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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-4379
CONVERGYS CORPORATION
An Ohio I.R.S. Employer
Corporation No. 31-1598292
201 East Fourth Street, Cincinnati, Ohio 45202
Telephone Number 513 723-7000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Shares (no par value) New York Stock Exchange
Series A Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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At February 26, 1999, there were 152,117,096 common shares outstanding.
At February 26, 1999, the aggregate market value of the voting shares
owned by non-affiliates was $2,597,694,823.
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to security holders for the
fiscal year ended December 31, 1998 (Parts I, II and IV)
(2) Portions of the registrant's definitive proxy statement dated March 12, 1999
issued in connection with the annual meeting of shareholders (Part III)
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TABLE OF CONTENTS
PART I
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ITEM PAGE
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1. Business......................................................... 1
2. Properties....................................................... 13
3. Legal Proceedings................................................ 13
4. Submission of Matters to a Vote of the Security Holders.......... 13
PART II
5. Market for the Registrant's Common Equity and Related Security
Holder Matters................................................... 16
6. Selected Financial Data.......................................... 16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 16
7a. Quantitative and Qualitative Disclosure about Market Risk........ 16
8. Financial Statements and Supplementary Data...................... 16
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 16
PART III
10. Directors and Executive Officers of Registrant................... 16
11. Executive Compensation........................................... 16
12. Security Ownership of Certain Beneficial Owners and Management... 16
13. Certain Relationships and Related Transactions................... 16
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.. 17
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See page 14 for Executive Officers of the Registrant.
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PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT
This report and the documents incorporated by reference herein contain
"forward-looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995, that are based on current expectations, estimates and
projections. Statements that are not historical facts, including statements
about the beliefs and expectations of Convergys Corporation (the Company) are
forward-looking statements. These statements discuss potential risks and
uncertainties and, therefore, actual results may differ materially. You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which they were made. The Company undertakes no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Important factors that may affect these projections or expectations include,
but are not limited to: changes in the overall economy; changes in competition
in markets in which the Company operates; changes in the regulatory environment
in which the Company's customers operate; changes in the demand for the
Company's services; failure of the Company to achieve Year 2000 compliance; and
consolidation within the industries in which the Company's customers operate.
PART I
ITEM I. BUSINESS
GENERAL
Convergys Corporation (the Company) is a leading provider of outsourced
information and customer management solutions. The Company focuses on developing
long-term strategic relationships with clients in customer-intensive industries
including telecommunications, cable, cable telephony, satellite broadcasting,
Internet services, utilities, technology, financial services, consumer products,
healthcare and direct marketing. The breadth of the Company's service offerings
enables it to serve as the interface for all phases of a client's billing or
customer management needs. By providing value-added solutions through long-term
relationships, the Company has developed a large base of recurring revenues with
its largest clients.
The Company serves its client base through its two operating subsidiaries: (i)
Information Management Group (IMG), which provides outsourced billing and
information services; and (ii) Customer Management Group (CMG), which provides
outsourced marketing and customer support services to large companies. For
certain clients, IMG and CMG jointly provide a full range of billing and
customer management solutions. The Company's strategy is to more fully integrate
the strengths of IMG and CMG to provide next generation customer management
solutions -- customer relationship management.
Historically, the business of the Company was conducted through two subsidiaries
of Cincinnati Bell Inc. (CBI), Cincinnati Bell Information Systems Inc. (CBIS)
and MATRIXX Marketing Inc. (MATRIXX). Following a plan of distribution announced
on April 27, 1998, the Company was formed as a wholly-owned subsidiary of CBI on
May 8, 1998. In July 1998, CBI contributed the outstanding shares of CBIS and
MATRIXX to the Company and CBIS and MATRIXX became the IMG and CMG,
respectively. CBI also contributed to the Company its 45% limited partnership
interest in a cellular communications services provider in southwestern Ohio and
northern Kentucky (the Cellular Partnership). On August 13, 1998 approximately
10% of the common shares of the Company were issued to the public and on
December 31, 1998, the remaining shares held by CBI were distributed to CBI
shareowners.
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The Company is incorporated under the laws of Ohio and has its principal
executive offices at 201 East Fourth Street, Cincinnati, Ohio 45202 (telephone
number (513) 723-7000.)
INDUSTRY OVERVIEW
Due to a broad combination of factors, including advances in technology,
globalization and deregulation, many markets are experiencing increased
competition. As a result, billing and customer management solutions, which
utilize software based information processing systems and services to identify,
attract and retain customers, have become a strategic imperative for companies
seeking to remain competitive. Technological advances, such as relational
databases and predictive behavior software, are making it possible for companies
to analyze their customers' behavior and design products or marketing programs
which address specific customer needs or tendencies. Convergys is the only
company in its industry to realize the value of combining and customizing
billing and customer service operations to provide end-to-end solutions that
deliver true competitive advantage for its clients. In addition, particularly in
highly competitive industries such as telecommunications, it is critical to have
robust systems and software that enable companies to respond rapidly to changes
in the market. However, such system requirements are increasing the costs and
complexity of maintaining in- house billing and customer management systems.
Additionally, with rapid technological change, companies are facing increased
pressure to either invest heavily in technology or seek an outsourcing solution
to deliver high quality billing and customer management. Many companies lack the
in-house expertise to efficiently collect, analyze and respond to the types of
information that can be captured with each customer interaction, which has
resulted in outsourcing of billing and customer management solutions as a
strategic management tool.
The Company believes that the growth of customer management outsourcing will
continue as companies focus on their core competencies and seek to benefit from
the advantages that outsourcing companies can provide, including: (i) expertise
to target, acquire and retain customers effectively; (ii) cost savings resulting
from economies of scale achieved by operating large data processing facilities
or customer service centers; (iii) technologically advanced systems and software
which enable rapid competitive response; and (iv) improved time-to-market for
new products, services or marketing programs.
COMPETITIVE STRENGTHS
The Company believes that it has developed strengths that position it to compete
effectively for outsourcing opportunities. These competitive strengths include
its:
FOCUS ON STRATEGIC RELATIONSHIPS WITH TARGETED INDUSTRY LEADERS
The Company has developed strategic relationships with leading companies in the
telecommunications, technology, financial services and consumer product
industries. Such relationships have enabled the Company to become an integral
component of its clients' customer management processes, often including
participation in the clients' internal planning and operating meetings.
Long-term strategic relationships enable the Company to grow as its clients
grow, develop significant industry-specific expertise and establish recurring
revenue streams. The Company's success in establishing these strategic
relationships is reflected in the nature of its relationships with its major
clients. IMG's top seven clients, with relationships averaging over ten years,
each provided at least $24 million in revenues in 1998. CMG's top ten clients,
with relationships averaging over six years, each provided at least $13 million
in revenues in 1998.
BREADTH OF VALUE-ADDED SERVICES
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The Company provides a broad array of information and customer management
services including dedicated customer service, technical support, sales account
management and high volume consumer response, coupled with support services such
as market research, database management, interactive voice response and Internet
capabilities. By bundling these capabilities, the Company can serve as a single
source solution for the entire range of a client's billing and customer
management needs. The Company attempts to differentiate itself by providing best
in class performance in each of these areas and addressing the most complex
billing and customer management needs.
SIZE AND SCALE TO DELIVER COST-EFFECTIVE SOLUTIONS AND HANDLE LARGE PROGRAMS
As the leading provider of outsourced information and customer management
solutions in North America, the Company leverages its purchasing power and
spreads its significant research and development expenditures over a large
client base, thereby enabling it to develop and deliver cost-effective
solutions. Today its data centers produce over one million bills each day and
the Company fields more than one million calls each day from its more than 30
call centers and approximately 16,000 workstations. The Company has the size and
breadth of experience to design, develop and implement large-scale, complex
information and customer management solutions that provide superior value to its
clients.
TECHNOLOGICAL EXPERTISE
With approximately 2,000 software professionals, the Company can provide
significant technical resources to develop customized solutions for its clients.
The Company spent nearly $82 million on existing and new technologies and
systems in 1998, and intends to continue its commitment to research and
development in order to enhance its ability to offer clients innovative design,
development and implementation of complex, scalable customer management
solutions.
GROWTH STRATEGY
The Company's growth strategy is designed to capitalize on the fundamental
trends supporting billing and customer management outsourcing while leveraging
the Company's competitive strengths to further its market leadership.
EXPANDING EXISTING CLIENT RELATIONSHIPS
The majority of the Company's existing clients operate in industries marked by
some or all of the following trends: high growth, deregulation, converging
technologies, intense competition and increasing customer service needs. The
Company believes that these market trends will continue to provide significant
growth opportunities with its existing client base. These clients have
historically represented the bulk of the Company's internal growth. The
Company's strategy is to develop long- term strategic partnerships with targeted
market leaders and to expand its existing relationships as its clients continue
to grow within their own markets, both domestically and internationally,
outsource additional customer management functions and develop new products and
services to take to existing and new markets. Additionally, there are
opportunities to cross-sell IMG and CMG solutions to clients, as well as
opportunities to sell multiple services to multiple divisions within each
client.
LEVERAGING INDUSTRY EXPERIENCE TO DEVELOP NEW RELATIONSHIPS
By focusing on long-term strategic relationships within targeted industries, the
Company has
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developed industry expertise and an in-depth understanding of the customer
management needs of companies serving those industries. The Company focuses on
developing additional relationships in its targeted industries, particularly
with companies that have large in-house billing or call center operations or
are pursuing additional opportunities as certain markets converge (such as
communications and broadband services). The Company believes that the
combination of its industry expertise, size and technology position it to
compete effectively for these new outsourcing opportunities.
DEVELOPING NEW SOLUTIONS TO PROVIDE SUPERIOR VALUE
The Company's significant ongoing investment in technology is designed to
increase the value of a client's information and customer management processes.
In addition to continuing to advance the solutions currently offered separately
by IMG and CMG, the Company is developing next generation customer management
solutions that combine the software and information services capabilities of IMG
with CMG's expertise in strengthening clients' relationships with their
customers. This integrated approach to customer relationship management enables
our clients to expand and enhance the value of their customer base.
ENTERING COMPLEMENTARY MARKETS
The Company will pursue opportunities in industries that have large customer
bases and, as a result of deregulation or new technologies, will require greater
focus on billing and customer management. For example, the Company believes that
deregulation, which led to substantially increased competition in the
telecommunications sector, is likely to have a similar effect on the utility
industry and will create opportunities for outsourced customer management
services. In December 1998, IMG announced its plans to provide comprehensive,
outsourced billing and customer care solutions to the utilities and energy
services market.
PURSUING INTERNATIONAL GROWTH
The Company presently provides its billing and customer management solutions in
selected international markets and believes significant growth opportunities
exist outside North America. The Company intends to leverage its relationships
with large international companies. The Company believes that these clients will
be better served by a single provider capable of delivering information and
customer management solutions in multiple geographic markets. In addition, the
Company intends to expand its client base outside North America.
PURSUING STRATEGIC ACQUISITIONS AND ALLIANCES
Building upon a history of growth through acquisitions (26 acquisitions in the
past thirteen years), the Company will pursue additional acquisition and
alliance opportunities. The Company believes that consolidation in its industry
will continue and the Company expects to pursue acquisitions and alliances that
expand its client base, add new capabilities or enable it to accelerate
international expansion. In the first quarter of 1998, the Company acquired
American Transtech, Inc. and the Canadian assets of AT&T's Canadian customer
care business (Transtech) from AT&T. Associated with this acquisition, the
Company entered into an eight-year contract to provide customer care, sales
management, and technical support services for both business and residential
customers.
PRODUCTS AND SERVICES
IMG
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IMG serves clients principally by providing and managing complex billing and
information services primarily delivered through IMG data centers. IMG's billing
solutions address all segments of the communications industry, including
wireless, wireline, cable, broadband and Internet services. These solutions
consist of data processing services, professional and consulting services and
licensed software. IMG software and data processing capabilities enable it to
activate services, capture usage information, calculate billing charges,
consolidate billing for multiple service or equipment features and enable
clients to use such data to target customers for new or expanded service or
product offerings. IMG's professional and consulting services include its
customization of software at its clients' requests to create, modify and enhance
billing and other related customer support solutions. On a more limited basis,
IMG also licenses its software to address the needs of those clients (mostly in
the cable and broadband services market) who prefer to conduct their billing and
information services in their own data centers.
During 1998, over 62% of IMG's revenues were generated from recurring monthly
payments from its clients based upon the number of subscribers or bills
processed by IMG. Professional and consulting services for software maintenance
and enhancements, a majority of which are based on hourly fees for work
performed, accounted for approximately 24% of IMG's 1998 revenues. IMG's
remaining revenues resulted from licensing fees for software and other
miscellaneous services.
IMG's experience and size result in significant time to market, service and cost
advantages for clients. These advantages include rapid introduction of new
services, predictable costs, information management expertise, access to
advanced technology without high capital expenditures and a partner focused on
billing and customer management solutions. IMG's leading market share in
wireless bill processing is driven by its ability to develop software and
systems capable of addressing the complexity of wireless billing and delivering
cost-effective solutions. Billing for wireless services is extremely complex for
a number of reasons including:
MULTITUDE OF PRICING PLANS--Each wireless carrier offers hundreds of
pricing plans to subscribers. Those pricing plans are often tailored
individually to cover peak and non-peak per minute rates and minutes of
usage included in the monthly rate plan. Wireless providers demand the
flexibility to be able to change subscriber rates quickly in response
to competition.
ROAMING CHARGES--Wireless phone users roam between markets served by
different carriers. When roaming, different rates and surcharges apply
to usage. Roaming also frequently involves entering multiple tax
jurisdictions and the tax rates vary by locale. Billing software must
accurately determine roaming and tax charges.
ABILITY TO IMPLEMENT STRATEGIC MARKETING PROGRAMS--Competition in the
wireless industry has resulted in a myriad of promotional activities
that complicate billing. For example, a wireless provider may offer
free wireless-to-wireless calls, free weekend calling or introductory
pricing packages that lapse after a given period of time. Capturing
rate plan data and applying customer usage data accurately is critical
to wireless providers and their subscribers.
MULTIPLE SERVICES FOR A SUBSCRIBER--Each subscriber may utilize
different features such as voice mail, call waiting, and voice
activated dialing. In addition, a subscriber may utilize more than one
service, such as wireless phone and paging services. The ability to
consolidate such services on one monthly bill and allowing for
discounting the bundle of services is increasingly viewed as a
competitive requirement.
GROWTH OF WIRELESS SERVICE--The number of wireless subscribers in the
U.S. has grown at an
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average rate of approximately 37% over the past five years. In
addition, minutes of usage per subscriber are expected to increase.
As a result, wireless billing systems must have the capability to
handle dynamic growth.
In addition to processing bills in its data centers, IMG performs a significant
amount of professional and consulting work for certain of its clients to tailor
solutions to each client's marketing objectives and regulatory requirements. For
example, IMG developed real-time software that has made it possible to offer
wireless service with monthly account limits to customers that otherwise might
not have received credit authorization (frequently referred to in the wireless
industry as pre-pay services.) The billing software enables a wireless provider
to notify customers as they approach approved monthly spending limits.
Subscribers then have the option of reducing usage until the next monthly period
or until they make a payment, frequently over the phone with a credit card, to
re-activate the limit.
IMG has leveraged its billing expertise in the wireless communications market to
enter into contracts in 1998 which will grow its U.S. cable television billing
market share to 30% and the Company is further expanding its billing solutions
in the broadband services market. During 1997, IMG entered into a strategic
relationship with Wiztec, which added billing and customer management
capabilities in the direct broadcast satellite marketplaces. In March 1999, IMG
increased its ownership of Wiztec to 70%. In addition, IMG has another strategic
relationship to provide billing and customer management for Internet service
providers.
IMG's solutions for wireline based carriers include a range of billing,
information services and network management solutions. Wireline clients served
by IMG in 1998 included Cincinnati Bell Telephone (CBT), and, on a more limited
basis, AT&T, PTT Netherlands, Swisscom, British Telecom and Telenor.
CMG
CMG creates comprehensive, outsourced customer management solutions for its
clients utilizing its advanced information systems capabilities, human resource
management skills and industry experience. In 1998, approximately 79% of CMG's
revenues were related to dedicated services and 21% of its revenues were related
to traditional teleservices. While traditional teleservices programs require
similar technological capabilities, systems scale and human resource expertise
as dedicated services, they are generally short-term and require less experience
within the client's industry.
CMG's dedicated services include:
CUSTOMER SERVICE--CMG handles customer contacts which range from
initial product information requests to customer retention initiatives.
These customer service calls involve a variety of activities including
gathering and analyzing customer information; describing product
features, capabilities and options; activating customer accounts or
renewing service; processing a product or service sale; and resolving
complaints and billing inquiries.
TECHNICAL SUPPORT--CMG answers technical support inquiries for
consumers and business customers. Technical support ranges from simple
product installation or operating assistance for a variety of software
and hardware products to highly complex issues such as systems
networking configuration or software consultation.
SALES ACCOUNT MANAGEMENT--For certain of its clients' business
customers, CMG serves as a telephone based sales force that can provide
more frequent and cost-effective account coverage than would be
possible with a traditional in-field sales force. CMG is responsible
for managing the entire customer relationship including obtaining
current orders, increasing
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purchase levels, introducing new products, implementing product
initiatives and handling all inquiries related to products, shipments
and billing.
When developing a dedicated services solution, CMG devotes significant resources
to understand a client's unique customer management needs and collaborates to
design a customized solution utilizing CMG's broad array of services. The
solution design typically addresses the client's desired level and types of
customer interaction, anticipated call volumes, personnel hiring and training
requirements and technological requirements (including the interface between a
client's and CMG's systems).
CMG's ability to deliver value-added solutions depends on its advanced
technology platforms and human resource management expertise. Sophisticated call
routing, computer telephony integration, logical call scripting and a Graphical
User Interface design, interactive voice response, relational database skills,
Internet capabilities and real-time call monitoring are all important elements
of CMG's technology platform and permit efficient and cost-effective customer
management. Large customer management solutions are labor intensive and, as a
result, one of CMG's core competencies is its ability to hire, train and
minimize turnover among its customer service representatives. Each customer
service representative receives extensive up-front training covering general
customer service skills and in-depth product or service training. Given the wide
range of services provided by CMG personnel, many programs are staffed with
representatives possessing specialized skills applicable to a client's industry
and customer base, such as multi-lingual fluency or technological training. As
the central interface for all customer interactions, CMG gathers data and by
utilizing its database technology, CMG can analyze such data to provide valuable
feedback to its clients, such as (i) identifying potential customers, (ii)
identifying a client's most profitable customers thereby permitting targeted
retention and loyalty programs, (iii) assessing usage data to enable clients to
develop targeted products and services and (iv) identifying cross-selling
opportunities for its clients.
CMG generally receives a fee based on staffing hours for the customer service
representatives assigned to a program. Per hour charges for dedicated services
are usually higher than charges for traditional teleservices due to the higher
level of value-added activity associated with dedicated services. Supplemental
revenues can sometimes be earned depending on service levels or achievement of
certain sale targets. Additional fees are charged for service enhancements or
system upgrades requested by clients. Since dedicated services require CMG to
become an integral part of a client's customer management function, these
services are generally provided pursuant to multi-year contracts.
INTEGRATED CUSTOMER MANAGEMENT SOLUTIONS
IMG and CMG are combining their strengths to provide next generation customer
management solutions - customer relationship management. These solutions are
designed to increase the lifetime value, satisfaction and loyalty of its
clients' customer relationships. They utilize advanced technologies and analyze
multiple sources of customer-specific information (demographics, previous
purchase and service history, propensity to buy additional products and
services) and provide targeted, action-oriented information to a customer
service representative who can proactively contact the customer or be more
effective when a customer calls.
CLIENTS
IMG
IMG generally has long-term relationships and multi-year contracts with its
clients. In many cases, IMG is the client's exclusive provider of billing
services or the contract requires the client to fulfill minimum annual
commitments. IMG billing and customer management solutions process billing
information for
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monthly customer statements for approximately 30% of U.S. cellular subscribers.
IMG provided customer usage data collection, rating and bill generation for
nearly 70% of the U.S. PCS industry in 1998. IMG's customers include three of
the largest PCS providers, Sprint PCS, PrimeCo Personal Communications and AT&T
Wireless, with whom the Company has multi-year contracts. Combined, these
clients serve customers in 49 of the top 50 U.S. metropolitan areas, often with
more than one client serving the same metropolitan area. Over the past five
years, subscriber growth in domestic wireless cellular services has averaged
approximately 37% per year.
IMG has leveraged its billing expertise in the wireless communications market to
grow its cable television industry billing market share to 30% during 1998, and
the Company is further expanding its billing solutions in the broadband services
market. IMG' solutions also support bundled telephone and entertainment services
provided by cable television system operators in the U.S. and Europe.
CMG
CMG principally focuses on developing long-term strategic outsourcing
relationships with large clients in the telecommunications, technology,
financial services and consumer products industries. CMG focuses on clients in
these industries because of the complexity of services required, the anticipated
growth of their businesses and their continuing need for customer management
solutions. CMG provides a full range of customer management services to clients
including AT&T, Sprint PCS, DIRECTV-Registered Trademark-, American Express,
Procter & Gamble and Microsoft. The Company provides technical support services
to leading technology companies such as Gateway International and CISCO.
SALES AND MARKETING
The Company has a direct sales force and sales support organization of
approximately 275 sales and marketing personnel, focused on the leading
companies in its target industries in both North America and Europe. The Company
uses a consultative approach to client sales and generally focuses its marketing
efforts at the senior executive levels where decisions are made with respect to
outsourcing critical billing and customer management functions. Once a client
has made the decision to outsource, the Company works closely with the client to
identify current and prospective needs and develop a solution, typically
customized, designed to address those needs and reduce the client's capital
investment and overall costs.
The Company's strategic relationships with clients are primarily conducted
pursuant to multi-year contracts which vary by client and generally contain
annual revenue commitments or exclusivity provisions, annual rate adjustments
based upon consumer price index increases, performance benchmarks,
renewal/extension options, limited termination provisions or renewal periods and
exit payments in the event of an early termination.
OPERATIONS
The Company operates three data centers in Orlando and Jacksonville, Florida,
and Cincinnati, Ohio, comprising approximately 150,000 square feet of space.
Approximately 76,000 terminals are connected via 40 external networks to the
Company's data centers. Over 400 data center operations and production support
employees service the Company's data centers.
The Company's technologically advanced data centers provide twenty-four hour per
day, seven days a week availability (with redundant power and communication
feeds and emergency power back-up supplied by diesel generators) and are
designed to withstand most environmental disasters. Over 30 million bills are
processed on a monthly basis from the Company's mainframe and open systems
facilities which can process over 3,400 million instructions per second (MIPS),
store over 16 terabytes
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(trillion bytes) of information and provide back-up capacity in the unlikely
event that any one data center becomes inoperative.
The Company operates more than 30 call centers with twenty-four hours per day,
seven days a week availability, averaging 66,000 square feet per center and over
16,000 available production workstations. These call centers handled more than
400 million customer calls during 1998.
The capacity of the Company's data center and call center operations coupled
with the scalability of the Company's billing and customer management systems
enable the Company to meet initial and on- going needs of large scale and
rapidly growing projects. By employing the scale and efficiencies of common
application platforms, the Company is able to provide client specific
enhancements and modifications without incurring all the costs of a custom
application. This allows the Company to position itself as a low cost
value-added provider of billing and customer support solutions.
TECHNOLOGY, RESEARCH & DEVELOPMENT
The Company intends to continue to emphasize the design, development and
deployment of scalable, customer management systems to increase its market
share, both domestically and internationally. The Company intends to pursue this
objective by continuing its substantial investment in expanding and enhancing
its customer management solutions. During 1998, the Company spent $81.9 million
for research and development to advance the functionality, flexibility and
scalability of its solutions portfolio.
The Company's Precedent 2000 billing solution employs advanced systems,
client/server technology for real-time customer activations, inquiries and
adjustments, call detail collection and rating, and on-demand bill processing.
Its three-tier distributed processing architecture utilizes advanced technology
for ease of information access, as well as an intuitive Graphical User Interface
for streamlined customer service that provides quick response and resolution.
The Company continues to invest research and development spending in Precedent
2000. In 1999, some of this investment will be to add Global System for Mobile
(GSM) capabilities to Precedent 2000.
The Company's technical capabilities are comprehensive, ranging from OS/390
COBOL based batch processing to open systems to client/server based real-time
processing applications. The Company is also investing in (i) object-oriented
analysis, design and programming technologies to achieve reuse, higher quality,
and faster time to market, and (ii) new development tools, such as Java, to
capitalize on advancements in the software industry.
The Company's call centers employ advanced technology that integrates digital
switching, intelligent call routing and tracking, proprietary workforce
management systems, proprietary software systems, interactive voice response
techniques, computer telephony integration and relational database management
systems. This technology enables the Company to improve its call handling and
personnel scheduling thereby increasing its efficiency and enhancing the quality
of the services it delivers to its clients and their customers. The Company also
provides services using electronic media such as e-mail and the Internet.
The Company's intellectual property consists primarily of proprietary software
systems protected under copyright law and trademarks and service marks
registered in the U.S. Patent and Trademark Office. The Company also has
patents, granted and pending, covering certain advanced interactive voice
response inventions.
PERSONNEL AND TRAINING
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The Company considers its employees to be a key component of its success.
Therefore, the Company is continually refining its systematic approach to
hiring, training and managing qualified personnel.
The Company offers extensive training, including leadership and management
seminars, for its personnel, including managers, customer service
representatives and software professionals. The Company conducts extensive
market, product and technology specific training for its customer service
representatives designed to make them proficient in representing a specific
client's products and services. In addition, the Company conducts extensive
technical training for its software development staff on topics ranging from
introductory systems development through application specific expertise.
COMPETITION
The industries in which the Company competes are extremely competitive. The
Company's competitors include (i) existing clients and potential clients with
substantial resources and the ability to provide billing and customer management
solutions internally, (ii) other billing software and/or services companies such
as Alltel Corporation, Amdocs, CSG Systems International, LHS Group and Saville
Systems, (iii) other teleservices companies, such as APAC Teleservices Inc.,
SITEL Corporation, Inc., Sykes International, TeleTech Holdings, Inc. and West
Teleservices Corporation and (iv) systems integration companies, such as
American Management Systems, Andersen Consulting, EDS and SEMA Group. In
addition, niche providers or new entrants could capture a segment of the market
by developing new systems or services that could impact the Company's market
potential.
The Company believes that the principal competitive factors in its industry are
service quality, sales and marketing skills, the ability to develop customized
solutions, cost of services and technological expertise. The Company
differentiates itself from its competitors based on its size and scale, service
quality, breadth of services provided, industry and client focus, financial and
technical resources, cost of services and business reputation.
YEAR 2000
The Company initiated a program in 1995 to identify and address issues
associated with the ability of its date-sensitive information and business
systems and equipment to recognize the Year 2000 properly. Given its reliance on
its information and business systems, the Company's Year 2000 efforts have
primarily focused on information technology systems. The Company incurred $29.1
million in expenses during 1998 in order to prepare for the Year 2000 and $9.9
million in1997. The Company estimates its Year 2000 expenses in 1999 will be in
a range of $10 to $15 million. Approximately 40% of the Company's 1998 Year 2000
spending was paid to third-party service providers.
A steering committee chaired by the Company's Chief Executive Officer and
composed of upper-level management personnel, has set the direction for, and
monitored the activity of, Convergys' Year 2000 Program Management Office.
The Program Management Office's responsibility is to make Convergys Year 2000
compliant. The Program Management Office is also communicating with vendors
and clients with which the Company's systems interface or upon whom the
Company's systems rely to determine their progress toward Year 2000
compliance. Additionally, senior management reports on the Company's progress
toward Year 2000 compliance at each meeting of the Company's Board of
Directors.
IMG has adopted a repair strategy to modify its existing systems for the Year
2000. IMG's assessment, remediation and testing phases of the project are
substantially complete and IMG is in the process of completing implementation
procedures. IMG's goal is for data centers, software and other information
technology systems to be Year 2000 compliant and tested by June 30, 1999.
CMG has also adopted a strategy that includes both repair and replacement of
current systems. CMG
10
<PAGE>
has completed the assessment and remediation phases of its plan and is
substantially complete with regard to systems testing. Implementation efforts
are currently underway. CMG's goal is for software, telecom equipment and
other information technology systems to be Year 2000 compliant and tested by
June 30, 1999.
The Company maintains business continuity plans to limit disruptions to its
operations. As part of its Year 2000 efforts, the Company has updated these
plans to address Year 2000 issues. The Company has obtained Year 2000 compliance
statements from all significant vendors. Although the Company anticipates
minimal business disruption as a result of the century change, if the Company
were to be unsuccessful in preparing for the Year 2000, this could have a
material adverse impact on the Company. Such impact could include the inability
of IMG to process bills and other transactions for its clients in a timely
manner, which could lead to the incurrence of contractual penalties. Similarly,
this could include disruptions to CMG's ability to handle client call volumes
appropriately, which could also lead to contractual penalties. The failure of
one of the Company's significant clients or vendors (in particular, utilities or
telecommunication services providers) to prepare for the Year 2000 successfully
could have a material adverse impact on the Company.
EMPLOYEES
The Company currently has over 33,000 employees in more than eight countries.
This total includes approximately 8,000 individuals at Transtech that were
previously provided by employment service agencies. During 1998, these
individuals were transferred to permanent employee status. The Company believes
that the impact of this movement to permanent employee status will be to improve
efficiency and reduce staffing costs.
PROPERTIES
The Company leases space for offices, data centers and call centers on
commercially reasonable terms. Domestic facilities are located in Arizona,
California, Colorado, Florida, Georgia, Illinois, Missouri, Nebraska, North
Carolina, Ohio, Oklahoma, Tennessee, Texas, Utah, Washington, Washington, D.C.,
and Wisconsin. International facilities are located in Brussels, Belgium, Paris,
France, Bristol, London, Newcastle Upon Tyne, and Southampton, England, Winnipeg
and Halifax, Canada, Bern, Switzerland, Linkoping and Stockholm, Sweden and
Utrecht, The Netherlands. In addition, the Company owns its operations and data
center located in Jacksonville, Florida.
The Company believes that its facilities and equipment are adequate and have
sufficient productive capacity to meet its current needs.
CELLULAR TELEPHONE SERVICE LIMITED PARTNERSHIP INTEREST
The Company has a 45% limited partnership interest in the Cellular Partnership,
which operates a cellular telecommunications business in central and
southwestern Ohio and northern Kentucky. The population of the territory served
by the Cellular Partnership is in excess of 5 million persons and the Company's
proportionate share of this cellular market represents approximately 2.3 million
POPs. The Company accounts for the partnership interest under the equity method
of accounting. In 1998, the Company's equity in earnings of the Cellular
Partnership was $25.1 million and the Company received no distribution of
Cellular Partnership earnings.
Ameritech Mobile Phone Service of Cincinnati, Inc. is the general partner and a
limited partner in the Cellular Partnership with a combined partnership interest
of approximately 53%; 360 Communications Investment Company has a 1.2% limited
partnership interest; and GIT-Cell, Inc. has a 0.7% limited partnership
interest. The Cincinnati SMSA Limited Partnership Agreement authorizes the
general
11
<PAGE>
partner to conduct and manage the business of the Partnership. Limited partners
are entitled to their percentage share of income and cash distributions and
shall meet capital calls or suffer a dilution of their interests. They may, if
acting unanimously, replace a general partner who withdraws from the Cellular
Partnership. All partners have the right to approve a transfer of a limited
partner's Cellular Partnership interest to unaffiliated parties and have a right
to purchase a limited partnership interest proposed to be transferred at the
offered price.
12
<PAGE>
ITEM 2. PROPERTIES
The property of the Company is principally computer and communications equipment
and software that does not lend itself to description by character and location
of principal units. Other property of the Company is principally buildings and
leasehold improvements. The gross investment in property and equipment, and
related accumulated depreciation, in millions of dollars, at December 31, 1998
was as follows:
<TABLE>
<S> <C>
Land $ 6.2
Buildings 47.8
Leasehold improvements 54.3
Equipment 226.2
Software 136.2
Construction in progress and other 27.9
-------
Total 498.6
Less: Accumulated depreciation 248.8
-------
Net property and equipment $ 249.8
=======
</TABLE>
IMG and CMG lease office space in various cities (see properties paragraph in
Item 1. for a detailed listing) on commercially reasonable terms. Upon the
expiration or termination of any such leases, these companies could obtain
comparable office space. IMG also leases some of the computer hardware, computer
software and office equipment necessary to conduct its business pursuant to
short term leases.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter of
the fiscal year covered by this report.
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (DURING 1998)
The names, ages and positions of the executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
(as of 3/31/99)
<S> <C> <C>
Charles S. Mechem, Jr. (a,b) 68 Chairman of the Board
James F. Orr (a,b) 53 President and Chief Executive
Officer
William D. Baskett III 59 General Counsel and Secretary
Steven G. Rolls (c) 44 Chief Financial Officer
Robert J. Marino 52 President of IMG
David F. Dougherty 43 President of CMG
Brian C. Henry 42 Chief Operating Officer of IMG
Ronald E. Schultz 44 Chief Operating Officer of CMG
Cheryl N. Campbell 50 V.P. Public Relations
Thomas A. Cruz 51 V.P. Human Resources
and Administration
Robert P. Komin 36 V.P. Finance and Treasurer
Michael J. Randall 57 Chief Technical Officer of IMG
Andre S. Valentine 35 V.P. and Controller
(a) Member of the Board of Directors
(b) Member of the Executive Committee
(c) Elected Chief Financial Officer of the Company on June 1, 1998
</TABLE>
Officers are elected annually but are removable at the discretion of the Board
of Directors.
14
<PAGE>
CHARLES S. MECHEM, JR., Chairman of the Board of the Company since May 8, 1998;
Chairman of the Board of Cincinnati Bell Inc. (CBI) 1996-1998; Commissioner
Emeritus, Ladies Professional Golf Association ("LPGA"); Commissioner of the
LPGA, 1991-1995; Chairman of the United States Shoe Corporation, 1993-1995.
Director of Mead Corporation, Ohio National Life Insurance Company, J.M. Smucker
Company, Firstar Corporation and its subsidiary, Firstar Bank, N.A.
JAMES F. ORR, Chief Executive Officer of the Company since May 8, 1998; Chief
Operating Officer of CBI, 1996-1998; Executive Vice President of CBI and
President and Chief Executive Officer of IMG, 1995-1996; Chief Operating Officer
of IMG, 1994.
WILLIAM D. BASKETT III, General Counsel and Secretary of the Company since May
8, 1998; General Counsel and Chief Legal Officer of CBI 1993-1998; Partner of
Frost & Jacobs 1970-1997.
STEVEN G. ROLLS, Chief Financial Officer of the Company since June 1, 1998; Vice
President and Controller of The BF Goodrich Company, 1993-1998; CFO of the
Aerospace Segment of BF Goodrich, 1989-1993.
ROBERT J. MARINO, President of IMG since 1996; Chief Operating Officer of IMG,
1995-1996; President - Northeast Region of Nextel, 1993-1995.
DAVID F. DOUGHERTY, President of CMG since 1995; Senior Vice President and Chief
Operating Officer U.S. Operations of CMG, 1993-1994.
BRIAN C. HENRY, Chief Operating Officer of IMG since April 1998; Executive Vice
President and Chief Financial Officer of CBI, 1993-1998.
RONALD E. SCHULTZ, Chief Operating Officer of CMG since 1996; Managing Director
of II Ventures, 1990-1994.
CHERYL N. CAMPBELL, Vice President Public Relations of the Company since May 8,
1998; Vice President of Public Relations of CBI, 1997-1998; Vice President of
Corporate Communications and Public Affairs of Cincinnati Bell Telephone (CBT),
1996-1997; Vice President of Regulatory Affairs of CBT, 1995-1996; Director of
Docket Management and Regulatory Affairs of CBT, 1993-1995
THOMAS A. CRUZ, Vice President Human Resources and Administration of the Company
since May 8, 1998; Corporate Vice President of Human Resources and
Administration of CBI, 1997-1998; Senior Vice President of Human Resources and
Administration of IMG, 1993-1997.
ROBERT P. KOMIN, Vice President Finance and Treasurer of the Company since May
8, 1998; Vice President Finance and Planning of CBI, 1996-1998; Director of
Finance and Planning of CBI, 1995-1996; Product Marketing Manager of Rogue Wave
Software, 1994-1995.
MICHAEL J. RANDALL, Chief Technical Officer of IMG since 1996; Vice President
Corporate Operations Systems of Compaq Computer Corporation, 1995-1996;
Corporate Vice President Information Systems of Marion Merrell Dow, 1992-1995.
ANDRE S. VALENTINE, Vice President and Controller of the Company since September
1, 1998; Controller and Chief Accounting Officer of CBI, February 1, 1998 to
September 1, 1998; Director of Corporate Accounting of CBI, 1997-1998; Business
Assurance Manager at Coopers & Lybrand L.L.P., 1990-1997.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
Convergys Corporation (symbol: CVG) common shares are listed on the New York
Stock Exchange. As of February 26, 1999, there were approximately 23,000 holders
of record of the 152,117,096 outstanding Common Shares of the Company. The high
and low sales prices of its common shares each quarter since the Company's
initial public offering are listed below:
<TABLE>
<CAPTION>
QUARTER 1ST 2ND 3RD 4TH
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 High $ --- $ --- $17.438 $23.750
Low $ --- $ --- $11.375 $ 9.625
</TABLE>
The Company did not declare any dividends during 1998 and does not anticipate
doing so in the near future.
ITEMS 6 THROUGH 8.
The Selected Financial Data, Management's Discussion and Analysis of Financial
Condition and Results of Operations, Quantitative and Qualitative Disclosure
About Market Risk and Financial Statements and Supplementary Data required by
these items are included in the registrant's annual report to security holders
for the fiscal year ended December 31, 1998, included in Exhibit 13 and are
incorporated herein by reference pursuant to General Instruction G (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any accounting or financial disclosure or
auditing scope or procedure occurred during the period covered by this report.
PART III
ITEMS 10 THROUGH 13.
Information regarding executive officers required by Item 401 of Regulation S-K
is furnished in a separate disclosure in Part I of this report under the caption
Executive Officers of the Registrant since the registrant did not furnish such
information in its definitive proxy statement prepared in accordance with
Schedule 14A.
The other information required by these items is included in the registrant's
definitive proxy statement dated March 12, 1999, in the second paragraph on page
2, the accompanying notes on page 2 and the Section 16 paragraph on page 2, the
information under Election of Directors on pages 5 through 7, the information
under Share Ownership of Directors and Officers on page 4, the information under
Executive Compensation on pages 11 through 15. The foregoing is incorporated
herein by reference pursuant to General Instruction G (3).
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Consolidated Financial Statements:
Report of Management................................................ *
Report of Independent Accountants................................... *
Consolidated Statements of Income and Comprehensive Income.......... *
Consolidated Balance Sheets......................................... *
Consolidated Statements of Cash Flows............................... *
Consolidated Statements of Shareowners' Equity...................... *
Notes to Financial Statements....................................... *
(2) Financial Statement Schedules:
Report of Independent Accountants................................... 23
II - Valuation and Qualifying Accounts............................. 24
</TABLE>
Financial statements and financial statement schedules other than that
listed above have been omitted because the required information is
contained in the financial statements and notes thereto, or because such
schedules are not required or applicable.
...............................
* Incorporated herein by reference to the appropriate portions of the
registrant's annual report to security holders for the fiscal year ended
December 31, 1998. (See Part II)
17
<PAGE>
(3) Exhibits
(Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission ("SEC"), are incorporated herein by reference as exhibits
hereto.
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<S> <C>
3.1 Amended Articles of Incorporation of the Company. (Exhibit 3.1 to
Registration Statement No. 333-53619.)
3.2 Regulations of the Company. (Exhibit 3.2 to Registration Statement
No. 333-53619.)
10.1 Plan of Reorganization and Distribution Agreement by and between the
Company and CBI. (Exhibit 10.1 to Registration Statement
No. 333-53619.)
10.2 Employee Benefits Agreement by and between the Company and CBI.
(Exhibit 10.2 to Registration Statement No. 333-53619.)
10.3 Services Agreement by and between the Company and CBI. (Exhibit 10.3
to Registration Statement No. 333-53619.)
10.4 Tax Separation and Allocation Agreement by and between the Company
and CBI. (Exhibit 10.4 to Registration Statement No. 333-53619.)
10.5* Convergys Corporation 1998 Long Term Incentive Plan. (Exhibit 10.5
to Registration Statement No. 333-53619.)
10.5.1* December 31, 1998 Amendment to Convergys Corporation 1998 Long Term
Incentive Plan.
10.6* Convergys Corporation Deferred Compensation Plan for Non-Employee
Directors.
10.7* Convergys Corporation Executive Deferred Compensation Plan.
(Exhibit 4.3 to Registration Statement No. 333-69633.)
10.7.1* January 1, 1999 Amendment to Convergys Corporation Executive Deferred
Compensation Plan.
10.8* Employment Agreement between the Company and James F. Orr and
December 16, 1998 Amendment to Employment Agreement.
10.9* Employment Agreement between the Company and William D. Baskett III
and December 16, 1998 Amendment to Employment Agreement.
18
<PAGE>
<S> <C>
10.10* Employment Agreement between the Company and Steven G. Rolls and
December 16, 1998 Amendment to Employment Agreement.
10.11* Employment Agreement between the Company and Robert J. Marino and
December 16, 1998 Amendment to Employment Agreement.
10.12* Employment Agreement between the Company and David F. Dougherty
and December 16, 1998 Amendment to Employment Agreement.
10.13* Convergys Corporation Employment Agreement with Brian C. Henry.
10.14* Convergys Corporation Employment Agreement with Ronald E. Schultz
and November 1, 1998 Amendment to Employment Agreement.
10.15* Convergys Corporation Supplemental Executive Retirement Plan.
10.16* Rights Agreement dated November 30, 1998 between Convergys Corporation
and The Fifth Third Bank. (Exhibit 4.1 to Form 8-A12B filed
December 23, 1998, File No. 001-14379.)
13 Portions of the Company's annual report to security holders for the
year ended December 31, 1998, as incorporated by reference including
the Selected Financial Data, Report of Management, Report of
Independent Accountants, Management's Discussion and Analysis and
Consolidated Financial Statements.
21 Subsidiaries of the Company. (Exhibit 21 to Registration Statement No.
333-53619.)
23 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
...............................
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
The Company will furnish, without charge, to a security holder upon request, a
copy of the documents, portions of which are incorporated by reference (Annual
Report to security holders and proxy statement), and will furnish any other
exhibit at cost.
19
<PAGE>
(b) Reports on Form 8-K.
Form 8-K, date of report, November 24, 1998, reported the distribution
ratio and record date for the previously announced distribution of
Convergys from Cincinnati Bell Inc.
Form 8-K, date of report, December 4, 1998, reported the adoption of a
rights agreement between Convergys and The Fifth Third Bank, as rights
agent.
Form 8-K, date of report, December 31, 1998, reported the completion of
the spin-off of Convergys from Cincinnati Bell Inc.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CONVERGYS CORPORATION
March 29, 1999 By /s/ STEVEN G. ROLLS
---------------------------------------
Steven G. Rolls
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Principal Executive Officer;
President, Chief Executive
JAMES F. ORR* Officer and Director
- --------------------------
James F. Orr
Principal Financial Officer;
STEVEN G. ROLLS* Chief Financial Officer
- --------------------------
Steven G. Rolls
Principal Accounting Officer;
Vice President and
ANDRE S. VALENTINE* Controller
- --------------------------
Andre S. Valentine
JOHN F. BARRETT* Director
- --------------------------
John F. Barrett
JUDITH G. BOYNTON* Director
- --------------------------
Judith G. Boynton
GARY C. BUTLER* Director
- --------------------------
Gary C. Butler
ROGER L. HOWE* Director
- --------------------------
Roger L. Howe
21
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
STEVEN C. MASON* Director
- -------------------------
Steven C. Mason
CHARLES S. MECHEM, JR.* Chairman of the Board
- ------------------------- and Director
Charles S. Mechem, Jr.
JAMES F. ORR* Director
- -------------------------
James F. Orr
BRIAN H. ROWE* Director
- -------------------------
Brian H. Rowe
*By /s/ STEVEN G. ROLLS March 29, 1999
---------------------
Steven G. Rolls
as attorney-in-fact and on his behalf
as Chief Financial Officer
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareowners of Convergys Corporation:
Our report on the consolidated financial statements of Convergys Corporation has
been incorporated by reference in this Form 10-K from page 30 of the 1998 annual
report to shareholders of Convergys Corporation. In connection with our audits
of such consolidated financial statements, we have also audited the related
financial statement schedule on page 24 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, Ohio
February 18, 1999
23
<PAGE>
CONVERGYS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADDITIONS
(1) (1) (2)
BALANCE AT CHARGED BALANCE
BEGINNING CHARGED TO OTHER AT END
DESCRIPTION OF PERIOD TO EXPENSE ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR 1998
- ---------
Allowance for
Doubtful Accounts $ 6.4 $ 4.2 $3.2(a) $ 4.0(b) $ 9.8
Deferred Tax Asset
Valuation Allowance $ 21.0 --- --- --- $21.0
Restructuring Reserve $ 24.9 --- --- $11.8 $13.1
YEAR 1997
- ---------
Allowance for
Doubtful Accounts $ 6.5 $ 4.5 $0.5(a) $ 5.1(b) $ 6.4
Deferred Tax Asset
Valuation Allowance $ 21.0 --- --- --- $21.0
Restructuring Reserve --- $35.0 --- $10.1 $24.9
YEAR 1996
- ---------
Allowance for
Doubtful Accounts $ 13.6 $ 1.7 $(5.6)(a) $ 3.2(b) $ 6.5
Deferred Tax Asset
Valuation Allowance $ 21.0 --- --- --- $21.0
Restructuring Reserve --- --- --- --- ---
</TABLE>
(a) Includes amounts previously written off which were credited directly to
this account when recovered, acquired reserves and other adjustments.
(b) Primarily includes amounts written off as uncollectible.
24
<PAGE>
EXHIBIT 10.5.1
TO
FORM 10-K FOR 1998
RESOLVED, That the 1998 Long Term Incentive Plan is amended in the following
respects:
Section 5.2 is amended to read as follows:
5.2 The purchase price per Common Share of options granted under
the Plan shall be determined by the Committee; provided that the
purchase price per Common Share of any ISO shall not be less 100% of
the fair market value of a Common Share of the date the ISO is
granted.
The third sentence of Section 17.2 is amended to read as follows:
The exercise price per share of each CBI Option (the "CBI Exercise
Price") shall be reduced, and the exercise price per share of the
associated Company Option (the "Company Exercise Price") shall be set
so that (a) the sum of the CBI Exercise Price (after the reduction
provided herein) and the Company Exercise Price is equal to the CBI
Exercise Price (before the reduction provided herein) and (ii) the
ratio of the CBI Exercise Price (after the reduction provided herein)
to the Company Exercise Price is equal to the ratio of the average of
the high and low per-share prices of CBI Common Shares on the New York
Stock Exchange ("NYSE") on January 4, 1999 to the average of the high
and low per-share prices of Common Shares on the NYSE on January 4,
1999.
Adopted by the Convergys Board of Directors
January 29, 1999
<PAGE>
EXHIBIT 10.6
TO
FORM 10-K FOR 1998
CONVERGYS CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1...............................................NAME AND PURPOSE OF PLAN 1
SECTION 2.................................GENERAL DEFINITIONS; GENDER AND NUMBER 1
SECTION 3..............................................................DEFERRALS 2
SECTION 4..................................MAINTENANCE AND VALUATION OF ACCOUNTS 3
SECTION 5...........................................................DISTRIBUTION 4
SECTION 6.............................................ADMINISTRATION OF THE PLAN 6
SECTION 7.....................................................FUNDING OBLIGATION 6
SECTION 8..............................................AMENDMENT AND TERMINATION 7
SECTION 9.............................................NON-ALIENATION OF BENEFITS 7
SECTION 10.........................................................MISCELLANEOUS 7
</TABLE>
i
<PAGE>
CONVERGYS CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
SECTION 1
NAME AND PURPOSE OF PLAN
1.1 NAME. The plan set forth herein shall be known as the
Convergys Corporation Deferred Compensation Plan for Non-Employee Directors
(the "Plan").
1.2 PURPOSE. The purpose of the Plan is to provide deferred compensation
for those members of the Board of Directors of Convergys Corporation
("Convergys") who are not employees of Convergys.
1.3 EFFECTIVE DATE. The Plan shall be effective on January 1, 1999 (the
"Effective Date").
1.4 PREDECESSOR PLAN. The Plan is intended to assume and discharge all
of the obligations of Cincinnati Bell Inc. ("CBI") under CBI's Deferred
Compensation Plan for Outside Directors (the "CBI Plan") with respect to
those members of the Board of Directors of Convergys who were participating
in the CBI Plan immediately prior to the Effective Date.
SECTION 2
GENERAL DEFINITIONS; GENDER AND NUMBER
2.1 GENERAL DEFINITIONS. For purposes of the Plan, the following terms
shall have the meanings hereinafter set forth unless the context otherwise
requires:
2.1.1 "Account" means the Account established for a Non-Employee
Director under Section 4.1.
2.1.2 "Board" means the Board of Directors of Convergys.
2.1.3 "Beneficiary" means the person or entity designated by a
Participant, on forms furnished and in the manner prescribed by the
Committee, to receive any benefit payable under the Plan after the
Participant's death. If a Participant fails to designate a beneficiary or if,
for any reason, such designation is not effective, the Participant's
"Beneficiary" shall be the Participant's surviving spouse or, if none, the
Participant's estate.
2.1.4 "Convergys Shares" means common shares of Convergys.
2.1.5 "Committee" means the Compensation and Benefits Committee of
the Board.
<PAGE>
2.1.6 "Credited Service" means active service as a Non-Employee
Director, including service as a non-employee member of the CBI Board of
Directors prior to the Effective Date. One year of Credited Service shall be
given for each twelve full months of Credited Service, whether or not
consecutive. A fraction of a year of Credited Service shall be rounded up or
down to the nearest whole year.
2.1.7 "Other Fee" means any fee for Non-Employee Directors
established by the Board for attending Board or committee meetings or for
serving as a chair of a Board committee, but shall not include the Retainer
or expense reimbursements.
2.1.8 "Other Fee Payment Date" means the date on which any Other
Fee is payable to a Non-Employee Director.
2.1.9 "Non-Employee Director" means any member of the Board who
is not an employee of Convergys, but shall not include any person serving as
Director Emeritus.
2.1.10 "Participant" means a person who has served as a
Non-Employee Director on or after the Effective Date and whose Account has
not been fully paid or forfeited, as the case may be.
2.1.11 "Retainer" means the annual fee for Non-Employee Directors
established by the Board, but shall not include meeting fees, fees for
serving as a chair of a Board committee or expense reimbursements.
2.1.12 "Retainer Payment Date" means the quarterly dates on which
the Non-Employee Directors' Retainer is paid.
2.1.13 "Valuation Date" means the last day of each calendar year
and the date as of which any payment is to be made under the Plan.
2.2 GENDER AND NUMBER. For purposes of the Plan, words used in any
gender shall include all other genders, words used in the singular form shall
include the plural form, and words used in the plural form shall include the
singular form, as the context may require.
SECTION 3
DEFERRALS
3.1 ELECTION OF DEFERRALS. Subject to such rules as the Committee may
prescribe, a Non-Employee Director may elect to defer up to 100% of the
Non-Employee Director's Retainer and/or Other Fees for any calendar year by
completing a deferral form and filing such form with the Committee prior to
January 1 of such calendar year (or such earlier date as may be prescribed by
the Committee). Notwithstanding the foregoing, if a Non-Employee Director
first becomes a Non-Employee Director after the first day of a calendar year,
such Non-Employee Director may elect to defer up to 100% of the Non-Employee
Director's Retainer and/or Other Fees for the remainder of the calendar year
by completing and signing a deferral form provided by the
<PAGE>
Committee and filing such form with the Committee within 30 days of the date
on which the Non-Employee Director first becomes a Non-Employee Director. Any
election under the preceding sentence shall be effective as of the first
Retainer Date or Other Fee Payment Date, as the case may be, after the date
the election is filed.
3.2 CHANGING DEFERRALS. Subject to such rules as the Committee may
prescribe, a Non-Employee Director who has elected to defer a portion or all
of any Retainer and/or Other Fee may change the amount of the deferral from
one permissible amount to another, effective as of any January 1, by
completing and signing a new deferral form and filing such form with the
Committee prior to such January 1 (or such earlier date as may be prescribed
by the Committee).
SECTION 4
MAINTENANCE AND VALUATION OF ACCOUNTS
4.1 DEFERRED COMPENSATION ACCOUNTS. A separate bookkeeping Account
shall be established for each Non-Employee Director which shall reflect all
amounts credited to the Non-Employee Director's Account under this Section 4.1
and the assumed investment of those amounts.
4.1.1 On each Retainer Payment Date and Other Fee Payment Date
after the Effective Date, there shall be credited to each Non-Employee
Director's Account the amount of the Retainer or Other Fee which the
Non-Employee Director has elected to defer under Section 3.1 Amounts credited
to a Non-Employee Director's Account under this Section 4.1.1 shall be
assumed to be invested in such types of investments as may be permitted by
the Committee.
4.1.2 In the case of a Non-Employee Director who was participating
in the CBI Plan immediately prior to the Effective Date, the balance then
credited to the Non-Employee Director's Account under the CBI Plan shall be
transferred to the Non-Employee Director's Account under this Plan as of the
Effective Date. From and after such transfer, the Non-Employee director shall
cease to have any further rights under the CBI Plan. To the extent that a
Non-Employee Director's CBI Plan Account was assumed to have been invested in
common shares of CBI ("CBI Shares") immediately prior to the Effective Date,
the Non-Employee Director's Account in this Plan shall be credited with one
Convergys Share and one CBI Share (adjusted in value to reflect the Convergys
Shares distributed to CBI's shareholders on the Effective Date) for each CBI
Share credited to the Non-Employee Director's CBI Plan Account immediately
prior to the Effective Date. Amounts credited to a Non-Employee Director's
Account under this Section 4.1.2 in the form of Convergys Shares shall be
assumed to be invested exclusively in Convergys Shares. Amounts credited to a
Non-Employee Director's Account under this Section 4.1.2 in the form of CBI
Shares shall be assumed to be invested in such types of investments as may be
permitted by the Committee.
4.2 CONVERGYS SHARES. To the extent that a Participant's Account is
assumed to be invested in Convergys Shares and has not been paid or forfeited,
as the case may be:
<PAGE>
4.2.1 Whenever any cash dividends are paid with respect to
Convergys Shares, an additional amount shall be credited to the Participant's
Account as of the dividend payment date. The additional amount to be credited
to each account shall be determined by multiplying the per share cash
dividend paid with respect to the Convergys Shares on the dividend payment
date by the number of assumed Convergys Shares credited to the Participant's
Account on the day preceding the dividend payment date. Such additional
amount credited to the Account shall be assumed to be invested in additional
Convergys Shares on the day on which such dividends are paid.
4.2.2 If there is any change in Convergys Shares through the
declaration of a stock dividend or a stock split or through a recapitalization
resulting in a stock split, or a combination or a change in shares, the number
of shares assumed to be purchased for each Account shall be appropriately
adjusted.
4.2.3 Whenever Convergys Shares are to be valued for purposes of
the Plan, the value of each Convergys Share shall be the average of the high
and low price per share as reported on the New York Stock Exchange on that
date or, if no Convergys Shares were traded on that date, on the next
preceding day on which Convergys Shares were traded.
4.3 VALUATION. As of each Valuation Date, each Participant's Account
shall be adjusted to reflect all amounts credited to the Account since the
preceding Valuation Date, any gains or losses in the value of the Account's
assumed investments since the preceding Valuation Date and any payments or
forfeitures occurring as of the Valuation Date.
SECTION 5
DISTRIBUTION
5.1 GENERAL. Except as otherwise provided in Section 5.5, no amount
shall be paid with respect to a Participant's Account while the Participant
remains a member of the Board.
5.2 TERMINATION OF SERVICE. A Participant may elect to receive the
amounts credited to the Participant's Account in up to ten annual installment
payments as of or commencing as of the first business day of the calendar
year following the calendar year in which the Participant ceases to be a
member of the Board. If a Participant fails to make such an election, the
amounts credited to the Participant's Account shall be paid to the Participant
in one lump sum as of the first business day of the calendar year next
following the calendar year in which the Participant ceases to be a member of
the Board
5.2.1. The amount of each annual installment payable under this
Section 5.2 shall be a fraction of the nonforfeitable amounts credited to the
Participant's Account as of the installment payment date, the numerator of
which is 1 and the denominator of which is equal to the total number of
installments remaining to be paid (including the installment to be paid on
the subject installment payment date).
<PAGE>
5.2.2. Any election under this Section 5.2 must be made in writing
at least six months prior to the date on which the Participant ceases to be a
member of the Board.
5.2.3. Notwithstanding any other provision hereof to the contrary,
the right to receive payments with respect to that portion of the
Participant's Account attributable to amounts credited under Section 4.1.2
shall be conditioned on the Participant completing at least five years of
Credited Service prior to the date on which the Participant ceases to be a
member of the Board. To the extent that a Participant has not satisfied such
service requirement prior to the date on which the Participant ceases to be a
member of the Board (other than by reason of death), the Participant shall
not be entitled to receive any payment with respect to that portion of the
Participant's Account attributable to amounts credited under Section 4.1.2
and such portion shall be forfeited as of the date on which the Participant
ceases to be a member of the Board.
5.3 DEATH. If a Participant ceases to be a member of the Board by
reason of death, or if a Participant dies after ceasing to be a member of the
Board but before the amounts credited to the Participant's Account have been
paid, the amounts credited to the Participant's Account shall be paid to the
Participant's Beneficiary in one lump sum as of the first business day of the
calendar year next following the calendar year in which the Participant's
death occurs; provided, however, that if the Participant has elected to have
the Participant's Account distributed in installments and if the Participant
dies after distribution has commenced, the remaining installments shall be
paid to the Beneficiary as they become due.
5.4 FORM OF PAYMENT. All payments under the Plan shall be made in cash.
5.5 CHANGE IN CONTROL. If a Change in Control of Convergys occurs, the
amount credited to each Participant's Account shall be paid to the Participant
in one lump sum as of the day next following the date on which such Change in
Control occurs. A "Change in Control of Convergys" shall be deemed to have
occurred if, on or after the Effective Date, (i) a tender offer shall be made
and consummated for the ownership of 30% or more of the outstanding voting
securities of Convergys; (ii) Convergys shall be merged or consolidated with
another corporation and as a result of such merger or consolidation less than
75% of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders of
Convergys, other than affiliates (within the meaning of the Securities
Exchange Act of 1934 (the "Act")) of any party to such merger or consolidation,
as the same shall have existed immediately prior to such merger or
consolidation; (iii) Convergys shall sell substantially all of its assets to
another corporation which is not a wholly owned subsidiary; (iv) a person,
within the meaning of Section 3 (a)(9) or of Section 13(d)(3) (as in effect
on the Effective Date) of the Act, shall acquire 20% or more of the outstanding
voting securities of Convergys (whether directly, indirectly, beneficially or
of record), or a person, within the meaning of Section 3(a)(9) or
Section 13(d)(3) (as in effect on the Effective Date) of the Act, controls in
any manner the election of a majority of the directors; or (v) within any
period of two consecutive years after the Effective Date, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election of each director
who was not a director at the beginning of such period has been approved in
advance by directors representing at least two-thirds of the directors then
in office who were directors at the beginning
<PAGE>
of the period. For purposes hereof, ownership of voting securities shall take
into account and shall include ownership as determined by applying the
provisions of Rule 13d-3(d)(1)(i) (as in effect on the Effective Date)
pursuant to the Act.
SECTION 6
ADMINISTRATION OF THE PLAN
6.1 GENERAL. The general administration of the Plan and the
responsibility for carrying out its provisions shall be placed in the Committee.
6.2 EXPENSES. Expenses of administering the Plan shall be paid by
Convergys.
6.3 COMPENSATION OF COMMITTEE. The members of the Committee shall not
receive compensation for their services as such, and, except as required by
law, no bond or other security need be required of them in such capacity in
any jurisdiction.
6.4 RULES OF PLAN. Subject to the limitations of the Plan, the
Committee may, from time to time, establish rules for the administration of
the Plan and the transaction of its business. The Committee may correct
errors, however arising, and as far as possible, adjust any benefit payments
accordingly. The determination of the Committee as to the interpretation of
the provisions of the Plan or any disputed question shall be conclusive upon
all interested parties.
6.5 AGENTS AND EMPLOYEES. The Committee may authorize one or more
agents to execute or deliver any instrument. The Committee may appoint or
employ such agents, counsel (including counsel of Convergys), auditors
(including auditors of Convergys), physicians, clerical help and actuaries as
in the Committee's judgment may seem reasonable or necessary for the proper
administration of the Plan.
6.6 INDEMNIFICATION. Convergys shall indemnify each member of the
Committee for all expenses and liabilities (including reasonable attorney's
fees) arising out of the administration of the Plan. The foregoing right of
indemnification shall be in addition to any other rights to which the members
of the Committee may be entitled as a matter of law.
SECTION 7
FUNDING OBLIGATION
Convergys shall have no obligation to fund, either by the purchase of
Convergys Shares or by any other means, its obligations to Participants
hereunder. If, however, Convergys does elect to allocate assets to provide
for any such obligation, the assets allocated for such purpose shall be
assets of Convergys subject to claims against Convergys, including claims of
Convergys' creditors, to the same extent as are other corporate assets, and
the Participants shall have no right or claim against the assets so
allocated, other than as general creditors of Convergys.
<PAGE>
SECTION 8
AMENDMENT AND TERMINATION
The Board may amend or terminate the Plan at any time; provided that no
amendment shall be made or act of termination taken which adversely affects
the accrued benefits of any Participant without such Participant's consent.
SECTION 9
NON-ALIENATION OF BENEFITS
No Participant or Beneficiary shall alienate, commute, anticipate,
assign, pledge, encumber or dispose of the right to receive the payments
required to be made by Convergys hereunder, which payments and the right to
receive them are expressly declared to be nonassignable and nontransferable.
SECTION 10
MISCELLANEOUS
10.1 DELEGATION. The Committee may delegate to any person or committee
certain of its rights and duties hereunder. Any such delegation shall be
valid and binding on all persons and the person or committee to whom or which
authority is delegated shall have full power to act in all matters so
delegated until the authority expires by its terms or is revoked by the
Committee, as the case may be.
10.2 APPLICABLE LAW. The Plan shall be governed by applicable federal
law and, to the extent not preempted by applicable federal law, the laws of
the State of Ohio.
10.3 SEPARABILITY OF PROVISIONS. If any provision of the Plan is held
invalid or unenforceable, such invalidity or unenforceabilty shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as
if such provisions had not been included.
10.4 HEADINGS. Headings used throughout the Plan are for convenience
only and shall not be given legal significance.
10.5 COUNTERPARTS. The Plan may be executed in any number of
counterparts, each of which shall be deemed an original. All counterparts
shall constitute one and the same instrument, which shall be sufficiently
evidenced by any one thereof.
IN WITNESS WHEREOF, Convergys Corporation has caused its name to be
subscribed on the _____ day of _______________, 1998.
CONVERGYS CORPORATION
<PAGE>
By _________________________________
<PAGE>
EXHIBIT 10.7.1
TO
FORM 10-K FOR 1998
AMENDMENT TO
CONVERGYS CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
Convergys Corporation Executive Deferred Compensation Plan is hereby
amended effective January 1, 1999 in the following respects:
1. The second sentence of Section 3.4 is amended to read as follows:
For purposes of the preceding sentence, "Total Compensation" means the
total Base Salary and Cash Awards paid to the Key Employee on a Deferral
Date or which would have been paid to the Key Employee on the Deferral Date
if he had not participated in a 401 (k) plan or cafeteria plan and "Maximum
401 (m) Match" means the maximum Convergys Entity match which would have
been made for the Key Employee on the Deferral Date under the Convergys
Corporation Retirement and Savings Plan (the "RSP") if the Key Employee had
elected to contribute 6% of his non-deferred compensation to the RSP on a
pre-tax basis (not in excess of the maximum dollar amount permitted under
the terms of the RSP).
2. The last sentence of Section 5.2.4 is amended to read as follows:
The provisions of this Section 5.2.4 shall not apply to amounts credited to
the Restricted Stock Account under Section 4.6.1 or 4.6.2.
IN WITNESS WHEREOF, Convergys Corporation has caused its name to be
subscribed on the 28th day of January, 1999.
CONVERGYS CORPORATION
By
-------------------------------
<PAGE>
EXHIBIT 10.8
TO
FORM 10-K FOR 1998
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and James F. Orr ("Employee").
For purposes of this Agreement, "Effective Date" means the date on which the
initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Inc. dated August
19, 1994, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President and Chief Executive Officer of Employer
or in such other equivalent capacity as may be designated by the Board of
Directors of Employer. Employee will report to the Board of Directors of
Employer.
B. Employee shall furnish such managerial, executive, financial, technical,
and other skills, advice, and assistance in operating Employer and its
Affiliates as Employer may reasonably request. For purposes of this Agreement,
"Affiliate" means each corporation which is a member of a controlled group of
corporations (within the meaning of section 1563(a) of the Internal Revenue Code
of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably assigned
to Employee by the Board of Directors of Employer.
D. Employee shall devote Employee's entire time, attention, and energies to
the
<PAGE>
business of Employer and its Affiliates. The words "entire time, attention,
and energies" are intended to mean that Employee shall devote Employee's full
effort during reasonable working hours to the business of Employer and its
Affiliates and shall devote at least 40 hours per week to the business of
Employer and its Affiliates. Employee shall travel to such places as are
necessary in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at
least $660,000 per year, payable not less frequently than monthly, for each
year during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and all other amounts payable under this Agreement,
shall be subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $429,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in the
course of the performance of Employee's duties to Employer shall be reimbursable
in accordance with Employer's then current travel and expense policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 350,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 150,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
<PAGE>
E. In each year of this Agreement after 1998, Employee will be given a
long term incentive target under Employer's 1998 Long Term Incentive Plan. In no
event will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as determined by Employer's
Compensation Committee, be less than $1,353,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the outsourced
customer care industry within the U.S. and world wide. Employee acknowledges
that in the course of employment with the Employer, Employee will be entrusted
with or obtain access to information proprietary to the Employer and its
Affiliates with respect to the following (all of which information is referred
to hereinafter collectively as the "Information"); the organization and
management of Employer and its Affiliates; the names, addresses, buying habits,
and other special information regarding past, present and potential customers,
employees and suppliers of Employer and its Affiliates; customer and supplier
contracts and transactions or price lists of Employer, its Affiliates and their
suppliers; products, services, programs and processes sold, licensed or
developed by the Employer or its Affiliates; technical data, plans and
specifications, present and/or future development projects of Employer and its
Affiliates; financial and/or marketing data respecting the conduct of the
present or future phases of business of Employer and its Affiliates; computer
programs, systems and/or software; ideas, inventions, trademarks, business
information, know-how, processes, improvements, designs, redesigns, discoveries
and developments of Employer and its Affiliates; and other information
considered confidential by any of the Employer, its Affiliates or customers or
suppliers of Employer, its Affiliates. Employee agrees to retain the Information
in absolute confidence and not to disclose the Information to any person or
organization except as required in the performance of Employee's duties for
Employer, without the express written consent of Employer; provided that
Employee's obligation of confidentiality shall not extend to any Information
which becomes generally available to the public other than as a result of
disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts, trademarks,
or other developments or improvements, whether patentable or not, conceived by
the Employee, alone or with others, at any time during the term of Employee's
employment, whether or not during working hours or on Employer's premises, which
are within the scope of or related to the business operations of Employer or its
Affiliates ("New Developments"), shall be and remain the exclusive property of
Employer. Employee shall do all things reasonably necessary to ensure ownership
of such New Developments by Employer, including the execution of documents
assigning and transferring to Employer, all of Employee's rights, title and
interest in and to such New Developments, and the execution of all documents
required to enable Employer to file and obtain patents, trademarks, and
copyrights in the United States and foreign countries on any of such New
Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee
<PAGE>
will immediately surrender to Employer all of the property and other things
of value in his possession or in the possession of any person or entity under
Employee's control that are the property of Employer or any of its
Affiliates, including without any limitation all personal notes, drawings,
manuals, documents, photographs, or the like, including copies and
derivatives thereof, relating directly or indirectly to any confidential
information or materials or New Developments, or relating directly or
indirectly to the business of Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen
<PAGE>
from the panel. Each party will have 10 days from the transmittal date in
which to strike up to two names, number the remaining names in order of
preference and return the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is
to use the deposition in lieu of the witness testifying at the hearing and
the witness is, in good faith, unavailable to testify in person at the
hearing due to poor health, residency and employment more than 50 miles from
the hearing site, conflicting travel plans or other comparable reason.
(iii) Arbitration must be requested in writing no later than
6 months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits
herein will be considered a waiver and release by that party with respect to
any claim subject to arbitration under this Agreement.
<PAGE>
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venturer, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee (i) in any business activity
in competition with Employer; (ii) in any position with any customer of Employer
which involves such customer's billing and/or billing related systems or; or
(iii) in any business that provides billing and/or billing related systems to
third parties engaged in the communication business (including wireless,
wireline and cable communication businesses). This restriction will be limited
to the geographical area where Employer is then engaged in such competing
business activity or to such other geographical area as a court shall find
reasonably necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of
<PAGE>
Employee's employment with Employer, induce or seek to induce, any other
employee of Employer to terminate his or her employment relationship with
Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally, or
with any of their customers, suppliers or employees. Employer will not disparage
Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating party
to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections 13.A.,
B. and C.; provided,
<PAGE>
however, that Employer shall have no right to terminate under this Section
13.D. within two years after a Change in Control. In the event of a
termination by Employer under this Section 13.D., Employer shall, within five
days after the termination, pay Employee an amount equal to the greater of
(i) two times the sum of the annual Base Salary rate in effect at the time of
termination plus the Bonus target in effect at the time of termination or
(ii) if the Current Term is longer than two years, the sum of the Base Salary
for the remainder of the Current Term (at the rate in effect at the time of
termination) plus the Bonus targets (at the amount in effect at the time of
termination) for each calendar year commencing or ending during the remainder
of the Current Term (subject to proration in the case of any calendar year
ending after the Current Term). For the remainder of the Current Term,
Employer shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible for
any post-retirement medical, dental, vision or life insurance benefits from
Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. For purposes of any stock option
or restricted stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have terminated
until the end of the Current Term. In addition, Employee shall be entitled to
receive, as soon as practicable after termination, an amount equal to the sum
of (i) any forfeitable benefits under any qualified or nonqualified pension,
profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1998
Long Term Incentive Plan.
E. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum
<PAGE>
of the annual Base Salary rate in effect at the time of termination plus the
Bonus target in effect at the time of termination, all stock options shall
become immediately exercisable (and Employee shall be afforded the
opportunity to exercise them), the restrictions applicable to all restricted
stock shall lapse and any long term awards shall be paid out at target. For
the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable
to the medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee had continued in
employment through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term.
Employee's accrued benefit under any nonqualified pension or deferred
compensation plan maintained by Employer or any Affiliate shall become
immediately vested and nonforfeitable and Employee also shall be entitled to
receive a payment equal to the sum of (i) any forfeitable benefits under any
qualified pension or profit sharing or 401(k) plan maintained by Employer or
any Affiliate plus (ii) if Employee is participating in a qualified or
nonqualified defined benefit plan of Employer or any Affiliate at the time of
termination, an amount equal to the present value of the additional benefits
which would have accrued for Employee under such plan if Employee's
employment had not terminated prior to the end of the Current Term and if
Employee's annual Base Salary and Bonus target had neither increased nor
decreased after the termination. Finally, to the extent that Employee is
deemed to have received an excess parachute payment by reason of the Change
in Control, Employer shall pay Employee an additional sum sufficient to pay
(i) any taxes imposed under section 4999 of the Code plus (ii) any federal,
state and local taxes applicable to any taxes imposed under section 4999 of
the Code. For purposes of this Section 13.E., "Current Term" means the longer
of (i) the three year period beginning at the time of termination or (ii) the
unexpired term of this Agreement at the time of the termination, determined
as provided in Section 2 but assuming that there is no automatic extension of
the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon one year's prior written notice to Employer
at any time after Employee has attained age 55 and completed at least ten years
of service with Employer and its Affiliates. For purposes of the preceding
sentence, service with Cincinnati Bell Inc. and its subsidiaries prior to the
Effective Date shall be deemed to be service with Employer. In the event of a
retirement under this Section 13.G., this Agreement shall terminate and Employee
shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
<PAGE>
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus earned for the year preceding the
year in which the termination occurs and any nonforfeitable amounts payable
under any employee plan), all further compensation under this Agreement shall
terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights and
duties of Employee arising under this Agreement, and the Agreement itself, are
non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, and if delivered personally or by certified
mail to Employee at Employee's place of residence as then recorded on the books
of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms contained
herein shall be valid unless in writing and duly executed by the party to be
charged therewith. The waiver by any party hereto of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the State of
Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no other
contracts, agreements or understandings, whether oral or written, existing
between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this Agreement is
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or other enforceability shall not affect any other provisions
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provisions have never been contained herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14 above,
this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall be
held in strict confidence by Employee and shall not be disclosed by Employee to
anyone other than Employee's spouse, Employee's legal counsel, and Employee's
other advisors, unless required by law. Further, except as provided in the
preceding sentence, Employee shall not reveal the
<PAGE>
existence of this Agreement or discuss its terms with any person (including
but not limited to any employee of Employer or its Affiliates) without the
express authorization of the Board of Directors of Employer. To the extent
that the terms of this Agreement have been disclosed by Employer, in a public
filing or otherwise, the confidentiality requirements of this Section 21
shall no longer apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
------------------------------
EMPLOYEE
-----------------------------------
James F. Orr
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance Company-leased automobile
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $10,000 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
James F. Orr ("Employee"), made as of the date on which the initial public
offering of Employer's common shares was closed, is hereby amended in the
following respects:
1. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of at least
$765,000 per year, payable not less frequently than monthly, for each year after
1998 during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and all other amounts payable under this Agreement,
shall be subject to withholding as required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year
shall be payable after the conclusion of the calendar year in accordance
with Employer's regular bonus payment policies. The Bonus target for the
period from August 13, 1998 through December 31, 1998 shall be $165,723
($429,000 on an annualized basis). Each year after 1998, Employee shall be
given a minimum Bonus target, by Employer's Compensation Committee, of not
less than $324,000, subject to proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
------------------------------
-----------------------------------
James F. Orr
<PAGE>
EXHIBIT 10.9
TO
FORM 10-K FOR 1998
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and William D. Baskett III
("Employee"). For purposes of this Agreement, "Effective Date" means the date on
which the initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the
terms of Employer's employment of Employee on and after the Effective Date.
Any prior agreements or understandings with respect to Employee's employment
by Employer, including Employee's Employment Agreement with Cincinnati Bell
Inc. dated January 1, 1998, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the
four year period commencing on the Effective Date. On the third anniversary
of the Effective Date and on each subsequent anniversary of the Effective
Date, the term of this Agreement automatically shall be extended for a period
of one additional year. Notwithstanding the foregoing, the term of this
Agreement is subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as Chief Legal Officer of Employer or in such
other equivalent capacity as may be designated by the President of Employer.
Employee will report to the President of Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the President of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working
<PAGE>
hours to the business of Employer and its Affiliates and shall devote at
least 40 hours per week to the business of Employer and its Affiliates.
Employee shall travel to such places as are necessary in the performance of
Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$275,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $135,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee
in the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 50,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 25,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
long term
<PAGE>
incentive target under Employer's 1998 Long Term Incentive Plan. In no event
will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as determined by Employer's
Compensation Committee, be less than $250,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the outsourced
customer care industry within the U.S. and world wide. Employee acknowledges
that in the course of employment with the Employer, Employee will be entrusted
with or obtain access to information proprietary to the Employer and its
Affiliates with respect to the following (all of which information is referred
to hereinafter collectively as the "Information"); the organization and
management of Employer and its Affiliates; the names, addresses, buying habits,
and other special information regarding past, present and potential customers,
employees and suppliers of Employer and its Affiliates; customer and supplier
contracts and transactions or price lists of Employer, its Affiliates and their
suppliers; products, services, programs and processes sold, licensed or
developed by the Employer or its Affiliates; technical data, plans and
specifications, present and/or future development projects of Employer and its
Affiliates; financial and/or marketing data respecting the conduct of the
present or future phases of business of Employer and its Affiliates; computer
programs, systems and/or software; ideas, inventions, trademarks, business
information, know-how, processes, improvements, designs, redesigns, discoveries
and developments of Employer and its Affiliates; and other information
considered confidential by any of the Employer, its Affiliates or customers or
suppliers of Employer, its Affiliates. Employee agrees to retain the Information
in absolute confidence and not to disclose the Information to any person or
organization except as required in the performance of Employee's duties for
Employer, without the express written consent of Employer; provided that
Employee's obligation of confidentiality shall not extend to any Information
which becomes generally available to the public other than as a result of
disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts, trademarks,
or other developments or improvements, whether patentable or not, conceived by
the Employee, alone or with others, at any time during the term of Employee's
employment, whether or not during working hours or on Employer's premises, which
are within the scope of or related to the business operations of Employer or its
Affiliates ("New Developments"), shall be and remain the exclusive property of
Employer. Employee shall do all things reasonably necessary to ensure ownership
of such New Developments by Employer, including the execution of documents
assigning and transferring to Employer, all of Employee's rights, title and
interest in and to such New Developments, and the execution of all documents
required to enable Employer to file and obtain patents, trademarks, and
copyrights in the United States and foreign countries on any of such New
Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee will immediately surrender to Employer all of the property
and other things of value in his possession or in the possession of any person
or entity under Employee's control that are the
<PAGE>
property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof, relating directly or
indirectly to any confidential information or materials or New Developments,
or relating directly or indirectly to the business of Employer or any of its
Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
<PAGE>
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking
the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more than 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits herein
will be considered a waiver and release by that party with respect to any claim
subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
<PAGE>
(v) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venturer, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee (i) in any business activity
in competition with Employer; (ii) in any position with any customer of Employer
which involves such customer's billing and/or billing related systems or; or
(iii) in any business that provides billing and/or billing related systems to
third parties engaged in the communication business (including wireless,
wireline and cable communication businesses). This restriction will be limited
to the geographical area where Employer is then engaged in such competing
business activity or to such other geographical area as a court shall find
reasonably necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
<PAGE>
12. GOODWILL. Employee will not disparage Employer or any of its
Affiliates in any way which could adversely affect the goodwill, reputation
and business relationships of Employer or any of its Affiliates with the
public generally, or with any of their customers, suppliers or employees.
Employer will not disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating
party to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections
13.A., B. and C.; provided, however, that Employer shall have no right to
terminate under this Section 13.D. within two years after a Change in
Control. In the event of a termination by Employer under this Section
<PAGE>
13.D., Employer shall, within five days after the termination, pay Employee
an amount equal to the greater of (i) two times the sum of the annual Base
Salary rate in effect at the time of termination plus the Bonus target in
effect at the time of termination or (ii) if the Current Term is longer than
two years, the sum of the Base Salary for the remainder of the Current Term
(at the rate in effect at the time of termination) plus the Bonus targets (at
the amount in effect at the time of termination) for each calendar year
commencing or ending during the remainder of the Current Term (subject to
proration in the case of any calendar year ending after the Current Term).
For the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable
to the medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee had continued in
employment through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term. For
purposes of any stock option or restricted stock grant outstanding
immediately prior to the termination, Employee's employment with Employer
shall not be deemed to have terminated until the end of the Current Term. In
addition, Employee shall be entitled to receive, as soon as practicable after
termination, an amount equal to the sum of (i) any forfeitable benefits under
any qualified or nonqualified pension, profit sharing, 401(k) or deferred
compensation plan of Employer or any Affiliate which would have vested prior
to the end of the Current Term if Employee's employment had not terminated
plus (ii) if Employee is participating in a qualified or nonqualified defined
benefit plan of Employer or any Affiliate at the time of termination, an
amount equal to the present value of the additional vested benefits which
would have accrued for Employee under such plan if Employee's employment had
not terminated prior to the end of the Current Term and if Employee's annual
Base Salary and Bonus target had neither increased nor decreased after the
termination. For purposes of this Section 13.D., "Current Term" means the
longer of (i) the two year period beginning at the time of termination or
(ii) the unexpired term of this Agreement at the time of the termination,
determined as provided in Section 2 but assuming that there is no automatic
extension of the Agreement term after the termination. For purposes of this
Section 13.D. and Section 13.E., "Change in Control" means a change in
control as defined in Employer's 1998 Long Term Incentive Plan.
F. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee
<PAGE>
shall be afforded the opportunity to exercise them), the restrictions
applicable to all restricted stock shall lapse and any long term awards shall
be paid out at target. For the remainder of the Current Term, Employer shall
continue to provide Employee with medical, dental, vision and life insurance
coverage comparable to the medical, dental, vision and life insurance
coverage in effect for Employee immediately prior to the termination; and, to
the extent that Employee would have been eligible for any post-retirement
medical, dental, vision or life insurance benefits from Employer if Employee
had continued in employment through the end of the Current Term, Employer
shall provide such post-retirement benefits to Employee after the end of the
Current Term. Employee's accrued benefit under any nonqualified pension or
deferred compensation plan maintained by Employer or any Affiliate shall
become immediately vested and nonforfeitable and Employee also shall be
entitled to receive a payment equal to the sum of (i) any forfeitable
benefits under any qualified pension or profit sharing or 401(k) plan
maintained by Employer or any Affiliate plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional benefits which would have accrued for Employee under
such plan if Employee's employment had not terminated prior to the end of the
Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. Finally, to the extent
that Employee is deemed to have received an excess parachute payment by
reason of the Change in Control, Employer shall pay Employee an additional
sum sufficient to pay (i) any taxes imposed under section 4999 of the Code
plus (ii) any federal, state and local taxes applicable to any taxes imposed
under section 4999 of the Code. For purposes of this Section 13.E., "Current
Term" means the longer of (i) the three year period beginning at the time of
termination or (ii) the unexpired term of this Agreement at the time of the
termination, determined as provided in Section 2 but assuming that there is
no automatic extension of the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates. For purposes of the
preceding sentence, service with Cincinnati Bell Inc. and its subsidiaries prior
to the Effective Date shall be deemed to be service with Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under
<PAGE>
this Section 13 (including any Base Salary accrued through the date of
termination, any Bonus earned for the year preceding the year in which the
termination occurs and any nonforfeitable amounts payable under any employee
plan), all further compensation under this Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving
a relation of confidence and a trust between Employer and Employee, all
rights and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement
shall be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the President of Employer. To the extent that the terms of
this Agreement have been disclosed by Employer, in a
<PAGE>
public filing or otherwise, the confidentiality requirements of this Section
21 shall no longer apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
-----------------------------------
EMPLOYEE
---------------------------------------
William D. Baskett III
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
William D. Baskett III ("Employee"), made as of the date on which the initial
public offering of Employer's common shares was closed, is hereby amended in the
following respects:
2. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of at
least $310,000 per year, payable not less frequently than monthly, for
each year after 1998 during the term of this Agreement, subject to
proration for any partial year. Such Base Salary, and all other amounts
payable under this Agreement, shall be subject to withholding as
required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year
shall be payable after the conclusion of the calendar year in accordance
with Employer's regular bonus payment policies. The Bonus target for the
period from August 13, 1998 through December 31, 1998 shall be $52,151
($135,000 on an annualized basis). Each year after 1998, Employee shall be
given a minimum Bonus target, by Employer's Compensation Committee, of not
less than $100,000, subject to proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
------------------------------
----------------------------------
William D. Baskett III
<PAGE>
EXHIBIT 10.10
TO
FORM 10-K FOR 1998
EMPLOYMENT AGREEMENT
This Agreement is made as of the June 1, 1998 (the "Effective Date")
between Convergys Corporation, an Ohio corporation ("Employer"), and Steven G.
Rolls ("Employee").
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer
are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as Chief Financial Officer of Employer or in
such other equivalent capacity as may be designated by the President of
Employer. Employee will report to the President of Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the President of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places as
are necessary in the performance of Employee's duties.
<PAGE>
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$275,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $135,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in the
course of the performance of Employee's duties to Employer shall be reimbursable
in accordance with Employer's then current travel and expense policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the date on which the initial public offering for Employer's
common shares is closed (the "IPO Date"), Employee shall be granted options to
purchase 50,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the IPO Date, Employee shall receive a restricted stock award
of 25,000 common shares of Employer. Such award shall be made under Employer's
1998 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
Performance Share target under Employer's 1998 Long Term Incentive Plan. In no
event will the value of
<PAGE>
Executive's long term incentives (stock options and performance share
targets) for any year, as determined by Employer's Compensation Committee, be
less than $300,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the outsourced
customer care industry within the U.S. and world wide. Employee acknowledges
that in the course of employment with the Employer, Employee will be entrusted
with or obtain access to information proprietary to the Employer and its
Affiliates with respect to the following (all of which information is referred
to hereinafter collectively as the "Information"); the organization and
management of Employer and its Affiliates; the names, addresses, buying habits,
and other special information regarding past, present and potential customers,
employees and suppliers of Employer and its Affiliates; customer and supplier
contracts and transactions or price lists of Employer, its Affiliates and their
suppliers; products, services, programs and processes sold, licensed or
developed by the Employer or its Affiliates; technical data, plans and
specifications, present and/or future development projects of Employer and its
Affiliates; financial and/or marketing data respecting the conduct of the
present or future phases of business of Employer and its Affiliates; computer
programs, systems and/or software; ideas, inventions, trademarks, business
information, know-how, processes, improvements, designs, redesigns, discoveries
and developments of Employer and its Affiliates; and other information
considered confidential by any of the Employer, its Affiliates or customers or
suppliers of Employer, its Affiliates. Employee agrees to retain the Information
in absolute confidence and not to disclose the Information to any person or
organization except as required in the performance of Employee's duties for
Employer, without the express written consent of Employer; provided that
Employee's obligation of confidentiality shall not extend to any Information
which becomes generally available to the public other than as a result of
disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts, trademarks,
or other developments or improvements, whether patentable or not, conceived by
the Employee, alone or with others, at any time during the term of Employee's
employment, whether or not during working hours or on Employer's premises, which
are within the scope of or related to the business operations of Employer or its
Affiliates ("New Developments"), shall be and remain the exclusive property of
Employer. Employee shall do all things reasonably necessary to ensure ownership
of such New Developments by Employer, including the execution of documents
assigning and transferring to Employer, all of Employee's rights, title and
interest in and to such New Developments, and the execution of all documents
required to enable Employer to file and obtain patents, trademarks, and
copyrights in the United States and foreign countries on any of such New
Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee will immediately surrender to Employer all of the property
and other things of value in his possession or in the possession of any person
or entity under Employee's control that are the property of Employer or any of
its Affiliates, including without any limitation all personal notes,
<PAGE>
drawings, manuals, documents, photographs, or the like, including copies and
derivatives thereof, relating directly or indirectly to any confidential
information or materials or New Developments, or relating directly or
indirectly to the business of Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
<PAGE>
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking
the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more than 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later
than 6 months from the date of the party's knowledge of the matter disputed
by the claim. A party's failure to initiate arbitration within the time
limits herein will be considered a waiver and release by that party with
respect to any claim subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
<PAGE>
(v) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venturer, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee (i) in any business activity
in competition with Employer; (ii) in any position with any customer of Employer
which involves such customer's billing and/or billing related systems or; or
(iii) in any business that provides billing and/or billing related systems to
third parties engaged in the communication business (including wireless,
wireline and cable communication businesses). This restriction will be limited
to the geographical area where Employer is then engaged in such competing
business activity or to such other geographical area as a court shall find
reasonably necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
<PAGE>
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally, or
with any of their customers, suppliers or employees. Employer will not disparage
Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this Agreement
in the event of a Terminating Disability, such termination shall be effective
immediately upon the giving of written notice by the terminating party to the
other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the
date of termination. For as long as such Terminating Disability may exist,
Employee shall continue to be an employee of Employer for all other purposes
and Employer shall provide Employee with disability benefits and all other
benefits according to the provisions of the Disability Plans and any other
Employer plans in which Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon an
event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for
less than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections 13.A.,
B. and C.; provided, however, that Employer shall have no right to terminate
under this Section 13.D. within two years after a Change in Control. In the
event of a termination by Employer under this Section 13.D., Employer shall,
within five days after the termination, pay Employee an amount equal to
<PAGE>
the greater of (i) two times the sum of the annual Base Salary rate in effect
at the time of termination plus the Bonus target in effect at the time of
termination or (ii) if the Current Term is longer than two years, the sum of
the Base Salary for the remainder of the Current Term (at the rate in effect
at the time of termination) plus the Bonus targets (at the amount in effect
at the time of termination) for each calendar year commencing or ending
during the remainder of the Current Term (subject to proration in the case of
any calendar year ending after the Current Term). For the remainder of the
Current Term, Employer shall continue to provide Employee with medical,
dental, vision and life insurance coverage comparable to the medical, dental,
vision and life insurance coverage in effect for Employee immediately prior
to the termination; and, to the extent that Employee would have been eligible
for any post-retirement medical, dental, vision or life insurance benefits
from Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. For purposes of any stock option
or restricted stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have terminated
until the end of the Current Term. In addition, Employee shall be entitled to
receive, as soon as practicable after termination, an amount equal to the sum
of (i) any forfeitable benefits under any qualified or nonqualified pension,
profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1998
Long Term Incentive Plan.
G. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them), the restrictions applicable to all
restricted
<PAGE>
stock shall lapse and any long term awards shall be paid out at target. For
the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable
to the medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee had continued in
employment through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term.
Employee's accrued benefit under any nonqualified pension or deferred
compensation plan maintained by Employer or any Affiliate shall become
immediately vested and nonforfeitable and Employee also shall be entitled to
receive a payment equal to the sum of (i) any forfeitable benefits under any
qualified pension or profit sharing or 401(k) plan maintained by Employer or
any Affiliate plus (ii) if Employee is participating in a qualified or
nonqualified defined benefit plan of Employer or any Affiliate at the time of
termination, an amount equal to the present value of the additional benefits
which would have accrued for Employee under such plan if Employee's
employment had not terminated prior to the end of the Current Term and if
Employee's annual Base Salary and Bonus target had neither increased nor
decreased after the termination. Finally, to the extent that Employee is
deemed to have received an excess parachute payment by reason of the Change
in Control, Employer shall pay Employee an additional sum sufficient to pay
(i) any taxes imposed under section 4999 of the Code plus (ii) any federal,
state and local taxes applicable to any taxes imposed under section 4999 of
the Code. For purposes of this Section 13.E., "Current Term" means the longer
of (i) the three year period beginning at the time of termination or (ii) the
unexpired term of this Agreement at the time of the termination, determined
as provided in Section 2 but assuming that there is no automatic extension of
the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates. For purposes of the
preceding sentence, service with Cincinnati Bell Inc. and its subsidiaries prior
to the Effective Date shall be deemed to be service with Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus
<PAGE>
earned for the year preceding the year in which the termination occurs and
any nonforfeitable amounts payable under any employee plan), all further
compensation under this Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights and
duties of Employee arising under this Agreement, and the Agreement itself, are
non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, and if delivered personally or by certified
mail to Employee at Employee's place of residence as then recorded on the books
of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms contained
herein shall be valid unless in writing and duly executed by the party to be
charged therewith. The waiver by any party hereto of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the State of
Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no other
contracts, agreements or understandings, whether oral or written, existing
between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this Agreement is
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or other enforceability shall not affect any other provisions
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provisions have never been contained herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14 above,
this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall be
held in strict confidence by Employee and shall not be disclosed by Employee to
anyone other than Employee's spouse, Employee's legal counsel, and Employee's
other advisors, unless required by law. Further, except as provided in the
preceding sentence, Employee shall not reveal the existence of this Agreement or
discuss its terms with any person (including but not limited to any employee of
Employer or its Affiliates) without the express authorization of the President
of Employer. To the extent that the terms of this Agreement have been disclosed
by Employer, in a public filing or otherwise, the confidentiality requirements
of this Section 21 shall no longer
<PAGE>
apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
-----------------------------------
EMPLOYEE
---------------------------------------
Steven G. Rolls
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
Steven G. Rolls ("Employee"), made as of June 1, 1998, is hereby amended in the
following respects:
3. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of at least
$320,000 per year, payable not less frequently than monthly, for each year after
1998 during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and all other amounts payable under this Agreement,
shall be subject to withholding as required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year
shall be payable after the conclusion of the calendar year in accordance
with Employer's regular bonus payment policies. The Bonus target for the
period from June 1, 1998 through December 31, 1998 shall be $79,151
($135,000 on an annualized basis). Each year after 1998, Employee shall be
given a minimum Bonus target, by Employer's Compensation Committee, of not
less than $100,000, subject to proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
------------------------------
----------------------------------
Steven G. Rolls
<PAGE>
EXHIBIT 10.11
TO
FORM 10-K FOR 1998
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and Robert J. Marino
("Employee"). For purposes of this Agreement, "Effective Date" means the date on
which the initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Information
Systems Inc. dated October 1, 1995, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President of Information Services Group or in
such other equivalent capacity as may be designated by the President of
Employer. Employee will report to the President or Chief Operating Officer of
Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the President of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places as
are necessary
<PAGE>
in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$305,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $160,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in the
course of the performance of Employee's duties to Employer shall be reimbursable
in accordance with Employer's then current travel and expense policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 100,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 50,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
long term incentive target under Employer's 1998 Long Term Incentive Plan. In no
event will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as
<PAGE>
determined by Employer's Compensation Committee, be less than $316,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
outsourced customer care industry within the U.S. and world wide. Employee
acknowledges that in the course of employment with the Employer, Employee
will be entrusted with or obtain access to information proprietary to the
Employer and its Affiliates with respect to the following (all of which
information is referred to hereinafter collectively as the "Information");
the organization and management of Employer and its Affiliates; the names,
addresses, buying habits, and other special information regarding past,
present and potential customers, employees and suppliers of Employer and its
Affiliates; customer and supplier contracts and transactions or price lists
of Employer, its Affiliates and their suppliers; products, services, programs
and processes sold, licensed or developed by the Employer or its Affiliates;
technical data, plans and specifications, present and/or future development
projects of Employer and its Affiliates; financial and/or marketing data
respecting the conduct of the present or future phases of business of
Employer and its Affiliates; computer programs, systems and/or software;
ideas, inventions, trademarks, business information, know-how, processes,
improvements, designs, redesigns, discoveries and developments of Employer
and its Affiliates; and other information considered confidential by any of
the Employer, its Affiliates or customers or suppliers of Employer, its
Affiliates. Employee agrees to retain the Information in absolute confidence
and not to disclose the Information to any person or organization except as
required in the performance of Employee's duties for Employer, without the
express written consent of Employer; provided that Employee's obligation of
confidentiality shall not extend to any Information which becomes generally
available to the public other than as a result of disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term
of Employee's employment, whether or not during working hours or on
Employer's premises, which are within the scope of or related to the business
operations of Employer or its Affiliates ("New Developments"), shall be and
remain the exclusive property of Employer. Employee shall do all things
reasonably necessary to ensure ownership of such New Developments by
Employer, including the execution of documents assigning and transferring to
Employer, all of Employee's rights, title and interest in and to such New
Developments, and the execution of all documents required to enable Employer
to file and obtain patents, trademarks, and copyrights in the United States
and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that
upon cessation of Employee's employment, for whatever reason and whether
voluntary or involuntary, Employee will immediately surrender to Employer all
of the property and other things of value in his possession or in the
possession of any person or entity under Employee's control that are the
property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof,
<PAGE>
relating directly or indirectly to any confidential information or materials
or New Developments, or relating directly or indirectly to the business of
Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for
<PAGE>
expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from
taking the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more than 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits herein
will be considered a waiver and release by that party with respect to any claim
subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Except as provided in Section 10.A., neither party will
commence or
<PAGE>
pursue any litigation on any claim that is or was subject to arbitration
under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venturer, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee (i) in any business activity
in competition with Employer; (ii) in any position with any customer of Employer
which involves such customer's billing and/or billing related systems or; or
(iii) in any business that provides billing and/or billing related systems to
third parties engaged in the communication business (including wireless,
wireline and cable communication businesses). This restriction will be limited
to the geographical area where Employer is then engaged in such competing
business activity or to such other geographical area as a court shall find
reasonably necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way
<PAGE>
which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally,
or with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating party
to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections 13.A.,
B. and C.; provided, however, that Employer shall have no right to terminate
under this Section 13.D. within two years after a Change in Control. In the
event of a termination by Employer under this Section 13.D., Employer shall,
within five days after the termination, pay Employee an amount equal to the
greater of (i) two times the sum of the annual Base Salary rate in effect at the
time of
<PAGE>
termination plus the Bonus target in effect at the time of termination or
(ii) if the Current Term is longer than two years, the sum of the Base Salary
for the remainder of the Current Term (at the rate in effect at the time of
termination) plus the Bonus targets (at the amount in effect at the time of
termination) for each calendar year commencing or ending during the remainder
of the Current Term (subject to proration in the case of any calendar year
ending after the Current Term). For the remainder of the Current Term,
Employer shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible for
any post-retirement medical, dental, vision or life insurance benefits from
Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. For purposes of any stock option
or restricted stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have terminated
until the end of the Current Term. In addition, Employee shall be entitled to
receive, as soon as practicable after termination, an amount equal to the sum
of (i) any forfeitable benefits under any qualified or nonqualified pension,
profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1998
Long Term Incentive Plan.
H. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them), the restrictions applicable to all
restricted stock shall lapse and any long term awards shall be paid out at
target. For the remainder of the
<PAGE>
Current Term, Employer shall continue to provide Employee with medical,
dental, vision and life insurance coverage comparable to the medical, dental,
vision and life insurance coverage in effect for Employee immediately prior
to the termination; and, to the extent that Employee would have been eligible
for any post-retirement medical, dental, vision or life insurance benefits
from Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. Employee's accrued benefit under
any nonqualified pension or deferred compensation plan maintained by Employer
or any Affiliate shall become immediately vested and nonforfeitable and
Employee also shall be entitled to receive a payment equal to the sum of (i)
any forfeitable benefits under any qualified pension or profit sharing or
401(k) plan maintained by Employer or any Affiliate plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional benefits which would have accrued for Employee under
such plan if Employee's employment had not terminated prior to the end of the
Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. Finally, to the extent
that Employee is deemed to have received an excess parachute payment by
reason of the Change in Control, Employer shall pay Employee an additional
sum sufficient to pay (i) any taxes imposed under section 4999 of the Code
plus (ii) any federal, state and local taxes applicable to any taxes imposed
under section 4999 of the Code. For purposes of this Section 13.E., "Current
Term" means the longer of (i) the three year period beginning at the time of
termination or (ii) the unexpired term of this Agreement at the time of the
termination, determined as provided in Section 2 but assuming that there is
no automatic extension of the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates. For purposes of the
preceding sentence, service with Cincinnati Bell Inc. and its subsidiaries prior
to the Effective Date shall be deemed to be service with Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus
<PAGE>
earned for the year preceding the year in which the termination occurs and
any nonforfeitable amounts payable under any employee plan), all further
compensation under this Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights and
duties of Employee arising under this Agreement, and the Agreement itself, are
non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, and if delivered personally or by certified
mail to Employee at Employee's place of residence as then recorded on the books
of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms contained
herein shall be valid unless in writing and duly executed by the party to be
charged therewith. The waiver by any party hereto of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the State of
Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no other
contracts, agreements or understandings, whether oral or written, existing
between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this Agreement is
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or other enforceability shall not affect any other provisions
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provisions have never been contained herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14 above,
this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall be
held in strict confidence by Employee and shall not be disclosed by Employee to
anyone other than Employee's spouse, Employee's legal counsel, and Employee's
other advisors, unless required by law. Further, except as provided in the
preceding sentence, Employee shall not reveal the existence of this Agreement or
discuss its terms with any person (including but not limited to any employee of
Employer or its Affiliates) without the express authorization of the President
of Employer. To the extent that the terms of this Agreement have been disclosed
by Employer, in a public filing or otherwise, the confidentiality requirements
of this Section 21 shall no longer
<PAGE>
apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
-----------------------------------
EMPLOYEE
---------------------------------------
Robert J. Marino
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
Robert J. Marino ("Employee"), made as of the date on which the initial public
offering of Employer's common shares was closed, is hereby amended in the
following respects:
4. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of at
least $360,000 per year, payable not less frequently than monthly, for
each year after 1998 during the term of this Agreement, subject to
proration for any partial year. Such Base Salary, and all other
amounts payable under this Agreement, shall be subject to withholding
as required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar
year shall be payable after the conclusion of the calendar year in
accordance with Employer's regular bonus payment policies. The Bonus
target for the period from August 13, 1998 through December 31, 1998
shall be $61,808 ($160,000 on an annualized basis). Each year after
1998, Employee shall be given a minimum Bonus target, by Employer's
Compensation Committee, of not less than $105,000, subject to
proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
------------------------------
----------------------------------
Robert J. Marino
<PAGE>
EXHIBIT 10.12
TO
FORM 10-K FOR 1998
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and David F. Dougherty
("Employee"). For purposes of this Agreement, "Effective Date" means the date on
which the initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Inc. dated
January 1, 1995, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President of Teleservices Group or in such
other equivalent capacity as may be designated by the President of Employer.
Employee will report to the President or Chief Operating Officer of Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the President of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places as
are necessary
<PAGE>
in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$305,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $160,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee
in the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 100,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 50,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
long term incentive target under Employer's 1998 Long Term Incentive Plan. In no
event will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as
<PAGE>
determined by Employer's Compensation Committee, be less than $316,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
outsourced customer care industry within the U.S. and world wide. Employee
acknowledges that in the course of employment with the Employer, Employee
will be entrusted with or obtain access to information proprietary to the
Employer and its Affiliates with respect to the following (all of which
information is referred to hereinafter collectively as the "Information");
the organization and management of Employer and its Affiliates; the names,
addresses, buying habits, and other special information regarding past,
present and potential customers, employees and suppliers of Employer and its
Affiliates; customer and supplier contracts and transactions or price lists
of Employer, its Affiliates and their suppliers; products, services, programs
and processes sold, licensed or developed by the Employer or its Affiliates;
technical data, plans and specifications, present and/or future development
projects of Employer and its Affiliates; financial and/or marketing data
respecting the conduct of the present or future phases of business of
Employer and its Affiliates; computer programs, systems and/or software;
ideas, inventions, trademarks, business information, know-how, processes,
improvements, designs, redesigns, discoveries and developments of Employer
and its Affiliates; and other information considered confidential by any of
the Employer, its Affiliates or customers or suppliers of Employer, its
Affiliates. Employee agrees to retain the Information in absolute confidence
and not to disclose the Information to any person or organization except as
required in the performance of Employee's duties for Employer, without the
express written consent of Employer; provided that Employee's obligation of
confidentiality shall not extend to any Information which becomes generally
available to the public other than as a result of disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term
of Employee's employment, whether or not during working hours or on
Employer's premises, which are within the scope of or related to the business
operations of Employer or its Affiliates ("New Developments"), shall be and
remain the exclusive property of Employer. Employee shall do all things
reasonably necessary to ensure ownership of such New Developments by
Employer, including the execution of documents assigning and transferring to
Employer, all of Employee's rights, title and interest in and to such New
Developments, and the execution of all documents required to enable Employer
to file and obtain patents, trademarks, and copyrights in the United States
and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that
upon cessation of Employee's employment, for whatever reason and whether
voluntary or involuntary, Employee will immediately surrender to Employer all
of the property and other things of value in his possession or in the
possession of any person or entity under Employee's control that are the
property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof,
<PAGE>
relating directly or indirectly to any confidential information or materials
or New Developments, or relating directly or indirectly to the business of
Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for
<PAGE>
expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from
taking the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more than 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits herein
will be considered a waiver and release by that party with respect to any claim
subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Except as provided in Section 10.A., neither party will
commence or
<PAGE>
pursue any litigation on any claim that is or was subject to arbitration
under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the
term "Employer" shall mean, collectively, Employer and each of its
Affiliates. During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable
by law, then for such period as shall be enforceable) Employee will not
engage in any business offering services related to the current business of
Employer, whether as a principal, partner, joint venturer, agent, employee,
salesman, consultant, director or officer, where such position would involve
Employee (i) in any business activity in competition with Employer; (ii) in
any position with any customer of Employer which involves such customer's
billing and/or billing related systems or; or (iii) in any business that
provides billing and/or billing related systems to third parties engaged in
the communication business (including wireless, wireline and cable
communication businesses). This restriction will be limited to the
geographical area where Employer is then engaged in such competing business
activity or to such other geographical area as a court shall find reasonably
necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its
Affiliates in any way
<PAGE>
which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally,
or with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating party
to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections 13.A.,
B. and C.; provided, however, that Employer shall have no right to terminate
under this Section 13.D. within two years after a Change in Control. In the
event of a termination by Employer under this Section 13.D., Employer shall,
within five days after the termination, pay Employee an amount equal to the
greater of (i) two times the sum of the annual Base Salary rate in effect at the
time of
<PAGE>
termination plus the Bonus target in effect at the time of termination or
(ii) if the Current Term is longer than two years, the sum of the Base Salary
for the remainder of the Current Term (at the rate in effect at the time of
termination) plus the Bonus targets (at the amount in effect at the time of
termination) for each calendar year commencing or ending during the remainder
of the Current Term (subject to proration in the case of any calendar year
ending after the Current Term). For the remainder of the Current Term,
Employer shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible for
any post-retirement medical, dental, vision or life insurance benefits from
Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. For purposes of any stock option
or restricted stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have terminated
until the end of the Current Term. In addition, Employee shall be entitled to
receive, as soon as practicable after termination, an amount equal to the sum
of (i) any forfeitable benefits under any qualified or nonqualified pension,
profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1998
Long Term Incentive Plan.
I. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them), the restrictions applicable to all
restricted stock shall lapse and any long term awards shall be paid out at
target. For the remainder of the
<PAGE>
Current Term, Employer shall continue to provide Employee with medical,
dental, vision and life insurance coverage comparable to the medical, dental,
vision and life insurance coverage in effect for Employee immediately prior
to the termination; and, to the extent that Employee would have been eligible
for any post-retirement medical, dental, vision or life insurance benefits
from Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. Employee's accrued benefit under
any nonqualified pension or deferred compensation plan maintained by Employer
or any Affiliate shall become immediately vested and nonforfeitable and
Employee also shall be entitled to receive a payment equal to the sum of (i)
any forfeitable benefits under any qualified pension or profit sharing or
401(k) plan maintained by Employer or any Affiliate plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional benefits which would have accrued for Employee under
such plan if Employee's employment had not terminated prior to the end of the
Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. Finally, to the extent
that Employee is deemed to have received an excess parachute payment by
reason of the Change in Control, Employer shall pay Employee an additional
sum sufficient to pay (i) any taxes imposed under section 4999 of the Code
plus (ii) any federal, state and local taxes applicable to any taxes imposed
under section 4999 of the Code. For purposes of this Section 13.E., "Current
Term" means the longer of (i) the three year period beginning at the time of
termination or (ii) the unexpired term of this Agreement at the time of the
termination, determined as provided in Section 2 but assuming that there is
no automatic extension of the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates. For purposes of the
preceding sentence, service with Cincinnati Bell Inc. and its subsidiaries prior
to the Effective Date shall be deemed to be service with Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus
<PAGE>
earned for the year preceding the year in which the termination occurs and
any nonforfeitable amounts payable under any employee plan), all further
compensation under this Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving
a relation of confidence and a trust between Employer and Employee, all
rights and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement
shall be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the President of Employer. To the extent that the terms of
this Agreement have been disclosed by Employer, in a public filing or
otherwise, the confidentiality requirements of this Section 21 shall no
longer
<PAGE>
apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
-----------------------------------
EMPLOYEE
---------------------------------------
David F. Dougherty
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
David F. Dougherty ("Employee"), made as of the date on which the initial public
offering of Employer's common shares was closed, is hereby amended in the
following respects:
5. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of
at least $360,000 per year, payable not less frequently than monthly,
for each year after 1998 during the term of this Agreement, subject to
proration for any partial year. Such Base Salary, and all other amounts
payable under this Agreement, shall be subject to withholding as
required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled
to receive an annual bonus (the "Bonus") for each calendar year for
which services are performed under this Agreement. Any Bonus for a
calendar year shall be payable after the conclusion of the calendar
year in accordance with Employer's regular bonus payment policies. The
Bonus target for the period from August 13, 1998 through December 31,
1998 shall be $61,808 ($160,000 on an annualized basis). Each year
after 1998, Employee shall be given a minimum Bonus target, by
Employer's Compensation Committee, of not less than $105,000, subject
to proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
-----------------------------------
----------------------------------
David F. Dougherty
<PAGE>
EXHIBIT 10.13
TO
FORM 10-K FOR 1998
EMPLOYMENT AGREEMENT
This Agreement is made as of March 1, 1998 (the "Effective Date")
between Cincinnati Bell Information Systems Inc., an Ohio corporation
("Employer" or "CBIS"), and Brian C. Henry ("Employee").
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set
forth the terms of Employer's employment of Employee on and after the
Effective Date. Any prior agreements or understandings with respect to
Employee's employment by Employer are canceled as of the Effective Date.
2. PERIOD OF AGREEMENT. This Agreement begins on the Effective
Date and, subject to the terms of Section 13, will end on February 28, 2003.
3. DUTIES.
A. Employee will serve as Chief Operating Officer of CBIS or
in such other equivalent capacity as may be designated by President of CBIS.
Employee will report to the President of CBIS.
B. Employee shall furnish such managerial, executive,
financial, technical, and other skills, advice, and assistance in operating CBIS
as Employer may reasonably request.
C. Employee shall also perform such other duties as are
reasonably assigned to Employee by the President of CBIS.
D. Employee shall devote Employee's entire time, attention,
and energies to the business of Employer. The words "entire time, attention, and
energies" are intended to mean that Employee shall devote his full effort during
reasonable working hours to the business of Employer and shall devote at least
40 hours per week to the business of Employer. Employee shall travel to such
places as are necessary in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of
at least $320,000 per year, payable not less frequently than monthly, for each
year during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and any other amounts payable hereunder, shall be
subject to withholding as required by law.
<PAGE>
B. In addition to the Base Salary, Employee shall be entitled
to receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year shall
be payable after the conclusion of the calendar year in accordance with
Employer's regular bonus payment policies. Each year, employee shall be given a
Bonus target of not less than $120,000, subject to proration for a partial year.
C. On at least an annual basis, Employee shall receive a
formal performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by
Employee in the course of the performance of Employee's duties to Employer
shall be reimbursable in accordance with Employer's then current travel and
expense policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee
shall be entitled to participate in all of the various employee benefit plans
and programs in which fifth level managers and above of CBIS are participating.
B. Notwithstanding anything contained herein to the contrary,
the Base Salary and Bonuses otherwise payable to Employee shall be reduced by
any benefits paid to Employee by Employer under any disability plans made
available to Employee by Employer.
C. In 1998, Employee shall be granted options to purchase
28,600 common shares of Cincinnati Bell Inc. ("CBI") on terms approved by CBI's
Compensation Committee. In each year of this Agreement after 1998, Employee will
be granted stock options under CBI's 1997 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. Notwithstanding anything contained in Section 6.A. to the
contrary, during the period from the Effective Date through October 7, 1998,
Employee shall not receive the automobile allowance otherwise payable to fifth
level managers. In lieu of such allowance, Employee shall continue to have the
use of the automobile leased for Executive by CBI on the Effective Date, with
all maintenance costs being paid by Employer, until October 7, 1998, the
expiration of the lease term.
<PAGE>
E. The Executive Employment Agreement between Employee and CBI
dated March 29, 1993 (the "Prior Agreement") made provision for a supplemental,
non-qualified pension to be paid to Employee by CBI. Notwithstanding the
termination of the Prior Agreement, if Employee's employment with Employer is
terminated prior to December 31, 2002 for any reason and if the recognizable
value of the restricted stock granted to Employee under Section 6.F. of this
Agreement is less than the lump sum value (on the date of termination) of the
supplemental, non-qualified pension which would have been payable to Employee
under the Prior Agreement if the Prior Agreement had not been terminated,
Employer shall pay such difference to Employee. For purposes of this Section
6.E., the recognizable value of the restricted stock granted to Employee under
Section 6.F. of this Agreement shall be equal to the ordinary income which
Employer is or has been required to recognize for federal income tax purposes
for all years (or would have been required to recognize but for an election by
Employee to defer under the CBI Executive Deferred Compensation Plan or any
similar deferred compensation plan made available to Employee by Employer) with
respect to the restricted stock, including both income from dividends and income
from the lapsing of restrictions.
F. Employee shall receive a restricted stock award of
25,000 common shares of CBI. All provisions of this Agreement which relate to
the terms under which restricted stock will be granted to Employee are
subject to approval by the Compensation Committee. Such award shall be made
under the Cincinnati Bell Inc. 1997 Long Term Incentive Plan on the terms set
forth in Attachment A.
G. If Employee's employment with Employer is terminated after
the fifth anniversary of the Effective Date for any reason other than those set
forth in Sections 13.A., B. and C., Employer shall pay Employee an amount equal
to two times the sum of Employee's annual Base Salary rate in effect on the date
of termination plus Employee's Bonus target in effect on the date of
termination.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in
the telecommunications services, information services, and telecommunications
support services industries within the U.S. and world wide. Employee
acknowledges that in the course of employment with the Employer, Employee
will be entrusted with or obtain access to information proprietary to the
Employer and its Affiliates with respect to the following (all of which
information is referred to hereinafter collectively as the "Information");
the organization and management of Employer and its Affiliates; the names,
addresses, buying habits, and other special information regarding past,
present and potential customers, employees and suppliers of Employer and its
Affiliates; customer and supplier contracts and transactions or price lists
of Employer, its Affiliates and their suppliers; products, services, programs
and processes sold, licensed or developed by the Employer or its Affiliates;
technical data, plans and specifications, present and/or future development
projects of Employer and its Affiliates; financial and/or marketing data
respecting the conduct of the present or future phases of business of
Employer and its Affiliates; computer programs, systems and/or software;
ideas, inventions, trademarks, business information, know-how, processes,
improvements, designs, redesigns, discoveries and developments of Employer
and its Affiliates; and other information considered confidential by any of
the Employer, its Affiliates or customers or suppliers of Employer, its
Affiliates.
<PAGE>
Employee agrees to retain the Information in absolute confidence and not to
disclose the Information to any person or organization except as required in
the performance of Employee's duties for Employer, without the express
written consent of Employer. For purposes of this Agreement, "Affiliate"
means each corporation which is a member of a controlled group of
corporations (within the meaning of section 1563(a) of the Internal Revenue
Code of 1986, as amended) which includes Employer.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries,
concepts, trademarks, or other developments or improvements, whether
patentable or not, conceived by the Employee, alone or with others, at any
time during the term of Employee's employment, whether or not during working
hours or on Employer's premises, which are within the scope of or related to
the business operations of Employer or its Affiliates or that relate to
Employer or Affiliates' work or project, present, past or contemplated ("New
Developments"), shall be and remain the exclusive property of Employer.
Employee shall do all things reasonably necessary to ensure ownership of such
New Developments by Employer, including the execution of documents assigning
and transferring to Employer, all of Employee's rights, title and interest in
and to such New Developments, and the execution of all documents required to
enable Employer to file and obtain patents, trademarks, and copyrights in the
United States and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby
agrees that upon cessation of Employee's employment, for whatever reason and
whether voluntary or involuntary, Employee will immediately surrender to
Employer all of the property and other things of value in his possession or
in the possession of any person or entity under Employee's control that are
the property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof, relating directly or
indirectly to any confidential information or materials or New Developments,
or relating directly or indirectly to the business of Employer or any of its
Affiliates.
10. REMEDIES.
A. EMPLOYER'S REMEDIES. Employer and Employee hereby
acknowledge and agree that the services rendered by Employee to Employer, the
information disclosed to Employee during and by virtue of his employment, and
Employee's commitments and obligations to Employer and its Affiliates herein are
of a special, unique and extraordinary character, and that the breach of any
provision of this Agreement by Employee will cause Employer irreparable injury
and damage, and consequently the Employer shall be entitled to, in addition to
all other remedies available to it, injunctive and equitable relief to prevent a
breach of this Agreement, or any part of it, and to secure the enforcement of
this Agreement.
B. EMPLOYEE'S REMEDIES. Employee agrees to submit to final and
binding arbitration any dispute, claim or controversy, whether for breach of
this agreement or for violation of any of Employee's statutorily created or
protected rights, arising between the parties that Employee would have been
otherwise entitled to file or pursue in court or before any administrative
agency (herein "claim"), and Employee waives all right to sue Employer, its
<PAGE>
Affiliates, and all of their agents, employees, officers and directors.
(i) This agreement to arbitrate and any resulting arbitration award are
enforceable under and subject to the Federal Arbitration Act, 9 U.S.C. Section 1
ET SEQ. ("FAA"). If the FAA is held not to apply for any reason then Ohio
Revised Code Chapter 2711 regarding the enforceability of arbitration agreements
and awards will govern this Agreement and the arbitration award.
(ii) (a) All of Employee's claims must be presented at a single
arbitration hearing under this Agreement. Any claim not raised at the
arbitration hearing is waived and released. The arbitration hearing will take
place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the Employment
Dispute Resolution Rules of the American Arbitration Association ("AAA")
except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA rules and
the requirements that Employee must pay a filing fee for which the Employer
has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of arbitrators
chosen by the AAA in White Plains, New York. After the filing of a Request
for Arbitration, the AAA will send simultaneously to Employer and Employee an
identical list of names of five persons chosen from the panel. Each party
will have 10 days from the transmittal date in which to strike up to two
names, number the remaining names in order of preference and return the list
to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and will set
forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the arbitrator
are limited to lost wages, benefits, cease and desist and affirmative relief,
compensatory, liquidated and punitive damages and reasonable attorney's fees,
and will not include reinstatement or promotion. If the arbitrator would have
awarded reinstatement or promotion, but for the prohibition in this
Agreement, the arbitrator may award front pay. Compensatory, liquidated and
punitive damages for breach of this Agreement, if awarded, may not exceed the
greater of (i) the amount provided in case of a termination under Section
13.D, and (ii) the maximum amount otherwise payable under the applicable
terms of this Agreement. Compensatory, liquidated and punitive damages, for a
dispute, claim or controversy other than for breach of this Agreement, if
awarded, are limited to a combined total of one year's salary. The arbitrator
may assess to either party, or split, the arbitrator's fee and expenses and
the cost of the transcript, if any, in accordance with the arbitrator's
determination of the merits of each
<PAGE>
party's position, but each party will bear any cost for its witnesses and
proof.
(h) Employer and Employee recognize that a primary benefit each
derives from entering this Agreement is avoiding the delay and costs normally
associated with litigation. Therefore, neither party will be entitled to
conduct any discovery prior to the arbitration hearing except that: (i)
Employer will furnish Employee with copies of all non-privileged documents in
Employee's personnel file; (ii) if the claim is for discharge, Employee will
furnish Employer with records of earnings and benefits relating to Employee's
subsequent employment (including self-employment) and all documents relating
to Employee's efforts to obtain subsequent employment; (iii) the parties will
exchange copies of all documents they intend to introduce as evidence at the
arbitration hearing at least 10 days prior to such hearing; (iv) Employee
will be allowed (at Employee's expense) to take the depositions, for a period
not to exceed four hours each, of two representatives of Employer, and
Employer will be allowed (at its expense) to depose Employee for a period not
to exceed four hours; and (v) Employer or Employee may ask the arbitrator to
grant additional discovery to the extent permitted by AAA rules upon a
showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is
to use the deposition in lieu of the witness testifying at the hearing and
the witness is, in good faith, unavailable to testify in person at the
hearing due to poor health, residency and employment more than 50 miles from
the hearing site, conflicting travel plans or other comparable reason.
(iii) Arbitration must be requested in writing no later than 6 months
from the date of Employee's knowledge of the matter disputed by the claim.
Employee's failure to initiate arbitration under this Agreement within the time
limits herein will be considered a waiver and release by Employee with respect
to any claim subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the arbitration
award may be entered in any federal or state court that has jurisdiction.
(v) Employee will not commence or pursue any litigation on any claim
that is or was subject to arbitration under this Agreement.
(vi) All aspects of any arbitration procedure under this Agreement,
including the hearing and the record of the proceedings, are confidential and
will not be open to the public, except to the extent the parties agree otherwise
in writing, or as may be appropriate in any subsequent proceedings between the
parties, or as may otherwise be appropriate in response to a governmental agency
or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11
only, the term "Employer" shall mean, collectively, Employer and each of its
Affiliates. During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable
by law, then for such period as shall be enforceable) Employee will not
engage in any business offering services related to the current business of
Employer, whether as a
<PAGE>
principal, partner, joint venturer, agent, employee, salesman, consultant,
director or officer, where such position would involve Employee (i) in any
business activity in competition with Employer; (ii) in any position with any
customer of Employer which involves such customer's billing and/or billing
related systems; or (iii) in any business that provides billing and/or
billing related systems to third parties engaged in the communication
business (including wireless, wireline and cable communication businesses).
This restriction will be limited to the geographical area where Employer is
then engaged in such competing business activity or to such other
geographical area as a court shall find reasonably necessary to protect the
goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time after the termination of
Employee's employment with Employer, induce or seek to induce, any other
employee of Employer to terminate his or her employment relationship with
Employer.
12. GOODWILL. Employee will not disparage or act in any
manner, directly or indirectly, which may damage the business of Employer or
any of its Affiliates or which would adversely affect the goodwill,
reputation, and business relationships of Employer or any of its Affiliates
with the public generally, or with any of their customers, suppliers or
employees.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the
<PAGE>
event of a Terminating Disability, such termination shall be effective
immediately upon the giving of written notice by the terminating party to the
other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary or otherwise (subject to offset
for any amounts received pursuant to the Plans), to the date of termination.
For as long as such Terminating Disability may exist, Employee shall continue
to be an employee of Employer for all other purposes and Employer shall
provide Employee with disability benefits and all other benefits according to
the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this
Agreement upon an event of a Terminating Disability and Employee returns to
active employment with Employer prior to such a termination, or if such
disability exists for less than one hundred twenty consecutive working days,
the provisions of this Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on
the death of the Employee, provided, however, that the Employee's estate shall
be paid Employee's accrued compensation hereunder, whether Base Salary or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately for
Cause. For purposes of this Agreement, Employer shall have Cause to terminate
this Agreement only if the CBI Board of Directors determines that there has been
fraud, misappropriation or embezzlement on the part of Employee.
D. Employer may terminate this Agreement upon prior written
notice for any reason other than those set forth in Sections 13.A., B., and C.,
provided, however, that Employer shall have no right to terminate this Agreement
during the 90-day period following a Change in Control of Employer. This
Agreement shall terminate automatically in the event that Employee elects to
resign within 90 days after a Change in Control of Employer. In the event of a
termination under the first sentence of this Section 13.D., Employer shall pay
Employee two times the Base Salary as it exists at the time of termination. In
the event of a termination under the second sentence of this Section 13.D.,
Employer shall pay Employee 2.99 times the Base Salary as it exists at the time
of termination. For purposes of this Agreement, a "Change in Control" of
Employer shall be deemed to have occurred if 50% or more of the outstanding
shares of Employer are acquired, directly or indirectly, by an entity which, at
the time of acquisition, is unrelated to CBI or if 50% or more of the assets of
Employer are acquired, directly or indirectly, by an entity which, at the time
of acquisition, is unrelated to CBI.
E. Upon termination of this Agreement as a result of an event
of termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13, all further compensation under this
Agreement shall terminate.
F. The termination of this Agreement shall not amend, alter or
modify the rights and obligations of the parties under Sections 6.G., 7, 8, 9,
10, 11, and 12 hereof, the terms of which shall survive the termination of this
Agreement.
<PAGE>
14. ASSIGNMENT. As this is an agreement for personal services
involving a relation of confidence and a trust between Employer and Employee,
all rights and duties of Employee arising under this Agreement, and the
Agreement itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient, if in writing, and if delivered
personally or by certified mail to Employee at Employee's place of residence
as then recorded on the books of Employer or to Employer at its principal
office.
16. WAIVER. No waiver or modification of this Agreement or the
terms contained herein shall be valid unless in writing and duly executed by
the party to be charged therewith. The waiver by any party hereto of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws
of the State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties with respect to Employee's employment by Employer.
There are no other contracts, agreements or understandings, whether oral or
written, existing between them except as contained or referred to in this
Agreement.
19. SEVERABILITY. In case any one or more of the provisions of
this Agreement is held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or other enforceability shall not
affect any other provisions hereof, and this Agreement shall be construed as
if such invalid, illegal, or unenforceable provisions have never been
contained herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of
Paragraph 14 above, this Agreement shall be binding upon Employee, Employer
and Employer's successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this
Agreement shall be held in strict confidence by Employee and shall not be
disclosed by Employee to anyone other than Employee's spouse, Employee's
legal counsel, and Employee's other advisors, unless required by law.
Further, except as provided in the preceding sentence, Employee shall not
reveal the existence of this Agreement or discuss its terms with any person
(including but not limited to any employee of Employer or its Affiliates)
without the express authorization of the President of CBIS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CINCINNATI BELL INFORMATION SYSTEMS INC.
<PAGE>
By:
-----------------------------------
Robert J. Marino
EMPLOYEE
By:
-----------------------------------
Brian C. Henry
<PAGE>
EXHIBIT 10.14
TO
FORM 10-K FOR 1998
EMPLOYMENT AGREEMENT
This Agreement is made as of January 1, 1998 (the "Effective Date")
between MATRIXX Marketing Inc., an Ohio corporation ("Employer" or "MATRIXX"),
and Ronald E. Schultz ("Employee").
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set
forth the terms of Employer's employment of Employee on and after the
Effective Date. Any prior agreements or understandings with respect to
Employee's employment by Employer are canceled as of the Effective Date,
provided that the terms of the Non-Compete and Non-Disclosure Agreement
attached to Employee's employment letter from Employer dated October 5, 1995
shall continue in effect and shall not be superseded by this Agreement.
2. PERIOD OF AGREEMENT. This Agreement begins on the Effective
Date and, subject to the terms of Section 13, will end on the day preceding
the fifth anniversary of the effective date.
3. DUTIES.
A. Employee will serve as Chief Operating Officer of Employer
or in such other equivalent capacity with Employer or an Affiliate as may be
designated by the President of Employer. Employee will report to the President
of Employer or such other officer as may be designated by the President of
Employer. For purposes of this Agreement, "Affiliate" means each corporation
which is a member of a controlled group of corporations (within the meaning of
section 1563(a) of the Internal Revenue Code of 1986, as amended) which includes
Employer.
B. Employee shall furnish such managerial, executive,
financial, technical, and other skills, advice, and assistance in operating
Employer and its Affiliates as Employer may request.
C. Employee shall also perform such other duties as are
assigned to Employee by the officer to whom Employee reports.
D. Employee shall devote Employee's entire time, attention,
and energies to the business of Employer and its Affiliates. The words "entire
time, attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places as
are necessary in the performance of Employee's duties.
4. COMPENSATION.
<PAGE>
A. Employee shall receive a base salary (the "Base Salary") of
at least $225,000 per year, payable not less frequently than monthly, for each
year during which services are performed under this Agreement, subject to
proration for any partial year. Such Base Salary, and any other amounts payable
hereunder, shall be subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled
to receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year shall
be payable after the conclusion of the calendar year in accordance with
Employer's regular bonus payment policies. Employee shall be given a Bonus
target of not less than $100,000 for each year, subject to proration for a
partial year.
C. On at least an annual basis, Employee shall receive a
formal performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by
Employee in the course of the performance of Employee's duties to Employer
shall be reimbursable in accordance with Employer's then current travel and
expense policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee
shall be entitled to participate in all of the various employee benefit plans
and programs in which Senior Vice Presidents of Employer are participating.
B. Notwithstanding anything contained herein to the contrary,
the Base Salary and Bonuses otherwise payable to Employee shall be reduced by
any benefits paid to Employee under any disability plan made available to
Employee by Employer.
C. In each year of this Agreement, Employee will be granted
stock options under Cincinnati Bell Inc. 1997 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. If Employee's employment with Employer is terminated after
the fifth anniversary of the Effective Date for any reason other than those set
forth in Sections 13.A., B. and C., Employer shall pay Employee an amount equal
to two times the sum of Employee's annual Base Salary rate in effect on the date
of termination plus Employee's Bonus target in effect on the date of
termination.
E. If Employee remains in the employ of Employer through
October 1, 1998, Employee shall receive a restricted stock award of 13,500
common shares of Cincinnati Bell Inc. ("CBI"). Such award shall be made under
the CBI 1997 Long Term Incentive Plan on the terms set forth in Attachment A.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in
the telecommunications services, information services, and telecommunications
support services industries within the U.S. and world wide. Employee
acknowledges that in the course of
<PAGE>
employment with the Employer, Employee will be entrusted with or obtain
access to information proprietary to the Employer and its Affiliates with
respect to the following (all of which information is referred to hereinafter
collectively as the "Information"); the organization and management of
Employer and its Affiliates; the names, addresses, buying habits, and other
special information regarding past, present and potential customers,
employees and suppliers of Employer and its Affiliates; customer and supplier
contracts and transactions or price lists of Employer, its Affiliates and
their suppliers; products, services, programs and processes sold, licensed or
developed by the Employer or its Affiliates; technical data, plans and
specifications, present and/or future development projects of Employer and
its Affiliates; financial and/or marketing data respecting the conduct of the
present or future phases of business of Employer and its Affiliates; computer
programs, systems and/or software; ideas, inventions, trademarks, business
information, know-how, processes, improvements, designs, redesigns,
discoveries and developments of Employer and its Affiliates; and other
information considered confidential by any of the Employer, its Affiliates or
customers or suppliers of Employer, its Affiliates. Employee agrees to retain
the Information in absolute confidence and not to disclose the Information to
any person or organization except as required in the performance of
Employee's duties for Employer, without the express written consent of
Employer.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries,
concepts, trademarks, or other developments or improvements, whether
patentable or not, conceived by the Employee, alone or with others, at any
time during the term of Employee's employment, whether or not during working
hours or on Employer's premises, which are within the scope of or related to
the business operations of Employer or its Affiliates or that relate to
Employer or Affiliates' work or project, present, past or contemplated ("New
Developments"), shall be and remain the exclusive property of Employer.
Employee shall do all things reasonably necessary to ensure ownership of New
Developments by Employer, including the execution of documents assigning and
transferring to Employer, all of Employee's rights, title and interest in and
to all New Developments, and the execution of all documents required to
enable Employer to file and obtain patents, trademarks, and copyrights in the
United States and foreign countries on any of all New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby
agrees that upon cessation of Employee's employment, for whatever reason and
whether voluntary or involuntary, Employee will immediately surrender to
Employer all of the property and other things of value in Employee's
possession or in the possession of any person or entity under Employee's
control that are the property of Employer or any of its Affiliates, including
without any limitation all personal notes, drawings, manuals, documents,
photographs, or the like, including copies and derivatives thereof, relating
directly or indirectly to any confidential information or materials or New
Developments, or relating directly or indirectly to the business of Employer
or any of its Affiliates.
10. REMEDIES.
A. EMPLOYER'S REMEDIES. Employer and Employee hereby
acknowledge and agree that the services rendered by Employee to Employer, the
information disclosed to Employee during and by virtue of Employee's employment,
and Employee's commitments and
<PAGE>
obligations to Employer and its Affiliates herein are of a special, unique
and extraordinary character, and that the breach of any provision of this
Agreement by Employee will cause Employer irreparable injury and damage, and
consequently Employer shall be entitled to, in addition to all other remedies
available to it, injunctive and equitable relief to prevent a breach of this
Agreement, or any part of it, and to secure the enforcement of this Agreement.
B. EMPLOYEE'S REMEDIES. Employee agrees to submit to final and
binding arbitration any dispute, claim or controversy, whether for breach of
this Agreement or for violation of any of Employee's statutorily created or
protected rights, arising between the parties that Employee would have been
otherwise entitled to file or pursue in court or before any administrative
agency ("Claim"), and Employee waives all right to sue Employer, its Affiliates,
and all of their agents, employees, officers and directors.
(i) This agreement to arbitrate and any resulting
arbitration award are enforceable under and subject to the Federal
Arbitration Act, 9 U.S.C. Section 1 ET SEQ. ("FAA"). If the FAA is held not to
apply for any reason, then Ohio Revised Code Chapter 2711 regarding the
enforceability of arbitration agreements and awards will govern this
Agreement and the arbitration award.
(ii) (a) All of Employee's Claims must be presented at a
single arbitration hearing under this Agreement. Any Claim not raised at the
arbitration hearing is waived and released. The arbitration hearing will take
place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the
AAA rules and the requirements that Employee must pay a filing fee which
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
(e) Any pre-hearing disputes will be presented to
the arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing
and will set forth each issue considered and the arbitrator's finding of fact
and conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator
<PAGE>
are limited to lost wages, benefits, cease and desist and affirmative relief,
compensatory, liquidated and punitive damages and reasonable attorney's fees,
and will not include reinstatement or promotion. If the arbitrator would have
awarded reinstatement or promotion, but for the prohibition in this
Agreement, the arbitrator may award front pay. Compensatory, liquidated and
punitive damages for breach of this Agreement, if awarded, may not exceed the
greater of (i) the amount provided in case of a termination under Section
13.D, and (ii) the maximum amount otherwise payable under the applicable
terms of this Agreement. Compensatory, liquidated and punitive damages, for a
dispute, claim or controversy other than for breach of this Agreement, if
awarded, are limited to a combined total of one year's salary. The arbitrator
may assess to either party, or split, the arbitrator's fee and expenses and
the cost of the transcript, if any, in accordance with the arbitrator's
determination of the merits of each party's position, but each party will
bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from entering this Agreement is avoiding the delay and
costs normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from
taking the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more that 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later than
six months from the date of Employee's knowledge of the matter disputed by
the claim. Employee's failure to initiate arbitration under this Agreement
within the time limits herein will be considered a waiver and release by
Employee with respect to any claim subject to arbitration under this
Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Employee will not commence or pursue any litigation on any
claim that is or was subject to arbitration under this Agreement.
<PAGE>
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any
subsequent proceedings between the parties, or as may otherwise be
appropriate in response to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the
term "Employer" shall mean, collectively, Employer and each of its Affiliates.
During the two-year period following termination of Employee's employment with
Employer for any reason (or if this period is unenforceable by law, then for
such period as shall be enforceable) Employee will not engage in any business
offering services related to the current business of Employer, whether as a
principal, partner, joint venturer, agent, employee, salesman, consultant,
director or officer, where such position would involve Employee in any business
activity in competition with Employer. This restriction will be limited to the
geographical area where Employer is then engaged in such competing business
activity or to such other geographical area as a court shall find reasonably
necessary to protect the goodwill and business of Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time after the termination of
Employee's employment with Employer, induce or seek to induce, any other
employee of Employer to terminate his or her employment relationship with
Employer.
12. GOODWILL. Employee will not disparage or act in any manner,
directly or indirectly, which may damage the business of Employer or any of
its Affiliates or which would adversely affect the goodwill, reputation, and
business relationships of Employer or any of its Affiliates with the public
generally, or with any of their customers, suppliers or employees.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
<PAGE>
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
<PAGE>
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating
party to the other.
(iii) Upon termination of this Agreement on account of
a Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary or otherwise (subject to offset
for any amounts received pursuant to the Disability Plans), to the date of
termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and
Employer shall provide Employee with disability benefits and all other
benefits according to the provisions of the Disability Plans and any other
Employer plans in which Employee is then participating.
(iv) If the parties elect not to terminate this
Agreement upon an event of a Terminating Disability and Employee returns to
active employment with Employer prior to such a termination, or if such
disability exists for less than one hundred twenty consecutive working days,
the provisions of this Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on
the death of the Employee, provided, however, that the Employee's estate shall
be paid Employee's accrued compensation hereunder, whether Base Salary or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately for
Cause. For purposes of this Agreement, Employer shall have Cause to terminate
this Agreement only if Employer's Board of Directors determines that there has
been fraud, misappropriation or embezzlement on the part of Employee.
D. Employer may terminate this Agreement, upon written notice
to Employee, for any reason other than those set forth in Sections 13.A., B.,
and C. In the event of a termination under this Section 13.D., Employer shall
pay Employee two times the sum of Employee's annual Base Salary rate as it
exists on the date of termination plus Employee's Bonus target in effect on the
date of termination. Employee also shall be entitled to receive any Base Salary
earned through the date of termination and any unpaid Bonus earned prior to the
year in which the date of termination occurs. In addition, (i) Employee shall be
afforded the opportunity to exercise, on the date of termination, any stock
options which are otherwise exercisable on the date of termination and (ii) if
termination occurs after October 1, 1998, in accordance with the terms set forth
in Attachment A, the restrictions applicable to a prorata portion of the
restricted stock award under Section 6.E. shall lapse.
E. Upon termination of this Agreement as a result of an event
of termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13, all further compensation under this
Agreement shall terminate.
F. The termination of this Agreement shall not amend, alter or
modify the rights and obligations of the parties under Sections 6.D, 7, 8, 9,
10, 11, and 12 hereof, the terms of which shall survive the termination of this
Agreement.
<PAGE>
14. ASSIGNMENT. As this is an agreement for personal services
involving a relation of confidence and a trust between Employer and Employee,
all rights and duties of Employee arising under this Agreement, and the
Agreement itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient, if in writing, and if delivered
personally or by certified mail to Employee at Employee's place of residence
as then recorded on the books of Employer or to Employer at its principal
office.
16. WAIVER. No waiver or modification of this Agreement or the
terms contained herein shall be valid unless in writing and duly executed by
the party to be charged therewith. The waiver by any party hereto of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Ohio without giving effect to any conflict of law provisions.
Employee agrees to submit to the exclusive, personal jurisdiction and venue
of state and federal courts of the State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties with respect to Employee's employment by Employer.
There are no other contracts, agreements or understandings, whether oral or
written, existing between them except as contained or referred to in this
Agreement.
19. SEVERABILITY. In case any one or more of the provisions of
this Agreement is held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or other enforceability shall not
affect any other provisions hereof, and this Agreement shall be construed as
if such invalid, illegal, or unenforceable provisions have never been
contained herein.
<PAGE>
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of
Paragraph 14 above, this Agreement shall be binding upon Employee, Employer
and Employer's successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this
Agreement shall be held in strict confidence by Employee and shall not be
disclosed by Employee to anyone other than Employee's spouse, Employee's
legal counsel, and Employee's other advisors. Further, except as provided in
the preceding sentence, Employee shall not reveal the existence of this
Agreement or discuss its terms with any person (including but not limited to
any employee of Employer or its Affiliates) without the express authorization
of the President of Employer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MATRIXX MARKETING INC.
By:
-----------------------------------
David F. Dougherty
EMPLOYEE
By:
-----------------------------------
Ronald E. Schultz
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement dated January 1, 1998 between Convergys
Customer Management Group Inc., formerly MATRIXX Marketing Inc. ("Employer"),
and Ronald E. Schultz ("Employee") is hereby amended effective November 1, 1998
in the following respects:
1. Section 6.D. is amended to read as follows:
D. If Employee's employment with Employer is terminated by Employer on
or after the fifth anniversary of the Effective Date for any reason other than
those set forth in Sections 13.A., B. and C., Employer shall pay Employee the
amounts which Employee would have been entitled to receive under Section 13.D.
if the provisions of that Section had been in effect at the time of the
termination.
2. Section 13.D. is amended to read as follows:
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in
Sections 13.A., B. and C.; provided, however, that Employer shall have
no right to terminate under this Section 13.D. within two years after a
Change in Control. In the event of a termination by Employer under this
Section 13.D., Employer shall, within five days after the termination,
pay Employee an amount equal to two times the sum of (i) the annual
Base Salary rate in effect at the time of termination plus (ii) the
Bonus target in effect at the time of termination. For the remainder of
the Benefit Period, Employer shall continue to provide Employee with
medical, dental, vision and life insurance coverage comparable to the
medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and to the extent that
Employee would have been eligible for any post-retirement medical,
dental, vision or life insurance benefits from Employer if Employee had
continued in employment through the end of the Benefit Period, Employer
shall provide such post-retirement benefits to Employee after the end
of the Benefit Period. For purposes of any stock option or restricted
stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have
terminated until the end of the Benefit Period. In addition, Employee
shall be entitled to receive, as soon as practicable after termination,
an amount equal to the sum of (i) any forfeitable benefits under any
qualified or nonqualified pension, profit sharing, 401(k) or deferred
compensation plan of Employer or any Affiliate which would have vested
prior to the end of the Benefit Period if Employee's employment had not
terminated plus (ii) if Employee is participating in a qualified or
nonqualified defined benefit plan of Employer or any Affiliate at the
time of termination, an amount equal to the present value of the
additional vested benefits which would have accrued for Employee under
such plan if Employee's employment had not terminated prior to the end
of the Benefit Period and if Employee's annual Base Salary and Bonus
target had neither increased nor decreased after the termination. For
purposes of this Section 13.D. and Section 13.G., "Benefit Period"
means the two year period beginning at the time of termination. For
purposes of this Section 13.D. and Section 13.G., "Change in Control"
<PAGE>
means a change in control as defined in Employer's 1998 Long Term
Incentive Plan. Finally, to the extent that Employee is deemed to have
received an excess parachute payment (within the meaning of section
4999 of the Code) from Employer or any Affiliate, Employer shall pay
Employee an additional sum sufficient to pay (i) any taxes imposed
under section 4999 of the Code plus (ii) any federal, state and local
taxes applicable to any taxes imposed under section 4999 of the Code.
3. Section 13 is amended by the addition of new Section 13.G. as
follows:
G. This Agreement shall terminate automatically in the event that
there is a Change in Control and either (i) Employee elects to resign
within 90 days after the Change in Control or (ii) Employee's
employment with Employer is actually or constructively terminated by
Employer within two years after the Change in Control for any reason
other than those set forth in Sections 13.A., B. and C. For purposes of
the preceding sentence, a "constructive" termination of Employee's
employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary
or Bonus target from the amount in effect immediately prior to the
Change in Control or if Employee is required by Employer to relocate
from the city where Employee is residing immediately prior to the
Change in Control. In the event of a termination under this Section
13.G., Employer shall pay Employee an amount equal to two times the sum
of the annual Base Salary rate in effect at the time of termination
plus the Bonus target in effect at the time of termination, all stock
options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them), the restrictions applicable
to all restricted stock shall lapse and any long term awards shall be
paid out at target. For the remainder of the Benefit Period, Employer
shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and
life insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible
for any post-retirement medical, dental, vision or life insurance
benefits from Employer if Employee had continued in employment through
the end of the Benefit Period, Employer shall provide such
post-retirement benefits to Employee after the end of the Benefit
Period. Employee's accrued benefit under any nonqualified pension or
deferred compensation plan maintained by Employer or any Affiliate
shall become immediately vested and nonforfeitable and Employee also
shall be entitled to receive a payment equal to the sum of (i) any
forfeitable benefits under any qualified pension or profit sharing or
401(k) plan maintained by Employer or any Affiliate plus (ii) if
Employee is participating in a qualified or nonqualified defined
benefit plan of Employer or any Affiliate at the time of termination,
an amount equal to the present value of the additional benefits which
would have accrued for Employee under such plan if Employee's
employment had not terminated prior to the end of the Benefit Period
and if Employee's annual Base Salary and Bonus target had neither
increased nor decreased after the termination. Finally, to the extent
that Employee is deemed to have received an excess parachute payment by
reason of the Change in Control, Employer shall pay Employee an
additional sum sufficient to pay (i) any taxes imposed under section
4999 of
<PAGE>
the Code plus (ii) any federal, state and local taxes applicable to any
taxes imposed under section 4999 of the Code.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Employment Agreement to be duly executed as of November 1, 1998.
CONVERGYS CUSTOMER MANAGEMENT
GROUP INC.
By:
-----------------------------------
EMPLOYEE
------------------------------------
Ronald E. Schultz
<PAGE>
EXHIBIT 10.15
TO
FORM 10-K FOR 1998
CONVERGYS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
PAGE
SECTION 1. STATEMENT OF PURPOSE. 27
SECTION 2. DEFINITIONS; GENDER AND NUMBER. 27
SECTION 3. ADMINISTRATION. 28
SECTION 4. BENEFITS. 28
SECTION 5. GENERAL PROVISIONS. 30
SECTION 6. PLAN MODIFICATION. 33
<PAGE>
CONVERGYS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SECTION 1. STATEMENT OF PURPOSE.
The purpose of the Convergys Corporation Supplemental Executive
Retirement Plan (the "Plan") is to provide supplementary pension benefits and
death benefits for Senior Managers of Convergys Corporation ("Convergys") and
its affiliates.
SECTION 2. DEFINITIONS; GENDER AND NUMBER.
2.l. For purposes of the Plan, the following terms shall have the
meanings hereinafter set forth unless the context otherwise requires:
2.1.1 "Board of Directors" means the Board of Directors of the
Convergys.
2.1.2 "Committee" means the Compensation Committee of the Board
of Directors.
2.1.3 "Convergys Entity" means Convergys and each direct and
indirect subsidiary of Convergys.
2.1.4 "Designated Beneficiary" mean the person or entity
designated by a Senior Manager, on forms furnished and in the manner
prescribed by the Committee, to receive any benefit payable under the Plan
after the Senior Manager's death. If a Senior Manager fails to designate a
beneficiary or if, for any reason, such designation is not effective, his
"Designated Beneficiary" shall be his surviving spouse, or, if none, his
estate.
2.1.5 "Effective Date" means the date on which Cincinnati Bell
Inc. distributes to its shareholders all of the common shares of Convergys
owned by Cincinnati Bell Inc.
2.1.6 "Employee" means any person who is employed as a common
law employee of a Convergys Entity.
2.1.7 "Pension Plan" means the Convergys Corporation Pension
Plan.
2.1.8 "Senior Manager" means an Employee whose participation in
the Plan has been approved by the Board of Directors or the Committee.
2.1.9 "Years of Service" means a Senior Manager's full years of
service as an Employee, computed on the basis that 12 full months of service
(whether or not consecutive) constitutes one full year of service. For
purposes of the Plan, service with Cincinnati Bell Inc. and its affiliates
prior to the Effective Date shall be deemed to be service with Convergys.
2.2 For purposes of the Plan, words used in any gender shall include
all other genders,
<PAGE>
words used in the singular form shall include the plural form and words used
in the plural form shall include the singular form.
SECTION 3. ADMINISTRATION.
3.1 Convergys shall be the Plan Administrator and the Sponsor of the
Plan as those terms are defined in the Employee Retirement Income Security Act
of 1974.
3.2 The Committee shall have the specific powers elsewhere herein
granted to it and shall have such other powers as may be necessary in order to
enable it to administer the Plan, except for powers herein granted or provided
to be granted to others.
3.2.1 The Committee may adopt such rules and regulations and may
employ such persons as it deems appropriate for the proper administration of
the Plan.
3.2.2 The Committee shall grant or deny claims for benefits
under the Plan, and authorize disbursements according to this Plan. Notice
shall be provided in writing to any participant or beneficiary whose claim
has been denied, setting forth the specific reasons for such denial. In the
event that a claim for benefits has been denied, the Committee shall afford
the claimant a full and fair review of the decision denying the claim.
3.2.3 The Committee shall determine conclusively for all parties
all questions arising in the administration of the Plan.
3.2.4 The expenses of the Committee in administering the Plan
shall be borne by the Convergys Entities in such proportions as the Committee
may determine.
3.2.5 The Board of Directors and the Committee each may
designate in writing other persons to carry out their responsibilities under
the Plan, and may employ persons to advise them with regard to any such
responsibilities.
SECTION 4. BENEFITS.
4.1 If a Senior Manager who has attained age 55 and completed at least
10 Years of Service ceases to be an Employee for any reason (other than his
death), he shall be entitled to receive a monthly benefit, commencing on the day
next following the date he ceases to be an Employee and payable for his life,
equal to the result obtained (not less than zero) by subtracting (a) the sum of
his Pension Benefit and Social Security Benefit from (b) 50% of his Average
Monthly Compensation. Provided, however, that if the number of the Senior
Manager's years of age and Years of Service total less than 75, the amount
determined under clause (b) of the preceding sentence shall be reduced by 2.5%
for each year by which the number of his full years of age and Years of Service
total less than 75.
4.1.1 For purposes of this Section 4.1, a Senior Manager's
"Average Monthly Compensation" shall be the average obtained by dividing (a) his
base salary and annual bonuses from all Convergys Entities earned for the
36-month period during the 60-month period ending on the date he ceases to be an
Employee which produces the highest dollar result by (b) 36. Any
<PAGE>
annual bonus shall be deemed to have been earned on the last day of the
performance period to which it relates. A Senior Manager's base salary and
annual bonuses shall include base salary and annual bonus amounts deferred by
the Senior Manager pursuant to any deferred compensation plan or agreement,
401(k) plan, cafeteria plan, as well as base salary and bonus amounts paid in
the form of securities or other property which are not immediately taxable to
the Senior Manager. For purposes of the Plan, compensation from Cincinnati
Bell Inc. and its affiliates prior to the Effective Date shall be deemed to
be compensation from a Convergys Entity.
4.1.2 For purposes of this Section 4.1, "Pension Benefit" means
the pension benefit (if any) which the Senior Manager is entitled to receive
under the Pension Plan, expressed as a monthly benefit commencing on the day
following the date on which he ceases to be an Employee and payable for his
life, including any Excess Pension Benefit (as defined in Section 5.6.3). If
a Senior Manager has received or is entitled to receive a benefit from a
Convergys Entity which, in the opinion of the Committee, is intended to
supplement or be in lieu of a benefit under the Pension Plan, the value of
such other benefit shall be deemed to be a benefit under the Pension Plan.
4.1.3 For purposes of this Section 4.1, "Social Security
Benefit" means: (a) in the case of a Senior Manager who has attained his
social security retirement age on the date he ceases to be an Employee, the
unreduced primary monthly benefit to which he would be entitled on such date,
on proper application, under the Federal Social Security Act in effect on
such date; and (b) in the case of a Senior Manager who has not attained his
social security retirement age on the date he ceases to be an Employee, a
monthly benefit commencing on the day following the date he ceases to be an
Employee and payable for his life which is actuarially equivalent to the
unreduced primary monthly benefit to which he would be entitled upon
attaining his social security retirement age, on proper application, under
the Federal Social Security Act as in effect on the date he ceases to be an
Employee, assuming that he did not receive any compensation after ceasing to
be an Employee. For purpose of this Section 4.1.3, "social security
retirement age" means the age used as the Senior Manager's retirement age
under section 216(1) of the Federal Social Security Act. For purposes of this
Section 4.1.3, the Social Security Benefit of a Senior Manager shall not be
adjusted to reflect reductions because the Senior Manager disqualifies
himself by earnings or otherwise to receive the full amount of such benefit.
4.2 If a Senior Manager dies while an active Employee, his Designated
Beneficiary shall be entitled to receive a benefit payable in fifteen annual
installments, commencing as of the day following the date of the Senior
Manager's death, which shall be actuarially equivalent (as determined by the
Committee) to the monthly benefit which would have been payable to the Senior
Manager if he had retired on the day preceding the date of his death, assuming
for such purpose that the Committee elected to waive the minimum age and service
requirements in the first sentence of Section 4.1.
4.3 The Committee, in its sole discretion, may elect to waive in whole
or in part any service or age reduction or discount, or any minimum age or
service requirement, otherwise applicable to the amount of a benefit payable to
a Senior Manager under the Plan, on such terms and conditions as the Committee
may prescribe.
<PAGE>
4.4 In the case of a Senior Manager who retires prior to attaining age
62, the Committee may, in its sole discretion, elect to provide the Senior
Manager with a monthly Social Security supplement from the date of his
retirement through the date he attains age 62 (or, if earlier, to the date of
his death) in the amount of the Senior Manager's unreduced monthly primary
Social Security benefit at age 62. This Social Security supplement shall be in
addition to any other benefits provided under the Plan.
4.5 In lieu of a monthly benefit payable for the life of the Senior
Manager, with the consent of the Committee, and subject to such rules as the
Committee may prescribe, a Senior Manager may elect to have his benefit paid in
one of the following forms: (a) fifteen equal annual installments; or (b) an
annuity payable for the life of the Senior Manager and continuing to the Senior
Manager's contingent annuitant for his life at one-half of the rate payable
during their joint lives. Any optional form of benefit hereunder shall be
actuarially equivalent (as determined by the Committee) to the standard form of
benefit otherwise payable to the Senior Manager. If a Senior Manager whose
benefit is being paid in fifteen annual installments dies before receiving all
of the installments, the remaining installments shall be paid, when due, to his
Designated Beneficiary.
4.6 Except as otherwise provided in this Section 4 and Section 5, if a
Senior Manager ceases to be an Employee for any reason, neither he nor any
person claiming by or through him shall be entitled to receive any benefit under
the Plan.
SECTION 5. GENERAL PROVISIONS.
5.1 All benefits for which a Senior Manger would be otherwise eligible
hereunder may be forfeited, in the sole and absolute discretion of the
Committee, under the following circumstances:
(a) The Senior Manager is discharged for cause (as determined by
the Board of Directors or the Committee in its sole and absolute discretion);
or
(b) Determination by the Board of Directors or the Committee, in
its sole and absolute discretion, that the Senior Manager engaged in
misconduct in connection with his employment with a Convergys Entity; or
(c) The Senior Manager, without the express written consent of
the Board of Directors or the Committee, at any time is employed by, becomes
associated with, renders service to, or owns an interest in any business
that, in the sole and absolute discretion of the Board of Directors or the
Committee, is competitive with any Convergys Entity or with any business in
which a Convergys Entity has a substantial interest (other than as a
shareholder with a nonsubstantial interest in such business).
5.2 Assignment or alienation of pensions or other benefits under this
Plan will not be permitted or recognized.
<PAGE>
5.3 In all questions relating to age and service for eligibility for
any benefit hereunder, or relating to term of employment and rates of pay for
determining benefits, the decision of the Committee, based upon this Plan and
upon the records of the Participating Company last employing such individual and
insofar as permitted by applicable law shall be final.
5.4 All benefits payable pursuant to the Plan shall be paid from
Convergys Entity operating expenses, or through the purchase of insurance from
an insurance company or otherwise, as the Committee may determine. If any
Convergys Entity elects to purchase insurance or other assets to provide
benefits under the Plan, no Senior Manager, beneficiary or annuitant shall have
any right or interest in such insurance or other assets.
5.5 Benefits payable to a former employee or retiree unable to execute
a proper receipt may be paid to other person(s) on behalf of the former employee
or retiree.
5.6 In the event of a Change in Control, the provisions of this Section
5.6 will supersede any conflicting provisions of the Plan.
5.6.1 In the event of a Change in Control, the full present
value of all accrued benefits under the Plan and the full present value of
any Excess Benefit, as determined in accordance with the provisions of the
Plan and the Convergys Corporation Grantor Trust (the "Trust"), shall be
fully funded to the Trust in cash or other property acceptable to the
trustee, within five business days of such Change in Control. The
determination of the full present value of the accrued benefits under the
Plan shall be made using the following assumptions: (i) the date of
retirement for each Senior Manager shall be considered to be the later of the
date on which such Senior Manager's full years of age and Years of Service
total 75 or the date of the Change in Control, and (ii) the interest and
mortality assumptions shall be the same as those used for funding the Pension
Plan for the plan year in which the Change in Control occurs or if such
assumptions are not yet established, the assumptions used in the immediately
preceding year. In addition, the following assumptions also apply to the
determination of accrued benefits under the Plan: (i) for the purpose of the
benefit formula under Section 4 of this Plan (or any equivalent successor
provisions of such Plan or any successor Plan) each Senior Manager who has
attained age 55 and completed at least 10 Years of Service will be considered
to have a total of 75 years of age and Years of Service, and (ii) no Social
Security Supplements shall be granted.
5.6.2 In the event that the Plan is terminated or partially
terminated on or after a Change in Control and prior to the second
anniversary of such Change in Control as defined hereinafter, each Senior
Manager affected by such termination or partial determination may elect,
within 90 days of the proposed distribution date (as defined below), to
receive the full present value of the benefit accrued under this Plan and the
Excess Pension Benefit, referred to in Section 5.6.3, accrued under the
Pension Plan to the date of the termination in a single lump sum payment. If
the Senior Manager so elects in accordance with this Section 5.6.2 to receive
a lump sum, such lump sum shall be distributed to the Senior Manager or, in
the event of the Senior Manager's death, the Senior Manager's Designated
Beneficiary in the amount which equals the present value of the benefit or
benefits projected to be paid under the Plan to the Senior Manager,
actuarially determined using the assumptions used by the Plan's actuary for
funding the Plan; provided, however, that such amount shall be further
reduced by an amount equal to 10% prior to
<PAGE>
distribution of such lump sum. The proposed distribution date of the lump sum
distribution shall be no later than one year following the date of the
termination or partial termination of the Plan. Once such amount is paid, the
obligation of the Plan to such Senior Manager and/or his Designated
Beneficiary shall be considered to be fully and irrevocably satisfied. No
Senior Manager shall have any right under this Section 5.6.2 prior to the
occurrence of a Change in Control.
5.6.3 For purposes of the Plan, "Excess Benefit" means that
portion of the Senior Manager's pension under the Pension Plan, determined as
of the proposed distribution date, that is in excess of the permissible
amount which may be distributed from the Pension Plan in accordance with
Sections 401(a)(17) and 415 of the Internal Revenue Code and with respect to
which payments are to be made in accordance with the Pension Plan.
5.6.4 For the purposes of this Section 5.6, a "Change in
Control" means and shall be deemed to occur if, on or after the Effective
Date:
(i) a tender offer shall be made and consummated for the
ownership of 30% or more of the outstanding voting securities of Convergys;
(ii) Convergys shall be merged or consolidated with
another corporation and as a result of such merger or consolidation less than
75% of the outstanding voting securities of the surviving or resulting
corporation shall be owned in the aggregate by the former shareholders of
Convergys other than affiliates (within the meaning of the Securities
Exchange Act of 1934) of any party to such merger or consultation, as the
same shall have existed immediately prior to such merger or consolidation;
(iii) Convergys shall sell substantially all of its assets
to another corporation which is not a wholly owned subsidiary;
(iv) a person within the meaning of Section 3(a)(9) or of
Section 13(d)(3) (as in effect on the Effective Date) of the Securities
Exchange Act of 1934, shall acquire 20% or more of the outstanding voting
securities of Convergys (whether directly, indirectly, beneficially or of
records), or a person, within the meaning of Section 3(a)(9) or Section 13
(d)(3) (as in effect on the Effective Date) of the Securities Exchange Act of
1934, controls in any manner the election of a majority of the directors of
Convergys, or
(v) within any period of two consecutive years commencing
on or after the Effective Date, individuals who at the beginning of such
period constitute the Board of Directors cease for any reason to constitute
at least a majority thereof, unless the election of each director who was not
a director at the beginning of such period has been approved in advance by
directors representing at least two-thirds of the directors then in office
who were directors at the beginning of the period. For purposes hereof,
ownership of voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as
in effect on the Effective Date) pursuant to the Securities Exchange Act of
1934.
5.6.5 In the event of a Change in Control, the provisions of
Section 5.6 may not
<PAGE>
be deleted or amended on or subsequent to the Change in Control in any manner
whatsoever which would be adverse to one or more Senior Managers without the
consent of each such Senior Manager who would be so affected; provided,
however, the Board of Directors may make minor or administrative changes to
Section 5.6 or changes to conform to applicable legal requirements. This
Section 5.6.5 shall not limit the Board of Directors from making any
amendment to or deleting all or any portion of Section 5.6 prior to a Change
in Control.
SECTION 6. PLAN MODIFICATION.
The Board of Directors retains the right to amend or terminate the Plan
in whole or in part at any time, for any reason, with or without notice. Subject
to the provisions of Section 5.6, said amendment or termination may result, at
the discretion of the Board of Directors, in the cancellation of any
entitlements or future entitlements to active Senior Managers; provided,
however, that the amendment, termination or partial termination of the Plan
shall not reduce the accrued benefit of any Vested Senior Manager, retired
Senior Manager or his beneficiary. For purposes of the Plan, vested Senior
Manager means a Senior Manager who has attained age 55 and who has completed at
least ten years of service.
IN WITNESS WHEREOF, Convergys Corporation has hereunto caused its name
to be subscribed as of the Effective Date.
CONVERGYS CORPORATION
By:
-----------------------------------
<PAGE>
EXHIBIT 13 TO FORM 10-K FOR 1998
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
(Amounts in Millions Except Per Share Amounts) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues . . . . . . . . . . . . . . . . . . $1,447.2 $987.5 $ 842.4 $644.7 $569.9
Costs and expenses before special items. . . 1,264.7 838.4 718.2 566.4 522.2
- --------------------------------------------------------------------------------------------------------------
Operating income before special items. . . . 182.5 149.1 124.2 78.3 47.7
Special items (credits)(1) . . . . . . . . . 42.6 35.0 5.0 47.1 (2.0)
- --------------------------------------------------------------------------------------------------------------
Operating income . . . . . . . . . . . . . . 139.9 114.1 119.2 31.2 49.7
Equity in earnings of cellular partnership . 25.1 14.7 11.6 8.8 1.3
Other income (expense), net(2) . . . . . . . (0.5) 7.2 -- (13.2) 1.6
Interest expense . . . . . . . . . . . . . . 33.9 5.4 6.0 7.4 9.4
- --------------------------------------------------------------------------------------------------------------
Income before income taxes . . . . . . . . . 130.6 130.6 124.8 19.4 43.2
Income taxes . . . . . . . . . . . . . . . . 49.6 44.0 46.8 22.9 18.6
- --------------------------------------------------------------------------------------------------------------
Net income (loss). . . . . . . . . . . . . . $ 81.0 $ 86.6 $ 78.0 $ (3.5) $ 24.6
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) per share(3)
Basic. . . . . . . . . . . . . . . . . . $ .57 $ .63 $ .57 $ (.03) $ .18
Diluted. . . . . . . . . . . . . . . . . $ .57 $ .63 $ .57 $ (.03) $ .18
Weighted average common shares
outstanding including equivalents:
Basic. . . . . . . . . . . . . . . . . . 142.7 137.0 137.0 137.0 137.0
Diluted. . . . . . . . . . . . . . . . . 142.9 137.0 137.0 137.0 137.0
FINANCIAL POSITION
Total assets . . . . . . . . . . . . . . . . $1,450.9 $654.4 $619.2 $517.8 $532.4
Total debt . . . . . . . . . . . . . . . . . 467.0 60.3 94.7 89.2 82.1
Shareowners' equity. . . . . . . . . . . . . 731.5 430.8 364.2 289.9 283.8
OTHER DATA
Cash provided (used) by:
Operating activities . . . . . . . . . . 146.4 127.4 117.7 44.6 63.5
Investing activities . . . . . . . . . . (758.4) (74.8) (118.6) (58.0) (5.4)
Financing activities . . . . . . . . . . 613.7 (52.8) 3.2 13.4 (65.4)
EBITDA(4). . . . . . . . . . . . . . . . . . 308.9 224.8 187.6 133.0 89.0
</TABLE>
(1) See notes 3 and 4 of Notes to Financial Statements for a discussion of
special items in 1998, 1997 and 1996. Special items in 1995 include a
$39.6 goodwill impairment charge related to CMG operations in France
and $7.5 of in-process research and development costs associated with
IMG acquisitions. The special credit in 1994 reflects the reversal of
a portion of a 1993 IMG restructuring charge.
(2) Other income (expense), net includes a $13.3 charge resulting from the
termination of a currency and interest rate swap agreement in 1995.
(3) Earnings (loss) per share for all periods prior to the initial public
offering have been calculated using the number of common shares
outstanding immediately prior to the Company's initial public offering.
(4) EBITDA is not defined under generally accepted accounting principles
and is calculated as operating income before special items, plus
depreciation and amortization expense and the Company's equity in the
earnings of its investment in a cellular partnership. EBITDA is
presented as an alternative measure of the Company's ability to
generate cash flow for growth.
20 Convergys Corp. 1998 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Amounts in Millions Except Per Share Amounts)
BACKGROUND
Historically, Cincinnati Bell Inc. (CBI) conducted the Company's
business through two subsidiaries, Cincinnati Bell Information Systems
Inc. (CBIS) and MATRIXX Marketing Inc. (MATRIXX). On April 27, 1998,
CBI announced a plan to form the Convergys Corporation, to transfer to
Convergys the outstanding shares of CBIS and MATRIXX, to sell up to 20%
of the Company shares to the public in an initial public offering and
to distribute the remaining shares of the Company to CBI shareowners.
On May 8, 1998, the Company was formed as a wholly-owned subsidiary of
CBI. In July 1998, CBI contributed the outstanding shares of CBIS and
MATRIXX to the Company and CBIS and MATRIXX became the Information
Management Group (IMG) and Customer Management Group (CMG) of
Convergys, respectively. CBI also contributed to the Company its 45%
limited partnership interest in a cellular communications services
provider in southwestern Ohio and northern Kentucky (the Cellular
Partnership). On August 13, 1998, approximately 10% of the common
shares of the Company were issued to the public and on December 31,
1998, the remaining shares held by CBI were distributed to CBI
shareowners (the Distribution).
The Company operates in two industry segments. IMG provides billing and
customer care systems primarily for the communications, cable and
broadband services industries. CMG provides a full range of outsourced
marketing and customer service solutions to large companies. Both IMG
and CMG are leaders in their respective industries and have maintained
this position through a combination of internal growth and strategic
acquisitions.
The consolidated financial statements of the Company reflect the
results of operations, financial position and cash flows of the
businesses contributed to the Company by CBI. The amounts presented
have been carved out from the financial statements of CBI using the
historical results of operations and the historical bases of the
assets and liabilities of the contributed businesses. The financial
statements include the allocation of certain corporate overhead
expenses from CBI to the Company. Additionally, through December 23,
1998, the Company's debt financing was provided by CBI at rates
based on CBI's external borrowing rates. On December 23, 1998, the
Company repaid the debt payable to CBI with financing obtained
through a revolving credit facility. The Company's borrowing costs
are expected to be somewhat higher under its external financing
arrangements. Management believes that the assumptions made in
preparing the consolidated financial statements of the Company on a
carve-out basis are reasonable. The financial information presented,
however, may not necessarily reflect the results of operations,
financial position and cash flows of the Company in the future or
what they would have been had the Company been a separate,
stand-alone entity during the periods presented.
The following discussion and the related consolidated financial
statements and accompanying notes contain certain forward-looking
statements that involve potential risks and uncertainties. The
Company's future results could differ materially from results discussed
in such forward-looking statements.
RESULTS OF OPERATIONS
The Company's consolidated operating results are discussed in
summary form in the following section. Detailed comparisons of
revenues and expenses are presented in the discussions of IMG and
CMG which follow the consolidated results discussion.
CONSOLIDATED RESULTS
1998 VS. 1997
The Company's revenues in 1998 were $1,447.2, an increase of 47% from
$987.5 in 1997. In the first quarter of 1998, the Company acquired
American Transtech, Inc. and the Canadian assets of AT&T's Canadian
customer care
21 Convergys Corp. 1998 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
business (Transtech) from AT&T and the teleservices operations of
Maritz Inc. (Maritz). These acquisitions contributed $379.2 to the
revenue increase. The Company's operating expenses in 1998,
excluding special items, totaled $1,264.7, an increase of 51% from
$838.4 in 1997. The acquisitions of Transtech and Maritz contributed
$359.6 to this increase. Excluding these acquisitions and special
items, revenues and operating expenses both increased by 8%.
Operating income excluding special items was $182.5 in 1998, an
increase of 22% from $149.1 in 1997. The Company recorded special items
of $42.6 in 1998 to expense in-process research and development costs
associated with the acquisition of Transtech, and of $35.0 in 1997 for
a restructuring of CMG's operations. Including the special items, the
Company's operating income was $139.9 in 1998 and $114.1 in 1997.
Cellular Partnership earnings were $25.1 in 1998, an increase of
$10.4 over 1997. Other income (expense), net in 1998 was an expense
of $0.5 compared to income of $7.2 in 1997. The change in this item
primarily results from recognizing interest income associated with
federal tax audit settlements in 1997. Interest expense increased to
$33.9 in 1998 from $5.4 in 1997, reflecting interest associated with
acquisitions. The Company's effective tax rate increased to 38.0% in
1998 from 33.7% in 1997, due to the positive impact of federal tax
audit settlements in 1997. Without the impact of the federal tax
audit settlements, the 1998 and 1997 effective tax rates were
comparable.
Excluding special items, net income decreased to $107.4 or $.75 per
share in 1998 from $109.6 or $.80 per share in 1997. This decrease in
net income is due to increased interest expense from the Transtech and
Maritz acquisitions and increased Year 2000 programming costs. The
$19.2 increase in Year 2000 costs in 1998 also reduced net income by
$11.9 or $.08 per share. Including special items, net income was $81.0
or $.57 per share in 1998 and $86.6 or $.63 per share in 1997.
1997 VS. 1996
The Company's revenues in 1997 were $987.5, an increase of 17% from
$842.4 in 1996. Operating expenses, excluding special items, were
$838.4 in 1997, an increase of 17% from $718.2 in 1996.
Operating income excluding special items increased to $149.1 from
$124.2 in 1996. The Company recorded special items of $5.0 in 1996
relating to expensed in-process research and development costs
associated with acquisitions at IMG and CMG. Including special items,
operating income decreased to $114.1 in 1997 from $119.2 in 1996.
Cellular Partnership earnings increased to $14.7 in 1997 from $11.6 in
1996. Other income (expense), net was $7.2 in 1997, primarily from
interest income associated with the 1997 settlement of CBI's federal
tax audits for 1989 through 1994. Interest expense was $5.4 in 1997 and
$6.0 in 1996, reflecting a slight decline in borrowings in 1997,
partially offset by a modest increase in interest rates. The 1997
effective tax rate was 33.7% compared to 37.5% in 1996, as a result of
the settlement of the federal tax return audits.
Excluding special items, net income increased to $109.6 or $.80 per
share in 1997 from $81.1 or $.59 per share in 1996. The increase
occurred despite $9.9 in Year 2000 costs during 1997, which decreased
1997 net income by $6.1 or $.04 per share. Including special items, net
income was $86.6 in 1997 compared to $78.0 in 1996.
22 Convergys Corp. 1998 Annual Report
<PAGE>
INFORMATION MANAGEMENT
<TABLE>
<CAPTION>
% Change % Change
1996 1997 96 vs. 97 1996 97 vs. 96
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Information processing. . . . . . . . . . . . . $ 358.5 $ 326.0 10 $ 272.6 20
Professional and consulting . . . . . . . . . . 137.8 130.1 6 126.5 3
License and other . . . . . . . . . . . . . . . 39.3 31.5 25 25.2 25
International . . . . . . . . . . . . . . . . . 41.8 52.5 (20) 51.1 3
- ------------------------------------------------------------------------------------------------------
External revenues . . . . . . . . . . . . . . . 577.4 540.1 7 475.4 14
Intercompany revenues . . . . . . . . . . . . . 24.6 7.9 4.4
- ------------------------------------------------------------------------------------------------------
Total revenues. . . . . . . . . . . . . . . . 602.0 548.0 10 479.8 14
COSTS AND EXPENSES:
Costs of products and services. . . . . . . . . $ 308.6 $ 270.6 14 $ 247.6 9
Selling, general and administrative expenses. . 66.6 66.2 1 64.2 3
Research and development costs. . . . . . . . . 61.1 63.3 (3) 57.3 10
Depreciation and amortization . . . . . . . . . 29.9 34.5 (13) 32.2 7
Year 2000 programming costs . . . . . . . . . . 19.3 8.7 122 -- --
Special items . . . . . . . . . . . . . . . . . -- -- -- 3.0 --
- ------------------------------------------------------------------------------------------------------
Total costs and expenses. . . . . . . . . . . 485.5 443.3 10 404.3 10
- ------------------------------------------------------------------------------------------------------
Operating income. . . . . . . . . . . . . . . . $ 116.5 $ 104.7 11 $ 75.5 39
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
1998 VS. 1997
IMG's revenues in 1998 were $602.0, an increase of 10% from $548.0
in 1997. Information processing revenues increased to $358.5 in 1998
from $326.0 in 1997. This increase was driven by clients' wireless
subscriber growth of 29%, partially offset by contractual rate
reductions triggered by higher subscriber levels. The Company also
experienced a reduction in the number of a client's wireless long
distance subscribers. Professional and consulting revenues in 1998
increased to $137.8 from $130.1 in 1997, reflecting an increase in
services for PCS clients which was partially offset by reduced
enhancement requests from AT&T and 360DEG. Communications. The AT&T
decrease resulted from AT&T's move to requesting system enhancements
on a national rather than a regional basis. The decrease in 360DEG.
Communications professional and consulting spending was caused by
its acquisition by Alltel, an IMG competitor. IMG's domestic license
and other revenues increased to $39.3 in 1998 from $31.5 in 1997,
primarily as a result of up-front license fees and equipment sales
recognized in the fourth quarter of 1998 associated with the
Company's new contract with Media One. International revenues
decreased by $10.7 in 1998 from 1997, reflecting the successful
completion, delivery and acceptance of two long-term system
development projects during 1998. The 1998 increase in intercompany
revenues resulted from IMG providing processing services to CMG for
the acquired Transtech operations. These services were performed at
cost and did not contribute to IMG's operating income.
IMG's total costs and expenses were $485.5 in 1998, an increase of 10%
from $443.3 in 1997. Direct costs of products and services increased
$38.0 primarily as a result of increased revenues. Higher bill
finishing costs and higher wage rates, particularly for software
professionals, caused direct costs to increase at a rate in excess of
the revenue increase. Research and development costs decreased $2.2,
reflecting heavier spending in 1997 to prepare the Precedent 2000
platform for PCS clients. Research and development spending on the
Precedent 2000 platform, to increase its functionality and scalability,
continued in 1998. IMG also continued investing in research and
development to enhance existing mainframe systems. Depreciation and
amortization expense decreased 13% as a result of capitalized
internally-developed software becoming fully amortized during 1997.
Year 2000 costs totaled $19.3 in 1998 compared to $8.7 in 1997.
IMG's operating income increased to $116.5 in 1998 from $104.7 in 1997
and its operating margin increased to 19.4% from 19.1% despite
increased Year 2000 spending.
23 Convergys Corp. 1998 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
IMG OPERATING MARGIN
(EXCLUDING SPECIAL ITEMS)
[GRAPH]
1997 VS. 1996
IMG's revenues in 1997 were $548.0, an increase of 14% from $479.8
in 1996. Information processing revenues increased to $326.0 in 1997
from $272.6 in 1996, reflecting 29% growth in wireless subscribers.
This increase was partially offset by a decline in a client's
wireless long distance subscribers. Professional and consulting
revenues increased to $130.1 in 1997 from $126.5 in 1996. This
increase occurred entirely in the first half of 1997, reflecting
increased enhancement requests from existing clients and higher
levels of development work for new PCS clients as they prepared to
launch their services. Domestic license and other revenue increased
to $31.5 in 1997 from $25.2 in 1996 as a result of software license
and hardware sales to clients in the cable industry. International
revenues increased 3% to $52.5 in 1997 as the effort to complete two
long-term international contracts proceeded.
IMG's costs and expenses excluding special items were $443.3 in 1997,
an increase of 10% from $401.3 in 1996. Direct costs of products and
services increased $23.0 primarily as a result of increased revenues.
Research and development spending increased $6.0 to enhance IMG's
Precedent 2000 platform, as well as to enhance existing mainframe
systems. Year 2000 costs totaled $8.7 in 1997.
IMG's operating income excluding special items increased to $104.7 in
1997 from $78.5 in 1996, and operating margins improved to 19.1% from
16.4%. IMG's results for 1996 reflect a special item of $3.0 related to
in-process research and development costs associated with an
acquisition.
CUSTOMER CONCENTRATION
IMG relies on a few large clients for the majority of its revenue.
IMG's top three clients accounted for 58% of its revenues in 1998,
down from 63% in 1997. IMG maintains multi-year contracts with its
clients. IMG may renegotiate one or more major contracts in 1999
which could involve exchanging lower prices for longer contract
terms and broader relationships. The wireless industry, which IMG
serves, is currently experiencing a trend toward consolidation.
360DEG. Communications, representing approximately 10% of IMG's 1998
revenues, was acquired during 1998 by Alltel, one of IMG's
competitors. The related contract extends through 2006 and does not
provide for early termination without a material uncured IMG breach.
However, in December 1998, Alltel purported to exercise a right to
license the related software from IMG and terminate the contract.
The Company has filed a request for declaratory judgment in the U.S.
District Court affirming the Company's position that the contract
has no provision requiring that the software be licensed nor for its
early termination. In February 1999, Alltel counterclaimed against
the Company, asking the U.S. District Court to declare that Alltel
has the right to license the software and that the Company's failure
to license constituted a breach of the contract. SBC Communications
has announced its intention to acquire Ameritech, a client
representing approximately 8% of IMG's 1998 revenues. IMG and
Ameritech have signed a binding letter of intent which extends the
current contract through 2004.
A significant amount of IMG's growth is the result of continued
increases in the number of wireless subscribers in the domestic
marketplace. While that trend continued in 1998, if the domestic
wireless industry growth rate were to decline in the future, IMG's
ability to grow revenues and earnings could be affected.
24 Convergys Corp. 1998 Annual Report
<PAGE>
CUSTOMER MANAGEMENT
<TABLE>
<CAPTION>
% Change % Change
1998 1997 98 vs. 97 1998 97 vs. 96
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Dedicated services . . . . . . . . . . . . . . $ 651.0 $ 247.9 163 $ 150.0 65
Traditional services . . . . . . . . . . . . . 181.2 170.4 6 191.1 (11)
International. . . . . . . . . . . . . . . . . 37.7 29.3 29 26.0 13
- ------------------------------------------------------------------------------------------------------
Total revenues . . . . . . . . . . . . . . . 869.9 447.6 94 367.1 22
COSTS AND EXPENSES:
Costs of products and services . . . . . . . . $ 542.3 $ 277.5 95 $ 221.8 25
Selling, general and administrative expenses . 157.5 92.7 70 78.7 18
Research and development costs . . . . . . . . 20.7 5.3 -- 1.3 --
Depreciation and amortization . . . . . . . . 71.4 26.5 -- 19.6 35
Year 2000 programming costs . . . . . . . . . 9.8 1.2 -- -- --
Special items. . . . . . . . . . . . . . . . . 42.6 35.0 -- 2.0 --
- ------------------------------------------------------------------------------------------------------
Total costs and expenses . . . . . . . . . . 844.3 438.2 93 323.4 35
- ------------------------------------------------------------------------------------------------------
Operating income . . . . . . . . . . . . . . . $ 25.6 $ 9.4 172 $ 43.7 (78)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
1998 vs. 1997
CMG's revenues were $869.9 in 1998, an increase of 94% from $447.6
in 1997. The acquisitions of Transtech and Maritz contributed $379.2
to the increase. The remaining increase of $43.1 was principally
from increased dedicated services revenues, which increased by $23.9
over 1997. Traditional teleservices revenues increased $10.8 in 1998
over 1997, reflecting the strong recovery in these revenues
beginning in the third quarter of 1998. CMG's international revenues
increased $8.4 in 1998 over 1997 from new client relationships.
CMG's costs and expenses excluding special items were $801.7 in 1998,
an increase of 99% from $403.2 in 1997. The acquisitions of Transtech
and Maritz contributed $359.6 to the increase. The remaining increase
of $38.9 included increases of $14.9 in costs of products and services
resulting from higher revenues and an $8.6 increase in Year 2000
programming costs. CMG's research and development spending increased
$15.4 over 1997, primarily for the development of a new employee care
business platform at Transtech and initiatives to integrate CMG's
inbound and outbound operating systems.
CMG's operating income excluding special items increased to $68.2 in
1998 from $44.4 in 1997. Transtech and Maritz contributed $19.6 to the
increase, with the remaining increase attributable to revenue increases
and improved margins. Cost savings related to the 1997 restructuring
program and the Transtech and Maritz integration plans drove CMG's
margin improvement from 6.3% in the second quarter of 1998 to 9.1% in
the fourth quarter of 1998.
CMG OPERATING MARGIN
[GRAPH]
CMG's results for 1998 were impacted by lower than anticipated
revenues from AT&T under the contract signed at the time of the
acquisition of Transtech. During the first three years of the
contract, AT&T committed to outsource $300 in customer management
services to CMG annually in the periods beginning March 1 and ending
February 28. The Company's records indicate that revenues for 1998
under the contract totaled approximately $220, which is below the
rate necessary to achieve the $300 commitment for the first annual
period. However, AT&T's spending under the contract increased each
quarter in 1998, rising to just over $75 in the fourth quarter. The
Company will work with
25 Convergys Corp. 1998 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
AT&T at the end of the annual contract period to agree on the amount
of AT&T's spending and the determination of any shortfall.
In connection with the Transtech acquisition, CMG expensed $42.6 of
in-process research and development costs in the first quarter of 1998.
The amount expensed relates to two ongoing development projects at
Transtech that had not reached technological feasibility at the time of
the acquisition and had no alternative future use. The amount of the
charge was based on an independent valuation, performed at the time of
the acquisition, using the income-forecast method with a risk adjusted
discount rate of 20%. One project, valued at $21.8, is designed to
provide an employee care software system that can be easily modified
and customized to meet individual client needs. This project was
estimated at approximately 40% complete at the date of acquisition with
anticipated future development costs of $1.4. The Company migrated two
key clients to this system in 1998 with further deployment planned for
1999. The other project, valued at $20.8, was intended to provide
customers with enhanced billing detail in electronic form. This project
was in its early stages of development at the date of acquisition with
anticipated future development costs of $5.7. Revenues associated with
this project were initially expected to commence in 1999, however,
management has delayed this project based on their view of demand for
the technology. The potential failure to complete either of these
projects successfully is not anticipated to have a material impact on
the operating results of the Company.
1997 VS. 1996
CMG's revenues were $447.6 in 1997, an increase of 22% from $367.1
in 1996. Excluding the impact of acquisitions made in the second
half of 1996, revenues increased $48.0 or 13%. Dedicated services
revenues were $247.9 in 1997, an increase of 65% over 1996,
primarily as a result of strong revenues from technology and
communications clients and acquisitions made in the second half of
1996. Traditional teleservices revenues were $170.4 in 1997, a
decrease of 11% from 1996. The 1997 decrease in traditional
teleservices revenues was the result of a reduction in marketing
activities by certain clients in the second half of 1997 and overall
market softness. CMG's international revenues were $29.3 in 1997, an
increase of 13% over 1996.
Costs and expenses excluding special items were $403.2 in 1997, an
increase of 25% over 1996. Costs of products and services increased
$55.7, primarily reflecting higher staffing to meet anticipated
increases in business volume and wage increases. When anticipated
volume levels were not fully achieved in the second half of 1997, CMG
experienced significant operating margin declines. CMG's selling,
general and administrative expenses increased $14.0 over 1996,
reflecting increased costs from businesses acquired in the second half
of 1996 and increased costs associated with the higher volume of
business. CMG's depreciation and amortization expense increased $6.9,
from increased investment for capacity and technology and the
amortization of goodwill associated with acquisitions made in the
second half of 1996.
In the fourth quarter of 1997, CMG recorded a restructuring charge of
$35.0 for the consolidation of certain operating divisions and
facilities. The plan was approved in reaction to the decline in the
traditional teleservices business experienced in the second half of
1997. The special item in 1996 was $2.0 of expensed research and
development costs associated with acquisitions.
CMG's operating income excluding special items decreased to $44.4 in
1997 from $45.7 in 1996. The decrease in operating income was due to
the softness in the market for traditional teleservices experienced in
the second half of 1997. This softness along with staffing and
facilities expansion for business volume that did not materialize
caused CMG's operating margin excluding special items to decrease to
9.9% in 1997 from 12.4% in 1996.
26 Convergys Corp. 1998 Annual Report
<PAGE>
CUSTOMER CONCENTRATION
CMG's top three clients accounted for 49% of its revenues in 1998,
up from 37% in 1997. The loss of any significant contracts would
have an adverse effect on its revenues and profits. The acquisition
of Transtech has increased the portion of CMG's revenues from its
top three clients, but the related eight-year customer management
agreement with AT&T helps reduce the risk of loss for that portion
of the business. However, significant quarterly fluctuations may
still occur. CMG must continue to win new contracts and expand its
business with existing clients in a competitive industry that has
current excess capacity in its call centers. CMG may negotiate an
extension of a major contract in 1999 which could involve changes to
current contract terms.
CONSOLIDATED FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses have historically required cash for
expansion, business development, acquisitions and working capital.
These cash requirements have historically been funded from the
Company's operating cash flows as well as funds provided by CBI.
Operating cash flows have been more than sufficient to fund the
Company's cash needs, other than for acquisitions.
The acquisitions of Transtech and Maritz in the first quarter of 1998
required approximately $660 in cash, which was financed through debt
payable to CBI. The $206 in net proceeds from the initial public
offering in August 1998 were used to repay a portion of the debt
payable to CBI. In December 1998, the Company entered into and borrowed
against a $600 credit facility to fund its operations and to repay in
full its remaining debt payable to CBI. At December 31, 1998, the
Company had approximately $460 in outstanding borrowings under the
credit facility, which extends through December 15, 1999.
The Company's operating activities generated $146.4 in cash in 1998
compared to $127.4 in 1997. The Transtech and Maritz acquisitions in
the first quarter of 1998 required cash to finance post-acquisition
working capital needs, as accounts receivable for both acquired
entities increased, as expected, from the levels at the acquisition
date. Excluding approximately $50 in cash used to finance these
working capital needs, cash provided by operating activities in 1998
was approximately $196.
CASH FLOWS FROM OPERATIONS
[GRAPH]
Capital expenditures were a significant use of cash in 1998.
Excluding acquisitions, capital expenditures in 1998 were
approximately $94, up $33 from 1997. During 1998, the Company
incurred $6.6 in cash outflows related to the 1997 CMG restructuring
plan. Future cash outflows under the plan are expected to be
approximately $11, primarily for ongoing facility lease obligations.
Cash provided by operating activities was $127.4 in 1997 compared to
$117.7 in 1996. The increase in cash flows from operations in 1997 was
the result of the increase in the Company's earnings excluding non-cash
special items. This was partially offset by a $20 increase in accounts
receivable caused by higher revenue levels and somewhat slower cash
collections and a $18 decrease in payables and other current
liabilities. The Company's spending for acquisitions totaled $13.9 in
1997 and $62.4 in 1996. In 1997, the Company's only acquisition was its
purchase of approximately 20%
27 Convergys Corp. 1998 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
ownership of Wiztec Solutions Ltd. (Wiztec). In 1996, the Company's
acquisition spending included payments for the 1996 acquisitions of
Software Support Inc. and three smaller acquisitions, as well as a
final payment related to the 1995 acquisition of Information Systems
Development Partnership. Excluding acquisitions, capital
expenditures in 1997 were approximately $61, up from approximately
$56 in 1996.
BALANCE SHEET
The $91.4 increase in accounts receivable during 1998 was largely
the result of receivables associated with the acquired operations of
Transtech and Maritz. Increases in property, plant and equipment,
goodwill and other tangibles, outstanding debt and payables and
other current liabilities, were also caused by these acquisitions.
The increase in deferred charges and other current assets was
principally from the $16.2 deferred tax benefit associated with the
expensing of Transtech purchased research and development costs.
YEAR 2000 PROGRAMMING
The Company initiated a program in 1995 to identify and address
issues associated with the ability of its date-sensitive information
and business systems and equipment to recognize the Year 2000
properly. Given its reliance on its information and business
systems, the Company's Year 2000 efforts have primarily focused on
information technology systems. The Company incurred $29.1 in
expenses during 1998 in order to prepare for the Year 2000 and $9.9
in 1997. The Company estimates its Year 2000 expenses in 1999 will
be in a range of $10 to $15. Approximately 40% of the Company's 1998
Year 2000 spending was paid to third-party service providers.
A steering committee chaired by the Company's Chief Executive Officer
and composed of upper-level management personnel, has set the direction
for, and monitored the activity of, Convergys' Year 2000 Program
Management Office. The Program Management Office's responsibility is to
make Convergys Year 2000 compliant. This effort includes communicating
with vendors and clients with which the Company's systems interface or
upon whom the Company's systems rely, to determine their progress
toward Year 2000 compliance. Senior management reports on the Company's
progress toward Year 2000 compliance at each meeting of the Company's
Board of Directors.
IMG has adopted a repair strategy to modify its existing systems for
the Year 2000. IMG's assessment, remediation and testing phases of the
project are substantially complete and IMG is in the process of
completing implementation procedures. IMG's goal is for data centers,
software and other information technology systems to be Year 2000
compliant and tested by June 30, 1999.
CMG has also adopted a strategy that includes both repair and, in some
cases, replacement of current systems. CMG has completed the assessment
and remediation phases of its plan and is substantially complete with
regard to systems testing. Implementation efforts are currently
underway. CMG's goal is for software, telecom equipment and other
information technology systems to be Year 2000 compliant by
June 30, 1999.
The Company maintains business continuity plans to limit disruptions to
its operations. As part of its Year 2000 efforts, the Company has
updated these plans to address Year 2000 issues. The Company has
obtained Year 2000 compliance statements from all significant vendors.
Although the Company anticipates minimal business disruption as a
result of the century change, if the Company were to be unsuccessful in
preparing for the Year 2000, this could have a material adverse impact
on the Company. This could include the inability of IMG to process
bills and other transactions for its clients in a timely manner, which
could lead to the incurrence of contractual penalties. Similarly, this
could include disruptions to CMG's ability to handle
28 Convergys Corp. 1998 Annual Report
<PAGE>
client call volumes appropriately, which could also lead to
contractual penalties. The failure of one of the Company's
significant clients or vendors (in particular, utilities or
telecommunication services providers) to prepare for the Year 2000
successfully could have a material adverse impact on the Company.
MARKET RISK
The Company is exposed to the impact of interest rate changes and,
to a lesser extent, foreign currency fluctuations. It is the
Company's policy to enter into interest rate and foreign currency
transactions only to the extent considered necessary to meet its
objectives. The Company has not entered into interest rate or
foreign currency transactions for speculative purposes. The
Company's foreign currency exposures were immaterial at December 31,
1998.
The Company's exposure to interest rate risk results from its variable
rate short-term debt outstanding under its credit facility. At December
31, 1998, the Company had $460.0 in short-term debt outstanding bearing
interest at a variable rate, which is equal to LIBOR plus an index
based on the Company's credit ratings. Based upon the Company's level
of variable rate debt at December 31, 1998, a one percentage point
increase in the weighted average interest rate would increase the
Company's annual interest expense by approximately $4.6.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company has experienced, and in the future could experience,
quarterly variations in revenues as a result of a variety of
factors, many of which are outside of the control of the Company.
These factors include: the timing of new contracts, the timing of
increased expenses incurred in support of new business, the timing
and frequency of client spending for system enhancement requests,
the timing of contractual rate reductions triggered by subscriber
growth and the seasonal pattern of the customer management segment
of the Company.
BUSINESS DEVELOPMENT
On February 17, 1999, the Company announced an agreement to increase
its ownership in Wiztec from nearly 20% to approximately 70%.
Wiztec, based in Herzlia, Israel, is a provider of subscriber
managment systems for multi-channel subscription television
operators. The additional investment of approximately $53 will be
financed using its revolving credit facility. The investment may
dilute earnings per share by $.01 to $.03 for one to two years.
29 Convergys Corp. 1998 Annual Report
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation of Convergys
Corporation's consolidated financial statements and all related
information appearing in this Annual Report. The consolidated
financial statements and notes have been prepared in conformity with
generally accepted accounting principles and include certain amounts
which are estimates based upon currently available information and
management's judgment of current conditions and circumstances.
To provide reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition and that accounting records
are reliable for preparing financial statements, management maintains a
system of accounting and other controls, including an internal audit
function. Even an effective internal control system, no matter how well
designed, has inherent limitations--including the possibility of
circumvention or over-riding of controls--and therefore can provide
only reasonable assurance with respect to financial statement
presentation. The system of accounting and other controls is improved
and modified in response to changes in business conditions and
operations and recommendations made by the independent accountants and
the internal auditors.
The Audit and Finance Committee of the Board of Directors, which is
composed of directors who are not employees, meets periodically with
management, the internal auditors and the independent accountants to
review the manner in which these groups of individuals are performing
their responsibilities and to carry out the Committee's oversight role
with respect to auditing, internal controls and financial reporting
matters. Periodically, both the internal auditors and the independent
accountants meet privately with the Committee and have access to its
individual members.
Convergys engaged PricewaterhouseCoopers LLP, independent accountants,
to audit the consolidated financial statements in accordance with
generally accepted auditing standards, which include consideration of
the internal control structure. Their report appears on this page.
/s/ Steven G. Rolls /s/ Andre S. Valentine
Steven G. Rolls Andre S. Valentine
Chief Financial Officer Chief Accounting Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF CONVERGYS CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income,
shareowners' equity and cash flows present fairly, in all material
respects, the financial position of Convergys Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, Ohio
February 18, 1999
30 Convergys Corp. 1998 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(Amounts in Millions Except Per Share Amounts) 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 1,447.2 $ 987.5 $ 842.4
Costs and expenses:
Costs of products and services . . . . . . . . 826.4 540.2 465.0
Selling, general and administrative expenses . 226.0 158.7 142.8
Research and development costs . . . . . . . . 81.9 68.6 58.6
Depreciation and amortization . . . . . . . . 101.3 61.0 51.8
Year 2000 programming costs. . . . . . . . . . 29.1 9.9 --
Purchased research and development costs . . . 42.6 -- 5.0
Restructuring charge . . . . . . . . . . . . . -- 35.0 --
- --------------------------------------------------------------------------------------
Total costs and expenses . . . . . . . . . . 1,307.3 873.4 723.2
- --------------------------------------------------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . . . 139.9 114.1 119.2
Equity in earnings of cellular partnership . . . 25.1 14.7 11.6
Other income (expense), net. . . . . . . . . . . (0.5) 7.2 --
Interest expense . . . . . . . . . . . . . . . . 33.9 5.4 6.0
- --------------------------------------------------------------------------------------
Income before income taxes . . . . . . . . . . . 130.6 130.6 124.8
Income taxes . . . . . . . . . . . . . . . . . . 49.6 44.0 46.8
- --------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 81.0 $ 86.6 $ 78.0
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Other comprehensive income:
Foreign currency translation adjustments . . . $ (3.0) $ (1.6) $ (0.4)
Unrealized loss on investment. . . . . . . . . (2.0) -- --
- --------------------------------------------------------------------------------------
COMPREHENSIVE INCOME . . . . . . . . . . . . . . $ 76.0 $ 85.0 $ 77.6
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . $ .57 $ .63 $ .57
Diluted. . . . . . . . . . . . . . . . . . . . $ .57 $ .63 $ .57
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . 142.7 137.0 137.0
Diluted . . . . . . . . . . . . . . . . . . . 142.9 137.0 137.0
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31 Convergys Corp. 1998 Annual Report
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
at December 31,
-----------------------
(Amounts in Millions Except Per Share Amounts) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . $ 3.8 $ 2.1
Receivables, net of allowances of $9.8 and $6.4 . 314.3 222.9
Deferred income tax benefits. . . . . . . . . . . 10.9 13.7
Prepaid expenses and other current assets . . . . 31.5 27.1
- --------------------------------------------------------------------------
Total current assets . . . . . . . . . . . . . 360.5 265.8
Property and equipment, net . . . . . . . . . . . . 249.8 130.0
Goodwill and other intangibles, net . . . . . . . . 687.4 177.6
Investment in cellular partnership . . . . . . . . 81.6 56.5
Deferred charges and other assets . . . . . . . . . 71.6 24.5
- --------------------------------------------------------------------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . $ 1,450.9 $ 654.4
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Debt maturing within one year . . . . . . . . . $ 466.8 $ 59.1
Payables and other current liabilities. . . . . . 231.1 157.5
- --------------------------------------------------------------------------
Total current liabilities . . . . . . . . . . . 697.9 216.6
Long-term liabilities . . . . . . . . . . . . . . . 21.5 7.0
- --------------------------------------------------------------------------
Total liabilities . . . . . . . . . . . . . . . 719.4 223.6
- --------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY
Common shares--without par value, 500,000,000
authorized, 151,950,000 issued and outstanding. 206.0 --
Additional paid-in capital. . . . . . . . . . . . 475.1 --
Retained earnings . . . . . . . . . . . . . . . . 53.0 --
Shareowner's net investment . . . . . . . . . . . -- 428.4
Accumulated other comprehensive income. . . . . . (2.6) 2.4
- --------------------------------------------------------------------------
Total shareowners' equity . . . . . . . . . . . 731.5 430.8
- --------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity . . . . . $ 1,450.9 $ 654.4
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32 Convergys Corp. 1998 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
(Amounts in Millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81.0 $ 86.6 $ 78.0
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 101.3 61.0 51.8
Deferred income tax benefit. . . . . . . . . . . . . . . . . . . (8.3) (13.0) (0.2)
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . -- 35.0 --
Purchased research and development costs . . . . . . . . . . . . 42.6 -- 5.0
Undistributed earnings of cellular partnership . . . . . . . . . (25.1) (2.1) (5.1)
Changes in assets and liabilities net of effects from acquisitions:
Increase in receivables. . . . . . . . . . . . . . . . . . . . . (41.8) (16.2) (43.3)
Increase in other current assets . . . . . . . . . . . . . . . . (2.6) (9.3) (1.5)
Increase (decrease) in payables and other current liabilities. . 7.4 (18.0) 25.7
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (8.1) 3.4 7.3
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities. . . . . . . . . 146.4 127.4 117.7
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . (93.5) (60.9) (56.2)
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . (664.9) (13.9) (62.4)
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities. . . . . . . . . . . . . . (758.4) (74.8) (118.6)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility, net. . . . . . . . . . . 460.0 -- --
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . -- (9.4) (8.5)
Change in debt payable to CBI, net . . . . . . . . . . . . . . . . . (52.3) (25.0) 15.0
Transfers to CBI, net. . . . . . . . . . . . . . . . . . . . . . . . -- (18.4) (3.3)
Issuance of common shares (net of $14.7 issuance costs). . . . . . . 206.0 -- --
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) in financing activities . . . . . . . . 613.7 (52.8) 3.2
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . 1.7 (0.2) 2.3
Cash and cash equivalents at beginning of year . . . . . . . . . . . . 2.1 2.3 --
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . $ 3.8 $ 2.1 $ 2.3
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . $ 33.2 $ 5.4 $ 6.0
Income taxes paid, net of refunds. . . . . . . . . . . . . . . . . . $ 21.8 $ 47.9 $ 38.4
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33 Convergys Corp. 1998 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Number Additional Other
of Common Paid-in Retained Shareowner's Comprehensive
(Amounts in Millions) Shares Shares Capital Earnings Investment Income Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 . . . . . $ 285.5 $ 4.4 $ 289.9
Net income . . . . . . . . . . . . 78.0 -- 78.0
Transfers to CBI, net. . . . . . . (3.3) -- (3.3)
Currency translation adjustments . -- (0.4) (0.4)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 . . . . 360.2 4.0 364.2
Net income . . . . . . . . . . . . 86.6 -- 86.6
Transfers to CBI, net. . . . . . . (18.4) -- (18.4)
Currency translation adjustments . -- (1.6) (1.6)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 . . . . 428.4 2.4 430.8
Net income . . . . . . . . . . . . $ 53.0 28.0 81.0
Initial capitalization of Company,
after share split. . . . . . . . 137.0 $ 457.1 (457.1) --
Issuance of common shares. . . . . 14.9 $ 206.0 206.0
Currency translation adjustments . (3.0) (3.0)
Unrealized loss on investment. . . (2.0) (2.0)
Transfers from CBI, net . . . . . 18.0 0.7 18.7
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 . . . . 151.9 $ 206.0 $ 475.1 $ 53.0 $ -- $ (2.6) $ 731.5
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Amounts in Millions Except Per Share Amounts)
1. BACKGROUND AND BASIS OF PRESENTATION
The Company was organized on May 8, 1998, as a wholly owned subsidiary
of Cincinnati Bell Inc. (CBI) with 100 common shares outstanding. In
the second quarter of 1998, CBI announced its intention to contribute
to the Company the outstanding common shares of Cincinnati Bell
Information Systems Inc. (CBIS) and MATRIXX Marketing Inc. (MATRIXX),
to sell up to 20% of the Company's outstanding shares in an initial
public offering and to distribute the remaining shares of the Company
to shareowners of CBI in late 1998. In July 1998, CBI contributed to
the Company the outstanding common shares of CBIS and MATRIXX along
with its 45% limited partnership interest in a cellular communications
services provider in southwestern and central Ohio and northern
Kentucky (the Cellular Partnership). Upon transfer of the common shares
of CBIS and MATRIXX, the two subsidiaries became subsidiaries of the
Company doing business as the Information Management Group (IMG) and
Customer Management Group (CMG), respectively.
Effective August 4, 1998, the Company approved a share split which
increased the number of outstanding common shares to 137.0 million. On
August 13, 1998, the Company issued an additional 14.95 million common
shares, approximately 10% of the then outstanding shares, to the public
at a price of $15 per share less underwriting discounts and commissions
of $.98 per share (the Offering). On December 31, 1998, CBI distributed
all of its remaining interest in the Company (the Distribution).
The consolidated financial statements reflect the results of
operations, financial position, and cash flows of the businesses
contributed to the Company as if the Company were a separate entity for
all periods presented. The consolidated financial statements have been
prepared using the historical results of operations and bases of the
assets and liabilities of the businesses. The financial statements
include the allocation of certain expenses relating to the Company from
CBI. Additionally, the financial statements reflect allocations of CBI
debt, interest expense and pension and postretirement benefit plan
expense. Management believes these allocations are reasonable. However,
the costs of these items charged to the Company by CBI are not
necessarily indicative of the costs that would have been incurred if
the Company had performed these functions or funded its operations as a
stand-alone entity. Management expects that the Company's costs for
these items may be slightly higher in future periods. All material
intercompany transactions and balances between the Company and its
subsidiaries have been eliminated. Certain prior year amounts have
been reclassified to conform to current year presentation.
The financial information presented may not necessarily reflect the
consolidated results of operations, financial position, changes in
shareowners' equity and cash flows of the Company in the future or
what they would have been had it been a separate, stand-alone entity
during the periods presented.
2. ACCOUNTING POLICIES
CONSOLIDATION--The consolidated financial statements include the
accounts of the Company's wholly owned subsidiaries, IMG and CMG.
IMG provides information systems and billing services for the
communications, cable and broadband services industries. CMG
provides a full range of outsourced marketing and customer service
solutions to large companies. The Cellular Partnership interest is
accounted for under the equity method.
35 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Amounts in Millions Except Per Share Amounts)
2. ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES--Preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported. Actual
results could differ from those estimates.
CASH EQUIVALENTS--Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost.
Purchased software used in the Company's business is capitalized at
cost. The Company's provision for depreciation and amortization is
based on the straight-line method over the estimated useful lives of
the assets. Buildings are depreciated over a thirty-year life, software
over a three- to five-year life and equipment generally over a
five-year life. Leasehold improvements are depreciated over the shorter
of their estimated useful life or the remaining term of the associated
lease. For property and equipment retired or sold, the gain or loss is
recognized in other income.
SOFTWARE DEVELOPMENT COSTS--Research and development expenditures and
Year 2000 programming costs are charged to expense as incurred. The
development costs of software to be marketed are charged to expense
until technological feasibility is established, and capitalized
thereafter. Amortization of the capitalized amounts is computed using
the greater of the sales ratio method or the straight-line method over
a life of four years or less. At both December 31, 1998 and 1997,
capitalized software was fully amortized.
GOODWILL AND OTHER INTANGIBLES--Goodwill resulting from the purchase of
businesses and other intangibles are recorded at cost and amortized on
a straight-line basis over lives ranging from five to forty years.
Goodwill and other intangibles are evaluated periodically if events or
circumstances indicate a possible inability to recover their carrying
amounts. Such evaluation is based on various analyses, including cash
flow and profitability projections. If future expected undiscounted
cash flows are insufficient to recover the carrying amount of the
asset, then an impairment loss is recognized based upon the excess of
the carrying value of the asset over the anticipated cash flows on a
discounted basis.
REVENUE RECOGNITION--IMG's revenues include data processing and
professional and consulting revenues, which are recognized as services
are performed. Revenues from software maintenance agreements are
recognized over the maintenance period. In 1998, the Company adopted
American Institute of Certified Public Accountants Statement of
Position (SOP) 97-2, "Software Revenue Recognition." Accordingly,
initial software license revenues are recognized upon delivery and
acceptance of the software provided that there are no significant
obligations related to the software delivered, no collection
uncertainties, and if objective evidence exists to support the fair
value of all elements included in the agreement. The adoption of SOP
97-2 did not have a material effect on operating results in 1998. On
certain long-term communications systems development contracts, the
percentage of completion method is used to recognize revenues, with
progress toward completion measured on a cost-to-cost basis. The effect
of contract revisions is recorded in the period the changes become
known. CMG's revenues are generally recognized as the related customer
management services are performed.
INCOME TAXES--The Company's operations have been included in CBI's
consolidated income tax returns for all periods up to the date of the
Distribution. Income tax expense has been calculated on a separate tax
return basis. The provision for income taxes consists of an amount for
taxes currently payable and a provision for deferred taxes using the
liability method.
36 Convergys Corp. 1998 Annual Report
<PAGE>
STOCK-BASED COMPENSATION--Compensation cost associated with stock
options issued to Company employees is measured as the excess of the
market value over the exercise price on the date of grant.
CURRENCY TRANSLATION--Assets and liabilities of foreign
operations, where the functional currency is the local
currency, are translated to U.S. dollars at year-end
exchange rates. Revenue and expenses are translated at
average exchange rates for the year. Translation adjustments
are accumulated and reflected as adjustments to
comprehensive income.
FINANCIAL INSTRUMENTS--The Company's financial instruments consist of
cash, cash equivalents and debt. The carrying amount of such
instruments approximates fair value based on their short maturities.
3. ACQUISITIONS
Effective February 28, 1998, CMG acquired American Transtech, Inc.
and the assets of AT&T's Canadian customer care business (Transtech)
from AT&T for approximately $625 in cash. The acquisition was
accounted for under the purchase method of accounting and was
financed through short-term, variable rate debt issued by CBI, which
was allocated to the Company by CBI.
The Company allocated $68.2 of the purchase price to an eight-year
contract under which the Company will provide customer management
services to AT&T, $11.4 to the assembled workforce which will be
amortized over a fifteen-year useful life, $4.4 to capitalized software
to be amortized over a three-year useful life and $91.0 to the fair
value of the acquired tangible net assets. The Company allocated $42.6
to two research and development projects that were in process at the
time of the acquisition. These projects had not reached technological
feasibility at the time of the acquisition and had no alternative
future use. The fair values of the acquired assets were determined by
an independent valuation performed at the time of the acquisition. The
excess of the purchase price and acquisition costs over the fair value
of the assets acquired was recorded as goodwill, which is being
amortized on a straight-line basis over a thirty-year life.
At the time of the acquisition, the Company began a process of
evaluating an integration plan for the acquired operations. The Company
has accrued as an addition to goodwill approximately $9.0 for
severance of approximately 375 employees and other integration costs
under this plan. Severance payments through December 31, 1998 under the
plan were $5.6. The remaining severance amounts will be paid in the
first half of 1999.
The following unaudited pro forma data summarizes the combined results
of operations of the Company and Transtech as though the acquisition
had occurred as of the beginning of each period:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
----------------------------------------------------
<S> <C> <C>
Revenues . . . . . . . . $ 1,509.6 $ 1,389.9
Net income . . . . . . . $ 75.6 $ 73.5
Earnings per share:
Basic . . . . . . . . $ .53 $ .54
Diluted . . . . . . . $ .53 $ .54
</TABLE>
In January 1998, CMG acquired the customer management assets of
Maritz, Inc. for approximately $30 in cash. The acquisition agreement
contains provisions that could increase the purchase price by up to
approximately $20 based upon the operating results of the acquired
business over the two-year period after the acquisition. Any increase
to the purchase price will be reflected as additional goodwill. The
acquisition was accounted for under the purchase method of accounting
with resulting goodwill amortized over a twenty-five year life.
37 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
4. BUSINESS RESTRUCTURING
In the fourth quarter of 1997, a restructuring plan for CMG was
approved. The restructuring plan included the consolidation of certain
CMG operating divisions and facilities. CMG recorded a special charge
of $35.0 which reduced net income by $23.0. The charge included $9.5 in
lease termination costs, $7.5 in severance pay under existing severance
plans, $7.6 in non-cash goodwill writedowns associated with
restructured operations, $6.3 in non-cash property and equipment
writedowns related to facilities to be closed and $4.1 in other
restructuring costs. The Company anticipated the severance of
approximately 425 employees under the plan.
Restructuring liability activity consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------
<S> <C> <C>
Balance at January 1 . . . . . $ 24.9 --
Restructuring charge . . . . . -- $ 35.0
Goodwill writedown . . . . . . -- (7.6)
Equipment writedowns . . . . . (5.2) (1.1)
Severance payments . . . . . . (3.9) (1.4)
Lease termination payments . . (1.6) --
Other costs. . . . . . . . . . (1.1) --
--------------------------------------------------
Balance at December 31 . . . . $ 13.1 $ 24.9
--------------------------------------------------
--------------------------------------------------
</TABLE>
At December 31, 1998, the balance of the restructuring liability was
principally related to costs for facility closures, including $7.8 for
lease termination costs, $2.1 for equipment disposals, $1.8 for
severance and $1.5 for other facility consolidation costs. Remaining
cash outflows under the plan are expected to be approximately $11
million. Management expects the restructuring plan activities to be
substantially completed by the end of 1999.
5. INCOME TAXES
The Company's provision for income taxes, calculated on a
separate return basis, consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal. . . . . $ 45.2 $ 45.6 $ 40.0
Foreign. . . . . 3.3 0.4 0.5
State and local. 9.4 11.0 6.5
----------------------------------------------------
Total current. 57.9 57.0 47.0
Deferred . . . . . (8.3) (13.0) (0.2)
----------------------------------------------------
Total. . . . . . . $ 49.6 $ 44.0 $ 46.8
----------------------------------------------------
----------------------------------------------------
</TABLE>
The components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
at December 31,
------------------
1998 1997
----------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Restructuring charge . . . . . $ 4.6 $ 11.1
Loss carryforwards . . . . . . 26.1 26.0
Depreciation and amortization. 7.9 --
Other. . . . . . . . . . . . . 11.9 9.8
Valuation allowance. . . . . . (21.0) (21.0)
----------------------------------------------------
Total deferred tax asset . . . 29.5 25.9
----------------------------------------------------
Deferred tax liability:
Depreciation and amortization. -- 4.6
Other. . . . . . . . . . . . . 1.0 1.1
----------------------------------------------------
Total deferred tax liability . 1.0 5.7
----------------------------------------------------
Net deferred tax asset . . . . $ 28.5 $ 20.2
----------------------------------------------------
----------------------------------------------------
</TABLE>
38 Convergys Corp. 1998 Annual Report
<PAGE>
The following is a reconciliation of the statutory federal income
tax rate with the effective tax rate for each year:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax benefit . 4.0 4.3 3.2
Research tax credits . . . . . . . . . . . . . . . . . . . . . . (2.9) (10.4) (1.5)
Amortization and writedown of intangible assets . . . . . . . . . 1.6 2.4 1.2
Other differences . . . . . . . . . . . . . . . . . . . . . . . . 0.3 2.4 (0.4)
- -------------------------------------------------------------------------------------------------
Effective rate 38.0% 33.7% 37.5%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The resolution of CBI's federal tax return audits for 1989 through 1994
resulted in the recognition of a significant amount of research and
experimentation tax credits in 1997.
The Company had U.S. capital loss carryforwards at both December 31,
1998 and 1997 of approximately $60.0 which expire on December 31, 1999.
Utilization of these capital losses is dependent upon the generation of
future capital gains and, accordingly, a valuation allowance has been
established for the related deferred tax asset.
6. DEBT
Debt maturing within one year consists of the following:
<TABLE>
<CAPTION>
at December 31,
---------------------------------
1998 1997 1996
-------------------------------------------------------------------
<S> <C> <C> <C>
Revolving credit facility. . . . . $ 460.0 -- --
Indebtedness payable to CBI. . . . -- $ 53.0 $ 78.0
Other. . . . . . . . . . . . . . . 6.8 6.1 8.4
-------------------------------------------------------------------
Total. . . . . . . . . . . . . . . $ 466.8 $ 59.1 $ 86.4
-------------------------------------------------------------------
-------------------------------------------------------------------
Weighted average interest rates:
Revolving credit facility . . . 6.2% -- --
Indebtedness payable to CBI. . . 5.8% 7.2% 7.0%
</TABLE>
At December 31, 1998, the Company had a $600.0 revolving credit
facility extending through December 15, 1999. Borrowings under the
facility at December 31, 1998 were $460.0, which were principally
used to repay outstanding intercompany indebtedness payable to CBI
on December 23, 1998. The credit agreement includes certain
restrictive covenants including maintenance of interest coverage and
debt to capitalization ratios. Interest rates under the credit
facility are generally based on LIBOR adjusted for an index related
to the Company's credit ratings.
Through December 23, 1998, the Company's consolidated financial
statements included an allocation of CBI's consolidated debt and the
related interest expense. The allocation was based on the terms of
the Plan of Reorganization and Distribution Agreement between the
Company and CBI. An allocation methodology was used to reflect the
capital structure through each historic period presented based on
cash flows for those periods adjusted for interest expense. This
debt was classified as short-term given the requirement to repay the
amount to CBI at or before the Distribution. Interest expense was
determined based on the average interest rate for CBI short-term
debt in 1998 and the weighted average interest rate for CBI
short-term and long-term debt in 1997 and 1996. The Company believes
the allocations of interest expense from CBI are reasonable
estimates of the cost of financing the Company's assets and
operations in the past. However, the Company's future interest
expense will be based on its revolving credit facility and any other
future financing arrangements.
39 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
7. EMPLOYEE BENEFIT PLANS
The Company's financial statements reflect the costs experienced for
its employees and retirees while included in CBI benefit plans.
Effective January 1, 1999, the Company assumed responsibility for
employee benefit plans covering its active employees and retirees.
PENSIONS
Through December 31, 1998, certain Company employees participated in
three noncontributory CBI defined benefit pension plans: one for
eligible management employees, one for nonmanagement employees and
one supplementary, nonqualified, unfunded plan for certain senior
managers. The pension benefit formula for the CBI management plan is
a cash balance plan where the pension benefits are determined by a
combination of compensation-based credits and annual guaranteed
interest credits. The CBI nonmanagement pension is also a cash
balance plan with benefits that are determined by a combination of
service and job classification based credits and annual interest
credits. Benefits for the supplementary plan are based on years of
service and eligible pay. Funding of the CBI management and
nonmanagement plans has been achieved through contributions made by
CBI to an irrevocable trust fund. The contributions have been
determined using the aggregate cost method. CBI uses the projected
unit credit cost method for determining pension cost for financial
reporting purposes.
Effective January 1, 1999, pension assets were divided between the
pension trusts of the Company and CBI so that each company's plans has
the required assets to meet the minimum requirements set forth in
applicable benefit and tax regulations. The remaining assets in excess
of the minimum requirements will be divided between the pension trusts
of the Company and CBI in accordance with the Employee Benefits
Agreement between the two companies. Subject to final adjustment, the
projected benefit obligation and plan assets to be transferred to the
Company's plans effective January 1, 1999 were $79.5 and $168.2,
respectively. The Company's share of the plans' unrecognized transition
asset, prior service cost and net gains at December 31, 1998 were
estimated to be $2.1, $4.7 and $67.3, respectively. The
Company has recorded a prepaid pension asset of $24.0 at December 31,
1998.
The following information relates to the entire CBI noncontributory
defined benefit pension plans.
CBI pension cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period). . $ 15.5 $ 8.5 $ 7.2
Interest cost on projected benefit obligation . . . 35.0 37.6 35.3
Expected return on plan assets. . . . . . . . . . . (44.5) (42.9) (33.5)
Amortization and deferrals--net . . . . . . . . . . 0.7 (0.6) (1.0)
Settlement gains. . . . . . . . . . . . . . . . . . -- (21.0) (27.4)
- -----------------------------------------------------------------------------------
Pension cost (income) . . . . . . . . . . . . . . . $ 6.7 $ (18.4) $ (19.4)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Company portion of pension cost . . . . . . . . . . $ 6.0 $ 2.2 $ 1.8
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
40 Convergys Corp. 1998 Annual Report
<PAGE>
The following table sets forth the CBI pension plans' funded status:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year. . . . . . $ 514.9 $ 587.3
Service cost . . . . . . . . . . . . . . . . . . . 15.5 8.5
Interest cost. . . . . . . . . . . . . . . . . . . 35.0 37.6
Amendments . . . . . . . . . . . . . . . . . . . . 1.8 3.5
Actuarial loss . . . . . . . . . . . . . . . . . . 32.3 1.1
Settlement . . . . . . . . . . . . . . . . . . . . -- (76.3)
Curtailment . . . . . . . . . . . . . . . . . . . 0.9 (0.2)
Benefits paid . . . . . . . . . . . . . . . . . . (44.4) (46.6)
- -------------------------------------------------------------------------
Benefit obligation at end of year . . . . . . . . 556.0 514.9
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year . . 700.0 698.6
Actual return on plan assets . . . . . . . . . . . 86.5 108.1
Employer contribution. . . . . . . . . . . . . . . 5.4 16.2
Benefits paid . . . . . . . . . . . . . . . . . . (44.4) (46.6)
Settlement . . . . . . . . . . . . . . . . . . . . -- (76.3)
- -------------------------------------------------------------------------
Fair value of plan assets at end of year . . . . . 747.5 700.0
Funded status. . . . . . . . . . . . . . . . . . . 191.5 185.1
Unrecognized transition asset . . . . . . . . . . (16.5) (18.7)
Unrecognized prior cost. . . . . . . . . . . . . . 23.9 23.8
Unrecognized net gain . . . . . . . . . . . . . . (172.8) (162.7)
- -------------------------------------------------------------------------
Prepaid benefit expense . . . . . . . . . . . . . $ 26.1 $ 27.5
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
At December 31, 1998, plan assets include $52.8 of Company and CBI
common shares.
CBI used the following rates in determining the actuarial present value
of the projected benefit obligation and pension cost for the three CBI
pension plans:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate--projected benefit obligation . . . . . 6.50% 7.00% 7.25%
Future compensation growth rate . . . . . . . . . . . 4.00% 4.00% 4.00%
Expected long-term rate of return on plan assets. . . 8.25% 8.25% 8.25%
</TABLE>
SAVINGS PLANS
The Company sponsors defined contribution plans covering substantially
all employees. The Company's contributions to the plans are based on
matching a portion of the employee contributions or on a percentage of
employee earnings or net income for the year. Total Company
contributions to the defined contribution plans were $6.8, $5.8 and
$6.2 for 1998, 1997 and 1996, respectively.
EMPLOYEE POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Through December 31, 1998, certain Company employees participated in
CBI plans offering healthcare and group life insurance benefits for
participants that retire with a pension benefit under the CBI
pension plans. CBI funds its group life insurance benefits through
Retirement Funding Accounts (RFAs) and funds healthcare benefits
using Voluntary Employee Benefit Association (VEBA) trusts. It is
CBI's practice to fund amounts as deemed appropriate from time to
time. Contributions are subject to IRS limitations developed using
the aggregate cost method. The associated plan assets are primarily
equity securities and fixed income investments.
Effective January 1, 1999, the Company established separate
postretirement health and life insurance plans for certain eligible
employees. As of December 31, 1998, subject to final adjustment, the
projected benefit obligation and plan assets to be transferred to the
Company's plans effective January 1, 1999 from CBI's plans were $17.6
and $5.8, respectively. The Company's share of the plans' unrecognized
transition obligation, prior service cost and net loss at
December 31, 1998 were estimated to be $3.6, $0.3 and $1.5,
respectively. The Company has recorded an accrued postretirement
benefit liability of $6.4 at December 31, 1998.
The following information relates to the CBI postretirement healthcare
and life insurance benefit plans in their entirety.
41 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of postretirement benefit cost for CBI are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned
during the period) . . . . . . . . . $ 2.5 $ 2.1 $ 1.8
Interest cost on accumulated
postretirement benefit obligation. . 16.1 16.1 15.6
Expected return on plan assets . . . . (9.4) (7.4) (5.7)
Amortization and deferrals--net. . . . 5.1 5.3 5.3
- ----------------------------------------------------------------------
Postretirement benefit expense . . . . $ 14.3 $ 16.1 $ 17.0
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Company portion of postretirement
benefit expense . . . . . . . . . . $ 2.0 $ 1.8 $ 1.6
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
The aggregate funded status of the CBI plans is:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year. . . . . $ 236.7 $ 227.3
Service cost . . . . . . . . . . . . . . . . . . 2.5 2.1
Interest cost . . . . . . . . . . . . . . . . . 16.1 16.1
Actuarial loss . . . . . . . . . . . . . . . . . 14.1 6.2
Benefits paid . . . . . . . . . . . . . . . . . (17.0) (15.0)
- -------------------------------------------------------------------------
Benefit obligation at end of year. . . . . . . . 252.4 236.7
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year . 116.8 95.1
Actual return on plan assets . . . . . . . . . . 18.7 23.7
Employer contribution. . . . . . . . . . . . . . 15.2 13.0
Benefits paid . . . . . . . . . . . . . . . . . (17.0) (15.0)
- -------------------------------------------------------------------------
Fair value of plan assets at end of year . . . . 133.7 116.8
Funded status . . . . . . . . . . . . . . . . . (118.7) (119.9)
Unrecognized transition obligation . . . . . . . 72.2 77.3
Unrecognized prior service cost. . . . . . . . . 2.9 3.1
Unrecognized net gain . . . . . . . . . . . . . (10.3) (15.3)
- -------------------------------------------------------------------------
Accrued benefit expense. . . . . . . . . . . . . $ (53.9) $ (54.8)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
The transition obligation is being amortized by CBI over twenty years.
CBI used the following rates in determining the actuarial present
value of the accumulated postretirement benefit obligation (APBO)
and postretirement benefit costs:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate--APBO . . . . . . . . . . 6.50% 7.00% 7.25%
Expected long-term rate of return
for VEBA assets . . . . . . . . . . 8.25% 8.25% 8.25%
Expected long-term rate of return
for RFA assets . . . . . . . . . . . 8.00% 8.00% 8.00%
</TABLE>
The assumed healthcare cost trend rate used to measure the CBI
postretirement health benefit obligation at December 31, 1998 was 5.4%
and is assumed to decrease gradually to 4.3% by the year 2005. A one
percentage point increase or decrease in the assumed healthcare cost
trend rate would change the aggregate of the service and interest cost
components and the CBI accumulated postretirement benefit obligation by
approximately 4%.
8. COMMON AND PREFERRED SHARES
SHAREHOLDER RIGHTS PLAN
In the fourth quarter of 1998, the Company's Board of Directors
adopted a Shareholder Rights Plan. Under the plan, the Company
granted a dividend of one preferred share purchase right for each
outstanding common share to shareholders of record at close of
business on December 1, 1998. Under certain conditions, each right
entitles the holder to purchase one one-hundredth of a Series A
preferred share. The rights cannot be exercised or transferred
separately from common shares, unless a person or group acquires 15%
or more of the Company's outstanding common shares. The rights will
expire on December 1, 2008, unless earlier redeemed by the Company.
42 Convergys Corp. 1998 Annual Report
<PAGE>
PREFERRED SHARES
The Company is authorized to issue up to 5 million preferred shares, of
which 4 million would have voting rights. At December 31, 1998 and
1997, there were no preferred shares outstanding.
9. STOCK-BASED COMPENSATION PLANS
During 1998 and in prior years, certain employees of the Company
were granted stock options and other stock-based awards under CBI's
Long-Term Incentive Plan (CBI LTIP). Effective December 31, 1998,
awards outstanding under the CBI LTIP were modified to the extent
that, for each CBI option or share award, the holder received, in
addition, a Convergys option or share award pursuant to the
Convergys Long-Term Incentive Plan (Convergys LTIP). The Convergys
stock options or share awards issued to holders of CBI options or
share awards on December 31, 1998, have the same vesting provisions,
option periods and other terms and conditions as the original CBI
options. The exercise prices of the Company and CBI stock options
issued to holders of CBI options at the Distribution date were
established so the options had the same ratio of exercise price per
share to market value per share as the original stock option.
Additionally, the Company issued Convergys stock options to certain
employees under the Convergys LTIP during 1998. Under both the
Convergys LTIP and the CBI LTIP, options are granted with exercise
prices that are no less than market value of the stock at the grant
date. Generally, stock options have a ten-year term and vesting
terms of three to four years. At December 31, 1998, the Company had
authorized 30 million shares of common stock for issuance under the
Convergys LTIP. There were no Convergys or CBI stock appreciation
rights granted or outstanding during the three-year period ended
December 31, 1998.
The Company follows the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion 25 and
related interpretations in accounting for its plans. If the Company had
elected to recognize compensation cost for the issuance of CBI or
Convergys options to Company employees based on the fair value at the
grant dates for awards consistent with the method prescribed by SFAS
123, net income and earnings per share would have been impacted as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 81.0 $ 86.6 $ 78.0
Pro forma compensation expense,
net of tax benefit (8.3) (3.8) (1.7)
- ----------------------------------------------------------------------
Pro forma $ 72.7 $ 82.8 $ 76.3
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Diluted earnings per share:
As reported $ .57 $ .63 $ .57
Pro forma $ .51 $ .60 $ .56
</TABLE>
The pro forma effect on net income for all periods shown
above is not representative of the pro forma effect on net income in
future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
Additionally, the pro forma disclosure for 1998 includes incremental
compensation expense based on the difference in the fair value of the
replacement Company and CBI options issued at the date of the
Distribution to Company employees who held CBI options.
The weighted average fair value on the date of grant for the Convergys
options granted during 1998 was $7.68. The weighted average fair values
at the date of grant for the CBI options granted to Company employees
during 1998, 1997 and 1996 were $8.78, $9.64 and $4.60, respectively.
Such amounts were estimated using the Black-Scholes option pricing
model with the following weighted average assumptions.
<TABLE>
<CAPTION>
Convergys CBI
---------------------------------------
1998 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Expected dividend yield 0.0% 1.4% 1.8% 3.5%
Expected volatility 44.9% 25.0% 29.9% 29.2%
Risk free interest rate 5.4% 5.7% 6.2% 5.5%
Expected holding period 4 years 4 years 4 years 4 years
</TABLE>
43 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
9. STOCK-BASED COMPENSATION PLANS (CONTINUED)
Presented below is a summary of the status of the outstanding
Convergys and CBI stock options issued to the Company's employees,
the issuance of Convergys options to CBI option-holders at the date
of Distribution, and related transactions:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares in thousands Shares Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CBI options held by Company employees at January 1, 1996. . . . . . . . . 2,758 $ 9.63
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,588 $ 20.20
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (744) $ 9.45
Forfeited/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . (165) $ 13.76
- -------------------------------------------------------------------------------------------------
CBI options held by Company employees at December 31, 1996. . . . . . . . 3,437 $ 13.14
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,095 $ 30.01
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (676) $ 10.08
Forfeited/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . (119) $ 23.90
- -------------------------------------------------------------------------------------------------
CBI options held by Company employees at December 31, 1997. . . . . . . . 3,737 $ 17.16
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,322 $ 31.25
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (335) $ 12.02
Forfeited/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . (274) $ 28.26
- -------------------------------------------------------------------------------------------------
CBI options held by Company employees at December 31, 1998. . . . . . . . 4,450 $ 20.33
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Total CBI options outstanding at December 31, 1998 . . . . . . . . . . . 7,284 $ 20.33
Convergys options issued to holders of CBI options at December 31, 1998 . 7,284 $ 12.26
Convergys options granted in 1998 . . . . . . . . . . . . . . . . . . . . 2,004 $ 15.01
Convergys options cancelled in 1998 . . . . . . . . . . . . . . . . . . . (20) $ 15.00
- -------------------------------------------------------------------------------------------------
Convergys options outstanding at December 31, 1998. . . . . . . . . . . . 9,268 $ 12.30
- -------------------------------------------------------------------------------------------------
Convergys options exercisable at December 31, 1998. . . . . . . . . . . . 4,037 $ 7.90
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the status of the Company stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Options
Shares in thousands Outstanding Exercisable
-----------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise prices Shares Life Price Shares Price
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.45 to $5.42 2,225 4.73 5.08 2,225 5.08
$5.63 to $9.64 1,663 5.63 8.61 1,091 8.08
$13.72 to $21.38 5,380 8.90 16.43 721 16.35
-----------------------------------------------------------------------
Total 9,268 7.32 12.30 4,037 7.90
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases certain facilities and equipment used in its
operations under operating leases. Total rent expense was
approximately $120.9, $94.8 and $76.6 in 1998, 1997 and 1996,
respectively.
At December 31, 1998, the total minimum rental commitments under
noncancelable leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 . . . . . . . . . . . . . . . . . $ 75.0
2000 . . . . . . . . . . . . . . . . . 50.4
2001 . . . . . . . . . . . . . . . . . 35.2
2002 . . . . . . . . . . . . . . . . . 26.3
2003 . . . . . . . . . . . . . . . . . 22.5
Thereafter . . . . . . . . . . . . . . 111.3
- ---------------------------------------------
Total . . . . . . . . . . . . . . . . $320.7
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
CONTINGENCIES
The Company is from time to time subject to routine complaints
incidental to the business. The Company believes that the results of
any complaints and proceedings will not have a materially adverse
effect on the Company's financial condition or results of operations.
44 Convergys Corp. 1998 Annual Report
<PAGE>
11. ADDITIONAL FINANCIAL INFORMATION
BALANCE SHEET
<TABLE>
<CAPTION>
at December 31,
----------------------
1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
RECEIVABLES:
Billed . . . . . . . . . . . . . . . . . . $ 177.4 $ 130.4
Unbilled . . . . . . . . . . . . . . . . . 141.5 93.6
Other . . . . . . . . . . . . . . . . . . 5.2 5.3
- ------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . 324.1 229.3
Less: Allowances . . . . . . . . . . . . . (9.8) (6.4)
- ------------------------------------------------------------------
$ 314.3 $ 222.9
- ------------------------------------------------------------------
- ------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET:
Land . . . . . . . . . . . . . . . . . . $ 6.2 --
Buildings. . . . . . . . . . . . . . . . . 47.8 $ 7.0
Leasehold improvements . . . . . . . . . . 54.3 38.5
Equipment. . . . . . . . . . . . . . . . . 226.2 175.3
Software . . . . . . . . . . . . . . . . . 136.2 108.7
Construction in progress and other . . . . 27.9 11.5
- ------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . 498.6 341.0
Less: Accumulated depreciation . . . . . . (248.8) (211.0)
- ------------------------------------------------------------------
$ 249.8 $ 130.0
- ------------------------------------------------------------------
- ------------------------------------------------------------------
GOODWILL AND INTANGIBLES, NET:
Goodwill . . . . . . . . . . . . . . . . . $ 744.5 $ 278.6
Other intangible assets. . . . . . . . . . 79.6 --
- ------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . 824.1 278.6
Less: Accumulated amortization . . . . . . (136.7) (101.0)
- ------------------------------------------------------------------
$ 687.4 $ 177.6
- ------------------------------------------------------------------
- ------------------------------------------------------------------
PAYABLES AND OTHER CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . $ 81.1 $ 41.2
Accrued expenses . . . . . . . . . . . . 86.7 63.8
Accrued taxes . . . . . . . . . . . . . . 23.1 16.3
Restructuring and exit costs . . . . . . . 21.3 27.0
Advance billing and customer deposits. . . 18.9 9.2
- ------------------------------------------------------------------
$ 231.1 $ 157.5
- ------------------------------------------------------------------
- ------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Currency translation adjustments . . . . . $ (0.6) $ 2.4
Unrealized loss on investment. . . . . . . (2.0) --
- ------------------------------------------------------------------
$ (2.6) $ 2.4
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
INCOME STATEMENT
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization:
Depreciation . . . . . . . . . . . . $ 68.1 $ 37.9 $ 29.6
Amortization . . . . . . . . . . . . 33.2 23.1 22.2
- ------------------------------------------------------------------------
$ 101.3 $ 61.0 $ 51.8
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
CELLULAR PARTNERSHIP
Summarized financial information for the Cellular Partnership in
which the Company has a 45% interest is as follows:
<TABLE>
<CAPTION>
at December 31,
-----------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current assets . . . . . . . . . . . . $ 63.0 $ 42.6 $ 35.7
Non-current assets . . . . . . . . . . 139.6 107.9 103.1
Current liabilities. . . . . . . . . . 18.0 24.3 17.7
Non-current liabilities. . . . . . . . 2.0 2.0 2.1
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . $203.9 $189.7 $165.9
Operating income. . . . . . . . . . . 60.6 37.8 23.8
Net income. . . . . . . . . . . . . . 58.4 33.2 23.9
</TABLE>
12. TRANSACTIONS AND AGREEMENTS WITH CBI
In 1998, 1997 and 1996, the Company had $49.8, $49.6 and $45.0,
respectively, in revenues resulting from information systems and
billing services and customer management services provided to CBI
and its subsidiaries.
CBI allocated general corporate overhead expenses to the Company
amounting to $10.6, $7.7 and $6.7 in 1998, 1997 and 1996, respectively.
The allocation of general corporate overhead expenses was based on the
ratio of the Company's revenues, assets and payroll to CBI's revenue,
assets and payroll. Additionally, the Company incurred expenses for
communications and other services provided by CBI and its subsidiaries
of $10.1, $18.6 and $6.2 in 1998, 1997 and 1996, respectively.
45 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
12. TRANSACTIONS AND AGREEMENTS WITH CBI (CONTINUED)
At the Distribution, certain CBI assets and liabilities were
transferred to or assumed by the Company. The net amount of these
non-cash transfers, which consisted primarily of the Company's share
of CBI pension and postretirement benefit assets and liabilities,
corporate office assets, and related deferred tax amounts, was
$18.0. This amount has been reflected as an increase to additional
paid-in capital.
The Company and CBI entered into the Plan of Reorganization and
Distribution Agreement dated July 20, 1998 (the Agreement). The
Agreement provides that, among other things, the Company will indemnify
CBI for all liabilities arising from the Company's business and
operations and for all contingent liabilities relating to the Company's
business and operations or otherwise assigned to the Company. The
Agreement provides for the equal sharing of contingent liabilities not
allocated to one of the two companies. In addition, the Company has a
number of other agreements with CBI regarding federal, state and local
tax allocation and sharing, employee benefits, general services,
telecommunications support services provided to the Company by CBI and
billing and information processing and customer management services
provided by the Company to CBI.
13. INDUSTRY SEGMENT AND GEOGRAPHIC OPERATIONS
INDUSTRY SEGMENT INFORMATION
The Company operates in two industry segments, which are identified
by service offerings. IMG is principally engaged in providing
information systems and billing services to the communications,
cable and broadband services industries. CMG provides a full range
of outsourced marketing and customer service solutions to large
companies.
The Company does not allocate activities below the operating income
level to its reported segments. The Company's business segment
information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
IMG . . . . . . . . . . . . . . . . $ 602.0 $ 548.0 $ 479.8
Less intersegment . . . . . . . . . (24.6) (7.9) (4.4)
CMG . . . . . . . . . . . . . . . . 869.9 447.6 367.1
Less intersegment . . . . . . . . . (0.1) (0.2) (0.1)
- --------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 1,447.2 $ 987.5 $ 842.4
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
IMG . . . . . . . . . . . . . . . . $ 29.9 $ 34.5 $ 32.2
CMG . . . . . . . . . . . . . . . . 71.4 26.5 19.6
- --------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 101.3 $ 61.0 $ 51.8
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
SPECIAL ITEMS
IMG . . . . . . . . . . . . . . . . -- -- $ 3.0
CMG . . . . . . . . . . . . . . . . $ 42.6 $ 35.0 2.0
- --------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 42.6 $ 35.0 $ 5.0
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
OPERATING INCOME
IMG . . . . . . . . . . . . . . . . $ 116.5 $ 104.7 $ 75.5
CMG . . . . . . . . . . . . . . . . 25.6 9.4 43.7
Corporate and other . . . . . . . . (2.2) -- --
- --------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 139.9 $ 114.1 $ 119.2
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
CAPITAL EXPENDITURES (EXCLUDING
ACQUISITIONS)
IMG . . . . . . . . . . . . . . . . $ 39.3 $ 24.5 $ 24.0
CMG . . . . . . . . . . . . . . . . 53.9 36.4 32.2
Corporate and other . . . . . . . . 0.3 -- --
- --------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 93.5 $ 60.9 $ 56.2
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
at December 31,
---------------------
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Total Assets
IMG . . . . . . . . . . . . . . . . $ 384.0 $ 283.6
CMG . . . . . . . . . . . . . . . . 981.2 283.4
Corporate and other . . . . . . . . 85.7 87.4
- ----------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 1,450.9 $ 654.4
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
46 Convergys Corp. 1998 Annual Report
<PAGE>
GEOGRAPHIC OPERATIONS
The following table presents certain information regarding the
Company's domestic and international operations:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Revenues
North America . . . . . . . $ 1,367.7 $ 905.8 $ 745.6
International . . . . . . . 79.5 81.7 96.8
- -------------------------------------------------------------
Total . . . . . . . . . . $ 1,447.2 $ 987.5 $ 842.4
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
at December 31,
------------------------
1998 1997
- ----------------------------------------------------
<S> <C> <C>
Long-lived assets
North America . . . . . . . $ 1,038.7 $ 342.3
International . . . . . . . 34.1 41.3
- ----------------------------------------------------
Total . . . . . . . . . . $ 1,072.8 $ 383.6
- ----------------------------------------------------
- ----------------------------------------------------
</TABLE>
CONCENTRATIONS
Both of the Company's segments derive significant revenues from AT&T
by providing information systems and billing services and customer
management solutions. Revenues from AT&T were 35.4%, 30.1% and 34.7%
of the Company's consolidated revenues for 1998, 1997 and 1996,
respectively. Related amounts receivable from AT&T totaled $99.6 and
$54.1 at December 31, 1998 and 1997, respectively. The Company's
relationship with AT&T includes its use of AT&T communication
services, which is particularly significant to the CMG segment. The
Company's spending for these services with AT&T was $83.7, $39.2 and
$30.8 in 1998, 1997 and 1996, respectively.
14. EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator of
the basic and diluted earnings per share (EPS) computations for the
year ended December 31, 1998:
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS $ 81.0 142.7 $ .57
Effect of dilutive securities:
Stock-based compensation arrangements -- 0.2 --
- ----------------------------------------------------------------------
Diluted EPS $ 81.0 142.9 $ .57
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
There were no dilutive securities outstanding during 1997 or 1996.
Accordingly, for those periods basic EPS and dilutive EPS were equal.
The EPS information for all periods has been calculated giving
retroactive recognition of the share split, effective August 4, 1998,
which increased the number of then outstanding common shares to 137.0
million.
47 Convergys Corp. 1998 Annual Report
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Amounts in Millions Except Per Share Amounts)
15. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Development or Obtained for Internal Use,"
was issued. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998 and requires the capitalization of certain
expenditures for software that is purchased or internally developed for
use in the business. Management believes that the prospective
implementation of SOP 98-1 in 1999 is likely to result in some
additional capitalization of software expenditures in the future. This
amount cannot be determined at this time.
In April 1998, SOP 98-5, "Reporting on the Costs of Start-up
Activities," was issued. The SOP provides guidance on financial
reporting of costs of start-up activities. SOP 98- 5 requires such
costs to be expensed instead of being capitalized and amortized. SOP
98-5 is effective for fiscal years beginning after December 15, 1998.
The Company believes the implementation of SOP 98-5 will not have a
material impact on its financial reporting.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company occasionally
employs a small number of financial instruments to manage its exposure
to fluctuations in interest rates and foreign currency exchange rates.
The Company does not hold or issue such financial instruments for
trading purposes. The Company will adopt SFAS 133, as required in the
year 2000, and does not expect the impact of adoption to be material.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
All adjustments necessary for a fair statement of income for
each period have been included.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Revenues . . . . . . . . . . . . $ 308.6 $ 363.6 $ 370.3 $ 404.7 $ 1,447.2
Operating income (loss). . . . . $ (1.3) $ 41.6 $ 45.8 $ 53.8 $ 139.9
Net income (loss). . . . . . . . $ (2.3) $ 23.6 $ 25.6 $ 34.1 $ 81.0
Earnings (loss) per share:
Basic . . . . . . . . . . . . (.02) .17 .18 .22 .57
Diluted . . . . . . . . . . . (.02) .17 .18 .22 .57
- --------------------------------------------------------------------------------------------------
1997
Revenues . . . . . . . . . . . . $ 243.4 $ 243.2 $ 238.5 $ 262.4 $ 987.5
Operating income . . . . . . . . $ 37.2 $ 38.1 $ 34.5 $ 4.3 $ 114.1
Net income . . . . . . . . . . . $ 26.8 $ 28.2 $ 26.3 $ 5.3 $ 86.6
Earnings per share:
Basic . . . . . . . . . . . . .20 .21 .19 .04 .63
Diluted . . . . . . . . . . . .20 .21 .19 .04 .63
</TABLE>
See Notes 3 and 4 for a discussion of special items which were
recorded by the Company in the first quarter of 1998 and the
fourth quarter of 1997.
17. SUBSEQUENT EVENT
On February 17, 1999, the Company announced an agreement to increase
its ownership in Wiztec Solutions Ltd. (Wiztec) from nearly 20% to
approximately 70%. Wiztec, based in Herzlia, Israel, is a provider
of subscriber managment systems for multi-channel subscription
television operators. The additional investment of approximately $53
will be financed using its revolving credit facility. The investment
will be accounted for under the purchase method of accounting.
48 Convergys Corp. 1998 Annual Report
<PAGE>
EXHIBIT 23
TO
FORM 10-K FOR 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Convergys Corporation on Form S-8 (File No. 333-69633) of our report dated
February 18, 1999 on our audits of the consolidated financial statements and
financial statement schedules of Convergys Corporation as of December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998,
which report is incorporated by reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 26, 1999
<PAGE>
EXHIBIT 24
TO
FORM 10-K FOR 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ John F. Barrett
--------------------------------
John F. Barrett
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, her attorneys for her and in her name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her
hand this 22nd day of March, 1999.
/s/ Judith G. Boynton
--------------------------------
Judith G. Boynton
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ Gary C. Butler
--------------------------------
Gary C. Butler
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ Roger L. Howe
--------------------------------
Roger L. Howe
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ Steven C. Mason
--------------------------------
Steven C. Mason
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ Charles S. Mechem, Jr.
--------------------------------
Charles S. Mechem, Jr.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ Steven G. Rolls
--------------------------------
Steven G. Rolls
Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ James F. Orr
--------------------------------
James F. Orr
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ Brian H. Rowe
--------------------------------
Brian H. Rowe
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ William D. Baskett III
--------------------------------
William D. Baskett III
General Counsel and Secretary
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, CONVERGYS CORPORATION, an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the Rules and Regulations thereunder,
an annual report on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and
appoints James F. Orr, Steven G. Rolls and William D. Baskett III, and each
of them singly, his attorneys for him and in his name, place and stead, and
in his office and capacity in the Company, to execute and file such annual
report on Form 10-K, and thereafter to execute and file any amendments or
supplements thereto, hereby giving and granting to said attorneys full power
and authority to do and perform each and every act and thing whatsoever
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand this 22nd day of March, 1999.
/s/ Andre S. Valentine
--------------------------------
Andre S. Valentine
Vice President and Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,800
<SECURITIES> 0
<RECEIVABLES> 324,100
<ALLOWANCES> 9,800
<INVENTORY> 0
<CURRENT-ASSETS> 360,500
<PP&E> 498,600
<DEPRECIATION> 248,800
<TOTAL-ASSETS> 1,450,900
<CURRENT-LIABILITIES> 697,900
<BONDS> 21,500
0
0
<COMMON> 206,000
<OTHER-SE> 525,500
<TOTAL-LIABILITY-AND-EQUITY> 1,450,900
<SALES> 0
<TOTAL-REVENUES> 1,447,200
<CGS> 0
<TOTAL-COSTS> 1,307,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,200
<INTEREST-EXPENSE> 33,900
<INCOME-PRETAX> 130,600
<INCOME-TAX> 49,600
<INCOME-CONTINUING> 81,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,000
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
