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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 September 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 October 31, 1998, 502,510,651 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 Nine Months Ended September 30, 1998 and 1997 3
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II - OTHER INFORMATION
1. Legal Proceedings 27
2. Changes in Securities and Use of Proceeds 27
5. Other Information 28
6. Exhibits and Reports on Form 8-K 33
</TABLE>
<PAGE>
Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) U S WEST, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------- ---------------------------- ----------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in millions (except per share 1998 1997 1998 1997
amounts)
- ------------------------------------------------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Operating revenues:
Local service $1,398 $1,314 $4,117 $3,739
Interstate access service 693 663 2,102 2,028
Intrastate access service 208 208 616 608
Long-distance network services 199 231 595 721
Directory services 315 296 935 879
Other services 299 248 809 682
-------------- ------------- ------------- --------------
Total operating revenues 3,112 2,960 9,174 8,657
Operating expenses:
Employee-related expenses 1,104 1,018 3,179 2,915
Other operating expenses 567 539 1,798 1,517
Taxes other than income taxes 84 106 274 320
Depreciation and amortization 558 541 1,625 1,616
-------------- ------------- ------------- --------------
Total operating expenses 2,313 2,204 6,876 6,368
-------------- ------------- ------------- --------------
Operating income 799 756 2,298 2,289
Interest expense 172 100 378 304
Gains on sales of rural telephone exchanges - 30 - 77
Other expense - net 19 12 77 51
-------------- ------------- ------------- --------------
Income before income taxes and extraordinary
item 608 674 1,843 2,011
Provision for income taxes 229 251 703 752
-------------- ------------- ------------- --------------
Income before extraordinary item 379 423 1,140 1,259
Extraordinary item - early extinguishment
of debt - net of tax - (3) - (3)
============== ============= ============= ==============
NET INCOME $379 $420 $1,140 $1,256
============== ============= ============= ==============
EARNINGS PER SHARE:
Basic - before extraordinary item $0.76 $0.88 $2.32 $2.61
Extraordinary item - (0.01) - (0.01)
============== ============= ============= ==============
Basic earnings per share $0.76 $0.87 $2.32 $2.60
============== ============= ============= ==============
Diluted - before extraordinary item $0.75 $0.87 $2.30 $2.58
Extraordinary item - (0.01) - (0.01)
============== ============= ============= ==============
Diluted earnings per share $0.75 $0.86 $2.30 $2.57
============== ============= ============= ==============
Average shares outstanding (000s):
Basic 501,807 483,218 491,608 482,374
Diluted 505,949 491,407 495,718 492,528
PRO FORMA EARNINGS PER SHARE BEFORE
EXTRAORDINARY ITEM:
Basic $0.76 $0.77 $2.13 $2.28
Diluted 0.75 0.76 2.11 2.25
Pro forma average shares outstanding (000s):
Basic 501,807 499,559 501,545 498,715
Diluted 505,949 507,748 505,655 508,869
DIVIDENDS PER SHARE $0.535 $0.535 $1.605 $1.605
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (Unaudited) U S WEST, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------- --------------------- -------------------
September 30, December 31,
Dollars in millions 1998 1997
- --------------------------------------------------------------------- --------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $22 $ 27
Accounts and notes receivable - net 1,735 1,717
Inventories and supplies 248 150
Deferred directory costs 261 257
Deferred tax asset 205 271
Prepaid and other 82 82
--------------------- -------------------
Total current assets 2,553 2,504
Gross property, plant and equipment 34,840 33,651
Accumulated depreciation 20,342 19,343
--------------------- -------------------
Property, plant and equipment - net 14,498 14,308
Other assets 1,010 855
--------------------- -------------------
Total assets $18,061 $ 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
- ---------------------------------------------------------------------- ------------------- ---------------------
September 30, December 31,
Dollars in millions, except per share amounts 1998 1997
- ---------------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $1,913 $497
Old U S WEST debt - 198
Accounts payable 1,121 1,377
Employee compensation 414 412
Dividends payable 269 259
Advanced billings and customer deposits 362 336
Other 1,179 1,120
------------------- ---------------------
Total current liabilities 5,258 4,199
Long-term debt 7,920 5,020
Postretirement and other postemployment
benefit obligations 2,556 2,534
Deferred income taxes 822 791
Deferred credits and other 880 756
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,
502,082,955 and 484,515,415 issued and outstanding at September 30,
1998, and December 31, 1997, respectively 625 -
Pre-recapitalization equity - 4,367
------------------- ---------------------
Total shareowners' equity 625 4,367
------------------- ---------------------
Total liabilities and shareowners' equity $18,061 $ 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>
- --------------------------------------------------------------------------------------- ------------ ------------
Nine Months Ended September 30, 1998 1997
- --------------------------------------------------------------------------------------- ------------ ------------
(Dollars in millions)
OPERATING ACTIVITIES
Net income $1,140 $1,256
Adjustments to net income:
Depreciation and amortization 1,625 1,616
Gains on sales of rural telephone exchanges - (77)
Deferred income taxes and amortization of investment tax credits 102 7
Changes in operating assets and liabilities:
Accounts receivable (18) 40
Inventories, supplies and other current assets (49) (75)
Accounts payable and accrued liabilities 116 245
Other - net 34 141
----------- ------------
Cash provided by operating activities 2,950 3,153
----------- ------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (1,937) (1,322)
Proceeds from (payments on) disposals of property, plant
and equipment (14) 27
Purchase of PCS licenses (18) (57)
Proceeds from sales of rural telephone exchanges - 51
Other (39) -
----------- ------------
Cash used for investing activities (2,008) (1,301)
----------- ------------
FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term debt 1,519 (701)
Net (repayments of) proceeds from issuance of Old U S WEST debt (198) 303
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 (411) (412)
Dividends paid on common stock (787) (733)
Dividends paid to Old U S WEST (194) (243)
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 60 50
Purchases of treasury stock (46) -
----------- ------------
Cash used for financing activities (947) (1,736)
----------- ------------
CASH AND CASH EQUIVALENTS
Increase (decrease) (5) 116
Beginning balance 27 80
----------- ------------
Ending balance $22 $196
=========== ============
</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 Nine Months Ended September 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(C) - "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 and U S WEST Communications, Inc. ("U S WEST Communications"), a
wholly-owned subsidiary of the Company that provides telecommunications
services, maintain commercial paper programs to finance short-term cash flow
requirements as well as to maintain a presence in the short-term debt market. In
addition, U S WEST Communications, which conducts its own borrowing activities,
is permitted to borrow up to $700 under short-term lines of credit, all of which
was available at September 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 at September 30, 1998.
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.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
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 for the nine months ended September 30, 1998, and for the three and nine
months ended September 30, 1997, 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 the nine months ended September 30, 1998 and the three and nine
months ended September 30, 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(C) -
"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>
- --------------------------------------------------- ------------------------------ ----------------------------
Three Months Ended Nine Months Ended
September 30, September
30,
Basic Earnings Per Share (1) 1998 1997 1998 1997
- --------------------------------------------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Reported net income $379 $423 $1,140 $1,259
Pro forma adjustment (2) - (40) (72) (121)
=============== =============== ============== =============
Pro forma income $379 $383 $1,068 $1,138
=============== =============== ============== =============
Basic average shares (thousands) (3) 501,807 483,218 491,608 482,374
Pro forma adjustment (4) - 16,341 9,937 16,341
=============== ============== ============== =============
Pro forma basic average shares 501,807 499,559 501,545 498,715
=============== ============== ============== =============
Basic earnings per share (1) $0.76 $0.88 $2.32 $2.61
Pro forma basic earnings per share (1) 0.76 0.77 2.13 2.28
=================================================== =============== ============== ============== =============
- -------------------------------------------------- ------------------------------- ----- ----------------------------
Three Months Ended Nine Months Ended
September 30, September
30,
Diluted Earnings Per Share (1) 1998 1997 1998 1997
- -------------------------------------------------- ---------------- --------------- ---- -------------- --------------
Reported net income $379 $423 $1,140 $1,259
Interest on convertible zero coupon
subordinated notes, net of tax - 2 - 9
---------------- --------------- -------------- --------------
Income used for diluted earnings per share 379 425 1,140 1,268
Pro forma adjustment (2) - (40) (72) (121)
---------------- --------------- -------------- --------------
Pro forma income used for diluted earnings
per share $379 $385 $1,068 $1,147
================ =============== ============== ==============
Basic average shares (thousands) (3) 501,807 483,218 491,608 482,374
Effect of dilutive securities:
Stock options 4,142 2,474 4,110 2,005
Convertible zero coupon notes 5,715 - 8,149
--------------- --------------- -------------- --------------
Diluted average shares 505,949 491,407 495,718 492,528
Pro forma adjustment (4) - 16,341 9,937 16,341
=============== =============== ============== ==============
Pro forma diluted average shares 505,949 507,748 505,655 508,869
=============== =============== ============== ==============
Diluted earnings per share (1) $0.75 $0.87 $2.30 $2.58
Pro forma diluted earnings per share (1) 0.75 0.76 2.11 2.25
=================================================== =============== =============== ============== ==============
<FN>
<F1>
(1) Before extraordinary item of $3, or $0.01 per share, related to a 1997 early extinguishment of debt.
<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) 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.
<F4>
(4) 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 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
September 30, 1998, is not expected to exceed $280.
Utah. 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 September 30, 1998, is
not expected to exceed $170.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
New Mexico. The New Mexico State Corporation Commission ("NMSCC") issued an
order on May 29, 1998, requiring U S WEST Communications to reduce its annual
revenues by approximately $22. U S WEST Communications sought a rehearing before
the NMSCC which was denied. The NMSCC's order was then removed to the New Mexico
Supreme Court for review which effectively stays the order. The potential for
retroactive exposure, at September 30, 1998, is remote.
State Regulatory Accruals. U S WEST Communications has accrued $200 at September
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
$265. 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.
In addition to its estimated liabilities for state regulatory proceedings, U S
WEST Communications has an accrued liability of approximately $160 at September
30, 1998 related to refunds in the state of Washington. Approximately $80 was
refunded to IXCs and independent local exchange carriers during the nine-month
period ended September 30, 1998. The remaining liability is expected to be
refunded to ratepayers by the first half of 1999, with the majority of the
refunds occurring in fourth-quarter 1998.
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 January 1, 1999, the Company will adopt the accounting provisions required by
the AICPA Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," issued in March 1998.
SOP 98-1, among other things, requires that certain costs of internal use
software, whether purchased or developed internally, be capitalized and
amortized over the estimated useful life of the software.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
(Unaudited)
Based on information currently available, adoption of the SOP may result in an
initial increase in net income in 1999 of approximately $100-$150, or $0.20 -
$0.30 per share. Thereafter, in periods after adoption, if software expenditures
remain level, earnings will decline until the amortization expense related to
the capitalized software equals the software costs expensed prior to the
accounting change. The estimated net income impact for 1999 and thereafter may
be subject to change as further information becomes available. Please see Part I
- - Item II- "Forward-Looking Information."
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 financial statement impacts of the
Company's adoption of the new standard are dependent upon the amount and nature
of future use of derivative instruments, and their relative changes in valuation
over time.
<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)
Forward-Looking Information
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 Nine Months Ended September 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>
- ---------------------------------- ------------------------- ---------------- - ----------------------- --------------
Three Months Increase Nine Months Ended Increase
Ended (Decrease) September (Decrease)
September 30, 30,
1998 1997 $ % 1998(1) 1997(1) $ %
- ----------------------------------- ---------- ----------- ------- --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reported net income (2) $379 $423 $(44) (10.4) $1,140 $1,259 $(119) (9.5)
Pro forma adjustment (3) - (40) 40 - (72) (121) 49 40.5
---------- ----------- ------- -------- ---------- --------- --------- -------
Pro forma income 379 383 (4) (1.0) 1,068 1,138 (70) (6.2)
Adjustments:
Separation costs - - - - 68 - 68 -
Asset impairment - - - - 21 - 21 -
Gains on sales of rural
telephone exchanges - (19) 19 - - (48) 48 -
========== ========== ======== ======== ========== ========= ========= =======
Normalized pro forma income $379 $364 $15 4.1 $1,157 $1,090 $67 6.1
========== ========== ======== ======== ========== ========= ========= =======
Pro forma diluted average
shares outstanding (4) 505.9 507.7 (1.8) (0.4) 505.7 508.9 (3.2) (0.6)
========== ========== ======== ======== ========== ========= ========= =======
Pro forma diluted earnings
Per share (2) $0.75 $0.76 $(0.01) (1.3) $2.11 $2.25 $(0.14) (6.2)
Adjustments:
Separation costs - - - - 0.13 - 0.13 -
Asset impairment - - - - 0.04 - 0.04 -
Gains on sales of rural
Telephone exchanges - (0.04) 0.04 - - (0.10) 0.10 -
========== ========== ======== ======== ========== ========= ========= =======
Normalized pro forma diluted
earnings per share $0.75 $0.72 $0.03 4.2 $2.29 $2.16 $0.13 6.0
=================================== ========== ========== ======== ======== ========== ========= ========= =======
(See "Note E - Earnings Per Share" - to the Consolidated Financial Statements.)
<FN>
<F1>
(1) Diluted pro forma earnings per share does not foot due to rounding.
<F2>
(2) Before extraordinary item of $3, or $0.01 per share, related to a 1997 early extinguishment of debt.
<F3>
(3) 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.
<F4>
(4) Average shares assume 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 $15, or 4.1 percent, to $379,
and by $67, or 6.1 percent, to $1,157, during the three- and nine-month periods
ended September 30, 1998, respectively. Normalized pro forma diluted earnings
per share increased by $0.03, or 4.2 percent, to $0.75, and by $0.13, or 6.0
percent, to $2.29, during the same periods, respectively. A pension credit
adjustment relating to the first half of 1998 contributed $12, or $0.02 per
share, to third quarter earnings. The remaining increase in third quarter net
income is primarily due to higher demand for services partially offset by
interstate access rate reductions and higher operating costs, including
increased start-up costs associated with growth initiatives and higher expenses
related to interconnection.
Operating Revenues
<TABLE>
<CAPTION>
- --------------------------------- ----------------------- ---------------- -- ----------------------- --------------
Three Months Ended Increase Nine Months Ended Increase
September (Decrease) September (Decrease)
30, 30,
1998 1997 $ % 1998 1997 $ %
- ------------------------------------ --------- --------- -------- -------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Local service $1,398 $1,314 $84 6.4 $4,117 $3,739 $378 10.1
Interstate access service 693 663 30 4.5 2,102 2,028 74 3.6
Intrastate access service 208 208 - - 616 608 8 1.3
Long-distance network services 199 231 (32) (13.9) 595 721 (126) (17.5)
Other services 309 257 52 20.2 837 707 130 18.4
--------- --------- -------- -------- --------- ---------- -------- --------
Communications and related
services 2,807 2,673 134 5.0 8,267 7,803 464 5.9
Directory services 315 296 19 6.4 935 879 56 6.4
Intersegment eliminations (10) (9) (1) 11.1 (28) (25) (3) 12.0
--------- --------- -------- -------- --------- ---------- -------- --------
Total $3,112 $2,960 $152 5.1 $9,174 $8,657 $517 6.0
==================================== ========= ========= ======== ======== == ========= ========== ======== ========
</TABLE>
Communications and Related Services
Local Service Revenues. Local service revenues increased $84, or 6.4 percent, to
$1,398, and $378, or 10.1 percent, to $4,117, during the three- and nine-month
periods, respectively. Excluding the non-recurring impact of a regulatory charge
in last year's second quarter, local services revenues increased by 8.2 percent
for the nine-month period. Local service revenues increased primarily as a
result of access line growth and increased demand for new products and services,
and existing central office features. Total reported access lines increased
579,000, or 3.7 percent, during the past 12 months, of which 243,000 was
attributable to second lines. Second line installations increased 19.4 percent.
Also contributing to the increase in revenues were the effects of rate increases
in various jurisdictions aggregating $14 in the third quarter and $45 for the
nine 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 nine months 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
$30, or 4.5 percent, to $693, and $74, or 3.6 percent, to $2,102, during the
three- and nine-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 $23 in the third quarter and $61 in the nine-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 third quarter increased $7, or 1.1 percent,
and nine-month revenues increased $13, or 0.6 percent. Increased demand for
interstate access services, as evidenced by increases of 6.9 percent and 6.8
percent in billed interstate access minutes of use during the three- and
nine-month periods, respectively, was largely offset by price reductions.
Intrastate Access Service Revenues. Intrastate access service revenues were
unchanged from last year's third quarter and increased by $8, or 1.3 percent,
during the nine-months ended September 30. During third quarter, the effects of
rate decreases offset increased demand. The increase for the nine months was
primarily due to higher demand, including increased demand for private line
services, partially offset by net rate reductions. Net rate reductions
aggregated $9 and $23 in the three- and nine-month periods, respectively, the
majority of which were in the state of Washington. Competitive effects have also
adversely impacted intrastate access revenue growth. Intrastate billed access
minutes of use increased by 5.0 and 5.8 percent during each respective period.
Long Distance Network Services Revenues. Long-distance network services revenues
decreased by $32, or 13.9 percent, in the third quarter and by $126, or 17.5
percent, in the first nine months of 1998. The decreases were primarily due to
the effects of competition and rate reductions of $10 in the third quarter and
$37 in the first nine months of 1998 in several jurisdictions, most
significantly in the state of Washington. Also contributing to the decline in
the nine-month period 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 $52, or 20.2
percent, in the third quarter and by $130, or 18.4 percent, in the first nine
months of 1998, as a result of greater sales of wireless communications services
and inside wire maintenance. Interconnection rent revenues, 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 directory services increased by $19, or 6.4 percent, and
$56, or 6.4 percent in the three- and nine-month periods, respectively. The
increases are driven by an average 8.7 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>
- ----------------------------------- ----------------------- --------------- --- ---------------------- ------------
Three Months Ended Increase Nine Months Ended Increase
September 30, (Decrease) September (Decrease)
30,
1998 1997 $ % 1998 1997 $ %
- ------------------------------------- --------- --------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Employee-related expenses $1,104 $1,018 $86 8.4 $3,179 $2,915 $264 9.1
Other operating expenses (1) 567 539 28 5.2 1,798 1,517 281 18.5
Taxes other than income taxes 84 106 (22) (20.8) 274 320 (46) (14.4)
Depreciation and amortization 558 541 17 3.1 1,625 1,616 9 0.6
Interest expense (as reported) 172 100 72 72.0 378 304 74 24.3
Pro forma adjustment - 65 (65) - 117 196 (79) (40.3)
--------- --------- -------- -------- -------- --------- -------- --------
Interest expense (pro forma) 172 165 7 4.2 495 500 (5) 1.0
Gains on sales of rural telephone
Exchanges - 30 (30) - - 77 (77) -
Other expense - net 19 12 7 58.3 77 51 26 51.0
- ------------------------------------- --------- --------- -------- -------- --- -------- --------- -------- --------
<FN>
(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 $86, or 8.4
percent, and $264, or 9.1 percent, during the three-and nine-month periods,
respectively. Employee-related expenses include $21 of net costs incurred in
conjunction with the 1998 third-quarter work stoppage. These work stoppage costs
include incremental travel costs, contract labor costs and employee bonus costs
paid to management employees for work performed during the strike. Partially
offsetting these additional costs were lower salaries and wages and overtime
savings associated with occupational employees not working during the work
stoppage.
<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
Excluding these costs, employee-related expenses increased $65, or 6.4 percent,
and $243, or 8.3 percent, during the three- and nine-month periods,
respectively. The increases were 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 increases in wages and the number of
employees, including the effects of transferring approximately 530 employees
from Old U S WEST in connection with the Separation. Prior to the third quarter,
costs related to these employee transfers were allocated to the Company by Old U
S WEST and included in other operating expenses. Partially offsetting these
increases during the three- and nine-month periods were pension credits, which
include a third-quarter $20 pension credit adjustment relating to the first half
of 1998.
Other Operating Expenses. Excluding nonrecurring charges as described in Note 1
to the above table, other operating expenses increased by $28, or 5.2 percent,
and by $152, or 10.0 percent, during the three- and nine-month periods,
respectively. The increases are primarily due to increased costs associated with
growth initiatives including, wireless handset costs, marketing and advertising
costs, and higher interconnection costs. The aforementioned change in
classification of universal service funding expenses increased other operating
expenses by $23 in the third quarter and $61 in the first half of 1998 as
compared to the same periods in 1997. The effects of the transfer of
approximately 530 employees from Old U S WEST resulted in a reduction of costs
formerly allocated to the Company by Old U S WEST which partially offset the
increase in other operating expenses. A 1997 reserve adjustment associated with
billing and collection activities performed for IXCs also partially offset the
nine-month period increase.
Other operating expenses for the nine-month period include $94 in costs incurred
during second quarter 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.
During second quarter of 1998, 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
because of a third quarter property tax settlement in addition to adjustments
related to the 1997 property tax accrual.
<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
Interest Expense. The increase in interest expense 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 increase in interest expense for the three-month period
was primarily a result of higher quarterly average debt levels. The decline in
interest expense for the nine-month period was primarily a result of lower
average debt levels.
Gains On Sale of Rural Telephone Exchanges. During the nine-month period ended
September 30, 1997, the Company sold selected rural telephone exchanges in
Minnesota, Iowa, Nebraska, and South Dakota for pretax gains of $77.
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 nine months of 1998 is 38.1 percent as
compared to 37.3 percent on a pro forma basis during the first nine 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 for the twelve months
ended December 31, 1998.
Liquidity and Capital Resources
Operating Activities
Cash provided by operating activities was $2,950 and $3,153 during the first
nine months of 1998 and 1997, respectively. The decrease in operating cash flow
primarily reflects a reduction in accounts payable financing, the effect of
refunds in regulatory jurisdictions and lower accounts receivable collections.
Partially offsetting the decreases were the effects of business growth in both
the core communications and directory businesses.
The Company's operating cash flow during fourth-quarter 1998 and the first half
of 1999 will be affected by the payment of approximately $160 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.)
<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
Investing Activities
Total capital expenditures, on a cash basis, were $1,937 during the first nine
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 $2.9 billion.
During the first nine months of 1998, the Company paid $18 to purchase PCS
licenses in connection with its launch of PCS service in various markets.
Financing Activities
Debt Activity
Total debt increased by $4,118 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 $303 during the first nine 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
$194 and $243 during the first nine months of 1998 and 1997, respectively.
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.
<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
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
phases will be completed by December 1998, with implementation completed by July
1999. To facilitate Network testing, the Company participates, along with other
major wireline 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. The Company is also participating in the
FCC's Network Reliability and Interoperability Council IV working group, which
is tasked to evaluate the Year 2000 readiness of the public telecommunications
network.
Within IT, the Company has identified the applications that support its critical
business processes such as billing and collections, 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
planning, conversion and testing/certification phases. Accordingly, a majority
of the Business Units have established project plans and associated schedules to
accomplish the remaining phases. The objective is to complete any major
conversions or upgrades by third-quarter 1999.
<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 $90 through the third quarter of 1998 on
year 2000 projects and activities. The estimated total incremental costs for
year 2000 related projects and activities are 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. The estimate stated above may be subject to
change.
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, year 2000 specific business continuity and contingency plans are
being developed to address high risk areas as they are identified. These year
2000 specific contingency plans will conform to detailed Company-wide
requirements now being established by the Company's Year 2000 Program Office.
These plans will be in place no later than third-quarter 1999. In addition, the
Company has in place its standard overall business continuity, contingency and
disaster recovery plans (such as diesel generator back-up power supply sources
for its Network, Network rerouting capabilities, and computer back-up and
recovery procedures) which will be verified, and if required, augmented for
specific year 2000 scenarios.
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 are assisting the Company in the focused testing of
the Network. Because of these dependencies, the Company has developed and
implemented a vendor compliance process whereby the Company has obtained written
assurances of timely year 2000 compliance from most of its critical vendors (not
only for Network, but also for IT and the Business Units). The Company continues
to pursue such assurances from the remaining critical vendors. In addition, the
Company monitors and actively participates in coordinated Network testing
activities, as discussed above, with respect to the Forum and Bellcore. 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. Because of this dependency, the Company has developed
detailed timetables, resource plans and standardized year 2000 testing
requirements for all identified critical applications (irrespective of whether
these applications are used primarily by IT, the Network or the Business Units).
Within the Business Units, the Company is dependent on vendor supplied goods and
services, and operability of the Network, critical IT and business unit specific
applications. Because of these dependencies, the Company is implementing the
same type of vendor compliance process and application planning and testing
process at the Business Units, as discussed above with respect to the Network
and IT.
<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
In management's view, the most reasonable worst case scenario for year 2000
failure prospects faced by the Company is that a limited number of important IT
and/or Business Unit specific applications may unexpectedly fail. In addition,
no assurance can be given that there may not be problems with the Network
relating to year 2000. Failure by the Company or by certain of its vendors to
remediate year 2000 compliance issues in advance of the year 2000 and to execute
appropriate contingency plans in the event that a critical failure is
experienced, could result in disruption of the Company's operations, possibly
impacting the Network and impairing the Company's ability to bill or collect
revenues. However, management believes that its efforts at advance remediation
and testing, obtaining written vendor assurances and advance vendor remediation,
year 2000 specific contingency planning, and overall business continuity,
contingency and disaster recovery planning will be successful, and that the
aforementioned "worst case scenario" is unlikely to develop or significantly
disrupt the Company's financial operations.
The above discussion regarding year 2000 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.
Union Contracts
On October 9, 1998, the Communications Workers of America ("CWA") informed the
Company that a majority of its voting members ratified new three-year contracts
for U S WEST Communications and U S WEST Business Resources, Inc. employees. The
contracts provide for salary increases of 10.9 percent over three years,
effective in August of each year, and pension increases totaling 21 percent over
three years. The contract also provides employees with a $500 ratification bonus
in lieu of additional future wage increases. The agreement covers approximately
33,000 CWA members.
On October 15, 1998, Dex and CWA union members tentatively agreed upon a new
three-year contract. The agreement covers approximately 1,900 sales, operations
and customers service employees.
Other Items
U S WEST from time to time engages in discussions regarding restructurings,
dispositions, acquisitions and other similar transactions. Any such transaction
may include, among other things, the transfer, sale or acquisition of
significant assets, businesses or interests, including joint ventures, or the
incurrence, assumption or refinancing 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.
<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 "Capital Funding Form S-3"). The Notes and
Debentures were issued on June 29, 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 (which
was issued in accordance with Section 4(2) of the Securities Act of 1933,
as amended). 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. Some of
those underwriters acted as dealers in the issuance of the commercial paper
indebtedness. The Capital Funding Form S-3 has approximately $400 million
in remaining debt capacity, all or a portion of which may be issued from
time to time for the purposes described therein. U S WEST Communications
has approximately $320 million of remaining debt capacity on its Form S-3
registration statement, all or a portion of which may be issued from time
to time for the purposes described therein.
<PAGE>
Form 10-Q - Part II
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 Securities and
Exchange 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.
B. Union Contract
On October 9, 1998 the Communications Workers of America informed the Company
that a majority of its voting members ratified both of the contracts for U S
WEST Communications and U S WEST Business Resources, Inc. employees. Both
contracts are effective August 16, 1998 and will continue in effect until August
18, 2001.
C. 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.
<PAGE>
Form 10-Q - Part II
Item 5. Other Information (continued)
The following unaudited pro forma condensed combined statements of income of U S
WEST for the nine months ended September 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>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
U S WEST Separation U S WEST U S WEST Separation U S WEST
Historical Adjustments Pro forma Historical Adjustments Pro forma
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $9,174 - $9,174 $8,657 - $8,657
Operating expenses 6,876 - 6,876 6,368 - 6,368
--------------- ------------ ------------ ------------- ----------- ------------
Operating income 2,298 2,298 2,289 2,289
Interest expense 378 $117(A) 495 304 $196(A) 500
Gains on sales of rural
telephone exchanges - - - 77 - 77
Other expense - net 77 - 77 51 - 51
-
--------------- ------------ ------------ ------------- ----------- ------------
Income (loss) before
income taxes(E) 1,843 (117) 1,726 2,011 (196) 1,815
Provision (benefit) for
income taxes 703 (45)(B) 658 752 (75)(B) 677
--------------- ------------ ------------ ------------- ----------- ------------
Income (loss) (E) $1,140 $(72) $1,068 $1,259 $(121) $1,138
=============== ============ ============ ============= =========== ============
Basic earnings per
share(C, E) $2.32 - $2.13 $2.61 - $2.28
Average basic shares
outstanding (millions)(D)
491.6 9.9 501.5 482.4 16.3 498.7
Diluted earnings per
share(C, E) $2.30 - $2.11 $2.58 - $2.25
Average diluted shares
outstanding (millions)(D)
495.7 9.9 505.7 492.5 16.3 508.9
</TABLE>
Shares may not foot due to rounding
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.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Dollars in millions (except per share amounts)
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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, E) $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, E) $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 INCOME
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 in 1997 and the cumulative effect
of a change in accounting principle in 1996.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Restated Certificate of Incorporation of U S WEST, Inc.
*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, dated May 8, 1998, 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 $1.0 Billion Credit Agreement, dated May 8, 1998,
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(e)(1) Amendment No. 1 to Credit Agreements dated as of June 30, 1998 to
the 364-Day $3.5 Billion Credit Agreement and the Five-Year $1.0
Billion Credit Agreement, each dated as of May 8, 1998, among
U S WEST Capital Funding, Inc.; U S WEST, Inc.; the Banks listed
on the signature pages thereto and Morgan Guaranty Trust Company of
New York.
<PAGE>
Form 10-Q - Part II
Item 6. Exhibits and Reports on Form 8-K (continued)
*10(f) Change of Control Agreement for the President and Chief Executive
Officer (Exhibit 10(f) to Form 10-Q for the quarter ended June 30,
1998, File No. 1-14087).
*10(g) Form of Change of Control Agreement for Tier II Executives (Exhibit
10(g) to Form 10-Q for the quarter ended June 30, 1998, File No.
1-14087).
*10(h) Form of Executive Severance Agreement (Exhibit 10(g) to Form 10-Q
for the quarter ended June 30, 1998, File No. 1-14087).
*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).
*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).
10(l) U S WEST 1998 Broad Based Stock Option Plan dated June 12, 1998.
10(m) U S WEST Deferred Compensation Plan, amended and restated effective
as of June 12, 1998.
10(n) U S WEST 1998 Stock Plan, as amended June 22, 1998.
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 Third Quarter of 1998
(i) Form 8-K dated July 15, 1998 concerning a press released reporting
certain one-time charges for the second quarter of 1998.
(ii) Form 8-K dated July 28, 1998 concerning the Company's second quarter
results of operations.
<PAGE>
Form 10-Q - Part II
Item 6. Exhibits and Reports on Form 8-K (continued)
(iii Form 8-K/A dated July 29, 1998, amending Form 8-K dated July 28,
1998, concerning the Company's second quarter earnings results.
(iv) Form 8-K dated August 16, 1998 concerning a press release announcing
the work stoppage commenced by clerical and technical employees
represented by the Communications Workers of America.
(v) Form 8-K dated August 31, 1998 concerning a press release announcing
a tentative agreement reached on the Labor Contract between the
Company and the Communications Workers of America.
(vi) Form 8-K dated October 21, 1998 concerning the Company's third
quarter results of operations.
(vii) Form 8-K dated October 27, 1998 reiterating the Company's earnings
projections.
(viii) Form 8-K dated November 2, 1998 concerning a press release
announcing the naming of a new member to the Company's board of
directors.
<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
November 6, 1998
EXHIBIT 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
U S WEST, INC.
(Originally Incorporated on December 23, 1997
Under the Name U S WEST COMMUNICATIONS GROUP, INC.)
ARTICLE I
NAME
The name of the corporation is U S WEST, Inc. (the "Corporation").
ARTICLE II
ADDRESS OF REGISTERED OFFICE;
NAME OF REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law (the "Corporation Law").
ARTICLE IV
POWERS
The Corporation shall have all powers that may now or hereafter be lawful
for a corporation to exercise under the Corporation Law.
1
ARTICLE V
CAPITAL STOCK
SECTION 1. Authorization. The aggregate number of shares of stock which the
Corporation shall have authority to issue is two billion two hundred million
(2,200,000,000) shares, of which two billion (2,000,000,000) shares shall be
shares of common stock having a par value of $0.01 per share (the "Common
Stock"), and two hundred million (200,000,000) shares shall be shares of a class
of preferred stock having a par value of $1.00 per share (the "Preferred Stock")
and issuable in one or more series as hereinafter provided. For purposes of this
Article V, references to the "Board of Directors" shall refer to the Board of
Directors of the Corporation, as established in accordance with Article VI of
the Certificate of Incorporation of the Corporation and references to "the
Certificate of Incorporation of the Corporation" shall refer to this Restated
Certificate of Incorporation as the same may be amended from time to time.
SECTION 2. Common Stock. The shares of Common Stock of the Corporation
shall be of one and the same class. The holders of Common Stock shall have one
vote per share of Common Stock on all matters on which holders of Common Stock
are entitled to vote. Except as otherwise provided by law or by the terms of any
outstanding series of Preferred Stock, the entire voting power of the
stockholders of the Corporation shall be vested in the holders of Common Stock
of the Corporation, who shall be entitled to vote on any matter on which the
holders of stock of the Corporation shall, by law or by the provisions of the
Certificate of Incorporation or bylaws of the Corporation, be entitled to vote.
SECTION 3. Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series. Except as provided by subsection 3.1 with respect to
the Series A Preferred Stock (as hereinafter defined), the Board of Directors is
authorized, by resolution adopted and filed in accordance with law, to fix the
number of shares in each series, the designation thereof, the voting powers,
preferences and relative, participating, optional or other special rights
thereof, and the qualifications or restrictions thereon, of each series and the
variations in such voting powers and preferences and rights as between series.
Any shares of any series of Preferred Stock
2
purchased, exchanged, converted or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, without designation as to series, and may be
reissued as part of any series of Preferred Stock created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth in this Certificate of Incorporation or in
such resolution or resolutions.
3.1. Series A Junior Preferred Stock. There is hereby created a series of
Preferred Stock, designated Series A Junior Preferred Stock, par value $1.00 per
share (the "Series A Preferred Stock"), of 10,000,000 shares having the
following voting powers, preferences and rights, and qualifications and
restrictions thereon provided by this subsection 3.1:
3.1.1 Dividends and Distributions.
A. Subject to the provisions for adjustment here inafter set forth, the
holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount per share (rounded to
the nearest cent) equal to 100 times the aggregate per share amount of all cash
dividends declared or paid on the Common Stock, and (ii) a preferential cash
dividend (the "Preferential Dividends"), if any, in preference to the holders of
Common Stock, on the first day of February, May, August and November of each
year (each a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, payable in an amount (except in the case
of the first Quarterly Dividend Payment if the date of the first issuance of
Series A Preferred Stock is a date other than a Quarterly Dividend Payment date,
in which case such payment shall be a prorated amount of such amount) equal to
$25 per share of Series A Preferred Stock less the per share amount of all cash
dividends declared on the Series A Preferred Stock pursuant to clause (i) of
this sentence since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock. In the
event
3
the Corporation shall, at any time after the issuance of any share or fraction
of a share of Series A Preferred Stock, make any distribution on the shares of
Common Stock, whether by way of a dividend or a reclassification of stock, a
recapitalization, reorganization or partial liquidation of the Corporation or
otherwise, which is payable in cash or any debt security, debt instrument, real
or personal property or any other property (other than cash dividends subject to
the immediately preceding sentence, a distribu- tion of shares of Common Stock
or other capital stock of the Corporation or a distribution of rights or
warrants to acquire any such share, including any debt security convert- ible
into or exchangeable for any such share, at a price less than the Fair Market
Value (as hereinafter defined) of such share), then, and in each such event, the
Corporation shall simultaneously pay on each then outstanding share of Series A
Preferred Stock a distribution, in like kind, of 100 times such distribution
paid on a share of Common Stock (subject to the provisions for adjustment
hereinafter set forth). The dividends and distributions on the Series A
Preferred Stock to which holders thereof are entitled pursuant to clause (i) of
the first sentence of this paragraph and pursuant to the second sentence of this
para- graph are hereinafter referred to as "Dividends" and the multiple of such
cash and non-cash dividends on the Common Stock applicable to the determination
of the Dividends, which shall be 100 initially but shall be adjusted from time
to time as hereinafter provided, is hereinafter referred to as the "Dividend
Multiple". In the event the Corporation shall at any time after June 1, 1998
(the "Effective Date") declare or pay any dividend or make any distribution on
Common Stock payable in shares of Common Stock, or effect a subdivision or split
or a combination, consolidation or re- verse split of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common Stock, then in
each such case the Dividend Multiple thereafter applicable to the determination
of the amount of Dividends which holders of shares of Series A Preferred Stock
shall be entitled to receive shall be the Dividend Multiple applicable
immediately prior to such event multiplied by a fraction the numerator of which
is the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
B. The Corporation shall declare each Dividend at the same time it declares
any cash or non-cash dividend or distribution on the Common Stock in respect of
which a
4
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Dividend is required to be paid shall be
paid or set aside for payment on the Common Stock unless a Dividend in respect
of such dividend or distribution on the Common Stock shall be simultaneously
paid, or set aside for payment, on the Series A Preferred Stock.
C. Preferential Dividends shall begin to accrue on outstanding shares of
Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding
the date of issuance of any shares of Series A Preferred Stock. Accrued but
unpaid Preferential Dividends shall cumulate but shall not bear interest.
Preferential Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
3.1.2 Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the holders of the Common
Stock. The number of votes which a holder of Series A Preferred Stock is
entitled to cast, as the same may be adjusted from time to time as
hereinafter provided, is hereinafter referred to as the "Vote Multiple". In
the event the Corporation shall at any time after the Effective Date
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or split or a combination, consolidation or
reverse split of the outstanding shares of Common Stock into a greater or
lesser number of shares of Common Stock, then in each such case the Vote
Multiple thereafter applicable to the determination of the number of votes
per share to which holders of shares of Series A Preferred Stock shall be
entitled after such event shall be the Vote Multiple immediately prior to
such event multiplied by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
5
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or bylaws of the Corporation, the holders of shares of Series
A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) In the event that the Preferential Dividends accrued on the Series
A Preferred Stock for four or more quarterly dividend periods, whether
consecutive or not, shall not have been declared and paid or irrevocably
set aside for payment, the holders of record of Preferred Stock of the
Corporation of all series (including the Series A Preferred Stock), other
than any series in respect of which such right is expressly withheld by the
Certificate of Incorporation or the authorizing resolutions included in any
Certificate of Designations therefor, shall have the right, at the next
meeting of stockholders called for the election of directors, to elect two
members to the Board of Directors, which directors shall be in addition to
the number required by the bylaws of the Corporation prior to such event,
to serve until the next Annual Meeting and until their successors are
elected and qualified or their earlier resignation, removal or incapacity
or until such earlier time as all accrued and unpaid Preferential Dividends
upon the outstanding shares of Series A Preferred Stock shall have been
paid (or irrevocably set aside for payment) in full. The holders of shares
of Series A Preferred Stock shall continue to have the right to elect
directors as pro- vided by the immediately preceding sentence until all
accrued and unpaid Preferential Dividends upon the out- standing shares of
Series A Preferred Stock shall have been paid (or set aside for payment) in
full. Such directors may be removed and replaced by such stockholders, and
vacancies in such directorships may be filled only by such stockholders (or
by the remaining director elected by such stockholders, if there be one) in
the manner permitted by law; provided, however, that any such action by
stockholders shall be taken at a meeting of stockholders and shall not be
taken by written consent thereto.
(D) Except as otherwise required by the Certificate of Incorporation
or bylaws of the Corporation or set forth herein, holders of Series A
Preferred Stock shall have no other special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for the taking of any
corporate action.
6
3.1.3. Certain Restrictions.
(A) Whenever Preferential Dividends or Dividends are in arrears or the
Corporation shall be in default of payment thereof, thereafter and until
all accrued and unpaid Preferential Dividends and Dividends, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been
paid or set irrevocably aside for payment in full, and in addition to any
and all other rights which any holder of shares of Series A Preferred Stock
may have in such circumstances, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity as to dividends with the
Series A Preferred Stock, unless dividends are paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled if the full dividends
accrued thereon were to be paid;
(iii) except as permitted by subparagraph (iv) of this paragraph
3.1.3(A), redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior
(both as to dividends and upon liquidation, dissolution or winding up)
to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for considera- tion any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock (either as to dividends or
upon liqui- dation, dissolution or winding up), except in accordance
with a purchase offer made to all holders of such shares upon such
terms as the Board of Directors,
7
after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any Sub- sidiary (as hereinafter
defined) of the Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 3.1.3, purchase or otherwise acquire such shares
at such time and in such manner. A "Subsidiary" of the Corporation shall mean
any corporation or other entity of which securities or other ownership interests
having ordinary voting power sufficient to elect a majority of the board of
directors of such corporation or other entity or other persons performing
similar functions are beneficially owned, directly or indirectly, by the
Corporation or by any corporation or other entity that is otherwise controlled
by the Corporation.
(C) The Corporation shall not issue any shares of Series A Preferred Stock
except upon exercise of Rights is- sued pursuant to that certain Rights
Agreement, dated as of June 1, 1998, between the Corporation and State Street
Bank and Trust Company, as Rights Agent, a copy of which is on file with the
Secretary of the Corporation at its principal executive office and shall be made
available to stockholders of record without charge upon written request therefor
addressed to said Secretary. Notwithstanding the foregoing sentence, nothing
contained in the provisions hereof shall prohibit or restrict the Corporation
from issuing for any purpose any series of Preferred Stock with rights and
privileges similar to, different from, or greater than, those of the Series A
Preferred Stock.
3.1.4. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares upon their retirement and cancellation shall become authorized
but unissued shares of Preferred Stock, without designation as to series,
and such shares may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors.
8
3.1.5. Liquidation, Dissolution or Winding Up. Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock unless the holders of shares of Series
A Preferred Stock shall have received for each share of Series A Preferred
Stock, subject to adjustment as hereinafter provided, (A) $100 ($1.00 per
one one-hundredth of a share) plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date
of such payment or, (B) if greater than the amount specified in clause
(i)(A) of this sentence, an amount equal to 100 times the aggregate amount
to be distributed per share to holders of Common Stock, as the same may be
adjusted as hereinafter provided and (ii) to the holders of stock ranking
on a parity upon liquidation, dissolution or winding up with the Series A
Preferred Stock, unless simultaneously therewith distributions are made
ratably on the Series A Preferred Stock and all other shares of such parity
stock in proportion to the total amounts to which the holders of shares of
Series A Preferred Stock are entitled under clause (i)(A) of this sentence
and to which the holders of such parity shares are entitled, in each case
upon such liquida- tion, dissolution or winding up. The amount to which
holders of Series A Preferred Stock may be entitled upon liquidation,
dissolution or winding up of the Corporation pursuant to clause (i)(B) of
the foregoing sentence is hereinafter referred to as the "Participating
Liquidation Amount" and the multiple of the amount to be distributed to
holders of shares of Common Stock upon the liquidation, dissolution or
winding up of the Corporation applicable pur- suant to said clause to the
determination of the Participating Liquidation Amount, as said multiple may
be adjusted from time to time as hereinafter provided, is here- inafter
referred to as the "Liquidation Multiple". In the event the Corporation
shall at any time after the Effective Date declare or pay any dividend on
Common Stock payable in shares of Common Stock, or effect a subdivision or
split or a combination, consolidation or reverse split of the outstanding
shares of Common Stock into a greater or lesser number of shares of Common
Stock, then, in each such case, the Liquidation Multiple thereafter
applicable to the determination of the Participating Liquidation Amount to
which holders of Series A Preferred Stock shall be entitled after such
event shall be the Liquidation Multiple applicable immediately prior to
such event multiplied by a
9
fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
3.1.6. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common Stock receive after
the Effective Date in respect of their shares of Common Stock any share of
capital stock of the Corporation (other than any share of Common Stock),
whether by way of reclassification, recapitalization, reorganiza- tion,
dividend or other distribution or otherwise (a "Trans- action"), then, and
in each such event, the dividend rights, voting rights and rights upon the
liquidation, dissolution or winding up of the Corporation of the shares of
Series A Preferred Stock shall be adjusted so that after such event the
holders of Series A Preferred Stock shall be entitled, in respect of each
share of Series A Preferred Stock held, in addition to such rights in
respect thereof to which such holder was entitled immediately prior to such
adjustment, to (i) such additional dividends as equal the Dividend Multiple
in effect immediately prior to such Transaction multiplied by the
additional dividends which the holder of a share of Common Stock shall be
entitled to receive by virtue of the receipt in the Transaction of such
capital stock, (ii) such additional voting rights as equal the Vote
Multiple in effect immediately prior to such Transaction multiplied by the
additional voting rights which the holder of a share of Common Stock shall
be entitled to receive by virtue of the receipt in the Transaction of such
capital stock and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Corporation as equal the Liquidation
Multiple in effect immediately prior to such Transaction multiplied by the
additional amount which the holder of a share of Common Stock shall be
entitled to receive upon liquidation, dissolution or winding up of the
Corporation by virtue of the receipt in the Transaction of such capital
stock, as the case may be, all as provided by the terms of such capital
stock.
(B) In the event that holders of shares of Common Stock receive after
the Effective Date in respect of their shares of Common Stock any right or
warrant to purchase Common Stock (including as such a right, for all
purposes of this paragraph, any security convertible into or ex- changeable
for Common Stock) at a purchase price per share
10
less than the Fair Market Value of a share of Common Stock on the date
of issuance of such right or warrant, then and in each such event the
dividend rights, voting rights and rights upon the liquidation, dissolution
or winding up of the Corporation of the shares of Series A Preferred Stock
shall each be adjusted so that after such event the Dividend Multiple, the
Vote Multiple and the Liquidation Multiple shall each be the product of the
Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the
case may be, in effect immediately prior to such event multiplied by a
fraction the numerator of which shall be the number of shares of Common
Stock outstanding immediately before such issuance of rights or warrants
plus the maximum number of shares of Common Stock which could be acquired
upon exercise in full of all such rights or warrants and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
before such issuance of rights or warrants plus the number of shares of
Common Stock which could be purchased, at the Fair Market Value of the
Common Stock at the time of such issuance, by the maximum aggregate
consideration payable upon exercise in full of all such rights or warrants.
(C) In the event that holders of shares of Common Stock receive after
the Effective Date in respect of their shares of Common Stock any right or
warrant to purchase capital stock of the Corporation (other than shares of
Com- mon Stock), including as such a right, for all purposes of this
paragraph, any security convertible into or exchange- able for capital
stock of the Corporation (other than Common Stock), at a purchase price per
share less than the Fair Market Value of such shares of capital stock on
the date of issuance of such right or warrant, then and in each such event
the dividend rights, voting rights and rights upon liquidation, dissolution
or winding up of the Corporation of the shares of Series A Preferred Stock
shall each be adjusted so that after such event each holder of a share of
Series A Preferred Stock shall be entitled, in respect of each share of
Series A Preferred Stock held, in addition to such rights in respect
thereof to which such holder was entitled immediately prior to such event,
to receive (i) such additional dividends as equal the Dividend Multiple in
effect immediately prior to such event multiplied, first, by the additional
dividends to which the holder of a share of Common Stock shall be entitled
upon exercise of such right or warrant by virtue of the capital stock which
could be acquired upon such exercise and multiplied again by the Discount
Fraction (as hereinafter defined) and (ii) such
11
additional voting rights as equal the Vote Multiple in effect
immediately prior to such event multiplied, first, by the additional voting
rights to which the holder of a share of Common Stock shall be entitled
upon exercise of such right or warrant by virtue of the capital stock which
could be acquired upon such exercise and multiplied again by the Discount
Fraction and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Corporation as equal the Liquidation
Multiple in effect immediately prior to such event multiplied, first, by
the additional amount which the holder of a share of Common Stock shall be
entitled to receive upon liquidation, dissolution or winding up of the
Corporation upon exercise of such right or warrant by virtue of the capital
stock which could be acquired upon such exercise and multiplied again by
the Discount Fraction. For purposes of this paragraph, the "Discount
Fraction" shall be a fraction the numerator of which shall be the
difference between the Fair Market Value of a share of the capital stock
subject to a right or warrant distributed to holders of shares of Common
Stock of the Corporation as contemplated by this paragraph immediately
after the distribution thereof and the purchase price per share for such
share of capital stock pursuant to such right or warrant and the
denominator of which shall be the Fair Market Value of a share of such
capital stock immediately after the distribution of such right or warrant.
(D) For purposes of this Certificate of Incorporation, the "Fair
Market Value" of a share of capital stock of the Corporation (including a
share of Common Stock) on any date shall be deemed to be the average of the
daily closing price per share thereof over the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date;
provided, however, that, in the event that such Fair Market Value of any
such share of capital stock is determined during a period which includes
any date that is within 30 Trading Days after (i) the ex- dividend date for
a dividend or distribution on stock payable in shares of such stock or
securities convertible into shares of such stock, or (ii) the effective
date of any subdivision, split, combination, consolidation, reverse stock
split or reclassification of such stock, then, and in each such case, the
Fair Market Value shall be appropriately adjusted by the Board of Directors
of the Corporation to take into account ex-dividend or post-effective date
trading. The closing price for any day shall be the last sale price,
regular way, or, in case, no such sale takes place on such day, the average
of the closing bid and asked
12
prices, regular way (in either case, as reported in the applicable
transaction reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange), or, if the shares are not
listed or admitted to trading on the New York Stock Exchange, as reported
in the applicable transaction reporting system with respect to securities
listed on the principal national secu- rities exchange on which the shares
are listed or admitted to trading or, if the shares are not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or if on any such date the
shares are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a
market in the shares selected by the Board of Directors of the Corporation.
The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares are listed or admitted to trading
is open for the transaction of business or, if the shares are not listed or
admitted to trading on any national securities exchange, on which the New
York Stock Exchange or such other national securities exchange as may be
selected by the Board of Directors of the Corporation is open. If the
shares are not publicly held or not so listed or traded on any day within
the period of 30 Trading Days applicable to the determination of Fair
Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair
market value thereof per share as determined in good faith by the Board of
Directors of the Corporation. In either case referred to in the foregoing
sentence, the determination of Fair Market Value shall be described in a
statement filed with the Secretary of the Corporation.
3.1.7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, com- bination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or secu- rities, cash and/or any other
property, then in any such case each outstanding share of Series A
Preferred Stock shall at the same time be similarly exchanged for or
changed into the aggregate amount of stock, securities, cash and/or
other property (payable in like kind), as the case may be, for which
or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote
13
Multiple, the Dividend Multiple or the Liquidation Multiple in
effect immediately prior to such event.
3.1.8. Effective Time of Adjustments.
(A) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event
requiring such adjustments occurs.
(B) The Corporation shall give prompt written notice to each holder of
a share of Series A Preferred Stock of the effect of any adjustment to the
voting rights, dividend rights or rights upon liquidation, dissolution or
winding up of the Corporation of such shares required by the provisions
hereof. Notwithstanding the foregoing sentence, the failure of the
Corporation to give such notice shall not affect the validity of or the
force or effect of or the requirement for such adjustment.
3.1.9. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable at the option of the Corporation or any
holder thereof. Notwithstanding the foregoing sentence of this
Section, the Corporation may acquire shares of Series A Preferred
Stock in any other manner permitted by law, the provisions hereof
and the Certificate of Incorporation.
3.1.10. Ranking. Unless otherwise provided in the
Certificate of Incorporation or a Certificate of Designations
relating to a subsequent series of preferred stock of the
Corporation, the Series A Preferred Stock shall rank junior to
all other series of the Corporation's preferred stock as to the
payment of dividends and the dis- tribution of assets on
liquidation, dissolution or winding up and senior to the Common
Stock.
3.1.11. Amendment. The provisions hereof and the Certificate
of Incorporation shall not be amended in any manner which would
adversely affect the rights, privileges or powers of the Series A
Preferred Stock without, in addition to any other vote of
stockholders required by law, the affirmative vote of the holders
of two-thirds or more of the outstanding shares of Series A
Preferred Stock, voting together as a single class.
3.1.12. Fractional Shares. Series A Preferred Stock may be
issued in fractions of a share (in one one-
14
hundredths (1/100) of a share and integral multiples
thereof) that shall entitle the holder thereof, in proportion to
such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and have the
benefit of all other rights of holders of shares of Series A
Preferred Stock.
ARTICLE VI
BOARD OF DIRECTORS
SECTION 1. Number of Directors. The number of Directors shall be fixed by
the bylaws of the Corporation, but shall not be less than six nor more than
seventeen.
SECTION 2. Powers of the Board of Directors. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors selected as provided by law and the Certificate of Incorporation and
the bylaws of the Corporation. In furtherance, and not in limitation, of the
powers conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to:
(A) adopt, amend, alter, change or repeal bylaws of the Corporation;
provided, however, that no bylaw hereafter adopted shall invalidate any
prior act of the Corporation that would have been valid if such new bylaws
had not been adopted;
(B) subject to the bylaws as from time to time in effect, determine
the rules and procedures for the conduct of the business of the Board of
Directors and the management and direction by the Board of Directors of the
business and affairs of the Corporation, including the power to designate
and empower committees of the Board of Directors, to elect, or authorize
the appointment of, and empower officers and other agents of the
Corporation, and to determine the time and place of, the notice
requirements for, and the manner of conducting, Board meetings, as well as
other notice requirements for, and the manner of taking, Board action; and
(C) exercise all such powers and do all such acts as may be exercised
or done by the Corporation, subject to the provisions of the Corporation
Law and the
15
Certificate of Incorporation and bylaws of the Corporation.
SECTION 3. Classified Board of Directors. The directors, other than those
who may be elected solely by the holders of shares of any class or series of
stock having a preference over the common stock of the Corporation as to
dividends or to distributions upon liquidation or dissolution and winding-up of
the Corporation pursuant to the terms of Article V of the Certificate of
Incorporation of the Corporation, shall be classified, with respect to the time
for which they severally hold office, into three classes, with each class to
hold office until its successors are elected and qualified. Subject to the
rights of the holders of any series of Preferred Stock, at each annual meeting
of the stockholders, the successors of the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election.
SECTION 4. Vacancies. Except as otherwise required by law and subject to
the rights of the holders of any series of Preferred Stock, any vacancy in the
Board of Directors for any reason and any newly created directorship resulting
by reason of any increase in the number of directors may be filled only by the
Board of Directors (and not by the stockholders), by resolution adopted by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum (or by a sole remaining director); provided, however,
that if not so filled, any such vacancy shall be filled by the stockholders at
the next annual meeting or at a special meeting called for that purpose. Any
director so appointed shall hold office until the next meeting of stockholders
at which directors of the class for which such director has been chosen are to
be elected and until his or her successor is elected and qualified.
SECTION 5. Removal of Directors. Except as may be provided in respect of
any series of Preferred Stock pursuant to Article V with respect to any
directors elected solely by the holders of such series of Preferred Stock, any
director (including all members of the Board of Directors) may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of all of the shares of capital
16
stock of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class. For the purposes of this Section
5, "cause" shall mean the wilful and continuous failure of a director to
substantially perform such director's duties to the Corporation (other than any
such failure resulting from incapacity due to physical or mental illness) or the
wilful engaging by a director in gross misconduct materially and demonstrably
injurious to the Corporation.
ARTICLE VII
STOCKHOLDER ACTIONS AND MEETINGS OF STOCKHOLDERS
Subject to the rights of the holders of any series of Preferred Stock, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of such holders and
may not be effected by written consent in lieu of a meeting of such holders.
Subject to the rights of the holders of any series of Preferred Stock, special
meetings of stockholders of the Corporation may be called only by the Chairman
of the Board of Directors of the Corporation or the Board of Directors pursuant
to a resolution adopted by a majority of the members of the Board of Directors
then in office. Elections of directors need not be by written ballot, unless
otherwise provided in the bylaws. For purposes of all meetings of stockholders,
a quorum shall consist of a majority of the shares entitled to vote at such
meeting of stockholders, unless otherwise required by law or, in respect of a
meeting of the holders of any series of Preferred Stock, by the provisions of
Section 3 of Article V.
ARTICLE VIII
LIMITATION ON LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, including
without limitation for serving on a committee of the Board of Directors;
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing
17
violation of law, (iii) arising under Section 174 of the Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit. Any amendment, repeal or modification of this Article VIII shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
amendment, repeal or modification.
ARTICLE IX
CERTAIN BUSINESS COMBINATIONS
SECTION 1. Vote Required for Certain Business Combinations. Except as
otherwise expressly provided in Section 2 of this Article, in addition to any
affirmative vote required by law or by any other provision of the Certificate of
Incorporation of the Corporation, the affirmative vote of the holders of not
less than 80% of the outstanding shares of "Voting Stock" (as hereinafter
defined) of the Corporation voting together as a single class shall be required
for the approval or authorization of any "Business Combination" (as hereinafter
defined) of the Corporation with any "Related Person" (as hereinafter defined).
For the purpose of this Article:
(A) The term "Business Combination" shall mean (1) any merger or
consolidation of the Corporation or a Subsidiary (as hereinafter defined)
of the Corporation with or into a Related Person or of a Related Person
with or into the Corporation or a Subsidiary of the Corporation; (2) any
sale, lease, exchange, transfer, or other disposition, including, without
limitation, a mortgage or any other hypothecation or transfer as
collateral, of all or any "Substantial Part" (as hereinafter defined) of
the assets either of the Corporation (including, without limitation, any
voting securities of a Subsidiary) or of a Subsidiary of the Corporation to
a Related Person; (3) the issuance of any securities (other than by way of
a distribution to stockholders made pro rata to all holders of the class of
stock to receive the distribution) of the Corporation or a Subsidiary of
the Corporation to a Related Person; (4) the acquisition by the Corporation
or a Subsidiary of the Corporation of any securities of a Related Person;
(5) any recapitalization that would have the effect, directly or
indirectly, of increasing the voting power of a Related Person; (6) any
merger of
18
the Corporation into a Subsidiary of the Corporation; or (7) any
agreement, contract, or other arrangement providing for any of the
transactions described in this definition of "Business Combination."
(B) The term "Continuing Director" shall mean any member of the Board
of Directors who is neither Affiliated (as defined below) nor Associated
(as defined below) with the Related Person and who was a member of the
Board of Directors prior to the time that the Related Person became a
Related Person, and any successor of a Continuing Director who is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then members of the Board of Directors.
(C) The term "Related Person" shall mean and include any individual,
corporation, partnership, or other person or entity which, together with
its "Affiliates" and "Associates," "Beneficially Owns" (as hereinafter
defined), in the aggregate ten percent (10%) or more of the outstanding
Voting Stock of the Corporation, and any Affiliate or Associate of any such
individual, corporation, partnership, or other person or entity.
(D) The term "Substantial Part" shall mean more than 80% of the book
value of the total consolidated assets of the Corporation as reported in
the consolidated financial statements of the Corporation and its
subsidiaries as of the end of its most recent fiscal year ending prior to
the time as of which a "Substantial Part" is to be determined.
(E) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the Corporation entitled to vote generally in the election
of directors of the Corporation and each reference to a percentage of
shares of Voting Stock shall refer to such percentage of the votes entitled
to be cast by such shares.
(F) The terms "Affiliate" and "Associate" shall have the meanings set
forth in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect
on the Effective Date (as defined in subsection 2.6).
19
(G) The term "Beneficially Owns" shall have the meaning set forth in
Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on the
Effective Date (as defined in subsection 2.6), provided, however, that, any
shares of Voting Stock of the Corporation that any Related Person has the
right to acquire pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise, shall be deemed Beneficially
Owned by the Related Person whether immediately exercisable or exercisable
within ten years of the date as of which Beneficial Ownership is to be
determined.
(H) The term "Subsidiary" with respect to the Corporation shall mean
any corporation, partnership, limited liability company, business trust or
similar entity in which a majority of any class of any equity security is
owned directly or indirectly by the Corporation.
SECTION 2. When Higher Vote is Not Required. The provisions of Section 1 of
this Article shall not be applicable to any particular Business Combination and
such Business Combination shall require only such affirmative vote as may be
required by law or by any other provision of this Certificate of Incorporation
of the Corporation, if all of the conditions specified in either of the
following paragraphs (A) or (B) are met:
(A) the Business Combination shall have been approved by a vote of not
less than a majority of the Continuing Directors, or
(B) all of the following conditions shall have been met:
(1) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the
Business Combination of the consideration, other than cash, to be
received per share by holders of Common Stock in such Business
Combination shall be at least equal to the highest of the following:
(a) if applicable, the highest price per share (including
any brokerage commissions, transfer taxes, and soliciting
dealers' fees) paid by the Related Person for
20
any shares of Common Stock acquired by it (i) within the two
year period immediately prior to the first public announcement of
the proposal of the Business Combination (the "Announcement
Date") or (ii) in the transaction in which it became a Related
Person; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Related Person
became a Related Person (such latter date is referred to in this
Article as the "Determination Date"), whichever is higher; and
(2) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of the consideration, other than cash,
to be received per share by holders of shares of any class
or series of outstanding Voting Stock, other than Common
Stock, shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (B)(2) shall be required to be met with respect
to every class or series of outstanding capital stock of the
Corporation other than Common Stock, whether or not the
Related Person has previously acquired any shares of such
class or series of Voting Stock):
(a) if applicable, the highest per share price
(including any brokerage commission, transfer taxes, and
soliciting dealers' fees) paid by the Related Person for any
shares of such class or series of Voting Stock acquired by
it (i) within the two year period immediately prior to the
Announcement Date or (ii) in the transaction in which it
became a Related Person, whichever is higher; or
(b) if applicable, the Redemption Price (as hereinafter
defined) of the shares of such class or series, or if such
shares have no Redemption Price, the highest amount per
share which such class or series would be entitled to
receive upon liquidation of the
21
Corporation on the Announcement Date or the
Determination Date, whichever is higher; or
(c) the Fair Market Value per share of such class or
series of Voting stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(3) the consideration to be received in such Business
Combination by holders of each class or series of
outstanding Voting Stock (including Common stock) shall be
in cash or in the same form as the Related Person has
previously paid for shares of such class or series of Voting
Stock; provided, however, that if the Related Person has
paid for shares of any class or series of Voting Stock with
varying forms of consideration, the form of consideration
for such class or series of Voting Stock shall be either
cash or the form used to acquire the largest number of
shares of such class or series of Voting Stock previously
acquired by it; and
(4) a proxy statement responsive to the requirements of
the Securities Exchange Act of 1934, as amended, shall have
been mailed to public stockholders of the Corporation for
the purpose of soliciting stockholder approval of the
Business Combination and shall have contained at the front
thereof, in a prominent place, any recommendations as to the
advisability (or inadvisability) of the Business Combination
that the Continuing Directors, or any of them, may choose to
state and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment
banking firm as to the fairness (or not) of the terms of the
Business Combination, from the point of view of the
remaining public stockholders of the Corporation (such
investment banking firm to be selected by a majority of the
Continuing Directors and to be paid a reasonable fee for
their services by the Corporation upon receipt of the
opinion).
SECTION 3. Certain Definitions and Additional Provisions. For the purposes
of this Article:
(A) "Fair Market Value" shall mean:
22
(1) in the case of stock, the highest closing sale price during
the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on
which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date in
question on the NASDAQ National Market or any quotations system then
generally in use, or, if no such quotations are available, the Fair
Market Value on the date in question of a share of such stock as
determined by the Continuing Directors in good faith, which
determination shall be final; and
(2) in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as determined by
the Continuing Directors in good faith, which determination shall be
final.
(B) The Board of Directors, with the approval of a majority of the
total number of Continuing Directors, shall have the power and duty to
determine, on the basis of information known to it after reasonable
inquiry, all facts necessary to determine compliance with this Article,
including, without limitation, (i) whether a person is a Related Person,
(ii) the number of shares of Voting Stock Beneficially Owned by any person,
(iii) whether a person is an Affiliate or Associate of another person,
(iv) whether the applicable conditions set forth in paragraph (B) of
Section 2 have been met with respect to any Business Combination, and
(v) whether the proposed transaction is a Business Combination. Any such
determinations shall be final.
SECTION 4. Amendment of this Article. This Article may be amended, altered,
changed, or repealed only by the affirmative vote of the holders of at least 80%
of the outstanding shares of Voting Stock voting together as a
23
single class unless the proposed amendment, alteration, change, or repeal
has been recommended to the stockholders by the Board of Directors with the
approval of at least two-thirds of the Continuing Directors, in which event the
proposed amendment, alteration, change, or repeal shall require for approval the
affirmative vote of the holders of at least 66 2/3% of the outstanding shares of
Voting Stock, voting as a single class.
ARTICLE X
BYLAWS
The Board of Directors shall have the power to adopt, amend, alter, change
or repeal bylaws of and for the Corporation by the affirmative vote of 662/3% of
the members then in office. The affirmative vote of the holders of at least 80%
of the voting power of all of the shares of capital stock of the Corporation
then entitled to vote generally in the election of directors, voting together as
a single class shall be required to adopt, amend, alter, change or repeal bylaws
of the Corporation (notwithstanding the fact that approval by a lesser
percentage may be permitted by the Corporation Law).
ARTICLE XI
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right from time to time to amend,
alter, change or repeal any provision contained in the Certificate of
Incorporation of the Corporation in any manner permitted by the Corporation Law
and all rights and powers conferred upon stockholders, directors and officers
herein are granted subject to this reservation. In addition to any vote
otherwise required by law, and except as may otherwise be provided in Article V
or IX hereof, any such amendment, alteration, change or repeal shall require
approval of both (i) the Board of Directors by the affirmative vote of a
majority of the members then in office and (ii) the holders of a majority of the
voting power of all of the shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, except that any proposal to amend, alter, change or repeal the provisions
of Section 3 of Article VI, Section 5 of Article VI, Article VII, Article X and
this Article XI shall require the affirmative vote of the holders of 80% of the
voting power of all of the shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
24
IN WITNESS WHEREOF, this Restated Certificate of Incorporation which
restates, integrates and amends the provisions of the certificate of
incorporation of the Corporation, and which has been duly adopted by written
consent of the sole stockholder of the Corporation in accordance with the
provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law,
has been executed by Thomas O. McGimpsey, its Assistant Secretary, this 12th day
of June, 1998.
U S WEST, INC.
/s/ THOMAS O. MCGIMPSEY
By:
Name: Thomas O. McGimpsey
Title: Assistant Secretary
25
EXHIBIT 10(e)(1)
AMENDMENT NO. 1 TO CREDIT AGREEMENTS
AMENDMENT dated as of June 30, 1998 to the 364-Day Credit Agreement
dated as of May 8, 1998 and the Five-Year Credit Agreement dated as of May 8,
1998 (individually a "Credit Agreement" and together, the "Credit Agreements")
among U S WEST CAPITAL FUNDING, INC. (the "Borrower"), U S WEST, INC. (formerly
named USW-C, Inc.), the BANKS listed on the signature pages thereto (the
"Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent
(the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreements to
modify a condition to borrowing;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in a Credit Agreement has
the meaning assigned to such term in such Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in a Credit Agreement shall, after this Amendment becomes effective,
refer to such Credit Agreement as amended hereby.
SECTION 2. Amendment of Section 5.06(a). Section 5.06(a) of each of the
Credit Agreements is amended and restated in its entirety to read as follows:
(a) Prior to the Separation, total Debt of all Consolidated
Subsidiaries (excluding Debt of (i) the Borrower and (ii) a
Consolidated Subsidiary to the Company or to a Wholly-Owned
Consolidated Subsidiary) ("Subsidiary Debt") will at no time exceed
250% of Consolidated Net Worth.
SECTION 3. Representations of Borrower. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set forth
in Article 4 of each Credit Agreement will be true on and as of the Amendment
Effective Date and (ii) no Default will have occurred and be continuing on such
date.
<PAGE>
SECTION 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 6. Effectiveness. This Amendment shall become effective as of
the date hereof on the date (the "Amendment Effective Date") when the Agent
shall have received from each of the Borrower and the Required Banks (as defined
in each Credit Agreement) a counterpart hereof signed by such party or facsimile
or other written confirmation (in form satisfactory to the Agent) that such
party has signed a counterpart hereof;
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
U S WEST CAPITAL FUNDING, INC.
By /s/ Thomas. O McGimpsey
Title: Assistant Secretary
U S WEST, INC.
(FORMERLY NAMED USW-C, INC.)
By /s/ Thomas O. McGimpsey
Title: Assistant Secretary
<PAGE>
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ John M. Mikolay
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Doug Meckelnburg
Title: Vice President
THE CHASE MANHATTAN BANK
By /s/ Ann B. Kerns
Title: Vice President
MELLON BANK, N.A.
By /s/ David McGowan
Title: Vice President
<PAGE>
ABN AMRO BANK N.V.
By /s/ Thomas M. Toerpe
Title: Vice President
By /s/ Roxana Sopala
Title: Vice President
THE BANK OF NEW YORK
By /s/ James W. Whitaker
Title: Vice President
BANK ONE, COLORADO, N.A.
By /s/ David L. Ericson
Title: Vice President
CITIBANK, N.A.
By /s/ P. M. Chonkar
Title: Attorney-In-Fact
KEYBANK NATIONAL ASSOCIATION
By /s/ Mary Young
Title: Commercial Banking Officer
<PAGE>
NATIONSBANK, N.A.
By /s/ Anthony M. Cacheria
Title: Senior Vice President
COMMERZBANK AG LOS ANGELES
BRANCH
By /s/ Christian Jagenberg
Title: Senior Vice President and Manager
By /s/ John Korthuis
Title: Vice President
FLEET NATIONAL BANK
By /s/ Sue Anderson
Title: Vice President
CANADIAN IMPERIAL BANK OF
COMMERCE
By /s/ Gerald Girardi
Title: Executive Director
CIBC Oppenheimer Corp.,
As Agent
<PAGE>
BANKERS TRUST COMPANY
By /s/ Gina S. Thompson
Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO
By /s/ Michael J. Harrington
Title: Corporate Banking Officer
KBC BANK N.V.
By /s/ Robert Snauffer
Title: First Vice President
By /s/ Marcel Claes
Title: Deputy General Manager
THE ROYAL BANK OF SCOTLAND PLC
By /s/ R.A. Green
Title: Senior Relationship Manager
<PAGE>
WELLS FARGO BANK, N.A.
By /s/ Catherine M. Wallace
Title: Vice President
By /s/ Donald A. Hartmann
Title: Senior Vice President
BANK OF HAWAII
By /s/ Eric N. Pelletier
Title: Vice President
BARCLAYS BANK PLC
By /s/ Les Bek
Title: Director
BAYERISCHE LANDESBANK
GIROZENTRALE CAYMAN ISLANDS
BRANCH
By /s/ Alexander Kohnert
Title: Vice President
By /s/ James H. Boyle
Title: Second Vice President
<PAGE>
BAYERISCHE HYPO-UND
VEREINSBANK AG
By /s/ P.M. Tresnan
Title: Vice President
By /s/ Steve Atwell
Title: Vice President
LEHMAN COMMERCIAL PAPER INC.
By /s/ Michele Swanson
Title: Authorized Signatory
MERRILL LYNCH CAPITAL
CORPORATION
By /s/ Robert Stevens
Title: Vice President
NORWEST BANK COLORADO,
NATIONAL ASSOCIATION
By /s/ Carol A. Ward
Title: Vice President
THE TOKAI BANK, LIMITED
By /s/ Masahiko Saito
Title: Senior Vice President and
Assistant General Manager
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By /s/ Scott E. Page
Title: Vice President
BANQUE NATIONALE DE PARIS
By /s/ Mitchell M. Ozawa
Title: Vice President
By /s/ Marc T. Schaefer
Title: Assistant Vice President
ROYAL BANK OF CANADA
By /s/ John P. Page
Title: Senior Manager
ISTITUTO BANCARIO SAN PAOLO DI
TORINO S.P.A.
By
Name:
Title:
By
Name:
Title:
<PAGE>
THE PROVIDENT BANK.
By /s/ Tom B. Scherpenberg
Title: Vice President
EXHIBIT 10(l)
Dated June 12, 1998
U S WEST 1998 BROAD BASED STOCK OPTION PLAN
I. Purpose.
The U S WEST 1998 Broad Based Stock Option Plan (the "Plan"), is intended to
promote the long term success of U S WEST, Inc. (the "Company"), by affording
certain Eligible Employees of the Company with an opportunity to acquire a
proprietary interest in the Company, in order to provide incentives to employees
and to align the financial interests of these employees with the shareholders of
the Company. This Plan is a successor plan of the U S WEST Communications Group
1997 Stock Option Plan (the "Predecessor Plan"). This Plan is effective only
upon consummation of the Separation (as defined herein).
II. Separate Plan.
The Plan is separate and distinct from the U S WEST 1998 Stock Plan.
III. Definitions.
The following defined terms are used in this Plan:
A. "Agreement" shall mean the agreement accepted by the
Participant as described in Section VIII of this Prospectus between the
Company and a Participant, under which the Participant receives an
Option pursuant to the Plan.
B. "Board" or "Board of Directors" shall mean the Board of
Directors of the Company.
C. "Change of Control" shall mean any of the following:
1. any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) who 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;
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.
D. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
E. "Committee" shall mean the Employee Benefits Committee or
its delegates, as applicable, pursuant to provisions of Section IV of
this Prospectus.
F. "Common Stock" shall mean the common stock, $.01 par value,
issued by the Company.
G. "Company" shall mean U S WEST, Inc., a Delaware corporation
(previously known as "USW-C, Inc."), and any successor thereof.
H. "Disabled" or "Disability" shall mean long-term disability
as determined under the provisions of any U S WEST disability plan
maintained for the benefit of Eligible Employees of the Company or any
Related Entity.
I. "Eligible Employee" shall mean any employee of the Company
or any Related Entity, excluding Officers, who the Committee selects to
receive an Option and who is so employed on the date of the grant of an
Option.
J. "Employee Benefits Committee" shall mean a committee of the
Company which shall administer the Plan as provided in Section IV
hereof, and consisting of employees of the Company or any Related
Entity who are appointed by the Human Resources Committee.
K. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
L. "Fair Market Value" shall mean the closing price of a share
of stock as reported on the New York Stock Exchange for the applicable
date, or if there were no sales on such date, on the last day on which
there were sales.
M. "Human Resources Committee" shall mean the Human Resources
Committee of the Board.
N. "Nonqualified Option" shall mean an Option that does not
qualify as an incentive stock option under Section 422 of the Code.
O. "Officer" shall mean any executive of the Company or any
Related Entity who is eligible to participate in the Company's
executive compensation programs.
P. "Option" shall mean an option granted by the Company to
purchase Common Stock pursuant to the provisions of this Prospectus.
Q. "Optionee" shall mean a Participant to whom one or more
Options have been granted.
R. "Option Price" shall mean the price per share payable to
the Company for shares of Common Stock upon the exercise of an Option.
S. "Parent Corporation" shall mean any corporation within the
meaning of Section 424(e) of the Code.
T. "Participant" shall mean an Eligible Employee.
U. "Plan" shall mean the U S WEST 1998 Broad Based Stock
Option Plan, as described in this Prospectus.
V. "Related Entity" shall mean any Parent Corporation or
Subsidiary of the Company.
W. "Retirement" shall mean, with respect to any Eligible
Employee, that such person has terminated employment with the Company
or any Related Entity other than "for cause" (as defined in subsection
IX.C.(v)) and (i) such person is eligible to receive an immediate
service pension benefit under the U S WEST Pension Plan or (ii) such
person would be eligible to receive an immediate service pension
benefit under the U S WEST Pension Plan, as amended and restated
effective January 1, 1993, had that plan not been amended and restated
effective January 1, 1997 or (iii) such person specifically is treated
as "retired" for purposes of the Plan under any individually
negotiated, custom, written agreement or arrangement between the
Company or any Related Entity and the Eligible Employee. "Retirement"
shall not apply to any Eligible Non-Employee.
X. "Securities Act" shall mean the Securities Act of 1933 as
amended.
Y. "Subsidiary" shall mean any corporation, joint venture or
partnership in which the Company owns, directly or indirectly, (i) with
respect to a corporation, stock possessing twenty percent (20%) or more
of the total combined voting power of all classes of stock in the
corporation or (ii) in the case of a joint venture or partnership, the
Company possesses a twenty percent (20%) interest in the capital or
profits of such joint venture or partnership.
Z. "Vested" shall mean the status that results with respect to
an Option that may be exercised immediately under the terms of the
Agreement granting such Option pursuant to the provisions of the Plan
or by action of the Committee.
IV. Administration.
A. The Plan shall be administered by the Committee. The Committee may
adopt such rules, regulations and guidelines as it determines necessary for the
administration of the Plan.
B. The Committee may delegate to one or more of its members, or to one
or more agents, such duties as it may deem advisable, and may itself or through
its delegate employ an advisor to render advice with respect to any
responsibility it may have under the Plan. The Committee may employ such legal
or other counsel, consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion or computation received
from any such counsel, consultant or agent. Expenses incurred in the engagement
of such counsel, consultant or agent shall be paid by the Company or such
Related Entity whose employees have benefited from the Plan, as determined by
the Committee. The Company shall indemnify members of the Committee and any
agent of the Committee who is an employee of the Company or a Related Entity
against any and all liabilities or expenses to which they may be subjected by
reason of any act or failure to act with respect to their duties on behalf of
the Plan, except in circumstances involving such person's gross negligence or
willful misconduct.
C. In furtherance of and not in limitation of the Committee's
discretionary authority, the Committee shall have the authority to:
1. determine the Participants to whom Options shall be granted
and the number of and terms and conditions upon which Options shall be
granted (which need not be the same for all Options);
2. determine the time when Options shall be granted, the
Option Price of each Option, the period(s) during which Options shall
be exercisable (whether in whole or in part), the restrictions to be
applicable to Options, and the other terms and provisions of Options;
3. modify grants of Options pursuant to Paragraph D of this
Section IV or rescind grants of Options pursuant to Section IX(C)(v),
respectively;
4. provide the establishment of a procedure whereby a number
of shares of Common Stock or other securities may be withheld from the
total number of shares of Common Stock to be issued upon exercise of an
Option, to meet the obligation of withholding for income tax, social
security and other taxes incurred by a Participant upon such exercise
or required to be withheld by the Company in connection with such
exercise;
5. adopt, modify and rescind rules, regulations and guidelines
relating to the Plan;
6. adopt modifications to the Plan and procedures as may be
necessary to comply with provisions of the laws and applicable
regulatory rulings of countries in which the Company or a Related
Entity operates to assure the legality of Options granted under the
Plan to Participants who reside in such countries;
7. make all determinations, perform all other acts, exercise
all other powers and establish any other procedures determined by the
Committee to be necessary, appropriate or advisable in administering
the Plan and to maintain compliance with any applicable law.
D. The Committee may at any time, in its sole discretion, accelerate
the exercisability of any Options and waive or amend any and all restrictions
and conditions of any Options.
V. Decisions Final.
Any decision, interpretation or other action made or taken in good faith by
the Committee arising out of or in connection with the Plan shall be final,
binding and conclusive on the Company and all Participants and their respective
heirs, executors, administrators, successors and assigns.
VI. Arbitration.
Any agreement may contain, among other things, provisions that require
binding arbitration of any and all disputes between a Participant and the
Company or any Related Entity, in a form or forms acceptable to the Committee,
in its sole discretion.
VII. Shares Available _ Limitations.
A. Up to 6,000,000 shares of Common Stock may be granted under the
Plan.
VIII. Stock Option Agreements.
Each grant of an Option under this Plan shall be evidenced by an
Agreement dated as of the date of the grant of the Option. Agreements under the
Predecessor Plan are hereby assumed by the Company and shall be deemed
Agreements under this Plan. Such Agreement shall set forth the terms and
conditions of the Option, as may be determined by the Committee. Each grant of
an Option is conditioned upon the acceptance by the Participant of the terms of
the Agreement. Unless otherwise extended by the Committee, a Participant shall
have ninety (90) days from the date of the Agreement to accept its terms.
IX. Option Terms.
A. Term of Option. No Option shall be exercisable after the
expiration of ten (10) years from the date of grant of the Option.
B. Exercise of Stock Option. Each Option shall be exercisable
in one or more installments as the Committee in its sole discretion may
determine at the time of the Option grant and as provided in the
Agreement. The right to purchase shares shall be cumulative so that
when the right to purchase any shares has accrued such shares or any
part thereof may be purchased at any time thereafter until the
expiration or termination of the Option. The Option Price shall be
payable (i) in cash or by an equivalent means acceptable to the
Committee, (ii) by delivery (constructive or otherwise) to the Company
of shares of Common Stock owned by the Optionee or (iii) by any
combination of the above as provided in the Agreement. Shares delivered
to the Company in payment of the Option Price shall be valued at the
Fair Market Value on the date of the exercise of the Option.
C. Vesting. The Agreement shall specify the date or dates on
which the Optionee may begin to exercise all or a portion of his
Option. Subsequent to such date or dates, the Option shall be deemed
Vested and fully exercisable.
(i) Death. In the event of the death of any Optionee,
all Options held by such Optionee on the date of his or her
death shall become Vested Options and the estate of such
Optionee, shall have the right, at any time and from time to
time within one year after the date of death, or such other
period, if any, as the Committee in its sole discretion may
determine, to exercise the Options of the Optionee (but not
after the expiration date of the Option).
(i) Disability. If the employment of any Optionee is
terminated because of Disability, all Options held by such
Optionee on the date of his or her termination shall be
retained by such Optionee, and such Options that are not yet
Vested Options shall become Vested Options in accordance with
the vesting schedule established at the time such Options were
issued. The Optionee shall have the right to exercise Vested
Options at any time and from time to time, but not after the
expiration date of the Option.
(iii) Retirement. Upon an Optionee's Retirement, all
Options held by such Optionee on the date of his or her
Retirement shall be retained by such Optionee, and such
Options that are not yet Vested Options shall become Vested
Options in accordance with the vesting schedule established at
the time such Options were issued, unless the Committee, in
its sole discretion, determines otherwise. The Optionee shall
have the right to exercise Vested Options at any time and from
time to time, but not after the expiration date of the Option.
(iv) Other Termination. If the employment with the
Company or a Related Entity of an Optionee is terminated for
any reason other than for death, Disability or Retirement and
other than "for cause" as defined in subparagraph (v) below,
such Optionee shall have the right, in the case of a Vested
Option, for a period of three (3) months after the date of
such termination or such longer period as determined by the
Committee, to exercise any such Vested Option, but in any
event not after the expiration date of any such Option.
(v) Termination For Cause. Notwithstanding any other
provision of the Plan to the contrary, if the Optionee's
employment is terminated by the Company or any Related Entity
"for cause" (as defined below), such Optionee immediately
shall forfeit all rights under his or her Options except as to
the shares of Common Stock already purchased prior to such
termination. Termination "for cause" shall mean (unless
another definition is agreed to in writing by the Company and
the Optionee) termination by the Company because of: (a) the
Optionee's willful and continued failure substantially to
perform his or her duties (other than any such failure
resulting from the Optionee's incapacity due to physical or
mental impairment) after a written demand for substantial
performance is delivered to the Optionee by the Company, which
demand specifically identifies the manner in which the Company
believes the Optionee has not substantially performed his or
her duties, (b) the willful conduct of the Optionee that is
demonstrably and materially injurious to the Company or
Related Entity, monetarily or otherwise, or (c) the conviction
of the Optionee for a felony by a court of competent
jurisdiction.
X. Foreign Options and Rights.
The Committee may grant Options to Eligible Employees who are subject to the
tax laws of nations other than the United States, which Options may have terms
and conditions as determined by the Committee as necessary and appropriate to
comply with applicable foreign laws. The Committee may take any action which it
deems advisable to obtain approval of such Option by the appropriate foreign
governmental entity; provided, however, that no such Option may be granted
pursuant to this Section X and no action may be taken that would result in a
violation of the Exchange Act, the Code or any other applicable law.
XI. Change of Control Acceleration.
Upon the occurrence of a Change of Control each outstanding Option
automatically and immediately shall become fully exercisable by the Participant.
XII. Adjustment of Shares.
In the event there is any change in the Common Stock by reason of any
consolidation, combination, liquidation, reorganization, recapitalization, stock
dividend, stock split, split-up, split-off, spin-off, combination of shares,
exchange of shares or other like change in capital structure of the Company, the
number or kind of shares or interests subject to an Option and the per share
price or value thereof shall be adjusted by the Committee appropriately at the
time of such event, provided that each Participant's economic position with
respect to the Option shall not, as a result of such adjustment, be worse than
it had been immediately prior to such event. Any fractional shares or interests
resulting from such adjustment shall be rounded up to the next whole share of
Common Stock.
XIII. Miscellaneous Provisions.
A. Assignment or Transfer. No grant of any "derivative security" (as defined by
Rule 16a-1(c) under the Exchange Act) made under the Plan or any rights or
interests therein shall be assignable or transferable by a Participant except by
last will and testament or the laws of descent and distribution and except to
the extent it is otherwise permissible under the Exchange Act. No grant of any
"derivative security" shall be assignable or transferable pursuant to a domestic
relations order. During the lifetime of a Participant, Options granted hereunder
shall be exercisable only by the Participant, the Participant's guardian or his
or her legal representative.
B. Investment Representation; Legends. No shares of Common Stock shall be
issued pursuant to an Option until all applicable securities law and other legal
and stock exchange requirements have been satisfied. The Committee may require
the placing of stop-orders and restrictive legends on certificates for Common
Stock as it deems appropriate.
C. Withholding Taxes. The Company, as a condition of the distribution of Common
Stock hereunder, may require the payment (through withholding from the
Participant's salary, payment of cash by the Participant, reduction of the
number of shares of Common Stock or other securities to be issued, or otherwise)
of any federal, state, local or foreign taxes required by law to be withheld
with respect to such distribution.
D. Costs and Expenses. The costs and expenses of administering the Plan shall
be borne by the Company and shall not be charged against any Option or against
any Participant receiving an Option.
E. Other Incentive Plans. The adoption of the Plan does not preclude the
adoption by appropriate means of any other incentive plan for employees.
F. Effect on Employment. Nothing contained in this Plan or any related
agreement or referred to in the Plan shall affect, or be construed as affecting,
the terms of employment of any Participant except to the extent specifically
provided. Nothing contained in the Plan or any agreement related hereto or
referred to herein shall impose, or be construed as imposing, an obligation on
(i) the Company or any Related Entity to continue the employment of any
Participant or (ii) any Participant to remain in the employ of the Company or
any Related Entity.
G. Noncompetition. Any Agreement may contain, among other things, provisions
prohibiting Participants from competing with the Company or any Related Entity
in a form or forms acceptable to the Committee, in its sole discretion.
H. Governing Law. This Plan and actions taken in connection herewith shall be
governed and construed in accordance with the laws of the State of Colorado.
XIV. Amendment or Termination of Plan.
The Committee shall have the right to amend, modify, suspend or terminate
the Plan at any time.
DESCRIPTION OF SEPARATION
This Plan is effective only upon consummation of the separation of U S
WEST, Inc. ("Old U S WEST") into two independent companies (the "Separation").
Old U S WEST currently conducts its business through two groups, the U S WEST
Communications Group and the U S WEST Media Group. Upon consummation of the
Separation, USW-C, Inc. (to be renamed "U S WEST, Inc." at Separation and
referred to in this Prospectus as "U S WEST" or the Company) will become a
separately-traded company and will conduct the business of the U S WEST
Communications Group and the domestic directories business of the U S WEST Media
Group. The Separation is expected to occur in June of 1998.
EXHIBIT 10(m)
U S WEST
DEFERRED COMPENSATION PLAN
Amended and Restated Effective as of June 12, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Page
PREAMBLE 1
ARTICLE I DEFINITIONS 1
ARTICLE II PARTICIPATION 3
Section 2.1 Eligibility to Participate 3
Section 2.2 Election of Deferred Compensation 3
Section 2.3 Participants' Accounts 4
ARTICLE III DEFERRED ACCOUNTS 4
Section 3.1 Crediting of Deferrals--Cash Account 4
Section 3.2 Crediting of Deferrals--Company Shares Account 4
Section 3.3 Transferring Shares Between Accounts 4
Section 3.4 Dividends on Company Shares Accounts 4
Section 3.5 Cash Account 4
Section 3.6 Change in Outstanding Shares 5
ARTICLE IV MATCHING COMPANY CONTRIBUTIONS 5
Section 4.1 Funds Eligible for Company Match 5
Section 4.2 Forfeiture of Company Match 5
Section 4.3 Company Match Investment 5
ARTICLE V DISTRIBUTION 5
Section 5.1 Timing of Distribution 5
Section 5.2 Form of Distribution 6
Section 5.3 Automatic Lump Sum Distribution 6
Section 5.4 Distribution to Beneficiaries 6
Section 5.5 Unforeseeable Emergency 7
ARTICLE VI CHANGE IN CONTROL 7
Section 6.1 Change in Control 7
Section 6.2 Change in Control Defined 8
ARTICLE VII MISCELLANEOUS 9
Section 7.1 Satisfaction of Interests 9
Section 7.2 Inalienability of Benefits 9
Section 7.3 Effect on Employment 9
Section 7.4 Taxation 9
Section 7.5 Amendment or Termination 10
Section 7.6 Binding Effect 10
Section 7.7 Status of Participants 10
Section 7.8 Governing Law 10
Section 7.9 Federal Securities Law 10
ARTICLE VIII CLAIMS PROCEDURE 11
Section 8.1 Disputes 11
Section 8.2 Submission of Claims 11
Section 8.3 Denial of Claim 11
Section 8.4 Adequate Notice 11
Section 8.5 Review of Claim 11
Section 8.6 Decision on Claim 11
SIGNATURE PAGE 12
</TABLE>
<PAGE>
U S WEST
DEFERRED COMPENSATION PLAN
PREAMBLE
U S WEST, Inc. maintains the U S WEST Deferred Compensation Plan (the
"Plan") to permit Eligible Employees, and New Executives to defer a portion of
their compensation and to provide a "matching credit" with respect to all or a
portion of such deferred compensation. As of the Separation Time, U S WEST, Inc.
and the Plan shall have no liability for benefits accrued under the Plan by
individuals who participated in the Plan prior to the Separation Time but who
are employees of MediaOne Group, Inc. at the Separation Time; MediaOne Group,
Inc. and the MediaOne Group Deferred Compensation Plan shall assume all such
liabilities.
The Plan is intended to be a nonqualified deferred compensation
"top-hat" plan for "a select group of management or highly compensated
employees," as that phrase is used in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). This amended and restated Plan is effective
as of the Separation Time.
ARTICLE I
DEFINITIONS
1.1 "Administrator" means the Vice President-Law and Human Resources of
the Company or his or her delegate (or, in the event the Plan benefits of the
Vice President-Law and Corporate Human Resources are directly or indirectly
impacted by any claim for benefits, the Executive Vice President-Public Policy,
Human Resources and Law or his or her delegate).
1.2 "Board of Directors" means the Board of Directors of the Company.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Committee" means the Human Resources Committee of the Board of
Directors of U S WEST, Inc. or its delegate.
1.5 "Company" means (a) after the Separation Time, U S WEST, Inc., a
Delaware corporation formerly named USW-C, Inc. and, (b) prior to the Separation
Time, U S WEST, Inc. "Company" shall also include any successor company and any
adopting subsidiaries approved by U S WEST, Inc. or its successor.
1.6 "Deferred Compensation" means Eligible Compensation deferred under
the Plan, reduced by any taxes deducted in accordance with Section 7.5.
1.7 "Eligible Compensation" means (a) any award payable under an annual
incentive program, including a team award and an STIP and (b) at the election of
the Participant, either (i) Excluded Compensation, or (ii) Pay (as defined in
the Savings Plan) earned by a Participant during a Plan Year after the
Participant has contributed to the Savings Plan the maximum pre-tax contribution
permitted under section 402(g) of the Code.
1.8 "Eligible Employee" means any management or highly compensated
employee of the Company solicited by the Administrator in his or her sole
discretion.
1.9 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.10 "Excluded Compensation" means that part of a Participant's Pay (as
defined in the Savings Plan) earned from the Company that exceeds the dollar
limit in effect during the Plan Year under section 401(a)(17) of the Code.
1.11 "New Executive" means an Eligible Employee who has not met the
minimum service requirements of the Savings Plan and any individual who, during
the Plan Year, is promoted to a key executive or managerial position.
1.12 "Participant" means an Eligible Employee who has elected to
participate in the Plan.
1.13 "Pension Plan" means the U S WEST Pension Plan, as amended from
time to time.
1.14 "Plan" means this U S WEST Deferred Compensation Plan, as amended
from time to time.
1.15 "Plan Year" means the calendar year.
1.16 "Savings Plan" means the U S WEST Savings Plan/ESOP, as amended
from time to time.
1.17 "Separation Time" means the time at which U S WEST, Inc., a
Delaware corporation, ("Old U S WEST") is separated into two separate public
companies, USW-C, Inc., renamed U S WEST, Inc. as of the Separation Time (the
"Company") and MediaOne Group, Inc.
1.18 "STIP" means any senior management short term incentive award,
including any award under the Short Term Incentive Plan and the Executive Short
Term Incentive Plan maintained by the Company.
ARTICLE II
PARTICIPATION
2.1 Eligibility to Participate. Participation in the Plan shall be
limited to Eligible Employees who are chosen to participate in the Plan by the
Administrator in his or her sole discretion.
2.2 Election of Deferred Compensation. Participants shall make
irrevocable Deferred Compensation elections in such form as is specified by the
Company. A Deferred Compensation election shall apply only to Eligible
Compensation earned during the Plan Year specified in the election, and shall
specify the whole percentage to be deferred, up to 75%, of Eligible Compensation
other than an STIP and the whole percentage, up to 100%, net of required
withholding taxes, of any STIP.
Deferred Compensation elections shall be made prior to the last day of
the Plan Year preceding the Plan Year in which the services for which the
compensation is payable are performed or, if earlier, prior to the close of the
enrollment period specified by the Administrator. Compensation shall actually be
deferred at the time such compensation would otherwise be paid to the
Participant (e.g., a deferral election regarding an annual award to be earned in
2000 must be made in 1999 and the actual deferral of such award shall be at the
time the award becomes payable in 2001). Notwithstanding the foregoing, New
Executives shall make Deferred Compensation elections within 30 days of the date
their employment with the Company commences.
Annual elections are voluntary and irrevocable as to the amount of
Deferred Compensation. A Participant's initial annual election must specify the
time and form of payment (pursuant to Sections 5.1 and 5.2) of such Deferred
Compensation and must specify the accounts to which deferrals shall be credited.
Once a Participant has specified the time and form of payment and the account to
which deferrals shall be credited, such elections shall remain in effect and
apply to subsequent years' Deferred Compensation until the Participant chooses
different time, form and/or accounts in his or her annual election. Payments
attributable to the Company match shall be distributed at the same time and in
the same form as the corresponding Deferred Compensation.
Subject to the limitations below, a Participant may make an additional
election ("Additional Election") to change prior elections regarding the timing
and form of distributions from all prior annual accounts. Such Additional
Election shall be made no more often than once every five years and only with
regard to prior years for which payment has not yet begun. Any such Additional
Election shall be effective on the date that is six months after the date the
Participant made such election, provided the Participant has been continuously
employed by the Company for such six-month period. In the event a Participant
requests an Additional Election within five years of the date of a previous
Additional Election that has taken effect, or with respect to an account that is
scheduled to be distributed or to commence distribution within 6 months of such
election, such Additional Election shall be null and void.
2.3 Participants' Accounts. For every Plan Year, a separate bookkeeping
account shall be maintained for each Participant. Each Participant's accounts
may include the following: (a) an account treated as invested in phantom U S
WEST, Inc. common stock (the "Company Shares Account"), (b) an account treated
as invested in cash, ("Cash Account"), and (c) an account accumulating the
Company match (the "Company Match Account"), which shall be treated as invested
entirely in phantom U S WEST, Inc.
common stock in a Company Shares Account.
ARTICLE III
DEFERRED ACCOUNTS
3.1 Crediting of Deferrals -- Cash Account. A Participant may elect
that up to 50% of his or her annual Deferred Compensation be credited to the
Cash Account. The Cash Account shall be merely a bookkeeping entry and shall not
represent funds set aside and invested.
3.2 Crediting of Deferrals - Company Shares Account.
Pursuant to a Participant's election, Deferred Compensation (unless
credited to the Cash Account) shall be credited to the Participant's Company
Shares Account, which shall be credited with phantom shares of U S WEST, Inc.
common stock. The amounts so credited shall be converted to shares of phantom
stock in accordance with standard record keeping procedures.
3.3 Transferring Shares Between Accounts. No more frequently than two
times per year, or as otherwise determined by the Administrator, a Participant
may elect to transfer all or a portion of his or her Cash Account to his or her
Company Shares Account. A Participant may not transfer any portion of his or her
Company Shares Account to his or her Cash Account unless the Participant is no
longer employed by the Company.
3.4 Dividends on Company Shares Accounts. Participants shall be
credited dividend payments on the phantom stock held in their Company Shares
Accounts if, and to the extent, a dividend is paid by the Company on its common
stock. The amount credited shall be credited in shares of phantom stock and
shall be calculated by multiplying the number of phantom shares held in the
Participant's Company Shares Accounts by the dividend payable per share of
Company common stock.
3.5 Cash Account. Deferred Compensation that is credited to a
Participant's Cash Account shall be credited with additional amounts
representing earnings from the date the Deferred Compensation is credited to the
Participant's Cash Account. The crediting rate for such earnings shall be
determined at the beginning of each quarter and shall be based on 10-year U.S.
Treasury note rates plus 1% for deferrals credited after December 31, 1990 (DC-T
Plus One). Deferrals made to Cash Accounts prior to 1991 shall be credited with
interest based on 10-year U.S. Treasury note rates plus 2% (DC-T Plus Two).
3.6 Change in Outstanding Shares. In the event of any change in
outstanding U S WEST, Inc. shares by reason of any stock dividend or split,
recapitalization, merger, consolidation or exchange of shares or other similar
corporate change, the Board of Directors or its delegate shall make such
adjustments, if any, that it deems appropriate in the number of phantom shares
then credited to the Participant's accounts. Any and all such adjustments shall
be conclusive and binding upon all parties concerned.
ARTICLE IV
MATCHING COMPANY CONTRIBUTIONS
4.1 Funds Eligible for Company Match. A Participant shall receive
matching contribution credits on his or her Deferred Compensation in accordance
with the matching formula, if any, applicable to such Participant under the
provisions of the Savings Plan, as if such Deferred Compensation had been
contributed to the Savings Plan. If a Participant contributes to both the
Savings Plan and the Plan, deferrals under the Plan shall receive matching
contributions credits only to the extent that the Participant has elected a
contribution percentage under the Savings Plan that is less than the maximum
percentage eligible for Company match under the Savings Plan. Annual incentive
awards shall be eligible for a match without regard to whether the Participant
is employed by the Company on the date such award is paid.
4.2 Forfeiture of Company Match. Subject to Article 6, a Participant's
Company matching contribution credits and the earnings thereon shall be subject
to forfeiture unless and until the Participant is vested in the Company match in
the Savings Plan.
4.3 Company Match Investment. The Company's matching contribution
credits shall be credited to the Participant's Company Match Account and shall
be treated as invested in accordance with Sections 2.3 and 3.2 above.
ARTICLE V
DISTRIBUTION
5.1 Timing of Distribution. Benefit payments under the Plan shall
commence at the time specified in the Participant's deferral election made
pursuant to Section 2.2, which time may be while the Participant is employed by
the Company; however, benefit payments shall commence no later than March of the
Plan Year next following the earliest to occur of the following events: (a) the
date that is five years after the Participant's termination of employment, (b)
the Participant's 65th birthday, if the Participant is not employed by the
Company on such date, or (c) the Participant's death. If the Participant fails
to specify a distribution date, the Participant's benefit payments shall
commence no later than March of the Plan Year next following the Plan Year in
which the Participant's termination of employment occurs.
Notwithstanding the preceding paragraph, in the event that the Internal
Revenue Service or a court determines that amounts deferred under the Plan are
currently taxable to any Participant due to the administration, operation or any
provision of the Plan, the Committee shall have the discretion to cause such
taxable amounts to be distributed to such Participant during the year in which
such amounts are taxable or during any year thereafter.
5.2 Form of Distribution.
(a) At the time a Participant makes an election to participate in the
Plan, the Participant shall also make an election with respect to the form or
timing of distribution of the amounts credited to such Participant's account.
Such election shall be made at the same time as part of the election made in
Section 2.2 above. Amounts shall be distributed in cash, provided, however that
a Participant may elect to receive amounts credited to the Participant's Company
Shares Accounts as shares of U S WEST, Inc.
common stock.
(b) A Participant may elect to receive the amount credited to such
Participant's accounts: (i) in one lump sum payment, (ii) in some other whole
number of approximately equal or percentage-based annual installments, not to
exceed ten installments, or (iii) in a combination of a lump sum and
installments; except that if the total amount credited to all of a Participant's
accounts is less than $10,000 at the time benefits commence, such amount shall
be distributed as a lump sum pursuant to Section 5.3. Notwithstanding the
foregoing, Participants who commence a leave of absence or other assignment
approved by the Company or who continue to accrue service credit with the
Company following their termination of employment shall not be subject to an
automatic lump sum distribution from the Plan.
5.3 Automatic Lump Sum Distribution. The entire amount credited to a
Participant's account shall be paid in a single payment to the Participant in
March of the Plan Year next following the Plan Year in which the Participant's
termination of employment occurs if: (a) a Participant failed to specify a form
of payment, (b) a Participant's balance is less than $10,000 and the Participant
has not received prior payments under the Plan, or (c) a Participant becomes a
proprietor, officer, partner, employee, agent, or otherwise enters into a
similar relationship with a competitor or a governmental agency having
jurisdiction over the activities of the Company.
5.4 Distribution to Beneficiaries. In connection with the election
described in Section 5.2, a Participant may elect that if such Participant dies
before full distribution of all amounts credited to his or her account, the
balance of the account shall be distributed to the beneficiary or beneficiaries
designated in writing by the Participant. If no such designation has been made,
the balance of the account shall be distributed to the estate of the
Participant. The Participant shall designate whether the distribution to the
beneficiary is to be made in one payment or some other number of approximately
equal installments (not exceeding 10). If the form of distribution is not
specified, the distribution shall be made as a lump sum payment. The first
installment (or the lump sum payment if the Participant has so elected) shall be
paid no later than March of the Plan Year next following the Plan Year in which
the Participant dies.
5.5 Unforeseeable Emergency. The Participant may, in writing, request
early withdrawal in the event of an "unforeseeable emergency." The request
should be directed to the Administrator, who may, in his or her discretion,
approve an early withdrawal in an amount not to exceed the amount reasonably
necessary to meet the emergency, reduced by any funds that the Administrator
determines may be used by a Participant to relieve the hardship, including, but
not limited to, reimbursement or compensation by insurance or otherwise,
liquidation of assets (to the extent such liquidation itself would not cause
severe financial hardship), or amounts realized through a cessation of deferrals
under the Plan. In the case of individuals subject to Section 16 of the Exchange
Act (as hereinafter defined), an early withdrawal shall be subject to the
discretion of the Committee.
An "unforeseeable emergency" is an unanticipated emergency that is
caused by an event beyond the control of the Participant or beneficiary and that
would result in severe financial hardship to the individual if early withdrawal
were not permitted.
"Unforeseeable emergency" includes:
(a) a severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or a dependent of
the Participant (as defined in Code section 152(a));
(b) a loss of property due to casualty; or
(c) other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the Participant's control.
"Unforeseeable emergencies" shall not include college tuition or the costs
of purchasing a home.
ARTICLE VI
CHANGE IN CONTROL
6.1 Change in Control. Upon a Change in Control (defined in Section 6.2) of
the Company, the following provisions shall apply:
(a) As of the Change in Control, each Participant shall be fully vested
in his or her Company Match Account, regardless of vesting status under the
Savings Plan. Each Participant whose service with the Company terminates after
the Change in Control and before such Participant is fully vested in the Company
match in the Savings Plan shall be entitled to an additional payment under this
Plan equal to the amount forfeited under the Savings Plan. Such additional
amount shall be payable in accordance with Article 5.
(b) Each Participant in this Plan may elect no later than thirty days
after the Change in Control to receive as soon as practicable following the
Change in Control, a single lump sum payment equal to 94% of the value of his
benefits under this Plan as of the date of the Change in Control. A Participant
making such election shall permanently forfeit the remaining 6% of the value of
his benefits under this Plan as of the date of the Change in Control and the
Company shall have no further liability to the Participant with respect to
benefits accrued under this Plan for periods prior to the Change in Control.
(c) Without the written consent of each affected Participant, this Plan
may not be amended during the period commencing on the date of the Change in
Control and ending three years thereafter in any way that would cause a
Participant to receive lower benefits under this Plan than he would have
received if such amendment had not been made, including, but not limited to,
amendments affecting eligibility and coverage.
(d) The Company has established an irrevocable "rabbi trust" that may
provide a source of funds to satisfy the Company's liability under this Plan.
Upon a Change in Control, the Company shall transfer to the trustee of such
trust an amount equal to the present value of all benefits under this Plan as of
the date of the Change in Control. The trustee shall be a bank or other entity
that may be granted corporate trustee powers under applicable law. The Company
shall have no obligation to pay any benefits under this Plan to the extent such
benefits are paid from such trust.
6.2 Change in Control Defined. For purposes of the Plan, a "Change in
Control" shall be deemed to have occurred in the following circumstances:
(a) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes a beneficial owner of (or otherwise has the
authority to vote), directly or indirectly, securities representing 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;
(b) any period of two 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
(c) the Company becomes a party to a merger, consolidation or share
exchange in which either (i) the Company shall not be the surviving corporation
or (ii) the Company shall be the surviving corporation and any outstanding
shares of common stock of the Company shall 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
(d) any other event that a majority of the Board of Directors, in its
sole discretion, shall determine constitutes a Change of Control for all Plan
Participants.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Satisfaction of Interests. The Company may transfer assets to a
trustee to be held in trust. Any trust created by the Company and any assets
held by such trust to assist it in meeting its obligations under the Plan shall
conform to the terms of the model trust (the "Trust"), as described in Revenue
Procedure 92-64, 1992-33 I.R.B. 11, as modified, or any successor thereto. It is
the intention of the Company and the Participants that the Plan be unfunded for
tax purposes and for purposes of Title I of ERISA. Benefits under the Plan shall
be paid from the Trust to the extent that there are sufficient assets in the
Trust. However, the Company, at its discretion, may pay the benefits payable
under the Plan out of its operating assets. If the assets of the Trust are not
sufficient to pay the benefits under the Plan, the Company shall pay the
benefits.
7.2 Inalienability of Benefits. A Participant's rights to benefit
payments under the Plan are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Participant or creditors of the Participant's
beneficiary.
7.3 Effect on Employment. Nothing contained in the Plan or any
agreement related hereto or referred to herein shall affect, or be construed as
affecting, the terms of employment of any Participant except to the extent
specifically provided herein or therein. Nothing contained in the Plan or any
agreement related hereto or referred to herein shall impose, or be construed as
imposing, any obligation on (a) the Company to continue the employment of any
Participant and (b) any Participant to remain in the employ of the Company.
7.4 Taxation. The Company shall have the right to deduct from any
deferral to be made or any distribution to be paid under the Plan any federal,
state or local income and employment taxes that it is required by law to
withhold.
In the event that the Internal Revenue Service or a court determines
that amounts deferred under the Plan are currently taxable to any Participant
due to the administration, operation or any provision of the Plan, such
liability shall be the sole responsibility of the Participant, and the Company
shall not be liable for any such taxes.
7.5 Amendment or Termination. The Committee may at any time amend or
terminate the Plan, but such amendments or termination shall not adversely
affect the rights of any Participant to any accrued vested benefit under the
Plan prior to the effective date of such amendment or termination without his or
her consent. The Administrator or his or her delegate shall be authorized to
make minor or administrative amendments to the Plan. Participants' account
balances shall be frozen upon termination of the Plan, and any assets held in
trust pursuant to Section 7.1 in excess of the amount required to pay benefits
under the Plan shall be paid to the Company.
7.6 Binding Effect. The Plan and all benefits payable hereunder shall
be binding upon and inure to the benefit of the Company, its successors and
assigns and the Participant and his or her heirs, executors, administrators and
legal representatives.
7.7 Status of Participants.
Participants and beneficiaries shall have the status of unsecured
creditors of the Company. The Plan constitutes a mere promise by the Company to
make benefit payments in the future.
No Participant or beneficiary shall have any preferred claim on, or any
beneficial ownership interest in, any assets of any trust established in
connection with the Plan pursuant to Section 7.1 prior to the time such assets
are paid to the Participant or beneficiary. All rights created under the Plan
and any trust shall be mere unsecured contractual, but enforceable rights of the
Participants and beneficiaries against the Company. The rights under the Plan
and assets in the trust, if any, shall not be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge by any
Participant or beneficiary, and any attempt to do so shall be null and void.
7.8 Governing Law. The Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of
Colorado.
7.9 Federal Securities Law. With respect to individuals subject to
Section 16 of the Exchange Act, the Company intends that the provisions of this
Plan and all transactions effected in accordance with the Plan shall comply with
Rule 16b-3 under the Exchange Act. Accordingly, notwithstanding any other
provision set forth in this Plan, the Administrator shall administer and
interpret the Plan to maintain compliance with such rule.
ARTICLE VIII
CLAIMS PROCEDURE
8.1 Disputes. All disputes concerning benefits under this Plan shall be
subject to this Article VIII.
8.2 Submission of Claims. Claims must be submitted in writing and
presented to the Administrator, who shall have full and absolute discretion to
interpret the provisions of the Plan.
8.3 Denial of Claim. If a claim is denied, notice of denial shall be
furnished by the Administrator to the claimant within 90 days after the receipt
of the claim by the Administrator, unless special circumstances require an
extension of the time for processing the claim, in which event notification of
extension shall be provided to the Participant or the beneficiary. The extension
shall not exceed 90 days.
8.4 Adequate Notice. The Administrator shall provide adequate notice,
in writing, to any claimant whose claim has been denied, setting forth the
specific reasons for such denial, specific reference to pertinent Plan
provisions, a description of any additional material or information necessary
for the claimant to perfect his or her claim and an explanation of why such
material or information is necessary, all written in a manner calculated to be
understood by the claimant. Such notice shall include appropriate information as
to the steps to be taken if the claimant wishes to submit his or her claim for
review. The claimant or the claimant's authorized representative may request
such a review upon written application. The claimant may review pertinent
documents and may submit issues or comments in writing. The claimant or the
claimant's duly authorized representative must request such review within the
reasonable period of time prescribed by the Administrator. In no event shall
such a period of time be less than 60 days.
8.5 Review of Claim. The Administrator shall serve as the final review
committee, under the Plan, ERISA, and the Code, for the review of all claims by
Participants whose initial claims for benefits have been denied, in whole or in
part, by the Company. The Administrator shall have the authority to interpret
the provisions of the Plan in his or her full and absolute discretion.
8.6 Decision on Claim. A decision on review shall be rendered within 60
days after the receipt of the request for review by the Administrator. If
special circumstances require a further extension of time for processing, a
decision shall be rendered not later than 120 days following the Administrator's
receipt of the request for the review. If such an extension of time of review is
required, written notice of the extension shall be furnished to the claimant.
The decision of the Administrator shall be furnished to the claimant in writing
and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, as well as specific references to
the pertinent Plan provisions on which the decision is based. The decision of
the Administrator shall be final and binding.
Executed this 12th day of June, 1998
U S WEST, INC. (formerly U S WEST-C, Inc.)
/S/ ANTONIA D. OZEROFF
By________________________________________
Its Vice President-Law and Corporate
Human Resources and Assistant Secretary
EXHIBIT 10(n)
1998 U S WEST STOCK PLAN
as amended June 22, 1998
I. Purpose.
This 1998 U S WEST Stock Plan (the "Plan"), is intended to promote the
long term success of U S WEST, Inc. (the "Company") by affording certain
eligible employees, executive officers, non-employee directors of the Company
and its Subsidiaries (as defined below) and certain outside consultants or
advisors to the Company and its affiliates with an opportunity to acquire a
proprietary interest in the Company, in order to incentivize such persons and to
align the financial interests of such persons with the stockholders of the
Company. This Plan became effective upon consummation of the Separation (defined
below).
II. Definitions.
The following defined terms are used in the Plan:
A. "Agreement" shall mean the agreement or grant letter accepted by the
Participant as described in Section VIII of the Plan between the Company and a
Participant under which the Participant receives an Award pursuant to this Plan.
B. "Award" shall mean individually, collectively or in tandem, an
incentive award granted under the Plan, whether in the form of Options, SARs,
Stock Awards or Phantom Units.
C. "Board" or "Board of Directors" shall mean the Board of Directors
of the Company.
D. "Change of Control" shall mean any of the following:
1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) who 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.
E. "Code" shall mean the Internal Revenue Code of 1986, as amended.
F. "Committee" shall mean the Human Resources Committee or the Employee
Benefits Committee or their delegates, as applicable, pursuant to provisions of
Section III of the Plan.
G. "Common Stock" shall mean the common stock, $.01 par value, of the
Company.
H. "Company" shall mean U S WEST, Inc., a Delaware corporation
(previously known as "USW-C, Inc."), and any successor thereof.
I. "Director Compensation" shall mean all cash or stock remuneration
payable to an Outside Director for service to the Company as a director, other
than reimbursement for expenses or Common Stock received upon exercise of an
Option, and shall include retainer fees for service on, and fees for attendance
at meetings of, the Board and any committees thereof.
J. "Disabled" or "Disability" shall mean long-term disability as
determined under the provisions of any U S WEST disability plan maintained for
the benefit of eligible employees of the Company or any Related Entity,
provided, however, that in the case of an Incentive Option, "disability" shall
have the meaning specified in Section 22(e)(3) of the Code.
K. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) and its successor promulgated under the Exchange Act.
L. "Dividend Equivalent Rights" shall mean the right to receive the
amount of any dividends that are paid on an equivalent number of shares of
Common Stock underlying an Option or Phantom Unit, which shall be payable either
in cash or in the form of additional Phantom Units or Stock.
M. "Effective Date" shall mean the later of the date of the Separation
or the date on which the Plan was approved by the stockholders of the Company.
N. "Eligible Employee" shall mean any employee of the Company or any
Related Entity who is so employed on the date of the grant of an Award.
O. "Eligible Non-Employee" shall mean any consultant or advisor to the
Company or any Related Entity, including any member of the State Executive
Board(s) of the Company or any Related Entity that the Committee selects to
receive an Award.
P. "Employee Benefits Committee" shall mean a committee of the Company
consisting of employees of the Company or any Related Entity appointed by the
Human Resources Committee and which shall administer the Plan as provided in
Section III hereof.
Q. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
R. "Executive Officers" shall mean any Officer of the Company or any
Related Entity who, at the time of an Award, is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
S. "Fair Market Value" shall mean the closing price of a share of
Common Stock as reported on the New York Stock Exchange for the applicable date,
or if there were no sales on such date, on the last day on which there were
sales.
T. "Human Resources Committee" shall mean the human resources committee
of the Board or any other committee of the Board appointed by the Board to
administer the Plan in lieu of the Human Resources Committee, which committee
shall consist of no fewer than three (3) persons, each of whom shall be a
Disinterested Person.
U. "Incentive Option" shall mean an incentive stock option under the
provisions of Section 422 of the Code.
V.(1) "Indexed" shall mean the periodic adjustment of an Option Price
based upon adjustment criteria determined by the Committee, but in no event
shall the Option Price be adjusted to an amount less than the original Option
Price.
V.(2). "Initial Grant Date" shall mean the later of (i) June 22, 1998,
or (ii) the date on which a new Outside Director is elected to the Board.
W. "Nonqualified Option" shall mean an Option which does not qualify
under Section 422 of the Code.
X. "Officer" shall mean any executive of the Company or any Related
Entity who participates in the Company's executive compensation programs.
Y. "Option" shall mean an option granted by the Company to purchase
Common Stock pursuant to the provisions of this Plan, including Incentive
Options, Nonqualified Options and Reload Options.
Z. "Optionee" shall mean a Participant to whom one or more Options have
been granted.
AA. "Option Price" shall mean the price per share payable to the Company
for shares of Common Stock upon the exercise of an Option.
AB. "Outside Director" shall mean an individual not employed by the
Company or any Related Entity and who serves on the Board.
AC. "Parent Corporation" shall mean any corporation within the meaning
of Section 424(e) of the Code.
AD. "Participant" shall mean an Eligible Employee, Eligible Non-
Employee, Executive Officer or Outside Director who is granted an Award.
AE. "Phantom Unit" shall mean a notional account representing a value
equivalent to one share of Common Stock on the Award date.
AF. "Plan" shall mean the 1998 U S WEST Stock Plan.
AG. "Related Entity" shall mean any Parent Corporation or Subsidiary of
the Company.
AH. "Reload Option" shall mean the right to receive a further Option
for a number of shares equal to the number of shares of Common Stock
surrendered by the Optionee upon exercise of the original Option as provided in
Section IX.E of the Plan.
AI. "Restricted Period" shall mean the period of time from the date of
grant of Restricted Stock until the lapse of restrictions attached thereto under
the terms of the Agreement granting such Restricted Stock, pursuant to the
provisions of the Plan or by action of the Committee.
AJ. "Restricted Stock" shall mean an Award made by the Committee
entitling the Participant to acquire, at no cost or for a purchase price
determined by the Committee at the time of grant, shares of Common Stock which
are subject to restrictions in accordance with the provisions of Section XII
hereof.
AK. "Retirement" shall mean with respect to any Eligible Employee, that
such person has terminated employment with the Company or any Related Entity
other than "for cause" (as defined in subsection IX.H.(v)) and (i) such person
is eligible to receive an immediate service pension benefit under the U S WEST
Pension Plan, or (ii) such person would be eligible to receive an immediate
service pension under the U S WEST Pension Plan, as amended and restated
effective January 1, 1993, had that plan not been amended and restated effective
January 1, 1997, or (iii) such person specifically is treated as "retired" for
purposes of the Plan under any individually negotiated, custom, written
agreement or arrangement between the Company or any Related Entity and the
Eligible Employee. "Retirement" shall not apply to any Eligible Non-Employee.
AL. "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
AM. "Separation" shall mean the separation of U S WEST Communications
Group and U S WEST Media Group into two separate companies pursuant to the terms
of the Separation Agreement between the Company and MediaOne Group, Inc.
(previously known as "U S WEST, Inc.").
AN. "Stock Appreciation Right" or "SAR" shall mean a grant entitling
the Participant to receive an amount in cash or shares of Common Stock or a
combination thereof having a value equal to (or if the Committee shall so
determine at the time of a grant, less than) the excess of the Fair Market Value
of a share of Common Stock on the date of exercise over the Fair Market Value of
a share of Common Stock on the date of grant (or over the Option Price, if the
Stock Appreciation Right was granted in tandem with an Option) multiplied by the
number of shares with respect to which the Stock Appreciation Right shall have
been exercised, with the Committee having sole discretion to determine the form
or forms of payment at the time of grant of the SAR.
AO. "Stock Awards" shall mean any Award which is in the form of
Restricted Stock and any outright grants of Common Stock approved by the
Committee pursuant to the Plan.
AP. "Subsidiary" shall mean with respect to any Award other than an
Incentive Option, any corporation, joint venture or partnership in which the
Company owns, directly or indirectly, (i) with respect to a corporation, stock
possessing twenty percent (20%) or more of the total combined voting power of
all classes of stock in the corporation or (ii) in the case of a joint venture
or partnership, the Company possesses a twenty percent (20%) interest in the
capital or profits of such joint venture or partnership. In the case of any
Incentive Option, Subsidiary shall mean any corporation within the meaning of
Section 424(f) of the Code.
AQ. "Vested" shall mean the status that results with respect to an
Option or other Award which may be immediately exercised under the terms of the
Agreement granting such Option or other Award, pursuant to the provisions of the
Plan or by action of the Committee.
III. Administration.
A. The Plan shall be administered by the Human Resources Committee with
respect to Officers, Executive Officers and Outside Directors and by the
Employee Benefits Committee with respect to all other Eligible Employees and
Eligible Non-Employees. The Human Resources Committee may adopt such rules,
regulations and guidelines as it determines necessary for the administration of
the Plan. Subject to any such rules, regulations and guidelines adopted by the
Human Resources Committee, the Employee Benefits Committee shall have the power
to adopt rules, regulations and guidelines to permit such Committee to
administer the Plan with respect to Eligible Employees (other than Officers and
Executive Officers) and with respect to Eligible Non-Employees.
B. The Committee may delegate to one or more of its members, or to one
or more agents, such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan. The Committee may employ such
legal or other counsel, consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion or computation received
from any such counsel, consultant or agent. Expenses incurred by the Committee
in the engagement of such counsel, consultant or agent shall be paid by the
Company or such Related Entity whose employees have benefited from the Plan, as
determined by the Committee. The Company shall indemnify members of the
Committee and any agent of the Committee who is an employee of the Company or a
Related Entity against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's gross
negligence or willful misconduct.
C. In furtherance of and not in limitation of the Committee's
discretionary authority, subject to the provisions of the Plan, the Committee
shall have the authority to:
1. determine the Participants to whom Awards shall be granted and the
number of and terms and conditions upon which Awards shall be granted (which
need not be the same for all Awards or types of Awards);
2. establish, in its sole discretion, annual or long-term financial
goals of the Company, Related Entity, or division, department, or group of the
Company or Related Entity, or individual goals which the Committee shall
consider in granting Awards, if any;
3. determine the satisfaction of performance goals established by the
Committee based upon periods of time or any combinations thereof;
4. determine the time when Awards shall be granted, the Option Price of
each Option, the period(s) during which Options shall be exercisable (whether in
whole or in part), the restrictions to be applicable to Awards, and the other
terms and provisions of Awards;
5. modify grants of Awards pursuant to Paragraph D. of this Section III
or rescind grants of Awards pursuant to Section IX.H(v), respectively;
6. provide the establishment of a procedure whereby a number of shares
of Common Stock or other securities may be withheld from the total number of
shares of Common Stock or other securities to be issued upon exercise of an
Option, the lapse of restrictions on Restricted Stock and the vesting of Phantom
Units (other than an Incentive Option) to meet the obligation of withholding for
income, social security and other taxes incurred by a Participant upon such
exercise or required to be withheld by the Company in connection with such
exercise;
7. adopt, modify and rescind rules and regulations and guidelines
relating to the Plan;
8. adopt modifications to the Plan and procedures, as may be necessary
to comply with provisions of the laws and applicable regulatory rulings of
countries in which the Company or a Related Entity operates in order to assure
the legality of Awards granted under the Plan to Participants who reside in such
countries;
9. obtain the approval of the stockholders of the Company with respect
to Awards consisting of Phantom Units or Restricted Stock; provided, however, no
action shall be proposed to stockholders without the approval of the Board of
Directors; and
10. make all determinations, perform all other acts, exercise all other
powers and establish any other procedures determined by the Committee to be
necessary, appropriate or advisable in administering the Plan and to maintain
compliance with any applicable law.
D. The Committee may at any time, in its sole discretion, accelerate
the exercisability of any Awards and waive or amend any and all restrictions and
conditions of any Awards.
E. Subject to and not inconsistent with the express provisions of the
Plan, the Code and Rule 16b-3 of the Exchange Act, the Committee shall have the
authority to require, as a condition to the granting of any Option, SAR or other
Award (to the extent applicable) to any Executive Officer of the Company or any
Related Entity that the Executive Officer receiving such Option, SAR or other
Award agree not to sell or otherwise dispose of such Option, SAR or other Award
or Common Stock acquired pursuant to such Option, SAR or other Award (to the
extent applicable) or any other "derivative security" (as defined by Rule
16a-1(c) under the Exchange Act) for a period of six (6) months following the
later of (i) the date of the grant of such Option, SAR or other Award (to the
extent applicable) or (ii) the date when the other Option Price of such Option,
SAR or other Award is fixed, if such Option Price is not fixed at the date of
grant of such Option, SAR or other Award.
IV. Decisions Final.
Any decision, interpretation or other action made or taken in good
faith by the Committee arising out of or in connection with the Plan shall be
final, binding and conclusive on the Company and all Participants and their
respective heirs, executors, administrators, successors and assigns.
V. Arbitration.
Any agreement may contain, among other things, provisions that require
arbitration of any and all disputes between a Participant and the Company or any
Related Entity, in a form or forms acceptable to the Committee, in its sole
discretion.
VI. Duration of the Plan.
The Plan shall remain in effect for a period of five (5) years from the
Effective Date, unless terminated by the Board pursuant to Section XX.
VII. Shares Available; Limitations.
A. Up to 4,800,000 shares of Common Stock may be granted in calendar
year 1998 and the maximum aggregate number of shares of Common Stock that may be
granted in any other calendar year for all purposes under the Plan shall be one
percent (1.0%) of the shares outstanding (excluding shares held in the Company's
treasury) on the first day of such calendar year, provided, however, that in the
event that fewer than the full aggregate number of shares available for issuance
in any calendar year are issued in such year, the shares not issued shall be
added to the shares available for issuance in any subsequent year or years. If,
for any reason, any shares of Common Stock as to which Options, SARs, Restricted
Stock, or Phantom Units have been granted cease to be subject to exercise or
purchase hereunder (other than the exercise of SARs for cash), the underlying
shares of Common Stock shall thereafter be available for grants to Participants
under the Plan during any calendar year. Awards granted under the Plan may be
fulfilled in accordance with the terms of the Plan with (i) authorized and
unissued shares of the Common Stock or (ii) issued shares of Common Stock
reacquired by the Company, in each situation, as the Board of Directors or the
Committee may determine from time to time at its sole discretion.
B. The maximum number of shares of Common Stock that shall be subject
to the grant of an Award in any calendar year for Awards other than Options or
SARs shall not exceed one-third (1/3) of the total number of shares of Common
Stock subject to Awards granted under the Plan for such calendar year.
C. The maximum number of shares of Common Stock with respect to which
Awards may be granted to any individual Participant in any calendar year may not
exceed eight hundred thousand (800,000).
D. The cumulative number of shares of Common Stock that may be issued
under this Plan in connection the exercise of Incentive Options shall not exceed
ten million (10,000,000).
VIII. Grant of Awards.
A. The Committee shall determine the type or types of Award(s) to be
made to each Participant. Awards may be granted singly, in combination or in
tandem subject to restrictions set forth in Section IX.C for Incentive Options.
The types of Awards that may be granted under the Plan are Options, with or
without Reload Options, SARs, Stock Awards and Phantom Units, and with respect
to Phantom Units and Restricted Stock, with or without Dividend Equivalent
Rights.
B. Each grant of an Award under this Plan shall be evidenced by an
Agreement dated as of the date of the grant of the Award, other than Stock
Awards consisting of an outright grant of shares of Common Stock. This Agreement
shall set forth the terms and conditions of the Award, as may be determined by
the Committee, and if the Agreement relates to the grant of an Option, shall
indicate whether the Option that it evidences, is intended to be an Incentive
Option or a Nonqualified Option. Each grant of an Award is conditioned upon the
acceptance by the Participant of the terms of the Agreement. Unless otherwise
extended by the Committee, a Participant shall have ninety (90) days from the
date of the Agreement to accept its terms.
IX. Options.
The Committee, in its sole discretion, may grant Incentive Options or
Nonqualified Options to Eligible Employees, Officers and Executive Officers and
Nonqualified Options to Eligible Non-Employees. Any Options granted to a
Participant under the Predecessor Plan which remain outstanding as of the
Effective Date shall be governed by the terms and conditions of the Plan, except
to the extent the provisions of the Plan are inconsistent with the terms of the
Options granted under the Predecessor Plans, in which event the applicable
provisions of the Predecessor Plans shall govern; provided, however, that in no
event shall there be a modification of the terms of any Incentive Option granted
under the Predecessor Plan. The terms and conditions of the Options granted
under this Section IX shall be determined from time to time by the Committee, as
set forth in the Agreement granting the Option, and subject to the following
conditions:
A. Nonqualified Options. The Option Price for each share of Common
Stock issuable pursuant to a Nonqualified Option may be an amount at or above
the Fair Market Value on the date such Option is granted, may be Indexed from
the original Option Price and may be granted with or without Dividend Equivalent
Rights; provided, however, that with respect to Nonqualified Options granted to
any Executive Officer, no Dividend Equivalent Rights may be granted.
B. Incentive Options. The Option Price for each share of Common Stock
issuable pursuant to an Incentive Option shall not be less than one hundred
percent (100%) of the Fair Market Value on the date such Option is granted and
may be Indexed from the original Option Price.
C. Incentive Options; Special Rules. Options granted in the form of
Incentive Options shall be subject to the following provisions:
1. Grant. No Incentive Option shall be granted pursuant to this Plan
more than ten (10) years after the Effective Date.
2. Annual Limit. The aggregate Fair Market Value (determined at the
time the Option is granted) of the shares of Common Stock with respect to which
one or more Incentive Options are exercisable for the first time by any Optionee
during any calendar year under the Plan or under any other stock plan of the
Company or any Related Entity shall not exceed $100,000 or such other maximum
amount permitted under Section 422 of the Code. Any Option purporting to
constitute an Incentive Option in excess of such limitation shall constitute a
Nonqualified Option.
3. 10% Stockholder. If any Optionee to whom an Incentive Option is to
be granted pursuant to the provisions of the Plan is, on the date of grant, an
individual described in Section 422(b)(6) of the Code, then the following
special provisions shall be applicable to the Option granted to such individual:
(a) the Option Price of shares subject to such Incentive Option shall
not be less than 110% of the Fair Market Value of Common Stock on the date of
grant; and
(b) the Option shall not have a term in excess of (5) years from the
date of grant.
D. Other Options. The Committee may establish rules with respect to,
and may grant to Eligible Employees, Options to comply with any amendment to the
Code made after the Effective Date providing for special tax benefits for stock
options.
E. Reload Options. Without in any way limiting the authority of the
Committee to make Awards hereunder, the Committee shall have the authority to
grant Reload Options. Any such Reload Option shall be subject to such other
terms and conditions as the Committee may determine. Notwithstanding the above,
(i) the Committee shall have the right, in its sole discretion, to withdraw a
Reload Option to the extent that the grant thereof will result in any adverse
accounting consequences to the Company and (ii) no additional Reload Options
shall be granted upon the exercise of a Reload Option.
F. Term of Option. No Option shall be exercisable after the expiration
of ten (10) years from the date of grant of the Option.
G. Exercise of Stock Option. Each Option shall be exercisable in one or
more installments as the Committee in its sole discretion may determine at the
time of the Award and as provided in the Agreement. The right to purchase shares
shall be cumulative so that when the right to purchase any shares has accrued
such shares or any part thereof may be purchased at any time thereafter until
the expiration or termination of the Option, subject to rules on sequential
exercise for Incentive Options pursuant to Paragraph C.2. of this Section IX.
The Option Price shall be payable (i) in cash or by an equivalent means
acceptable to the Committee, (ii) by delivery (constructive or otherwise) to the
Company of shares of Common Stock owned by the Optionee or (iii) by any
combination of the above as provided in the Agreement. Shares delivered to the
Company in payment of the Option Price shall be valued at the Fair Market Value
on the date of the exercise of the Option.
H. Vesting. The Agreement shall specify the date or dates on which the Optionee
may begin to exercise all or a portion of his Option. Subsequent to such date or
dates, the Option shall be deemed vested and fully exercisable.
(i) Death. In the event of the death of any Optionee, all Options held
by such Optionee on the date of his death shall become Vested Options and the
estate of such Optionee, shall have the right, at any time and from time to time
within one year after the date of death, or such other period, if any, as the
Committee in its sole discretion may determine, to exercise the Options of the
Optionee (but not after the earlier of the expiration date of the Option or, in
the case of an Incentive Option, one (1) year from the date of death).
(ii) Disability. If the employment of any Optionee is terminated
because of Disability, all Options held by such Optionee on the date of his or
her termination shall be retained by such Optionee, and such Options that are
not yet Vested Options shall become Vested Options in accordance with the
vesting schedule established at the time such Options were issued. The Optionee
shall have the right to exercise Vested Options at any time and from time to
time, but not after the expiration date of the Option or, in the case of
Incentive Options where tax-advantaged treatment is desired, one year from the
date of termination of employment.
(iii) Retirement. Upon an Optionee's Retirement, all Options held by
such Optionee on the date of his or her Retirement shall be retained by such
Optionee, and such Options that are not yet Vested Options shall become Vested
Options in accordance with the vesting schedule established at the time such
Options were issued, unless the Committee, in its sole discretion, determines
otherwise. Unless the Committee, in its sole discretion, determines otherwise,
the Optionee shall have the right to exercise Vested Options at any time and
from time to time, but not after the expiration date of the Option. In the case
of Incentive Options where tax-advantaged treatment is desired, the Optionee
shall have the right to exercise Vested Options three months from the date of
Retirement.
(iv) Other Termination. If the employment with the Company or a Related
Entity of an Optionee is terminated for any reason other than for death or
Disability and other than "for cause" as defined in subparagraph (v) below, such
Optionee shall have the right, in the case of a Vested Option, for a period of
three (3) months after the date of such termination or such longer period as
determined by the Committee, to exercise any such Vested Option, but in any
event not after the expiration date of any such Option.
(v) Termination For Cause. Notwithstanding any other provision of the
Plan to the contrary, if the Optionee's employment is terminated by the Company
or any Related Entity "for cause" (as defined below), such Optionee shall
immediately forfeit all rights under his Options except as to the shares of
Common Stock already purchased prior to such termination. Termination "for
cause" shall mean (unless another definition is agreed to in writing by the
Company and the Optionee) termination by the Company because of: (a) the
Optionee's willful and continued failure to substantially perform his duties
(other than any such failure resulting from the Optionee's incapacity due to
physical or mental impairment) after a written demand for substantial
performance is delivered to the Optionee by the Company, which demand
specifically identifies the manner in which the Company believes the Optionee
has not substantially performed his duties, (b) the willful conduct of the
Optionee which is demonstrably and materially injurious to the Company or
Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee
for a felony by a court of competent jurisdiction.
X. Foreign Options and Rights.
The Committee may make Awards of Options to Eligible Employees,
Officers, Executive Officers and Eligible Non-Employees who are subject to the
tax laws of nations other than the United States, which Awards may have terms
and conditions as determined by the Committee as necessary to comply with
applicable foreign laws. The Committee may take any action which it deems
advisable to obtain approval of such Option by the appropriate foreign
governmental entity; provided, however, that no such Award may be granted
pursuant to this Section X and no action may be taken which would result in a
violation of the Exchange Act, the Code or any other applicable law.
XI. Stock Appreciation Rights.
The Committee shall have the authority to grant SARs to Eligible
Employees, Officers, Executive Officers and Eligible Non-Employees either alone
or in connection with an Option. SARs granted in connection with an Option shall
be granted either at the time of grant of the Option or by amendment to the
Option. SARs granted in connection with an Option shall be subject to the same
terms and conditions as the related Option and shall be exercisable only at such
times and to such extent as the related Option is exercisable. A SAR granted in
connection with an Option may be exercised only when the Fair Market Value of
the Common Stock of the Company exceeds the Option Price of the related Option.
A SAR granted in connection with an Option shall entitle the Participant to
surrender to the Company unexercised the related Option, or any portion thereof
and to receive from the Company cash and/or shares of Common Stock equal to that
number of shares of Common Stock having an aggregate value equal to the excess
of (i) the Fair Market Value of one share of Common Stock on the day of the
surrender of such Option over (ii) the Option Price per share of Common Stock
multiplied by (iii) the number of shares of Common Stock that may be exercised
under the Option, or surrendered; provided, however, that no fractional shares
shall be issued. A SAR granted singly shall entitle the Participant to receive
the excess of (i) the Fair Market Value of a share of Common Stock on the date
of exercise over (ii) the Fair Market Value of a share of Common Stock on the
date of the grant of the SAR multiplied by (iii) the number of SARs exercised.
Payment of any fractional shares of Common Stock shall be made in cash. A SAR
shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii)
the death of a Participant.
XII. Restricted Stock.
The Committee may, in its sole discretion, grant Restricted Stock to
Eligible Employees, Eligible Non-Employees, Officers or Executive Officers
subject to the provisions below.
A. Restrictions. A stock certificate representing the number of shares of
Restricted Stock granted shall be held in custody by the Company for the
Participant's account. The Participant shall have all rights and privileges of a
stockholder as to such Restricted Stock, including the right to receive
dividends and the right to vote such shares, except that, subject to the
provisions of Paragraph B. below, the following restrictions shall apply: (i)
the Participant shall not be entitled to delivery of the certificate until the
expiration of the Restricted Period; (ii) none of the shares of Restricted Stock
may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed
of during the Restricted Period; (iii) the Participant shall, if requested by
the Company, execute and deliver to the Company, a stock power endorsed in
blank. The Restricted Period shall lapse upon a Participant becoming Disabled or
the death of a Participant. If a Participant ceases to be an employee of the
Company or a Related Entity prior to the expiration of the Restricted Period
applicable to such shares, except as a result of the death or Disability of the
Participant, shares of Restricted Stock still subject to restrictions shall be
forfeited unless otherwise determined by the Committee, and all rights of the
Participant to such shares shall terminate without further obligation on the
part of the Company. Upon the forfeiture (in whole or in part) of shares of
Restricted Stock, such forfeited shares shall become shares of Common Stock held
in the Company's treasury without further action by the Participant.
B. Terms and Conditions. The Committee shall establish the terms and conditions
for Restricted Stock pursuant to Section III of the Plan, including whether any
shares of Restricted Stock shall have voting rights or a right to any dividends
that are declared. Terms and conditions established by the Committee need not be
the same for all grants of Restricted Stock. The Committee may provide for the
restrictions to lapse with respect to a portion or portions of the Restricted
Stock at different times or upon the occurrence of different events, and the
Committee may waive, in whole or in part, any or all restrictions applicable to
a grant of Restricted Stock. Restricted Stock Awards may be issued for no cash
consideration or for such minimum consideration as may be required by applicable
law or such other consideration as may be determined by the Committee.
C. Delivery of Restricted Shares. At the end of the Restricted Period as herein
provided, a stock certificate for the number of shares of Restricted Stock with
respect to which the restrictions have lapsed shall be delivered (less any
shares delivered pursuant to Section XIX.C in satisfaction of any withholding
tax obligation), free of all such restrictions, except applicable securities law
restrictions, to the Participant or the Participant's estate, as the case may
be. The Company shall not be required to deliver any fractional share of Common
Stock but shall pay, in lieu thereof, the Fair Market Value (measured as of the
date the restrictions lapse) of such fractional share to the Participant or the
Participant's estate, as the case may be. Notwithstanding the foregoing, the
Committee may authorize the delivery of the Restricted Stock to a Participant
during the Restricted Period, in which event any stock certificates in respect
of shares of Restricted Stock thus delivered to a Participant during the
Restricted Period applicable to such shares shall bear an appropriate legend
referring to the terms and conditions, including the restrictions, applicable
thereto.
XIII. Phantom Units.
A. General. The Committee may, in its sole discretion, grant the right to earn
Phantom Units to Eligible Employees, Officers, Executive Officers and Eligible
Non-Employees. The Committee shall determine the criteria for the earning of
Phantom Units, pursuant to Section III of the Plan. Upon satisfaction of such
criteria, a Phantom Unit shall be deemed a Vested Award. A Phantom Unit granted
by the Committee shall provide for payment in shares of Common Stock. A Phantom
Unit shall become a Vested Award upon (i) a Participant becoming Disabled, or
(ii) the death of a Participant. Shares of Common Stock issued pursuant to this
Section XIII may be issued for no cash consideration or for such minimum
consideration as may be required by applicable law or such other consideration
as may be determined by the Committee. The Committee shall determine whether a
Participant granted a Phantom Unit shall be entitled to a Dividend Equivalent
Right.
B. Unfunded Claim. The establishment of Phantom Units under the Plan are
unfunded obligations of the Company. The interest of a Participant in any such
units shall be considered a general unsecured claim against the Company to the
extent that the conditions for the earning of the Phantom Units have been
satisfied. Nothing contained herein shall be construed as creating a trust or
fiduciary relationship between the Participant, the Company or the Committee.
C. Issuance of Common Stock. Upon a Phantom Unit becoming a Vested Award,
unless a Participant has elected to defer under Paragraph D. below, shares of
Common Stock representing the Phantom Units shall be distributed to the
Participant, unless the Committee, with the consent of the Participant, provides
for the payment of the Phantom Units in cash or partly in cash and partly in
shares of Common Stock equal to the value of the shares of Common Stock which
would otherwise be distributed to the Participant.
D. Deferral of Phantom Units. Prior to the year with respect to which a Phantom
Unit may become a Vested Award, the Participant may elect not to receive Common
Stock upon the vesting of such Phantom Unit and for the Company to continue to
maintain the Phantom Unit on its books of account. In such event, the value of a
Phantom Unit shall be payable in shares of Common Stock pursuant to the
agreement of deferral.
E. Financial Hardship. Notwithstanding any other provision hereof, at the
written request of a Participant who has elected to defer pursuant to Paragraph
D. above, the Committee, in its sole direction, upon a finding that continued
deferral will result in financial hardship to the Participant, may authorize the
payment of all or a part of a Participant's Vested Phantom Units in a single
installment or the acceleration of payment of any multiple installments thereof;
provided, however, that distributions will not be made under this paragraph if
such distribution would result in liability of an Executive Officer under
Section 16 of the Exchange Act.
F. Distribution upon Death. The Committee shall pay the Fair Market Value of
the Phantom Units of a deceased Participant to the estate of the Participant, as
soon as practicable following the death of the Participant. The value of the
Phantom Units for the purpose of such distribution shall be based upon the Fair
Market Value of shares of Common Stock underlying the Phantom Units on the date
of the Participant's death.
XIV. Stock Awards to Outside Directors.
Each Outside Director shall be granted a Stock Award on his or her
Initial Grant Date consisting of 3,000 shares of Restricted Stock, which shall
vest in 20% increments, with the first 600 shares vesting six months after the
Initial Grant Date, the next 600 shares vesting one year after the Initial Grant
Date, and the remaining shares vesting at a rate of 600 shares per year
thereafter for the next three years.
XV. Outside Director's Compensation.
A. Payment in Common Stock. Each Outside Director may elect to receive payment
of all or any portion of Director Compensation comprised of retainer fees for
service on the Board and any committees thereof in Common Stock. The amount of
Common Stock then issuable shall be based on the Fair Market Value of the Common
Stock on the dates such retainer fees are otherwise due and payable to the
Outside Director. When any fees are paid in Common Stock under this Section
XV.A, any fractional shares of Common Stock shall be paid in cash. Certificates
evidencing such Common Stock shall be delivered promptly following such date. If
an Outside Director elects to receive payment of retainer fees in Common Stock
as described in this Section XV.A, the election shall be (i) in writing, (ii)
delivered to the Secretary of the Company at least six months in advance of the
payment date, and (iii) irrevocable.
B. Deferral of Payment. Each Outside Director may elect to defer the receipt of
Common Stock payable pursuant to Section XV.A, in which event such Outside
Director shall receive an equivalent number of Phantom Units with Dividend
Equivalent Rights. Any such Phantom Units shall become Vested Awards at such
time as the Outside Director no longer serves as a member of the Board. If an
Outside Director elects to defer receipt of Common Stock and receive Phantom
Units pursuant to this Section XV.B, the election shall be (i) in writing, (ii)
delivered to the Secretary of the Company in the year preceding the year in
which the Director Compensation would otherwise be paid and at least six months
in advance of the date when Common Stock would otherwise be issued, and (iii)
irrevocable.
C. Director Stock Options. On his or her Initial Grant Date, each Outside
Director shall be granted an Option to purchase thirty thousand (30,000) shares
Common Stock, such Options to become Vested Options in 1/3 increments over three
years, beginning one year after the Initial Grant Date. On the third anniversary
of the Initial Grant Date, and each year thereafter, Outside Directors shall
receive an annual grant of an Option to purchase ten thousand (10,000) shares of
Common Stock, which Options shall become Vested Options one year after the date
of each respective grant. Upon retirement of an Outside Director from the Board,
all unvested Options shall become immediately vested and shall remain
exercisable notwithstanding the retirement of the Director from the Board, until
the expiration date of the Option, which shall occur ten years from the date of
grant.
D. Pension Replacement. After the Effective Date, no new pension benefits will
be granted to Outside Directors; however, the Company will grandfather vested
pension benefits accrued by Directors as of the Effective Date relating to
service on the Board of U S WEST, Inc. prior to the Separation. In lieu thereof,
Outside Directors shall receive a Stock Award consisting of the number of shares
of Restricted Stock determined by dividing (a) the dollar amount equal to ten
(10) times the amount of the annual retainer paid to Board members, by (b) the
closing price on recipient's Initial Grant Date for Common Stock listed on the
New York Stock Exchange as reported in the Wall Street Journal, which Stock
Award shall be subject to the following vesting schedule: (i) 50% of the Stock
Award shall vest five years after the recipient's Initial Grant Date, and (ii)
the remainder shall vest at a rate of 10% per year thereafter for the next five
years.
XVI. Federal Securities Law.
With respect to grants of Awards to Directors and Executive Officers,
the Company intends that the provisions of this Plan and all transactions
effected in accordance with Plan shall comply with Rule 16b-3 under the Exchange
Act. Accordingly, the Committee shall administer and interpret the Plan to the
extent practicable, to maintain compliance with such rule.
XVII. Change of Control; Acceleration.
Upon the occurrence of a Change of Control:
A. in the case of all outstanding Options and SARs, each such Option
and SAR shall automatically become immediately fully exercisable by the
Participant;
B. restrictions applicable to Restricted Stock shall automatically be
deemed lapsed and conditions applicable to Phantom Units shall automatically be
deemed waived, and the Participants who receive such grants shall become
immediately entitled to receipt of the Common Stock subject to such grants; and
C. the Human Resources Committee, in its discretion, shall have the
right to accelerate payment of any deferrals of Vested Phantom Units.
XVIII. Adjustment of Shares.
A. In the event there is any change in the Common Stock by reason of
any consolidation, combination, liquidation, reorganization, recapitalization,
stock dividend, stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares or other like change in capital structure of the
Company, the number or kind of shares or interests subject to an Award and the
per share price or value thereof shall be appropriately adjusted by the
Committee at the time of such event, provided that each Participant's economic
position with respect to the Award shall not, as a result of such adjustment, be
worse than it had been immediately prior to such event. Any fractional shares or
interests resulting from such adjustment shall be rounded up to the next whole
share of Common Stock. Notwithstanding the foregoing, (i) each such adjustment
with respect to an Incentive Option shall comply with the rules of Section
424(a) of the Code, and (ii) in no event shall any adjustment be made which
would render any Incentive Option granted hereunder other than an "incentive
stock option" for purposes of Section 422 of the Code.
B. In the event of an acquisition by the Company of another corporation
where the Company assumes outstanding stock options or similar obligations of
such corporation, the number of Awards available under the Plan shall be
appropriately increased to reflect the number of such options or other
obligations assumed.
XIX. Substitute Options.
Options, shares of Restricted Stock and Phantom Units issued in
substitution of outstanding options for U S WEST Communications Group Stock,
restricted shares of U S WEST Communications Group Stock and phantom units with
respect to U S WEST Communications Group Stock pursuant to the terms of the
Employee Matters Agreement entered into by the Company and MediaOne Group, Inc.
(previously known as "U S WEST, Inc.") shall be administered pursuant to the
provisions of the Plan to the extent not inconsistent with the terms of the
grant of such options, restricted stock and phantom units and such Employee
Matters Agreement.
XX. Miscellaneous Provisions.
A. Assignment or Transfer. Except as otherwise permitted by this Section, no
grant of any "derivative security" (as defined in the rules issued under Section
16 of the Exchange Act) made under the Plan or any rights or interests therein
shall be assignable or transferable except by last will and testament or the
laws of descent and distribution. No grant of any such derivative security shall
be assignable or transferable pursuant to a domestic relations order. An
Optionee who is an Officer or an Outside Director may assign or transfer an
Option (other than an Incentive Option) as a gift to one or more members of his
or her immediate family or to trusts maintained for the benefit of such
immediate family members if such assignment or transfer is not pursuant to a
domestic relations order and (i) such assignment or transfer is expressly
approved in advance by the Committee or its delegate(s) or (ii) such Option was
granted to the Optionee on or after August 15, 1996, and the Agreement
pertaining to such Option expressly permits the assignment or transfer of the
Option.
B. Investment Representation; Legends. The Committee may require each
Participant acquiring shares of Common Stock pursuant to an Award to represent
to and agree with the Company in writing that such Participant is acquiring the
shares without a view to distribution thereof. No shares of Common Stock shall
be issued pursuant to an Award until all applicable securities law and other
legal and stock exchange requirements have been satisfied. The Committee may
require the placing of stop-orders and restrictive legends on certificates for
Common Stock as it deems appropriate.
C. Withholding Taxes. In the case of distributions of Common Stock or other
securities hereunder, the Company, as a condition of such distribution, may
require the payment (through withholding from the Participant's salary, payment
of cash by the Participant, reduction of the number of shares of Common Stock or
other securities to be issued (except in the case of an Incentive Option), or
otherwise) of any federal, state, local or foreign taxes required by law to be
withheld with respect to such distribution.
D. Costs and Expenses. The costs and expenses of administering the Plan shall
be borne by the Company and shall not be charged against any Award nor to any
Participant receiving an Award.
E. Other Incentive Plans. The adoption of the Plan does not preclude the
adoption by appropriate means of any other incentive plan for employees.
F. Effect on Employment. Nothing contained in the Plan or any agreement related
hereto or referred to herein shall affect, or be construed as affecting, the
terms of employment of any Participant except to the extent specifically
provided herein or therein. Nothing contained in the Plan or any agreement
related hereto or referred to herein shall impose, or be construed as imposing,
an obligation on (i) the Company or any Related Entity to continue the
employment of any Participant and (ii) any Participant to remain in the employ
of the Company or any Related Entity.
G. Noncompetition. Any Agreement may contain, among other things, provisions
prohibiting Participants from competing with the Company or any Related Entity
in a form or forms acceptable to the Committee, in its sole discretion.
H. Governing Law. This Plan and actions taken in connection herewith shall be
governed and construed in accordance with the laws of the State of Colorado.
XXI. Amendment or Termination of Plan.
The Board shall have the right to amend, modify, suspend or terminate
the Plan at any time, provided that, with respect to Incentive Options, no
amendment shall be made that (i) decreases the minimum Option Price in the case
of any Incentive Option, or (ii) modifies the provisions of the Plan with
respect to Incentive Options, unless such amendment is made by or with the
approval of the stockholders or unless the Board receives an opinion of counsel
to the Company that stockholder approval is not necessary with respect to any
modifications relating to Incentive Options; and provided further that no
amendment shall be made that (i) increases the number of shares of Common Stock
that may be issued under the Plan, (ii) permits the Option Price for any Option
to be less than Fair Market Value on the date such Option is granted, or (iii)
extends the period during which awards may be granted under the Plan beyond five
(5) years from the Effective Date, unless such amendment is made by or with the
approval of stockholders. No amendment, modification, suspension or termination
of the Plan shall alter or impair any Awards previously granted under the Plan,
without the consent of the holder thereof.
Exhibit 12
U S WEST, Inc.
RATIO OF EARNINGS TO FIXED CHARGES (1)
(Dollars in Millions)
<TABLE>
<CAPTION>
Quarter Ended
9/30/98 9/30/97
- ------------------------------------------ --------- --------
<S> <C> <C>
Income before income taxes
and extraordinary item $ 608 $ 674
Interest expense (net of amounts
capitalized) 172 100
Interest factor on rentals (1/3) 20 23
--------- --------
Earnings $ 800 $ 797
Interest expense $ 178 $ 104
Interest factor on rentals (1/3) 20 23
--------- --------
Fixed charges $ 198 $ 127
Ratio of earnings to fixed charges 4.04 6.28
- ------------------------------------------ --------- --------
Nine Months Ended
9/30/98 9/30/97
- ------------------------------------------ --------- --------
Income before income taxes
and extraordinary item $ 1,843 $ 2,011
Interest expense (net of amounts
capitalized) 378 304
Interest factor on rentals (1/3) 64 65
--------- --------
Earnings $ 2,285 $ 2,380
Interest expense $ 395 $ 319
Interest factor on rentals (1/3) 64 65
--------- --------
Fixed charges $ 459 $ 384
Ratio of earnings to fixed charges 4.98 6.20
- ------------------------------------------ --------- --------
<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>
Exhibit 12 (Continued)
U S WEST, INC.
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES (1)
(Dollars in Millions)
<TABLE>
<CAPTION>
Quarter Ended
9/30/98 9/30/97
- ------------------------------------------ --------- ---------
<S> <C> <C>
Pro forma income before income taxes
and extraordinary item $ 608 $ 609
Interest expense (net of amounts
capitalized) 172 165
Interest factor on rentals (1/3) 20 23
--------- ---------
Earnings $ 800 $ 797
Interest expense $ 178 $ 169
Interest factor on rentals (1/3) 20 23
--------- ---------
Fixed charges $ 198 $ 192
Ratio of earnings to fixed charges 4.04 4.15
- ------------------------------------------ --------- ---------
Nine Months Ended
9/30/98 9/30/97
- ------------------------------------------ --------- ---------
Pro forma income before income taxes
and extraordinary item $ 1,726 $ 1,815
Interest expense (net of amounts
capitalized) 495 500
Interest factor on rentals (1/3) 64 65
--------- ---------
Earnings $ 2,285 $ 2,380
Interest expense $ 512 $ 515
Interest factor on rentals (1/3) 64 65
--------- ---------
Fixed charges $ 576 $ 580
Ratio of earnings to fixed charges 3.97 4.10
- ------------------------------------------ --------- ---------
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001054522
<NAME> U S WEST, INC.
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 22 22
<SECURITIES> 0 0
<RECEIVABLES> 1,735 1,735
<ALLOWANCES> 0 0
<INVENTORY> 248 248
<CURRENT-ASSETS> 2,553 2,553
<PP&E> 34,840 34,840
<DEPRECIATION> 20,342 20,342
<TOTAL-ASSETS> 18,061 18,061
<CURRENT-LIABILITIES> 5,258 5,258
<BONDS> 7,920 7,920
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 625 625
<TOTAL-LIABILITY-AND-EQUITY> 18,061 18,061
<SALES> 3,112 9,174
<TOTAL-REVENUES> 3,112 9,174
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,313 6,876
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 172 378
<INCOME-PRETAX> 608 1,843
<INCOME-TAX> 229 703
<INCOME-CONTINUING> 379 1,140
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 379 1,140
<EPS-PRIMARY> 0.76 2.32
<EPS-DILUTED> 0.75 2.30
</TABLE>
