the parent of such corporation (the "Resulting Corporation"); (ii)
no "person" (as such term is used in Sections 13(d) and 14(d)(2), as
currently in effect, of the Exchange Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or the Resulting Corporation, is the "beneficial owner" (as
determined for purposes of Regulation 13D-G, as currently in effect, of
the Exchange Act), directly or indirectly, of voting securities
representing twenty percent (20%) or more of the total voting power of
the then outstanding voting securities of the Resulting Corporation;
and (iii) at least a majority of the members of the board of directors
of the Resulting Corporation were members of the Board at the time of
the execution of the initial agreement, or at the time of the action of
the Board, providing for such Business Combination;
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company;
(v) any other event that a simple majority of the Board, in
its sole discretion, shall determine constitutes a Change of Control;
(i) Code. The meaning of this term is set forth in Subsection IV(e)(i).
(j) Company. The meaning of this term is set forth in the first
paragraph of this Agreement and Subsection VI(a).
(k) Controlled Group. For purposes of this Agreement, "Controlled
Group" shall mean the Company and all of the Company's Subsidiaries.
(l) Disability. For purposes of this Agreement, "Disability" shall
mean an illness, injury or similar incapacity which 52 weeks after its
commencement continues to render the Executive unable to perform the material
and substantial duties of the Executive's position or any occupation or
employment for which the Executive is qualified or may reasonably become
qualified by training, education or experience. Any question as to the existence
of a Disability upon which the Executive and the Company cannot agree shall be
determined by a qualified independent physician selected by the Executive (or,
if the Executive is unable to make such selection, by any adult member of the
Executive's immediate family or the Executive's legal representative), and
approved by the Company, such approval not to be unreasonably withheld. The
determination of such physician made in writing to the Company, and to the
Executive, shall be final and conclusive for all purposes of this Agreement.
(m) Employer. For purposes of this Agreement, "Employer" shall mean
the Company or the Subsidiary, as the case may be, with which the Executive has
an employment relationship.
(n) Exchange Act. This term shall have the meaning set forth in
Subsection I(h).
(o) Executive. This term shall have the meaning set forth in the third
paragraph of this Agreement.
(p) Excise Tax. This term shall have the meaning set forth in
Subsection IV(e)(i).
(q) Good Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence, without the Executive's express written consent, of any of
the following circumstances:
(i) The assignment to the Executive of any duties
materially inconsistent with, or any substantial diminution in, such
Executive's status or responsibilities as in effect immediately prior
to a Change of Control of the Company, including imposition of travel
obligations which differ materially from required business travel
immediately prior to the Change of Control;
(ii) Any material diminution in the status or
responsibilities of the Executive's position from that which existed
immediately prior to the Change of Control, whether by reason of the
Company ceasing to be a public company under the Exchange Act, becoming
a subsidiary of a successor public company, or otherwise;
(iii) (A) A reduction in the Executive's annual base
salary as in effect immediately before the Change of Control; or (B)
the failure to pay a bonus award to which the Executive is otherwise
entitled under any of the short-term incentive plan in which the
Executive participates, the U S WEST Executive Long-Term Incentive
Plan, or any successor incentive compensation plans at the time such
awards are usually paid;
(iv) A change in the principal place of the
Executive's employment, as in effect immediately prior to the Change of
Control of the Company, to a location more than thirty-five (35) miles
distant from the location of such principal place at such time;
(v) Except as required by law, the failure by the
Company to continue in effect any incentive compensation plan or stock
option plan in which the Executive participates immediately prior to
the Change of Control, unless an equivalent alternative compensation
arrangement (embodied in an ongoing substitute or alternative plan) has
been provided to the Executive, or the failure by the Company to
continue the Executive's participation in any such incentive or stock
option plan on substantially the same basis, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed immediately
prior to the time of the Change of Control;
(vi) (A) Except as required by law, the failure by
the Company to continue to provide to the Executive benefits
substantially equivalent, in the aggregate, to those enjoyed by the
Executive under the qualified and non-qualified employee benefit and
welfare plans of the Company, including, without limitation, any
pension, life insurance, medical, dental, health and accident,
disability, retirement or savings plans in which the Executive was
eligible to participate immediately prior to the Change of Control; (B)
the taking of any action by the Company which would directly or
indirectly materially reduce or deprive the Executive of any other
perquisite enjoyed by the Executive immediately prior to the Change of
Control (including Company-paid and/or reimbursed club memberships,
financial counseling fees and the like); or (C) the failure by the
Company or its successor to treat the Executive under the Company's
vacation policy, past practice or special agreement in the same manner
and to the same extent as was in effect immediately prior to the Change
of Control;
(vii) The failure of the Company or any successor to
obtain a satisfactory written agreement from any successor to assume
and agree to perform this Agreement, as contemplated in Subsection
VI(a); or
(viii) Any purported termination of the Executive's
employment that is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection III(b) or, if applicable,
Subsection I(g). For purposes of this Agreement, no such purported
termination shall be effective except as constituting Good Reason.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
(r) Gross-Up Payment. The meaning of this term is set forth in
Subsection IV(e)(i).
(s) Notice of Termination.The meaning of this term is set forth in
Subsection III(b).
(t) Other Payments. The meaning of this term is set forth in
Subsection IV(e)(i).
(u) Payments. The meaning of this term is set forth in Subsection
IV(e)(i).
(v) Retirement.For purposes of this Agreement, "Retirement" shall mean
the Executive's voluntary termination of employment with the Company, other than
for Good Reason, and in accordance with the Company's retirement policy
generally applicable to its employees or in accordance with any prior or
contemporaneous retirement arrangement established with the Executive's consent
with respect to the Executive.
(w) Subsidiary.For purposes of this Agreement, "Subsidiary"" shall
mean any corporation of which more than fifty percent (50%) of the voting stock
is owned directly or indirectly by the Company.
(x) Tax Counsel. The meaning of this term is set forth in
Subsection IV(e)(ii).
(y) Termination. The meaning of this term is set forth in Subsection
III(a).
(z) Termination Date. For purposes of this Agreement, "Termination
Date" shall mean:
(i) If the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of his duties during such thirty-day period); and
(ii) If the Executive's employment is terminated for
Cause or Good Reason or for any reason other than death or Disability,
the date specified in the Notice of Termination (which in the case of a
termination for Cause shall not be less than thirty (30) days and in
the case of a termination for Good Reason shall not be less than thirty
(30) days nor more than sixty (60) days, respectively, from the date
such Notice of Termination is given).
II. Term of Agreement
(a) General. Upon execution by the Executive, this Agreement shall
commence as of ______________. This Agreement shall continue in effect through
December 31, 2001; provided, however, that commencing on January 1, 2002, and
every third January 1 thereafter, the term of this Agreement shall automatically
be extended for three additional years unless, not later than ninety days prior
to the January 1 on which this Agreement would otherwise automatically be
extended, the Company shall have given notice that it does not wish to extend
this Agreement; provided further, however, that if a Change of Control of the
Company shall have occurred during the original or any extended term of this
Agreement, this Agreement shall continue in effect for a period of thirty-six
months beyond the month in which the Change of Control occurred.
(b) Disposition of Employer. In the event the Executive is employed by
a Subsidiary, the terms of this Agreement shall expire if such Subsidiary is
sold or otherwise disposed of prior to a Change of Control unless the Executive
continues in employment with the Controlled Group after such sale or other
disposition. If the Executive's Employer is sold or disposed of following a
Change of Control, this Agreement shall continue through its original term or
any extended term then in effect.
(c) Deemed Change of Control. If the Executive's employment with the
Employer is terminated prior to the date on which a Change of Control occurs,
and such termination was at the request of a third party who has taken steps to
effect a Change of Control or was otherwise caused by the Change of Control,
then for all purposes of this Agreement, a Change of Control shall be deemed to
have occurred prior to such termination.
(d) Expiration of Agreement. No termination or expiration of this
Agreement shall affect any rights, obligations or liabilities of either party
that shall have accrued on or prior to the date of such termination or
expiration.
III. Termination Following Change of Control
(a) Entitlement to Benefits If a Change of Control of the Company
shall have occurred, the Executive shall be entitled to the benefits provided in
Section IV hereof upon the subsequent termination of his employment with the
Company within three years after the date of the Change of Control unless such
termination is (i) a result of the Executive's death or Retirement, (ii) for
Cause, (iii) a result of the Executive's Disability, or (iv) by the Executive
other than for Good Reason. A termination of the Executive's employment which is
not as a result of the Executive's death, Retirement or Disability and (x) if by
the Company, is not for Cause, or (y) if by the Executive, is for Good Reason,
shall be referred to hereinafter as a "Termination."
(b) Notice of Termination.Any purported termination of the Executive's
employment by the Company or by the Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section VIII.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific provision of this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. If the Executive's employment shall be terminated for
Cause or by the Executive for other than Good Reason, the Company shall pay the
Executive his full base salary through the Termination Date at the rate in
effect at the time Notice of Termination is given and shall pay any amounts to
be paid to the Executive pursuant to any other compensation plans, programs or
employment agreements then in effect, and the Company shall have no further
obligations to the Executive under this Agreement.
If within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice notifies the other party that a dispute exists
concerning the grounds for termination, then, notwithstanding the meaning of
"Termination Date" set forth in Subsection I(z), the Termination Date shall be
the date on which the dispute is finally resolved, whether by mutual written
agreement of the parties or by a decision rendered pursuant to Section XI;
provided that the Termination Date shall be extended by a notice of dispute only
if such notice is given in good faith and the party giving such notice pursues
the resolution of such dispute with reasonable diligence. Notwithstanding the
pendency of any such dispute, the Company will continue to pay the Executive his
full compensation in effect when the notice giving rise to the dispute was
given, and continue the Executive as a participant in all benefits plans or
perquisites in which the Executive was participating or which he was enjoying
when the Notice of Termination giving rise to the dispute was given, until the
dispute is finally resolved. Amounts paid under this Subsection III(b) are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
IV. Compensation Upon a Termination
In accordance with Section III, following a Change of Control of the
Company, upon a Termination of the Executive's employment, the Executive shall
be entitled to the following benefits, provided that the Termination occurs
during the three-year period immediately following the date of the Change of
Control:
(a) Standard Benefits. The Company shall pay the Executive, in cash, no
later than the second business day following the Termination Date:
(i) his full base salary through the Termination Date at the rate in
effect on either (x) the day on which Notice of Termination is given, or (y) the
day immediately preceding the date of the Change of Control, whichever is
higher;
(ii) the full annual bonus payable to Executive under any past and
current year short-term incentive plan(s) or program(s) of the Company in which
Executive participates following a termination of employment after a change of
control, as defined in such plan(s) or program(s), calculated on the basis of
the extent to which the performance factors targeted by the Human Resources
Committee of the Board have been achieved (for this purpose, the Company's
performance through the Termination Date shall be annualized based upon the
actual number of days elapsed from the beginning of the fiscal year in which the
Termination occurs through the Termination Date over a year of 360 days), which
shall be deemed to be 100% unless the performance actually achieved is greater
than 100%, in which case the actual performance levels shall be utilized. If a
change of control has not occurred within the meaning of such plan(s) or
program(s), a change of control shall be deemed to have occurred with respect to
Executive for the purpose of determining the bonus payable to Executive based on
a Change of Control occurring within the meaning of this Agreement; and
(iii) the annual grant value of any long term incentive award payable
to Executive under any long-term incentive plan(s) or program(s) of the Company
in which Executive participates following a termination of employment after a
change of control, as defined in such plan(s) or program(s). If the annual long
term incentive award has not yet been specified in any given year in which
termination occurs, the annual grant value will equal the immediate prior year's
annual grant value. If a change of control has not occurred within the meaning
of such plan(s) or program(s), a change of control shall be deemed to have
occurred with respect to Executive for the purpose of determining the bonus
payable to Executive based on a Change of Control occurring within the meaning
of this Agreement.
The purpose of paragraphs (ii) and (iii) are to provide the value of
any past and current short term and long term incentive awards as if the
Executive had completed the entire year in which termination occurred. In
addition, the Company shall cause: (x) all unvested stock options held by
Executive on the Termination Date immediately to vest and be fully exercisable
as of the Termination Date; (y) any restrictions on all restricted stock held by
Executive on the Termination Date immediately to lapse and all shares of such
stock to fully vest as of the Termination Date; and (z) any accrued benefit or
deferred arrangement of the Company that Executive otherwise would become
entitled to if he continued employment with the Company immediately to vest as
of the termination Date.
(b) Additional Benefits. The Company shall pay to the Executive as
additional pay ("Additional Pay"), the product of (i) the lesser of (x) three
(3) or (y) the difference between sixty-five (65) and the Executive's age as of
the date of the Notice of Termination (calculated to the nearest twelfth of a
year), multiplied by (ii) the sum of (x) the Executive's annual base salary rate
in effect immediately prior to the Termination Date and (y) the Executive's
annual bonus amount under the short-term incentive plan in which the Executive
participates, such bonus amount to be calculated on the basis of the extent to
which the performance factors targeted by the Human Resources Committee of the
Board have been achieved (for this purpose, the Company's performance through
the Termination Date shall be annualized based upon the actual number of days
elapsed from the beginning of the fiscal year in which the Termination occurs
through the Termination Date over a year of 360 days), which shall be deemed to
be 100% unless the performance actually achieved is greater than 100%, in which
case the actual performance levels shall be utilized. The Company shall pay to
the Executive the Additional Pay in a lump sum, in cash, not later than the
fifteenth day following the Termination Date.
(a) Retirement Plan Benefits. If not already vested, the Executive
shall be deemed fully vested in all Company retirement plans and/or other
written agreements relating to pay upon retirement in which the Executive was a
participant, party or beneficiary immediately preceding a Change of Control, and
any additional plans and/or agreements in which such Executive became a
participant, party or beneficiary thereafter. In addition to the foregoing, for
purposes of determining the amounts to be paid to the Executive under such plans
and/or agreements, the years of service with the Company and the age of the
Executive under all such plans and agreements shall be deemed increased by the
lesser of thirty-six (36) months or such shorter period of time as would render
the Executive sixty-five (65) years of age. For purposes of this Subsection
IV(c), "plans" include, without limitation, the Company's qualified pension
plan, non-qualified and mid-career retirement plans, and "agreements" encompass
the terms of any offer letters leading to the Executive's employment with the
Company where the Executive was a signatory thereto and any written amendments
to the foregoing. In the event that the terms of the plans referenced in this
Subsection IV(c) do not for any reason (e.g., if plan amendments would cause
disqualification of qualified plans) coincide with the provisions of this
Subsection IV(c), the Executive shall be entitled to receive from the Company
under the terms of this Agreement an amount equivalent to all amounts he would
have received had all such plans continued in existence as in effect on the date
of this Agreement after being amended to coincide with the terms of this
Subsection IV(c).
(b) Health Benefits. Following the Termination Date, the Company shall
continue to provide health, vision and dental benefits to the Executive and the
Executive's eligible dependents on terms substantially equivalent to those on
which the Company provides such benefits to retired employees who were service
pension-eligible at the time of the Change of Control and whose retirement date
most closely approximates the date of the Change of Control. The eligibility of
the Executive's dependents shall be determined by the terms of the health,
vision and dental benefit plans in effect prior to the Change of Control.
(c) Gross-Up Payments.
(i) In the event that any payment or the value of
any benefit received or to be received by the Executive in connection
with the Executive's Termination or contingent upon a Change of Control
of the Company (whether received or to be received pursuant to the
terms of this Agreement (the "Agreement Payments") or of any other
plan, arrangement or agreement of the Company, its successors, any
person whose actions result in a Change of Control of the Company or
any person affiliated with any of them (or which, as a result of the
completion of the transactions causing a Change of Control, will become
affiliated with any of them) ("Other Payments" and, together with the
Agreement Payments, the "Payments")) would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any comparable federal, state or local excise
tax (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), as
determined as provided below, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of the Excise Tax on
Agreement Payments and Other Payments and any federal, state and local
income tax and Excise Tax upon the payment provided for by this
Subsection IV(e)(i), and any interest, penalties or additions to tax
payable by the Executive with respect thereto shall be equal to the
total present value of the Agreement Payments and Other Payments at the
time such Payments are to be made. The intent of the parties is that
the Company shall be solely responsible for and shall pay, any Excise
Tax on any Payments and Gross-Up Payment and any income and employment
taxes (including, without limitation, penalties and interest) imposed
on any Gross-Up Payments as well as any loss of deduction caused by the
Gross-Up Payment.
(ii) All determinations required to be made under
this Subsection IV(e), including, without limitation, whether and when
a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determinations,
shall be made by tax counsel selected by the Company and reasonably
acceptable to the Executive ("Tax Counsel"). The Company shall cause
the Tax Counsel to provide detailed supporting calculations to the
Company and the Executive within fifteen (15) business days after
notice is given by the Executive to the Company that any or all of the
Payments have occurred, or such earlier time as is requested by the
Company. Within two (2) business days after such notice is given to the
Company, the Company shall instruct the Tax Counsel to timely provide
the data required by this Subsection IV(e) to the Executive. All fees
and expenses of the Tax Counsel shall be paid solely by the Company.
Any Excise Tax as determined pursuant to this Subsection IV(e) shall be
paid by the Company to the Internal Revenue Service and/or other
appropriate taxing authority on the Executive's behalf within five (5)
days after receipt of the Tax Counsel's determination. If the Tax
Counsel determines that there is substantial authority (within the
meaning of Section 6662 of the Code) that no Excise Tax is payable by
the Executive, the Tax Counsel shall furnish the Executive with a
written opinion that failure to disclose or report the Excise Tax on
the Executive's federal income tax return will not constitute a
substantial understatement of tax or be reasonably likely to result in
the imposition of a negligence or similar penalty. Any determination by
the Tax Counsel shall be binding upon the Company and the Executive in
the absence of material mathematical or legal error. As a result of the
uncertainty in the application of Section 4999 of the Code at the time
the initial determination by the Tax Counsel hereunder, it is possible
that Gross-Up Payments will not have been made by the Corporation that
should have been made or that Gross-Up Payments have been made that
should not have been made, in each case, consistent with the
calculations required to be made hereunder. In the event the Company
exhausts its remedies pursuant to Subsection IV(e)(iii) below and the
Executive is thereafter required to make a payment of any Excise Tax,
the Tax Counsel shall determine the amount of underpayment of Excise
Taxes that has occurred and any such underpayment shall be promptly
paid by the Company to the Internal Revenue Service or other
appropriate taxing authority on the Executive's behalf or, if such
underpayment has been previously paid by the Executive, to the
Executive. In the event that the Tax Counsel determines that an
overpayment of Gross-Up Payments has occurred, any such overpayment
shall be treated for all purposes as a loan to the Executive with
interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code, due and payable within ninety (90) days after
written demand to the Executive by the Company; provided, however, that
the Executive shall have no duty or obligation whatsoever to repay such
loan unless the Executive's receipt of the overpayment, or any portion
thereof, is includible in the Executive's income and the Executive's
repayment of the same is not deductible by the Executive for federal
and state income tax purposes.
(iii) The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service or state or local
taxing authority, that, if successful, would result in any Excise Tax
or an underpayment of Gross-Up Payments. Such notice shall be given as
soon as practicable but no later than fifteen (15) business days after
the Executive is informed in writing of the claim and shall inform the
Company of the nature of the claim, the administrative or judicial
appeal period, and the date on which any payment of the claim must be
paid. The Executive shall not pay any portion of the claim prior to the
expiration of the thirty (30) day period following the date on which
the Executive gives such notice to the Company (or such shorter period
ending on the date that any amount under the claim is due). If the
Company notifies the Executive in writing prior to the expiration of
such thirty (30) day period that it desires to contest the claim, the
Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to the claim;
(B) take such action in connection with
contesting the claim as the Company shall reasonably request
in writing from time to time, including, without limitation,
accepting legal representation concerning the claim by an
attorney selected by the Company who is reasonably acceptable
to the Executive; and
(C) cooperate with the Company in good faith in
order to effectively contest the claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including, without limitation,
additional interest and penalties and attorneys' fees) incurred in such
contests and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including, without
limitation, interest and penalties thereon) imposed as a result of such
representation. Without limitation upon the foregoing provisions of
this Subsection IV(e)(iii), except as provided below, the Company shall
control all proceedings concerning such contest and, in its sole
opinion, may pursue or forego any and all administrative appeal,
proceedings, hearings and conferences with the taxing authority
pertaining to the claim. At the written request of the Company and upon
payment to the Executive of an amount at least equal to the claim plus
any additional amount necessary to obtain the jurisdiction of the
appropriate tribunal and/or court, the Executive shall pay the same and
sue for a refund. The Executive agrees to prosecute any contest of a
claim to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company
requests the Executive to pay the claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless on an after-tax basis, from any Excise Tax or income tax
(including, without limitation, interest and penalties thereon) imposed
on such advance or for any imputed income on such advance. Any
extension of the statute of limitations relating to assessment of any
Excise Tax for the taxable year of the Executive which is the subject
of the claim is to be limited solely to the claim. Furthermore, the
Company's control of the contest shall be limited to issues for which a
Gross-Up Payment would be payable hereunder. The Executive shall 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.
(iv) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Subsection IV(e)(iii) above,
the Executive receives any refund of a claim and/or any additional
amount that was necessary to obtain jurisdiction, the Executive shall
promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto).
If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Subsection IV(e)(iii) above, a determination is
made that the Executive shall not be entitled to any refund of the
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund of a claim prior to the
expiration of thirty (30) days after such determination, then the
portion of such advance attributable to a claim shall be forgiven and
shall not be required to be repaid. The amount of such advance
attributable to a claim shall offset, to the extent thereof, the amount
of the underpayment required to be paid by the Company to the
Executive.
(v) If, after the advance by the Company of an
additional amount necessary to obtain jurisdiction, there is a final
determination made by the taxing authority that the Executive is not
entitled to any refund of such amount, or any portion thereof, then
such nonrefundable amount shall be repaid to the Company by the
Executive within thirty (30) days after the Executive receives notice
of such final determination. A final determination shall occur when the
period to contest or otherwise appeal any decision by an administrative
tribunal or court of initial jurisdiction has been waived or the time
for contesting or appealing the same has expired.
(f) Legal Fees and Expenses. The Company shall pay to the Executive
all reasonable legal fees and expenses as and when incurred by the Executive in
connection with this Agreement, including all such fees and expenses, if any,
incurred in contesting or disputing any Termination or in seeking to obtain or
enforce any right or benefit provided by this Agreement, regardless of the
outcome, unless, in the case of a legal action brought by or in the name of the
Executive, a decision is rendered pursuant to Section X that such action was not
brought by the Executive in good faith.
(g) No Mitigation.The Executive shall not be required to mitigate the
amount of any payment provided for in this Section IV by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Section IV be reduced by any compensation earned by the Executive as
the result of employment by another employer or by retirement or other benefits
received after the Termination Date or otherwise, except as specifically
provided in this Section IV. The Company's obligation to make payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company or Employer may have against the
Executive or other parties.
V. Death and Disability Benefits
In the event of the death or Disability of the Executive after a Change
of Control of the Company, the Executive, or in the case of death, the
Executive's beneficiaries, shall receive the benefits to which they are entitled
under the retirement plans, disability policies and other applicable plans of
the Company.
VI. Successors: Binding Agreement
(a) Obligations of Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company is required to perform it. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as the Executive would be entitled hereunder if the Executive had
terminated employment for Good Reason following a Change of Control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date. As used in this Agreement, the "Company" shall mean the Company as
hereinabove defined and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
(b) Enforceable by Beneficiaries. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees (the "Beneficiaries"). In the event of the death of the
Executive while any amount would still be payable hereunder if such death had
not occurred, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the Executive's Beneficiaries.
(c) Employment. Except in the event of a Change of Control and,
thereafter, only as specifically set forth in this Agreement, nothing in this
Agreement shall be construed to (i) limit in any way the right of the Company or
a Subsidiary to terminate the Executive's employment at any time for any reason
or for no reason; or (ii) be evidence of any agreement or understanding,
expressed or implied, that the Company or a Subsidiary will employ the Executive
in any particular position, on any particular terms or at any particular rate of
remuneration.
VII. Confidential Information
The Executive shall hold in fiduciary capacity for the benefit of the
Company or its subsidiaries all secret or confidential information, knowledge or
data relating to the Company, the Subsidiaries and their respective businesses,
which shall have been obtained during the Executive's employment by the Employer
and which shall not be public knowledge (other than by acts by the Executive or
his representatives in violation of this Agreement). After termination of the
Executive's employment with the Company or its subsidiaries or any Employer
within the Controlled Group, the Executive shall not, without prior written
consent of the Company or its subsidiaries or the Employer, communicate or
divulge any such information, knowledge or data to anyone other than the
Company, the Employer, or its subsidiaries or those designated by them. In no
event shall an asserted violation of this Section VII constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
VIII. Notice
All notices and communications hereunder shall be in writing and shall
be given by hand delivery to the other party, by registered or certified mail,
return receipt requested, postage prepaid, or by overnight mail, addressed as
follows:
If to the Executive:
Executive Name
Company Name
Executive Address
If to the Company:
U S WEST, Inc.
1801 California, Suite 5200
Denver, Colorado 80202
Attn: Vice President - Law and Human Resources
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
IX. Miscellaneous
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and the Company's Chief Executive Officer. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any conditions or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware. All references to sections of the Code or the Exchange Act shall be
deemed also to refer to any successor provisions of such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Company under Sections
IV and V shall survive the expiration of the term of this Agreement.
X. Validity
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
XI. Arbitration
The Executive may agree in writing with the Company (in which case
this Article XI shall have effect but not otherwise) that any dispute that may
arise directly or indirectly in connection with this Agreement, the Executive's
employment or the termination of the Executive's employment, whether arising in
contract, statute, tort, fraud, misrepresentation, discrimination, common law or
other legal theory, shall be resolved by arbitration in Denver, Colorado, under
the rules of the American Arbitration Association (the "AAA"). The only legal
claims between the Executive and the Company or any Subsidiary that would not be
included in this agreement to arbitration are claims by the Executive for
workers' compensation or unemployment compensation benefits, claims for benefits
under a Company or Subsidiary benefit plan if the plan does not provide for
arbitration of such disputes, and claims by the Executive that seek judicial
relief in the form of specific performance of the right to be paid until the
Termination Date during the pendency of any applicable dispute or controversy.
If this Article XI is in effect, any claim with respect to this Agreement, the
Executive's employment or the termination of the Executive's employment must be
established by a preponderance of the evidence submitted to an impartial
arbitrator. A single arbitrator engaged in the practice of law shall conduct any
arbitration under the applicable rules and procedures of the AAA. The arbitrator
shall have the authority to order a pre-hearing exchange of information by the
parties including, without limitation, production of requested documents, and
examination by deposition of parties and their authorized agents. If this
Article XI is in effect, the decision of the arbitrator: (i) shall be final and
binding; (ii) shall be rendered within ninety (90) days after the impanelment of
the arbitrator; and (iii) shall be kept confidential by the parties to such
arbitration. The arbitration award may be enforced in any court of competent
jurisdiction. The Federal Arbitration Act, 9 U.S.C. 1-15, not state law, shall
govern the arbitrability of all claims. Executive acknowledges that this Article
XI shall be applicable only in the event of a change of control and does not
otherwise supercede or modify and other agreement to arbitrate disputes in
effect between Executive and the Company.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign both originals of this letter and return to the Vice President - Law
and Corporate Human Resources one of the fully executed originals of this letter
which will then constitute our agreement on this subject.
Sincerely,
U S WEST, Inc.
By: ______________________________
[Name of President & CEO]
President and Chief Executive Officer
U S WEST, Inc.
- - -------------------------------------
[Name of Employee]
EXHIBIT 10(h)
[FORM OF EXECUTIVE SEVERANCE AGREEMENT]
AGREEMENT
I. RECITALS
A. The parties to this Agreement are U S WEST (as defined in Section
II.M., below) at 1801 California Street, Denver, Colorado 80202 and
_______________ (hereinafter "Executive") whose address is _________________.
Executive is currently employed by _______________ as _____________.
B. This Agreement sets forth the understanding between U S WEST and
Executive concerning the circumstances under which Executive will be entitled to
receive severance benefits in the event his or her employment with U S WEST is
terminated under circumstances identified in this Agreement and describes the
nature and amount of the severance benefits.
C. 1. IT IS UNDERSTOOD AND AGREED BY U S WEST AND EXECUTIVE THAT THIS
AGREEMENT DOES NOT CONTAIN ANY PROMISE OR REPRESENTATION CONCERNING THE DURATION
OF EXECUTIVE'S EMPLOYMENT WITH U S WEST. EXECUTIVE SPECIFICALLY ACKNOWLEDGES
THAT HIS OR HER EMPLOYMENT WITH U S WEST IS AT-WILL AND MAY BE ALTERED OR
TERMINATED BY EITHER EXECUTIVE OR U S WEST AT ANY TIME, WITH OR WITHOUT CAUSE
AND/OR WITH OR WITHOUT NOTICE. THIS AT-WILL EMPLOYMENT RELATIONSHIP MAY NOT BE
MODIFIED UNLESS IN A WRITTEN AGREEMENT SIGNED BY THE EXECUTIVE AND AN AUTHORIZED
OFFICER OF U S WEST.
2. EXECUTIVE FURTHER ACKNOWLEDGES THAT THE WRITTEN POLICIES
AND PROCEDURES OF U S WEST DO NOT CONSTITUTE CONTRACTS BETWEEN U S WEST AND
EXECUTIVE, AND THAT THE POLICIES AND PROCEDURES ARE SUBJECT TO CHANGE BY U S
WEST AT ANY TIME IN U S WEST'S SOLE DISCRETION. EXECUTIVE ACKNOWLEDGES THAT, AS
OF THE DATE OF EXECUTION OF THIS AGREEMENT, THERE IS NO CONTRACT, EITHER
EXPRESSED OR IMPLIED, IN EFFECT BETWEEN EXECUTIVE AND U S WEST THAT ALTERS THE
AT-WILL EMPLOYMENT RELATIONSHIP OR CREATES OR IMPLIES THE EXISTENCE OF AN
EMPLOYMENT CONTRACT. EXECUTIVE ACKNOWLEDGES THAT, WITH THE EXCEPTION OF
EXECUTIVE'S STOCK OPTION AGREEMENTS AND EXECUTIVE'S RESTRICTED STOCK AGREEMENTS
AND ANY NEGOTIATED AND DULY EXECUTED PENSION, MEDICAL, DEFERRED COMPENSATION,
LIFE INSURANCE, LONG-TERM INCENTIVE PROGRAM ("LTIP"), SHORT-TERM INCENTIVE
PROGRAM ("STIP"), AND/OR CHANGE OF CONTROL AGREEMENTS, THERE ARE NO OTHER
CONTRACTS IN EFFECT BETWEEN EXECUTIVE AND U S WEST, INC. OR ANY SUBSIDIARY OR
AFFILIATED COMPANY AS OF THE DATE OF EXECUTION OF THIS AGREEMENT PROVIDING FOR
SEVERANCE BENEFITS.
D. In consideration of the mutual covenants contained herein and other
valuable consideration, receipt of which is hereby acknowledged, the parties
contract and agree as follows.
II. DEFINITIONS
The following definitions apply solely for the purposes of this
Agreement:
A. "Change of Control" means any of the following:
1. any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended) is or becomes a
beneficial owner of (or otherwise has the authority to vote), directly or
indirectly, securities representing twenty percent (20%) or more of the total
voting power of all of the Company's then outstanding voting securities, unless
through a transaction arranged by, or consummated with the prior approval of the
Board of Directors; or
2. any period of two (2) consecutive calendar years during
which there shall cease to be a majority of the Board of Directors comprised as
follows: individuals who at the beginning of such period constitute the Board of
Directors and any new director(s) whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved; or
3. the Company becomes a party to a merger or consolidation in
which either (i) the Company will not be the surviving corporation or (ii) the
Company will be the surviving corporation and any outstanding shares of Common
Stock of the Company will be converted into shares of any other company (other
than a reincorporation or the establishment of a holding company involving no
change of ownership of the Company) or other securities or cash or other
property (excluding payments made solely for fractional shares); or
4. any other event that a majority of the Board of Directors,
in its sole discretion, shall determine constitutes a Change of Control.
B. "Company Information" means and includes, without limitation, any
confidential, legal, financial, marketing, business, technical, or other
information, including specifically but not exclusively, information that
Executive prepared, caused to be prepared, or received in connection with
Executive's employment with U S WEST, such as, management and business plans,
business strategies, software, software evaluations, trade secrets, personnel
information, marketing methods and techniques, and any of the above-recited
information as it relates to U S WEST that shall have been obtained and/or
learned during his or her employment and that shall not be public knowledge.
C. "Company Property" means reports, files, memoranda, records, credit
cards, keys, passes, computer access codes, software, cellular phones, computer
equipment, facsimile equipment and any other property that Executive has
requested or received, prepared or helped to prepare in connection with his or
her employment with U S WEST. Company Property also includes, without
limitation, any copies, duplicates, reproductions or excerpts of the materials
outlined in this paragraph.
D. "Conditions" means that: 1) Executive has been Discharged from
Employment; 2) within twenty-one (21) calendar days after the date on which
Executive is notified of his or her Discharge from Employment, Executive has
executed and delivered to the office of the Vice President - Law and Human
Resources for U S WEST, Inc. a Waiver & Release; 3) the period for revocation of
the Waiver & Release has expired; and 4) Executive has complied with the
requirements regarding return of all Company Property defined in this Agreement.
E. "Discharge for Cause" means Executive's discharge from employment
due to Executive's: 1) intentional breach of or failure to perform his or her
employment duties; 2) intentional conduct that is demonstrably and materially
injurious to U S WEST, monetarily or otherwise; or 3) significant failure to
comply with the U S WEST Code of Business Ethics and Conduct, Corporate Policies
or Compliance Plans. The parties acknowledge that this definition of Discharge
for Cause is not intended and does not apply to any aspect of the relationship
between U S WEST and any of its employees, including Executive, beyond
determining Executive's eligibility for Severance Benefits under this Agreement.
F. "Discharge(d) from Employment" means Executive's involuntary and
permanent separation from employment with U S WEST by virtue of: 1) discharge
without Cause, as that term is described in Section II. E. above; 2) layoff as a
part of a reduction in force; or 3) Resignation or Retirement Under Certain
Circumstances. Discharge(d) from Employment shall not include any other
circumstances, including, but not limited to: 1) Executive's Discharge for
Cause; 2) Executive's resignation or retirement, other than in the circumstances
set forth in Section II. H. below; 3) any leave of absence; 4) the termination
of Executive's employment due to death or disability; or 5) the transfer of
Executive to a new location or the reassignment of Executive to U S WEST, Inc.
or a wholly or partially owned subsidiary (except as otherwise provided for
herein) of U S WEST, Inc.
G. "LTIP" means the U S WEST Long-Term Incentive Plan and any successor
or predecessor plan(s) thereto.
H. "Resign(ation) or Retire(ment) Under Certain Circumstances" means
that Executive has elected to resign or retire under the following
circumstances:
1. Executive has been offered, and within fifteen (15) days of
such offer has resigned or retired rather than accept, a transfer or assignment
to another position within the United States [Add for International, as
appropriate, reference to the relevant country or geographic region] with U S
WEST, Inc., a subsidiary of U S WEST, Inc., or an affiliate in which U S WEST,
Inc. owns, directly or indirectly, 50% or more of the entity, if the new
position is not comparable or superior (in terms of responsibility and
remuneration) to the position held by Executive immediately prior to the
transfer or reassignment; or
2. Executive has been offered, and within fifteen (15) days of
such offer has resigned or retired rather than accept, a transfer or assignment
to another position within the United States [Add for International, as
appropriate, reference to the relevant country or geographic region] with an
affiliate of U S WEST, Inc. in which U S WEST, Inc. owns, directly or
indirectly, less than 50% of the outstanding stock; or
3. Executive has been offered, and within fifteen (15) days of
such offer has resigned or retired rather than accept, a transfer or
reassignment to another position that is not located within the United States
[Add for International, as appropriate, reference to the relevant country or
geographic region]I. "Severance Benefits" means:
Cash Payments
1. Within thirty (30) calendar days after the date on which
Executive has complied with the Conditions, the U S WEST company that Executive
is employed by immediately prior to his or her Discharge from Employment shall
pay Executive in United States dollars in the United States the Severance
Payment, as applicable, in appreciation for his or her service to U S WEST,
substantially all of which service was rendered by Executive in the United
States [Be sure this applies to International Executives]. Applicable state and
federal withholding taxes will be deducted from the gross amount of this
Severance Payment. None of the payments pursuant to this paragraph shall be
included in the calculation of Executive's pension or savings benefits with U S
WEST.
2. (a) If a Change of Control has occurred within the three
(3) years prior to Executive's Discharge from Employment, within thirty (30)
calendar days after the Conditions have been satisfied, the U S WEST company
that Executive is employed by immediately prior to his or her Discharge from
Employment shall pay to Executive a sum equal to (a) two (2) times the amount
that would have been payable to Executive under the STIP at target and (b) a pro
rata portion of the cash value of the amount that would have been payable to
Executive under the LTIP at target. In the event any of such plans have been
modified, amended, or superseded by a successor plan prior to the date of
Discharge from Employment, the terms of the modified, amended, or new plan(s)
shall control. The amount of the STIP payments payable hereunder may be
determined by U S WEST in accordance with any criteria then in place. Applicable
state and federal withholding taxes will be deducted from the gross amount of
these STIP and LTIP payments. None of the payments pursuant to this subparagraph
shall be included in the calculation of Executive's pension benefits.
(b) If a Change of Control has not occurred within the
three (3) years prior to Executive's Discharge from Employment, within thirty
(30) calendar days after the Conditions have been satisfied, the U S WEST
company that Executive is employed by immediately prior to his or her Discharge
from Employment shall pay to Executive a sum equal to a pro rata portion of the
amount that would have been payable to Executive under the STIP at target and
(b) a pro rata portion of the cash value of the amount that would have been
payable to Executive under the LTIP at target. In the event any of such plans
have been modified, amended, or superseded by a successor plan prior to the date
of Discharge from Employment, the terms of the modified, amended, or new plan(s)
shall control. The amount of the STIP payments payable hereunder may be
determined by U S WEST in accordance with any criteria then in place. Applicable
state and federal withholding taxes will be deducted from the gross amount of
these STIP and LTIP payments. The amount of any STIP payments made to Executive
pursuant to this Agreement will be included in the calculation of Executive's
nonqualified pension benefits.
3. Within thirty (30) calendar days after the Conditions are
satisfied, the U S WEST company that Executive is employed by immediately prior
to his or her Discharge from Employment shall pay to Executive an amount equal
to the balance available to Executive for financial counseling services for the
remainder of the year of Executive's termination and will pay to Executive the
amount available for financial counseling services for the following year.
Stock and Stock Options
4. Vesting restrictions applicable to any stock granted by U S
WEST to Executive under the LTIP shall lapse thirty (30) calendar days after
execution and delivery of the Waiver & Release and satisfaction of all other
Conditions. Stock granted to Executive other than under the LTIP shall be
subject to the terms of the agreement governing such grant.
5. (a) The Human Resources Committee of the U S WEST, Inc.
Board of Directors ("HRC") has the sole discretion to alter or amend the vesting
schedule of any stock options and/or stock appreciation rights granted under the
Stock Plan prior to October 31, 1995. The existing discretion of the HRC is set
forth in the original agreement between Executive and U S WEST granting the
stock options and/or stock appreciation rights to Executive. Only if (i) the
original agreement between Executive and U S WEST granting any such stock
options and/or stock appreciation rights provides that the terms of any
agreement regarding severance benefits shall govern the treatment of such stock
options and/or stock appreciation rights under the particular circumstances of
Executive's Discharge from Employment, and (ii) Executive is Discharged from
Employment, then a pro rata portion of such stock options and/or stock
appreciation rights (rounded up to the nearest whole option and calculated in
the manner set forth below) shall become fully exercisable thirty (30) calendar
days after execution and delivery of the Waiver & Release and satisfaction of
all other Conditions. For any stock options and/or stock appreciation rights
granted under the Stock Plan on or after October 31, 1995, that are not
exercisable on the date of Discharge from Employment, a pro rata portion of such
stock options and/or stock appreciation rights (rounded up to the nearest whole
option) shall become fully exercisable thirty (30) calendar days after execution
and delivery of the Waiver & Release and satisfaction of all other Conditions.
Such pro rata portion shall be determined by multiplying the number of options
in any grant by a fraction (or series of fractions) the numerator of which is
the number of full months from the grant date to the date of Discharge from
Employment and the denominator of which is the number of full months in the
original vesting schedule for each applicable portion of the grant.
(b) If Executive's Discharge from Employment
is concurrent with Executive's retirement from employment as defined in the
Stock Plan, Executive's stock options shall be governed by the terms
governing retiree options under the Stock Plan, rather than the provisions of
Section II. I. 5. (a) above.
6. Provided Executive does not go into business in competition
with U S WEST or render services to or become employed by a firm engaged in such
competition, as determined in the sole discretion of the HRC or its designee,
Executive shall have the right, at any time up to three (3) years after the date
of his or her Discharge from Employment (but in no event after the expiration
date of the applicable stock options and stock appreciation rights), to exercise
stock options and stock appreciation rights held as of the date of Discharge
from Employment. In the event Executive does, within the three (3) year period,
go into business in competition with U S WEST or render services to or become
employed by a firm that is engaged in competition with U S WEST, Executive shall
have ninety (90) calendar days after the date on which he or she becomes so
employed or engaged in the competitive position to exercise any stock options
and stock appreciation rights that have not previously expired, to the extent
that such stock options and stock appreciation rights are then otherwise
exercisable. This Section, II. H. 6., shall not be applicable if Executive's
Discharge from Employment is concurrent with Executive's retirement from
employment as defined in the Stock Plan. If Executive has retired from
employment as defined in the Stock Plan, the terms of the Stock Plan shall
govern with respect to the matters addressed in this Section.
<PAGE>
Medical, Dental and Vision Benefits
7. The U S WEST company that Executive is employed by
immediately prior to his or her Discharge from Employment shall take such steps
as are necessary to permit Executive to continue, in full force and effect and
"at U S WEST's Expense" for the "applicable period" (as those terms are defined
in Section II. O. of this Agreement), medical, dental and vision benefits for
Executive and Executive's dependents on the same basis as if Executive had
remained an active employee during such applicable period; provided, however,
that all rights to such benefits (except the right to continue health plan
coverage at Executive's own expense under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA")) shall terminate if the
Conditions are not satisfied within ninety (90) calendar days after the date of
Executive's Discharge from Employment with U S WEST.
Career Guidance Services
8. The U S WEST company that Executive is employed by
immediately prior to his or her Discharge from Employment shall take such steps
as are necessary to provide career guidance services to Executive through an
outside consulting firm selected by U S WEST. U S WEST will have sole discretion
to determine the exact amounts of career guidance services that will be
provided, and Executive does not have any right to receive a cash payment in
lieu of career guidance services.
J. "Severance Payment" means a payment amount equal to:
1. If Executive is a Band 1 Officer (or any successor
designation) on the date on which Executive is notified of his or her Discharge
from Employment, a lump sum severance amount equal to two (2) times Executive's
annual base salary in effect on the date of such notification; or
2. (a) If Executive is a Band 2 Officer (or any successor
designation) on the date on which Executive is notified of his or her Discharge
from Employment, and such notification of Discharge from Employment occurs
within three (3) years after a Change of Control, a lump sum severance amount
equal to two (2) times Executive's annual base salary in effect on the date of
notification.
(b) If Executive is a Band 2 Officer (or any successor
designation) on the date on which Executive is notified of his or her Discharge
from Employment, and such notification of Discharge from Employment does not
occur within three (3) years after a Change of Control, a lump sum severance
amount equal to one and one half (1.5) times Executive's annual base salary in
effect on the date of notification.
K. "Stock Plan" means the U S WEST, Inc. 1998 Stock Plan and its
predecessor and successor plans.
L. "STIP" means the U S WEST, Inc. Short-Term Incentive Plan, the
Executive Short-Term Incentive Plan or the short-term incentive plan for
Executive's business unit, as applicable, and any successor plan(s) thereto.
M. "U S WEST" means U S WEST, Inc. and any division, subsidiary,
affiliate, or successor, unless otherwise specifically stated herein.
N. "Waiver & Release" means the waiver and release of claims
against U S WEST and its representatives, in the form attached hereto as
Appendix "A."
O. Solely for purposes of Section II. I. 7. of this Agreement relating
to medical, dental and vision benefits: (i) the phrase "at U S WEST's Expense"
means that, if Executive makes a timely election of COBRA coverage, the U S WEST
company that Executive is employed by immediately prior to his or her Discharge
from Employment will waive the first six (6) months of COBRA premiums and, if
Executive is not eligible at the expiration of the initial six (6) month period
for coverage under another employer's health plan, the U S WEST company
Executive is employed by immediately prior to his or her Discharge from
Employment will provide Executive with a lump sum payment equal to twelve (12)
months of COBRA premiums (less applicable taxes); and (ii) the term "applicable
period" means the eighteen (18) months following the date of Executive's
Discharge from Employment or, if less than eighteen (18) months, the period for
which the U S WEST Health Care Plan is required to extend continuation coverage
under COBRA.
III. COVENANTS
A. Consideration. U S WEST agrees to provide the following to
Executive as consideration for the execution of this Agreement:
1. Current employment at U S WEST;
2. Eligibility for Severance Benefits described in the
Agreement; and
3. Eligibility for benefits under a change of control
agreement as referred to in Section IV. B.
Executive acknowledges that: (1) in the event a Change of
Control occurs and Executive is Discharged from Employment within three (3)
years after such Change of Control, the provisions concerning Severance Payment
and Severance Benefits under this Agreement, or Additional Pay as defined in an
agreement referred to in Section IV B. hereto, are more favorable to Executive
than under any prior severance agreement or change of control agreement between
Executive and U S WEST; and (2) the more favorable provisions concerning
Severance Payment and Severance Benefits provided herein or Additional Pay as
provided in any agreement referred to in Section IV. B. herein constitute full
and sufficient consideration for the execution of this Agreement.
B. Receipt of Severance Benefits.
1. In the event Executive is employed as a Band 1 or Band 2
officer (or any successor designation) on the date on which Executive is
notified of his or her Discharge from Employment, Executive will receive
Severance Benefits only if he or she has complied fully with the Conditions
including, but not limited to, execution and delivery of the Waiver & Release.
Executive agrees that, if provided, the Severance Benefits are provided, in
part, in exchange for the elimination of any obligation of U S WEST to
compensate Executive for the remainder of the term of any Expatriate Agreement
and that Executive is not entitled to any compensation in addition to the
Severance Benefits upon satisfaction of the Conditions. U S WEST will have no
responsibility for any taxes on the Severance Benefits, including no
responsibility to follow the Taxation Methodology approach outlined in any
Expatriate agreement. Executive agrees to indemnify U S WEST and hold U S WEST
harmless for any liability for any taxes due on the Severance Benefits.
Executive will not be entitled to receive Severance Benefits pursuant to this
Agreement if Executive is not Discharged from Employment.
2. In the event (1) Executive accepts a transfer or
reassignment to a position with a company affiliated with U S WEST, Inc. in
which U S WEST, Inc. owns, directly or indirectly, less than 50% of the
outstanding stock and (2) a Change of Control has not occurred, this Agreement
shall terminate on the date on which Executive begins employment with the
affiliated company, with the exception that the provisions concerning Return and
Protection of Company Property and Company Information, Non-solicitation of
Employees, Arbitration of Disputes, Executive Cooperation, and Non-disparagement
shall remain in full force and effect.
3. In the event Executive has executed this Agreement, and is
not a Band 1 or Band 2 officer (or any successor designation) on the date on
which he or she is notified of his or her Discharge From Employment or the date
on which he or she gives notice of intent to Resign or Retire under Certain
Circumstances as the case may be, but was a Band 1 or Band 2 officer (or any
successor designation) at any time during the twelve (12) month period
immediately preceding such date, Executive will be eligible for Severance
Benefits under this Agreement. If Executive is not a Band 1 or Band 2 officer
(or any successor designation) on the date on which he or she is notified of his
or her Discharge From Employment or the date on which he or she gives notice to
Resign or Retire Under Certain Circumstances, and was not a Band 1 or Band 2
officer (or any successor designation) at any time during the twelve (12) month
period immediately preceding such date, Executive will not be eligible for
benefits under this Agreement and will be entitled to severance benefits only
under the terms and conditions set forth in the U S WEST Management Separation
Program or a successor plan or program, if any, if otherwise eligible under the
terms and conditions of that plan or program.
4. If a Change of Control has occurred within the three (3)
years prior to Executive's Discharge from Employment and if, in the opinion of
the tax counsel selected by U S WEST's independent auditors and reasonably
acceptable to the Executive ("Tax Counsel"), any Severance Benefits or any other
payments or benefits received or to be received by Executive -- whether pursuant
to the terms of this Agreement or any other plan, arrangement or agreement with
U S WEST, any person whose actions result in a Change of Control or any person
affiliated with U S WEST or such person -- constitute "Parachute Payments"
within the meaning of Section 280G(b)(2) of the Internal Revenue Code, and in
the opinion of Tax Counsel, are deemed not to be deductible in whole or in part
in the calculation of federal income tax of U S WEST, or any other person or
entity making such payment or providing such coverage or benefit, by reason of
Section 280G of the Internal Revenue Code, the aggregate Severance Benefits
provided hereunder shall, in accordance with applicable law, be reduced to the
extent, and only to the extent, that the aggregate reduced Severance Benefits
are fully deductible to U S WEST for tax purposes by reason of Section 280G of
the Code. All determinations made by Tax Counsel under this Section shall be
binding on U S WEST and Executive and shall be made within thirty (30) days of
the date Executive is notified of his or her Discharge from Employment.
C. Death, Retirement, Disability.
1. In the event of the death, retirement or disability of
Executive, nothing in this Agreement shall be construed to limit or curtail the
right of Executive or, in the case of death, Executive's beneficiaries, to
receive the benefits to which they are entitled under the retirement plans,
disability policies and other applicable plans maintained by U S WEST.
2. In the event Executive is notified of his or her Discharge
from Employment under circumstances that would qualify Executive to receive
Severance Benefits, but Executive dies before he or she has fulfilled the
Conditions, the Severance Benefits will be paid to Executive's estate provided
that the Conditions are satisfied by the estate within ninety (90) calendar days
of Executive's death.
D. Return and Protection of Company Property and Company Information.
1. Within five (5) calendar days after the date on which
Executive's employment terminates for whatever reason, Executive agrees to
return to U S WEST all Company Property and all documents or other tangible
things that contain Company Information.
2. Executive agrees that any inventions, discoveries,
creations (including without limitation software, writings, drawings and other
works), improvements, confidential information or other intellectual property
that he or she may develop or create, or assist in developing or creating,
during his or her employment with U S WEST, whether or not patentable or
eligible for copyright, that relate to the actual, planned, or foreseeable
business or other activities of U S WEST, or that result from his or her work
for U S WEST, are the exclusive property of U S WEST. Executive agrees to
disclose promptly such property to U S WEST and will, both during and after his
or her employment, and without additional compensation, execute all assignments
and other documents and do all things reasonably necessary to secure and enforce
U.S. and foreign intellectual property rights for U S WEST, including patents
and copyrights.
Executive agrees to hold in a fiduciary capacity for the
benefit of U S WEST all Company Information. After termination of Executive's
employment with U S WEST, Executive will not, without prior written consent of U
S WEST, communicate or divulge any such information, knowledge or data to anyone
other than U S WEST or its designated representatives.
3. Executive shall comply with the provisions relating to the
return and protection of Company Property and Company Information following the
termination of his or her employment, regardless of whether he or she is
eligible to receive Severance Benefits pursuant to this Agreement.
E. Nonsolicitation of Employees. Executive agrees that he or she will
not for a period of eighteen (18) months immediately following the termination
of his or her employment with U S WEST for any reason, regardless of whether he
or she is eligible to receive Severance Benefits, either on Executive's own
account or in conjunction with or on behalf of any other person or entity
whatsoever, directly or indirectly induce, solicit, or entice away any person
who, at any time during the three (3) months immediately preceding Executive's
termination of employment, is a managerial level employee of U S WEST
(including, but not limited to, any Officer, Executive Director or
director-level employee, or any equivalent or successor term for any such
employee). Should Executive materially breach the provisions of this paragraph,
Executive shall pay to U S WEST one and one half (1.5) times Executive's annual
base salary in effect on Executive's last day of employment. The parties agree
that while the full extent of damages in the event of breach is uncertain, this
sum is not a penalty and would adequately compensate the non-breaching party for
all damages which might be incurred in the event of breach.
F. Arbitration of Disputes.
Executive agrees that any claim, controversy or dispute that
may arise directly or indirectly in connection with Executive employment or
termination of employment with U S WEST, and/or any associated or related
disputes arising therefrom involving U S WEST and/or any employee(s),
Director(s), officer(s), or agent(s) of U S WEST, whether arising in contract,
statute, tort, fraud, misrepresentation, discrimination, common law or any other
legal theory, including, but not limited to, disputes relating to the making,
performance or interpretation of this Agreement; and claims or other disputes
arising under Title VII of the Civil Rights Act of 1964, as amended; the Civil
Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as
amended; 42 U.S.C. ss. 1981, ss. 1981a, ss. 1983, ss. 1985, or ss. 1988; the
Family and Medical Leave Act of 1993; the Americans with Disabilities Act of
1990, as amended; the Rehabilitation Act of 1973, as amended; the Fair Labor
Standards Act of 1938, as amended; the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"); the Colorado Anti-Discrimination Act; or any
other similar federal, state or local law or regulation, whenever brought, shall
be resolved by arbitration. If, however, Executive would otherwise be legally
required to exhaust administrative remedies to obtain legal relief, Executive
can and must exhaust such administrative remedies prior to pursuing arbitration.
The only legal claims between Executive and U S WEST that are not included for
arbitration within this Agreement are claims for workers' compensation or
unemployment compensation benefits. By signing this Agreement, Executive
voluntarily, knowingly and intelligently waive any right Executive may otherwise
have to seek remedies in court or other forums, including the right to a jury
trial. U S WEST also hereby voluntarily, knowingly, and intelligently waives any
right it might otherwise have to seek remedies against Executive in court or
other forums, including the right to a jury trial. The Federal Arbitration Act,
9 U.S.C. ss.ss. 1-16 ("FAA") shall govern the arbitrability of all claims,
provided that they are enforceable under the FAA, as it may be amended from time
to time. In the event the FAA does not govern, the Colorado Uniform Arbitration
Act shall apply. Additionally, the substantive law of Colorado, to the extent it
is consistent with the terms stated in this Agreement for arbitration, shall
apply to any common law claims. This Agreement for arbitration supersedes any
prior arbitration agreement between Executive and U S WEST to the extent they
are inconsistent.
A single arbitrator engaged in the practice of law shall conduct the
arbitration under the applicable rules and procedures of the American
Arbitration Association ("AAA"), unless otherwise agreed to by the parties. Any
dispute, that relates directly or indirectly to Executive's employment with U S
WEST or to the termination of Executive's employment will be conducted under the
AAA National Rules for the Resolution of Employment Disputes, effective June 1,
1997. The arbitrator shall be chosen from a state other than Executive's state
of residence and other than Colorado. Other than as set forth herein, the
arbitrator shall have no authority to add to, detract from, change, amend, or
modify existing law. The arbitrator shall have the authority to order such
discovery as is necessary for a fair resolution of the dispute. The arbitrator
may award punitive damages, as allowed by Title VII of the Civil Rights Act of
1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in
Employment Act of 1967, as amended; and the Americans with Disabilities Act of
1990, as amended, regardless of any limitations imposed by federal, state, or
local laws regarding amounts that may be awarded in arbitration proceedings. All
arbitration proceedings, including without limitation, settlements under this
Agreement, will be confidential. Executive shall not be required to pay more
than One Hundred Fifty Dollars ($150.00) of the arbitrator's hourly fees and
expenses. The prevailing party in any arbitration shall be entitled to receive
reasonable attorneys' fees as provided by law. The arbitrator's decision and
award shall be final and binding, as to all claims that were, or could have
been, raised in the arbitration, and judgment upon the award rendered by the
arbitrator may be entered to any court having jurisdiction thereof. If any party
hereto files a judicial or administrative action asserting claims subject to
this arbitration provision, and another party successfully stays such action
and/or compels arbitration of such claims, the party filing said action shall
pay the other party's costs and expenses incurred in seeking such stay and/or
compelling arbitration, including reasonable attorneys' fees not to exceed Two
Thousand Five Hundred Dollars ($2,500.00).
G. Executive Cooperation. As a free and voluntary act, Executive agrees
that, following the termination of his or her employment, regardless of whether
he or she is eligible to receive Severance Benefits , he or she agrees
thereafter to cooperate with, and to make himself or herself available for, any
investigations or lawsuits involving U S WEST. Executive will be paid an hourly
rate computed based on his or her final base salary for time spent at the
request of U S WEST, other than in depositions or at trial for which Executive
will not be paid. Executive agrees not to assist or provide information to any
other party in any litigation against U S WEST, except as required under law or
formal legal process after Executive provides advance notice to U S WEST at
least ten (10) calendar days prior to such assistance or provision of
information (or, if Executive is so required to assist or provide such
information within less than ten (10) calendar days of receipt of such
requirement, after Executive provides timely advance notice to U S WEST) to
allow U S WEST to take legal action with respect to the matter. Nothing in this
Agreement shall restrict or preclude Executive from, or otherwise influence
Executive in, testifying fully and truthfully in legal, administrative, or any
other proceedings involving U S WEST, as required by law or formal legal
process.
H. Indemnification. In the event Executive is Discharged from
Employment, the U S WEST company that Executive is employed by immediately prior
to his or her Discharge from Employment will indemnify Executive to the extent
permitted or authorized by that company's bylaws, on the same basis as the
indemnification provided to other former officers, against all costs, charges
and expenses incurred (including, but not limited to, any judgment entered by a
court of law), in connection with any action, suit or proceeding to which
Executive may be made a party directly resulting from his or her employment as
an officer of U S WEST.
I. Non-disparagement. Executive agrees that, following the termination
of his or her employment, regardless of whether he or she is eligible to receive
Severance Benefits he or she will make no written or oral statements that
directly or indirectly disparage U S WEST in any manner whatsoever, including
but not limited to: (a) the working conditions or employment practices of U S
WEST; or (b) U S WEST as a provider of telecommunications or other products and
services. It will not be a violation of this paragraph for Executive to make
truthful statements, under oath, as required by law or formal legal process.
Should Executive materially breach the provisions of this paragraph, Executive
shall pay to U S WEST one times Executive's annual base salary in effect on
Executive's last day of employment. The parties agree that while the full extent
of damages in the event of breach is uncertain, this sum is not a penalty and
would adequately compensate the non-breaching party for all damages which might
be incurred in the event of breach.
J. Negotiation of Severance Benefits. In the event Executive is
Discharged From Employment, U S WEST and Executive agree that, if negotiations
occur regarding the terms of this Agreement, regardless of whether the
negotiations involve material changes to the Agreement, no consideration period
provided to Executive as set forth in Section II. D. or otherwise will be
extended due to the existence of such negotiations.
<PAGE>
IV. ADDITIONAL PROVISIONS
A. Binding Effect. This Agreement shall bind and benefit the heirs,
personal representatives, administrators, successors, subsidiaries, affiliates
and assigns of U S WEST and Executive.
B. Change of Control. If U S WEST, Inc. has offered Executive a
severance agreement providing for benefits in the event of a change of control,
separate and apart from the provisions relating to Change of Control contained
within this Agreement, execution of such Change of Control Agreement is a
condition of this Agreement. In the event that such Change of Control Agreement,
is in force on the date that a "change of control" occurs (as defined in the
Change of Control Agreement), and Executive is entitled to and elects to receive
benefits under the Change of Control Agreement, the terms of the Change of
Control Agreement (including arbitration provisions) shall supersede this
Agreement, whether the Change of Control Agreement was signed prior to or
subsequent to the execution of this Agreement, and Executive will not be
entitled to Severance Benefits under this Agreement.
C. Entire Understanding. This Agreement contains the entire
understanding of the parties with respect to the matters addressed herein and
supersedes all prior representations, understandings and agreements of the
parties with respect thereto, with the following exception: in the event a court
or arbitrator concludes that the arbitration provisions of this Agreement are
unenforceable for any reason, any prior agreement by Executive to submit
employment disputes to arbitration shall remain enforceable. This Agreement may
be modified only by a written agreement executed by both Executive and an
authorized officer of U S WEST.
D. Governing Law. Except as otherwise specifically stated for any
provision of this Agreement, the substantive law of Colorado, shall apply to any
claims between U S WEST and Executive to the extent such law is consistent with
the terms stated herein and to the extent not preempted by ERISA or other
applicable federal law.
E. Notices. All notices and communications required by this Agreement
shall be in writing and delivered by: 1) hand delivery; 2) registered or
certified mail, return receipt requested, postage prepaid; or 3) overnight
mail. All such notices and communications shall be addressed as follows:
To Executive:
-------------------------------
-------------------------------
-------------------------------
To U S WEST:
U S WEST, Inc.
Vice President - Law and Human Resources
1801 California Street, Suite 5200
Denver, CO 80202
or to such other address as either party shall have furnished to the other in
writing in accordance with this Agreement. Notices and communications shall be
effective when actually received by the addressee.
F. Availability Of Injunctive Relief. U S WEST and Executive agree that
U S WEST would suffer irreparable injury if Executive breached his or her
responsibilities relating to the return and protection of Company Information or
Company Property and that the injury would not be compensable fully in monetary
damages. Accordingly, in the event Executive breaches or threatens to breach
that condition, the arbitration provisions of this Agreement shall not prevent U
S WEST or Executive from obtaining injunctive relief from a court of competent
jurisdiction to enforce the obligations relating to the return and protection of
Company Information or Company Property, pending decision on the merits by the
arbitrator.
G. Waiver Of Breach. The waiver by either U S WEST or Executive of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any prior or subsequent breach by either party.
H. Severability.
1. In case any one or more of the provisions of this Agreement
shall be found to be invalid, illegal or unenforceable for any reason, the
validity, legality and enforceability of the remaining provisions and/or clauses
contained herein shall not in any way be affected or impaired thereby. Any
clause and/or provision that is found to be invalid, illegal or unenforceable
shall be deemed, without further action on the part of the parties hereto, to be
modified, amended and/or limited to the minimum extent necessary to render such
clauses and/or provisions valid and enforceable. A claim by either party that
any provision of this Agreement is invalid, illegal or unenforceable shall be
determined by an arbitrator under the arbitration provisions of this Agreement.
In the event an arbitrator determines that any provision of this Agreement is
invalid, illegal or unenforceable for any reason, it is the mutual desire of the
parties that the arbitrator reform the Agreement to the minimum extent necessary
to render such provision valid and enforceable and direct the parties to comply
with the requirements of this Agreement as modified.
2. The arbitration provisions contained or incorporated in
this Agreement supersede the arbitration provisions contained or incorporated in
any prior agreement between Executive and U S WEST, to the extent such
provisions are inconsistent. The sole exception is that, as provided in Section
IV. B. above, the arbitration provisions contained in any Change of Control
Agreement between U S WEST and Executive, whenever executed, shall supersede any
inconsistent arbitration provisions contained in this Agreement.
I. Expatriate Agreements. This Agreement shall control if there is any
conflict between this Agreement and the terms of any Expatriate Agreement
between Executive and U S WEST, with the exception of any specially negotiated
and duly executed short-term or long-term incentive agreements. Executive agrees
that this Agreement alone provides the only severance benefits, including
compensation, for the Executive in the event of Executive's Discharge from
Employment and supersedes and replaces the obligations of U S WEST in the
"Company initiated termination" provision or similar provisions under any
Expatriate Agreement.
J. Acknowledgments. Executive confirms that:
1. U S WEST has advised Executive to consult legal counsel
before signing this Agreement or the Waiver and Release provided for herein.
2. Executive has reviewed this Agreement in its entirety,
fully understands its meaning and effect, and agrees to its terms.
3. Executive has had a period of at least thirty (30) calendar
days within which to consider this Agreement prior to its execution.
K. Compliance. Executive agrees that he or she shall comply with the
provisions set forth in this Agreement in Section III. D. (Return and Protection
of Company Property and Company Information), III. E. (Nonsolicitation of
Employees), III. F. (Arbitration of Disputes), III. G. (Executive Cooperation),
and III.I. (Non-disparagement) following the termination of his or her
employment for any reason, regardless of whether he or she is eligible to
receive Severance Benefits pursuant to this Agreement.
L. Modification. This Agreement may not be modified except by the Vice
President - Law and Human Resources for U S WEST or his or her successor or
designee. To be effective, such modification must be in a written agreement
signed by the Vice President - Law and Human Resources for U S WEST or his or
her successor or designee.
Executed in duplicate this _____ day of ______________________, 199__.
U S WEST
____________________________________ By _______________________________
EXECUTIVE
Its _______________________________
<PAGE>
APPENDIX A
RELEASE
In consideration of the Severance Benefits identified in Section II. I.
of the attached Agreement between Executive and U S WEST, Inc. and its
divisions, subsidiaries, affiliates, and successors, Executive, as a free and
voluntary act, forever releases and discharges U S WEST, Inc., its divisions,
subsidiaries, affiliates, and successors, and the directors, officers,
employees, agents and representatives of all of them (hereinafter "U S WEST"),
of and from any and all debts, obligations, demands, claims, judgments or causes
of action of any kind whatsoever, whether now known or unknown, in tort, in
contract, by statute, or any other basis for compensatory, punitive or other
damages, expenses, reimbursements or costs of any kind, including, but not
limited to, any and all claims, demands, rights and/or causes of action, arising
up to the date of this Release, including those that might arise out of
allegations relating to claimed breach of an alleged oral or written contract,
or related purported employment discrimination or civil rights violations
including, but not limited to, alleged violations of Title VII of the Civil
Rights Act of 1964, as amended; claims under the Civil Rights Act of 1991;
claims under the Age Discrimination in Employment Act of 1967, as amended;
claims under 42 U.S.C. ss. 1981, ss. 1981a, ss. 1983, ss. 1985, or ss. 1988;
claims under the Family and Medical Leave Act of 1993; claims under the
Americans with Disabilities Act of 1990, as amended; claims under the Fair Labor
Standards Act of 1938, as amended; claims under the Employee Retirement Income
Security Act of 1974, as amended; claims under the Colorado Anti-Discrimination
Act; or claims under any other similar federal, state or local law or regulation
that Executive might have or assert against any of said entities or persons by
(1) reason of active employment by U S WEST or any associated or affiliated
company or the termination of said employment relationship and all circumstances
related thereto, or (2) reason of any other matter, case or thing whatsoever
that may have occurred prior to the date of execution of this Release. U S WEST
specifically disclaims any liability to, or for wrongful acts against, Executive
or any other person on the part of itself, its shareholders, subsidiaries,
affiliates, and successors and the directors, officers, employees and agents of
each of them.
NOTICE OF REVOCATION FOR ONLY MINNESOTA RESIDENTS
Executive understands that he or she may rescind (that is, cancel) this
Release within fifteen (15) calendar days of signing it. To be effective,
Executive's rescission must be in writing and delivered to Vice President - Law
and Human Resources, U S WEST, Inc., 1801 California Street, Suite 5200, Denver,
CO 80202, either by mail or by hand delivery within the 15-day period. If by
mail, the rescission must be: (1) postmarked within the 15-day period; (2)
properly addressed; and (3) sent by certified mail, return receipt requested.
NOTICE TO EMPLOYEES (40 YEARS OF AGE OR OLDER)
OF PERIOD TO CONSIDER RELEASE AND OF RIGHT TO REVOKE
Executive acknowledges that he or she has been given at least
twenty-one (21) calendar days to consider this Release and that Executive has
been advised to consult with an attorney prior to signing this Release.
Executive acknowledges that his or her signing of this Release is completely
voluntary.
Executive has the right to revoke (that is, to cancel) this Release
within seven (7) calendar days of signing it by delivering a written statement
of revocation within that seven (7) day period by certified mail to the Vice
President - Law and Human Resources, U S WEST, Inc., 1801 California Street,
Suite 5200, Denver, CO 80202.
Dated this day of , 19___.
U S WEST EXECUTIVE
By: _________________________ By: ___________________________
Title: ______________________ Title: ________________________
THIS IS A RELEASE -- READ CAREFULLY BEFORE SIGNING.
YOU SHOULD CONSULT WITH AN ATTORNEY.
Your signature is not required on this document until the
time of severance.
Exhibit 12
<TABLE>
<CAPTION>
U S WEST, Inc.
RATIO OF EARNINGS TO FIXED CHARGES (1)
(Dollars in Millions)
<S> <C> <C>
Quarter Ended
6/30/98 6/30/97
- - ------------------------------------------ -------- --------
Income before income taxes $ 542$ 667
Interest expense (net of amounts
capitalized) 109 101
Interest factor on rentals (1/3) 22 22
-------- --------
Earnings $ 673$ 790
Interest expense $ 114$ 105
Interest factor on rentals (1/3) 22 22
-------- --------
Fixed charges $ 136$ 127
Ratio of earnings to fixed charges 4.95 6.22
- - ------------------------------------------ -------- --------
Six Months Ended
6/30/98 6/30/97
- - ------------------------------------------ -------- --------
Income before income taxes $ 1,235$ 1,337
Interest expense (net of amounts
capitalized) 206 204
Interest factor on rentals (1/3) 44 42
-------- --------
Earnings $ 1,485$ 1,583
Interest expense $ 217$ 215
Interest factor on rentals (1/3) 44 42
-------- --------
Fixed charges $ 261$ 257
Ratio of earnings to fixed charges 5.69 6.16
- - ------------------------------------------ -------- --------
<FN>
(1) The historical ratios are based on the consolidated historical
results of U S WEST and include interest expense associated
with the refinancing of $3.9 billion of Dex Indebtedness from the
separation date of June 12, 1998.
</FN>
</TABLE>
<PAGE>
Exhibit 12 (continued)
<TABLE>
<CAPTION>
U S WEST, INC.
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES (1)
(Dollars in Millions)
<S> <C> <C>
Quarter Ended
6/30/98 6/30/97
- - ------------------------------------------ -------- --------
Pro forma income before income taxes $ 491 $ 601
Interest expense (net of amounts
capitalized) 160 167
Interest factor on rentals (1/3) 22 22
-------- --------
Earnings $ 673$ 790
Interest expense $ 165$ 171
Interest factor on rentals (1/3) 22 22
-------- --------
Fixed charges $ 187$ 193
Ratio of earnings to fixed charges 3.60 4.09
- - ------------------------------------------ -------- --------
Six Months Ended
6/30/98 6/30/97
- - ------------------------------------------ -------- --------
Pro forma income before income taxes $ 1,118$ 1,206
Interest expense (net of amounts
capitalized) 323 335
Interest factor on rentals (1/3) 44 42
-------- --------
Earnings $ 1,485$ 1,583
Interest expense $ 334$ 346
Interest factor on rentals (1/3) 44 42
-------- --------
Fixed charges $ 378$ 388
Ratio of earnings to fixed charges 3.93 4.08
- - ------------------------------------------ -------- --------
<FN>
<F1>
(1) Based on the unaudited pro forma condensed combined
statements of income which give effect to the refinancing
by U S WEST of the Dex Indebtedness as if such transaction
had been consummated as of the beginning of each of the
periods presented.
</FN>
</TABLE>
<PAGE>
Exhibit 12 (continued)
U S WEST, INC.
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES (1)
(Dollars in Millions)
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended
3/31/98 3/31/97
- - ------------------------------------------ -------- --------
Pro forma income before income taxes $ 627 $ 605
Interest expense (net of amounts
capitalized) 163 168
Interest factor on rentals (1/3) 22 20
-------- --------
Earnings $ 812 $ 793
Interest expense $ 16 $ 175
Interest factor on rentals (1/3) 22 20
-------- --------
Fixed charges $ 191 $ 195
Ratio of earnings to fixed charges 4.25 4.07
- - ------------------------------------------ -------- --------
<FN>
(1) Based on the unaudited pro forma condensed combined
statements of income which give effect to the refinancing
by U S WEST of the Dex Indebtedness as if such transaction
had been consummated as of the beginning of each of the
periods presented.
</FN>
</TABLE>
<PAGE>
Exhibit 12 (continued)
U S WEST, INC.
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES (1)
(Dollars in Millions)
<TABLE>
<CAPTION>
<S> <C>
Year
Ended
12/31/97
- - ------------------------------------------ --------
Pro forma income before income taxes
and extraordinary item $ 2,167
Interest expense (net of amounts
capitalized) 667
Interest factor on rentals (1/3) 91
--------
Earnings $ 2,925
Interest expense $ 687
Interest factor on rentals (1/3) 91
--------
Fixed charges $ 778
Ratio of earnings to fixed charges 3.76
- - ------------------------------------------ --------
<FN>
(1) Based on the unaudited pro forma condensed combined
statements of income which give effect to the refinancing
by U S WEST of the Dex Indebtedness as if such transaction
had been consummated as of the beginning of the period
presented.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001054522
<NAME> U S WEST, INC.
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 730 730
<SECURITIES> 0 0
<RECEIVABLES> 1,706 1,706
<ALLOWANCES> 0 0
<INVENTORY> 213 213
<CURRENT-ASSETS> 3,216 3,216
<PP&E> 34,565 34,565
<DEPRECIATION> 20,074 20,074
<TOTAL-ASSETS> 18,597 18,597
<CURRENT-LIABILITIES> 5,990 5,990
<BONDS> 7,946 7,946
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 480 480
<TOTAL-LIABILITY-AND-EQUITY> 18,597 18,597
<SALES> 3,053 6,062
<TOTAL-REVENUES> 3,053 6,062
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,369 4,563
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 109 206
<INCOME-PRETAX> 542 1,235
<INCOME-TAX> 215 474
<INCOME-CONTINUING> 327 761
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 327 761
<EPS-PRIMARY> 0.67 1.56
<EPS-DILUTED> 0.67 1.55
</TABLE>
