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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, 1999
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.
(Exact name of registrant as specified in its charter)
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A Delaware Corporation 84-0953188
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
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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 29, 1999, 505,306,250 shares of common stock were outstanding.
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U S WEST, Inc.
Form 10-Q
TABLE OF CONTENTS
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Item Page
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Income -
Three months and nine months ended September 30, 1999 and 1998................ 3
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998....................................... 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998................................. 5
Notes to Consolidated Financial Statements...................................... 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. 16
3. Quantitative and Qualitative Disclosures
About Market Risk................................................................ 26
PART II - OTHER INFORMATION
1. Legal Proceedings....................................................................... 33
2. Changes in Securities and Use of Proceeds............................................... 33
4. Submission of Matters to a Vote of Security Holders..................................... 34
5. Recent Developments..................................................................... 35
6. Exhibits and Reports on Form 8-K........................................................ 35
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U S WEST, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues:
Local services...................................... $1,979 $1,805 $5,779 $5,291
Access services..................................... 688 660 2,057 1,996
Directory services.................................. 336 313 995 929
Long-distance services.............................. 141 202 471 606
Other services...................................... 173 132 455 352
------------ ------------ ------------- ------------
Total operating revenues......................... 3,317 3,112 9,757 9,174
------------ ------------ ------------- ------------
Operating expenses:
Employee-related expenses........................... 1,195 1,104 3,473 3,179
Other operating expenses............................ 657 651 1,996 2,072
Depreciation and amortization....................... 588 558 1,763 1,625
------------ ------------ ------------- ------------
Total operating expenses......................... 2,440 2,313 7,232 6,876
------------ ------------ ------------- ------------
Operating income.......................................... 877 799 2,525 2,298
------------ ------------ ------------- ------------
Other expense:
Interest expense.................................... 203 172 519 378
Terminated merger-related expenses.................. 282 - 282 -
Other (income) expense-net.......................... (4) 19 10 77
------------ ------------ ------------- ------------
Total other expense-net.......................... 481 191 811 455
------------ ------------ ------------- ------------
Income before income taxes................................ 396 608 1,714 1,843
Provision for income taxes................................ 257 229 757 703
------------ ------------ ------------- ------------
Net income................................................ $139 $379 $957 $1,140
============ ============ ============= ============
Basic earnings per share.................................. $0.28 $0.76 $1.90 $2.32
============= =========== ============== ============
Basic average shares outstanding (in 000's)............... 504,771 501,807 504,009 491,608
============= =========== ============== ============
Diluted earnings per share................................ $0.27 $0.75 $1.88 $2.30
============= =========== ============== ============
Diluted average shares outstanding (in 000's)............. 509,014 505,949 508,511 495,718
============= =========== ============== ============
Dividends per share....................................... $0.535 $0.535 $1.820 $1.605
============= =========== ============== ============
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The accompanying notes are an integral part of the consolidated financial
statements.
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U S WEST, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share amounts)
September 30, December 31,
1999 1998
---- ----
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents....................................................... $55 $49
Accounts receivable, less allowance for uncollectibles of
$77 and $69, respectively..................................................... 1,785 1,743
Inventories and supplies........................................................ 257 197
Deferred directory costs........................................................ 273 274
Deferred tax assets............................................................. 163 151
Prepaid and other............................................................... 118 78
----------------- -----------------
Total current assets............................................................... 2,651 2,492
Property, plant and equipment-net.................................................. 15,705 14,908
Other assets-net................................................................... 2,604 1,007
----------------- -----------------
Total assets....................................................................... $20,960 $18,407
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................................. $3,379 $1,277
Accounts payable................................................................ 1,436 1,347
Accrued expenses................................................................ 1,762 1,702
Advance billings and customer deposits.......................................... 385 370
----------------- -----------------
Total current liabilities.......................................................... 6,962 4,696
Long-term debt..................................................................... 9,754 8,642
Postretirement and other postemployment benefit obligations........................ 2,635 2,643
Deferred income taxes.............................................................. 454 786
Unamortized investment tax credits................................................. 158 159
Deferred credits and other......................................................... 845 726
Commitments and Contingencies
Stockholders' equity:
Preferred stock - $1.00 par value, 190,000,000 shares authorized, none issued
and outstanding.............................................................. - -
Series A junior preferred stock-$1.00 par value, 10,000,000 shares authorized,
none issued and outstanding.................................................. - -
Common stock-$0.01 par value, 2,000,000,000 shares authorized, 505,305,886 and
503,207,058 issued, 505,001,883 and 502,903,055 outstanding.................
617 532
Retained earnings............................................................... 264 223
Accumulated other comprehensive loss............................................ (729) -
----------------- -----------------
Total stockholders' equity......................................................... 152 755
----------------- -----------------
Total liabilities and stockholders' equity......................................... $20,960 $18,407
================= =================
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The accompanying notes are an integral part of the consolidated financial
statements.
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U S WEST, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
Nine Months Ended
September 30,
1999 1998
---- ----
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OPERATING ACTIVITIES
Net income................................................................................ $957 $1,140
Adjustments to net income:
Depreciation and amortization....................................................... 1,763 1,625
Deferred income taxes and amortization of investment tax credits.................... 131 102
Changes in operating assets and liabilities:
Accounts receivable................................................................. (42) (18)
Inventories, supplies and other current assets...................................... (93) (49)
Accounts payable, accrued expenses and advance billings............................. 155 116
Other............................................................................... 81 34
-------------- --------------
Cash provided by operating activities............................................... 2,952 2,950
-------------- --------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment......................................... (2,681) (1,937)
Payments on disposals of property, plant and equipment................................. (30) (14)
Investment in Global Crossing Ltd. common stock........................................ (2,464) -
Other.................................................................................. (11) (57)
-------------- --------------
Cash used for investing activities..................................................... (5,186) (2,008)
-------------- --------------
FINANCING ACTIVITIES
Net proceeds from short-term debt...................................................... 2,102 1,519
Proceeds from issuance of long-term debt............................................... 1,302 3,066
Repayments of long-term debt........................................................... (307) (411)
Repayments of Old U S WEST debt in connection with the Dex Alignment................... - (3,829)
Net repayments of Old U S WEST debt.................................................... - (198)
Proceeds from issuance of common stock................................................. 60 60
Dividends paid on common stock......................................................... (917) (787)
Dividends paid to Old U S WEST......................................................... - (194)
Payment to Old U S WEST for debt refinancing costs..................................... - (140)
Return of capital from Old U S WEST.................................................... - 13
Purchases of treasury stock............................................................ - (46)
-------------- --------------
Cash provided by (used in) financing activities........................................ 2,240 (947)
-------------- --------------
CASH AND CASH EQUIVALENTS
Increase (decrease).................................................................... 6 (5)
Beginning balance...................................................................... 49 27
-------------- --------------
Ending balance......................................................................... $55 $22
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 1999
(dollars in millions, except per share amounts)
(unaudited)
NOTE 1: U S WEST SEPARATION
On June 12, 1998, our former parent company ("Old U S WEST"), separated
into two independent companies (the "Separation"). Old U S WEST conducted its
businesses through two groups: (i) the U S WEST Communications Group (the
"Communications Group"), which included the communications businesses of Old U S
WEST, and (ii) the U S WEST Media Group (the "Media Group"), which included the
multimedia and directories businesses of Old U S WEST. As part of the
Separation, Old U S WEST contributed to us the businesses of the Communications
Group and the domestic directories business of the Media Group known as U S WEST
Dex, Inc. ("Dex"). The alignment of Dex with U S WEST, Inc. (the "Company" or "U
S WEST") is referred to in this document as the "Dex Alignment." Old U S WEST
continues to operate as an independent public company comprised of the
businesses of Media Group other than Dex and has been renamed MediaOne Group,
Inc.
In connection with the Dex Alignment, (i) Old U S WEST distributed to
holders of Media Group common stock, approximately 16,341,000 shares of our
common stock (net of the redemption of approximately 305,000 fractional shares)
with an aggregate of $850 in value (the "Dex Dividend") and (ii) we refinanced
$3,900 of Old U S WEST debt (the "Dex Indebtedness"), formerly allocated to
Media Group.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include
the consolidated results of operations, financial position 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 financial effects of the Separation and the Dex Alignment,
including interest expense associated with refinancing the Dex Indebtedness and
the dilutive effect of the Dex Dividend, are not reflected in the accompanying
consolidated statements of income prior to the Separation.
For periods prior to the Separation, the consolidated financial
statements include an allocation of certain costs, expenses, assets and
liabilities from Old U S WEST. We believe the allocations were reasonable;
however the amount of costs allocated to us were not necessarily indicative of
the costs we would have incurred if we had operated as a stand-alone company.
The consolidated financial statements may not reflect the future financial
position, results of operations or cash flows or what they would have been had
we operated as a separate, stand-alone company during such periods.
The consolidated interim financial statements are unaudited. We
prepared the financial statements in accordance with the instructions for Form
10-Q and therefore, did not include all information and footnotes required by
generally accepted accounting principles. In our opinion, we made all the
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present our consolidated results of operations, financial position and
cash flows as of September 30, 1999 and for all periods presented. The financial
statements are subject to year-end audit adjustment. A description of our
accounting policies and other financial information are included in the audited
consolidated financial statements filed with the Securities and Exchange
Commission in our Form 10-K/A for the year ended December 31, 1998. The
consolidated results of operations for the three and nine months ended September
30, 1999 are not necessarily indicative of the results expected for the full
year.
We reclassified prior period revenue amounts to conform to the current
year presentation. For a description of the reclassifications, see our Form 8-K
filed April 21, 1999.
On January 1, 1999, we adopted the accounting provisions required by
the American Institute of Certified Public Accountants' Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." 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.
Adoption of the SOP resulted in an increase in net income for the three months
ended September 30, 1999 of $42, or $0.08 per diluted share and $141, or $0.28
per diluted share for the nine months ended September 30, 1999. We expect that
the impact for fiscal year 1999 will be to increase net income by approximately
$150 to $180 or $0.30 to $0.35 per diluted share.
NOTE 3: EARNINGS PER SHARE
The following table is a reconciliation of basic weighted average
shares to diluted weighted average shares (shares in thousands):
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Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------------- ------------------------------
1999 1998 1999 1998
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Basic weighted average shares outstanding....... 504,771 501,807 504,009 491,608
Dilutive effect of stock options................ 4,243 4,142 4,502 4,110
-------------- ------------- ------------- -----------
Diluted weighted average shares outstanding..... 509,014 505,949 508,511 495,718
============== ============= ============= ===========
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Certain of the financial effects of the Separation and the Dex
Alignment, including interest expense associated with the refinancing of the Dex
Indebtedness and dilutive effects of the Dex Dividend, are not reflected in the
consolidated statements of income prior to the Separation. The following
presents earnings per share for the nine months ended September 30, 1998 on a
pro forma basis. The pro forma earnings per share amounts give effect to the Dex
Indebtedness and issuance of approximately 16,341,000 shares (net of the
redemption of 305,000 fractional shares) of common stock in connection with the
Dex Alignment as if such transactions had been consummated as of January 1, 1998
(shares in thousands).
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Basic Earnings Per Share
Net income....................................... $1,140
Pro forma adjustment(1).......................... (72)
-----------------
Pro forma net income............................. $1,068
=================
Basic weighted average shares(2)................. 491,608
Pro forma adjustment(3).......................... 9,937
-----------------
Pro forma basic weighted average shares.......... 501,545
=================
Pro forma basic earnings per share............... $2.13
=================
Diluted Earnings Per Share
- - --------------------------
Net income....................................... $1,140
Pro forma adjustment(1).......................... (72)
-----------------
Pro forma net income............................. $1,068
=================
Diluted weighted average shares(2)............... 495,718
Pro forma adjustment(3).......................... 9,937
-----------------
Pro forma diluted weighted average shares........ 505,655
=================
Pro forma diluted earnings per share............. $2.11
=================
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<F1>
(1) Reflects incremental (after-tax) interest expense associated with the Dex
Indebtedness.
<F2>
(2) Historical average shares assume a one-for-one conversion of historical
Communications Group common stock outstanding into shares of U S WEST as of
the Separation.
<F3>
(3) Reflects the issuance of approximately 16,341 shares of common stock (net
of the redemption of approximately 305 fractional shares) issued in
connection with the Dex Alignment as if the shares were issued at the
beginning of the period.
</FN>
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NOTE 4: SEGMENT INFORMATION
We operate in four segments: retail services, wholesale services,
network services and directory services. The retail services segment provides
local telephone services, including wireless, data and long-distance services.
The wholesale services segment provides access services that connect customers
to the facilities of interexchange carriers and interconnection to our
telecommunications network to competitive local exchange carriers. Our network
services segment provides access to our telecommunications network, including
our information technologies, primarily to our retail services and wholesale
services segments. The directory services segment publishes White and Yellow
Pages telephone directories, provides electronic directory and other information
services. We provide our services to more than 25 million residential and
business customers in Arizona, Colorado, Idaho, Iowa, Minnesota, Montana,
Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and
Wyoming.
Following is a breakout of our segments. Because significant operating
expenses of the retail services and wholesale services segments are not
allocated to the segments for decision-making purposes, management does not
believe the segment margins are representative of the actual operating results
of the segments. The margins for the retail services and wholesale services
segments exclude network and corporate expenses. The margins for the network and
directory services segment exclude corporate expenses. The "other" category
includes our corporate expenses and intersegment eliminations.
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Total
Communications
and
Retail Wholesale Network Related Directory Reconciling Consolidated
Services Services Services Services Services Other Items Total
-------- -------- -------- -------- -------- ----- ----- -----
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Three Months Ended
September 30,
1999
- - ----
Operating
revenues..... $2,270 $725 $63 $3,058 $338 $- ($79) (1) $3,317
Margin....... 1,560 549 (699) 1,410 190 (34) (1,170) (2) 396
Assets....... -(3) -(3) -(3) -(3) 546 -(3) 20,414(3) 20,960
Capital
expenditures. 144(4) 25 877 1,046 10 (5) - 1,051
1998
- - ----
Operating
revenues..... $2,157 $643 $51 $2,851 $316 $- ($55) (1) $3,112
Margin....... 1,554 464 (726) 1,292 160 (11) (833)(2) 608
Assets....... -(3) -(3) -(3) -(3) 518 -(3) 17,543(3) 18,061
Capital
expenditures. 49(4) - 507 556 6 27 - 589
<FN>
- - -----------------------
<F1>
(1) Represents primarily intersegment charges.
<F2>
(2) Adjustments made to arrive at consolidated income before income taxes
include the following:
</FN>
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Three Months Ended September 30,
------------------------------------------
1999 1998
------------------- -------------------
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Costs and adjustments excluded from segment data
but included in the consolidated total:
Taxes other than income taxes................................... $101 $84
Depreciation and amortization................................... 588 558
Interest expense................................................ 203 172
Terminated merger-related expenses.............................. 282 -
Other (income) expense-net...................................... (4) 19
------------------- -------------------
$1,170 $833
=================== ===================
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<F1>
(3) We do not provide a breakout of assets for all segments to our chief
operating decision-maker. The reconciling items column represents the
amount to reconcile to the consolidated total.
<F2>
(4) Capital expenditures reported for the retail services segment include only
expenditures for wireless services and certain data services. Additional
capital expenditures relating to those services are included in network
services capital expenditures.
</FN>
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Total
Communications
and
Retail Wholesale Network Related Directory Reconciling Consolidated
Services Services Services Services Services Other Items Total
-------- -------- -------- -------- -------- ----- ----- -----
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Nine Months Ended
September 30,
1999
----
Operating
revenues......... $6,660 $2,134 $178 $8,972 $1,002 $- ($217) (1) $9,757
Margin........... 4,607 1,604 (2,083) 4,128 530 (70) (2,874) (2) 1,714
Assets........... -(3) -(3) -(3) -(3) 546 -(3) 20,414(3) 20,960
Capital
expenditures..... 348(4) 65 2,346 2,759 27 33 - 2,819
1998
----
Operating
revenues......... $6,337 $1,916 $150 $8,403 $936 $- ($165)(1) $9,174
Margin........... 4,662 1,423 (2,031) 4,054 472 (199) (2,484) (2) 1,843
Assets........... -(3) -(3) -(3) -(3) 518 -(3) 17,543(3) 18,061
Capital
expenditures..... 286(4) - 1,539 1,825 27 68 - 1,920
<FN>
<F1>
(1) Represents primarily intersegment charges.
<F2>
(2) Adjustments made to arrive at consolidated income before income taxes
include the following:
</FN>
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Nine Months Ended September 30,
------------------------------------------
1999 1998
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Costs and adjustments excluded from segment data but included
in the consolidated total:
Restructuring costs............................................. $- $129
Taxes other than income taxes................................... 300 275
Interest expense................................................ 519 378
Depreciation and amortization................................... 1,763 1,625
Terminated merger-related expenses.............................. 282 -
Other expense-net............................................... 10 77
------------------- -------------------
$2,874 $2,484
=================== ===================
<FN>
<F1>
(3) We do not provide a breakout of assets for all segments to our chief
operating decision-maker. The reconciling items column represents the
amount to reconcile to the consolidated total.
<F2>
(4) Capital expenditures reported for the retail services segment include
only expenditures for wireless services and certain data services.
Additional capital expenditures relating to those services are included
in network services capital expenditures.
</FN>
</TABLE>
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In addition to the operating revenues disclosed above, intersegment
operating revenues of the retail services, network services and directory
services segments were:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------- ------------------------------
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1999 1998 1999 1998
---- ---- ---- ----
Retail services................................. $13 $7 $34 $22
Network services................................ 15 16 46 48
Directory services.............................. 2 2 7 7
</TABLE>
NOTE 5: OTHER COMPREHENSIVE LOSS
Other comprehensive loss at September 30, 1999 consists of $729 of net
unrealized losses on available for sale marketable securities, which are net of
deferred taxes of $476.
Total comprehensive income (loss) for the three and nine months ended
September 30, 1999 is as follows:
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September 30, 1999
Three months ended Nine months ended
------------------ -----------------
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Net income..................................................... $139 $957
Other comprehensive loss-
Net unrealized losses on available for sale marketable
securities................................................. (815) (732)
Less reclassification adjustment for gains included in net
income..................................................... 3 3
------------------------ -----------------------
Comprehensive income (loss).................................... ($673) $228
======================== =======================
</TABLE>
NOTE 6: COMMITMENTS AND CONTINGENCIES
Commitments
We entered into an agreement with Olympic Properties of the United States
to sponsor the 2002 Salt Lake City Winter Olympics and the U.S. Olympic Teams
through 2004. As of September 30, 1999, we have a remaining commitment of $49 to
be paid in a combination of cash and services through 2004.
Contingencies
U S WEST Communications, Inc. ("USWC"), a wholly owned subsidiary, has the
following pending regulatory action in Oregon.
On May 1, 1996, the Oregon Public Utilities Commission ("OPUC") approved a
stipulation terminating prematurely USWC's alternative form of regulation
("AFOR") plan and it then undertook a review of USWC's earnings. In May 1997,
the OPUC ordered USWC 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. This one-time refund for interim rates became subject to refund when
USWC's AFOR plan was terminated on May 1, 1996.
USWC filed an appeal of the order and asked for an immediate stay of the
refund with the Oregon Circuit Court which granted USWC's 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 USWC's favor on most of the appealed issues.
The OPUC appealed to the Oregon Court of Appeals on March 19, 1998, and the
appeal remains pending. USWC continues to charge interim rates, subject to
refund, during the pendency of that appeal.
On September 9, 1999, USWC and the OPUC staff reached a tentative
settlement agreement whereby USWC would refund approximately $230 and provide
ongoing rate reductions of $63. The agreement is subject to public hearing and
final OPUC approval. We have reserved for the proposed refunds.
Other Contingencies. In 1999, twelve complaints were filed against us and
our directors in the following jurisdictions: California Superior Court, Los
Angeles County (1); New York Supreme Court, New York County (1); Colorado
District Court, City and County of Denver (2); Delaware Court of Chancery (8).
These actions are purported class actions brought on behalf of all persons,
other than the defendants, who own our common stock against us and our
directors. Each of the complaints makes substantially similar allegations that
the defendants breached their fiduciary duties to the class members by refusing
to seek all bona fide offers for the Company and refusing to consider the Qwest
Communications International Inc. ("Qwest") proposal, resulting in the
stockholders being prevented from maximizing the value of their common stock.
The complaints seek various injunctive and monetary relief, including orders: a)
requiring defendants to act in accordance with their fiduciary duties by
considering any bona fide proposal which would maximize stockholder value; b)
requiring the directors to undertake an evaluation of our Company as a
merger/acquisition candidate and take steps to enhance that value and create an
active auction for our Company; c) preventing defendants from using a
stockholder rights plan to impede any bona fide offer for our Company; d)
enjoining the consummation of the proposed Global Crossing Ltd. ("Global
Crossing")-U S WEST merger until all alternatives are explored; e) requiring
defendants to account for all damages suffered by plaintiffs as a result of
defendants' actions with respect to the tender offer for the shares of Global
Crossing common stock by us and the proposed Global Crossing-U S WEST merger;
and f) requiring defendants to pay damages to plaintiffs. We intend to
vigorously defend these actions.
On October 1, 1999, a Fifth Amended Class Action Complaint was filed in the
District Court, Larimer County, Colorado, against us and USWC purportedly on
behalf of 220,000 customers in the State of Colorado. The complaint alleges that
from 1993 to the present, we and USWC, in violation of alleged statutory and
common law obligations, willfully delayed the provision of local telephone
service to the purported class members. The complaint seeks compensatory damages
for purported class members, disgorgement of profits and punitive damages. The
Company and USWC intend to vigorously defend this action.
The New Mexico Public Regulation Commission is expected shortly to rule on
a petition by its Staff to require USWC to reduce revenues on an interim basis
by $29. Rates are interim pending the completion of a full rate case during
2000.
We are subject to other legal proceedings and claims that arise in the
ordinary course of business. Although there can be no assurance of the ultimate
disposition of these matters, it is management's opinion, based upon the
information available at this time, that the expected outcome, individually or
in the aggregate, will not have a material adverse effect on our consolidated
results of operations or financial position.
NOTE 7: MERGER AGREEMENTS
In May 1999, we entered into an agreement to merge with Global Crossing. In
connection with the Global Crossing merger agreement, in June 1999, we completed
a cash tender offer for approximately 39 million shares of Global Crossing
common stock at a price of $62.75 per share for an aggregate purchase price of
$2,464. The transaction was financed through the issuance of $1,000 of debt
securities maturing June 2000, with interest based on LIBOR, and the issuance of
commercial paper for approximately $1,500. We entered into a line of credit for
$1,500 as a backup facility in issuing the commercial paper. The line of credit
expires June 2000. Commitment fees on the unused portion of the line of credit
are .125%. As of September 30, 1999, there was no outstanding balance on the
line of credit.
In July 1999, we entered into an agreement to merge with Qwest. Under the
terms of the merger agreement, Qwest will issue shares of its common stock
having a value of $69.00 for each share of our common stock, subject to a
"collar" on Qwest's Average Price (as defined below) between $28.26 and $39.90
per share. The exchange ratio, and accordingly, the number of Qwest shares to be
issued for each U S WEST share will be determined by dividing $69.00 by the
average of the volume weighted averages of the trading prices of Qwest common
stock for the 15 trading days randomly selected by lot, by Qwest and us together
from the 30 consecutive trading days ending on the third trading day preceding
the closing of the transaction (the "Average Price"). If Qwest's Average Price
is less than $28.26, the exchange ratio will be 2.44161. If Qwest's Average
Price is greater than $39.90, the exchange ratio will be 1.72932.
The obligation, if necessary, under the "collar" may be satisfied in whole
or in part with cash if Qwest's Average Price is below $38.70 per share. In
determining the cash amount for the "collar", Qwest and our Company will
consider Qwest's desire to reduce dilution to its stockholders, our desire to
provide a cash element to our stockholders and both companies' desire to
maintain the merged company's strong financial condition. We may terminate the
merger agreement if the closing price of Qwest's shares is below $22.00 for 20
consecutive trading days before the closing, or if the Average Price of Qwest
shares during the measurement period is less than $22.00. The Boards of
Directors of both Qwest and our Company and their and our stockholders approved
the proposed merger. The merger is subject to federal and state regulatory
approvals without significant conditions and other customary closing conditions.
Closing of the merger is expected by mid-2000.
In connection with the Qwest/U S WEST merger, our Company and Global
Crossing agreed to terminate the merger agreement between us. In consideration
for terminating the merger agreement, we paid Global Crossing $140 in cash and
2,231,076 shares of Global Crossing common stock valued at $140. Qwest provided
us a $140 loan to pay for the cash portion of the termination fee. The loan
bears interest at LIBOR plus 0.15% and is due December 31, 2001. If our merger
with Qwest is terminated because we change our recommendation for the merger, we
will be obligated to repay $70 in cash to Qwest and we will receive from Qwest
1,115,538 shares of Global Crossing common stock or the market value in cash at
the time of the termination. If termination is not caused by our changing our
recommendation, Qwest will not receive reimbursement for its $140 loan and will
have to deliver to us the same number of shares of Global Crossing common stock
delivered to Global Crossing by us or pay us the market value in cash at the
time of the termination.
NOTE 8: SALE OF EXCHANGES
In June 1999, we entered into a series of definitive agreements to sell
local-exchange telephone properties serving approximately 530,000 access lines
in nine states for approximately $1,650 in cash, subject to adjustment. Approval
of the sale is subject to review by federal and state regulatory agencies. The
transfer of ownership, which will occur on a state-by-state basis, is expected
to be completed over the next two years.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in millions)
Special Note Regarding Forward-Looking Statements
Some of the information presented in this Form 10-Q constitutes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Although U S WEST, Inc. (the
"Company," which may also be referred to as "we," "us" or "our") believes that
its expectations are based on reasonable assumptions within the bounds of its
knowledge of its businesses and operations, there can be no assurance that
actual results will not differ materially from our expectations. Factors that
could cause actual results to differ from expectations include:
o greater than anticipated competition from new entrants into the local
exchange, intraLATA (local access transport area) toll, wireless, data and
directories markets, causing loss of customers and increased price
competition;
o changes in demand for our products and services, including optional custom
calling features;
o higher than anticipated employee levels, capital expenditures and operating
expenses (such as costs associated with interconnection and Year 2000
remediation);
o the loss of significant customers;
o pending and future state and federal regulatory changes affecting the
telecommunications industry, including changes that could have an impact on
the competitive environment and service pricing in the local exchange
market;
o acceleration of the deployment of advanced new services to customers, such
as broadband data, wireless and video services, which would require
substantial expenditure of financial and other resources,
o a change in economic conditions in the various markets served by our
operations;
o higher than anticipated start-up costs associated with new business
opportunities;
o delays in our ability to begin offering interLATA long-distance services;
o consumer acceptance of broadband services, including telephony, data, video
and wireless services;
o delays in the development of anticipated technologies, or the failure of
such technologies to perform according to expectations; and
o the timing and completion of the recently announced merger with Qwest
Communications International Inc. ("Qwest") and the subsequent integration
of the businesses of the two companies.
These cautionary statements should not be construed as an exhaustive list
or as any admission by us regarding the adequacy of the disclosures. We cannot
always predict or determine after the fact what factors would cause actual
results to differ materially from those indicated by our forward-looking
statements or other statements. In addition, consider statements that include
the terms "believes," "belief," "expects," "plans," "objectives," "anticipates,"
"intends," or the like to be uncertain and forward-looking. All cautionary
statements should be read as being applicable to all forward-looking statements
wherever they appear.
We do not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed herein might not occur.
General
On June 12, 1998, our former parent company, herein referred to as ("Old U
S WEST"), separated into two independent companies (the "Separation"). Old U S
WEST conducted its businesses through two groups: (i) the U S WEST
Communications Group (the "Communications Group"), which included the
communications businesses of Old U S WEST, and (ii) the U S WEST Media Group
(the "Media Group"), which included the multimedia and directories businesses of
Old U S WEST. As part of the Separation, Old U S WEST contributed to us the
businesses of the Communications Group and the domestic directories business of
the Media Group known as U S WEST Dex, Inc. ("Dex"). The alignment of Dex with
our Company is referred to in this document as the "Dex Alignment." Old U S WEST
has continued as an independent public company comprised of the businesses of
Media Group other than Dex and has been renamed MediaOne Group, Inc.
In connection with the Dex Alignment, (i) Old U S WEST distributed to
holders of Media Group common stock, approximately 16,341,000 shares of our
common stock (net of the redemption of approximately 305,000 fractional shares)
with an aggregate of $850 in value (the "Dex Dividend") and (ii) we refinanced
$3,900 of Old U S WEST debt (the "Dex Indebtedness"), formerly allocated to
Media Group.
The consolidated financial statements include the consolidated results of
operations, financial position 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 financial
effects of the Separation and the Dex Alignment, including interest expense
associated with the refinancing of the Dex Indebtedness and the dilutive effect
of the Dex Dividend, are not reflected in the consolidated statements of income
prior to the Separation.
Results of Operations
Three and Nine Months Ended September 30, 1999 Compared with 1998
Several non-recurring items impacted net income for the three and nine
months ended September 1999 and 1998. Results of operations normalized to
exclude the effects of such items, are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
---- ---- ---------- ---- ---- ----------
Net income ................ $139 $379 ($240) (63.3%) $957 $1,140 ($183) (16.1)%
Non-recurring items........ 282(1) - 282 - 282(1) 89(2) 193 216.9
-------------------------------------------- ---------------------------------------------
Normalized income.......... $421 $379 $42 11.1% $1,239 $1,229 $10 0.8%
============================================ =============================================
Diluted earnings per share. $0.27 $0.75 ($0.48) (64.0%) $1.88 $2.30 ($0.42) (18.3%)
Non-recurring items........ 0.56(1) - 0.56 - 0.56(1) 0.17(2) 0.39 229.4
-------------------------------------------- ---------------------------------------------
Normalized diluted
earnings per share...... $0.83 $0.75 $0.08 10.7% $2.44 $2.48(3) ($0.04) (1.6%)
============================================ =============================================
<FN>
<F1>
(1) Reflects terminated merger-related expenses.
<F2>
(2) Reflects charges for Separation costs and an asset impairment.
<F3>
(3) Does not foot due to rounding.
</FN>
</TABLE>
Net income, normalized for non-recurring items, increased by $42, or 11.1%
to $421 for the quarter ended September 30, 1999 and increased $10, or 0.8% to
$1,239 for the nine months ended September 30, 1999. We experienced a 6.6% and
6.4% increase in revenues for the three and nine months ended September 30,
1999, respectively, over the comparable 1998 periods. These increases were
partially offset by increases in expenses to support our growth initiatives,
enhance customer service and greater network costs.
The following sections provide a more detailed discussion of the changes in
revenues and expenses.
Operating Revenues
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Local services revenues......... $1,979 $1,805 $174 9.6% $5,779 $5,291 $488 9.2%
</TABLE>
Local services revenues. Local services revenues include basic monthly service
fees, fees for calling services such as voice messaging and caller
identification, wireless revenues, subscriber access line charges, MegaBit(TM)
data services, local number portability ("LNP") charges, public phone revenues,
and installation and connection charges. State public service commissions
regulate most local service rates.
Local services revenues increased primarily due to greater sales of
wireless and calling services. Wireless services accounted for $44 and $116 of
the revenue increases for the three and nine months ended September 30, 1999,
respectively. Revenues from calling services increased $30 for the quarter ended
September 30, 1999 and $96 for the nine months ended September 30, 1999, over
comparable 1998 periods. Additionally, access line growth contributed to the
rise in revenues. Second line additions by residential and small business
customers contributed to access line growth due to continuing demand for
Internet access and data transport capabilities. As of the end of the third
quarter of 1999, we had added 504,000 access lines, an increase of 3.1% over the
end of the third quarter of 1998. Of this increase, residential second line
installations accounted for 240,000 lines, an increase of 16.0% compared with
the end of the third quarter of 1998. Also contributing to the revenue growth
were greater revenues from inside wire maintenance plans, LNP charges,
interconnection revenues and increases in the subscriber base of our Megabit(TM)
data services. Partially offsetting these increases were net regulatory rate
adjustments and refunds of $2 for the three months ended September 30, 1999 and
$21 for the nine months ended September 30, 1999, over the comparable 1998
periods.
While local services revenues increased in 1999, the growth rate has
declined from 1998. The decline in the growth rate was primarily attributable to
increased competition as well as our customer retention strategy of offering
bundles of services to customers at lower prices in return for entering into
longer-term contracts. Additionally, some business customers have opted to
migrate from multiple single lines to high capacity lines, which decreases local
services revenues but increases access services revenues. We believe we may
continue to experience declining growth rates as the level of customer demand
slows and competition increases. In June 1999, we entered into a series of
definitive agreements to sell 530,000 access lines in nine states for $1,650 in
cash, subject to adjustment. The access lines accounted for 3.8% of fiscal 1998
local services revenues. While the sale is expected to provide us with a
one-time gain, it will negatively impact future local services revenue growth.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Access services revenues........ $688 $660 $28 4.2% $2,057 $1,996 $61 3.1%
</TABLE>
Access services revenues. Access services revenues are derived primarily from
charging interexchange carriers, such as AT&T and MCI WorldCom, for use of our
local network to connect customers to their long-distance networks. Also
included in access services revenues are special access and private line
revenues from end-users buying dedicated local exchange capacity to support
their private networks.
The growth in access services revenues was attributable to increased demand
for private line and special access services which increased $48 for the quarter
ended September 30, 1999 and $134 for the nine months ended September 30, 1999
over the comparable 1998 periods. Additionally, demand from interexchange
carriers contributed to the revenue increase. Access minutes of use increased
5.3% and 5.2%, respectively, for the three and nine months ended September 30,
1999. The growth in access minutes of use was partially offset by mandated rate
reductions of $52 for the three months ended September 30, 1999 and $113 for the
nine months ended September 30, 1999.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directory services
revenues...................... $336 $313 $23 7.3% $995 $929 $66 7.1%
</TABLE>
Directory services. Directory services revenues are primarily derived from
selling advertising in our published directories. The increases in directory
services revenues were primarily attributable to increased sales of premium
advertisements and price changes.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Decrease 1999 1998 Decrease
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-distance
services revenues.......... $141 $202 ($61) (30.2%) $471 $606 ($135) (22.3%)
</TABLE>
Long-distance services revenues. Long-distance services revenues are derived
from customer calls to locations outside of their local calling area but within
the same LATA. The decrease in long-distance services revenues for the three and
nine months ended September 30, 1999 was primarily attributable to greater
competition, strategic price reductions, and the expansion in the number and
size of extended area services, resulting in revenue declines of $55 and $118,
respectively. Mandated rate reductions of $8 and $25 for the three and nine
months ended September 30, 1999, respectively, also contributed to the revenue
decreases. As of September 30, 1999, customers in the 14 states in which we
operate were able to choose an alternative provider for intraLATA calls without
dialing a special access code when placing a call.
We believe we will continue to experience further declines in long-distance
services revenues as regulatory actions provide for increased levels of
competition. We are responding to competition through competitive pricing of
intraLATA long-distance services and increased promotional efforts to retain
customers. See "Special Note Regarding Forward-Looking Statements" on page 16.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other services revenues......... $173 $132 $41 31.1% $455 $352 $103 29.3%
</TABLE>
Other services revenues. Other services revenues include billing and collection
services for interexchange carriers, customer equipment sales and sales of other
unregulated products, such as U S WEST.net(R), our Internet service. Other
services revenues increased primarily as a result of increased subscribers for U
S WEST.net(R) and customer equipment sales.
Operating Expenses
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Employee-related expenses.....
$1,195 $1,104 $91 8.2% $3,473 $3,179 $294 9.2%
</TABLE>
Employee-related expenses. Employee-related expenses include salaries and wages,
benefits, payroll taxes and contract labor.
Employee related expenses for 1998 include $21 of costs related to the
third quarter 1998 work stoppage. Excluding these costs, employee-related
expenses increased 10.3% and 10.0%, respectively, for the three and nine months
ended September 30, 1999. Employee-related expenses increased because of
increased commitments towards improving customer service, including meeting
requests for installation, repair services and customer services, resulting in
higher labor costs. Additionally, growth in several sectors of the business,
primarily wireless and data communications, resulted in increased employee
levels. Across-the-board wage increases also contributed to the increase in
employee-related expenses. Additionally, included in employee-related expenses
for the nine months ended September 30, 1999, are the salary and benefit costs
for employees who were transferred from Old U S WEST as part of the Separation.
Prior to the Separation, these costs were allocated to us and included in other
operating expenses. Partially offsetting these increases was the capitalization
in 1999 of employee-related expenses associated with developing internal use
software due to the adoption of the AICPA's Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." In accordance with the SOP, $22 and $60 were capitalized for the
quarter and nine months ended September 30, 1999, respectively. An increase in
pension credits of $47 also partially offset the increase in employee-related
expenses for the nine months ended September 30, 1999.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Decrease
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other operating expenses........ $657 $651 $6 0.9% $1,996 $2,072 ($76) (3.7%)
</TABLE>
Other operating expenses. Other operating expenses include access charges paid
to carriers for the routing of local and long-distance traffic through their
facilities, taxes other than income taxes, paper, printing, delivery and
distribution costs associated with publishing activities and other selling,
general and administrative costs. Included in the nine months ended September
30, 1998 were $129 of Separation costs and asset impairment charges. Excluding
these charges, other operating expenses increased $53, or 2.7% for the nine
months ended September 30, 1999. The increases in other operating expenses for
the quarter and nine months ended September 30, 1999, were primarily
attributable to the following:
o increased costs of product sales associated with our growth initiatives,
including wireless handset costs and costs applicable to our data
communications services, and our directory segment,
o higher access charge expenses resulting from regulatory rulings that
require us to pay access charges to carriers for calls that originate on
our network and terminate on other carriers' networks,
o higher property taxes,
o Year 2000 remediation costs, and
o higher rent expense related to increased computer hardware leasing and
increases in leasing costs associated with telephone poles.
In addition, the increase in other operating expenses for the nine months
ended September 30, 1999, was also due to higher marketing and advertising costs
for wireless, data communications services and calling services such as caller
identification.
Offsetting the increases in other operating expenses were the effects of
capitalizing $62 and $208 for the quarter and nine months ended September 30,
1999, respectively, of costs associated with developing internal use software in
accordance with SOP 98-1. A $20 refund related to a gross receipts tax
settlement also offset increases to expenses for the three and nine months ended
September 30, 1999. Additionally, for the nine months ended September 30, 1999,
the transfer of employees from Old U S WEST as part of the Separation resulted
in the reclassification of related salary and benefit costs to employee-related
expenses.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization expense....... $588 $558 $30 5.4% $1,763 $1,625 $138 8.5%
</TABLE>
Depreciation and amortization expense. Depreciation and amortization expense
increased primarily due to higher overall property, plant and equipment balances
resulting from continued investment in our network. Additionally, the useful
lives of certain assets were reduced, reflecting changes in technology, causing
greater depreciation expense. Partially offsetting the increases was the
cessation of depreciation associated with the 530,000 access lines that are
under definitive sales agreements entered into in the second quarter of 1999.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other expense-net........... $481 $191 $290 151.8% $811 $455 $356 78.2%
</TABLE>
Other expense-net. Interest expense was $203 for the third quarter of 1999
compared to $172 for the third quarter of 1998. Interest expense was $519 for
the nine months ended September 30, 1999, compared to $378 for the comparable
prior period. The increase in interest expense for the quarter and nine months
ended September 30, 1999 was primarily attributable to the debt incurred for the
Global Crossing stock purchase. The $3,900 debt assumed in the Separation as
part of the Dex Alignment contributed to the increase in interest expense for
the nine months ended September 30, 1999.
Also included in other expense-net was other income of $4 for the quarter ended
September 30, 1999, compared to other expense of $19 for the quarter ended
September 30, 1998 and other expense of $10 for the nine months ended September
30, 1999, compared to other expense of $77 for the prior comparable period. The
decreases in other expense were due to a reduction in regulatory interest
expense, gains on sales of real estate and marketable securities and interest
earned on a gross receipts tax settlement. Additionally, the decrease in other
expense-net for the nine months ended September 30, 1999 was also due to the
reduction in interest expense attributable to an anticipated settlement of
federal income tax liabilities for tax years still under audit.
We incurred a one-time charge of $282 to dissolve the proposed merger with
Global Crossing. The charge includes a cash payment of $140 to Global Crossing,
the issuance of $140 of Global Crossing stock purchased in the Global Crossing
tender offer and $2 of miscellaneous merger-related costs.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30, Increase
1999 1998 Increase 1999 1998 (Decrease)
---- ---- -------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Segment margin results:
Retail segment.................. $1,560 $1,554 $6 0.4% $4,607 $4,662 ($55) (1.2)%
Wholesale segment............... 549 464 85 18.3 1,604 1,423 181 12.7
Network segment................. (699) (726) 27 3.7 (2,083) (2,031) (52) (2.6)
Directory segment............... 190 160 30 18.8 530 472 58 12.3
</TABLE>
Segment results. For segment reporting purposes, segment margins exclude certain
costs and expenses, including depreciation and amortization, corporate expenses
and taxes other than income. See Note 4 to the consolidated financial
statements.
Margin from the retail services segment decreased for the nine months ended
September 30, 1999 from the comparable prior period due to operating expenses
increasing at a greater rate than revenue growth. Revenue from the retail
services segment increased 5.1% for the nine months ended September 30, 1999
over the comparable 1998 period, primarily due to growth in local services
revenue. The revenue increase was more than offset by higher operating expenses
driven by growth initiatives and costs associated with enhancing customer
service. For the quarter ended September 30, 1999, the retail margin was
consistent when compared to the prior comparable period. Margins from the
wholesale services segment increased as a result of greater demand for access
services and interconnect services, partially offset by price reductions as
mandated by both federal and state regulatory authorities and higher operating
costs associated with access charge expenses. Margins from the network services
increased for three months ended September 30, 1999, due to higher levels of
software capitalization. Margins from the network services segment decreased for
the nine months ended September 30, 1999 as a result of expenditures to support
growth in both the retail and wholesale services segments. Margins from the
directory services segment increased due to growth in directory services revenue
partially offset by increased sales support costs.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Provision for income
taxes......................... $257 $229 $28 12.2% $757 $703 $54 7.7%
</TABLE>
Provision for income taxes. The provision for the three and nine months ended
September 30, 1999 excludes the tax benefit for terminated merger-related
expenses. Excluding the effects of terminated merger-related expenses, the
effective tax rate for the three months ended September 30, 1999 of 37.9%
remained consistent with the rate for the three months ended September 30, 1998
of 37.7%. The effective tax rate for the nine months ended September 30, 1999 of
37.9% remained consistent with the rate for the nine months ended September 30,
1998 of 38.1%.
Liquidity and Capital Resources
Operating Activities. Cash provided by operations remained consistent at $2,952
for the nine months ended September 30, 1999 compared to $2,950 for the prior
comparable period.
Investing Activities. Total capital expenditures, on a cash basis, were $2,681
in 1999 and $1,937 in 1998. Capital expenditures have primarily been, and
continue to be, focused on expanding access line growth, modernization of the
telecommunications network and meeting the requirements of the
Telecommunications Act of 1996 ("the Act"), including interconnection services
such as LNP, operational support systems, collocation and trunking. We continue
to expand our investment to compete in the wireless, data and video markets.
For 1999, we anticipate total capital expenditures will approximate $4,000,
which includes software capitalization, the acceleration of the next generation
of the network, launch of personal communication services in additional markets,
expansion of the Internet data business and greater emphasis on our e-commerce
efforts. Additionally, we will continue our expenditures on interconnection and
LNP to enable competition in compliance with federal regulations. See "Special
Note Regarding Forward-Looking Statements"on page 16.
In connection with our proposed merger agreement with Global Crossing, we
invested $2,464 to purchase approximately 39 million shares of Global Crossing
common stock in a tender offer during the second quarter of 1999. As a result of
our subsequent merger agreement with Qwest in July 1999, we entered into a
termination agreement with Global Crossing under which we were required to pay
Global Crossing $140 and 2,231,076 shares of Global Crossing common stock for
which we paid $140. We obtained a $140 loan from Qwest to satisfy the cash
portion of the termination fee. As of September 30, 1999, the remaining Global
Crossing shares we held had a market value of $981. This market decline, which
we believe to be temporary, has been reflected in accumulated other
comprehensive loss in the stockholders' equity section of the consolidated
balance sheets. See Note 5 to the consolidated financial statements.
Financing Activities. Cash provided by financing activities was $2,240 in 1999
and cash used in 1998 was $947. In 1999, net proceeds from short-term and
long-term debt were $3,404, of which $2,464 was used to finance the Global
Crossing tender offer. We paid dividends on our common shares totaling $917 in
1999 and $787 in 1998.
We maintain commercial paper programs to finance short-term cash flow
requirements, as well as to maintain a presence in the short-term debt market.
As of September 30, 1999, we had lines of credit with a total unused borrowing
capacity of $4,050.
Future cash needs could increase with the pursuit of new business
opportunities and continued implementation of the requirements of the Act.
Regulatory proceedings of the Federal Communications Commission ("FCC") and
state commissions including price cap plans, access charge reforms and
interconnection requirements may negatively impact cash flows. From time to
time, we may consider the acquisition or disposition of assets or businesses or
the acceleration of product deployments that may be material to our financial
condition, and therefore, our cash needs. We expect that such cash needs will be
funded through operations and, when necessary, the issuance of debt securities.
Risk Management
Over time, we are exposed to market risks arising from changes in interest
rates. The objective of our interest rate risk management program is to manage
the level and volatility of our interest expense. We may employ derivative
financial instruments to manage our interest rate risk exposure. We have also
employed financial derivatives to hedge interest rate and foreign currency
exposures associated with particular debt issues to synthetically obtain below
market interest rates. We do not use derivative financial instruments for
trading purposes.
As of September 30, 1999 and December 31, 1998, approximately $3,075 and
$957, respectively, of floating-rate debt was exposed to changes in interest
rates. This exposure is primarily linked to commercial paper rates and changes
in 3-month LIBOR. A hypothetical increase of 1% in commercial paper rates and
3-month LIBOR would increase annual pre-tax interest expenses by $31. As of
September 30, 1999 and December 31, 1998, we also had $222 and $228,
respectively, of long-term fixed rate debt obligations maturing in the following
12 months. Any new debt obtained to refinance this debt would be exposed to
changes in interest rates. A hypothetical 10% change in the interest rates on
this debt would not have had a material effect on our earnings.
As of September 30, 1999, all outstanding interest rate swaps and the
associated debt instrument have matured. As of December 31, 1998, we had
interest rate swaps with notional amounts of $155. The swaps synthetically
transformed certain of the Company's floating rate issues into fixed rate
obligations.
As of September 30, 1999 and December 31, 1998, we had also entered into
cross-currency swaps with notional amounts of $133 and $204, respectively. The
cross-currency swaps synthetically transform $100 and $182 of Swiss Franc
borrowings at September 30, 1999 and December 31, 1998, respectively, into U.S.
dollar obligations. Any gains (losses) on the cross-currency swaps would be
offset by losses (gains) on the Swiss Franc debt obligations.
Other assets at September 30, 1999 included marketable equity securities
recorded at a fair value of $1,140 including net unrealized losses of $1,205.
The securities have exposure to price risk. The estimated potential loss in fair
value resulting from a hypothetical 10% decrease in prices quoted by stock
exchanges would decrease our pre-tax earnings by $114.
Recent Regulatory Developments
Interconnection. The FCC issued an order (the "Order") in 1996 relating to the
Act that established interconnection costing and pricing rules which, from our
perspective, significantly impeded negotiations with new entrants to the local
exchange market, state regulatory commission interconnection rulemakings and
interconnection arbitration proceedings.
On January 25, 1999, the U.S. Supreme Court ("Supreme Court") issued a
ruling on our appeal of the Order. The Supreme Court affirmed in part and
reversed in part the FCC Order. Although the decision stated that the Act was
ambiguous and self-contradictory, the Supreme Court ruled that:
o the FCC has authority to set pricing methodology;
o unbundled network elements ("UNEs") must be provided in cases where
necessary or the lack of availability would impair competition;
o Incumbent local exchange companies ("ILECs") must sell on a bundled basis,
at the competitive local exchange carriers' ("CLECs") request, network
elements the ILEC uses itself on a bundled basis; and
o CLECs may pick and choose pricing or other terms and conditions from
multiple contracts within certain bounds.
The impact of the Supreme Court ruling is unclear since state regulatory
commissions generally follow the FCC's pricing and unbundling requirements in
setting UNE prices. Further review of the legality of the FCC's pricing rules
has been argued at the Eighth Circuit Court of Appeals. On November 5, 1999, the
FCC released its order addressing the Supreme Court directives regarding
unbundling and Interconnection. The full impact of this order is presently
unclear. However, it largely reaffirms, and in some instances expands, the FCC's
earlier unbundling decisions and may create significant risks of arbitrage for
private line, special access and local business revenues. Appeals of this order
are likely. See "Special Note Regarding Forward Looking Statements" on page 16.
InterLATA Long-Distance Entry. Several regional Bell operating companies have
filed for entry into the interLATA long-distance business. Although many of
these applications have been approved by state regulatory commissions, the FCC
has rejected all applications to date.
We view entry into this business as important to our strategy of providing
an integrated bundle of services to our customers. In 1999, we withdrew our
previously filed applications to enter the interLATA long-distance business in
Wyoming and Montana. We filed an application to enter the interLATA
long-distance business in Arizona in 1999. In April 1999, the Nebraska Public
Service Commission indicated it needed additional information before making a
recommendation to the FCC. We expect to file our first interLATA entry
application with the FCC for its review in 2000. See "Special Note Regarding
Forward-Looking Statements " on page 16.
Access Reform. In its access reform order, the FCC mandated a substantial
restructuring of interstate access pricing. A significant portion of the
services that were charged using minutes-of-use pricing are now being charged
using a combination of minutes-of-use rates, flat-rate presubscribed
interexchange carrier charges ("PICCs") and subscriber line charges ("SLCs").
Although an increase in the SLC to multi-line business users occurred on July 1,
1997, the bulk of the mandated pricing changes occurred on January 1, 1998.
Additional mandated pricing changes occurred on January 1, 1999 and July 1, 1999
and further changes will be implemented in 2000 and 2001. The net effect of
these changes will be to decrease minutes-of-use charges and increase flat-rate
charges (i.e., PICCs and SLCs).
The access reform order also continued in place the current rules under
which ILECs may not assess interstate access charges on information service
providers and purchasers of UNEs.
In February 1999, the FCC issued an order declaring that Internet traffic
is interstate and opened a proceeding to determine the appropriate regulatory
structure. The FCC required no change in the current agreements for reciprocal
compensation with CLECs until it rules on this matter.
Pending before the FCC are several areas of access reform including the
reduction of interstate rates to reflect the receipt of universal service
support, changing the rate structure for switched access to a flat rated
structure, an industry proposal for changing the general access structure
including the removal of the productivity factor and a court remanded review of
the productivity factor. Action on these items is expected by mid-2000 but some
items may be decided in 1999.
Advanced Telecommunications Services. On March 31, 1999, the FCC issued an order
establishing expanded collocation requirements for both conventional voice and
advanced services. The FCC also issued a FNPRM on "line sharing." Line sharing
allows a CLEC to provide advanced services over the same loop that the ILEC uses
to provide analog voice service. We expect the FCC to issue an order on line
sharing in the fourth quarter of 1999.
Long-Term Number Portability Tariffs. In July 1999, the FCC issued an order on
our LNP tariff that was originally effective in February 1999. The FCC's order
reduced our tariff from $0.54 per access line to $0.43 per access line. The FCC
also required that the difference between $0.54 and $0.43, previously collected
by the Company, be refunded to customers. We expect to pay the refund in the
fourth quarter of 1999.
Court Remand of 6.5% Productivity Factor. On May 21, 1999, the District of
Columbia U.S. Court of Appeals issued a ruling reversing and remanding back to
the FCC its order requiring ILECs to retroactively increase the productivity
offset to price caps to 6.5% in their annual price cap filings. The Court found
that the FCC's order did not justify the increase. The FCC must revise and
reissue its order by April 2000.
Universal Service Fees. On October 8, 1999, the FCC issued orders in response to
the Fifth Circuit Court of Appeals mandate on Universal Service. These orders
were effective on November 1, 1999. The FCC will allow the fees the ILECs pay to
support Universal Service to be recovered in access indefinitely. ILECs that
wish to do so may remove the fees from access and establish a separate end user
charge. The FCC also changed the rules to remove the intrastate end user
revenues from the base for calculating the fees. A tariff filing, effective
November 1, 1999, will reduce the access rates which recover these fees.
Access Pricing Flexibility. The FCC issued an order on pricing flexibility on
August 27, 1999. The FCC removes many vestiges of regulation including price
caps for intraLATA interstate toll because long distance parity has been
achieved for all 14 states. Various levels of pricing flexibility up to and
including the removal of Price Cap regulation are possible when competitive
triggers are reached by geographic areas for special access and switched access
transport. Some pricing flexibility is granted for switched access and
subscriber line charges when certain levels of competition are demonstrated by
geographical area.
Contingencies
We have pending regulatory actions in local regulatory jurisdictions. See
Note 6 to the consolidated financial statements.
Other Items
From time to time, we engage in discussions regarding restructurings,
dispositions, acquisitions and other similar transactions. Any such transaction
could 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
our financial condition and results of operations. There is no assurance that
any such discussions will result in the consummation of any such transaction.
Year 2000 Costs
Background. We have conducted a comprehensive review of our computer-based
systems and related software and are taking measures to ensure that such systems
will properly recognize the year 2000 and continue to process beyond December
31, 1999. The systems we evaluated include systems within (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 our
core communications business, relies on remote switches, central office
equipment, interoffice equipment and loop transport equipment that is
predominantly provided to us by telecommunications network vendors. IT is
comprised of our internal business systems that employ hardware and software on
an enterprise-wide basis, including operational, financial and administrative
functions. The Business Units, which include internal organizations such as
finance, procurement, directory services, operator services, wireless, data
networks, real estate, etc., employ systems that support desktop and
departmental applications, as well as embedded computer chip technologies, which
relate specifically to each of our Business Unit's functions and generally are
not part of the Network or IT.
We have approached year 2000 remediation activities through five general
phases: (i) inventory/assessment, (ii) planning, (iii) conversion, (iv)
testing/certification and (v) implementation. Additionally, we are continuously
monitoring and improving our year 2000 related activities and progress,
communicating with our customers and vendors, participating in cooperative
testing with others and taking steps to assure that we have contingency plans in
place prior to the end of 1999. These activities will continue through the
remainder of 1999.
Network update. With regard to the Network, we are working with our
telecommunications network vendors to obtain and convert to compliant releases
of hardware and software. We also are testing, at our own initiative, in
cooperation with certain of our customers, vendors and other major wireline
telecommunications companies, network equipment over multiple configurations
involving a broad spectrum of services. Toward this end, we participate in 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 Telcordia (formerly known as Bellcore), a former affiliate
engaged in telecommunications industry research, development and maintenance
activities, to engage in inter-region interoperability testing. No significant
issues have been found to date. We also participate in (i) 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, and
(ii) the Alliance for Telecommunications Industry Solutions ("ATIS"), which is
testing inter-network interoperability, and which, in conjunction with the
Cellular Telecommunications Industry Association ("CTIA"), is testing network
interoperability with wireless networks. Our inventory/assessment, planning,
conversion and network testing/certification phases for the Network are
complete. Cooperative testing with certain customers, vendors and other
telecommunications companies is expected to continue for the rest of the year.
As of September 30, 1999, our Network remediation implementation was complete.
Substantial progress has been made with Network contingency planning activities.
We anticipate that the remainder of the Network contingency planning activities
will be complete by the fourth quarter, 1999.
IT update. Within IT, we have identified approximately 570 applications that
support our critical business processes, such as billing and collections,
network monitoring, repair and ordering. The inventory/assessment, planning
phases and conversion for such IT applications are complete. As of September 30,
1999, approximately 99% of IT testing activities and 99% of IT implementation
had been completed. We anticipate that each of these phases for IT will be
complete by November 1999. Substantial progress has been made with IT
contingency planning activities. We anticipate that the remainder of the IT
contingency planning activities will be complete by the fourth quarter, 1999.
Business Units update. Within our Business Units, it is estimated that as of
September 30, 1999, approximately 100% of the inventory/assessment activity,
100% of the planning activity, 99.8% of the conversion activity and 99% of the
testing and remediation implementation activities were complete. We anticipate
that each of these phases will be complete in the Business Units for major
conversions and upgrades by the fourth quarter of 1999. We have recently
initiated Business Unit contingency planning activities and we anticipate those
will be complete by the fourth quarter, 1999.
Costs relating to year 2000. We have spent approximately $232 from the beginning
of 1997 through the end of the third quarter of 1999 on year 2000 projects and
activities. Virtually all year 2000 related expenditures are being funded
through operations.
Contingency plan. We cannot provide assurance that the results of our year 2000
compliance efforts or the costs of such efforts will not differ materially from
estimates or expectations. Accordingly, we are developing year 2000 specific
business continuity and contingency plans to address high risk areas as they are
identified. Our year 2000 contingency planning activities will include training
of crisis managers on year 2000 issues and potential business impacts to their
particular process areas, reviewing and modifying existing business continuity
plans to address year 2000 issues and establishing rapid response teams and
communications procedures for each of the major critical operations and
facilities to handle potential post-implementation year 2000 failures. These
year 2000 specific contingency planning activities are to be in place by the
fourth quarter of 1999. In addition, we have in place our standard overall
business continuity, contingency and disaster recovery plans (such as diesel
generator back-up power supply sources for our Network, Network rerouting
capabilities, computer data and records safe-keeping and back-up and recovery
procedures) which will be verified, and as appropriate, augmented for specific
year 2000 contingencies.
Dependencies. Within Network, we are highly dependent upon our
telecommunications network vendors to provide year 2000 compliant hardware and
software in a timely manner, and on third parties that are assisting us in the
focused testing and implementation phases regarding the Network. Because of
these dependencies, we have developed and implemented a vendor compliance
process whereby we have obtained written assurances of timely year 2000
compliance from most of our critical vendors (not only for Network, but also for
IT and the Business Units). In addition, we monitor and actively participate in
coordinated Network testing activities, as discussed above, with respect to the
Forum, ATIS and Telcordia. Within IT, we depend 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, we have
developed detailed timetables, resource plans and standardized year 2000 testing
requirements for identified critical applications (irrespective of whether these
applications are used primarily by IT, the Network or the Business Units).
Within the Business Units, we are dependent on vendor supplied goods and
services and operability of the Network and critical IT and Business Unit
specific applications. Because of these dependencies, we are implementing the
same type of vendor compliance processes and application planning and testing
processes at the Business Units, as discussed above with respect to the Network
and IT. Overall, we have sought compliance assurances from approximately 7,765
vendors concerning approximately 25,769 products and have received assurances
for 99.6% of those products as of September 30, 1999. During 1999, we will
continue to pursue assurances of timely year 2000 compliance for the remaining
critical vendors.
As with any large-scale computer-related project such as year 2000
remediation, the testing phase may require resources in excess of other project
phases and the other project phases may be affected by and dependent upon the
results of the testing phase.
Summary. In management's view, the most reasonably likely worse case scenario
for year 2000 failure prospects we face is that a limited number of important IT
and/or Business Unit specific applications may unexpectedly fail. In addition,
there may be unexpected problems with the Network relating to the year 2000. Our
failure or the failure by certain of our 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 significant and costly disruption of our operations, possibly
impacting the Network and impairing our ability to bill or collect revenues.
However, while no assurance can be given, management believes that our efforts
at remediation and testing, year 2000 specific contingency planning, and overall
business continuity, contingency and disaster recovery planning will likely be
successful, and that the aforementioned "worse case scenario" is unlikely to
develop or significantly disrupt our financial operations.
The above discussion regarding year 2000 contains many statements that are
"forward-looking" within the meaning of the Reform Act. Although we believe that
our estimates are based on reasonable assumptions, we cannot assure you that
actual results will not differ materially from these expectations, beliefs or
estimates. See "Special Note Regarding Forward-Looking Statements" on page 16.
New Accounting Standards
On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. FAS
No. 133 requires, among other things, that all derivative instruments be
recognized at fair value as assets or liabilities on the balance sheet and that
changes in fair value generally be recognized currently in earnings unless
specific criteria are met. The standard is effective for our 2001 fiscal year
though earlier adoption is permitted. Financial statement impacts of adopting
the new standard depend upon the amount and nature of the future use of
derivative instruments and their relative changes in valuation over time. Had we
adopted FAS No. 133 in 1999, its impact on the consolidated financial statements
would not have been material.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Our Company and its subsidiaries are subject to claims and proceedings
arising in the ordinary course of business. For a discussion of these actions,
see "Note 6: Commitments and Contingencies" - to the consolidated financial
statements.
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
The following describes securities issued by us within the past fiscal
quarter and prior to the filing of the Form 10-Q which were privately placed and
not registered under the Securities Act of 1933, as amended (the "Securities
Act"). We believe that the following issuances of securities were exempt from
the registration requirements of the Securities Act, pursuant to the exemptions
set forth in Section 4(2), Rule 144A, and Regulation S thereof.
(a) On August 25, 1999, and in reliance on Rule 144A and Regulation S of
the Securities Act, U S WEST Capital Funding, Inc. ("Capital Funding"), a
wholly-owned subsidiary of our Company, issued 6-7/8% Notes (the "Notes") in the
aggregate principal amount of $1,150,000,000. Payment of principal and interest
on the Notes is unconditionally guaranteed by us. The Notes will mature and the
principal amount, together with interest accrued and unpaid thereon, will be
payable on August 15, 2001. The Notes will bear interest from August 25, 1999 at
an interest rate of 6-7/8% per annum. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Merrill Lynch, Pierce, Fenner & Smith
Incorporated, J.P. Morgan Securities Inc., Banc of America Securities LLC,
Lehman Brothers Inc., and Salomon Smith Barney Inc. (collectively, the "Initial
Purchasers") purchased the Notes for resale to "qualified institutional buyers"
as defined under Rule 144A, and non-U.S. persons under Regulation S, at 99.874%
of their principal amount ($1,148,551,000 aggregate proceeds to Capital Funding
before deducting commissions and expenses payable by Capital Funding). The
Initial Purchasers received a commission in the amount of $4,025,000. Capital
Funding used the net proceeds from the sale of the Notes to repay a portion of
its commercial paper indebtedness and for general corporate purposes. The Notes
are subject to registration rights that require us to offer registered exchange
notes within 225 days of closing.
(b) On November 1, 1999, and in reliance on Rule 144A and Regulation S of
the Securities Act, U S WEST Communications, Inc. ("Communications"), our
wholly-owned telephone subsidiary, issued 7.20% Notes (the "Communications
Notes") in the aggregate principal amount of $750,000,000. The Communications
Notes will mature and the principal amount, together with interest accrued and
unpaid thereon, will be payable on November 1, 2004. The Communications Notes
will bear interest from November 1, 1999 at an interest rate of 7.20% per annum.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Salomon Smith Barney Inc., ABN AMRO Incorporated, Banc of America
Securities LLC, and Chase Securities Inc. (collectively, the "Communications
Notes Initial Purchasers") purchased the Communications Notes for resale to
"qualified institutional buyers" as defined under Rule 144A, and non-U.S.
persons under Regulation S, at 99.81% of their principal amount ($748,575,000
aggregate proceeds to Communications before deducting commissions and expenses
payable by Communications). The Communications Notes Initial Purchasers received
a commission in the amount of $4,500,000. Communications plans to use the net
proceeds from the sale of the Communications Notes to repay a portion of
Communications' commercial paper indebtedness and for general corporate
purposes. The Communications Notes are subject to registration rights that
require Communications to offer registered exchange notes within 225 days of
closing.
Item 4. Submission of Matters to a Vote of Security Holders
We held a special meeting of our shareholders (the "Special Meeting") on
November 2, 1999. At the meeting, the following items relating to our merger
with Qwest (as defined herein) were submitted to a vote of our shareholders. On
the proxy record date, September 7, 1999, we had 504,856,275 shares outstanding
and 398,303,878 shares represented at the Special Meeting.
(a) Approval or adoption of the Agreement and Plan of Merger dated as of
July 18, 1999, as amended, between U S WEST, Inc., a Delaware corporation and
Qwest Communications International Inc., a Delaware corporation, and the merger.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Votes Delivered
Votes For Votes Against Votes Abstained Not Voted
--------- ------------- --------------- ---------
373,963,499 20,855,743 3,484,636 0
(b) Approval of any proposal to adjourn or postpone the meeting.
Votes Delivered
Votes For Votes Against Votes Abstained Not Voted
--------- ------------- --------------- ---------
281,864,992 105,871,254 10,567,632 0
(c) Such other business as may properly come before the meeting.
Votes Delivered
Votes For Votes Against Votes Abstained Not Voted
--------- ------------- --------------- ---------
263,736,115 115,432,374 19,135,389 0
</TABLE>
Based on the above voting results, the merger with Qwest was approved by our
shareholders.
Item 5. Recent Developments
Global Crossing Merger
On May 17, 1999, our Board of Directors announced that we had entered into
a definitive agreement to merge (the "Global Merger Agreement") our Company with
Global Crossing. As part of the merger, we commenced and closed a cash tender
offer for approximately 39 million shares of common stock of Global Crossing or
approximately 9.5% of Global Crossing's outstanding shares at a price of $62.75
per share (the "Tender Offer"). The Tender Offer commenced on May 21, 1999,
expired on June 18, 1999 and settled on June 28, 1999. We financed the purchase
of Global Crossing shares pursuant to the Tender Offer with proceeds from the
sale of notes and commercial paper. See Item 2 of Part II of our Form 10-Q for
the quarter ended June 30, 1999.
Qwest Merger
On July 18, 1999, our Board of Directors announced that it had entered into
a definitive agreement to merge our Company with and into Qwest. See Note 7 to
the consolidated financial statements. The merger is subject to, among other
things, the approval by the Federal Communications Commission, and other
regulatory reviews.
On November 2, 1999, we held our special meeting of shareholders to
consider and vote upon a proposal to approve and adopt the Agreement and Plan of
Merger, dated as of July 18, 1999, as amended, between us and Qwest, and the
merger, as described above. Please see Item 4 above concerning the results of
that special meeting.
For current information regarding the Qwest merger, you are encouraged to
review the publicly filed reports of the respective companies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed for the Company through the filing of this Form 10-Q.
(2-A) Separation Agreement between U S WEST, Inc. (renamed "MediaOne Group,
Inc.") and U S WEST, Inc. (formerly USW-C, Inc.), dated June 5, 1998
(Exhibit 99.1 to Form 8-K/A dated June 26, 1998, File No. 1-14087).
(2-A.1) Amendment to the Separation Agreement between MediaOne Group, Inc.
(formerly U S WEST, Inc.) and U S WEST, Inc. (formerly USW-C, Inc.),
dated June 12, 1998 (Exhibit 10(p) to Form 10-K/A for the year ended
December 31, 1998, File No. 1-14087).
(2-A.2) Offer to Purchase; Letter of Transmittal relating to the Common Stock;
Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees to Clients; Letter from Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees to Clients; Notices of
Guaranteed Delivery relating to the Common Stock; Press Release issued
by the Offeror and the Company on May 17, 1999; and Guidelines for
Certificate of Taxpayer Identification Number on Substitute Form W-9
each dated May 21, 1999 (Exhibits (a)(1) through (a)(5) to Schedule
14D-1 and Schedule 13D, dated May 21, 1999, as amended).
(2-A.3) Agreement and Plan of Merger, dated as of May 16, 1999, between Global
Grossing Ltd. and U S WEST, Inc. (Exhibit 2 to Form 8-K, dated May 21,
1999, File No, 1-14087).
(2-A.4) Tender Offer and Purchase Agreement, dated as of May 16, 1999, between
Global Crossing Ltd. and U S WEST, Inc. (Exhibit (c)(2) to Schedule
14D-1 and Schedule 13D, dated May 21, 1999, as amended).
(2-A.5) Voting Agreement, dated as of May 16, 1999, between Global Crossing
Ltd. and U S WEST, Inc. (Exhibit (c)(3) to Schedule 14D-1 and Schedule
13D, dated May 21, 1999, as amended).
(2-A.6) Standstill Agreement, dated as of May 16, 1999, between Global
Crossing Ltd. and U S WEST, Inc. (Exhibit (c)(4) to Schedule 14D-1 and
Schedule 13D, dated May 21, 1999, as amended).
(2-A.7) Tender and Voting Agreement, dated as of May 16, 1999, between U S
WEST, Inc. and each of the parties listed on the signature page
thereto (Exhibit (c)(5) to Schedule 14D-1 and Schedule 13D, dated May
21, 1999, as amended).
(2-A.8) Agreement, dated as of May 16, 1999, between U S WEST, Inc., Global
Crossing Ltd. and each person whose name appears on the signature page
thereto (Exhibit (c)(6) to Schedule 14D-1 and Schedule 13D, dated May
21, 1999, as amended).
(2-A.9) Letter Agreement, dated as of May 16, 1999, between U S WEST, Inc. and
Global Crossing Ltd. (Exhibit 99 to Form 8-K, dated May 21, 1999, File
No. 1-14087).
(2-A.10) Transfer Agreement, dated as of May 16, 1999, between Global Crossing
Ltd. and each person whose name appears on the signature page thereto
(Exhibit (c)(8) to Schedule 14D-1 and Schedule 13D, dated May 21,
1999, as amended).
(2-A.11) Agreement and Plan of Merger between U S WEST, Inc. and Qwest
Communications International Inc., dated as of July 18, 1999, (Exhibit
2 to Form 8-K dated July 20, 1999, File No. 1-14087).
(2-A.12) Voting Agreement among each of the stockholders listed on the
signature page thereto and U S WEST, Inc., dated as of July 18, 1999
(Exhibit 10.1 to Form 8-K, dated July 20, 1999, File No. 1-14087).
(2-A.13) Termination Agreement between U S WEST, Inc. and Global Crossing Ltd.,
dated as of July 18, 1999 (Exhibit 10.2 to Form 8-K, dated July 20,
1999, File No. 1-14087).
(2-A.14) Amendment No. 1 to Tender Offer and Purchase Agreement, dated as of
July 18, 1999 (Exhibit 2-A.14 to Form 10-Q, for the quarter ended June
30, 1999, File No. 1-14087).
2-1.15 Amendment No. 1, dated as of September 8, 1999, to the Agreement and
Plan of Merger, dated as of July 18, 1999, between U S WEST, Inc. and
Qwest Communications International Inc.
(3-A) Restated Certificate of Incorporation of U S WEST, Inc. (Exhibit 3A)
to Form S-4 Registration Statement No. 333-45765, filed February 6,
1998, as amended).
(3-B) 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, dated
as of June 1, 1998 (Exhibit 4-A to the Form S-4 Registration Statement
No. 333-45765, filed February 6, 1998, as amended).
(4-A.1) Amendment No. 1 to Rights Agreement between U S WEST, Inc. and State
Street Bank and Trust Company, dated as of May 16, 1999 (Exhibit 4 to
Form 8-K, dated May 21, 1999, File No. 1-14087).
(4-A.2) Amendment No. 2 to Rights Agreement between U S WEST, Inc. and State
Street Bank and Trust Company, dated as of July 18, 1999 (Exhibit
4-A.2 to Form 10-Q for the quarter ended June 30, 1999, File No.
1-14087).
(4-B) Indenture among U S WEST Capital Funding, Inc., USW-C (renamed "U S
WEST, Inc.") and First National Bank of Chicago, as Trustee, dated
June 29, 1998 (Exhibit 4(a) to Form 8-K, filed November 18, 1998, File
No. 1-14087).
(10-A) 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-B) 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-C) 364-Day 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-D) Five-Year 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-D.1) Amendment No. 1 to Credit Agreements dated as of June 30, 1998 to the
364-Day Credit Agreement and the Five-Year 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 (Exhibit 10(e)(1) to Form 10-Q for
the quarter ended September 30, 1998, File No. 1-14087).
(10-D.2) Amended and Restated Credit Agreement, dated as of May 7, 1999, among
U S WEST Capital Funding, Inc., U S WEST, Inc. and the banks listed on
the signature pages thereof (Exhibit (b)(4) to Schedule 14D-1 and
Schedule 13D, dated May 21, 1999, as amended).
(10-D.3) Amendment to Credit Agreements, dated as of June 11, 1999, which
further amends (i) the 364-Day Credit Agreement dated as of May 8,
1999, as amended and (ii) the Five-Year Credit Agreement dated as of
May 8, 1998, as amended, 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 (Exhibit 10-D.3 to Form 10-Q
for the quarter ended June 30, 1999, File No. 1-14087).
(10-D.4) 364-Day $1.5 billion Credit Agreement dated as of June 11, 1999, among
U S WEST Capital Funding, Inc., and U S WEST, Inc., the banks listed
therein and Morgan Guaranty Trust Company of New York, as
administrative agent (Exhibit (b)(6) to Amendment No. 3 to Schedule
14D-1 and Schedule 13D, dated June 11, 1999, filed on behalf of Global
Crossing Ltd. and U S WEST, Inc.).
(10-D.5) Assignment and Assumption Agreement among each institution listed on
Schedule 1 thereto, U S WEST, Inc. and Morgan Guaranty Trust Company
of New York, dated as of July 6, 1999 (Exhibit 10-D.5 to Form 10-Q for
the quarter ended June 30, 1999, File No. 1-14087).
(10-E) 364-Day Million Credit Agreement, among the banks listed therein, U S
WEST Communications, Inc., and Morgan Guaranty Trust Company of New
York, as administrative agent, dated as of May 19, 1999 (Exhibit 10-E
to Form 10-Q for the quarter ended June 30, 1999, File No. 1-14087).
(10-F) Amendment No. 1 to Credit Agreement to the 364-Day $800 Million Credit
Agreement, dated as of May 19, 1998, among U S WEST Communications,
Inc., U S WEST, Inc., the banks listed on the signature pages thereto
and Morgan Guaranty Trust Company of New York, as administrative
agent, dated as of June 11, 1999 (Exhibit 10-F to Form 10-Q for the
quarter ended June 30, 1999, File No. 1-14087).
(10-G) 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.1) Retention Agreement for the Chairman, Chief Executive Officer and
President of U S WEST, Inc., dated as of September 7, 1999 (Exhibit
10-G.1 to Form 8-K dated September 20, 1999, File No. 1-14087).
(10-H) Form of Change of Control Agreement for Tier II Executive (Exhibit
10(g) to Form 10-Q for the quarter ended June 30, 1998, File No.
1-14087).
(10-H.1) Form of Retention Agreement for Executive Officers of U S WEST, Inc.
(Exhibit 10-H.1 to Form 8-K dated September 20, 1999, File No.
1-14087).
(10-I) Form of Executive Severance Agreement (Exhibit 10(h) to Form 10-Q for
the quarter ended June 30, 1998, File No. 1-14087).
(10-J) 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-K) 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-L) 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-M) U S WEST 1998 Broad Based Stock Option Plan dated June 12, 1998
(Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1998,
File No. 1-14087).
(10-N) U S WEST Deferred Compensation Plan, amended and restated effective as
of June 12, 1998 (Exhibit 10(m) to Form 10-Q for the quarter ended
September 30, 1998, File No. 1-14087).
(10-O) U S WEST 1998 Stock Plan, as amended June 22, 1998 (Exhibit 10(n) to
Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087).
10-O.1 1998 U S WEST Stock Plan, as amended August 6, 1999.
10-O.2 1999 U S WEST Stock Plan, as amended August 6, 1999.
(10-P) Stockholder Investment Plan dated June 12, 1998 (Form S-3 Registration
Statement No. 333-52781, filed May 15, 1998).
(10-Q) Form of Non-Qualified Stock Option Agreement (Exhibit 10-Q to Form
10-Q for the quarter ended March 31, 1999, File No. 1-14087).
(10-R) Form of Agreement for Purchase and Sale of Telephone Exchanges, dated
as of June 16, 1999, between Citizens Utilities Company and U S WEST
Communications, Inc. (Exhibit 99 to Form 8-K, dated June 17, 1999,
File No. 1-14087).
(13) U S WEST 1998 Summary Annual Report to Stockholders (Exhibit 13 to
Form 8-K dated February 24, 1999, File No. 1-14087).
27 Financial Data Schedule
(99) Annual Report on Form 11-K for the U S WEST Savings Plan/ESOP for the
year ended December 31, 1998, (Exhibit 99 to Form 10-K/A filed by
amendment on Form SE, File No. 1-14087), Paper Copy (P).
- - -------------------
( ) Previously filed.
(b) Reports on Form 8-K filed during the Third Quarter of 1999 and through the
filing of this Form 10-Q:
(i) Form 8-K dated July 7, 1999 providing notification of a press release
announcing that the Company's Board of Directors had authorized the
Company's management and advisors to discuss with Qwest Communications
International Inc. issues relating to its June 23, 1999 revised merger
proposal.
(ii) Form 8-K dated July 20, 1999 providing notification of a press release
announcing that the Company had entered into an Agreement and Plan of
Merger, dated as of July 18, 1999, with Qwest Communications
International Inc., and filing (i) the Voting Agreement among each of
the stockholders listed on the signature page thereto and U S WEST,
Inc.; (ii) the Termination Agreement; and (iii) the joint analyst
presentation of Qwest and U S WEST, dated as of July 19, 1999.
(iii) Form 8-K dated July 23, 1999 providing notification of the release of
second quarter earnings of U S WEST, Inc.
(iv) Form 8-K/A dated July 26, 1999 amending the July 23, 1999 Form 8-K,
providing notification of the release of second quarter earnings of U S
WEST, Inc.
(v) Form 8-K dated September 20, 1999 filing the Retention Agreement for
the Chairman, Chief Executive Officer and President of U S WEST, Inc.
and the Form of Retention Agreement for the Executive Officers of U S
WEST, Inc.
(vi) Form 8-K dated October 22, 1999 providing notification of the release
of third quarter earnings of U S WEST, Inc.
<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 10, 1999
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT dated as of September 8, 1999 to the Agreement and Plan of
Merger dated as of July 18, 1999 (the "Merger Agreement") between QWEST
COMMUNICATIONS INTERNATIONAL INC., a Delaware corporation ("Qwest"), and U S
WEST, Inc., a Delaware corporation ("U S WEST").
W I T N E S S E T H
WHEREAS, the parties hereto desire to amend the Merger Agreement in
certain respects;
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 the Merger Agreement
has the meaning assigned to such term in the Merger 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 the Merger Agreement shall, after this Amendment becomes effective,
refer to the Merger Agreement as amended hereby.
SECTION 2. Certificate of Incorporation of the Surviving Corporation.
Section 2.08 of the Merger Agreement is hereby amended by deleting the word
"and" at the end of clause (i) thereof, replacing the period at the end of
clause (ii) thereof with a semicolon followed by the word "and" and adding the
following new clause (iii) at the end thereof:
the number of authorized shares of Qwest Common Stock will be
5,000,000,000.
SECTION 3. Qwest's Equity Incentive Plan. Article 6 of the Merger
Agreement is hereby amended by adding the following new Section 6.21:
Qwest and U S WEST hereby agree that Qwest may increase the number of
shares of Qwest Common Stock eligible for award under the Qwest Equity
Incentive Plan from and after the Effective
Time to an amount equal to the lessor of (1) 200 million and (2) 10% of
the total number of shares of Qwest Common Stock outstanding as of the
close of business on the date on which the Effective Time occurs, in
each case reduced by the number of shares of Qwest Common Stock
issuable upon the exercise of U S WEST Rights and Qwest options (other
than Qwest options awarded under the Qwest Equity Incentive Plan)
outstanding as of the close of business on the date on which the
Effective Time occurs.
SECTION 4. Governing Law. This Amendment shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
applicable to contracts executed in and to be performed entirely within that
State, without regard to the conflicts of laws provisions thereof.
SECTION 5. Counterparts. This Amendment may be executed in one or more
counterparts, and by the different parties in separate counterparts, each of
which when executed shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
SECTION 6. Effectiveness. This Amendment shall become effective upon
execution by each of the parties hereto of 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.
QWEST COMMUNICATIONS
INTERNATIONAL INC.
By: /S/ DRAKE S. TEMPEST
-------------------------------------
Name: Drake S. Tempest
Title: Executive Vice President &
General Counsel
U S WEST, INC.
By: /S/ MARK ROELLIG
-------------------------------------
Name: Mark Roellig
Title: Executive Vice President, Public Policy,
Human Resources and Law, General Counsel
and Secretary
THIS DOCUMENT CONSTITUTES A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
Dated August 6, 1999
Prospectus
1998 U S WEST STOCK PLAN
I. Purpose.
This 1998 U S WEST Stock Plan, as amended (the "Plan"), is intended to
promote the long term success of U S WEST, Inc. by affording certain eligible
employees, executive officers, non-employee directors of the Company (as defined
below) 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 which is a condition subsequent to the grant of an Award to a
Participant 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. Except as excluded below, "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 shall
determine constitutes a Change of Control;
provided, however, that, except as the Board of Directors otherwise determines,
a Change of Control for purposes of the Plan does not include the Merger
contemplated in the Agreement and Plan of Merger (the "Qwest Merger"), dated as
of July 18, 1999, or as later amended, between the Company and Qwest
Communications International Inc.
("Qwest").
E. "Code" shall mean the Internal Revenue Code of 1986, as amended.
F. Reserved.
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, the Stock Award granted pursuant to Section
XIV, the Stock Award granted pursuant to Section XV.D, 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. Reserved.
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 who has
provided bona fide services to the Company or any Related Entity and is selected
by the HRC or EBC to receive an Award; provided that services rendered by such
consultant or advisor were not in connection with the offer or sale of
securities in a capital raising transaction and do not directly or indirectly
promote or maintain a market for the Company's securities.
P. "Employee Benefits Committee" or "EBC" shall mean a committee of the
Company consisting of employee(s) of the Company or any Related Entity appointed
by the Board at the recommendation of the Human Resources Committee and which
shall administer the Plan with respect to Eligible Employees and Eligible
Non-Employees other than Officers, Executive Officers and Outside Directors 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 prior to the applicable date
on which there were sales.
T. "Human Resources Committee" or "HRC" 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 HRC, which committee shall consist
of no fewer than three (3) persons, each of whom shall be a Non-Employee
Director.
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 HRC or EBC, 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, with respect to an Outside Director,
the later of (i) June 22, 1998, or (ii) the date on which a new Outside Director
is elected to the Board.
V.(3) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3(b)(3) or any successor rule issued under the Exchange Act.
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 to whom an Award is granted.
AE. "Phantom Units" shall mean units held in a notional account in which
each unit represents a value equivalent to one share of Common Stock on the
Award date.
AF. "Plan" shall mean the 1998 U S WEST Stock Plan, as amended.
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 EBC or HRC, as appropriate.
AJ. "Restricted Stock" shall mean an Award made by the HRC or EBC entitling
the Participant to acquire, at no cost or for a purchase price determined by the
HRC or EBC 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, 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 HRC or the EBC, as the
case may be, 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 HRC or the EBC, as the
case may be, 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 HRC or the EBC, as
the case may be, pursuant to the Plan.
AP. "Subsidiary" shall mean with respect to any Award other than an
Incentive Option, any corporation, joint venture, limited liability company
("LLC") 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, (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, or (iii) in the case of an LLC, a twenty percent (20%) or greater
interest in units in the LLC. 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 of that portion of an Option or other
Award that 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 HRC for Officers, Executive Officers and Outside Directors or
EBC for all other Eligible Employees and Eligible Non-Employees.
III. Administration.
A. The HRC, with respect to Officers, Executive Officers and Outside
Directors and the EBC through the power delegated it by the Board, with respect
to other Eligible Employees and Eligible Non-Employees, shall have sole and
exclusive discretion to interpret and administer the Plan. The HRC may adopt
such rules, regulations, procedures and guidelines as it determines necessary
for the administration of the Plan. Subject to any such rules, regulations,
procedures and guidelines adopted by the HRC, the EBC shall have the power to
adopt rules, regulations, procedures and guidelines to administer the Plan with
respect to Eligible Employees (other than Officers and Executive Officers) and
with respect to Eligible Non-Employees.
B. The HRC and the EBC may delegate to one or more of their members, or to
one or more agents, such administrative duties as they may deem advisable, and
the HRC and the EBC, or any person to whom they have delegated duties as
aforesaid may employ one or more persons to render advice with respect to any
responsibility the HRC and the EBC or such person may have under the Plan. The
HRC and the EBC, as the case may be, may employ such legal or other counsel,
consultants and agents as they 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 HRC or the EBC 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 HRC or the EBC, as the case may be. The Company shall indemnify members
of the HRC and the EBC and any of their respective agents who are employees 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 discretionary authority
granted to the HRC and the EBC, subject to the provisions of the Plan, the HRC
and the EBC 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 annual or long-term financial goals of the Company, any
Related Entity, or division, department, or group of the Company or any
Related Entity, or individual goals which the HRC and the EBC, as the case
may be, shall consider in granting Awards, if any;
3. determine the satisfaction of performance goals 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;
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 their respective rules, regulations,
procedures 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 rules, regulations, procedures, and
guidelines determined by the HRC and the EBC, respectively, to be
necessary, appropriate or advisable in administering the Plan and to
maintain compliance with any applicable law.
D. The HRC or the EBC, as the case may be, may at any time accelerate the
exercisability or define any other aspect of the grant of or conditions of
grants 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 HRC 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 HRC, with respect to Officers, Executive Officers and Outside Directors, and
the EBC, with respect to all other Eligible Employees and Eligible
Non-Employees, 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 HRC, with respect to
Officers, Executive Officers and Outside Directors, and the EBC, with respect to
all other Eligible Employees and Eligible Non-Employees.
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 XXI, but
shall continue to govern any Awards outstanding as of the end of that period.
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
HRC may determine from time to time.
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 2,500,000.
D. The cumulative number of shares of Common Stock that may be issued under
this Plan in connection with the exercise of Incentive Options shall not exceed
ten million (10,000,000).
VIII. Grant of Awards.
A. The HRC shall determine the type or types of Award(s) to be made to
Officers, Executive Officers and Non-Employee Directors, and the EBC shall
determine the type or types of Award(s) to be made to all other Eligible
Employees and Eligible Non-Employees. 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 conditioned upon the
acceptance of 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 HRC, with respect to Officers, Executive Officers and
Non-Employee Directors, and the EBC, with respect to all other Eligible
Employees and Eligible Non-Employees. If the Agreement relates to the grant of
an Option, it 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 subsequent acceptance by the Participant of the terms of
the Agreement. Unless otherwise extended by the HRC, with respect to Officers,
Executive Officers and Non-Employee Directors, or the EBC, with respect to all
other Eligible Employees and Eligible Non-Employees, a Participant shall have
ninety (90) days from the date of the Agreement to accept its terms.
IX. Options.
The HRC may grant Incentive Options or Nonqualified Options to Officers and
Executive Officers, and the EBC may grant Incentive Options or Nonqualified
Options to all other Eligible Employees 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 that the provisions of the Plan
are inconsistent with the terms of, and have a materially adverse effect on the
economic value of the Options granted under the predecessor plans, in which
event the applicable provisions of the predecessor plans shall govern, unless
otherwise agreed to by the Optionee; 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 HRC, with respect to
Officers, Executive Officers and Non-Employee Directors, and the EBC, with
respect to all other Eligible Employees and Eligible Non-Employees, 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
portion of an 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 HRC may grant, with respect to Officers and Executive
Officers, and Directors, and the EBC may grant, with respect to all other
Eligible Employees and Eligible Non-Employees, and establish rules with respect
to 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 HRC or
the EBC to make Awards hereunder, both the HRC and the EBC shall have the
authority to grant Reload Options. Any such Reload Option shall be subject to
such other terms and conditions as the HRC or the EBC, as the case may be, may
determine. Notwithstanding the above, (i) the HRC and the EBC shall have the
right 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 HRC or the EBC, as the case may be, 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. The Option Price shall be
payable (i) in cash or by an equivalent means acceptable to the HRC or the EBC,
as the case may be (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 HBC and the EBC, as the case may be, shall establish the
vesting schedules for Awards. 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 applicable portion of 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 HRC or the EBC, as the case may be, 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 over time 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 over time in accordance with the vesting schedule
established at the time such Options were issued, unless the HRC or the
EBC, as the case may be, determines otherwise. Unless the HRC or the EBC,
as the case may be, , 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 HRC or the EBC, as the case may
be, 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 HRC or the EBC, as the case may be, 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 HRC or the EBC, as the
case may be, as necessary to comply with applicable foreign laws. The HRC or the
EBC, as the case may be, 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 HRC or the EBC, as the case may be, 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 HRC or the EBC, as the case may be, may 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 HRC or the EBC, as the case may be,
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 HRC or the EBC, as the case shall be, 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 HRC or the EBC, as the case may be, need not be the same for
all grants of Restricted Stock. The HRC or the EBC, as the case may be, 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 HRC or the EBC, as the case may be, 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 HRC or the EBC.
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 HRC or the EBC, as the case may be, 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 HRC or the EBC, as the case may be, may grant the right to
earn Phantom Units to Eligible Employees, Officers, Executive Officers and
Eligible Non-Employees. The HRC or the EBC, as the case may be, 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 HRC or the EBC, as the case may be,
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 HRC or the EBC, as the case may be. The HRC or the EBC, as the case may be,
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 HRC or the
EBC, as the case may be.
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 HRC or the EBC, as the case may be, 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 HRC or the EBC, as the case may be, 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 HRC or the EBC, as the case may be, 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. Compensation for Outside Directors.
A. Payment in Common Stock. In lieu of cash, each Outside Director may
elect to receive payment of all or any portion of Director Compensation
comprised of retainer fees for service on, and fees for attendance at meetings
of, 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 Director Compensation 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 vested shares of Restricted Stock granted pursuant to Section XIV
and/or the 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 vested shares of Restricted Stock
and/or Common Stock and receive Phantom Units pursuant to this Section XV.B, the
election shall be made in accordance with the deferral election procedures
specified in the U S WEST, Inc. Deferred Compensation Plan for Nonemployee
Directors. Outside Directors who elect to defer the receipt of Director
Compensation (excluding the Stock Awards granted pursuant to Sections XIV and
XV.D) shall receive additional Phantom Units equal to 5% of the portion of
Director Compensation deferred pursuant to this Section.
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 HRC shall administer and interpret the Plan with respect to
Directors and Executive Officers to the extent practicable, to maintain
compliance with such rule.
XVII. Change of Control; Acceleration.
Upon the occurrence of a Change of Control or, within one year after the
closing of the Qwest Merger, involuntary termination of a Participant, other
than a termination "for cause" as defined in Paragraph IX.H.(v), , then:
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 HRC 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 HRC or the EBC, as
the case may be, 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 HRC 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 HRC 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 HRC 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 HRC or the EBC, as the case
may be.
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 reduce the economic value of, alter or impair any Awards previously
granted under the Plan, without the consent of the holder thereof.
DESCRIPTION OF SEPARATION
This Plan became effective upon consummation of the separation of old U S
WEST, Inc. ("Old U S WEST") into two, independent, publicly traded companies
(the "Separation"). Prior to the Separation, Old U S WEST conducted 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. (which was renamed "U S
WEST, Inc." at Separation and referred to in this Prospectus as "U S WEST" or
the "Company") became a separately-traded company which engages in the business
formerly conducted by the U S WEST Communications Group and the domestic
directories business of the U S WEST Media Group. The Separation occurred in
June of 1998.
ADDITIONAL INFORMATION
U S WEST is subject to certain informational requirements under the
Exchange Act and has incorporated herein by reference the following documents
filed by U S WEST into this Prospectus: (i) U S WEST's Annual Report on Form
10-K for the year ended December 31, 1998, as amended by Form 10-K/A filed March
24, 1999; (ii) U S WEST's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999; (iii) U S WEST's Current Reports on Form 8-K
filed January 13, 1999, January 15, 1999, January 22, 1999, February 23, 1999,
February 25, 1999, February 26, 1999, April 7, 1999, April 22, 1999, May 12,
1999, May 18, 1999, May 21, 1999, May 26, 1999, June 18, 1999, June 22, 1999,
July 7, 1999, July 21, 1999 and July 26, 1999, as amended by Form 8-K/A filed
July 27, 1999; (iv) U S WEST's Proxy Statement on Schedule 14A filed March 24,
1999; and (v) the description of Common Stock and preferred stock purchase
rights of U S WEST contained in U S WEST's Registration Statement on Form 8-A
filed on May 1, 1998 (as amended by Form 8-A/A filed May 12, 1998).
All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or
15(d) of the Act after the date of this Prospectus shall be deemed to be
incorporated in this Prospectus from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
subsequently filed documents which also is or is deemed to be incorporated by
reference in this Prospectus modifies or supersedes such statements. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
U S WEST shall provide, without charge, to any Participant to whom a
Prospectus is delivered, upon written or oral request, a copy of the Annual
Report on Form 10-K for its latest fiscal year (or for fiscal year ended
December 31, 1998), an updated version of this prospectus and any or all of the
documents that are incorporated by reference herein. Requests should be directed
to the Corporate Secretary, U S WEST, 1801 California Street, Denver, Colorado
80202, Telephone (303) 672-2700.
CERTAIN FEDERAL INCOME TAX EFFECTS
It is the opinion of the Company that the following are certain income tax
consequences of participation in the Plan. This section is only a summary, does
not purport to be complete and, among other things, does not cover state and
local tax treatment. Furthermore, differences in financial situation may cause
Federal, state and local tax consequences to vary. Therefore, consultation with
an accountant, legal counsel or other financial advisor regarding tax
consequences is urged.
1. Incentive Options. An employee who receives an Incentive Option pursuant
to the Plan does not recognize any taxable income upon the grant of such option.
Similarly, the exercise of an Incentive Option generally does not give rise to
federal income tax to the employee, provided that (i) the federal "alternative
minimum tax," which depends on the employee's particular tax situation, does not
apply and (ii) the employee is employed by U S WEST from the date of grant of
the option until three months prior to the exercise thereof, except where such
employment terminates by reason of disability (where the three month period is
extended to one year) or death (where this requirement does not apply). If an
employee exercises an Incentive Option after these requisite periods, the
Incentive Option will be treated as a Nonqualified Option and will be subject to
the rules described below under "Non-Qualified Options, Stock Appreciation
Rights and Phantom Units."
If, after exercising an Incentive Option, an employee disposes of the
shares so acquired more than two years from the date of grant and more than one
year from the date of transfer of the shares pursuant to the exercise of such
Incentive Option (the "applicable holding period"), the employee generally will
recognize a capital gain or loss equal to the difference, if any, between the
amount received for the shares and the exercise price. If, however, an employee
does not hold the shares so acquired for the applicable holding period, thereby
making a "disqualifying disposition," the employee would recognize ordinary
income equal to the excess of the fair market value of the shares at the time
the Incentive Option was exercised over the exercise price; the balance of any
income received at the time of such disqualifying disposition would be capital
gain (provided the employee held such shares as a capital asset at such time).
If the disqualifying disposition is a sale or exchange that would permit a loss
to be recognized under the Code (were a loss in fact to be realized), and the
sales proceeds are less than the fair market value of the shares on the date of
exercise, the employee's ordinary income therefrom would be limited to the gain
(if any) realized on the sale.
An employee who exercises an Incentive Option by delivering shares
previously acquired pursuant to the exercise of another Incentive Option before
the expiration of their applicable holding period is treated as making a
"disqualifying disposition" of such shares. Upon the exercise of an Incentive
Option with previously acquired shares after the applicable holding period, it
appears, despite some uncertainty, that the employee would not recognize gain or
loss with respect to such previously acquired shares.
2. Nonqualified Options, Stock Appreciation Rights and Phantom Units. An
individual who receives a grant of a Nonqualified Option, a SAR, or a phantom
unit will not recognize any taxable income upon such grant. However, the
individual generally will recognize ordinary income upon exercise of a
Nonqualified Option in an amount equal to the excess of the fair market value of
the shares at the time of exercise over the exercise price. Similarly, upon the
receipt of cash or shares pursuant to the exercise of a SAR, the individual
generally will recognize ordinary income in an amount equal to the sum of the
cash and the fair market value of the shares received; likewise, upon the
vesting of a phantom unit, the individual generally will recognize ordinary
income in an amount equal to the fair market value of the shares, plus cash, if
any, received.
As a result of Section 16(b) of the Exchange Act, under certain
circumstances, the timing of income recognition may be deferred (i.e., the
"Deferral Period") for any individual who is an officer or director of U S WEST
or a beneficial owner of more than ten percent (10%) of any class of equity
securities of U S WEST. Absent a Section 83(b) election (as described below),
recognition of income by the individual will be deferred until the expiration of
the Deferral Period, if any.
An individual who exercises a Nonqualified Option by delivering U S WEST
Common Stock to U S WEST, other than U S WEST Common Stock previously acquired
pursuant to the exercise of an Incentive Option which is treated as a
"disqualifying disposition" as described above, will not recognize gain or loss
with respect to the exchange of such U S WEST Common Stock, even if the fair
market value of the shares so delivered is different from the individual's tax
basis. The individual, however, will be taxed as described above with respect to
the exercise of the Nonqualified Option as if he or she had paid the exercise
price in cash.
3. Restricted Stock. Absent a written election pursuant to Section 83(b) of
the Code filed with the IRS within 30 days after the date of transfer of such
shares (a "Section 83(b) election"), an individual who receives restricted stock
under the Plan generally will recognize ordinary income at the earlier of the
time at which (i) the shares become transferable or (ii) the restrictions that
impose a substantial risk of forfeiture of such shares lapse, in an amount equal
to the excess of the fair market value (on such date) of such shares over the
consideration paid for such restricted stock, if any. If a Section 83(b)
election is made, the individual will recognize ordinary income, as of the
transfer date, in an amount equal to the excess of the fair market value of the
shares as of that date over the price paid for such award, if any.
4. Consequences to Company. U S WEST will not be allowed a federal income
tax deduction upon the grant or exercise of an Incentive Option or the
disposition, after the applicable holding period, of the shares acquired upon
exercise of an Incentive Option. In the event of a disqualifying disposition of
shares acquired upon exercise of an Incentive Option, U S WEST generally will be
entitled to a deduction in an amount equal to the ordinary income included by
the employee, provided that such amount constitutes an ordinary and necessary
business expense to U S WEST and is reasonable and the limitations of Sections
280G and 162(m) of the Code (discussed below) do not apply.
A federal income tax deduction generally will be allowed to U S WEST in
an amount equal to the ordinary income included by the employee with respect to
his or her Nonqualified Option, SAR, phantom unit, or restricted stock, provided
that such amount constitutes an ordinary and necessary business expense to U S
WEST and is reasonable and the limitations of Sections 280G and 162(m) of the
Code do not apply.
5. Change of Control. In general, if the total amount of payments to an
individual that are contingent upon a "change of control" of U S WEST (as
defined in Section 280G of the Code), including payments under the Plan that
vest upon a "change of control," equals or exceeds three times the individual's
"base amount" (generally, such individual's average annual compensation for the
five calendar years preceding the change of control), then, subject to certain
exceptions, the payments may be treated as "parachute payments" under the Code,
in which case a portion of such payments would be non-deductible to U S WEST and
the individual would be subject to a 20% excise tax on such portion of the
payments.
6. Certain Limitations on Deductibility of Executive Compensation. With
certain exceptions, Section 162(m) of the Code denies a deduction to publicly
held corporations for compensation paid to certain executive officers in excess
of $1 million per executive per taxable year. One such exception applies to
certain performance-based compensation provided that such compensation has been
approved by stockholders in a separate vote and certain other requirements are
met. U S WEST believes that certain awards granted under the Plan should qualify
for the performance-based compensation exception to Section 162(m).
RESALE RESTRICTIONS
Resale restrictions imposed by federal and/or state securities laws may
restrict certain Participants from transferring securities received under the
Plan. For example, Participants who hold "restricted securities" or are deemed
"affiliates," as those terms are defined in Rule 144 under the Securities Act,
may not sell securities issued by U S WEST to the public except pursuant to (a)
an effective resistration statement filed by U S WEST with the SEC under the
Securities Act; or (b) an exemption from the registration requirements of the
Securities Act. Rule 144 provides an exemption for resale, subject to certain
conditions, such as a holding period, availability of public information,
limitation on amount of securities sold, manner of sale, and notice of sale.
This prospectus is not available for any resale.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
The Plan is not subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The Plan is administered by the HRC with respect to
Officers, Executive Officers and Outside Directors and by the EBC with respect
to all other Eligible Employees an Eligible Non-Employees. The HRC consists of
non-employee Board members appointed by the Board. The EBC consists of the Vice
President-Law and Corporate Human Resources of U S WEST and other officers of U
S WEST designated by the Vice President-Law and Corporate Human Resources.
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accounts, as indicated in their reports with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
THIS DOCUMENT CONSTITUTES A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
Dated August 6, 1999
Prospectus
1999 U S WEST STOCK PLAN
I. Purpose.
This 1999 U S WEST Stock Plan, as amended (the "Plan"), is intended to
promote the long term success of U S WEST, Inc. or its successor (the "Company")
by affording certain eligible employees 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 approval by the Board of Directors (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 which is a condition subsequent to the grant of an Award to a
Participant 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. Except as excluded below, "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 shall
determine constitutes a Change of Control;
provided, however, that, except as the Board of Directors otherwise determines,
a Change of Control for purposes of the Plan does not include the merger
contemplated in the Agreement and Plan of Merger (the "Qwest Merger"), dated as
of July 18, 1999, or as later amended, between the Company and Qwest
Communications International Inc., a Delaware corporation ("Qwest").
E. "Code" shall mean the Internal Revenue Code of 1986, as amended.
F. "Committee" shall mean the Employee Benefits Committee of the Company
consisting of employee(s) of the Company or any Related Entity appointed by the
Board at the recommendation of the Human Resources Committee or its delegate(s),
as applicable, to exercise the delegated authority of the Human Resources
Committee, as set forth under 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" shall mean any member of the Board of Directors of the
Company.
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.
K. "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.
L. "Effective Date" shall mean the date on which the Plan was approved by
the Board of Directors.
M. "Eligible Employee" shall mean any employee of the Company or any
Related Entity who is not a Director or an Executive Officer (defined below) and
who is so employed on the date of the grant of an Award.
N. "Eligible Non-Employee" shall mean any consultant or advisor who is not
a Director and who has provided bona fide services to the Company or any Related
Entity and is selected by the Committee to receive an Award; provided that
services rendered by such consultant or advisor were not in connection with the
offer or sale of securities in a capital raising transaction and do not directly
or indirectly promote or maintain a market for the Company's securities as those
terms are used in the Form S-8 issued under the Securities Act.
O. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
P. "Executive Officer" 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.
Q. "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 prior to the applicable date
on which there were sales.
R. "Incentive Option" shall mean an incentive stock option under the
provisions of Section 422 of the Code.
S. "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.
T. "Nonqualified Option" shall mean an Option which does not qualify under
Section 422 of the Code.
U. "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.
V. "Optionee" shall mean a Participant to whom one or more Options have
been granted.
W. "Option Price" shall mean the price per share payable to the Company for
shares of Common Stock upon the exercise of an Option.
X. "Parent Corporation" shall mean any corporation within the meaning of
Section 424(e) of the Code.
Y. "Participant" shall mean an Eligible Employee or Eligible Non-Employee
to whom an Award is granted.
Z. "Phantom Unit" shall mean a notional account representing a value
equivalent to one share of Common Stock on the Award date.
AA. "Plan" shall mean the 1999 U S WEST Stock Plan, as amended.
AB. "Related Entity" shall mean any Parent Corporation or Subsidiary of the
Company.
AC. "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.
AD. "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.
AE. "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.
AF. "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, written agreement or
arrangement between the Company or any Related Entity and the Eligible Employee.
"Retirement" shall not apply to any Eligible Non-Employee.
AG. "Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
AH. "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 to determine the form or forms of payment at
the time of grant of the SAR.
AI. "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.
AJ. "Subsidiary" shall mean with respect to any Award other than an
Incentive Option, any corporation, joint venture, limited liability company
("LLC"), 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, (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, or (iii) in the case of an LLC, a twenty percent (20%) or more
interest in units in the LLC. In the case of any Incentive Option, Subsidiary
shall mean any corporation within the meaning of Section 424(f) of the Code.
AK. "Vested" shall mean the status of that portion of an Option or other
Award that 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 Committee shall have sole and exclusive discretion to interpret and
administer the Plan. The Committee shall have the power to adopt rules,
regulations and guidelines relating to the administration of the Plan.
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 annual or long-term financial goals of the Company, any
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;
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, regulations, procedures, 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; and
9. make all determinations, perform all other acts, exercise all other
powers and establish any other rules, regulations, procedures, and
guidelines 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 accelerate the exercisability or define
any other aspect of the grant of or the conditions of the grant of any Awards
and waive or amend any and all restrictions and conditions of any Awards.
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.
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 XVII but
shall continue to govern any Awards outstanding as of the end of that period.
VII. Shares Available; Limitations.
Up to 12,000,000 shares of Common Stock may be granted under this Plan. 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. Absent an amendment of this provision by the Committee, no
Incentive Options shall be granted under this Plan and no shares of Common Stock
may be issued under this Plan in connection with the exercise of Incentive
Options. 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.
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 conditioned upon the
acceptance of 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 will be subject to amendment, modification or
alteration by the Committee pursuant to Section III.D of this Plan and without
the Participant's execution of such amendment, modification or alteration. If
the Agreement relates to the grant of an Option, it 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 subsequent
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 may grant Incentive Options or Nonqualified Options to
Eligible Employees and Nonqualified Options to Eligible Non-Employees. 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. All agreements granting options under Section IX.A shall state that the
Options issued pursuant to the Agreement are not intended to qualify for tax
benefits under Section 422 of the Code.
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
portion of an 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.
4. Shareholder Approval. If required by law to issue Incentive
Options, shareholder approval of the Plan shall be obtained within twelve
(12) months before or after adoption of the Plan.
D. Other Options - Special Tax Benefits. 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 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 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. 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 Committee shall establish the vesting schedules for awards.
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
applicable portion of 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 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 over time 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 over time in accordance with the vesting schedule
established at the time such Options were issued, unless the Committee
determines otherwise. Unless the Committee 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 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 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 that 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
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 grant Restricted Stock to Eligible Employees and Eligible
Non-Employees 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. 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 XVI.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 grant the right to earn Phantom Units to
Eligible Employees 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. Change of Control; Acceleration.
Upon the occurrence of a Change of Control or, within one year after the
closing of the Qwest Merger, the involuntary termination of a Participant, other
than a termination "for cause" as defined in Section IX.H.(v) of this Plan,
then:
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 Employee Benefits Committee, in its discretion, shall have the right
to accelerate payment of any deferrals of Vested Phantom Units.
XV. 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.
XVI. 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.
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.
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.
XVII. Amendment or Termination of Plan.
The Committee shall have the right to amend, modify, suspend or terminate
the Plan or any Awards at any time.
ADDITIONAL INFORMATION
U S WEST is subject to certain informational requirements under the
Exchange Act and has incorporated herein by reference the following documents
filed by U S WEST into this Prospectus: (i) U S WEST's Annual Report on Form
10-K for the year ended December 31, 1998, as amended by Form 10-K/A filed March
24, 1999; (ii) U S WEST's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999; (iii) U S WEST's Current Reports on Form 8-K
filed January 13, 1999, January 15, 1999, January 22, 1999, February 23, 1999,
February 25, 1999, February 26, 1999, April 7, 1999, April 22, 1999, May 12,
1999, May 18, 1999, May 21, 1999, May 26, 1999, June 18, 1999, June 22, 1999,
July 7, 1999, July 21, 1999 and July 26, 1999, as amended by Form 8-K/A filed
July 27, 1999; (iv) U S WEST's Proxy Statement on Schedule 14A filed March 24,
1999; and (v) the description of Common Stock and preferred stock purchase
rights of U S WEST contained in U S WEST's Registration Statement on Form 8-A
filed on May 1, 1998 (as amended by Form 8-A/A filed May 12, 1998).
All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus shall be deemed to
be incorporated in this Prospectus from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
subsequently filed documents which also is or is deemed to be incorporated by
reference in this Prospectus modifies or supersedes such statements. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
U S WEST shall provide, without charge, to any Participant to whom a
Prospectus is delivered, upon written or oral request, a copy of an updated
version of this prospectus and any or all of the documents that are incorporated
by reference herein. Requests for such documents or for additional information
about the Plan or its administrators should be directed to the Corporate
Secretary, U S WEST, 1801 California Street, Denver, Colorado 80202, Telephone
(303) 672-2700.
CERTAIN FEDERAL INCOME TAX EFFECTS
It is the opinion of the Company that the following are certain income tax
consequences of participation in the Plan. This section is only a summary, does
not purport to be complete and, among other things, does not cover state and
local tax treatment. Furthermore, differences in financial situation may cause
Federal, state and local tax consequences to vary. Therefore, consultation with
an accountant, legal counsel or other financial advisor regarding tax
consequences is urged.
1. Nonqualified Options, Stock Appreciation Rights and Phantom Units. An
individual who receives a grant of a Nonqualified Option, a SAR, or a phantom
unit will not recognize any taxable income upon such grant. However, the
individual generally will recognize ordinary income upon exercise of a
Nonqualified Option in an amount equal to the excess of the fair market value of
the shares at the time of exercise over the exercise price. Similarly, upon the
receipt of cash or shares pursuant to the exercise of a SAR, the individual
generally will recognize ordinary income in an amount equal to the sum of the
cash and the fair market value of the shares received; likewise, upon the
vesting of a phantom unit, the individual generally will recognize ordinary
income in an amount equal to the fair market value of the shares, plus cash, if
any, received.
An individual who exercises a Nonqualified Option by delivering U S WEST
Common Stock to U S WEST will not recognize gain or loss with respect to the
exchange of such U S WEST Common Stock, even if the fair market value of the
shares so delivered is different from the individual's tax basis. The
individual, however, will be taxed as described above with respect to the
exercise of the Nonqualified Option as if he or she had paid the exercise price
in cash.
2. Restricted Stock. Absent a written election pursuant to Section 83(b) of
the Code filed with the IRS within 30 days after the date of transfer of such
shares (a "Section 83(b) election"), an individual who receives restricted stock
under the Plan generally will recognize ordinary income at the earlier of the
time at which (i) the shares become transferable or (ii) the restrictions that
impose a substantial risk of forfeiture of such shares lapse, in an amount equal
to the excess of the fair market value (on such date) of such shares over the
consideration paid for such restricted stock, if any. If a Section 83(b)
election is made, the individual will recognize ordinary income, as of the
transfer date, in an amount equal to the excess of the fair market value of the
shares as of that date over the price paid for such award, if any.
3. Consequences to Company. A federal income tax deduction generally will
be allowed to U S WEST in an amount equal to the ordinary income included by the
employee with respect to his or her Nonqualified Option, SAR, phantom unit, or
restricted stock, provided that such amount constitutes an ordinary and
necessary business expense to U S WEST and is reasonable and the limitations of
Sections 280G and 162(m) of the Code do not apply.
4. Change of Control. In general, if the total amount of payments to an
individual that are contingent upon a "change of control" of U S WEST (as
defined in Section 280G of the Code), including payments under the Plan that
vest upon a "change of control," equals or exceeds three times the individual's
"base amount" (generally, such individual's average annual compensation for the
five calendar years preceding the change of control), then, subject to certain
exceptions, the payments may be treated as "parachute payments" under the Code,
in which case a portion of such payments would be non-deductible to U S WEST and
the individual would be subject to a 20% excise tax on such portion of the
payments.
RESALE RESTRICTIONS
Resale restrictions imposed by federal and/or state securities laws may
restrict certain Participants from transferring securities received under the
Plan. For example, Participants who hold "restricted securities" or are deemed
"affiliates," as those terms are defined in Rule 144 under the Securities Act,
may not sell securities issued by U S WEST to the public except pursuant to (a)
an effective registration statement filed by U S WEST with the SEC under the
Securities Act; or (b) an exemption from the registration requirements of the
Securities Act. Rule 144 provides an exemption for resale, subject to certain
conditions, such as a holding period, availability of public information,
limitation on amount of securities sold, manner of sale, and notice of sale.
This prospectus is not available for any resale.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
The Plan is not subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The Plan is administered by the Employee Benefits
Committee. The Employee Benefits Committee consists of the Senior Vice
President-Law and Corporate Human Resources of U S WEST and other officers of U
S WEST designated by the Senior Vice President-Law and Corporate Human
Resources.
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accounts, as indicated in their reports with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
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