FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(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 1-1105
AT&T CORP.
A NEW YORK I.R.S. EMPLOYER
CORPORATION NO. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone Number 212-387-5400
Securities registered pursuant to Section 12(b) of the Act: See attached
SCHEDULE A.
Securities registered pursuant to Section 12(g) of the Act: None.
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........
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not con-tained 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. [ ]
At February 26, 1999, the aggregate market value of voting stock held by
non-affiliates was $143,517,069,605.
At February 26, 1999, 1,746,368,779 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to shareholders for the year
ended December 31, 1998 (Part II)
(2) Portions of the registrant's definitive proxy statement dated March 25,
1999 issued in connection with the annual meeting of shareholders (Part III)
<PAGE>
SCHEDULE A
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Shares # New York, Boston, Chicago,
(Par Value $1 Per Share) #### Philadelphia and Pacific
# Stock Exchanges
Class A Liberty Media Group Tracking #
Shares (common, Par Value $1 Per Share) #
#### New York Stock Exchange
Class B Liberty Media Group Tracking #
Shares (common, Par Value $1 Per Share) #
Thirty-Six Year 4-3/8% Debentures, #
due May 1, 1999 #
#
Thirty-Three Year 6% Debentures, #
due August 1, 2000 #
#
Thirty-Five Year 5-1/8% Debentures, #
due April 1, 2001 #
#
Ten Year 7-1/8% Notes, due January 15, 2002 #
#
Ten Year 6-3/4% Notes, due April 1, 2004 #
#
Ten Year 7% Notes, due May 15, 2005 #
#
Twelve Year 7-1/2% Notes, due June 1, 2006 ###### New York Stock Exchange
#
Twelve Year 7-3/4% Notes, due March 1, 2007 #
#
Thirty Year 8-1/8% Debentures, #
due January 15, 2022 #
#
Medium Term Note 8.2, due February 15, 2005 #
#
Thirty Year 8.35% Debentures, #
due January 15, 2025 #
#
Thirty-Two Year 8-1/8% Debentures, #
due July 15, 2024 #
#
Forty Year 8-5/8% Debentures, #
due December 1, 2031 #
<PAGE>
TABLE OF CONTENTS
PART I
Item Description Page
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 39
4. Submission of Matters to a Vote of Security-Holders . . . . . . . 41
PART II
Description
5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 42
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 42
8. Financial Statements and Supplementary Data . . . . . . . . . . . . 42
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 42
PART III
Description
10. Directors and Executive Officers of the Registrant . . . . . . . . 42
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 42
12. Security Ownership of Certain Beneficial Owners and Management . . 42
13. Certain Relationships and Related Transactions . . . . . . . . . . 42
PART IV
Description
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K . . 43
See page 41 for "Executive Officers of the Registrant."
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
AT&T Corp. was incorporated in 1885 under the laws of the State of New
York and has its principal executive offices at 32 Avenue of the Americas, New
York, New York 10013-2412 (telephone number 212-387-5400).
On March 9, 1999, AT&T completed the acquisition of
Tele-Communications, Inc. (TCI) in a merger. In the merger, AT&T acquired all
the business and assets of the TCI Group, which consists primarily of TCI's
domestic cable and telecommunications operations, as well as TCI's interest in
At Home Corporation (@Home) in exchange for approximately 439 million shares of
Common Stock. AT&T Common Stock will continue to represent an interest in the
business and assets of the historical AT&T together with those assets acquired
in the merger (now referred to as AT&T Broadband and Internet Services).
In addition, at the time of the merger TCI combined Liberty Media
Group, its programming arm, and TCI Ventures Group, its technology investments
unit, to form the new Liberty Media Group. The shareowners of the new Liberty
Media Group were issued separate tracking stock rather than traditional Common
Stock by AT&T Corp. in exchange for the shares held in Liberty Media Group and
TCI Ventures Group. Under the tracking stock arrangement, the Liberty Media
Group's earnings and losses will be excluded from earnings available to the
holders of Common Stock and the Liberty Media Group's businesses and assets will
be managed by a separate operating Board of Directors. As a result, although the
Liberty Media Group is wholly owned by AT&T Corp., it is accounted for as an
equity investment in the consolidated financial statements of AT&T Corp. since
AT&T does not have a "controlling financial interest" in the Liberty Media
Group.
Consequently, throughout this document, references to AT&T or the
Company refer to the businesses, results or assets attributable to the Common
Stock; references to Liberty Media refer to the businesses, results or assets
attributable to the Liberty Media Group tracking stock; and references to AT&T
Corp. refer to the combined legal entity. References herein to AT&T Common
Shares, Common Shares, AT&T Common Stock or Common Stock excludes the Liberty
Media Group tracking stock.
AT&T
AT&T is among the world's communications leaders, providing voice, data
and video communications services to large and small businesses, consumers and
government entities. AT&T and its subsidiaries furnish domestic long distance,
international long distance, regional, local and wireless telecommunications
services, cable television and Internet communications transmission services.
AT&T also provides billing, directory, and calling card services to support its
communications business.
AT&T's primary lines of business are business services; consumer
services; AT&T Broadband and Internet Services; and wireless services. In
addition, AT&T's other lines of business include local services, which includes
Teleport Communications Group Inc. (TCG); network management and professional
services through AT&T Solutions; international operations and ventures; and AT&T
WorldNet services.
<PAGE>
Internet users can access information about AT&T and its services at
http://www.att.com. Our web site is not a part of this Form 10-K.
DEVELOPMENT OF BUSINESS
Separation
During 1998 AT&T continued the transformation of its business begun in
1996 when AT&T separated its business into three publicly held stand-alone
companies: the current AT&T, focused on communications and information services;
Lucent Technologies Inc. (Lucent), focused on communications systems and
technology; and NCR Corporation (NCR), focused on transaction-intensive
computing. AT&T distributed to its shareowners all of the shares AT&T owned of
Lucent on September 30, 1996 and all of the shares of NCR on December 31, 1996.
Asset Sales
Following the separation, AT&T focused on its core businesses and
disposed of assets and businesses that were not strategic. In October 1996, AT&T
completed the sale of its majority interest in AT&T Capital Corporation (leasing
services business). In 1997, AT&T completed the sales of AT&T Skynet (satellite
services), AT&T Tridom (satellite data and video communications services), and
its submarine systems business, as well as its investment in DirectTV
(direct-broadcast television service and DSS equipment business). In addition,
in 1998 AT&T sold AT&T Universal Card Services, Inc. (credit card services
business), American Transtech Inc. (customer care services), its investment in
LIN Television Corporation (commercial television broadcasting), and its
investment in SmarTone Telecommunications Holdings Limited (a wireless joint
venture in Hong Kong).
TCG Acquisition
During 1998, AT&T engaged in a series of transactions to
further transform the Company from one dominated by a single product, domestic
long distance telecommunications, to a fully integrated, any distance, broadband
communications service provider. In July 1998, AT&T completed the merger with
TCG pursuant to which each share of TCG was exchanged for 0.943 of an AT&T
Common Share in an all-stock transaction. TCG was the largest competitive local
exchange carrier (CLEC) in the United States, offering comprehensive
telecommunications services in major metropolitan markets throughout the United
States. TCG provides a broad array of telecommunications services, including
basic local exchange services, enhanced switch services, Internet services,
disaster avoidance services and video channel transmission services, aimed at
addressing high-volume business customers.
TCI Acquisition
On June 24, 1998, AT&T announced that it had agreed to acquire TCI
through a merger. In the merger, which closed on March 9, 1999, AT&T issued
0.7757 of an AT&T Common Share for each share of TCI Group Series A tracking
stock and 0.8533 of an AT&T Common Share for each share of TCI Group Series B
tracking stock. In addition, AT&T Corp. issued one share of newly created
Liberty Media Group Class A or Class B tracking stock for each outstanding TCI
Liberty Media Group Class A or Class B tracking stock and 0.52 share of newly
created Liberty Media Group Class A or Class B tracking stock for each
<PAGE>
outstanding TCI Ventures Group Class A or Class B tracking stock. In the merger,
AT&T also exchanged AT&T Common Shares or Liberty Media Group tracking stock for
shares of TCI convertible preferred stock and made a cash payment in lieu of any
fractional AT&T Common Share or Liberty Media Group tracking share. In total,
AT&T issued approximately 439 million AT&T Common Shares.
BT Joint Venture
On July 26, 1998 AT&T and British Telecommunications plc (BT) announced
that they will create a global venture to serve the communications needs of
multinational companies and the international calling needs of businesses around
the world. The venture, which will be owned equally by AT&T and BT, will combine
transborder assets and operations of each company, including their existing
international networks, all of their international traffic, all of their
transborder products for business customers -- including an expanding set of
Concert services -- and AT&T and BT's multinational accounts in selected
industry sectors. The formation of the venture is subject to certain conditions,
but is expected to be completed by mid-1999.
Vanguard Acquisition
On October 5, 1998, AT&T announced that it had signed a definitive
merger agreement to purchase Vanguard Cellular Systems, Inc. (Vanguard) in a
stock and cash transaction valued at approximately $1.5 billion, including
approximately $600 million in debt. Under the terms of the agreement, each share
of Vanguard stock would be exchanged, at each shareholder's option, for either
$23.00 in cash or 0.3987 of an AT&T Common Share, subject to the limitation that
the overall consideration will consist of 50% cash and 50% AT&T stock. The
merger is subject to various closing conditions, including the approval by
Vanguard shareholders. The transaction is expected to close in the first half of
1999.
IBM Global Network Acquisition
On December 8, 1998, AT&T announced it had agreed to acquire International
Business Machines Corporation's (IBM) Global Network business for $5 billion in
cash, and the two companies will enter into outsourcing contracts with each
other. IBM will outsource a significant portion of its global networking needs
to AT&T. AT&T will outsource certain applications processing and data center
management operations to IBM. The IBM Global Network business AT&T will acquire
serves the networking needs of several hundred large global companies, tens of
thousands of mid-sized businesses and more than one million individual Internet
users in 59 countries. About 5,000 IBM employees will join AT&T as part of the
acquisition. IBM's Global Network has more than 1,300 dial-up points of presence
and dedicated access from more than 850 cities in 59 countries. The Global
Network offers business customers innovative services and worldwide operations
and support, including in-country, native-language support personnel. AT&T
expects the acquisition to conclude by mid-1999, following clearance by
regulatory authorities.
Cable Operator Joint Ventures
On January 8, 1999, AT&T announced that it had reached agreements with
five TCI affiliates to form separate joint ventures to offer customers advanced
communications services. AT&T expects to finalize joint ventures with Bresnan
Communications, Falcon Cable TV, Insight Communications, InterMedia Partners and
Peak Cablevision in early 1999, and begin commercial operations in the year
2000. The joint ventures will offer customers new communications services that
<PAGE>
feature multiple phone lines per household, along with options such as
conference calling, call waiting, call forwarding and individual message centers
for family members.
AT&T, which expects to own 51 percent of each of these joint ventures,
will have long-term exclusive rights to offer communications services over the
systems of each of the five operators in return for one-time payments to be made
when the systems meet certain performance milestones. AT&T expects the total of
these payments to be in the tens of millions of dollars. In addition, the
operators will receive ongoing monthly telephony subscriber payments, with
guaranteed minimum penetration levels.
Time Warner Joint Venture
On February 1, 1999 AT&T and Time Warner, Inc. announced the formation
of a joint venture to offer AT&T-branded cable telephony service to residential
and small business customers over Time Warner's existing cable television
systems in 33 states. The two companies also agreed to jointly market
communications services and to develop other broadband communications services,
such as video telephony. Under the terms of the agreement, AT&T will own 77.5
percent of the joint venture and Time Warner will own 22.5 percent. The joint
venture will have exclusive rights to offer residential and small business
telephony services over Time Warner's cable systems for 20 years. In return, the
joint venture will make payments (estimated at $300 million) to Time Warner on a
per home passed basis as systems are upgraded. In addition, the joint venture
will pay a monthly fee per telephony subscriber, with guaranteed minimum
penetration levels. AT&T will fund the venture's negative cash flow and be
responsible for the venture's capital expenditures, including the cost of
powering the system, and, as customers sign up for the service, the cost of
adding communications equipment to cable nodes and in people's homes. The
companies said they expect to finalize their agreement within 90 days and to
close the joint venture thereafter. The transaction is subject to certain
conditions, including definitive documentation and various approvals.
MetroNet Merger
On March 4, 1999, AT&T Canada Corp. announced that it had agreed to
merge with MetroNet Communications Corp., Canada's largest competitive local
exchange carrier. Under the terms of the agreement, AT&T would receive 31% of
the combined entity in exchange for its 33 percent voting interest in AT&T
Canada Corp., 100 percent interest in ACC TelEnterprises Ltd., and 67 percent
interest in the former AT&T Canada Long Distance Services currently held in
trust. In addition, AT&T agreed to purchase all of the remaining shares at the
greater of the then appraised fair market value or the accreted minimum price,
which initially is C$75 accreting after June 30, 2000 at a rate of 16% per
annum, compounded quarterly. If the acquisition is not completed by June 30,
2003, those shares would be sold through an auction process and AT&T will make
whole the shareholders for the amount they would have been entitled to if AT&T
had purchased the shares. The completion of the merger and acquisition is
subject to various conditions and regulatory approvals, including, for the
acquisition, a change in Canada's foreign ownership restrictions.
BUSINESS SERVICES
Long Distance Voice and Data
Business Services provide voice, data and video communications services
to large and small businesses, the Federal government and state and local
<PAGE>
governments. Business units within this group provide regular and custom long
distance communications services, data transmission services, 500 services,
toll-free or 800 and 888 services, 900 services, private line services, software
defined network services (SDN), asynchronous transfer mode (ATM) and Internet
protocol (IP) technology based services, integrated services digital network
(ISDN) technology based services, electronic mail, electronic data interchanges
and enhanced facsimile services.
AT&T also provides special long distance services, including AT&T
Calling Card services, special calling plans and the Company's domestic and
international operator services. AT&T provides communications services
internationally, including transaction services, global networks, network
management and value added network services (i.e., services offered over
communications transmission facilities that employ computer processing
applications).
Long Distance Voice. Business Services' voice communication
offerings include the traditional "one plus" dialing of domestic and
international long distance for customers that select AT&T as their primary long
distance carrier.
Business Services' dedicated services include private line and
special access services that use high-capacity digital circuits to carry voice,
data and video (or multimedia) transmission from point-to-point in multiple
configurations. These services provide high-volume customers with a direct
connection to an AT&T switch instead of switched access shared by many users.
These services permit customers to create internal computer networks, access
external computer networks and the Internet, as well as reduce originating
access costs.
Business Services also offers toll free (800 or 888) inbound service,
where the receiving party pays for the call. This is used in a wide variety of
applications, many of which generate revenue for the user (such as reservation
centers or customer service centers). AT&T offers a variety of features to
enhance customers toll free service, including call routing by origination point
and time of day routing.
Business Services also offers a variety of calling cards which allow
the user to place calls from virtually anywhere in the world. Additional
features include prepaid calling cards, conference calling, international
origination, information service access (such as weather or stock quotes), speed
dialing and voice messaging.
Enhanced Data Communication. Enhanced data services consist of
interexchange data networks utilizing packet switching and transmission
technologies and application services, such as Internet access and Web Site
hosting and management, which utilize the frame relay network. Enhanced data
services enable customers to economically and securely transmit large volumes of
data typically sent in bursts from one site to another. Enhanced data services
are utilized for local area network (LAN) interconnection, remote site, point of
sale and branch office communications solutions.
AT&T utilizes both IP and ATM systems. Both technologies offer
significant efficiencies over circuit switched systems which use a single,
dedicated circuit to complete each transmission. ATM switching is also a more
efficient method of switching and transmitting comingled or multimedia
information. The packet switching technology breaks up a transmission into short
pieces, or packets, which are encoded and transmitted with other packets on the
<PAGE>
same circuit, and reassembled at the desired destination. ATM differs from IP in
that the data packets used in ATM (called cells) are one size (53 bytes) whereas
in IP the data packets vary in length. Also, whereas ATM establishes virtual
circuits to ensure that the information sent is reassembled at its destination
in its proper sequence, IP ships each packet of information to its destination
by a different path. While AT&T will continue to have both circuit and packet
switching and transmission technologies for some time, no more significant
future capital expenditures are scheduled for circuit switching.
ISDN services provide customers with multiple voice and data
communications services over a single telecommunications line. The Company's
ISDN services allow customers to perform multiple functions such as simultaneous
voice and computer links, and enable the Company to offer customers value-added
features. High speed ISDN applications include desk top video conferencing,
interconnection of LANs and Internet access.
Business Services has a dedicated sales force through which it markets
its long distance voice and data communication services. Sales forces are
divided into geographic markets, and in each market focus on large,
multinational corporations, small businesses, government markets, and
value-added resellers and other wholesalers. Business Services employs full
service support teams to provide significant customer support and service to
ensure customer satisfaction and retention.
Business Services offers its services in accordance with applicable
tariffs filed with the Federal Communications Commission (FCC). Rates can vary
by a number of factors, particularly the volume of usage and the day and time
that calls are made. AT&T Business Services offers long distance and data
services individually and in combination with other offerings. Through combined
offerings, AT&T provides customers with benefits such as single billing, unified
services for multilocation companies and customized calling plans.
Transport
Business Services is one of the leaders in providing wholesale
networking services to other carriers, providing both network capacity and
switched services. AT&T offers a combination of high-volume transmission
capacity, conventional dedicated line services and dedicated switched services
to Internet service providers (ISPs) and Tier 1 and Tier 2 carriers on a
national or regional basis, as well as switchless resale services to Tier 3
carriers.
Wholesale networking service is typically provided pursuant to
long-term service agreements for terms of one year or longer. These agreements
generally provide for "take or pay" monthly payments at fixed rates based on the
capacity and length of the circuit used. Customers are typically billed on a
monthly basis and also may incur an installation charge or certain ancillary
charges for equipment. After contract expiration, the contracts may be renewed
or the services may be provided on a month-to-month basis. Switched services
agreements are generally offered on a month-to-month basis and the service is
billed on a minutes-of-use basis.
CONSUMER SERVICES
AT&T is the United States' leading provider of domestic and
international long distance service to residential consumers. AT&T provides
regular and custom long distance communications services which it offers
individually and in combination with other offerings.
<PAGE>
AT&T provides interstate and intrastate long distance
telecommunications services throughout the continental United States and
provides, or joins in providing with other carriers, telecommunications services
to and from Alaska, Hawaii, Puerto Rico and the Virgin Islands and international
telecommunications services to and from virtually all nations and territories
around the world. Consumers can use AT&T domestic and international long
distance services by the traditional "one plus" dialing of the desired call
destination, by dial-up access or through the use of AT&T calling cards.
AT&T both delivers and receives international traffic pursuant to its
operating agreements with foreign carriers throughout the world. The terms of
most switched voice operating agreements, as well as established FCC policy,
require that inbound switched voice traffic from the foreign carrier to the
United States be routed to United States international carriers, like AT&T, in
proportion to the percentage of United States outbound traffic routed by that
United States international carrier to the foreign carrier. AT&T's revenues and
costs of sales are sensitive to changes in international settlement rates and
international traffic routing patterns.
In the continental United States, AT&T provides long distance
telecommunications services over AT&T's backbone network. International
telecommunications services are provided by submarine cable systems in which
AT&T holds investment positions, satellites and facilities of other domestic and
foreign carriers.
AT&T markets its consumer long distance services in a variety of ways,
including by means of television advertising, direct mail solicitations and
customer care telephonic solicitations, as well as through brand awareness.
Beginning at the end of 1997, AT&T implemented significant modifications to its
marketing efforts in response to strategic choices made to improve
profitability. Primarily, AT&T commenced using free minutes in place of checks
as well as migrating customers to more favorable optional calling plans in order
to attract and retain its most profitable customers. As a result of this
strategy, AT&T now has over 26 million customers on its One Rate registered
trademark plans, including more than 13 million on AT&T One Rate Plus registered
trademark, with more than 75% of AT&T's consumer long distance minutes were
generated by customers on optional calling plans. Also, AT&T began targeting its
marketing efforts to emphasize high-value customers to optimize its customer
base for profitable future growth.
Typically, AT&T charges customers based on applicable rates filed with
the FCC. Customers select different services and from various rate plans which
determine the price per minute that they pay on their long distance calls. Rates
typically vary based on a variety or factors, particularly the volume of usage
and the day and time that calls are made.
In 1997, AT&T began conducting integrated billing for those customers
using more than one service and in 1998 introduced a new rate plan for those
customers subscribing to AT&T long distance and AT&T WorldNet service. In
addition, in January 1999 AT&T began offering AT&T Personal Network services
which bundle consumer domestic and international long distance, wireless,
Internet, personal 800 and calling card services.
AT&T BROADBAND AND INTERNET SERVICES
AT&T Broadband and Internet Services is principally comprised of the
businesses and assets of the TCI Group and TCI's interest in At Home Corporation
acquired in the TCI merger.
<PAGE>
TCI Group
Cable television systems receive video, audio and data signals
transmitted by nearby television and radio broadcast stations, terrestrial
microwave relay services and communications satellites. Such signals are then
amplified and distributed by coaxial cable and optical fiber to the premises of
customers who pay a fee for the service. In many cases, cable television systems
also originate and distribute local programming.
At December 31, 1998, approximately 66% of TCI Group's cable television
systems had bandwidth capacities ranging from 450 megahertz to 750 megahertz.
The Company's cable television systems generally carry up to 78 analog channels.
Compressed digital video technology converts on average as many as fourteen
analog signals (now used to transmit video and voice) into a digital format and
compresses such signals (which is accomplished primarily by eliminating the
redundancies in television imagery) into the space normally occupied by one
analog signal. The digitally compressed signal is uplinked to a satellite, which
retransmits the signal to a customer's satellite dish or to a cable system's
headend to be distributed, via optical fiber and coaxial cable, to the
customer's home. At the home, a set-top video terminal converts the digital
signal into analog channels that can be viewed on a normal television set.
TCI Group began offering digital cable television service to selected
markets in 1997. In February 1998, TCI Group initiated broader marketing efforts
intended to increase the number of digital cable television customers. Such
marketing efforts encompass multi-media, product enhancements, sales promotions
and sales incentives.
TCI Group operates its cable television systems either through its
operating divisions or through certain other subsidiaries of TCI attributed to
TCI Group. Domestic Basic-TV cable customers served by TCI Group are summarized
as follows (amounts in millions):
<TABLE>
<CAPTION>
Basic-TV customers at December 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Managed through TCI Group's operating divisions
11.4 14.2 13.4 11.9 10.7
Other non-managed subsidiaries of TCI attributed to TCI
Group 0.5 0.2 0.5 0.6 0.5
------- ------- ------- ------- -------
11.9 14.4 13.9 12.5 11.2
======= ======= ======= ======= =======
</TABLE>
The decline in total Basic-TV customers between 1997 and 1998 is
attributable to certain contribution transactions entered into in 1998. In the
most significant of these transactions, on March 4, 1998, TCI contributed to
Cablevision Systems Corporation (CSC) certain of its cable television systems
serving approximately 830,000 customers in exchange for approximately 48.9
million newly issued CSC Class A common shares (the CSC Transaction) and the
assumption of indebtedness. TCI has also entered into letters of intent with CSC
which provide for the TCI Group to acquire a cable system in Michigan and an
additional 4% of CSC's Class A common shares and for CSC to acquire cable
systems in Connecticut and assume certain indebtedness. The ability of the
Company to sell or increase its investment in CSC is subject to certain
restrictions and limitations set forth in a stockholders agreement with CSC.
<PAGE>
In addition to the CSC Transaction, during 1998 TCI also completed
eight transactions whereby TCI contributed cable television systems serving in
the aggregate approximately 1,924,000 customers to eight separate joint ventures
(collectively, the 1998 Joint Ventures) in exchange for non-controlling
ownership interests in each of the 1998 Joint Ventures, and the assumption and
repayment by the 1998 Joint Ventures of indebtedness. In addition, TCI, as of
December 31, 1998, has signed agreements or letters of intent to contribute
within the next twelve months certain cable television systems serving
approximately 1.2 million basic customers to joint ventures in which the Company
will retain non-controlling ownership interests. No assurance can be given that
any of these pending contribution transactions will be consummated.
TCI Group had approximately 1 million digital customers at December 31,
1998.
TCI Group operates cable television systems throughout the United
States.
Service Charges. TCI Group offers a limited "basic service" (Basic-TV)
(primarily comprised of local broadcast signals and public, educational and
governmental (PEG) access channels) and an "expanded tier" (primarily comprised
of specialized programming services, in such areas as health, family
entertainment, religion, news, weather, public affairs, education, shopping,
sports and music). The monthly fee for basic service generally ranges from $9.00
to $12.00, and the monthly service fee for the expanded tier generally ranges
from $13.00 to $19.00. TCI Group offers "premium services" (referred to in the
cable television industry as "Pay-TV" and "pay-per-view") to its customers. Such
services consist principally of feature films, as well as live and taped sports
events, concerts and other programming. TCI Group offers Pay-TV services for a
monthly fee generally ranging from $6.00 to $15.00 per service, except for
certain movie services (such as certain Pay-TV channels) offered at $1.00 to
$2.00 per month, pay-per-view movies offered separately at $1.00 to $4.00 per
movie and certain pay-per-view events offered separately at $6.00 to $50.00 per
event. Charges are usually discounted when multiple Pay-TV services are ordered.
In most markets, customers may also elect to subscribe to digital video services
comprised of up to 36 additional video and 10 additional audio channels
featuring additional specialized programming and premium services at an average
incremental monthly charge of $10.
As further enhancements to their cable services, for a monthly charge
customers may generally rent converters or converters with remote control
devices, as well as purchase a channel guide. Also a nonrecurring installation
charge is usually charged.
Monthly fees for Basic-TV and Pay-TV services to commercial customers
vary widely depending on the nature and type of service. Except under the terms
of certain contracts to provide service to commercial accounts, customers are
free to discontinue service at any time without penalty.
The Cable Television Consumer Protection and Competition Act of 1992
(the 1992 Cable Act) and the Telecommunications Act of 1996 (the
Telecommunications Act, together with the 1992 Cable Act, the Cable Acts),
established rules under which TCI Group's basic service and expanded tier
service rates and equipment and installation charges are regulated if a
complaint is filed or if the appropriate franchise authority is certified.
Local Franchises. Cable television systems generally are constructed
and operated under the authority of nonexclusive permits or "franchises" granted
<PAGE>
by local and/or state governmental authorities. Federal law, including the Cable
Communications Policy Act of 1984 (the 1984 Cable Act) and the 1992 Cable Act,
limits the power of the franchising authorities to impose certain conditions
upon cable television operators as a condition of the granting or renewal of a
franchise.
Franchises contain varying provisions relating to construction and
operation of cable television systems, such as time limitations on commencement
and/or completion of construction; quality of service, including (in certain
circumstances) requirements as to the number of channels and broad categories of
programming offered to customers; rate regulation; provision of service to
certain institutions; provision of channels for public access and commercial
leased-use; and maintenance of insurance and/or indemnity bonds. TCI Group's
franchises also typically provide for periodic payments of fees, not to exceed
5% of revenue, to the governmental authority granting the franchise.
Additionally, many franchises require payments to the franchising authority for
the funding of PEG access channels. Franchises usually require the consent of
the franchising authority prior to a transfer of the franchise or a transfer or
change in ownership or operating control of the franchisee.
Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions thereof. Under the 1984 Cable Act, if a franchise
is lawfully terminated, and if the franchising authority acquires ownership of
the cable television system or effects a transfer of ownership to a third party,
such acquisition or transfer must be at an equitable price or, in the case of a
franchise existing on the effective date of the 1984 Cable Act, at a price
determined in accordance with the terms of the franchise, if any.
In connection with a renewal of a franchise, the franchising authority
may require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the 1984
Cable Act and other applicable federal, state and local law. The 1984 Cable Act,
as supplemented by the renewal provisions of the 1992 Cable Act, establishes an
orderly process for franchise renewal which protects cable operators against
unfair denials of renewals when the operator's past performance and proposal for
future performance meet the standards established by the 1984 Cable Act. TCI
Group believes that its cable television systems generally have been operated in
a manner which satisfies such standards and allows for the renewal of such
franchises; however, there can be no assurance that the franchises for such
systems will be successfully renewed as they expire.
Most of TCI Group's present franchises had initial terms of
approximately 10 to 15 years. The duration of TCI Group's outstanding franchises
presently varies from a period of months to an indefinite period of time.
Approximately 1090 of TCI Group's franchises expire within the next five years.
This represents approximately twenty-five percent of the franchises held by TCI
Group and involves approximately 4.6 million basic customers.
At Home Corporation
@Home, which became a public company in July 1997, is a leading
provider of broadband Internet services that delivers data to homes and
businesses through the cable television infrastructure and a cable modem at
speeds up to 100 times faster than traditional telephone dial-up alternatives.
@Home currently offers two Internet services: @Home for residential
consumers and @Work for businesses and tele-commuters. @Home's primary offering
<PAGE>
("the @Home service") allows residential subscribers to connect their personal
computers via cable modem to a high-speed Internet backbone network developed
and managed by @Home. @Home has entered into distribution arrangements with
cable companies whose cable systems pass approximately 57.3 million homes.
@Home's residential offering had approximately 331,000 cable modem subscribers
across North America at December 31, 1998 representing an increase of
approximately 158% from the 210,000 subscribers reported at September 30, 1998.
As of December 31, 1998, approximately 13.2 million of the homes served by the
cable companies with which @Home has distribution agreements are passed by
upgraded two-way hybrid fiber co-axial cable. For businesses, @Home's @Work
service provides a platform for Internet, intranet and extranet connectivity
solutions and networked business applications over both cable infrastructure and
digital telecommunications lines. As of December 31, 1998, @Work had over 1,700
corporate customers, and the @Work service was available in 22 metropolitan
markets.
TCI was a founding partner of @Home and at March 15, 1999 the TCI Group
held a significant equity interest and a controlling voting interest in @Home.
Four officers or directors of AT&T or TCI currently serve on @Home's 11 member
board; however, TCI has the right, at any time, to increase the size of @Home's
Board of Directors and elect a majority of the directors of the @Home Board.
TCI's controlling position in @Home is, however, subject to certain protective
rights held by @Home. TCI has agreed that @Home will be the exclusive high-speed
Internet service provider distributed over TCI's cable systems, subject to
certain exceptions, until at least June 4, 2002, subject to early termination in
certain circumstances. @Home's recently announced merger with Excite Inc. would,
if approved and completed, dilute the TCI Group's economic interest and voting
rights in @Home.
WIRELESS SERVICES
AT&T Wireless Services (Wireless Services) is the United States'
largest wireless service provider based on domestic revenues, and has the
greatest number of digital customers. The services provided by Wireless Services
currently include wireless voice and data. At December 31, 1998, Wireless
Services served almost 10 million wireless subscribers, including partnership
markets.
Wireless operations are conducted in 130 markets (including
partnerships), known as metropolitan statistical areas, rural service areas or
major trading areas. Wireless Services provides wireless services over its
wireless network, which operates both 850 megahertz and 1900 megahertz broadband
wireless licenses, covering, in the aggregate, approximately 55% of the United
States population before giving effect to Wireless Services roaming agreements
and 96% of the United States after giving effect to Wireless Services roaming
agreements. Wireless Services currently intends to increase its footprint to
improve its coverage, thereby reducing roaming expenses.
Services offered include custom calling services, such as voice mail,
call forwarding, call waiting, three-way calling, no-answer and busy transfer.
Wireless Services also offers a variety of other enhanced features, including
display messaging, which allows a cellular phone to receive and store voice mail
messages, short alphanumeric messages and pages, even if the handset is in use
or switched off, and enhanced directory assistance, which enables callers to be
connected to the party whose number was sought without hanging up and redialing.
Specialized services for business customers include Wireless Office
Service, which, among other features, provides four- or five-digit dialing for
<PAGE>
large customers. Wireless Services is now integrating other communications
technologies into the network and will continue to explore the use of emerging
technologies to expand the reach of the network and to provide additional
services.
Wireless Services also has an interest in several wireless
communications companies outside of the United States, including cellular
operators licensed to serve Columbia, Taiwan and parts of India.
Marketing efforts focus primarily on "high-value" customer segments
(i.e., customers that spend over $50/month on wireless services). Digital
service is a key element to attract and retain these high-value customers.
Wireless Services is an industry leader in digital migration: at present, over
50% of Wireless Services' customer base is using digital service.
Wireless Services currently offers wireless and wireline bundled
services, such as a common bill and AT&T Personal Network (i.e., consumer
domestic and international long distance, Internet, personal 800 and calling
card services) with AT&T Digital One RateSM service. The number of new bundled
offers is expected to increase over time.
Wireless Services markets its services through a direct sales force,
through sales points of presence in AT&T stores and kiosks, through direct
marketing programs and through nonaffiliated retailers throughout the United
States. Marketing to large business customers is conducted through direct
solicitations or through combined offerings with other AT&T offerings. Wireless
Services also relies upon dealers to market its services in certain locations.
Dealers are independent contractors that solicit customers for Wireless Services
service, and, typically, include specialized cellular stores, specialized
electronics stores and department stores.
Customer charges can include charges for service activation, monthly
access, per-minute airtime and customer-calling features, and generally offers a
variety of pricing options, most of which combine a fixed monthly access fee and
per-minute charges. Long distance and roaming fees may also be incurred.
Non-AT&T long distance customers are billed directly by their selected long
distance carrier. Wireless Services offers long distance service to its cellular
customers, although customers on some rate plans have the choice of an alternate
long distance carrier.
AT&T Digital One RateSM. AT&T Digital One Rate customers pay one rate
for incoming and outgoing calls throughout the United States, which means that
customers pay home rates when they roam across the United States. This rate
consists of a monthly fee, which includes the use of a certain number of
minutes, and a fee for usage beyond the monthly included minutes.
Roaming Rates. Wireless Services pays other wireless providers
negotiated rates when Wireless Services customers make or receive wireless calls
when located in the other approved carriers' coverage areas and outside of
Wireless Services' coverage area. Wireless Services currently has in place
favorable roaming rates with most carriers across the United States based upon
volume and growth. There is, however, no assurance that Wireless Services will
continue to be successful in negotiating reasonable roaming rates with other
wireless providers or expand its build out to cover such service areas. With the
addition of AT&T Digital One Rate offerings, AT&T's sensitivity to changes in
roaming rates has increased.
<PAGE>
Wireless Network. Wireless Services' ownership position in U.S. markets
was obtained through the FCC lottery and settlement process as well as through
purchases and exchanges of licenses with other cellular providers. Wireless
Services' cellular licenses generally were granted for an initial 10-year term
and are renewable for successive 10-year terms. FCC license renewal applications
continue to be filed and currently are being processed by the FCC with no
opposition. In addition, Wireless Services is required by the FCC to provide
adequate personal communication service to at least one-third of the population
in its 1900 megahertz licensed areas within five years of being licensed and
two-thirds of the population in its licensed areas within 10 years of being
licensed.
Wireless Services has created service clusters in major metropolitan
areas, and has linked its and selected other service providers' systems into a
network that permits its wireless subscribers to both place and receive calls
anywhere they travel in areas covered by the network, even if the local wireless
telephone service is not provided by Wireless Services.
Analog and digital service are offered in 850 megahertz markets and
digital service in 1900 megahertz markets. Wireless Services believes that
digital cellular technology offers many advantages over analog technology,
including substantially increased capacity, greater call privacy, lower
operating costs, reduced susceptibility to fraud and the opportunity to provide
improved data transmission. However, analog networks provide the only common
roaming platform currently available throughout the United States. Wireless
Services markets primarily multi-network phones, capable of operating in the
digital mode at 1900 megahertz and in digital and analog modes at 850 megahertz.
Wireless Services has selected time division multiple access (TDMA) as
its digital wireless technology in the United States and has deployed TDMA
service in its major markets. Wireless Services believes that TDMA technology is
an improvement over analog in that it allows for clearer calls, enhanced
security, greater functionality and additional capacity to process more calls. A
number of other wireless service providers have chosen code division multiple
access (CDMA) or the global system for mobile communications (GSM) as their
digital wireless technology. Since no manufacturers currently offer digital
handsets capable of receiving more than one digital standard, users will not be
able to roam between networks possessing different digital standards at this
time.
OTHER BUSINESSES
Local Services
Local exchange carriers provide local, toll, access and resale
services; sell, install and maintain customer premises equipment; and provide
directory services. The market for local exchange services consists of a number
of distinct service components. These service components are defined by specific
regulatory tariff classifications including: (i) local network services, which
generally include basic dial tone charges and private line services; (ii)
network access services, which consist of access charges received by LECs from
long distance carriers for the local portion of long distance telephone calls;
(iii) long distance network services, which include the variable portion of
charges received by local exchange carriers (LECs) for intra-LATA long distance
calls; and (iv) additional value added services such as caller identification,
voice mail and call waiting.
<PAGE>
Consumer Local Services. By the end of 1997, AT&T offered resold local
service to residential customers in 8 states. Notwithstanding its substantial
efforts, AT&T experienced significant difficulty in entering local markets.
AT&T's ability to purchase combined network elements from the incumbent LECs
(ILECs), one of the primary methods by which AT&T intended to provide local
service to residential customers, was severely limited by, among other factors,
regulatory and judicial actions and a lack of technical and operational
interfaces necessary to order network elements from ILECs. In spite of strong
demand, in the fourth quarter of 1997 AT&T stopped actively marketing resold
local service to residential customers in most of the areas in which it offered
such service because of limitations on ILECs' ability to handle anticipated
demand and because discounts AT&T received from ILECs on the sale of such
service were insufficient to make resale a viable method of offering service.
AT&T intends to pursue local entry by transforming the cable footprint
of one-way cable plant into a two-way, broadband network capable of meeting the
full spectrum of communication needs of the residential customer. AT&T intends
to deploy a variety of services over the upgraded cable plant, including a
richly featured "all-distance" (i.e., local, long distance, international) voice
telephony offering. AT&T plans to use existing circuit-switched technology to
pilot telephony service offers over the cable plant beginning in 1999. However,
AT&T expects to begin to transition to an integrated Internet protocol (IP)
packet data architecture by the end of 2000 that affords cost and feature
benefits over the older circuit-switched technology.
In addition, AT&T will pursue other transport options, including:
- - Expanding AT&T's ability to offer the full range of consumer services
beyond the TCI Group cable footprint through a variety of partnership
and investment initiatives, including the Time Warner and other cable
operator joint ventures already announced;
- - Continued investment in alternative narrowband, wideband and broadband
access technologies, including the fixed wireless technology that AT&T
is currently testing in select markets, and the construction of
dedicated, high-capacity access facilities to serve the broadband
communication needs of residential customers living in multiple
dwelling units (MDUs); and
- - Resale of several forms of ILEC unbundled network elements which can be
combined with switching, routing and other network elements to support
differentiated voice and data services.
AT&T intends to utilize the former TCI Group's sales force to actively
solicit cable customers as local service customers. In these areas, AT&T intends
to offer cable and local telephony as a bundle of services. AT&T will market
local service in other areas as it rolls out its local telephony capabilities.
For local service, customers are billed a fixed charge plus usage. AT&T intends
to offer rates competitive with those offered by LECs, as well as discounted
offers for certain bundles of services. Currently, billing is done internally.
It is expected that local service sold as part of a cable bundle will be billed
in one billing statement to consumers.
Business Local Services. As of June 30, 1998, AT&T offered AT&T Digital
Link service for business customers on an outbound only basis in 48 states and
on an inbound and outbound basis in one state. AT&T's ability to provide
facilities-based local service to business customers through AT&T Digital Link
service was hampered by the inability to provide local number portability and
<PAGE>
other factors. On July 23, 1998, AT&T completed the merger with TCG, the largest
CLEC in the United States with local networks aimed at addressing high-volume
business customers, and combined its business local services with those of TCG.
At December 31, 1998, TCG possessed local networks in operation in 83 U.S.
markets, encompassing over 11,400 route miles, over 549,600 fiber miles, and 51
local digital voice switches.
TCG's customers are principally telecommunications-intensive
businesses, healthcare, and educational institutions, governmental agencies,
long distance carriers and resellers, ISPs, disaster recovery service providers
and wireless communications and financial services companies. TCG's centrally
managed customer care and support operations are designed to facilitate the
installation of new services and the processing of orders for changes and
upgrades in customer services.
With a direct sales force in each of its markets, TCG initially targets
the large telecommunications-intensive businesses concentrated in the major
metropolitan markets served by its networks. TCG also targets small- and
medium-sized business customers in office buildings or multiple dwelling units
already served by its network.
TCG generally offers its services in accordance with applicable tariffs
filed with state regulatory agencies (for intrastate services). TCG typically
offers local service as part of a package of services, which can include any
combination of other AT&T offerings. Customers also choose among analog, digital
voice-only and ISDN Centrex telephone lines to their desktops. AT&T owns,
houses, manages and maintains the switch, while customers retain control over
network configurations, allowing customers to add, delete and move lines as
needed. For local service, customers are billed a fixed charge plus usage.
AT&T Solutions
AT&T Solutions, established in 1995, provides outsourcing, consulting
and networking integration services to large businesses. AT&T Solutions provides
clients with a broad array of professional services to satisfy clients complete
networking technology needs.
AT&T Solutions' offerings include operational and networking management
services for a broad range of computing platforms, including mainframe,
mid-range computers, personal computer and network environments, such as
local-area networks and wide-area networks. Most customers execute long-term
contracts for AT&T Solutions networking services.
AT&T Solutions' customers are generally within the top 2000
multinational corporations in the world. AT&T Solutions' sales force engages in
direct solicitation of those customers as well as referrals from other units of
AT&T.
AT&T WorldNet(R) Consumer services
AT&T offers dial-up Internet access to consumers through its AT&T
WorldNet service business unit, a leading provider of direct Internet access
service in the United States. At December 31, 1998, AT&T WorldNet service had
over 1.3 million customers and provided over 466 points of presence, located in
over 389 cities. Most of these dial-in numbers have been upgraded to accommodate
high speed 56K technology.
In 1998, AT&T WorldNet service entered into agreements with Yahoo!,
Excite, Infoseek and Lycos, four of the most popular sites on the Internet
<PAGE>
(known as "portals"), to offer co-branded access services to the portals'
customers. For example, a Yahoo! customer may subscribe to Internet access
through Yahoo! Online Powered by AT&T WorldNet service. In these cases the AT&T
WorldNet service supplies the underlying access, billing and customer care,
while the portal provides the content in the form of a personalizable start page
and other popular features.
AT&T WorldNet service generates revenues principally through
subscription and usage fees, as well as from electronic commerce and advertising
revenues. AT&T WorldNet service offers a variety of pricing plan options,
including bundled options. Generally, customers are charged a flat rate for
unlimited hours, or a flat rate for a certain number of hours with charges for
each additional hour of usage.
AT&T WorldNet service's marketing programs are designed to attract and
retain profitable customers. AT&T seeks to build brand recognition and customer
loyalty and to make it easy for consumers to try, and stay with, AT&T WorldNet
service. In addition to direct marketing through brand name advertising, direct
mail and magazine insert promotions and bundling offers, AT&T WorldNet service
maintains a large indirect channel marketing effort. Through this indirect
channel AT&T WorldNet service software is bundled in new computers produced by
major manufacturers, and is included on millions of software titles published by
independent software vendors.
AT&T Business Internet Services
AT&T WorldNet Business Services provides IP connectivity and IP
value-added services, messaging, and electronic commerce services to businesses.
AT&T offers Managed Internet Service, which gives customers dedicated,
high-speed access to the public Internet for business applications at a variety
of speeds and types of access, as well as Business Dial Service, a dial-up
version of Internet access designed to meet the needs of small- and medium-sized
businesses.
AT&T Virtual Private Network (VPN) Service allows businesses to obtain
remote access to e-mail, order entry systems, employee directories, human
resources and other databases, or to create an Intranet and extranets with their
clients, suppliers and business partners, and enables customers to tailor their
VPNs to accommodate specific business applications, performance requirements or
the need to integrate with existing data networks.
AT&T Web Site Services are a family of hosting and transaction services
and platforms serving the web needs of thousands of businesses. Offers include
AT&T Shared Hosting Services, an economical way for businesses to establish a
presence on the World Wide Web, and AT&T Enhanced Web Development Package for
businesses that want to create web sites that require higher performance and
greater user demand. AT&T Dedicated Hosting Service provides customizable and
pre-packaged Web hosting solutions. AT&T SecureBuySM Service provides the
backoffice infrastructure required to electronically process credit card
transactions online, high-speed links into two of the leading credit card
processing services, and management reports that measure a site's success.
Other IP services AT&T offers let Web site visitors click on a "call me
now" icon if they wish to speak to a customer service agent; connect enterprise
networks that use host or LAN-based and browser-based e-mail systems to AT&T's
value-added messaging services such as e-mail and fax; and enhanced fax
services.
<PAGE>
International
AT&T has established a number of international alliances to increase
the reach and scope of AT&T's services and network over time and has invested in
certain countries in order to increase the range of services AT&T offers in
those countries. For example, in early 1997 AT&T's joint venture in Mexico,
Alestra, began offering long distance service.
In addition, on July 26, 1998, AT&T and BT announced that they will
create a global venture to serve the communications needs of multinational
companies and the international calling needs of businesses around the world.
The venture, which will be owned equally by AT&T and BT, will combine
trans-border assets and operations of each company, including their existing
international networks, all of their international traffic, all of their
transborder products for business customers -- including an expanding set of
Concert services -- and AT&T and BT's multinational accounts in selected
industry sectors. The formation of the venture is subject to certain conditions,
and is expected to be completed by mid-1999.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
Telecommunications Act of 1996
In February 1996, the Telecommunications Act became law. The
Telecommunications Act, among other things, was designed to foster local
exchange competition by establishing a regulatory framework to govern new
competitive entry in local and long distance telecommunications services. The
Telecommunications Act will permit the Regional Bell Operating Companies (RBOCs)
to provide interexchange services originating in any state in its region after
demonstrating to the FCC that such provision is in the public interest and
satisfying the conditions for developing local competition established by the
Telecommunications Act.
In August 1996, the FCC adopted rules and regulations, including
pricing rules (the "Pricing Rules") to implement the local competition
provisions of the Telecommunications Act, including with respect to the terms
and conditions of interconnection with LEC networks and the standards governing
the purchase of unbundled network elements and wholesale services from LECs.
These implementing rules rely on state public utilities commissions to develop
the specific rates and procedures applicable to particular states within the
framework prescribed by the FCC.
On July 18, 1997, the United States Court of Appeals for the 8th
Circuit issued a decision holding that the FCC lacks authority to establish
pricing rules to implement the sections of the local competition provisions of
the Telecommunications Act applicable to interconnection with LEC networks and
the purchase of unbundled network elements and wholesale services from LECs.
Accordingly, the Court vacated the rules that the FCC had adopted in August
1996, and which had been stayed by the Court since September 1996. On October
14, 1997, the 8th Circuit Court of Appeals vacated an FCC Rule that had
prohibited incumbent LECs from separating network elements that are combined in
the LEC's network, except at the request of the competitor purchasing the
elements. This decision increased the difficulty and costs of providing
competitive local service through the use of unbundled network elements
purchased from the incumbent LECs.
On January 25, 1999, the Unites States Supreme Court issued a decision
reversing the 8th Circuit Court of Appeal's holding that the FCC lacks
<PAGE>
jurisdiction to establish pricing rules applicable to interconnection and the
purchase of unbundled network elements, and the Court of Appeal's decision to
vacate the FCC's rule prohibiting incumbent LECs from separating network
elements that are combined in the LEC's network. The effect of the Supreme
Court's decision is to reinstate the FCC's rules governing pricing and the
separation of unbundled network elements. The 8th Circuit Court of Appeals will
now consider the incumbent LECs' claims that although the FCC has jurisdiction
to adopt pricing rule, the rules it adopted are not consistent with the
applicable provisions of the Act. The Supreme Court also vacated the FCC's rule
identifying and defining the unbundled network elements that incumbent LECs are
required to make available to new entrants, and directed the FCC to reexamine
this issue in light of the standards mandated by the Act.
In view of the proceedings pending before the 8th Circuit, FCC and
state PUCs, there can be no assurance that the prices and other conditions
established in each state will provide for effective local service entry and
competition or provide AT&T with new market opportunities.
On December 31, 1997, the U.S. District Court for the Northern District
of Texas issued a memorandum opinion and order holding that the
Telecommunications Act's restrictions on the provision of in-region, interLATA
service by the RBOCs are unconstitutional. AT&T and other carriers and the FCC
filed prompt appeals with the United States Court of Appeals for the 5th
Circuit. On February 11, 1998, the District Court stayed the effectiveness of
its December 31 memorandum opinion and order pending appeal.
On September 4, 1998, the United States Court of Appeals for the 5th
Circuit rejected arguments that the Telecommunications Act is
unconstitutional, and reversed the district court's contrary opinion. On
December 22, 1998, the United States Court of Appeals for the District of
Columbia Circuit rejected a similar challenge to the constitutionality of the
Telecommunications Act. On January 19, 1999, the United States Supreme Court
denied petitions filed by the RBOCs to review the decision of the 5th Circuit
Court of Appeals.
Modification of Final Judgment of 1982
Prior to 1996, AT&T and the RBOCs were subject to the provisions of the
Modification of Final Judgment of 1982 (MFJ) since its implementation. The
Telecommunications Act effectively superseded future operation of the MFJ.
Consequently, on April 11, 1996, Judge Harold Greene issued an order terminating
the MFJ.
Regulation of Rates
AT&T is subject to the jurisdiction of the FCC with respect to
interstate and international rates, lines and services, and other matters. From
July 1989 to October 1995, the FCC regulated AT&T under a system known as "price
caps" whereby AT&T's prices, rather than its earnings, were limited. On October
12, 1995, recognizing a decade of enormous change in the long distance market
and finding that AT&T lacked market power in the interstate long distance
market, the FCC reclassified AT&T as a "non-dominant" carrier for its domestic
interstate services. As a result, AT&T became subject to the same regulations as
its long distance competitors for such services. Thus, AT&T was no longer
subject to price cap regulation for these services, was able to file tariffs
that are presumed lawful on one day's notice, and was free of other regulations
and reporting requirements that apply only to dominant carriers.
<PAGE>
In addition, on October 31, 1996, the FCC issued an order that would
have prohibited non-dominant carriers, including AT&T, from filing tariffs for
their domestic interstate services. AT&T and other parties have filed an appeal
of the FCC's order with the United States Court of Appeals for the D.C. Circuit.
In February 1997, the D.C. Circuit stayed the effectiveness of the FCC's order
pending appeal. Oral argument has not yet been scheduled. If the Court affirms
the FCC's order and lifts the stay, non-dominant carriers, including AT&T, will
have to utilize mechanisms other than tariffs to establish the terms and
conditions that apply to domestic, interstate telecommunications services.
Furthermore, in May 1997, the FCC adopted three orders relating to
Price Caps, Access Reform, and Universal Service that substantially revised the
level and structure of access charges that AT&T as a long distance carrier pays
to incumbent LECs. AT&T has agreed to pass through to consumers any savings to
AT&T as a result of access charge reform. AT&T began implementing these
reductions July 15, 1997. Consequently, AT&T's results after June 1997 reflects
lower revenues per minute of usage and lower access and other interconnection
costs per minute of usage.
The Price Cap Order requires LECs to reduce their price cap indices by
6.5 percent annually, less an adjustment for inflation, which is likely to
result in a reduction in the interstate access charges that long distance
carriers, such as AT&T, pay to LECs. The Access Charge Reform Order restructured
access charges so that certain costs that do not vary with usage will be
recovered on a flat-rate basis and permitted increased flat-rate assessments on
multiline business customers and on residential lines beyond the primary
telephone line. This restructuring allows a reduction in access charges assessed
on long distance carriers on a usage basis. Finally, the Universal Service Order
(which represents an FCC mandated contribution to support schools and libraries
and rural health care programs, high cost support and low income support
mechanisms which are paid to the Universal Service Administrative Company)
adopts a new mechanism for funding universal service which expands the set of
carriers that must contribute to support universal service from only long
distance carriers to all carriers, including LECs, that provide interstate
telecommunications services. Similarly, the set of carriers eligible for the
universal service support has been expanded from only LECs to any eligible
carrier providing local service to a customer, including AT&T as a new entrant
in local markets. The Universal Service Order also adopted measures to provide
discounts on telecommunications services, Internet access and inside wire to
eligible schools and libraries and rural health carrier providers.
AT&T remains subject to the statutory requirements of Title II of the
Communications Act. AT&T must offer service under rates, terms and conditions
that are just, reasonable and not unreasonably discriminatory; it is subject to
the FCC's complaint process, and it must give notice to the FCC and affected
customers prior to discontinuance, reduction, or impairment of service. AT&T has
also made certain commitments that address concerns that had been raised with
regard to the potential impact of declaring AT&T to be non-dominant, including a
three-year rate assurance for low income and low usage residential users and a
three-year limit on, and 5 days advance notice for, rate increases on 800
directory assistance and analog private line services.
AT&T's international private line services have been classified as
non-dominant for several years. AT&T's switched international services have
become subject to increased competition, similar to its domestic services and on
May 9, 1996, the FCC adopted an order reclassifying AT&T as a non-dominant
carrier for such services. AT&T has made certain voluntary commitments that
address issues raised in that proceeding, including commitments: (i) to maintain
<PAGE>
its annual average revenues per minute for international residential calls at or
below the 1995 level through May 9, 1999, and in the event of a significant
change that substantially raises AT&T's costs, to provide the FCC five business
days notice prior to implementing rate increases that would raise the annual
average revenues per minute for such calls above the 1995 level; and (ii) to
maintain certain discount calling plans providing at least a 15% discount off
basic pricing schedules until May 9, 1999. AT&T also made voluntary commitments
relating to its operation of international cable facilities, its negotiation of
settlement agreements with foreign carriers and its relationship with foreign
partners.
In addition to the matters described above with respect to the
Telecommunications Act, state public service commissions or similar authorities
having regulatory power over intrastate rates, lines and services and other
matters regulate AT&T's local and intrastate communications services. The system
of regulation used in many states is rate-of-return regulation. In recent years,
many states have adopted different systems of regulation, such as: complete
removal of rate-of-return regulation, pricing flexibility rules, price caps and
incentive regulation.
Wireless Regulatory Environment
Wireless Services' operations (cellular and PCS) are licensed and
regulated by the FCC. The licenses must be renewed periodically. Furthermore, if
a licensee fails to provide service to a specified percentage of the population
in the licensed area, the FCC may reduce the size of the licensed area to that
which is receiving service. Wireless Services does not foresee difficulties with
renewals or risks of license restrictions that would have a material impact on
the performance of its wireless businesses.
Currently, the FCC limits wireless operators to holding a maximum of 45
MHz of cellular, broadband PCS or specialized mobile radio (SMR) licenses in a
single market. However, the FCC recently opened a proceeding to examine whether
to modify or abolish its spectrum cap policy.
The FCC has exclusive jurisdiction to regulate rates and entry for
wireless services and currently does so by permitting competitive market forces
to operate. However, in addition to the licensing rules specified above, the FCC
has imposed a number of other regulatory obligations on wireless carriers. It
requires wireless carriers, as well as other telecommunications carriers, to
remit a portion of their revenues to a federal Universal Service Fund, which is
designed to promote the availability of affordable local telephone service, the
FCC has issued regulations pursuant to the Telecommunications Act that require
the industry to implement local number portability by March 31, 2000. The FCC is
planning to issue rules that would implement provisions of the
Telecommunications Act that require all telecommunications carriers to make
their services accessible to individuals with disabilities if readily
achievable. Similarly, the FCC has required wireless carriers to ensure that
customers using TTY devices (i.e., teletype devices used by the deaf) can call
emergency services (e.g., calls to 911) over wireless digital service as well as
over analog services. The FCC also has specified the technical services that
wireless carriers must provide in order to support electronic wiretapping by law
enforcement authorities pursuant to Communications Assistance to Law Enforcement
Act of 1994. It may not be practicable for Wireless Services or the industry to
meet certain of the deadlines that have been established by the FCC and
investments will be required to comply with the relevant regulations. However,
the FCC is reviewing petitions that have been filed by Wireless Services and by
other members of the wireless industry to postpone compliance dates and modify
regulations that would minimize the burden and expense of compliance.
<PAGE>
State and local governments are preempted from regulating either market
entry by, or the rates of, cellular and PCS operators. However, state
governments can regulate other terms and conditions of wireless service and
several states have imposed (or have proposed legislation that will impose)
various consumer protection regulations on the wireless industry. States may
also impose their own universal service support regimes on wireless and other
telecommunications carriers, similar to the requirements that have been
established by the FCC. At the local level, wireless facilities are typically
subject to zoning and land use regulation. However, under the federal
Telecommunications Act, neither local nor state governments may categorically
prohibit the construction of cellular or broadband PCS facilities in any
community.
Cable Regulation and Legislation
The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The
Telecommunications Act removes barriers to competition in both the cable
television market and the local telephone market and reduces the scope of cable
rate regulation.
The Telecommunications Act requires the FCC to implement numerous
rulemakings, the final outcome of which cannot yet be determined due to court
challenges. Moreover, Congress and the FCC have frequently revisited the subject
of cable television regulation and may do so again. Future legislative and
regulatory changes could adversely affect TCI Group's operations. This section
briefly summarizes key laws and regulations currently affecting the growth and
operation of TCI Group's cable systems.
Cable Rate Regulation. The 1992 Cable Act imposed extensive rate
regulation on the cable television industry. All cable systems are subject to
rate regulation of their basic and upper tier programming services, as well as
their provision of customer equipment used to receive basic tier services,
unless they face "effective competition" in their local franchise area. Under
the 1992 Cable Act, the incumbent cable operator can demonstrate effective
competition by showing either low penetration (less than 30% of the occupied
households in the franchise area subscribe to basic service), or the presence
(measured collectively as 50% availability, 15% customer penetration) of other
multichannel video programming distributors (MVPDs). The Telecommunications Act
expands the existing definition of effective competition to create a special
test for a competing MVPD (other than a direct broadcast satellite (DBS)
distributor) affiliated with a LEC. There is no penetration minimum for a LEC
affiliate to qualify as an effective competitor, but it must offer comparable
programming services in the franchise area.
Although the FCC establishes all cable rate rules, local government
units (commonly referred to as local franchising authorities or LFAs) are
primarily responsible for administering the regulation of the lowest level of
cable -- the basic service tier (BST), which typically contains local broadcast
stations and PEG access channels. Before an LFA begins BST rate regulation, it
must certify to the FCC that it will follow applicable federal rules, and many
LFAs have voluntarily declined to exercise this authority. LFAs also have
primary responsibility for regulating cable equipment rates. Under federal law,
charges for various types of cable equipment must be unbundled from each other
and from monthly charges for programming services, and priced no higher than the
operator's actual cost, plus an 11.25% rate of return.
The FCC itself directly administers rate regulation of any cable
programming service tiers (CPST), which typically contain satellite-delivered
<PAGE>
programming. Under the Telecommunications Act, the FCC can regulate CPST rates
only if an LFA first receives at least two complaints from local customers
within 90 days of a CPST rate increase and then files a formal complaint with
the FCC. When new CPST rate complaints are filed, the FCC now considers only
whether the incremental increase is justified and will not reduce the previously
established CPST rate.
Under the FCC's rate regulations, TCI Group was required to reduce its
BST and CPST rates in 1993 and 1994, and has since had its rate increases
governed by a complicated price structure that allows for the recovery of
inflation and certain increased costs, as well as providing some incentive for
expanding channel carriage. The FCC has modified its rate adjustment regulations
to allow for annual rate increases and to minimize previous problems associated
with delays in implementing rate increases. Operators also have the opportunity
of bypassing this "benchmark" structure in favor of traditional cost-of-service
regulation in cases where the latter methodology appears favorable. However, the
FCC significantly limited the inclusion in the rate base of acquisition costs in
excess of the historical cost of tangible assets. As a result, TCI Group pursued
cost of service justifications in only a few cases. Premium cable services
offered on a per channel or per program basis remain unregulated, as do
affirmatively marketed packages consisting entirely of new programming product.
The Telecommunications Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. However, certain members of
Congress and FCC officials have called for the delay of this regulatory sunset
and further have urged more rigorous rate regulation (including limits on
programming cost pass-throughs to cable customers) until a greater degree of
competition to incumbent cable operators has developed. The Telecommunications
Act also relaxes existing uniform rate requirements by specifying that uniform
rate requirements do not apply where the operator faces effective competition,
and by exempting bulk discounts to MDUs, although complaints about predatory
pricing in MDUs still may be made to the FCC.
Cable Entry Into Telecommunications. The Telecommunications Act
provides that no state or local laws or regulations may prohibit or have the
effect of prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way.
Although the Telecommunications Act clarifies that traditional cable franchise
fees may be based only on revenues related to the provision of cable television
services, it also provides that LFAs may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The Telecommunications Act
prohibits LFAs from requiring cable operators to provide telecommunications
service or facilities as a condition of a franchise grant, renewal or transfer,
except that LFAs argue they can seek "institutional networks" as part of such
franchise negotiations. The favorable pole attachment rates afforded cable
operators under federal law can be increased by utility companies owning the
poles during a five year phase-in period beginning in 2001, if the cable
operator provides telecommunications service, as well as cable service, over its
plant.
Telephone Company Entry Into Cable Television. The Telecommunications
Act allows telephone companies to compete directly with cable operators by
repealing the historic telephone company/cable company cross-ownership ban and
the FCC's video dialtone regulations. This will allow LECs, including the RBOCs,
<PAGE>
to compete with cable operators both inside and outside their telephone service
areas. Because of their resources, LECs could be formidable competitors to
traditional cable operators, and certain LECs have begun offering cable service.
Under the Telecommunications Act, a LEC or other entity providing video
programming to customers will be regulated as a traditional cable operator
(subject to local franchising and federal regulatory requirements), unless it
elects to provide its programming via an "open video system" (OVS). It was
anticipated that the primary benefit of using an OVS regulatory model was to
avoid the need to obtain a local franchise prior to providing services. However,
a January 1999 federal court of appeals decision held that OVS providers can be
required to obtain such a franchise. To be eligible for OVS status, the provider
cannot occupy more than one-third of the system's activated channels when demand
for channels exceeds supply. Nor can it discriminate among programmers or
establish unreasonable rates, terms or conditions for service.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibitions remain on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures among cable
operators and LECs in the same market. The Telecommunications Act provides a few
limited exceptions to this buyout prohibition.
Electric Utility Entry Into Telecommunications/Cable Television. The
Telecommunications Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, information services, and
other services or products subject to the jurisdiction of the FCC,
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. Again, because of
their resources, electric utilities could be significant competitors.
Additional Ownership Restrictions. Pursuant to the 1992 Cable Act, the
FCC adopted regulations establishing a 30% limit on the number of homes
nationwide that a cable operator may reach through cable systems in which it
holds an attributable interest with an increase to 35% if the additional cable
systems are minority controlled. The FCC stayed the effectiveness of its
ownership limits pending the appeal of a September 16, 1993 decision by the
United States District Court for the District of Columbia which, among other
things, found unconstitutional the provision of the 1992 Cable Act requiring the
FCC to establish such ownership limits. If the ownership limits are determined
on appeal to be constitutional, they may affect TCI Group's ability to acquire
attributable interests in additional cable systems. The FCC is currently
conducting a reconsideration of its national customer limit rules, and it is
possible the FCC will revise both the national customer reach percentage
limitation and/or the manner in which it attributes ownership to a cable
operator. Either of these revisions, which are expected to be completed in 1999,
could adversely affect various joint ventures, partnerships and equity ownership
arrangements announced by TCI Group in 1997 and 1998 in TCI Group's effort to
reduce the number of cable systems over which it has control and management
responsibility.
The FCC also adopted regulations limiting carriage by a cable operator
of national programming services in which that operator holds an attributable
interest (using the same attribution standards as were adopted for its limits on
the number of homes nationwide that a cable operator may reach through its cable
systems) to 40% of the activated channels on each of the cable operator's
systems. The rules provide for the use of two additional channels or a 45%
<PAGE>
limit, whichever is greater, provided that the additional channels carry
minority controlled programming services. The regulations also grandfather
existing carriage arrangements which exceed the channel limits, but require new
channel capacity to be devoted to unaffiliated programming services until the
system achieves compliance with the regulations. These channel occupancy limits
apply only up to 75 activated channels on the cable system, and the rules do not
apply to local or regional programming services.
The Telecommunications Act eliminates statutory restrictions on
broadcast/cable cross-ownership (including broadcast network/cable
restrictions), but leaves in place existing FCC regulations prohibiting local
cross-ownership between television stations and cable systems. The
Telecommunications Act leaves in place existing restrictions on cable
cross-ownership with Satellite Master Antenna Television (SMATV) and
multi-channel multi-point distribution systems (MMDS) facilities, but lifts
those restrictions where the cable operator is subject to effective competition.
In January 1995, however, the FCC adopted regulations which permit cable
operators to own and operate SMATV systems within their franchise area, provided
that such operation is consistent with local cable franchise requirements.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect must carry, and more popular
stations typically elect retransmission consent. Must carry requests can dilute
the appeal of a cable system's programming offerings, and retransmission consent
demands may require substantial payments or other concessions (e.g. a
requirement that the cable system also carry the local broadcaster's affiliated
cable programming service). Either option has a potentially adverse effect on
TCI Group's business. The burden associated with must-carry obligations could
dramatically increase if television broadcast stations proceed with planned
conversions to digital transmissions and if the FCC determines in a pending
rulemaking that cable systems must carry all analog and digital signals
transmitted by the television stations.
Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for PEG access programming. Federal law
also requires a cable system with 36 or more channels to designate a portion of
its activated channel capacity (either 10% or 15%) for commercial leased access
by unaffiliated third parties. The FCC has adopted rules regulating the terms,
conditions and maximum rates a cable operator may charge for use of this
designated channel capacity, but use of commercial leased access channels has
been relatively limited. In February of 1997, the FCC released revised rules
which mandated a modest rate reduction that has made commercial leased access a
more attractive option for third party programmers, particularly for part-time
leased access carriage.
"Anti-Buy Through" Provisions. Federal law requires each cable system
to permit customers to purchase premium or pay-per-view video programming
offered by the operator on a per-channel or a per-program basis without the
necessity of subscribing to any tier of service (other than the basic service
tier) unless the system's lack of addressable converter boxes or other
technological limitations does not permit it to do so. The statutory exemption
for cable systems that do not have the technological capability to comply
expires in October 2002, but the FCC may extend that period if deemed necessary.
<PAGE>
Access to Programming. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes satellite video programmers affiliated with cable
operators from favoring cable operators over competing multichannel video
programming distributors (such as DBS and MMDS distributors). This provision
limits the ability of vertically integrated satellite cable programmers to offer
exclusive programming arrangements to TCI Group. Recently, both Congress and the
FCC have considered proposals that would expand the program access rights of
cable's competitors, including the possibility of subjecting both terrestrially
delivered video programming and video programmers who are not affiliated with
cable operators to all program access requirements.
Inside Wiring. In a 1997 Order, the FCC established rules that require
an incumbent cable operator upon expiration or termination of an MDU service
contract to sell, abandon, or remove "home run" wiring that was installed by the
cable operator in a MDU building. These inside wiring rules will assist building
owners in their attempts to replace existing cable operators with new video
programming providers who are willing to pay the building owner a higher fee.
Additionally, the FCC has proposed abrogating all exclusive MDU contracts held
by cable operators, but at the same time allowing competitors to cable to enter
into exclusive MDU service contracts.
Internet Service Regulation. Although there is no significant federal
regulation of cable system delivery of internet services at the current time,
and the FCC recently issued a report to Congress finding no immediate need to
impose such regulation, this situation may change as cable systems expand their
broadband delivery of internet services. In particular, proposals have been
advanced at the FCC that would require cable operators to provide access to
unaffiliated internet service providers and online service providers. Certain
internet service providers also are attempting to use existing commercial leased
access provisions of the Telecommunications Act to gain access to cable system
delivery. Finally, some local franchising authorities are considering the
imposition of mandatory internet access requirements as part of cable franchise
renewals or transfer approvals.
Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, customer privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. FCC requirements
imposed in 1997 for Emergency Alert Systems and for hearing-impaired Closed
Captioning on programming will result in new and potentially significant costs
for TCI Group. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
The FCC recently completed a rulemaking designed to encourage and
facilitate third-party sale of cable converters to cable customers.
<PAGE>
Specifically, the FCC requires cable operators to segregate security functions
of set top boxes from all other functions by July 1, 2000. Additionally, as of
January 1, 2005, cable operators can no longer lease or sell converter set top
boxes that have integrated security and navigation functions. The result of this
rulemaking is that cable subscribers will not necessarily obtain their set top
boxes from the cable operator, but, instead, may purchase such set top boxes
from third-party vendors. Such third-party sales of previously unmodified cable
set top boxes could make it more difficult for cable operators to combat theft
of service.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenue to a federal copyright royalty pool (such percentage varies depending on
the size of the system and the number of distant broadcast television signals
carried), cable operators can obtain blanket permission to retransmit
copyrighted material on broadcast signals. The possible modification or
elimination of this compulsory copyright license is subject to continuing review
and could adversely affect TCI Group's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to
Broadcast Music, Inc. and is negotiating a similar arrangement with the American
Society of Composers, Authors and Publishers. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity. The Telecommunications Act clarified that the
need for an entity providing cable services to obtain a local franchise depends
solely on whether the entity crosses public rights of way. Federal law now
prohibits franchise authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area. Cable franchises generally are granted for fixed terms
and in many cases are terminable if the franchisee fails to comply with material
provisions. Non-compliance by the cable operator with franchise provisions may
also result in monetary penalties.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenue, cannot dictate the particular technology used by the
system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees and funding for PEG channels as a condition of renewal.
Similarly, if a franchise authority's consent is required for the purchase or
sale of a cable system or franchise, such authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a request for
<PAGE>
consent. Historically, franchises have been renewed for cable operators that
have provided satisfactory services and have complied with the terms of their
franchises.
COMPETITION
Competition in communications services is based on price and pricing
plans, the types of services offered, customer service, access to customer
premises, and communications quality, reliability and availability, as well as,
for business customers, the ability to provide high quality data communication
services and technical support. AT&T's principal competitors include
MCIWorldcom, Inc. and Sprint Corporation, for long distance, and the RBOCs and
GTE Corporation, for local services. AT&T also experiences significant
competition in long-distance from dial around resellers.
The ILECs have very substantial capital and other resources, long
standing customer relationships and extensive existing facilities and network
rights-of-way and are AT&T's primary competitors in the local services market.
In addition, it is anticipated that a number of long distance telecommunication,
wireless and cable service providers and others will enter the local services
market in competition with AT&T. Some of these potential competitors have
substantial financial and other resources. AT&T will also compete in the local
services market with a number of CLECs, a few of which have existing local
networks and significant financial resources.
Wireless Services' primary competitors are AirTouch Communications,
Inc., BellSouth Corporation, Ameritech Corp., Bell Atlantic Mobile Systems Inc.,
GTE Corporation, SBC Communications Inc., Sprint PCS, Inc. and Nextel
Communication, Inc. Competition is principally on the basis of service quality,
service offering and packaging capability, price and coverage area. Wireless
Services' cellular operations have always experienced direct competition from
the second cellular licensee in each market. Beginning in 1997, Wireless
Services began experiencing competition from as many as six license holders in
certain markets. Competition from new providers in Wireless Services' markets
will continue to increase as the networks of license holders are built out over
the next several years. While Wireless Services will continue to build out its
wireless network, there is no assurance that Wireless Services will be able to
continue to do so in a reasonable and economical manner as new entrants lower
rates and the cost of construction permits and licenses rise. In addition, as
the number of new entrants in Wireless Services' markets increases, AT&T
anticipates that there may be increased pressure to reduce prices, which may
adversely affect margins.
Cable television competes for customers in local markets with other
providers of entertainment, news and information. The competitors in these
markets include broadcast television and radio, newspapers, magazines and other
printed material, motion picture theatres, video cassettes and other sources of
information and entertainment including directly competitive cable television
operations and internet service providers. The Cable Acts are designed to
increase competition in the cable television industry. There are alternative
methods of distributing the same or similar video programming offered by cable
television systems. These include DBS (allowing the subscriber to receive video
services directly via satellite using a relatively small dish), telephone
networks (whether it is through wireless cable, or through upgraded telephone
networks), utility company networks, MMDS (which deliver programming services
over microwave channels received by customers with special antennas),
competitive, non-exclusive franchises, city provided cable services, SMATV
systems (which provide multichannel program services directly to hotel, motel,
<PAGE>
apartment, condominium and similar multi-unit complexes within a cable
television system's franchise area, generally free of any regulation by state
and local governmental authorities). In addition to competition for customers,
the cable television industry competes with broadcast television, radio, the
print media and other sources of information and entertainment for advertising
revenue.
AT&T currently faces significant competition and expects that the level
of competition will continue to increase. As competitive, regulatory and
technological changes occur, including those occasioned by the
Telecommunications Act, AT&T anticipates that new and different competitors will
enter and expand their position in the communications services markets. These
may include entrants from other segments of the communications and information
services industry or global competitors seeking to expand their market
opportunities. Many such new competitors are likely to enter with a strong
market presence, well recognized names and pre-existing direct customer
relationships.
The Telecommunications Act has already impacted the competitive
environment. Anticipating changes in the industry, non-RBOC LECs, which are not
required to implement the Telecommunications Act's competitive checklist prior
to offering long distance in their home markets, have begun integrating their
local service offerings with long distance offerings in advance of AT&T being
able to offer combined local and long distance service in these areas, adversely
affecting AT&T's revenues and earnings in these service regions. In addition,
mergers, such as the proposed Bell Atlantic/GTE merger, could accelerate RBOC
entry into long distance.
In addition, the Telecommunications Act will permit RBOCs to provide
interLATA interexchange services after demonstrating to the FCC that such
provision is in the public interest and satisfying the conditions for developing
local competition established by the Telecommunications Act. The RBOCs have
petitioned the FCC for permission to provide interLATA interexchange services in
one or more states within their home market; to date the FCC has not granted any
petition. To the extent that the RBOCs obtain in-region interLATA authority
before the Telecommunications Act's checklist of conditions have been fully or
satisfactorily implemented and adequate facilities-based local exchange
competition exists, there is a substantial risk that AT&T and other
interexchange service providers would be at a disadvantage to the RBOCs in
providing both local service and combined service packages. Because it is widely
anticipated that substantial numbers of long distance customers will seek to
purchase local, interexchange and other services from a single carrier as part
of a combined or full service package, any competitive disadvantage, inability
to profitably provide local service at competitive rates or delays or
limitations in providing local service or combined service packages could
adversely affect AT&T's future revenues and earnings. In any event, the
simultaneous entrance of numerous new competitors for interexchange and combined
service packages is likely to adversely affect AT&T's future long distance
revenues and could adversely affect future earnings.
Furthermore, in February 1997, a General Agreement on Trade in Services
(GATS) was reached under the World Trade Organization. The GATS, which
became effective January 1, 1998, is designed to open each country's domestic
telecommunications markets to foreign competitors. The GATS, and future trade
agreements, may accelerate the entrance into the U.S. market of foreign
telecommunications providers, certain of whom are likely to possess dominant
home market positions in which there is not effective competition. The GATS may
<PAGE>
also permit AT&T's entrance into other markets as only a small number of
countries refused to eliminate their foreign ownership restrictions.
In addition to the matters referred to above, various other factors,
including technological hurdles, market acceptance, start-up and ongoing costs
associated with the provision of new services and local conditions and
obstacles, could adversely affect the timing and success of AT&T's entrance into
the local exchange services market and AT&T's ability to offer combined service
packages that include local service.
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this Report on Form 10-K constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Any Form 10-K, Annual Report
to Shareholders, Form 10-Q or Form 8-K of AT&T may include forward looking
statements. In addition, other written or oral statements which constitute
forward looking statements have been made and may in the future be made by or on
behalf of AT&T, including statements concerning future operating performance,
AT&T's share of new and existing markets, AT&T's short- and long-term revenue
and earnings growth rates, and general industry growth rates and AT&T's
performance relative thereto. These forward looking statements rely on a number
of assumptions concerning future events, including the outcome of litigation,
the adoption and implementation of balanced and effective rules and regulations
by the FCC and the state public regulatory agencies, and AT&T's ability to
achieve a significant market penetration in new markets. These forward looking
statements are subject to a number of uncertainties and other factors, many of
which are outside AT&T's control, that could cause actual results to differ
materially from such statements. These factors include, but are not limited to:
- - the adoption and implementation of balanced and effective rules and
regulations by the FCC and state regulatory agencies to implement the provisions
of the Telecommunications Act; the outcome of litigation relative thereto; and
the impact of regulatory changes relating to access reform, the unbundling of
cable facilities and international settlement reform;
- - success and market acceptance for new initiatives, including the launch of
cable telephony, many of which are untested; the level and timing of the growth
and profitability of new initiatives; start-up costs associated with entering
new markets, including advertising and promotional efforts; successful
deployment and technological implementations of new systems and applications to
support new initiatives; the ability to address the needs of customers for
broadband and Internet access; and local conditions and obstacles;
- - competitive pressures, including pricing pressures, alternative routing
developments, and the ability to offercombined service packages that include
local service; technological developments, including the rate of technological
advances in, and implementation of, internet telephony services that compete
with traditional telephony services; the extent and pace at which different
competitive environments develop for each segment of the telecommunications
industry; the extent at and duration for which competitors from each segment of
the telecommunications industry are able to offer combined or full service
packages prior to AT&T being able to; and the degree to which AT&T experiences
material competitive impacts to its traditional service offerings prior to
achieving adequate local service entry;
- - the availability, terms and deployment of capital; the impact of regulatory
and competitive developments on capital outlays; the ability to achieve cost
<PAGE>
savings and realize productivity improvements; the ability to effectively
integrate TCI's and TCG's operations with AT&T; the ability to realize
cost-saving and revenue synergies from the TCI merger and TCG merger; the
ability to successfully implement the BT, Time Warner and cable operator joint
ventures; the ability to expand the cable footprint and the wireless footprint
in an economical and expeditious manner; and the ability to enter into
agreements which provide for reasonable roaming rates for wireless services; and
- - the ability to attract and retain qualified management employees in all key
areas of the business; general economic conditions, government and regulatory
policies, and business conditions in the communications industry.
Readers are cautioned not to put undue reliance on such forward looking
statements. For a more detailed description of these and additional
uncertainties and other factors that could cause actual results to differ
materially from such forward looking statements, see "Results of Operations",
"Financial Condition", "Regulatory and Legislative Developments", and
"Competition" included in or incorporated by reference into this Form 10-K. As
described elsewhere in this Form 10-K, these uncertainties and factors could
adversely affect the timing and success of AT&T's entrance into the local
exchange services market and AT&T's ability to offer combined service packages
that include local service, thereby adversely affecting AT&T's future revenues
and earnings. AT&T disclaims any intention or obligation to update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise.
LIBERTY MEDIA GROUP
LIBERTY MEDIA GROUP
Programming Services
Liberty Media Group, through Liberty Media Corporation, and its
attributed subsidiaries and affiliates, produces, acquires and distributes
entertainment, sports and informational programming services, as well as
electronic retailing services. Such programming is delivered via cable
television and other distribution technologies to viewers in the United States
and overseas. Liberty Media Group's assets also include video and telephony
distribution businesses which operate in countries outside the United States.
Liberty Media Group's principal assets include interests in Encore Media Group
LLC, Discovery Communications, Inc., Fox/Liberty regional and national sports
networks, Time Warner Inc., QVC, Inc., and USA Networks, Inc. Liberty Media
Group also has interests in certain other domestic and international programming
networks and businesses.
Cable television networks distribute their programming via cable and
other distribution technologies, including direct-to-home satellite (DTH)
companies, broadcast television stations, SMATV systems, MMDS, and the Internet.
Both basic cable networks and pay television programming services generally
enter into separate multi-year agreements, known as "affiliation agreements,"
with operators of cable television systems, SMATV systems, MMDS and DTH
distribution companies that have agreed to carry such networks. With the
proliferation of new cable networks and services, competition for cable carriage
on the limited available channel capacity has intensified. Basic cable networks
generate their revenue principally from the sale of advertising time on the
networks and from receipt of monthly per subscriber fees paid by cable
operators, DTH distribution companies and other customers, who have contracted
to receive and distribute such networks. Pay-TV networks do not sell advertising
and generate their revenue principally from monthly subscriber fees.
<PAGE>
Relationship with the TCI Group. Most of the networks affiliated with
Liberty Media Group have entered into affiliation agreements with Satellite
Services, Inc. (TCI-SSI) a company within the TCI Group. TCI-SSI purchases
programming services from programming suppliers and then makes such services
available to cable television systems owned by or affiliated with the TCI Group
(TCI-SSI Affiliates). Customers served by TCI-SSI Affiliates (TCI-SSI
Subscribers) represented approximately 24% of U.S. households which received
cable or satellite delivered programming at December 31, 1998. The following
details each national network which had a number of TCI-SSI Subscribers, as a
percentage of total subscribers, in excess of 24% as of December 31, 1998: FX
(28%), Fox Sports World (64%), Fox Sports World Espanol (35%), and International
Channel (26%). Regional networks, such as Bay TV and the regional sports
networks may be disproportionately dependent on the predominant cable provider
in their region, whether a TCI-SSI Affiliate or an unaffiliated cable operator.
Therefore, where a TCI-SSI Affiliate is the predominant cable provider in the
region, the ratio of TCI-SSI Subscribers to overall subscribers to such networks
significantly exceeds 24%. For example, at December 31, 1998, approximately 87%
of the subscribers of Bay TV, a regional network for the San Francisco region,
were TCI-SSI Affiliates. Each of EMG and TCI Music, Inc. ("TCI Music") has
entered into long term, fixed rate affiliation agreements with the TCI Group
pursuant to which the TCI Group pays monthly fixed amounts in exchange for
unlimited access to certain programming services of such companies.
Programming Services
Encore Media Group LLC. EMG provides 25 channels of cable and
satellite-delivered premium movie services, including Encore, which
predominantly airs hit movies from the `60's, `70's and `80's as well as first
run movies; six thematic multiplexed channels--Love Stories, Westerns, Mystery,
Action, True Stories and WAM!, a 24-hour youth oriented education and
entertainment service; STARZ! a first-run movie service; STARZ!2, offering
"prime time movies all the time," and BET Movies/STARZ!3 featuring African
American actors and directors. EMG also offers MOVIEplex, a "theme by day"
channel featuring a different Encore or thematic multiplex channel each day, on
a weekly rotation.
Discovery Communications, Inc. ("Discovery") Discovery is the largest
originator of documentary, non-fiction programming in the world. Discovery
operates several business units. The first of these, Discovery Networks, US,
consists of four basic cable networks: Discovery Channel, The Learning Channel,
Animal Planet, and the recently acquired Travel Channel, and six networks
created for the digital platform: Discovery Science, Discovery Civilization,
Discovery Home & Leisure, Discovery Kids, Discovery Health and Discovery Wings.
Discovery Channel and The Learning Channel provide nature, science, technology
and other non-fiction programming, and are distributed in virtually all U.S.
pay-television homes. Animal Planet offers a range of animal programming,
including children's programs, game shows, feature films, wildlife documentaries
and how-to pet shows.
Discovery Networks International distributes various Discovery networks
in Latin America, Europe, Asia and Africa. Discovery's international networks
serve more than 66 million customers in more than 50 countries outside the
United States. Discovery Retail operates over 115 retail stores in the United
States and the United Kingdom. These include The Nature Company stores,
Discovery Channel Stores and one Discovery Channel Destination flagship store.
Discovery also markets and distributes BBC America, which launched in March
1998. Discovery recently purchased Eye on People, a 24-hour cable channel
focused on people and personalities, from CBS Corporation.
<PAGE>
Time Warner Inc. Time Warner has interests in four fundamental areas of
business: Entertainment, consisting primarily of interests in filmed
entertainment, television production, television broadcasting, recorded music
and music publishing; Cable Networks, consisting principally of interests in
cable television programming; Publishing, consisting principally of interests in
magazine publishing, book publishing and direct marketing; and Cable, consisting
principally of interests in cable television systems. Time Warner is a holding
company which derives its operating income and cash flow from its investments in
its direct subsidiaries, Time Warner Companies, Inc. and TBS.
In connection with the TBS/Time Warner Merger in which Liberty Media
Group received Time Warner common shares, Time Warner, TBS, TCI and Liberty
Media Group entered into an Agreement Containing Consent Order with the Federal
Trade Commission (FTC), dated August 14, 1996, as amended on September 4, 1996
(the FTC Consent Decree). Pursuant to the FTC Consent Decree, among other
things, Liberty Media Group agreed to exchange its shares of Time Warner common
stock for shares of a separate series of Time Warner common stock with limited
voting rights designated as Series LMCN-V common stock (the "TW Exchange
Stock"). The TW Exchange Stock entitles the holder to one one-hundredth
(1/100th) of a vote for each share with respect to the election of directors.
Liberty Media Group holds approximatley 114 million shares of the TW Exchange
Stock, which represent less than 1% of the voting power of Time Warner's
outstanding common stock. Each share of TW Exchange Stock is exchangeable, under
certain circumstances, for one share of Time Warner common Stock.
ACTV, Inc. On September 21, 1998 Liberty Media Group purchased a 7.5%
interest in ACTV, Inc., a company which produces tools for the creation of
programming that allows viewer participation for both television and internet
platforms.
BET Holdings II, Inc. (BET). BET's primary operations are conducted by
BET Cable Network, an advertiser-supported basic cable network which provides a
broad mix of music videos, off-network situation comedies and original
programming targeted to the interests and concerns of African American viewers.
BET also operates BET on Jazz featuring jazz concerts and music videos, as well
as BET Action Pay-Per-View, which distributes films produced by major studios
and independent film companies. In addition, BET has interests in magazine and
book publishing, as well as motion picture production.
Court TV. Court TV is a basic cable network which provides live and/or
tape delayed coverage and analysis of selected criminal and civil legal
proceedings.
TCI Music, Inc. TCI Music is a diversified music entertainment company
delivering audio and video music services to commercial and residential
customers via television, the Internet and other distribution technologies. TCI
Music's principal services include THE BOX, an interactive all music video
channel; Digital Music Express, a premium digital audio music service; and
SonicNet, a leading music site on the Internet.
E! Entertainment Television. E! Entertainment Television is a 24-hour
basic cable network devoted to the world of celebrities and entertainment. The
network's programming mix includes entertainment news reports, original
programs, and exclusive live coverage of major awards shows and celebrity
events.
International Cable Channels Partnership, Ltd. (ICCP). ICCP distributes
and markets ethnic programming in the United States. Its basic network,
<PAGE>
International Channel, provides news, sports, music, movies and general
entertainment programming from around the world in more than 20 different
languages. ICCP also operates Premium Networks, a digital tier of
single-language channels, such as Chinese and French. In addition, ICCP markets
and distributes Canales n, a newly launched digital tier of Spanish-language
cable television channels designed to serve the growing Latino market in the
United States.
Odyssey. Odyssey, a national basic cable network, provides viewers with
non-denominational religious and values-based entertainment and informational
programming. Hallmark Entertainment and The Jim Henson Company, both leaders in
the production of family entertainment, recently invested in Odyssey, reducing
the Liberty Media Group's ownership interest from 49% to approximately 33%. Both
Hallmark Entertainment and The Jim Henson Company will make their programming
available to Odyssey.
MacNeil/Lehrer Productions. MacNeil/Lehrer Productions is the primary
producer of the News Hour on the Public Broadcasting System and a producer of
other high-quality documentary and public affairs programming.
TV Guide, Inc. (formerly United Video Satellite Group, Inc.) is a media
and communications company engaged predominantly in providing print, passive and
interactive program listings guides to households, distributing superstation
programming to cable television systems and DTH satellite providers, and
marketing satellite delivered programming to C-band satellite dish owners.
On March 1, 1999, UVSG acquired Liberty Media Group's 40% interest in
Superstar/Netlink Group LLC (SNG), and Liberty Media Group's 100% interest in
Netlink USA in exchange for 12,750,000 shares of UVSG Class B Common Stock (the
Netlink Transaction). As a result of the Netlink Transaction, UVSG owns
approximately 80% of SNG which markets packages of satellite entertainment
programming to C-band satellite dish owners in North America. Netlink USA
uplinks the signals of six broadcast television stations to C-band packagers
such as SNG.
On the same date, UVSG acquired from TVG Holdings, Inc., an indirect
subsidiary of News Corp., the stock of News America Publications, Inc. and TVSM,
Inc. (the TV Guide Transaction). These entities publish TV Guide Magazine and
other printed television program listings guides and distribute, through the
internet, an entertainment service known as TV Guide Online. News Corp. received
consideration consisting of approximately 22.5 million shares of UVSG Class A
common stock, approximately 37.5 million shares of UVSG Class B common stock and
$800 million in cash. News Corp. then elected to purchase approximately 6.5
million additional shares of UVSG Class A Common Stock for approximately $129
million in cash to equalize its ownership with that of TCI.
Upon closing of the foregoing transactions, UVSG's name was changed to
TV Guide, Inc. TCI and News Corp. each owned approximately 44% of the issued and
outstanding common stock of UVSG and each owned approximately 49% of the total
voting power of UVSG. TCI's entire interest in UVSG is attributed to Liberty
Media Group and TCI Ventures Group.
USA Networks, Inc. USAi, formerly known as HSN, Inc., is a diversified
media and electronic commerce company that is engaged in five principal areas of
business: HSN, which primarily engages in the electronic retailing business;
Networks and television production, which operates the USA Network, a general
entertainment basic cable television network, and The Sci-Fi Channel, which
<PAGE>
features classic science fiction movies, science fact, fiction, movies and
original production; Studios USA, which produces and distributes television
programming; USA Broadcasting, which owns and operates a group of UHF and low
power television stations; Ticketmaster Group, Inc., which is the leading
provider of automated ticketing services in the United States; and Internet
services.
Liberty Media Group's interest in USAi consists of shares of USAi
common stock held by Liberty Media Group and its subsidiaries, shares of USAi
common stock held by certain entities in which Liberty Media Group has an equity
interest but only limited voting rights, and securities of certain subsidiaries
of USAi which are exchangeable for shares of USAi common stock. In general,
until the occurrence of certain events and with the exception of certain
negative controls, Mr. Barry Diller has voting power over Liberty Media Group's
interest in USAi.
Fox Sports Networks. In April 1996, Liberty Media Group and News Corp.,
formed Fox/Liberty Networks (Fox Sports), a joint venture to hold Liberty Media
Group's national and regional sports networks and the FX network. In December
1997, Fox Sports completed a series of transactions (the Rainbow Transactions)
with Rainbow Media Sports Holdings, Inc. (Rainbow) in which Fox Sports acquired
a 40% interest in Rainbow's eight regional sports networks, the Madison Square
Garden entertainment complex, Radio City Productions LLC, the New York Rangers,
a professional hockey team, and the New York Knicks, a professional basketball
team. As of December 31, 1998, Fox Sports owned interests in, or was affiliated
with, 24 regional sports networks, 17 of which operate under the Fox Sports
name. These regional sports networks have rights to telecast live games of
professional sports teams in the National Basketball Association, the National
Hockey League and/or Major League Baseball, and numerous collegiate sports
teams.
As part of the Rainbow Transaction, Fox Sports and Rainbow established
a 50-50 partnership to operate Fox Sports Net, which provides affiliated
regional sports networks, 24 hours per day, with national sports programming to
supplement their regional sports offerings. Fox Sports Net features live and
replayed sporting events, as well as other original sports programming,
including a national sports news program, Fox Sports News. Fox Sports and
Rainbow also established a national advertising representative firm to sell
advertising time during both the regional affiliates' local programming and
national network programming provided by Fox Sports Net.
Fox Sports also operates several national networks in addition to Fox
Sports Net, including FX, a general entertainment network which also carries
various sporting events; FiT TV, which features health and fitness programming;
Speedvision, which provides coverage of the automotive, motorcycle, aviation and
marine industries; and Outdoor Life Network, which is devoted to adventure,
wildlife and environmental issues and the outdoor lifestyle.
At the international level, Liberty Media Group and TINTA formed a
joint venture with News Corp. to hold their international sports interests.
These include Fox Sports World Espanol, a Spanish language sports network,
distributed in the United States and in Latin America, and STAR TV, a
satellite-delivered programming platform available to 220 million viewers in
Asia, India and the Middle East. Outside of the venture with News Corp., Liberty
Media Group and TINTA own an interest in J-Sports, a sports network in Japan
featuring coverage of SUMO wrestling, soccer, baseball and other international
sporting events; and Torneos y Competencias S.A. ("TyC"), Argentina's dominant
sports programming service. TyC also owns an interest in Canal 9, a general
<PAGE>
entertainment broadcast channel in Buenos Aires, Argentina which has become an
international superchannel, providing programming to the United States and, via
cable, to outlying areas of Argentina.
The sports programming networks typically enter into rights agreements
with one or more professional sports teams in their regions and acquire rights
to collegiate and other sporting events through arrangements with regional
conferences, individual schools, programming syndicators and event organizers.
Fox Sports also acquires national rights agreements with professional leagues,
such as Major League Baseball, and with regional collegiate conferences.
Programming acquired under national rights agreements may be exhibited on Fox
Sports Net and FX in addition to the regional sports networks. The duration of
the rights agreements with the professional teams ranges from one to 20 years.
The rights agreements for collegiate sporting events typically range from two to
10 years. Certain factors such as player strikes, bankruptcy of leagues or
individual teams or team relocations may have an adverse effect on the revenue
of the regional sports networks.
Telemundo. On August 12, 1998, Liberty Media Group, in a 50-50
partnership with Sony Pictures Entertainment, acquired 100% of the Telemundo
network and approximately 50% of the Telemundo station group. The Telemundo
network is a broadcast network which provides 24-hour Hispanic language
programming to 61 markets in the United States, including the 37 largest
Hispanic markets, and reaches approximately 85% of all Hispanic households in
the United States. The Telemundo station group owns and operates eight full
power UHF stations and 15 low power television stations serving some of the
largest Hispanic markets in the United States and Puerto Rico. While Liberty
Media Group has approximately a 25% interest in the Telemundo station group, its
voting power is less than 5% to meet certain regulatory requirements.
Electronic Retailing. Liberty Media Group has significant investments
in the two largest home shopping companies in the United States--QVC and HSN.
These companies market and sell a wide variety of consumer products and services
primarily by means of televised shopping programs on the QVC and HSN networks
and via the Internet through iQVC and Internet Shopping Network. QVC also
operates shopping networks in the United Kingdom and Germany, while HSN operates
home shopping networks in Japan and Germany.
TINTA. On November 19, 1998 TINTA completed its merger with a wholly
owned subsidiary of TCI and, as a result, TCI now owns 100% of TINTA. Prior to
the TINTA merger the TCI Ventures Group owned approximately 83% of TINTA's
Series A common stock and all of TINTA's Series B common stock. Following the
TINTA merger, approximately 85% of TINTA was attributed to the TCI Ventures
Group and 15% was attributed to the Liberty Media Group.
Regulation-Programming Companies
The FCC regulates the providers of satellite communications services
and facilities for the transmission of programming services, the cable
television systems that carry such services, and, to some extent, the
availability of the programming services themselves through its regulation of
program licensing. Cable television systems are also regulated by municipalities
or other state and local government authorities. Continued rate regulation or
other franchise conditions could place downward pressure on subscriber fees
earned by the programming companies described above in which Liberty Media Group
has interests (the Programming Companies) and regulatory carriage requirements
could adversely affect the number of channels available to carry the Programming
Companies.
<PAGE>
Regulation of Program Licensing. The 1992 Cable Act directed the FCC to
promulgate regulations regarding the sale and acquisition of cable programming
between multi-channel video programming distributors (including cable operators)
and satellite-delivered programming services in which a cable operator has an
attributable interest. The legislation and the implementing regulations adopted
by the FCC preclude virtually all exclusive programming contracts between cable
operators and satellite programmers affiliated with any cable operator (unless
the FCC first determines the contract serves the public interest) and generally
prohibit a cable operator that has an attributable interest in a satellite
programmer from improperly influencing the terms and conditions of sale to
unaffiliated multi-channel video programming distributors. Further, the 1992
Cable Act requires that such affiliated programmers make their programming
services available to cable operators and competing multi-channel video
programming distributors such as MMDS and direct broadcast satellite
distributors on terms and conditions that do not unfairly discriminate among
such distributors. The Telecommunications Act has extended these rules to
programming services in which telephone companies and other common carriers have
attributable ownership interests. The FCC recently revised its program licensing
rules, by implementing a damages remedy in situations where the defendant
knowingly violates the regulations and by establishing a timeline for the
resolution of such complaints, among other things.
Regulation of Carriage of Programming. Under the Telecommunications
Act, the FCC has adopted regulations prohibiting cable operators from requiring
a financial interest in a programming service as a condition to carriage of such
service, coercing exclusive rights in a programming service or favoring
affiliated programmers so as to restrain unreasonably the ability of
unaffiliated programmers to compete.
Regulation of Ownership. The 1992 Cable Act required the FCC, among
other things, (a) to prescribe rules and regulations establishing reasonable
limits on the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable interest
and (b) to consider the necessity and appropriateness of imposing limitations on
the degree to which multi-channel video programming distributors (including
cable operators) may engage in the creation or production of video programming.
In 1993, the FCC adopted regulations limiting carriage by a cable operator of
national programming services in which that operator holds an attributable
interest to 40% of the first 75 activated channels on each of the cable
operator's systems. The rules provide for the use of two additional channels or
a 45% limit, whichever is greater, provided that the additional channels carry
minority-controlled programming services. The regulations also grandfather
existing carriage arrangements that exceed the channel limits, but require new
channel capacity to be devoted to unaffiliated programming services until the
system achieves compliance with the regulations. These channel occupancy limits
apply only up to 75 activated channels on the cable system, and the rules do not
apply to local or regional programming services. These rules may limit carriage
of the Programming Companies on certain systems of affiliated cable operators.
In the same rulemaking, the FCC concluded that additional restrictions on the
ability of multi-channel distributors to engage in the creation or production of
video programming were then unwarranted.
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act
granted broadcasters a choice of must carry rights or retransmission consent
rights. The rules adopted by the FCC generally provided for mandatory carriage
by cable systems of all local full-power commercial television broadcast signals
selecting must carry rights and, depending on a cable system's channel capacity,
non-commercial television broadcast signals. Such statutorily mandated carriage
<PAGE>
of broadcast stations coupled with the provisions of the 1984 Cable Act, which
require cable television systems with 36 or more "activated" channels to reserve
a percentage of such channels for commercial use by unaffiliated third parties
and permit franchise authorities to require the cable operator to provide
channel capacity, equipment and facilities for PEG access channels access, could
adversely affect some or substantially all of the Programming Companies by
limiting the carriage of such services in cable systems with limited channel
capacity. The FCC recently initiated a proceeding asking to what extent cable
operators must carry all digital signals transmitted by broadcasters. The
imposition of such additional must carry regulation, in conjunction with the
current limited cable system channel capacity, would make it likely that cable
operators will be forced to drop cable programming services, which may have an
adverse impact on the Programming Companies' programming interests.
Closed Captioning Regulation. The 1992 Cable Act also required the FCC
to establish rules and an implementation schedule to ensure that video
programming is fully accessible to the hearing impaired through closed
captioning. The rules adopted by the FCC will require substantial closed
captioning over an eight to 10 year phase-in period with only limited
exemptions. As a result, the Programming Companies are expected to incur
significant additional costs for closed captioning.
Copyright Regulation. Under regulations adopted by the Copyright
Office, satellite carriers such as Netlink USA are not "cable systems" within
the meaning of the Copyright Revision Act of 1976 as amended. Accordingly,
satellite carriers are not permitted to provide superstation or network station
broadcast signals to home satellite dish owners under the separate compulsory
license extended to cable systems. Instead, Congress granted a statutory
copyright license to satellite carriers retransmitting the broadcast signals of
"superstations," such as KWGN and WGN, and of network stations to the public for
private home viewing under the Satellite Home Viewer Act of 1994 (the SHV Act),
which license is scheduled to expire on December 31, 1999. Although bills,
which, among other things, would extend the license granted under the SHV Act,
have been introduced in Congress, if the license is not further extended,
satellite carriers will be required to negotiate private licenses for the
retransmission of copyright material to home satellite dish owners after 1999.
Satellite carriers may only distribute the signals of network broadcast
stations, as distinguished from superstations, to "unserved households" that are
outside the Grade B contours of a primary station affiliated with such network.
The FCC released new rules on February 2, 1999 for determining whether
households are unserved. Netlink USA entered into an agreement with the National
Association of Broadcasters, the ABC, CBS, FOX and NBC networks, their affiliate
associations, and several hundred broadcast stations, effective May 1, 1998, to
identify by zip code those geographic areas which are "unserved" by network
affiliated stations. Depending upon the implementation of the agreement and such
identification, Netlink USA may be required, after expiration of a transition
period on August 31, 1999, to disconnect a substantial number of existing
subscribers. Under the SHV Act, satellite carriers must pay a monthly fee for
each subscriber. To the extent that satellite carriers transmit superstation or
network station signals to cable operators, such cable operators pay the
copyright fee under the separate compulsory license.
Satellites and Uplink. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
<PAGE>
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry.
Proposed Changes in Regulation. The regulation of programming services,
cable television systems, satellite carriers and television stations is subject
to the political process and has been in constant flux over the past decade.
Further material changes in the law and regulatory requirements must be
anticipated and there can be no assurance that the Liberty Media Group's
business will not be affected adversely by future legislation, new regulation or
deregulation.
Competition-Programming Companies
The business of distributing programming for cable television is highly
competitive. The Programming Companies directly compete with other programming
services for distribution on a limited number of cable television channels and
on other distribution media. In addition to competition for cable distribution,
viewers and advertisers, the Programming Companies also compete, to varying
degrees, for programming content.
HSN and QVC operate in direct competition with businesses which are
engaged in retail merchandising.
BUSINESS OF THE TCI VENTURES GROUP
On March 9, 1999, TCI combined the businesses and assets of Liberty
Media Group and of TCI Ventures Group in conjunction with the TCI merger. The
following information about TCI Ventures Group is dated as of March 1, 1999 and
does not reflect the effects of the Liberty/Ventures Combination. In connection
with the TCI merger and immediately prior thereto, certain of the assets
attributed to TCI Ventures Group were transferred to TCI Group in exchange for
approximately $5.5 billion cash.
The assets attributed to the TCI Ventures Group, a business unit
created in 1997, include interests in certain technology investments. Assets
attributed to the TCI Ventures Group are held directly and indirectly through
partnerships, joint ventures, common stock investments and instruments
convertible or exchangeable into common stock. In some cases, the TCI Ventures
Group's interest may be subject to buy-sell procedures, repurchase rights,
performance guarantees and other restrictions.
Diversified Satellite Communications
TV Guide, Inc. (formerly UVSG) Following completion of the
Netlink and TV Guide Transactions, TCI had approximately a 44% equity interest
and a 49% voting interest in UVSG of which a 27% equity interest and a 32%
voting interest was attributed to TCI Ventures Group and the balance of which
was attributed to Liberty Media Group. UVSG is a media and communications
company engaged predominantly in providing print, passive and interactive
program listings guides to households, distributing superstation programming to
cable television systems and DTH satellite providers, and marketing satellite
delivered programming to C-band satellite dish owners. UVSG has been organized
into three operating groups: Magazine Group; Entertainment Group; and United
Video Group. The Magazine Group publishes and distributes TV Guide Magazine and
customized monthly programming guides for cable and satellite operators in the
US and internationally. The Entertainment Group supplies satellite-delivered
on-screen program promotion and guide services, including TV Guide Channel and
<PAGE>
Sneak Prevue. The United Video Group provides DTH satellite services, satellite
distribution of video entertainment services, software development and systems
integration services and satellite transmission services for private networks.
This group includes SNG and Netlink USA in addition to UVSG's UVTV division
which markets and distributes to cable television systems and other
multi-channel video distributors WGN (Chicago), KTLA (Los Angeles) and WPIX (New
York), three independent "superstations".
Domestic Telephony
The TCI Ventures Group's telephony assets consist primarily of its
ownership of an approximately 24% equity interest in the "Sprint PCS Group,"
consisting of shares of Sprint PCS Stock (which have limited voting rights) and
certain warrants and shares of convertible preferred stock exercisable for or
convertible into such shares.
Pursuant to the Final Judgment agreed to by TCI, AT&T and the DOJ on
December 31, 1998, Liberty/Ventures Group prior to the AT&T Merger transferred
all of the Sprint Securities to a trust with the Trustee, pursuant to a trust
agreement approved by the DOJ. The Final Judgment, if entered by the United
States District Court for the District of Columbia, would require the Trustee,
on or before May 23, 2002, to dispose of a portion of the Sprint Securities held
by the trust and beneficially owned by Liberty/Ventures Group sufficient to
cause Liberty/Ventures Group to own beneficially no more than 10% of the
outstanding Series 1 PCS stock of Sprint on a fully diluted basis (assuming the
issuance of all shares of Series 1 PCS stock of Sprint ultimately issuable in
respect of the applicable securities of Sprint upon the exercise, conversion or
other issuance thereof in accordance with the terms of such securities) on such
date. On or before May 23, 2004, the Trustee must divest the remainder of the
Sprint Securities beneficially owned by Liberty/Ventures Group. For additional
information, see note 2 to the Company's consolidated financial statements
included in Part II of this report.
International Cable and Programming
TINTA. TCI owns 100% of the equity in TINTA, of which 85% is attributed
to the TCI Ventures Group and 15% is attributed to the Liberty Media Group.
TINTA provides diversified programming services and operates broadband cable
television and telephony distribution networks in selected markets outside the
United States. At December 31, 1998, TINTA had ownership interests in or managed
61 cable and satellite programming services, which are received by subscribers
in various countries outside the United States. TINTA also has ownership
interests in companies operating broadband networks that, at December 31, 1998,
provided cable television service to an aggregate of approximately 4.5 million
basic subscribers and, primarily in the United Kingdom, provided telephone
service over approximately 1.5 million telephone lines.
TINTA has recently placed greater emphasis on the acquisition and
development of multi-channel programming businesses, while maintaining
meaningful and complementary interests in cable distribution assets. TINTA's
distribution and programming ventures are concentrated in the United Kingdom,
Europe, Latin America, Asia and the Caribbean, with particular focus, at
present, on the United Kingdom, Argentina and Japan.
Included among TINTA's cable and telephony distribution assets are an
indirect 22% interest in Telewest Communications plc (Telewest) and a 40%
interest in Jupiter Telecommunications Co. Ltd (Jupiter). Telewest is a leading
provider of cable television and cable telephony services in the United Kingdom
<PAGE>
providing cable television services over a broadband (i.e., high capacity)
network and uses such network, together with twisted-pair copper wire
connections for final delivery to the customer premises, to provide telephony
services to its customers. Jupiter provides residential and business television
and cable telephony in Japan.
TINTA also currently has an approximate 28% ownership interest and
certain conditional management rights in Cablevision S.A. (Cablevision), which
is one of the two largest cable television companies in Argentina. At December
31, 1998, Cablevision provided cable television service to an aggregate of
approximately 1.5 million subscribers.
TINTA's programming interests include a 37% equity interest
(representing a 50% voting interest) in Flextech p.l.c. (Flextech), a 30%
interest in MultiThematiques, S.A. (MultiThematiques) and a 50% interest in
Jupiter Programming. Through its subsidiaries and affiliates, Flextech creates,
packages and markets entertainment and information programming for distribution
on cable television and DTH satellite providers throughout the United Kingdom
and parts of continental Europe. Flextech's ordinary shares trade on the London
Stock Exchange. MultiThematiques and Jupiter Programming provide multi-channel
programming to cable television and DTH satellite providers in continental
Europe and Japan, respectively. In addition, in August 1998, TINTA purchased
Pramer S.C.A., an Argentine company which programs, markets and distributes 16
cable channels in Argentina, of which 10 are distributed throughout Latin
America, and which markets one terrestrial station to operators in Argentina and
neighboring countries.
Liberty/TINTA, through a 50/50 joint venture with News Corp., holds
international sports interests. These include Fox Sports World Espanol, a
Spanish language sports network, distributed in the United States and in Latin
America, and STAR TV, a satellite-delivered programming platform available to
220 million viewers in Asia, India and the Middle East. Outside of the venture
with News Corp., Liberty Media Group and TINTA own an interest in J-Sports, a
sports network in Japan featuring coverage of SUMO wrestling, soccer, baseball
and other international sporting events; and TyC, Argentina's dominant sports
programming service. TyC also owns an interest in Canal 9, a general
entertainment broadcast channel in Buenos Aires, Argentina which has become an
international superchannel, providing programming to the United States and, via
cable, to outlying areas of Argentina.
Competition. The various cable operators in which TINTA has interests
directly compete for customers and advertisers in local markets with other
providers of entertainment, news and information. Such cable operators also
compete with companies who use alternative methods of distributing the same or
similar video programming offered by cable television systems.
The business of distributing programming for cable and satellite
television is also highly competitive. TINTA's programming subsidiaries and
affiliates directly compete with other programming services for distribution on
a limited number of television channels and, when distribution is obtained, they
compete for viewers and advertisers with other programming services.
Government Regulation. Substantially every country in which TINTA has,
or proposes to make, an investment regulates, in varying degrees, (a) the
granting of cable and telephony franchises, the construction of cable and
telephony systems and the operations of cable, other multi-channel television
operators and telephony operators and service providers, as well as the
acquisition of, and foreign investments in, such operators and service
<PAGE>
providers, and (b) the broadcast and content of programming and Internet
services and foreign investment in programming companies. Regulations or laws
may cover wireline and wireless telephony, satellite and cable communications
and Internet services, among others. Regulations or laws that exist at the time
TINTA makes an investment in a subsidiary or affiliate may thereafter change,
and there can be no assurance that material and adverse changes in the
regulation of the services provided by TINTA's subsidiaries and affiliates will
not occur in the future. Regulation can take the form of price controls, service
requirements and programming and other content restrictions, among others.
Moreover, some countries do not issue exclusive licenses to provide
multi-channel television services within a geographic area, and in those
instances TINTA may be adversely affected by an overbuild by a competing cable
operator. In certain countries where multi-channel television is less developed,
there is minimal regulation of cable television, and, hence, the protections of
the cable operator's investment available in the United States and other
countries (such as rights to renewal of franchises and utility pole attachment)
may not be available in these countries.
SEGMENT, OPERATING REVENUE AND RESEARCH AND DEVELOPMENT EXPENSE INFORMATION
For information about the Company's research and development expense,
see Note 2 to the Consolidated Financial Statements. For information about the
consolidated operating revenues contributed by the Company's major classes of
products and services, see the revenue tables and descriptions on pages 31, 32
and 38-43 and Consolidated Statements of Income on page 52 of the Company's
annual report to shareholders for the year ended December 31, 1998. All such
information is incorporated herein by reference pursuant to General Instruction
G(2).
EMPLOYEE RELATIONS
At December 31, 1998 AT&T employed approximately 107,800 persons in its
operations, approximately 105,000 of whom are located domestically. About 40% of
the domestically located employees of AT&T are represented by unions. Of those
so represented, about 95% are represented by the Communications Workers of
America (CWA), which is affiliated with the AFL-CIO; about 4% by the
International Brotherhood of Electrical Workers (IBEW), which is also affiliated
with the AFL-CIO. In addition, there is a very small remainder of domestic
employees represented by other unions. Labor agreements with most of these
unions extend through May 2002.
ITEM 2. PROPERTIES.
The properties of AT&T Corp. consist primarily of plant and equipment
used to provide long distance and wireless telecommunications services and cable
television services and administrative office buildings.
Telecommunications plant and equipment consists of: central office
equipment, including switching and transmission equipment; connecting lines
(cables, wires, poles, conduits, etc.); wireless cell sites, antennas and
wireless switching facilities; land and buildings; and miscellaneous properties
(work equipment, furniture, plant under construction, etc.). The majority of the
connecting lines are on or under public roads, highways and streets and
international and territorial waters. The remainder are on or under private
property. AT&T also operates a number of sales offices, customer care centers,
and other facilities, such as research and development laboratories.
<PAGE>
AT&T continues to manage the deployment and utilization of its assets
in order to meet its global growth objectives while at the same time ensuring
that these assets are generating value for the shareholder. AT&T will continue
to manage its asset base consistent with globalization initiatives, marketplace
forces, productivity growth and technology change.
TCI currently leases its executive offices in a suburb of Denver,
Colorado, and leases most of its regional and local operating offices. TCI owns
many of its head-end and antenna sites. During 1999 TCI will relocate its
executive offices to owned properties in a suburb of Denver, Colorado. Its
physical cable television properties, which are located throughout the United
States, consist of system components, motor vehicles, miscellaneous hardware,
spare parts and other components. TCI's cable television facilities are, in the
opinion of management, suitable and adequate by industry standards. Physical
properties of TCI are not held subject to any major encumbrance.
A substantial number of the administrative offices of AT&T Corp. are in
leased buildings. Substantially all of the important long distance
communications facilities are in buildings wholly owned by AT&T or in buildings
owned partially by AT&T and partially by the regional holding companies created
at divestiture. Many of the smaller facilities are in rented quarters. Most of
the important buildings used in connection with long distance services are on
land held in fee, but a few are on land held under long-term leases.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, AT&T Corp. is subject to proceedings,
lawsuits and other claims, including proceedings under government laws and
regulations related to environmental and other matters. Such matters are subject
to many uncertainties and outcomes are not predictable with assurance.
Consequently, AT&T Corp. is unable to ascertain the ultimate aggregate amount of
monetary liability or financial impact with respect to these matters at December
31, 1998. While these matters could affect operating results of any one quarter
when resolved in future periods, it is management's opinion that after final
disposition, any monetary liability or financial impact to AT&T Corp. beyond
that provided for at year-end would not be material to AT&T Corp.'s annual
consolidated financial position or results of operations.
On July 6, 1997, MCI Telecommunications Corp. and Ronald A. Katz
Technology Licensing, L.P. filed suit in United States District Court in
Philadelphia, Pennsylvania against AT&T. The suit alleges that a number of AT&T
services infringe patents owned by Katz but licensed to MCI for enforcement
against AT&T. This matter is currently in discovery. Based on review to date, it
is management's opinion that the claims do not present any material monetary
liability or financial impact to AT&T that is not subject to patent indemnity
agreements with third-party equipment vendors.
AT&T is also a named party in a number of environmental actions, none
of which is material to the consolidated financial statements or business of the
Company. In addition, pursuant to the Separation and Distribution Agreement by
and among AT&T, Lucent, and NCR, dated as of February 1, 1996, and amended and
restated as of March 29, 1996, Lucent has assumed liability, subject to the
liability sharing provisions of that agreement, for a number of actions in which
AT&T remains a named party. AT&T is working to be released as a party to these
actions, although there can be no assurance that it will be successful in this
regard.
<PAGE>
There are four environmental proceedings which are required to be
reported pursuant to Instruction 5.C. of Item 103 of Regulation S-K. In
September 1997, the government of the U.S. Virgin Islands filed suit in the
federal district court of the Virgin Islands against the Company, AT&T Submarine
Systems International ("SSI International"), A&L Underground, Inc., a contractor
for SSI International at that time, and other entities. In connection with the
purported 1996 release of non-toxic bentonite drilling mud within the coastal
region of St. Croix by the contractor, the suit seeks penalties for violations
of various federal and Virgin Island statutes; damages under several statutory
and common law theories; removal of the mud (which has since been completed to
the satisfaction of the federal agency that ordered the cleanup); and
restitution of response costs allegedly incurred by the Virgin Islands. SSI
International was a wholly owned subsidiary of AT&T at the time of the alleged
violation. On December 31, 1998 the Government of the U.S. Virgin Islands filed
an administrative complaint against AT&T of the Virgin Islands, Inc., seeking
$23 million in penalties (primarily for the release of drilling mud in 1996 in
conjunction with the construction of the St. Croix cable landing station). The
foregoing environmental proceeding is not material to the consolidated financial
statements or business of the Company and would not be reported but for
Instruction 5 C. of Item 103 of Regulation S-K, which requires disclosure of
such matters.
In addition, three proceedings involve matters for which Lucent has
assumed liability, as described above. On July 31, 1991, the United States
Environmental Protection Agency Region III issued a complaint pursuant to
Section 3008a of the Resource Conservation and Recovery Act alleging violations
of various waste management regulations at the Company's Richmond Works,
Richmond, Virginia. The complaint seeks a total of $4.2 million in penalties. In
addition, on July 31, 1991, the United States Environmental Protection Agency
filed a civil complaint in the U.S. District Court for the Southern District of
Illinois against the Company and nine other parties seeking enforcement of its
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
Section 106 cleanup order, issued in November 1990 for the NL Granite City
Superfund site, Granite, Illinois, past costs, civil penalties of $25,000 per
day and treble damages related to certain United States' costs. Finally, during
1994, AT&T Nassau Metals Corporation ("Nassau"), a wholly owned subsidiary of
AT&T, and the New York State Department of Environmental Conservation ("NYSDEC")
were engaged in negotiations over a study and cleanup of the Nassau plant
located on Richmond Valley Road in Staten Island, New York. During these
negotiations, in June 1994, NYSDEC presented Nassau with a draft consent order
which included not only provisions relating to site investigation and
remediation but also a provision for payment of a $3.5 million penalty for
alleged violations of hazardous waste management regulations. No formal
proceeding has been commenced by NYSDEC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.
<PAGE>
<TABLE>
<CAPTION>
Executive Officers of the Registrant
(as of March 17, 1999)
Became AT&T
Name Age Executive Officer On
- ---- --- --------------------
<S> <C> <C> <C>
C. Michael Armstrong* . . . . 60 Chairman of the Board and Chief Executive Officer . . . . . . . . . . . . 10-97
Harold W. Burlingame . . . . 58 Executive Vice President, Merger & Joint Venture Integration . . . . . . 9-86
James Cicconi . . . . . . . . 46 Executive Vice President-Law & Government Affairs and General Counsel . . 12-98
Mirian Graddick . . . . . . . 44 Executive Vice President, Human Resources . . . . . . . . . . . . . . . . 3-99
Daniel R. Hesse . . . . . . . 45 Executive Vice President and President & CEO, AT&T Wireless Services . . 5-97
Leo J. Hindery, Jr. . . . . . 51 President and Chief Executive Officer, AT&T Broadband and
Internet Services . . . . . . . . . . . . . . . . . . . . . . . . . 3-99
Frank Ianna . . . . . . . . . 49 Executive Vice President and President, AT&T Network Services . . . . . . 3-97
Michael G. Keith . . . . . . 50 Executive Vice President and President, AT&T Business Services . . . . . 12-98
H. Eugene Lockhart . . . . . 49 Executive Vice President, Chief Marketing Officer . . . . . . . . . . . . 2-99
Richard J. Martin . . . . . . 52 Executive Vice President, Public Relations and Employee Communication . . 11-97
John C. Malone** . . . . . . 58 Chairman of the Board, Liberty Media Corporation . . . . . . . . . . . . 3-99
David C. Nagel . . . . . . . 54 President, AT&T Labs & Chief Technology Officer . . . . . . . . . . . . . 3-97
John C. Petrillo . . . . . . 49 Executive Vice President, Corporate Strategy and Business Development . . 1-96
Richard Roscitt . . . . . . . 47 Executive Vice President and President & CEO, AT&T Solutions . . . . . . 9-97
D. H. Schulman . . . . . . . 40 Executive Vice President and President, AT&T Consumer Long Distance
and Segment Marketing . . . . . . . . . . . . . . . . . . . . . . . 12-98
Daniel E. Somers . . . . . . 51 Senior Executive Vice President and Chief Financial Officer . . . . . . . 5-97
John D. Zeglis**. . . . . . . 51 President, AT&T; Chairman and Chief Executive Officer, AT&T Consumer
Services Company . . . . . . . . . . . . . . . . . . . . . . . . . . 9-86
<FN>
*Chairman of the Board of Directors and Chairman of the Executive
and Proxy Committees.
**Member of the Board of Directors.
</FN>
</TABLE>
All of the above executive officers have held high level managerial
positions with AT&T or its affiliates for more than the past five years, except
Messrs. Armstrong, Cicconi, Hindery, Lockhart, Malone, Nagel and Somers. Prior
to joining AT&T in October 1997, Mr. Armstrong was Chairman and Chief Executive
Officer of Hughes Electronics from 1991. Prior to joining AT&T in September 1998
as Senior Vice President-Law and Government Affairs, Mr. Cicconi was a Partner
at the law firm of Akin, Gump, Strauss, Houer and Feld, L.L.P. from 1991. Prior
to joining AT&T, Mr. Hindery was President of TCI from March 1997 and from 1988
to 1997 was Managing General Partner of InterMedia Partners, the nation's ninth
largest MSO, which he founded in 1988. Prior to joining AT&T Mr. Lockhart was
President of BankAmerica Corporation's Global Retail Bank from 1997 to 1998 and
from 1994 to 1997 was President and Chief Executive Officer of MasterCard
International, Inc. Prior to joining AT&T, Dr. Malone was President, Chairman
and Chief Executive Officer of TCI from 1994. In addition, Dr. Malone served as
director of TCI Pacific Communications, Inc. since 1996. Prior to joining AT&T
in April 1996, Mr. Nagel was with Apple Computer, serving as Senior Vice
President from 1995 and General Manager from 1988 through 1995. Prior to joining
AT&T in May 1997, Mr. Somers was Chairman and Chief Executive Officer for Bell
Cablemedia, plc, of London for two years and from 1992 to 1995, Mr. Somers was
Executive Vice President and Chief Financial Officer for Bell Canada
International.
<PAGE>
PART II
Items 5. through 8.
The information required by these items is included in pages 28 through
72 and the inside back cover of the Company's annual report to shareholders for
the year ended December 31, 1998. Such information is incorporated herein by
reference, pursuant to General Instruction G(2). The referenced information from
the Company's annual report to share holders has been filed as Exhibit 13 to
this document.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no changes in independent accountants and no
disagreements with independent accountants on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure during the last two years.
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
because the Company did not furnish such information in its definitive proxy
statement prepared in accordance with Schedule 14A.
The other information required by Items 10 through 13 is included in
the Company's definitive proxy statement dated March 25, 1999, the third and
fourth paragraphs on page 7, the first and second paragraphs on page 8, the
first full paragraph on page 9 through the final footnote on page 15 and the
second paragraph on page 33 through page 58. Such information is incorporated
herein by reference, pursuant to General Instruction G(3).
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Documents filed as a part of the report:
(1) Financial Statements:
Pages
-----
Report of Management ....................... *
Report of Independent Accountants .......... *
Statements:
Consolidated Statements of Income .......... *
Consolidated Balance Sheets ................ *
Consolidated Statements of Changes in
Shareowners' Equity ................... *
Consolidated Statements of Cash Flows ...... *
Notes to Consolidated Financial Statements . *
(2) Financial Statement Schedule:
Report of Independent Accountants .......... 48
Schedule:
II -- Valuation and Qualifying Accounts .... 49
Separate financial statements of subsidiaries not consolidated and 50
percent or less owned persons are omitted since no such entity
constitutes a "significant subsidiary" pursuant to the provisions of
Regulation S-X, Article 3-9.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the Securities
and Exchange Commission ("SEC"), are incorporated herein by reference
as exhibits hereto.
Exhibit Number:
(3)a Restated Certificate of Incorporation of the registrant filed
January 10, 1989, Certificate of Correction of the registrant
filed June 8, 1989, Certificate of Change of the registrant
filed March 18, 1992, Certificate of Amendment of the
registrant filed June 1, 1992, Certificate of Amendment of the
registrant filed April 20, 1994, Certificate of Amendment
filed June 8, 1998 and Certificate of Amendment filed March 9,
1999.
- ------------
*Incorporated herein by reference to the appropriate portions of the Company's
annual report to shareholders for the year ended December 31, 1998. (See Part
II.)
<PAGE>
(3)b By-Laws of the registrant, as amended March 17, 1999.
(4) No instrument which defines the rights of holders of long term
debt, of the registrant and all of its consolidated
subsidiaries, is filed herewith pursuant to Regulation S-K,
Item 601(b)(4)(iii)(A). Pursuant to this regulation, the
registrant hereby agrees to furnish a copy of any such
instrument to the SEC upon request.
(10)(i)1 Form of Separation and Distribution Agreement by and among
AT&T Corp., Lucent Technologies Inc. and NCR Corporation,
dated as of February 1, 1996 and amended and restated as of
March 29, 1996 (Exhibit (10)(i)1 to Form 10-K for 1996, File
No. 1-1105).
(10)(i)2 Form of Distribution Agreement, dated as of November 20, 1996,
by and between AT&T Corp. and NCR Corporation (Exhibit
(10)(i)2 to Form 10-K for 1996, File No. 1-1105).
(10)(i)3 Tax Sharing Agreement by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation, dated as of February 1,
1996 and amended and restated as of March 29, 1996 (Exhibit
(10)(i)3 to Form 10-K for 1996, File No. 1-1105).
(10)(i)4 Employee Benefits Agreement by and between AT&T Corp. and
Lucent Technologies Inc., dated as of February 1, 1996 and
amended and restated as of March 29, 1996 (Exhibit (10)(i)4 to
Form 10-K for 1996, File No. 1-1105).
(10)(i)5 Form of Employee Benefits Agreement, dated as of November 20,
1996, between AT&T Corp. and NCR Corporation (Exhibit (10)(i)5
to Form 10-K for 1996, File No. 1-1105).
(10)(ii)(B)1 General Purchase Agreement between AT&T Corp. and Lucent
Technologies Inc., dated February 1, 1996 and amended and
restated as of March 29, 1996 (Exhibit (10)(ii)(B)1 to Form
10-K for 1996, File No. 1-1105).
(10)(ii)(B)2 Form of Volume Purchase Agreement, dated as of November 20,
1996, by and between AT&T Corp. and NCR Corporation (Exhibit
(10)(ii)(B)2 to Form 10-K for 1996, File No. 1-1105).
(10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994 (Exhibit
(10)(iii)(A)1 to Form 10-K for 1994, File No. 1-1105).
(10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended December 17,
1997 (Exhibit 10)(iii)(A)2 to Form 10-K for 1997, File No.
1-1105).
(10)(iii)(A)3 AT&T Senior Management Individual Life Insurance Program as
amended March 3, 1998 (Exhibit (10)(iii)(A)3 to Form 10-K for
1997, File No. 1-1105).
(10)(iii)(A)4 AT&T Senior Management Long Term Disability and Survivor
Protection Plan, as amended and restated effective January 1,
1995 (Exhibit (10)(iii)(A)4 to Form 10-K for 1996, File No.
1-1105).
<PAGE>
(10)(iii)(A)5 AT&T Senior Management Financial Counseling Program dated
December 29, 1994 (Exhibit (10)(iii)(A)5 to Form 10-K for
1994, File No. 1-1105).
(10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee Directors, as
amended December 15, 1993 (Exhibit (10) (iii)(A)6 to Form 10-K
for 1993, File No. 1-1105).
(10)(iii)(A)7 The AT&T Directors Individual Life Insurance Program as
amended March 2, 1998 (Exhibit (10)(iii)(A)1 to Form 10-K for
1997, File No. 1-1105).
(10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident
Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for 1990, File
No. 1-1105).
(10)(iii)(A)9 AT&T Excess Benefit and Compensation Plan, as amended and
restated effective October 1, 1996 (Exhibit (10)(iii)(A)9 to
Form 10-K for 1996, File No. 1-1105).
(10)(iii)(A)10 AT&T Non-Qualified Pension Plan, as amended and restated
January 1, 1995 (Exhibit (10)(iii)(A)10 to Form 10-K for 1996,
File No. 1-1105).
(10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan, as
amended January 21, 1998.
(10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective January 1, 1988
(Exhibit (10)(iii)(A)4 to Form SE, dated March 25, 1988, File
No. 1-1105) including AT&T Mid-Career Pension Plan, as amended
and restated October 1, 1996, (Exhibit (10)(iii)(A)12 to Form
10-K for 1996, File No. 1-1105).
(10)(iii)(A)13 AT&T 1997 Long Term Incentive Program as amended December 17,
1997 (Exhibit (10)(iii)(A)13 to Form 10-K for 1997, File No.
1-1105).
(10)(iii)(A)14 Form of Indemnification Contract for Officers and Directors
(Exhibit (10)(iii)(A)6 to Form SE, dated March 25, 1987, File
No. 1-1105).
(10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised February
20, 1989 (Exhibit 10)(iii)(A)15 to Form 10-K for 1993, File
No. 1-1105).
(10)(iii)(A)16 AT&T Corp. Senior Management Basic Life Insurance Program, as
amended February 27, 1998 (Exhibit (10)(iii)(A)16 to Form 10-K
for 1997, File No. 1-1105).
(10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement as amended
and restated as of November 1993, including the first
amendment thereto dated December 23, 1997.
(10)(iii)(A)18 AT&T Senior Officer Severance Plan effective October 9, 1997,
as amended October 30, 1997 (Exhibit (10)(iii)(A)18 to Form
10-K for 1997, File No. 1-1105).
(10)(iii)(A)19 Form of Pension Agreement between AT&T Corp. and Frank Ianna
dated October 30, 1997 (Exhibit (10)(iii)(A)19 to Form 10-K
for 1997, File No. 1-1105).
<PAGE>
(10)(iii)(A)20 Form of Pension Agreement between AT&T Corp. and John C.
Petrillo dated October 30, 1997 (Exhibit (10)(iii)(A)21 to
Form 10-K for 1997, File No. 1-1105).
(10)(iii)(A)21 Form of Pension Agreement between AT&T Corp. and John Zeglis
dated May 7, 1997 (Exhibit (10)(iii)(A)22 to Form 10-K for
1997, File No. 1-1105).
(10)(iii)(A)22 Form of Employment Agreement between AT&T Corp. and C. Michael
Armstrong dated October 17, 1997 (Exhibit (10)(iii)(A)23 to
Form 10-K for 1997, File No. 1-1105).
(10)(iii)(A)23 Form of Employment Agreement between AT&T Corp. and Daniel E.
Somers dated April, 1997.
(10)(iii)(A)24 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan. (Incorporated herein by reference to
Tele-Communications, Inc.'s Registration Statement on Form S-8
(Commission File No. 333-40141)).
(10)(iii)(A)25 Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan. (Incorporated herein by reference to
Tele-Communications, Inc.'s Registration Statement on Form S-8
(Commission File No. 333-40141)).
(10)(iii)(A)26 Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan. (Incorporated herein by reference to
Tele-Communications, Inc.'s Registration Statement on Form S-8
(Commission File No. 333-40141)).
(10)(iii)(A)27 TCI 401(k) Stock Plan, restated effective January 1, 1998.
(Incorporated herein by reference to Tele-Communications,
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1997, as amended by Form 10-K/A (Commission File No.
0-20421)).
(10)(iii)(A)28 Form of 1998 Incentive Plan of Tele-Communications, Inc.,
effective December 16, 1997. (Incorporated herein by reference
to Tele-Communications, Inc.'s Definitive Proxy Statement on
Schedule 14A, dated April 30, 1998 (Commission File No.
0-20421)).
(10)(iii)(A)29 The Tele-Communications International, Inc. 1995 Stock
Incentive Plan. (Incorporated herein by reference to
Tele-Communications International, Inc. Registration Statement
on Form S-1 (Commission File No. 33-91876)).
(10)(iii)(A)30 Tele-Communications, Inc. 1994 Non-employee Director Stock
Option Plan (Incorporated herein by reference to Exhibit 4.5
to the Registration Statement on Form S-8 of
Tele-Communications, Inc. (Commission File No. 333-06179)
filed on June 18, 1996).
<PAGE>
(10)(iii)(A)31 Tele-Communications International, Inc. 1996 Non-employee
Director Stock Option Plan (Incorporated herein by reference
to Appendix II to the Definitive Proxy Statement on Schedule
14A of Tele-Communications International, Inc. (Commission
File No. 0-26264) filed on August 13, 1996).
(10)(iii)(A)32 Liberty Media 401(K) Savings Plan (Incorporation herein by
reference to Exhibit 99.1 to Post-Effective Amendment No. 2 on
Form S-8 to the Registration Statement on Form S-4 of AT&T
Corp. (Commission File No. 333-70279) filed March 10, 1999.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Specified portions (pages 28 through 72 and the inside back
cover) of the Company's Annual Report to Shareholders for the
year ended December 31, 1998.
(21) List of subsidiaries of AT&T.
(23) Consent of Pricewaterhouse Coopers, LLP
(24) Powers of Attorney executed by officers and directors who
signed this report.
(27) Financial Data Schedules.
AT&T will furnish, without charge, to a shareholder upon request a copy
of the annual report to shareholders and the proxy statement, portions of which
are incorporated herein by reference thereto. AT&T will furnish any other
exhibit at cost.
(b) Reports on Form 8-K:
During the fourth quarter 1998, Form 8-K dated October 16, 1998 was
filed pursuant to Item 5 (Other Events) and Item 7 (Financial Statements and
Exhibits) on October 16, 1998, Form 8-K dated October 21, 1998 was filed
pursuant to Item 5 (Other Events) on October 21, 1998 and Form 8-K dated
December 8, 1998 was filed pursuant to Item 5 (Other Events) on December 8,
1998.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of AT&T Corp.:
Our report on the consolidated financial statements of AT&T
Corp. and subsidiaries has been incorporated by reference in this Form 10-K from
page 51 of the 1998 Annual Report to the Shareowners of AT&T Corp. In connection
with our audits of such financial statements, we have also audited the related
consolidated financial statement schedule listed in the index of this Form 10-K.
In our opinion, the consolidated financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
PRICEWATERHOUSECOOPERS, LLP
1301 Avenue of the Americas
New York, New York
March 19, 1999
<PAGE>
<TABLE>
<CAPTION>
Schedule II--Sheet 1
AT&T CORP.
AND ITS CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions(a) of Period
- ------------------------------------------------------------------------------------------------------------------
Year 1998
Allowances for doubtful accounts (b) $1,037 $1,389 $1,320 $1,106
Reserves related to business
restructuring, including force
and facility consolidation (c) $ 907 $ 275 $ 665 $ 517
Deferred tax asset valuation
allowance (d) $ 361 $ 23 $ 106 $ 278
Year 1997
Allowances for doubtful accounts (b) $1,000 $1,522 $1,485 $1,037
Reserves related to business
restructuring, including force
and facility consolidation (c) $1,388 $ -- $ 481 $ 907
Deferred tax asset valuation
allowance (d) $ 220 $ 142 $ 1 $ 361
The Notes on Sheet 2 are an integral part of this Schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II--Sheet 2
AT&T CORP.
AND ITS CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions(a) of Period
- ------------------------------------------------------------------------------------------------------------------
Year 1996
Allowances for doubtful accounts (b) $ 833 $1,518 $1,351 $1,000
Reserves related to business
restructuring, including force
and facility consolidation (c) $2,092 $ -- $ 704 $1,388
Deferred tax asset valuation
allowance (d) $ 151 $ 71 $ 2 $ 220
<FN>
(a) Amounts written off as uncollectible, net of recoveries.
(b) Includes allowances for doubtful accounts on long-term receivables of $46, $49 and $52 at
December 31, 1998, 1997 and 1996, respectively (included in long-term receivables in the Consolidated
Balance Sheets).
(c) Included primarily in other current liabilities and in other long-term liabilities and deferred credits
in the Consolidated Balance Sheets.
(d) End of period balances include $18, $14 and $9 which represent the current portion of the deferred tax valuation
allowance at December 31, 1998, 1997 and 1996, respectively.
</FN>
</TABLE>
<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.
AT&T Corp.
/s/ M. J. Wasser
------------------------------
By: M. J. Wasser
Vice President - Law and Secretary
March 19, 1999
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.
Principal Executive Officers: #
#
C. Michael Armstrong Chairman of the Board and #
Chief Executive Officer #
#
John Zeglis President and Director #
#
Principal Financial Officer: #
#
Daniel E. Somers Senior Executive Vice President #
Chief Financial Officer #
#
Principal Accounting Officer: #
#
Nicholas S. Cyprus Vice President and Controller ## By M. J. Wasser
# (attorney-in-fact)*
Directors: #
# March 19, 1999
Kenneth T. Derr #
M. Kathryn Eickhoff #
Walter Y. Elisha #
George M. C. Fisher #
Donald V. Fites #
Ralph S. Larsen #
John C. Malone #
Donald F. McHenry #
Michael I. Sovern #
Sanford I. Weill #
Thomas H. Wyman #
AMERICAN TELEPHONE
AND TELEGRAPH
COMPANY
----------
RESTATED CERTIFICATE OF
INCORPORATION OF AMERICAN
TELEPHONE AND TELEGRAPH COMPANY
FILED JANUARY 10, 1989
----------
WITH AMENDMENTS DATED JUNE 8, 1989,
MARCH 18, 1992, JUNE 1, 1992, APRIL 20, 1994
AND JUNE 8, 1998
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION OF
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
UNDER SECTION 807 OF THE BUSINESS
CORPORATION LAW
We, the undersigned, being a Vice President and the Secretary,
respectively, of American Telephone and Telegraph Company, do hereby certify as
follows:
1. The name of the corporation is "American Telephone and Telegraph
Company."
2. The Certificate of Incorporation of the corporation was filed in the
office of the Secretary of State of New York on March 3, 1885.
3. The text of the Certificate of Incorporation (1) is hereby amended
pursuant to authority vested in the Board of Directors by the Certificate of
Incorporation of the corporation, as heretofore amended, and in accordance with
Section 502 of the Business Corporation Law to delete in its entirety Article
EIGHTH thereof stating the number, designation, relative rights, preferences,
and limitations pertaining to four series of preferred shares, all of which
shares have been redeemed by the corporation, and renumber the articles
subsequent thereto sequentially following Article SEVENTH; and (2) as so amended
and as amended heretofore is hereby restated to read as herein set forth in
full:
"We do hereby associate ourselves together for the purpose of
constructing, buying, owning, leasing, or otherwise obtaining, lines of
electric telegraph partly within and party beyond the limits of the
State of New York, and of equipping, using, operating, or otherwise
maintaining, the same; and of becoming a body politic and corporate
under and by virtue of the provisions of an act of the Legislature of
the State of New York entitled `An Act to provide for the incorporation
and regulation of telegraph companies,' passed April 12, 1848, and the
various acts amendatory thereof or supplemental thereto; and of having
and exercising all and every of the powers, privileges, franchises and
immunities in and by said acts conferred. And in pursuance of the
requirements of the various acts aforesaid, and for the purposes above
set forth, we do hereby declare and certify as follows,
"FIRST. The name assumed to distinguish such association and
to be used in its dealings, and by which it may sue and be sued, is the
American Telephone and Telegraph Company.
"SECOND. The general route of the lines of telegraph of said
association will be from a point or points in the city of New York
along all rail roads, bridges, highways and other practicable, suitable
and convenient ways or courses, leading thence to the cities of Albany,
Boston, and the intermediate cities, towns and places, also from a
point or points in and through the city of New York, and thence through
and across the Hudson and East rivers and the bay and harbor of New
York, to Jersey City, Long Island City and Brooklyn, and along all rail
roads, bridges, highways and other practicable, suitable and convenient
ways and courses to the cities of Philadelphia, Baltimore, Washington,
<PAGE>
Richmond, Charleston, Mobile and New Orleans, and to all intermediate
cities, towns and places; and in like manner to the cities of Buffalo,
Pittsburgh, Cleveland, Cincinnati, Louisville, Memphis, Indianapolis,
Chicago, Saint Louis, Kansas City, Keokuk, Des Moines, Detroit,
Milwaukee, Saint Paul, Minneapolis, Omaha, Cheyenne, Denver, Salt Lake
City, San Francisco and Portland, and to all intermediate cities, towns
and places, and also along all rail roads, bridges, highways and other
practicable, suitable and convenient ways and courses as may be
necessary or proper for the purpose of connecting with each other one
or more points in said city of New York, and in each of the cities,
towns and places hereinabove specifically or generally designated.
"And it is further declared and certified that the general
route of the lines of this association, in addition to those
hereinbefore described or designated, will connect one or more points
in each and every city, town or place in the State of New York with one
or more points in each and every other city, town or place in said
State, and in each and every other of the United States, and in Canada
and Mexico, and each and every of said cities, towns and places is to
be connected with each and every other city, town or place in said
States and Countries, and also by cable and other appropriate means
with the rest of the known world as may hereafter become necessary or
desirable in conducting the business of this association.
"THIRD. The aggregate number of shares which the corporation
is authorized to issue is 1,600,000,000 shares, consisting of
1,500,000,000 common shares having a par value of $1 pre share and
100,000,000 preferred shares having a par value of $1 per share.
"The preferred shares may be issued from time to time in one
or more series. All preferred shares of all series shall rank equally
and be identical in all respects except that the Board of Directors is
authorized to fix the number of shares in each series, the designation
thereof and, subject to the provisions of this Article Third, the
relative rights, preferences and limitations of each series and the
variations in such rights, preferences and limitations as between
series and specifically is authorized to fix with respect to each
series:
"(a) the dividend rate on the shares of such series and the
date or dates from which dividends shall be cumulative;
"(b) the times when, the prices at which, and all other terms
and conditions upon which, shares of such series shall be redeemable;
"(c) the amounts which the holders of shares of such series
shall be entitled to receive upon the liquidation, dissolution or
winding up of the corporation, which amounts may vary depending on
whether such liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates;
"(d) whether or not the shares of such series shall be subject
to the operation of a purchase, retirement or sinking fund and, if so,
the extent to and manner n which such purchase, retirement or sinking
fund shall be applied to the purchase or redemption of the shares of
such series for retirement or for other corporate purposes and the
terms and provisions relative to the operation of the said fund or
funds;
<PAGE>
"(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or
series and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same;
"(f) the restrictions, if any, upon the payment of dividends
or making of other distributions on, and upon the purchase or other
acquisition of, common shares;
"(g) the restrictions, if any, upon the creation of
indebtedness, and the restrictions, if any, upon the issue of any
additional shares ranking on a parity with or prior to the shares of
such series in addition to the restrictions provided for in this
Article Third;
"(h) the voting powers, if any, of the shares of such series
in addition to the voting powers provided for in this Article Third;
and
"(i) such other rights, preferences and limitations as shall
not be inconsistent with this Article Third.
"All shares of any particular series shall rank equally and be
identical in allrespects except that shares of any one series issued at
different times may differ as to the date from which dividends shall be
cumulative.
"Dividends on preferred shares of each series shall be cumulative
from the date or dates fixed with respect to such series and shall be paid or
declared or set apart for payment for all past dividend periods and for the
current dividend period before any dividends (other than dividends payable in
common shares) shall be declared or paid or set apart for payment on common
shares. Whenever, at any time, full cumulative dividends for all past dividend
periods and for the current dividend period shall have been paid or declared and
set apart for payment on all then outstanding preferred shares and all
requirements with respect to any purchase, retirement or sinking fund or funds
for all series of preferred shares shall have been complied with, the Board of
Directors may declare dividends on the common shares and the preferred shares
shall not be entitled to share therein.
"Upon any liquidation, dissolution or winding up of the corporation,
the holders of preferred shares of each series shall be entitled to receive the
amounts to which such holders are entitled as fixed with respect to such series,
including all dividends accumulated to the date of final distribution, before
any payment or distribution of assets of the corporation shall be made to or set
apart for the holders of common shares and after such payments shall have been
made in full to the holders of preferred shares, the holders of common shares
shall be entitled to receive any and all assets remaining to be paid or
distributed to shareholders and the holders of preferred shares shall not be
entitled to share therein. For the purposes of this paragraph, the voluntary
sale, conveyance, lease, exchange or transfer of all or substantially all the
property or assets of the corporation or a consolidation or merger of the
corporation with one or more other corporations (whether or not the corporation
is the corporation surviving such consolidation or merger) shall not be deemed
to be a liquidation, dissolution or winding up, voluntary or involuntary.
<PAGE>
"The aggregate amount which all preferred shares outstanding at any
time shall be entitled to receive on involuntary liquidation, dissolution or
winding up shall not exceed $8,000,000,000.
"So long as any preferred shares are outstanding, the corporation will
not (a) without the affirmative vote or consent of the holders of at least
66-2/3% of all the preferred shares at the time outstanding, (i) authorize
shares of stock ranking prior to the preferred shares, or (ii) change any
provision of this Article Third so as to affect adversely the preferred shares;
(b) without the affirmative vote or consent of the holders of at least 66-2/3%
of any series of preferred shares at the time outstanding, change any of the
provisions of such series so as to affect adversely the shares of such series;
(c) without the affirmative vote or consent of the holders of at least a
majority of all the preferred shares at the time outstanding, (i) increase the
authorized number of preferred shares or (ii) authorize shares of any other
class of stock ranking on a parity with the preferred shares.
"Whenever, at any time or times, dividends payable on preferred shares
shall be in default in an aggregate amount equivalent to six full quarterly
dividends on any series of preferred shares at the time outstanding, the number
of directors then constituting the Board of Directors of the corporation shall
ipso facto be increased by two, and the outstanding preferred shares shall, in
addition to any other voting rights, have the exclusive right, voting separately
as a class and without regard to series, to elect two directors of the
corporation to fill such newly created directorships and such right shall
continue until such time as all dividends accumulated on all preferred shares to
the latest dividend payment date shall have been paid or declared and set apart
for payment.
"No holder of preferred shares of any series, irrespective of any
voting or other rights of shares of such series, shall have, as such holder, any
preemptive right to purchase any other shares of the corporation or any
securities convertible into or entitling the holder to purchase such other
shares.
"If in any case the amounts payable with respect to any requirements to
retire preferred shares are not paid in full in the case of all series with
respect to which such requirements exist, the number of shares to be retired in
each series shall be in proportion to the respective amounts which would be
payable on account of such requirements if all amounts payable were paid in
full.
"FOURTH. The number of directors shall be as provided for in the
By-Laws.
"FIFTH. The duration of the corporation shall be perpetual.
"SIXTH. The office of the corporation is located in the Borough of
Manhattan, City and County of New York, State of New York.
"SEVENTH. The Secretary of State of the State of New York is designated
as agent of the corporation upon whom process against it may be served. The post
office address to which the Secretary of State shall mail a copy of any process
served upon him as agent of the corporation is American Telephone and Telegraph
Company, 550 Madison Avenue, New York, New York 10022.
"EIGHTH. No holder of common shares shall have, as such holder, any
preemptive right to purchase any shares or other securities of the corporation.
<PAGE>
"NINTH. No director shall be personally liable to the Corporation or
any of its shareholders for damages for any breach of duty as a director;
provided, however, that the foregoing provision shall not eliminate or limit (i)
the liability of a director if a judgment or other final adjudication adverse to
him or her establishes that his or her acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law or that he or she
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled or that his or her acts violated Section 719 of the
New York Business Corporation Law; or (ii) the liability of a director for any
act or omission prior to the adoption of this Article NINTH by the shareholders
of the Corporation.
4. The manner in which this restatement of the Certificate of
Incorporation was authorized was by a resolution of the Board of Directors of
the corporation.
In Witness Whereof, we have signed and verified this Restated Certificate of
Incorporation of American Telephone and Telegraph Company this 9th day of
January 1989.
/s/ S. L. Prendergast
------------------------------
By: S. L. Prendergast
Corporate Vice President
and Treasurer
/s/ R. E. Scannell
------------------------------
By: R. E. Scannell
Corporate Vice President - Law
and Secretary
<PAGE>
State of New York
ss.:
County of New York
R. E. Scannell, being duly sworn, deposes and says that he is the
Corporate Vice President - Law and Secretary of American Telephone and Telegraph
Company, that he signed the foregoing Certificate as Corporate Vice President -
Law and Secretary of such corporation, that he knows the contents thereof, and
that the statements therein contained are true.
/s/ R. E. Scannell
------------------------------
By: R. E. Scannell
Corporate Vice President - Law
and Secretary
Subscribed and sworn to before me this 9th day of January 1989.
Janet M. Kirpan
Notary Public
Janet M. Kirpan
Notary Public, State of New York
No. 31-4624682
Qualified in New York County
Commission expires March 30, 1990
<PAGE>
CERTIFICATE OF CORRECTION OF THE RESTATED
CERTIFICATE OF INCORPORATION OF
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
UNDER SECTION 105 OF THE
BUSINESS CORPORATION LAW
We, the undersigned, Robert E. Scannell and B. Ward White, being
respectively the Corporate Vice President - Law and Secretary and the Assistant
Secretary of American Telephone and Telegraph Company for the purpose of
correcting the date appearing in the citation to `An Act to provide for the
incorporation and regulation of telegraph companies,' passed April 12, 1848
(stated correctly as 1948) which appears on the face of the Restated Certificate
of Incorporation of American Telephone and Telegraph Company under Section 807
of the Business Corporation Law hereby certify:
1. The name of the corporation is American Telephone and Telegraph
Company.
2. The Restated Certificate of Incorporation of American Telephone and
Telegraph Company under Section 807 of the Business Corporation Law was filed by
the Department of State on January 10, 1989.
3. The last paragraph of the first page of the certificate is corrected
to read as follows:
"We do hereby associate ourselves together for the purpose of
constructing, buying, owning, leasing, or otherwise obtaining, lines of
electric telegraph partly within and partly beyond the limits of the
State of New York, and of equipping, using, operating, or otherwise
maintaining, the same; and of becoming a body politic and corporate
under and by virtue of the provisions of an act of the Legislature of
the State of New York entitled `An Act to provide for the incorporation
and regulation of telegraph companies.' passed April 12, 1848, and the
various acts amendatory thereof or supplemental thereto; and of having
and exercising all and every of the powers, privileges, franchises and
immunities in and by said acts conferred. And in pursuance of the
requirements of the various acts aforesaid, and for the purposes above
set forth, we do hereby declare and certify as follows,
<PAGE>
IN WITNESS WHEREOF, we have signed and verified this certificate on the
31st day of May, 1989 and we affirm the statements contained herein as true
under penalties of perjury.
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
/s/ Robert E. Scannell
------------------------------
By: Robert E. Scannell
Corporate Vice President - Law
and Secretary
/s/ B. Ward White
------------------------------
By: B. Ward White
Assistant Secretary
<PAGE>
CERTIFICATE OF CHANGE OF THE RESTATED
CERTIFICATE OF INCORPORATION OF
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
UNDER SECTION 805-A OF THE
BUSINESS CORPORATION LAW
1. The name of the corporation is "American Telephone and Telegraph
Company."
2. The Certificate of Incorporation was filed in the office of the
Secretary of State of the State of New York on March 3, 1885.
3. The change in the Certificate of Incorporation effected by this
Certificate of Change is as follows:
To change the post office address to which the Secretary of
State of the State of New York shall mail a copy of any process against
the corporation served upon said Secretary of State.
4. To accomplish the foregoing change, Article SEVENTH of the
Certificate of Incorporation, relating to service of process, is hereby stricken
out in its entirety, and the following new Article SEVENTH is substituted in
lieu thereof:
"SEVENTH. The Secretary of State of the State of New York is
designated as agent of the corporation upon whom process against it may
be served. The post office address to which the Secretary of State
shall mail a copy of any process served upon him as agent of the
corporation is American Telephone and Telegraph Company, 32 Avenue of
the Americas, New York, New York, 10013.
5. The manner in which this Certificate of Change was authorized was by
resolution of the Board of Directors of the corporation.
<PAGE>
IN WITNESS WHEREOF, we have signed and verified this Certificate of
Change of American Telephone and Telegraph Company this 16th day of March 1992.
/s/ S. L. Prendergast
------------------------------
By: S. L. Prendergast
Corporate Vice President
and Treasurer
/s/ R. E. Scannell
------------------------------
By: R. E. Scannell
Vice President - Law and Secretary
<PAGE>
State of New York
ss.:
County of New York
R. E. Scannell, being duly sworn, deposes and says that he is the Vice
President - Law and Secretary of American Telephone and Telegraph Company, that
he signed the foregoing Certificate as Vice President - Law and Secretary of
such corporation, that he knows the contents thereof, and that the statements
therein contained are true.
/s/ R. E. Scannell
------------------------------
By: R. E. Scannell
Vice President - Law and Secretary
Subscribed and sworn to before me this 16th day of March 1992.
Janet M. Kirpan
Notary Public
Janet M. Kirpan
Notary Public, State of New York
No. 31-4624682
Qualified in New York County
Commission expires March 30, 1994
<PAGE>
CERTIFICATE OF AMENDMENT OF THE RESTATED
CERTIFICATE OF INCORPORATION OF
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
UNDER SECTION 805 OF THE
BUSINESS CORPORATION LAW
We, the undersigned, being a Vice President and Secretary,
respectively, of American Telephone and Telegraph Company, do hereby certify as
follows:
1. The name of the corporation is "American Telephon and Telegraph
Company."
2. The Certificate of Incorporation of the corporation was filed in the
office of the Secretary of State of the State of New York on March 3, 1885.
3. Said Certificate of Incorporation is amended to increase the
authorized number of common shares of the capital stock of the corporation
having a par value of $1 from 1,500,000,000 to 2,000,000,000 shares.
4. To effect the foregoing, the first paragraph of Article THIRD of
said Certificate of Incorporation, relating to the aggregate number of shares
the corporation is authorized to issue, the par value thereof, and the classes
into which the shares are divided is hereby stricken out in its entirety, and
the following new first paragraph of Article THIRD is substituted in lieu
thereof:
"THIRD. The aggregate number of shares which the corporation
is authorized to issue is 2,100,000,000 shares, consisting of
2,000,000,000 common shares having a par value of $1 per share and
100,000,000 preferred shares having a par value of $1 per share.
5. The manner in which the foregoing amendment of said Certificate of
Incorporation was authorized was by vote of the holders of a majority of all
outstanding shares of the corporation entitled to vote thereon at a meeting of
shareholders, subsequent to the unanimous vote of the Board of Directors.
<PAGE>
IN WITNESS WHEREOF, we have signed and verified this Certificate of
Amendment of said Certificate of Incorporation of American Telephone and
Telegraph Company this 13th day of May, 1992.
/s/ S. L. Prendergast
------------------------------
By: S. L. Prendergast
Vice President and Treasurer
/s/ R. E. Scannell
------------------------------
By: R. E. Scannell
Vice President - Law and Secretary
<PAGE>
Certificate of Amendment of the Certificate of Incorporation
of
American Telephone and Telegraph Company
Under Section 805 of the Business Corporation Law
We, the undersigned, being a Vice President and an Assistant Secretary
respectively, of American Telephone and Telegraph Company, do hereby certify as
follows:
FIRST: The name of the corporation is American Telephone and Telegraph
Company.
SECOND: The Certificate of Incorporation of the corporation was filed
by the Department of State on March 3, 1885.
THIRD: The Certificate of Incorporation of the corporation is hereby
amended by changing the name of the corporation to AT&T Corp.
FOURTH: To accomplish the foregoing amendment, Article FIRST of the
Certificate of Incorporation of the corporation is amended to read as follows:
"FIRST. The name of the corporation is AT&T Corp."
FIFTH: The manner in which the foregoing amendment of said Certificate
of Incorporation of the corporation was authorized was by vote of the holders of
a majority of all outstanding shares of the corporation entitled to vote thereon
at a meeting of shareholders, subsequent to the unanimous vote of the Board of
Directors.
IN WITNESS WHEREOF, we have subscribed this document on April 20, 1994
and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
/s/ Jim G. Kilpatric
------------------------------
By: Jim G. Kilpatric
Senior Vice President - Law
/s/ Robert A. Maynes
------------------------------
By: Robert A. Maynes
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
AT&T CORP.
UNDER SECTION 805 OF THE
BUSINESS CORPORATION LAW
We, the undersigned, being a Vice President and Assistant Secretary,
respectively, of AT&T Corp., do hereby certify as follows:
1. The name of the corporation is AT&T Corp. The name under which the
Corporation was formed is American Telephone and Telegraph Company.
2. The Certificate of Incorporation of the corporation was filed in the
office of the Secretary of State of the State of New York on March 3, 1885.
3. Said Certificate of Incorporation is amended to increase the
authorized number of common shares of the capital stock of the corporation
having a par value of $1 from 2,000,000,000 shares to 6,000,000,000 shares.
4. To effect the foregoing, the first paragraph of Article THIRD of
said Certificate of Incorporation, relating to the aggregate number of shares
the corporation is authorized to issue, the par value thereof, and the classes
into which the shares are divided is hereby stricken out in its entirety, and
the following new first paragraph of Article THIRD is substituted in lieu
thereof:
"THIRD. The aggregate number of shares which the
corporation is authorized to issue is 6,100,000,000 shares,
consisting of 6,000,000,000 common shares having a par value
of $1 per share and 100,000,000 preferred shares having a par
value of $1 per share.
5. The manner in which the foregoing amendment of said Certificate of
Incorporation was authorized was by vote of the holders of a majority of all
outstanding shares of the corporation entitled to vote thereon at a meeting of
shareholders, subsequent to the unanimous vote of the Board of Directors.
<PAGE>
IN WITNESS WHEREOF, we have signed this Certificate of Amendment of
said Certificate of Incorporation of AT&T Corp. this 22th day of May, 1998 and
we affirm the statements contained therein as true under penalties of perjury.
/s/ Marilyn J. Wasser
------------------------------
By: M. J. Wasser
Vice President-Law and
Secretary
/s/ Robert A. Maynes
------------------------------
By: R. A. Maynes
Assistant Secretary
<PAGE>
Certificate of Amendment of the Certificate of Incorporation
Under Section 805 of the Business Corporation Law
We, the undersigned, being a Vice President and an Assistant Secretary
respectively, of AT&T Corp., do hereby certify as follows:
FIRST: The name of the corporation is AT&T Corp.
SECOND: The Certificate of Incorporation of the corporation
was filed by the Department of State on March 3, 1885 under the name
American Telephone and Telegraph Company.
THIRD: (a) The Certificate of Incorporation of the corporation
is hereby amended to create two new classes of common stock, Class A
Liberty Media Group Common Stock and Class B Liberty Media Group Common
Stock, each having the number, designation, relative rights,
preferences, and limitations as set forth herein.
(b) To effect the foregoing, Article THIRD is hereby amended
and restated in its entirety as follows:
ARTICLE THIRD
CAPITAL STOCK
PART A--AUTHORIZED SHARES
The aggregate number of shares which the corporation is authorized to
issue is eight billion eight hundred fifty million (8,850,000,000) shares,
consisting of one hundred million (100,000,000) preferred shares having a par
value of $1.00 per share ("Preferred Stock") and eight billion seven hundred
fifty million (8,750,000,000) common shares, of which six billion
(6,000,000,000) common shares shall be Common Stock having a par value of $1.00
per share ("Common Stock"), two billion five hundred million (2,500,000,000)
common shares shall be Class A Liberty Media Group Common Stock having a par
value of $1.00 per share ("Class A Liberty Media Group Common Stock") and two
hundred fifty million (250,000,000) common shares shall be Class B Liberty Media
Group Common Stock having a par value of $1.00 per share ("Class B Liberty Media
Group Common Stock"). The Class A Liberty Media Group Common Stock and the Class
B Liberty Media Group Common Stock are collectively referred to herein as the
"Liberty Media Group Common Stock".
The authorized shares of Class B Liberty Media Group Common Stock will
only be issued (i) pursuant to the Agreement and Plan of Restructuring and
Merger, dated June 23, 1998 (the "Merger Agreement"), among Tele-Communications,
Inc., Italy Merger Corp. and the corporation, (ii) upon conversion, exercise or
exchange of Pre-Merger Convertible Securities, (iii) in a subdivision (by stock
split or otherwise) of outstanding shares of Class B Liberty Media Group Common
Stock, or (iv) as a stock dividend or share distribution (as defined in
paragraph 4 of Part B of this Article Third).
PART B--COMMON STOCK AND LIBERTY GROUP COMMON STOCK
Each share of Common Stock, each share of Class A Liberty Media Group
Common Stock and each share of Class B Liberty Media Group Common Stock shall,
except as otherwise provided in this Article Third, be identical in all respects
and shall have equal rights, powers and privileges.
<PAGE>
1. Voting Rights.
(a) Holders of Common Stock shall be entitled to one vote for each share of such
stock held, holders of Class A Liberty Media Group Common Stock shall be
entitled to one-tenth of a vote for each share of such stock held, and holders
of Class B Liberty Media Group Common Stock shall be entitled to one vote for
each share of such stock held, on all matters presented to such shareholders.
(b) Except as may otherwise be required by the laws of the State of New York or,
with respect to additional or special voting rights (which may include, without
limitation, rights of any such holders of any such class or series to elect one
or more directors voting separately as a class) of any class or series of
Preferred Stock or any other class of common shares, in the Certificate of
Incorporation of the corporation as the same may be amended from time to time
(this "Certificate") (including the terms of any class or series of Preferred
Stock and any resolution or resolutions providing for the establishment of such
class or series pursuant to authority vested in the Board of Directors by this
Certificate and the terms of any other class of common shares), the holders of
shares of Common Stock, the holders of shares of each other class of common
shares, if any, entitled to vote thereon, the holders of shares of Class A
Liberty Media Group Common Stock and the holders of shares of Class B Liberty
Media Group Common Stock, and the holders of shares of each class or series of
Preferred Stock, if any, entitled to vote thereon, shall vote as one class with
respect to all matters to be voted on by shareholders of the corporation, and no
separate vote or consent of the holders of shares of Common Stock, the holders
of shares of Class A Liberty Media Group Common Stock, the holders of shares of
Class B Liberty Media Group Common Stock or the holders of shares of any such
class of common shares or any such class or series of Preferred Stock shall be
required for the approval of any such matter, except that:
(i) any amendment, alteration or repeal of any of the provisions of this
Certificate which would (x) increase or decrease the aggregate number
of authorized shares of Liberty Media Group Common Stock, (y) increase
or decrease the par value of the shares of Liberty Media Group Common
Stock or (z) alter or change the powers, preferences, privileges or
special rights of the shares of Liberty Media Group Common Stock so as
to affect them adversely shall require the approval of both (A) the
holders of a majority of the combined voting power of the shares of
Common Stock, Liberty Media Group Common Stock and any other class of
common shares entitled to vote with respect to such matter and any
class or series of Preferred Stock entitled to vote with respect to
such matter then outstanding, voting together as a single class, and
(B) the holders of a majority of the combined voting power of the
shares of Liberty Media Group Common Stock, voting separately as a
class (without any vote of the holders of the Common Stock, any other
class of common shares or any class or series of Preferred Stock of the
corporation);
(ii) a Covered Disposition shall require, in addition to any other approval
that may be required pursuant to law or this Certificate, the approval
of the holders of a majority of the combined voting power of the shares
of Liberty Media Group Common Stock, voting separately as a class; and
(iii) any merger, consolidation, combination, binding share exchange,
reclassification, reorganization or other transaction in or pursuant to
which the Liberty Media Group Common Stock is converted, reclassified
or changed into or otherwise exchanged for any consideration (other
than a conversion described in paragraph 2 of this Part B of this
<PAGE>
Article Third or a redemption described in paragraph 5 of this part B
of this Article Third) shall be subject to approval by both (x) the
holders of a majority of the combined voting power of the shares of
Common Stock, Liberty Media Group Common Stock, any other class of
common shares entitled to vote with respect to such matter and any
class or series of Preferred Stock entitled to vote with respect to
such matter then outstanding, voting together as a single class, and
(y) the holders of a majority of the combined voting power of the
shares of Liberty Media Group Common Stock then outstanding, voting
separately as a class (without any vote of the holders of the Common
Stock, any other class of common shares or any class or series of
Preferred Stock of the corporation), unless each of the following
requirements is met (in which event the approval set forth in subclause
(y) of this clause (iii) shall not be required): (A) the consideration
into which the Liberty Media Group Common Stock is converted,
reclassified or changed or for which it is exchanged in such
transaction includes shares of a class of the common stock of the
surviving, resulting or acquiring corporation in such transaction or of
the corporation, if applicable, (it being understood that if the Common
Stock will be converted in such transaction into any class or series of
common shares of any Person, then the term "acquiring corporation"
shall mean such Person if such Person directly or indirectly owns the
assets comprising the Liberty Media Group after giving effect to such
transaction), (B) such class of common stock is intended to reflect the
separate performance of the businesses, assets and liabilities
comprising the Liberty Media Group (as it existed prior to such
transaction and no other material businesses, assets or liabilities)
and has powers, preferences, privileges and special rights equivalent
to those of the shares of Liberty Media Group Common Stock, (C) such
businesses, assets and liabilities comprising the Liberty Media Group
are owned directly or indirectly by the issuer of the shares of such
class of common stock and if prior to such transaction all of the
businesses, assets and liabilities comprising the Liberty Media Group
were held, directly or indirectly, by one or more Qualifying
Subsidiaries of the corporation (or by Subsidiaries that are not held
directly by the corporation but would be Qualifying Subsidiaries if
they were held directly by the corporation) that hold no other material
assets or liabilities, then immediately following such transaction,
such businesses, assets and liabilities comprising the Liberty Media
Group are owned, directly or indirectly, by one or more Qualifying
Subsidiaries of the issuer of the shares of such class of common stock
(or by Subsidiaries of such issuer that are not held directly by such
issuer but would be Qualifying Subsidiaries if they were held directly
by such issuer) that hold no other material assets or liabilities, and
(D) the shares of such class of common stock immediately after such
transaction are held only by Persons that were holders of shares of
Liberty Media Group Common Stock (or Convertible Securities that were
convertible into or exercisable or exchangeable for Liberty Media Group
Common Stock) immediately prior to such transaction.
(c) If the corporation shall in any manner subdivide (by stock split or
otherwise) or combine (by reverse stock split or otherwise) the outstanding
shares of Common Stock or Liberty Media Group Common Stock, or pay a stock
dividend in shares of any class to holders of that class or shall otherwise
effect a share distribution (as defined in paragraph 4 of this Part B of this
Article Third) of Common Stock or Liberty Media Group Common Stock, the per
share voting rights specified in paragraph 1(a) of this Part B of this Article
Third of Liberty Media Group Common Stock relative to Common Stock shall be
<PAGE>
appropriately adjusted so as to avoid any dilution in the aggregate voting
rights of any class.
2. Conversion Rights of Liberty Media Group Common Stock.
Each share of Class B Liberty Media Group Common Stock shall be
convertible, at the option of the holder thereof, into one share of Class A
Liberty Media Group Common Stock. Any such conversion may be effected by any
holder of Class B Liberty Media Group Common Stock by surrendering such holder's
certificate or certificates for the Class B Liberty Media Group Common Stock to
be converted, duly endorsed, at the office of the corporation or any transfer
agent for the Class B Liberty Media Group Common Stock, together with a written
notice to the corporation at such office that such holder elects to convert all
or a specified number of shares of Class B Liberty Media Group Common Stock
represented by such certificate and stating the name or names in which such
holder desires the certificate or certificates for Class A Liberty Media Group
Common Stock to be issued. If so required by the corporation, any certificate
for shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the corporation, duly executed by the holder
of such shares or the duly authorized representative of such holder. Promptly
thereafter, the corporation shall issue and deliver to such holder or such
holder's nominee or nominees, a certificate or certificates for the number of
shares of Class A Liberty Media Group Common Stock to which such holder shall be
entitled as herein provided. Such conversion shall be deemed to have been made
at the close of business on the date of receipt by the corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled to
receive the Class A Liberty Media Group Common Stock issuable on such conversion
shall be treated for all purposes as the record holder or holders of such Class
A Liberty Media Group Common Stock on that date. A number of shares of Class A
Liberty Media Group Common Stock equal to the number of shares of Class B
Liberty Media Group Common Stock outstanding from time to time shall be set
aside and reserved for issuance upon conversion of shares of Class B Liberty
Media Group Common Stock. Shares of Class A Liberty Media Group Common Stock
shall not be convertible into shares of Class B Liberty Media Group Common
Stock.
3. Dividends.
(a) Dividends on Common Stock. Dividends on the Common Stock may be declared and
paid only to the extent of (i) the assets of the corporation legally available
therefor minus (ii) the Liberty Media Group Available Dividend Amount (such
amount, the "Common Stock Available Dividend Amount").
(b) Dividends on Class A Liberty Media Group Common Stock and Class B Liberty
Media Group Common Stock. Dividends on the Class A Liberty Media Group Common
Stock and the Class B Liberty Media Group Common Stock may be declared and paid
only out of the lesser of (i) assets of the corporation legally available
therefor and (ii) the Liberty Media Group Available Dividend Amount. Subject to
paragraph 4 of this Part B of this Article Third, whenever a dividend is paid to
the holders of Class A Liberty Media Group Common Stock, the corporation shall
also pay to the holders of Class B Liberty Media Group Common Stock a dividend
per share equal to the dividend per share paid to the holders of Class A Liberty
Media Group Common Stock, and whenever a dividend is paid to the holders of
Class B Liberty Media Group Common Stock, the corporation shall also pay to the
holders of Class A Liberty Media Group Common Stock a dividend per share equal
to the dividend per share paid to the holders of Class B Liberty Media Group
Common Stock.
<PAGE>
(c) Discrimination Between or Among Classes of Common Shares. The Board of
Directors, subject to the provisions of paragraphs 3(a) and 3(b) of this Part B
of this Article Third, shall have the sole authority and discretion to declare
and pay dividends on (i) the Common Stock, (ii) any other class of common shares
or (iii) the Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock, in equal or unequal amounts (including declaring and paying
no dividends on the Liberty Media Group Common Stock while declaring and paying
dividends on the Common Stock or any other class of common shares and declaring
and paying no dividends on the Common Stock or any other class of common shares
while declaring and paying dividends on the Liberty Media Group Common Stock),
notwithstanding the relationship between the Common Stock Available Dividend
Amount and the Liberty Media Group Available Dividend Amount, the respective
amounts of prior dividends declared on, or the liquidation rights of, the Common
Stock, any other class of common shares or the Class A Liberty Media Group
Common Stock and the Class B Liberty Media Group Common Stock, or any other
factor.
4. Share Distributions.
The corporation may declare and pay a distribution consisting of shares
of Common Stock, Class A Liberty Media Group Common Stock, Class B Liberty Media
Group Common Stock or any other securities of the corporation or any other
Person (hereinafter sometimes called a "share distribution") to holders of the
Common Stock, Class A Liberty Media Group Common Stock or Class B Liberty Media
Group Common Stock only in accordance with the provisions of this paragraph 4 of
this Part B of this Article Third.
(a) Distributions on Class A Liberty Media Group Common Stock and Class B
Liberty Media Group Common Stock. If at any time a share distribution is to be
made with respect to the Class A Liberty Media Group Common Stock or Class B
Liberty Media Group Common Stock, such share distribution may be declared and
paid only as follows (or as permitted by paragraph 5 of this Part B of this
Article Third with respect to the redemptions and other distributions referred
to therein):
(i) a share distribution consisting of shares of Class A Liberty Media
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Class A Liberty Media Group
Common Stock) to holders of Class A Liberty Media Group Common Stock
and Class B Liberty Media Group Common Stock, on an equal per share
basis; or consisting of shares of Class A Liberty Media Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Class A Liberty Media Group Common Stock) to
holders of Class A Liberty Media Group Common Stock and, on an equal
per share basis, shares of Class B Liberty Media Group Common Stock (or
like Convertible Securities convertible into or exercisable or
exchangeable for shares of Class B Liberty Media Group Common Stock) to
holders of Class B Liberty Media Group Common Stock;
(ii) a share distribution consisting of shares of Common Stock or any other
class of common shares of the corporation (other than Liberty Media
Group Common Stock), or Convertible Securities convertible into or
exercisable or exchangeable for shares of Common Stock or any other
class of common shares of the corporation (other than Liberty Media
Group Common Stock), to holders of Class A Liberty Media Group Common
Stock and Class B Liberty Media Group Common Stock, on an equal per
share basis;
<PAGE>
(iii) a share distribution consisting of any class or series of securities of
the corporation or any other Person other than Class A Liberty Media
Group Common Stock, Class B Liberty Media Group Common Stock, Common
Stock or any other class of common shares of the corporation (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Class A Liberty Media Group Common Stock, Class B Liberty
Media Group Common Stock or Common Stock or any other class of common
shares of the corporation), (x) if a single class or series of
securities is to be distributed, on the basis of a distribution of
identical securities, on an equal per share basis, to holders of Class
A Liberty Media Group Common Stock and Class B Liberty Media Group
Common Stock and (y) if more than one class or series of securities is
to be distributed, then, if and to the extent practicable, in
accordance with the following provisions of this clause (y) and,
otherwise, in accordance with clause (x) above: on the basis of a
distribution of one class or series of securities to holders of Class A
Liberty Media Group Common Stock and another class or series of
securities to holders of Class B Liberty Media Group Common Stock,
provided that the securities so distributed (and, if the distribution
consists of Convertible Securities, the securities into which such
Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of Class B Liberty Media Group Common Stock receiving the
class or series having the higher relative voting rights (without
regard to whether such rights differ to a greater or lesser extent than
the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Class A Liberty Media Group Common Stock and the Class B Liberty Media
Group Common Stock), provided that if the securities so distributed
constitute capital stock of a Subsidiary of the corporation, such
rights shall not differ to a greater extent than the corresponding
differences in voting rights, designation, conversion, redemption and
share distribution provisions between the Class A Liberty Media Group
Common Stock and the Class B Liberty Media Group Common Stock, and
provided in each case that such distribution is otherwise made on an
equal per share basis.
The corporation shall not reclassify, subdivide or combine the Class A
Liberty Media Group Common Stock without reclassifying, subdividing or combining
the Class B Liberty Media Group Common Stock, on an equal per share basis, and
the corporation shall not reclassify, subdivide or combine the Class B Liberty
Media Group Common Stock without reclassifying, subdividing or combining the
Class A Liberty Media Group Common Stock, on an equal per share basis. The
corporation shall not effect a share distribution to the holders of Liberty
Media Group Common Stock of any class or series of securities of a Subsidiary of
the corporation or any other Person unless such share distribution is tax-free
to the holders of Liberty Media Group Common Stock (except with respect to cash
received by such holders in lieu of fractional shares).
(b) Distributions on Common Stock. The corporation shall not declare and pay a
share distribution with respect to the Common Stock or any other class of common
shares (other than the Liberty Media Group Common Stock) consisting of Class A
Liberty Media Group Common Stock, Class B Liberty Media Group Common Stock, any
class or series of Preferred Stock attributed to the Liberty Media Group or
securities of any Person included in the Liberty Media Group (or Convertible
Securities convertible into or exercisable or exchangeable for shares of Class A
<PAGE>
Liberty Media Group Common Stock, Class B Liberty Media Group Common Stock, any
such class or series of Preferred Stock or securities of any such Person).
Except as set forth in the immediately preceding sentence, the corporation may
declare and pay a share distribution to holders of Common Stock or any other
class of common shares (other than Liberty Media Group Common Stock) consisting
of any securities of the corporation, any Subsidiary of the corporation, or any
other Person, including without limitation a share distribution consisting of
shares of any class or series of Preferred Stock or shares of Common Stock or
any other class of common shares (other than Liberty Media Group Common Stock)
(or Convertible Securities convertible into or exercisable or exchangeable for
shares of any class or series of Preferred Stock or shares of Common Stock or
any other class of common shares (other than Liberty Media Group Common Stock)).
5. Redemption and Other Provisions Relating to the Liberty Media Group Common
Stock.
(a) Redemption in Exchange for Stock of Qualifying Subsidiaries. At any time at
which all of the assets and liabilities included in the Liberty Media Group are
held directly or indirectly by one or more Qualifying Subsidiaries of the
corporation that hold no other material assets or liabilities (the "Liberty
Media Group Subsidiaries"), the Board of Directors may, subject to the
availability of assets of the corporation legally available therefor, redeem, on
a pro rata basis, all of the outstanding shares of Class A Liberty Media Group
Common Stock and Class B Liberty Media Group Common Stock in exchange for an
aggregate number of outstanding fully paid and nonassessable shares of common
stock of a Liberty Media Group Subsidiary that is the beneficial owner of all
other Liberty Media Group Subsidiaries (or, if applicable, of each Liberty Media
Group Subsidiary that is not a Subsidiary of one or more other Liberty Media
Group Subsidiaries) equal to the number of outstanding shares of common stock of
such Liberty Media Group Subsidiary (or Liberty Media Group Subsidiaries, as the
case may be) held by the corporation; provided that no such redemption pursuant
to this paragraph 5(a) of this Part B of this Article Third may occur unless the
redemption is tax-free to the holders of Liberty Media Group Common Stock
(except with respect to cash received by such holders in lieu of fractional
shares). Any such redemption shall occur on a Redemption Date set forth in a
notice to holders of Class A Liberty Media Group Common Stock and Class B
Liberty Media Group Common Stock and Convertible Securities convertible into or
exercisable or exchangeable for shares of either such series (unless provision
for notice is otherwise made pursuant to the terms of such Convertible
Securities) pursuant to paragraph 5(d)(v) of this Part B of this Article Third.
In effecting such a redemption, the corporation shall (i) if and to the extent
practicable, redeem shares of Class A Liberty Media Group Common Stock and Class
B Liberty Media Group Common Stock in exchange for shares of separate classes or
series of common stock of each Liberty Media Group Subsidiary with relative
voting rights and related differences in designation, conversion, redemption and
share distribution provisions not greater than the corresponding differences in
voting rights, designation, conversion, redemption and share distribution
provisions between the Class A Liberty Media Group Common Stock and Class B
Liberty Media Group Common Stock, with holders of shares of Class B Liberty
Media Group Common Stock receiving the class or series having the higher
relative voting rights, and (ii) to the extent redemption in accordance with
clause (i) above is not practicable, redeem shares of Class A Liberty Media
Group Common Stock and Class B Liberty Media Group Common Stock in exchange for
shares of a single class of common stock of each Liberty Media Group Subsidiary
without distinction between the shares distributed to the holders of the Class A
Liberty Media Group Common Stock and Class B Liberty Media Group Common Stock.
<PAGE>
(b) Mandatory Dividend or Redemption in Case of Disposition of Liberty Media
Group Assets. In the event of the Disposition, in one transaction or a series of
related transactions, by the corporation and its subsidiaries of all or
substantially all of the properties and assets of the Liberty Media Group to one
or more Persons or groups (other than (w) in connection with the Disposition by
the corporation of all of the corporation's properties and assets in one
transaction or a series of related transactions in connection with the
liquidation, dissolution or winding up of the corporation within the meaning of
paragraph 6 of this Part B of this Article Third, (x) a dividend, other
distribution or redemption in accordance with any provision of paragraph 3,
paragraph 4, paragraph 5(a) or paragraph 6 of this Part B of this Article Third,
(y) to any Person or group which the Liberty Media Group, directly or
indirectly, after giving effect to the Disposition, controls and which is
included in the Liberty Media Group or (z) in connection with a Related Business
Transaction), the corporation shall, on or prior to the 85th Trading Day
following the consummation of such Disposition, either:
(i) subject to paragraph 3(b) of this Part B of this Article Third, declare
and pay a dividend in cash and/or in securities or other property
(determined as provided below) to the holders of the outstanding shares
of Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock equally on a share for share basis (subject to the
last sentence of this paragraph 5(b) of this Part B of this Article
Third), in an aggregate amount equal to the Liberty Media Group Net
Proceeds of such Disposition (provided that if such Disposition
involves all (not merely substantially all) of the properties and
assets of the Liberty Media Group, then the aggregate amount of such
dividend shall equal the product of the Liberty Media Group Full
Dilution Fraction and the Liberty Media Group Net Proceeds of such
Disposition and the difference between the aggregate amount of such
dividend and such Liberty Media Group Net Proceeds shall be reserved by
the corporation for payment or delivery to holders of Pre-Merger
Convertible Securities on conversion, exercise or exchange thereof); or
(ii) provided that there are assets of the corporation legally available
therefor and to the extent the Liberty Media Group Available Dividend
Amount would have been sufficient to pay a dividend in lieu thereof
pursuant to clause (i) of this paragraph 5(b) of this Part B of this
Article Third, then:
(A) if such Disposition involves all (not merely substantially all) of the
properties and assets of the Liberty Media Group, redeem all
outstanding shares of Class A Liberty Media Group Common Stock and
Class B Liberty Media Group Common Stock in exchange for cash and/or
securities or other property (determined as provided below) in an
aggregate amount equal to the product of the Liberty Media Group Full
Dilution Fraction and the Liberty Media Group Net Proceeds, such
aggregate amount to be allocated (subject to the last sentence of this
paragraph 5(b) of this Part B of this Article Third) to shares of Class
A Liberty Media Group Common Stock and Class B Liberty Media Group
Common Stock in the ratio of the number of shares of each such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Class A Liberty Media Group Common Stock
and each share of Class B Liberty Media Group Common Stock is the
same); or
<PAGE>
(B) if such Disposition involves substantially all (but not all) of the
properties and assets of the Liberty Media Group, apply an aggregate
amount of cash and/or securities or other property (determined as
provided below) equal to the Liberty Media Group Net Proceeds to the
redemption of outstanding shares of Class A Liberty Media Group Common
Stock and Class B Liberty Media Group Common Stock, such aggregate
amount to be allocated (subject to the last sentence of this paragraph
5(b) of this Part B of this Article Third) to shares of Class A Liberty
Media Group Common Stock and Class B Liberty Media Group Common Stock
in the ratio of the number of shares of each such series outstanding,
and the number of shares of each such series to be redeemed to equal
the lesser of (x) the whole number nearest the number determined by
dividing the aggregate amount so allocated to the redemption of such
series by the average Market Value of one share of Class A Liberty
Media Group Common Stock during the ten-Trading Day period beginning on
the 16th Trading Day following the consummation of such Disposition and
(y) the number of shares of such series outstanding (so that the amount
of consideration paid for the redemption of each share of Class A
Liberty Media Group Common Stock and each share of Class B Liberty
Media Group Common Stock is the same);
such redemption to be effected in accordance with the applicable
provisions of paragraph 5(d) of this Part B of this Article Third;
For purposes of this paragraph 5(b):
(x) as of any date, "substantially all of the properties and assets of
the Liberty Media Group" shall mean a portion of such properties and assets that
represents at least 80% of the then-current market value (as determined by the
Board of Directors) of the properties and assets of the Liberty Media Group as
of such date;
(y) in the case of a Disposition of properties and assets in a series
of related transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions; and
(z) the corporation shall pay the dividend or redemption price referred
to in clause (i) or (ii) of this paragraph 5(b) of this Part B of this Article
Third in the same form as the proceeds of the Disposition were received. If the
dividend or redemption price is paid in the form of securities of an issuer
other than the corporation, the corporation shall (1) if more than one class or
series of securities is to be distributed, if and to the extent practicable, pay
the dividend or redemption price in the form of separate classes or series of
securities, with one class or series of such securities to holders of Class A
Liberty Media Group Common Stock and another class or series of securities to
holders of Class B Liberty Media Group Common Stock, provided that such
securities (and, if such securities are convertible into or exercisable or
exchangeable for shares of another class or series of securities, the securities
so issuable upon such conversion, exercise or exchange) do not differ in any
respect other than their relative voting rights and related differences in
designation, conversion, redemption and share distribution provisions, with
holders of shares of Class B Liberty Media Group Common Stock receiving the
class or series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Class A Liberty Media Group Common Stock and
the Class B Liberty Media Group Common Stock), provided that if such securities
constitute capital stock of a Subsidiary of the corporation, such rights shall
<PAGE>
not differ to a greater extent than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution provisions
between the Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock, and otherwise such securities shall be distributed on an
equal per share basis, and (2) otherwise pay the dividend or redemption price in
the form of a single class of securities without distinction between the shares
received by the holders of Class A Liberty Media Group Common Stock and Class B
Liberty Media Group Common Stock.
(c) Certain Provisions Respecting Convertible Securities. Unless the provisions
of any class or series of Pre-Merger Convertible Securities provide specifically
to the contrary, after any Redemption Date on which all outstanding shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media Group Common
Stock were redeemed, any share of Class A Liberty Media Group Common Stock or
Class B Liberty Media Group Common Stock that is issued on conversion, exercise
or exchange of any Pre-Merger Convertible Securities shall, immediately upon
issuance pursuant to such conversion, exercise or exchange and without any
notice or any other action on the part of the corporation or its Board of
Directors or the holder of such share of Class A Liberty Media Group Common
Stock or Class B Liberty Media Group Common Stock, be redeemed in exchange for
the kind and amount of shares of capital stock, cash and/or other securities or
property that a holder of such Pre-Merger Convertible Securities would have been
entitled to receive pursuant to the terms of such securities had such terms
provided that the conversion, exercise or exchange privilege in effect
immediately prior to any such redemption of all outstanding shares of Class A
Liberty Media Group Common Stock and Class B Liberty Media Group Common Stock
would be adjusted so that the holder of any such Pre-Merger Convertible
Securities thereafter surrendered for conversion, exercise or exchange would be
entitled to receive the kind and amount of shares of capital stock, cash and/or
other securities or property such holder would have received as a result of such
redemption had such securities been converted, exercised or exchanged
immediately prior thereto. Unless the provisions of any class or series of
Convertible Securities (other than Pre-Merger Convertible Securities) which are
or become convertible into or exercisable or exchangeable for shares of Class A
Liberty Media Group Common Stock or Class B Liberty Media Group Common Stock
provide specifically to the contrary, after any Redemption Date on which all
outstanding shares of Class A Liberty Media Group Common Stock and Class B
Liberty Media Group Common Stock were redeemed, any share of Class A Liberty
Media Group Common Stock or Class B Liberty Media Group Common Stock that is
issued on conversion, exercise or exchange of any such Convertible Securities
shall, immediately upon issuance pursuant to such conversion, exercise or
exchange and without any notice or any other action on the part of the
corporation or its Board of Directors or the holder of such share of Class A
Liberty Media Group Common Stock or Class B Liberty Media Group Common Stock, be
redeemed in exchange for, to the extent assets of the corporation are legally
available therefor, the amount of $.01 per share in cash.
(d) General.
(i) Not later than the 10th Trading Day following the consummation of a
Disposition referred to in paragraph 5(b) of this Part B of this
Article Third, the corporation shall announce publicly by press release
(A) the Liberty Media Group Net Proceeds of such Disposition, (B) the
number of outstanding shares of Class A Liberty Media Group Common
Stock and Class B Liberty Media Group Common Stock, (C) the number of
shares of Class A Liberty Media Group Common Stock and Class B Liberty
Media Group Common Stock into or for which Convertible Securities are
then convertible, exercisable or exchangeable and the conversion,
<PAGE>
exercise or exchange prices thereof (and stating which, if any, of such
Convertible Securities constitute Pre-Merger Convertible Securities),
and (D) if the Disposition is of all (not merely substantially all) of
the properties and assets of the Liberty Media Group, the Liberty Media
Group Full Dilution Fraction as of a recent date preceding the date of
such notice. Not earlier than the 26th Trading Day and not later than
the 30th Trading Day following the consummation of such Disposition,
the corporation shall announce publicly by press release which of the
actions specified in clauses (i) or (ii) of paragraph 5(b) of this Part
B of this Article Third it has irrevocably determined to take.
(ii) If the corporation determines to pay a dividend pursuant to clause (i)
of paragraph 5(b) of this Part B of this Article Third, the corporation
shall, not later than the 30th Trading Day following the consummation
of such Disposition, cause to be given to each holder of outstanding
shares of Class A Liberty Media Group Common Stock and Class B Liberty
Media Group Common Stock, and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to
the terms of such Convertible Securities), a notice setting forth (A)
the record date for determining holders entitled to receive such
dividend, which shall be not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of such
Disposition, (B) the anticipated payment date of such dividend (which
shall not be more than 85 Trading Days following the consummation of
such Disposition), (C) the kind of shares of capital stock, cash and/or
other securities or property to be distributed in respect of shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock, (D) the Liberty Media Group Net Proceeds of such
Disposition, (E) if the Disposition is of all (not merely substantially
all) the properties and assets of the Liberty Media Group, the Liberty
Media Group Full Dilution Fraction as of a recent date preceding the
date of such notice, (F) the number of outstanding shares of Class A
Liberty Media Group Common Stock and Class B Liberty Media Group Common
Stock and the number of shares of Class A Liberty Media Group Common
Stock and Class B Liberty Media Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof,
(G) in the case of a notice to holders of Convertible Securities (other
than Pre-Merger Convertible Securities, in the case of a Disposition of
all (not merely substantially all) the properties and assets of the
Liberty Media Group), a statement to the effect that holders of such
Convertible Securities shall be entitled to receive such dividend only
if they appropriately convert, exercise or exchange such Convertible
Securities prior to the record date referred to in clause (A) of this
sentence, and (H) if the Disposition is of all (not merely
substantially all) the properties and assets of the Liberty Media
Group, in the case of a notice to holders of Pre-Merger Convertible
Securities, a statement to the effect that the holders of such
Pre-Merger Convertible Securities shall be entitled to receive such
dividend (without interest) upon conversion, exercise or exchange of
such Pre-Merger Convertible Securities. Such notice shall be sent by
first-class mail, postage prepaid, at such holder's address as the same
appears on the transfer books of the corporation.
(iii) If the corporation determines to undertake a redemption of shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock following a Disposition of all (not merely
<PAGE>
substantially all) of the properties and assets of the Liberty Media
Group pursuant to clause (ii) (A) of paragraph 5(b) of this Part B of
this Article Third, the corporation shall cause to be given to each
holder of outstanding shares of Class A Liberty Media Group Common
Stock and Class B Liberty Media Group Common Stock and to each holder
of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for
notice is otherwise made pursuant to the terms of such Convertible
Securities), a notice setting forth (A) a statement that all shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock outstanding on the Redemption Date shall be
redeemed, (B) the Redemption Date (which shall not be more than 85
Trading Days following the consummation of such Disposition), (C) the
kind of shares of capital stock, cash and/or other securities or
property to be paid as a redemption price in respect of shares of Class
A Liberty Media Group Common Stock and Class B Liberty Media Group
Common Stock outstanding on the Redemption Date, (D) the Liberty Media
Group Net Proceeds of such Disposition, (E) the Liberty Media Group
Full Dilution Fraction as of a recent date preceding the date of such
notice, (F) the place or places where certificates for shares of Class
A Liberty Media Group Common Stock and Class B Liberty Media Group
Common Stock, properly endorsed or assigned for transfer (unless the
corporation waives such requirement), are to be surrendered for
delivery of certificates for shares of such capital stock, cash and/or
other securities or property, (G) the number of outstanding shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock and the number of shares of Class A Liberty Media
Group Common Stock and Class B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange
prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Merger Convertible Securities), and (H) in
the case of a notice to holders of Convertible Securities (other than
Pre-Merger Convertible Securities), a statement to the effect that
holders of such Convertible Securities shall be entitled to participate
in such redemption only if such holders appropriately convert, exercise
or exchange such Convertible Securities on or prior to the Redemption
Date referred to in clause (B) of this sentence and a statement as to
what, if anything, such holders shall be entitled to receive pursuant
to the terms of such Convertible Securities or, if applicable,
paragraph 5(c) of this Part B of this Article Third if such holders
convert, exercise or exchange such Convertible Securities following
such Redemption Date. Such notice shall be sent by first-class mail,
postage prepaid, not less than 35 Trading Days nor more than 45 Trading
Days prior to the Redemption Date, at such holder's address as the same
appears on the transfer books of the corporation.
(iv) If the corporation determines to undertake a redemption of shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock following a Disposition of substantially all (but
not all) of the properties and assets of the Liberty Media Group
pursuant to clause (ii)(B) of paragraph 5(b) of Part B of this Article
Third, the corporation shall, not later than the 30th Trading Day
following the consummation of such Disposition, cause to be given to
each holder of record of outstanding shares of Class A Liberty Media
Group Common Stock and Class B Liberty Media Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable
or exchangeable for shares of either such series (unless provision for
<PAGE>
notice is otherwise made pursuant to the terms of such Convertible
Securities), a notice setting forth (A) a date not earlier than the
40th Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition which shall be the date on which
shares of the Class A Liberty Media Group Common Stock and Class B
Liberty Media Group Common Stock then outstanding shall be selected for
redemption, (B) the anticipated Redemption Date (which shall not be
more than 85 Trading Days following the consummation of such
Disposition), (C) the kind of shares of capital stock, cash and/or
other securities or property to be paid as a redemption price in
respect of shares of Class A Liberty Media Group Common Stock and Class
B Liberty Media Group Common Stock selected for redemption, (D) the
Liberty Media Group Net Proceeds of such Disposition, (E) the number of
outstanding shares of Class A Liberty Media Group Common Stock and
Class B Liberty Media Group Common Stock and the number of shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock into or for which outstanding Convertible Securities
are then convertible, exercisable or exchangeable and the conversion or
exercise prices thereof, and (F) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to participate in such
selection for redemption only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the
date referred to in clause (A) of this sentence and a statement as to
what, if anything, such holders shall be entitled to receive pursuant
to the terms of such Convertible Securities if such holders convert,
exercise or exchange such Convertible Securities following such date.
Promptly following the date referred to in clause (A) of the preceding
sentence, but not earlier than the 40th Trading Day and not later than
the 50th Trading Day following the consummation of such Disposition,
the corporation shall cause to be given to each holder of shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock to be so redeemed, a notice setting forth (A) the
number of shares of Class A Liberty Media Group Common Stock and Class
B Liberty Media Group Common Stock held by such holder to be redeemed,
(B) a statement that such shares of Class A Liberty Media Group Common
Stock and Class B Liberty Media Group Common Stock shall be redeemed,
(C) the Redemption Date (which shall not be more than 85 Trading Days
following the consummation of such Disposition), (D) the kind and per
share amount of shares of capital stock, cash and/or other securities
or property to be received by such holder with respect to each share of
such Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock to be redeemed, including details as to the
calculation thereof, and (E) the place or places where certificates for
shares of such Class A Liberty Media Group Common Stock or Class B
Liberty Media Group Common Stock, properly endorsed or assigned for
transfer (unless the corporation waives such requirement), are to be
surrendered for delivery of certificates for shares of such capital
stock, cash and/or other securities or property. The notices referred
to in this clause (iv) shall be sent by first-class mail, postage
prepaid, at such holder's address as the same appears on the transfer
books of the corporation. The outstanding shares of Class A Liberty
Media Group Common Stock and Class B Liberty Media Group Common Stock
to be redeemed shall be redeemed by the corporation pro rata among the
holders of Class A Liberty Media Group Common Stock and Class B Liberty
Media Group Common Stock or by such other method as may be determined
by the Board of Directors to be equitable.
<PAGE>
(v) If the corporation determines to redeem shares of Class A Liberty Media
Group Common Stock and Class B Liberty Media Group Common Stock
pursuant to paragraph 5(a) of this Part B of this Article Third, the
corporation shall promptly cause to be given to each holder of Class A
Liberty Media Group Common Stock and Class B Liberty Media Group Common
Stock and to each holder of Convertible Securities convertible into or
exercisable or exchangeable for shares of either such series (unless
provision for such notice is otherwise made pursuant to the terms of
such Convertible Securities), a notice setting forth (A) a statement
that all outstanding shares of Class A Liberty Media Group Common Stock
and Class B Liberty Media Group Common Stock shall be redeemed in
exchange for shares of common stock of the Liberty Media Group
Subsidiaries, (B) the Redemption Date, (C) the place or places where
certificates for shares of Class A Liberty Media Group Common Stock and
Class B Liberty Media Group Common Stock, properly endorsed or assigned
for transfer (unless the corporation shall waive such requirement), are
to be surrendered for delivery of certificates for shares of common
stock of the Liberty Media Group Subsidiaries, (D) the number of
outstanding shares of Class A Liberty Media Group Common Stock and
Class B Liberty Media Group Common Stock and the number of shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media
Group Common Stock into or for which outstanding Convertible Securities
are then convertible, exercisable or exchangeable and the conversion,
exercise or exchange prices thereof (and stating which, if any, of such
Convertible Securities constitute Pre-Merger Convertible Securities)
and (E) in the case of a notice to holders of Convertible Securities
(other than Pre-Merger Convertible Securities), a statement to the
effect that holders of such Convertible Securities shall be entitled to
participate in such redemption only if such holders appropriately
convert, exercise or exchange such Convertible Securities on or prior
to the Redemption Date referred to in clause (B) of this sentence and a
statement as to what, if anything, such holders shall be entitled to
receive pursuant to the terms of such Convertible Securities or, if
applicable, paragraph 5(c) of this Part B of this Article Third if such
holders convert, exercise or exchange such Convertible Securities
following the Redemption Date. Such notice shall be sent by first-class
mail, postage prepaid, not less than 35 Trading Days nor more than 45
Trading Days prior to the Redemption Date, at such holder's address as
the same appears on the transfer books of the corporation.
(vi) Neither the failure to mail any notice required by this paragraph 5(d)
to any particular holder of Class A Liberty Media Group Common Stock,
Class B Liberty Media Group Common Stock or of Convertible Securities
nor any defect therein shall affect the sufficiency thereof with
respect to any other holder of outstanding shares of Class A Liberty
Media Group Common Stock or Class B Liberty Media Group Common Stock or
of Convertible Securities, or the validity of any redemption.
(vii) The corporation shall not be required to issue or deliver fractional
shares of any class of capital stock or any fractional securities to
any holder of Class A Liberty Media Group Common Stock or Class B
Liberty Media Group Common Stock upon any redemption, dividend or other
distribution pursuant to this paragraph 5. In connection with the
determination of the number of shares of any class of capital stock
that shall be issuable or the amount of securities that shall be
deliverable to any holder of record upon any such redemption, dividend
or other distribution (including any fractions of shares or
securities), the corporation may aggregate the number of shares of
<PAGE>
Class A Liberty Media Group Common Stock or Class B Liberty Media Group
Common Stock held at the relevant time by such holder of record. If the
number of shares of any class of capital stock or the amount of
securities remaining to be issued or delivered to any holder of Class A
Liberty Media Group Common Stock or Class B Liberty Media Group Common
Stock is a fraction, the corporation shall, if such fraction is not
issued or delivered to such holder, pay a cash adjustment in respect of
such fraction in an amount equal to the fair market value of such
fraction on the fifth Trading Day prior to the date such payment is to
be made (without interest). For purposes of the preceding sentence,
"fair market value" of any fraction shall be (A) in the case of any
fraction of a share of capital stock of the corporation, the product of
such fraction and the Market Value of one share of such capital stock
and (B) in the case of any other fractional security, such value as is
determined by the Board of Directors.
(viii) No adjustments in respect of dividends shall be made upon the
redemption of any shares of Class A Liberty Media Group Common Stock or
Class B Liberty Media Group Common Stock; provided, however, that if
the Redemption Date with respect to the Class A Liberty Media Group
Common Stock or Class B Liberty Media Group Common Stock shall be
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of
Class A Liberty Media Group Common Stock or Class B Liberty Media Group
Common Stock at the close of business on such record date shall be
entitled to receive the dividend or other distribution payable on or
with respect to such shares on the date set for payment of such
dividend or other distribution, notwithstanding the redemption of such
shares or the corporation's default in payment of the dividend or
distribution due on such date.
(ix) Before any holder of shares of Class A Liberty Media Group Common Stock
or Class B Liberty Media Group Common Stock shall be entitled to
receive certificates representing shares of any kind of capital stock
or cash and/or securities or other property to be received by such
holder with respect to shares of Class A Liberty Media Group Common
Stock or Class B Liberty Media Group Common Stock pursuant to this
paragraph 5 of this Part B of this Article Third, such holder shall
surrender at such place as the corporation shall specify certificates
for such shares of Class A Liberty Media Group Common Stock or Class B
Liberty Media Group Common Stock, properly endorsed or assigned for
transfer (unless the corporation shall waive such requirement). The
corporation shall as soon as practicable after such surrender of
certificates representing shares of Class A Liberty Media Group Common
Stock or Class B Liberty Media Group Common Stock deliver to the person
for whose account shares of Class A Liberty Media Group Common Stock or
Class B Liberty Media Group Common Stock were so surrendered, or to the
nominee or nominees of such person, certificates representing the
number of whole shares of the kind of capital stock or cash and/or
securities or other property to which such person shall be entitled as
aforesaid, together with any payment for fractional securities
contemplated by paragraph 5(d)(vii) of this Part B of this Article
Third. If less than all of the shares of Class A Liberty Media Group
Common Stock or Class B Liberty Media Group Common Stock represented by
any one certificate are to be redeemed, the corporation shall issue and
deliver a new certificate for the shares of Class A Liberty Media Group
Common Stock or Class B Liberty Media Group Common Stock not redeemed.
The corporation shall not be required to register a transfer of any
<PAGE>
shares of Class A Liberty Media Group Common Stock or Class B Liberty
Media Group Common Stock selected or called for redemption.
(x) From and after any applicable Redemption Date, all rights of a holder
of shares of Class A Liberty Media Group Common Stock or Class B
Liberty Media Group Common Stock that were redeemed shall cease except
for the right, upon surrender of the certificates representing shares
of Class A Liberty Media Group Common Stock or Class B Liberty Media
Group Common Stock, to receive certificates representing shares of the
kind and amount of capital stock or cash and/or securities or other
property for which such shares were redeemed, together with any payment
for fractional securities contemplated by paragraph 5(d)(vii) of this
Part B of this Article Third and such holder shall have no other or
further rights in respect of the shares of Class A Liberty Media Group
Common Stock or Class B Liberty Media Group Common Stock so redeemed,
including, but not limited to, any rights with respect to any cash,
securities or other properties which are reserved or otherwise
designated by the corporation as being held for the satisfaction of the
corporation's obligations to pay or deliver any cash, securities or
other property upon the conversion, exercise or exchange of any
Convertible Securities that were convertible into or exercisable or
exchangeable for Class A Liberty Media Group Common Stock or Class B
Liberty Media Group Common Stock and outstanding as of the date of such
redemption. No holder of a certificate that, immediately prior to the
applicable Redemption Date for the Class A Liberty Media Group Common
Stock or Class B Liberty Media Group Common Stock, represented shares
of Class A Liberty Media Group Common Stock or Class B Liberty Media
Group Common Stock shall be entitled to receive any dividend or other
distribution with respect to shares of any kind of capital stock into
or in exchange for which the Class A Liberty Media Group Common Stock
or Class B Liberty Media Group Common Stock was redeemed until
surrender of such holder's certificate for a certificate or
certificates representing shares of such kind of capital stock. Upon
such surrender, there shall be paid to the holder the amount of any
dividends or other distributions (without interest) which theretofore
became payable with respect to a record date after the Redemption Date
but that were not paid by reason of the foregoing, with respect to the
number of whole shares of the kind of capital stock represented by the
certificate or certificates issued upon such surrender. From and after
a Redemption Date for any shares of Class A Liberty Media Group Common
Stock or Class B Liberty Media Group Common Stock, the corporation
shall, however, be entitled to treat the certificates for shares of
Class A Liberty Media Group Common Stock or Class B Liberty Media Group
Common Stock that have not yet been surrendered for redemption as
evidencing the ownership of the number of whole shares of the kind or
kinds of capital stock for which the shares of Class A Liberty Media
Group Common Stock or Class B Liberty Media Group Common Stock
represented by such certificates shall have been redeemed,
notwithstanding the failure to surrender such certificates.
(xi) The corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on
redemption of shares of Class A Liberty Media Group Common Stock or
Class B Liberty Media Group Common Stock pursuant to this Part B of
this Article Third. The corporation shall not, however, be required to
pay any tax that may be payable in respect of any transfer involved in
the issue and delivery of any shares of capital stock in a name other
<PAGE>
than that in which the shares of Class A Liberty Media Group Common
Stock or Class B Liberty Media Group Common Stock so redeemed were
registered and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the corporation the amount
of any such tax, or has established to the satisfaction of the
corporation that such tax has been paid.
6. Liquidation.
In the event of a liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the corporation and subject to the
prior payment in full of the preferential amounts to which any class or series
of Preferred Stock is entitled, (a) the holders of the shares of Common Stock
and (on the basis that may be set forth in this Certificate with respect to any
such shares) the holders of any other class of common shares (other than the
Liberty Media Group Common Stock) shall share in the aggregate in a percentage
of the funds of the corporation remaining for distribution to its common
shareholders equal to 100% multiplied by the average daily ratio (expressed as a
decimal) of X/Z for the 20-Trading Day period ending on the Trading Day prior to
the date of the public announcement of such liquidation, dissolution or winding
up, and (b) the holders of the shares of Class A Liberty Media Group Common
Stock and the holders of the shares of Class B Liberty Media Group Common Stock
shall share equally, on a share for share basis, in a percentage of the funds of
the corporation remaining for distribution to its common shareholders equal to
100% multiplied by the average daily ratio (expressed as a decimal) of Y/Z for
such 20-Trading Day period, where X is the aggregate Market Capitalization of
the Common Stock and any other class of common shares (other than the Liberty
Media Group Common Stock), Y is the aggregate Market Capitalization of the Class
A Liberty Media Group Common Stock and the Class B Liberty Media Group Common
Stock, and Z is the aggregate Market Capitalization of the Common Stock, any
other class of common shares (other than the Liberty Media Group Common Stock),
the Class A Liberty Media Group Common Stock and the Class B Liberty Media Group
Common Stock. Neither the consolidation or merger of the corporation with or
into any other corporation or corporations nor the sale, transfer or lease of
all or substantially all of the assets of the corporation shall itself be deemed
to be a liquidation, dissolution or winding up of the corporation within the
meaning of this paragraph 6 of this Part B of this Article Third.
Notwithstanding the foregoing, any transaction or series of related transactions
which results in all of the assets and liabilities included in the Liberty Media
Group being held by one or more Liberty Media Group Subsidiaries, and the
distribution of such Liberty Media Group Subsidiaries (and no other material
assets or liabilities) to the holders of the outstanding Liberty Media Group
Common Stock shall not constitute a voluntary or involuntary liquidation,
dissolution or winding up of the corporation for purposes of this paragraph 6 of
this Part B of this Article Third, but shall be subject to paragraph 5(a) of
this Part B of this Article Third.
7. Determinations by the Board of Directors.
Any determinations made by the Board of Directors under any provision
in this Part B of this Article Third shall be final and binding on all
shareholders of the corporation, except as may otherwise be required by law. The
corporation shall prepare a statement of any such determination by the Board of
Directors respecting the fair market value of any properties, assets or
securities and shall file such statement with the Secretary of the corporation.
<PAGE>
8. Relationship Between the Liberty Media Group and the Common Stock Group.
(a) In furtherance and not in limitation of the provisions of Article Ninth,
neither the Liberty Media Group on the one hand, nor the Common Stock Group on
the other hand, shall have any duty, responsibility or obligation to refrain
from (and none of the directors or officers of the corporation, the Liberty
Media Group or the Common Stock Group shall have any duty, responsibility or
obligation to cause the Liberty Media Group or the Common Stock Group to refrain
from) (i) engaging in the same or similar activities or lines of business as any
member of the other Group, (ii) doing business with any potential or actual
supplier or customer of any member of any other Group or (iii) engaging in, or
refraining from, any other activities whatsoever relating to any of the
potential or actual suppliers or customers of any member of the other Group.
(b) In furtherance and not in limitation of the provisions of Article Ninth,
neither the Liberty Media Group on the one hand, nor the Common Stock Group on
the other hand, shall have any duty, responsibility or obligation (and none of
the directors or officers of the corporation, the Liberty Media Group or the
Common Stock Group shall have any duty, responsibility or obligation to cause
the Liberty Media Group or the Common Stock Group) (i) to communicate or offer
any business or other corporate opportunity to any other Person (including any
business or other corporate opportunity which may arise which either Group may
be financially able to undertake, and which is, from its nature, in the line of
more than one Group's business and is of practical advantage to more than one
Group), (ii) to provide financial support to the other Group (or any member
thereof) or (iii) otherwise to assist the other Group.
(c) In furtherance and not in limitation of the provisions of Article Ninth, no
director or officer of the corporation shall be liable to the corporation or any
holder of any securities of the corporation in respect of any failure or alleged
failure of such officer or director to offer to (or to cause the Liberty Media
Group or the Common Stock Group to offer to) either Group any corporate
opportunity of any kind or nature that is pursued by the other Group.
(d) Nothing in this paragraph 8 of this Part B of this Article Third shall
prevent any members of the Liberty Media Group from entering into written
agreements with the Common Stock Group to define or restrict any aspect of the
relationship between the Groups.
9. Certain Definitions.
Unless the context otherwise requires, the terms defined in this Part B
of this Article Third shall have, for all purposes of this Part B of this
Article Third, the meanings herein specified:
"Common Stock Group" shall mean, as of any date, the interest of the
corporation or any of its subsidiaries in all of the businesses in which the
corporation or any of its subsidiaries (or any of their predecessors or
successors) is or has been engaged, directly or indirectly, and the respective
assets and liabilities of the corporation or any of its subsidiaries, other than
any businesses, assets or liabilities of the Liberty Media Group.
"Convertible Securities" shall mean any securities of the corporation
(other than the Liberty Media Group Common Stock) or any Subsidiary thereof that
are convertible into, exchangeable for or evidence the right to purchase any
shares of Common Stock or of any series of Liberty Media Group Common Stock,
whether upon conversion, exercise, exchange, pursuant to antidilution provisions
of such securities or otherwise.
<PAGE>
"Covered Disposition" shall mean (x) any direct or indirect sale,
transfer or conveyance by the corporation of any of its equity interest in
Liberty Media Corporation or any Covered Entity or (y) any grant of any pledge
or other security interest in the equity interest of the corporation in Liberty
Media Corporation or any Covered Entity; provided, however, that the foregoing
shall not apply to (i) any issuance or sale by the corporation of its own
securities, (ii) any issuance or sale by Liberty Media Corporation of its own
securities or any sale, transfer or conveyance by Liberty Media Corporation or
any other Person included in the Liberty Media Group of any securities of any
Person included in the Liberty Media Group, (iii) with respect to any Covered
Entity, any transaction duly authorized by the board of directors of such
Covered Entity, or (iv) any merger, consolidation, exchange of shares or other
business combination transaction involving the corporation in which the
corporation (or its successors) continues immediately following such transaction
to hold the same direct or indirect interest in the business, assets and
liabilities comprising the Liberty Media Group that it held immediately prior to
such transaction (other than as a result of any action by any Person included in
the Liberty Media Group). If a contribution of assets of Liberty Media
Corporation to Liberty Media Group LLC occurs (other than the initial
contribution made on formation thereof), then from and after the date of such
contribution all references in the preceding sentence of this definition of
Covered Disposition to Liberty Media Corporation shall be deemed to refer to
Liberty Media Group LLC.
"Covered Entity" shall mean, as of any date of determination, each of
the following Persons (and any successor to such Person, by merger,
consolidation, sale of all or substantially all of its assets or otherwise,
whether or not in connection with a Related Business Transaction) unless all of
the Corporation's equity interest in such Person or all of the assets of such
Person are held by (i) Liberty Media Corporation, if such date of determination
is prior to the contribution of assets of Liberty Media Corporation to Liberty
Media Group LLC (other than the initial contribution made on formation thereof)
or (ii) Liberty Media Group LLC, if such date of determination is after the
contribution referred to in clause (i): Tele-Communications International, Inc.,
TCI Wireless Holdings, Inc., TCIP, Inc., Silver Spur Land and Cattle Co., and
TCI Interactive, Inc.
"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets or
stock or otherwise) by the corporation (or its successors) or any of its
Subsidiaries of properties or assets. Disposition shall not include a merger,
consolidation, exchange of shares or other business combination transaction
involving the corporation in which the corporation (or its successors) continues
immediately following such transaction to hold the same direct and indirect
interest in the business, assets and liabilities comprising the Liberty Media
Group that it held immediately prior to such transaction (other than as a result
of any action by any Person included in the Liberty Media Group).
"Group" shall mean either the Common Stock Group or the Liberty Media
Group.
"Liberty Media Group" shall mean, as of any date that any shares of
Class A Liberty Media Group Common Stock or Class B Liberty Media Group Common
Stock have been issued and continue to be outstanding, each of the following,
without duplication: (a) the proceeds of any issuances or sales of Class A
Liberty Media Group Common Stock, Class B Liberty Media Group Common Stock or
any Convertible Securities that are convertible into or exercisable or
exchangeable for Liberty Media Group Common Stock or of any Preferred Stock that
<PAGE>
is attributed to the Liberty Media Group; (b) the interest of the corporation or
any of its subsidiaries in the Associated Group, Inc., a Delaware corporation,
and the proceeds of any disposition thereof; (c) the interest of the Corporation
or any of its subsidiaries in each Covered Entity or any subsidiary of a Covered
Entity and their respective properties and assets (including, without
limitation, the Sprint PCS Investment) and the proceeds of any disposition
thereof; and (d) the interest of the corporation or of any of its subsidiaries
in Liberty Media Corporation or any of its subsidiaries (including any successor
thereto by merger, consolidation or sale of all or substantially all of its
assets, whether or not in connection with a Related Business Transaction) and
their respective properties and assets and the proceeds of any disposition
thereof; provided, however, that if a contribution of assets of Liberty Media
Corporation to Liberty Media Group LLC occurs (other than the initial
contribution made on formation thereof), then from and after the date of such
contribution, the Liberty Media Group shall mean, as of any date that any shares
of Class A Liberty Media Group Common Stock or Class B Liberty Media Group
Common Stock continue to be outstanding, in addition to the assets referred to
in clauses (a), (b) and (c) above and in clause (e) below, the interest of the
corporation or any of its subsidiaries in (i) the Retained Business and (ii)
Liberty Media Group LLC or any of its subsidiaries (including any successor
thereto by merger, consolidation or sale of all or substantially all of its
assets, whether or not in connection with a Related Business Transaction) and
their respective properties and assets and the proceeds of any disposition
thereof; and (e) the interest of the corporation in all dividends and
distributions from Liberty Media Group LLC to Liberty Media Corporation or any
of its subsidiaries (including any such successor) or from Liberty Media
Corporation (or any such successor) to its shareholders or from any Covered
Entity to its shareholders. For purposes hereof, "Retained Businesses" means the
businesses, assets and liabilities of Liberty Media Corporation immediately
following the contribution referred to in the preceding sentence (or, if there
is more than one such contribution after the initial contribution made on
formation, then the first of such contributions).
"Liberty Media Group Available Dividend Amount," as of any date, shall
mean the excess of (i) the amount by which the total assets of the Liberty Media
Group exceed the total liabilities of the Liberty Media Group as of such date
over (ii) the sum of (A) the par value of all issued shares of Liberty Media
Group Common Stock and each class or series of Preferred Stock attributed to the
Liberty Media Group, (B) the amount of the consideration received for any shares
of Preferred Stock attributed to the Liberty Media Group without par value that
have been issued, except such part of the consideration therefor as may have
been allocated to surplus in a manner permitted by law, and (C) any amount not
included in clauses (A) and (B) that the corporation (by appropriate action of
its Board of Directors) has transferred to stated capital specifically in
respect of Liberty Media Group Common Stock, minus (D) all reductions from such
sums set forth in clauses (A), (B) and (C) as have been effected in a manner
permitted by law; provided, however, that in the event that the law governing
the corporation changes from that governing the corporation on the date of the
adoption of the Amendment to this Certificate pursuant to which the Liberty
Media Group Common Stock was authorized (whether because of amendment of the
applicable law or because of a change in the jurisdiction of incorporation of
the corporation through merger or otherwise), the Liberty Media Group Available
Dividend Amount shall mean that amount of dividends, as determined by the Board
of Directors, that could be paid by a corporation (governed under such
applicable law) having the assets and liabilities of the Liberty Media Group, an
amount of outstanding common stock (and having an aggregate par value) equal to
the amount (and aggregate par value) of the outstanding Liberty Media Group
Common Stock and of each class or series of Preferred Stock attributed to the
<PAGE>
Liberty Media Group and having an amount of earnings or loss or other relevant
corporate attributes as reasonably determined by the Board of Directors in light
of all factors deemed relevant by the Board.
"Liberty Media Group Full Dilution Fraction" shall mean, as of any
date, a fraction the numerator of which is the aggregate number of shares of
Class A Liberty Media Group Common Stock and Class B Liberty Media Group Common
Stock outstanding on such date and the denominator of which is the sum of (a)
such aggregate number of shares of Class A Liberty Media Group Common Stock and
Class B Liberty Media Group Common Stock outstanding on such date and (b) the
aggregate number of shares of Class A Liberty Media Group Common Stock and Class
B Liberty Media Group Common Stock issuable, determined as of such date, upon
conversion, exercise or exchange of Pre-Merger Convertible Securities.
"Liberty Media Group LLC" shall mean Liberty Media Group LLC, a
Delaware limited liability company, of which Liberty Media Corporation and
Liberty Management LLC are the members, and any successor thereto (by merger,
consolidation, sale of all or substantially all of its assets or otherwise,
whether or not in connection with a Related Business Transaction).
"Liberty Media Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the Liberty
Media Group, an amount, if any, equal to the gross proceeds of such Disposition
after any payment of, or reasonable provision for, (a) any taxes payable by the
corporation in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of
paragraph 5(b) of this Part B of this Article Third (or which would have been
payable but for the utilization of tax benefits attributable to the Common Stock
Group) reduced by any offset to such liability of the Liberty Media Group
allowed pursuant to the Tax Sharing Agreement entered into pursuant to the
Merger Agreement, (b) any transaction costs borne by the Common Stock Group in
connection with such Disposition, including, without limitation, any legal,
investment banking and accounting fees and expenses borne by the Common Stock
Group in connection with such Disposition, (c) any liabilities and other
obligations (contingent or otherwise) of the Liberty Media Group borne by the
Common Stock Group in connection with such Disposition, including, without
limitation, any indemnity or guarantee obligations incurred by the Common Stock
Group in connection with the Disposition or any liabilities assumed by the
Common Stock Group for future purchase price adjustments, and (d) any
preferential amounts, accumulated and unpaid dividends and other obligations
(other than with respect to Pre-Merger Convertible Securities) in respect of
Preferred Stock attributed to the Liberty Media Group; provided, however, that
the net amount determined in accordance with the foregoing provisions of this
sentence shall, without duplication, be increased by the net amount, if any,
payable by the Common Stock Group to the Liberty Media Group, or decreased by
the net amount, if any, payable by the Liberty Media Group to the Common Stock
Group, pursuant to the Tax Sharing Agreement referred to above, as applicable,
as a result of the deconsolidation of the properties and assets of the Liberty
Media Group disposed of in such Disposition. For purposes of this definition,
any properties and assets of the Liberty Media Group remaining after such
Disposition shall constitute "reasonable provision" for such amount of taxes,
costs and liabilities (contingent or otherwise) as can be supported by such
properties and assets. To the extent the proceeds of any Disposition include any
securities or other property other than cash, the Board of Directors shall
determine the value of such securities or property.
"Liberty Media Corporation" shall mean Liberty Media Corporation, a
Delaware corporation, and any successor thereto (by merger, consolidation, sale
<PAGE>
of all or substantially all of its assets or otherwise, whether or not in
connection with a Related Business Transaction).
"Market Capitalization" of any class or series of capital stock of the
corporation on any Trading Day shall mean the product of (i) the Market Value of
one share of such class or series on such Trading Day and (ii) the number of
shares of such class or series outstanding on such Trading Day.
"Market Value" of any class or series of capital stock of the
corporation on any day shall mean the average of the high and low reported sales
prices regular way of a share of such class or series on such day (if such day
is a Trading Day, and if such day is not a Trading Day, on the Trading Day
immediately preceding such day) or in case no such reported sale takes place on
such Trading Day the average of the reported closing bid and asked prices
regular way of a share of such class or series on such Trading Day, in either
case on the New York Stock Exchange or, if the shares of such class or series
are not quoted on the New York Stock Exchange on such Trading Day, on the Nasdaq
National Market, or if the shares of such class or series are not quoted on the
Nasdaq National Market on such Trading Day, the average of the closing bid and
asked prices of a share of such class or series in the over-the-counter market
on such Trading Day as furnished by any New York Stock Exchange member firm
selected from time to time by the corporation, or if such closing bid and asked
prices are not made available by any such New York Stock Exchange member firm on
such Trading Day (including without limitation because such securities are not
publicly held), the market value of a share of such class or series as
determined by the Board of Directors; provided that for purposes of determining
the ratios set forth in paragraph 6 of this Part B of this Article Third, (a)
the "Market Value" of any share of Common Stock or of any class of Liberty Media
Group Common Stock on any day prior to the "ex" date or any similar date for any
dividend or distribution paid or to be paid with respect to the Common Stock or
such class of Liberty Media Group Common Stock, as applicable, shall be reduced
by the fair market value of the per share amount of such dividend or
distribution as determined by the Board of Directors and (b) the "Market Value"
of any share of Common Stock or of any class of Liberty Media Group Common Stock
on any day prior to (i) the effective date of any subdivision (by stock split or
otherwise) or combination (by reverse stock split or otherwise) of outstanding
shares of Common Stock or of such class of Liberty Media Group Common Stock, as
applicable, or (ii) the "ex" date or any similar date for any dividend or
distribution with respect to the Common Stock or any such class of Liberty Media
Group Common Stock in shares of the Common Stock or such class of Liberty Media
Group Common Stock, as applicable, shall be appropriately adjusted to reflect
such subdivision, combination, dividend or distribution.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Pre-Merger Convertible Securities" shall mean Convertible Securities
that were outstanding immediately following the Effective Time (as such term is
defined in the Merger Agreement) and were, at such date convertible into or
exercisable or exchangeable for shares of Class A Liberty Media Group Common
Stock or Class B Liberty Media Group Common Stock.
"Qualifying Subsidiary" of a Person shall mean a Subsidiary of such
Person in which such Person's ownership and voting interest is sufficient to
satisfy the ownership and voting requirements of the Internal Revenue Code and
<PAGE>
the regulations thereunder for a distribution of such Person's interest in such
Subsidiary to the holders of Class A Liberty Media Group Common Stock and Class
B Liberty Media Group Common Stock to be tax free to such holders.
"Redemption Date" shall mean any date fixed for a redemption or
purchase of shares of Class A Liberty Media Group Common Stock and Class B
Liberty Media Group Common Stock as set forth in a notice to holders of such
series pursuant to this Certificate.
"Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Liberty Media Group in
which the corporation receives as proceeds of such Disposition primarily equity
securities (including, without limitation, capital stock, convertible
securities, partnership or limited partnership interests, limited liability
company membership interests and other types of equity securities, without
regard to the voting power or contractual or other management or governance
rights related to such equity securities) of the purchaser or acquiror of such
assets and properties of the Liberty Media Group, any entity which succeeds (by
merger, formation of a joint venture enterprise or otherwise) to such assets and
properties of the Liberty Media Group, or a third party issuer, which purchaser,
acquiror or other issuer is engaged or proposes to engage primarily in one or
more businesses similar or complementary to the businesses conducted by the
Liberty Media Group prior to such Disposition, as determined in good faith by
the Board of Directors, and upon consummation of such transaction is included in
the Liberty Media Group.
"Sprint PCS Investment" shall mean the common equity securities (and
securities convertible into or exercisable or exchangeable for such common
equity securities) of Sprint Corporation acquired by Tele-Communications, Inc.
("TCI") and its affiliates pursuant to that certain Restructuring and Merger
Agreement, dated as of May 26, 1998, among TCI, Sprint Corporation, Comcast
Corporation and Cox Communications, Inc. (the "PCS Restructuring Agreement") (as
well as any indebtedness of Sprint Corporation or any of its affiliates to TCI
or any of its affiliates remaining following the consummation of the
transactions contemplated by the PCS Restructuring Agreement).
"Subsidiary" shall mean, with respect to any Person, any corporation,
limited liability company or partnership 50% or more of whose outstanding voting
securities or membership or partnership interests, as the case may be, are
directly or indirectly owned by such Person.
"Trading Day" shall mean each weekday other than any day on which any
relevant class or series of capital stock of the corporation is not traded on
the New York Stock Exchange or the Nasdaq National Market or in the
over-the-counter market.
PART C--PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series. All shares of Preferred Stock of all series shall rank equally and be
identical in all respects except that the Board of Directors is authorized to
fix the number of shares in each series, the designation thereof and, subject to
the provisions of this Article Third, the relative rights, preferences and
limitations of each series and the variations in such rights, preferences and
limitations as between series and specifically is authorized to fix with respect
to each series:
(a) the dividend rate on the shares of such series and the date or dates
from which dividends shall be cumulative;
<PAGE>
(b) the times when, the prices at which, and all other terms and conditions
upon which, shares of such series shall be redeemable;
(c) the amounts which the holders of shares of such series shall be
entitled to receive upon the liquidation, dissolution or winding up of
the corporation, which amounts may vary depending on whether such
liquidation, dissolution or winding up is voluntary or involuntary and,
if voluntary, may vary at different dates;
(d) whether or not the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund and, if so, the
extent to and manner in which such purchase, retirement or sinking fund
shall be applied to the purchase or redemption of the shares of such
series for retirement or for other corporate purposes and the terms and
provisions relative to the operation of the said fund or funds;
(e) whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or series or for any class
of common shares and, if so, the price of prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same;
(f) the restrictions, if any, upon the payment of dividends or making of
other distributions on, and upon the purchase or other acquisition of,
common shares;
(g) the restrictions, if any, upon the creation of indebtedness, and the
restrictions, if any, upon the issue of any additional shares ranking
on a parity with or prior to the shares of such series in addition to
the restrictions provided for in this Article Third;
(h) the voting powers, if any, of the shares of such series in addition to
the voting powers provided for in this Article Third; and
(i) such other rights, preferences and limitations as shall not be inconsistent
with this Article Third.
All shares of any particular series shall rank equally and be identical
in all respects except that shares of any one series issued at different times
may differ as to the date from which dividends shall be cumulative.
Dividends on shares of Preferred Stock of each series shall be
cumulative from the date or dates fixed with respect to such series and shall be
paid or declared or set apart for payment for all past dividend periods and for
the current dividend period before any dividends (other than dividends payable
in common shares) shall be declared or paid or set apart for payment on common
shares. Whenever, at any time, full cumulative dividends for all past dividend
periods and for the current dividend period shall have been paid or declared and
set apart for payment on all then outstanding shares of Preferred Stock and all
requirements with respect to any purchase, retirement or sinking fund or funds
for all series of Preferred Stock shall have been complied with, the Board of
Directors may declare dividends on the common shares and the shares of Preferred
Stock shall not be entitled to share therein.
Upon any liquidation, dissolution or winding up of the corporation, the
holders of shares of Preferred Stock of such series shall be entitled to receive
the amounts to which such holders are entitled as fixed with respect to such
series, including all dividends accumulated to the date of final distribution,
<PAGE>
before any payment or distribution of assets of the corporation shall be made to
or set apart for the holders of common shares and after such payments shall have
been made in full to the holders of shares of Preferred Stock, the holders of
common shares shall be entitled to receive any and all assets remaining to be
paid or distributed to shareholders and the holders of shares of Preferred Stock
shall not be entitled to share therein. For the purposes of this paragraph, the
voluntary sale, conveyance, lease, exchange or transfer of all or substantially
all the property or assets of the corporation or a consolidation or merger of
the corporation with one or more other corporations (whether or not the
corporation is the corporation surviving such consolidation or merger) shall not
be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
The aggregate amount which all shares of Preferred Stock outstanding at
any time shall be entitled to receive on involuntary liquidation, dissolution or
winding up shall not exceed $8,000,000,000.
So long as any shares of Preferred Stock are outstanding, the
corporation will not (a) without the affirmative vote or consent of the holders
of at least 66 2/3% of all the shares of Preferred Stock at the time
outstanding, (i) authorize shares of stock ranking prior to the shares of
Preferred Stock, or (ii) change any provision of this Article Third so to affect
adversely the shares of Preferred Stock; (b) without the affirmative vote or
consent of the holders of at least 66 2/3% of any series of Preferred Stock at
the time outstanding, change any of the provisions of such series so as to
affect adversely the shares of such series; (c) without the affirmative vote or
consent of the holders of at least a majority of all the shares of Preferred
Stock at the time outstanding, (i) increase the authorized number of shares of
Preferred Stock or (ii) increase the authorized number of shares of any class of
stock ranking on a parity with the Preferred Stock.
Whenever, at any time or times, dividends payable on shares of
Preferred Stock shall be in default in an aggregate amount equivalent to six
full quarterly dividends on any series of Preferred Stock at the time
outstanding, the number of directors then constituting the Board of Directors of
the corporation shall ipso facto be increased by two, and the outstanding shares
of Preferred Stock shall, in addition to any other voting rights, have the
exclusive right, voting separately as a class and without regard to series, to
elect two directors of the corporation to fill such newly created directorships
and such right shall continue until such time as all dividends accumulated on
all shares of Preferred Stock to the latest dividend payment date shall have
been paid or declared and set apart for payment.
No holder of shares of Preferred Stock of any series, irrespective of
any voting or other right of shares of such series, shall have, as such holder,
any preemptive right to purchase any other shares of the corporation or any
securities convertible into or entitling the holder to purchase such other
shares.
If in any case the amounts payable with respect to any requirements to
retire shares of Preferred Stock are not paid in full in the case of all series
with respect to which such requirements exist, the number of shares to be
retired in each series shall be in proportion to the respective amounts which
would be payable on account of such requirements if all amounts payable were
paid in full.
****
<PAGE>
FOURTH: The manner in which the foregoing amendment of said
Certificate of Incorporation of the corporation was authorized was by
the vote of the holders of a majority of all outstanding shares of the
corporation entitled to vote thereon at a meeting of shareholders,
subsequent to the unanimous vote of the Board of Directors.
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on March 9, 1999
and do hereby affirm, under the penalties of perjury, that the statements
contained herein have been examined by us and are true and correct.
By:
Name: Marilyn J. Wasser
Title: Vice President
By:
Name: Robert S. Feit
Title: Assistant Secretary
BY-LAWS
as amended by
BOARD OF DIRECTORS, March 1, 1999
Article I
Meeting of Shareholders
Section 1. The annual meeting of the shareholders shall be held in May each
year on such day, at such time and at such place as shall be designated in the
notice of the meeting.
A notice of the annual meeting as approved by the Board of Directors shall be
mailed not less than ten nor more than sixty days before the meeting, directed
to each shareholder entitled to vote at said meeting at his address as it
appears on the record of shareholders unless he shall have filed with the
Secretary a written request that notices intended for him be mailed to some
other address, in which case it shall be directed to him at such other address.
Section 2. The Board of Directors may fix, in advance, a date not more than
sixty nor less than ten days before the date of any meeting of the shareholders
as the record date for determination of shareholders entitled to notice of or to
vote at such meeting, and only shareholders of record on such date shall be
entitled to notice of or to vote at such meeting.
Section 3. Special meetings of the shareholders may be called at any time by
either the Chairman of the Board or the Board of Directors, and shall be called
upon a request to the Chairman of the Board or Secretary, signed by shareholders
representing at least one-third of the shares. Any such request shall specify
the time and the purpose or purposes of the proposed meeting. The meeting shall
be held at such place within or without the State of New York as may be
designated in the notice of the meeting.
A notice of not less than ten nor more than sixty days shall be given by mail
for each special meeting, in the manner provided for notice of the annual
meeting. Such notice shall state the purpose or purposes for which the meeting
is called and the time when and the place where it is to be held and shall
indicate that the notice is being issued by or at the direction of the person or
persons calling the meeting.
Section 4. Failure to receive notice of any meeting shall not invalidate the
meeting.
Section 5. Notice of shareholders business at annual meetings of shareholders
shall be governed by the provisions of this By-Law.
(1) The proposal of business to be considered by the shareholders may be
made at an annual meeting of shareholders (a) pursuant to the
company's notice of meeting pursuant to Section 3 of this Article I
of these By-Laws, (b) by or at the direction of the Board of
Directors or (c) by any shareholder of the company who was a
shareholder of record at the time of giving notice provided for in
this By-Law, who is entitled to vote at the meeting and who complies
with the notice procedures set forth in this By-Law.
(2) For business to be properly brought before an annual meeting by a
shareholder pursuant to clause (c) of paragraph (1) of this By-Law,
the shareholder must have given timely notice thereof in writing to
the Secretary of the company and such business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal
<PAGE>
executive offices of the company not later than the close of
business on the 90th calendar day nor earlier than the close of
business on the 120th calendar day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is more than 30 calendar
days before or more than 60 calendar days after such anniversary
date, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 120th calendar day
prior to such annual meeting but not later than the close of
business on the later of the 90th calendar day prior to such annual
meeting or the 10th calendar day following the calendar day on which
public announcement of the date of such meeting is first made by the
company. In no event shall the public announcement of an adjournment
of an annual meeting commence a new time period for the giving of a
shareholder's notice as described above. Such shareholder's notice
shall set forth (a) as to any description of the business desired to
be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business
of such shareholder and beneficial owner, if any, on whose behalf
the proposal is made; and (b) as to the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such
shareholder, as they appear on the company's books, and of such
beneficial owner and (ii) the class and number of shares of the
company which are owned beneficially and of record by such
shareholder and such beneficial owner.
Section 6. The items of business at all meetings of the stockholders shall be,
insofar as applicable, as follows:
- Call to order
- Proof of notice of meeting or of waiver thereof
- Appointment of inspectors of election, if necessary
- A quorum being present
- Reports
- Election of directors
- Other business specified in the notice of the meeting
- Voting
- Adjournment
Any items of business not referred to in the foregoing may be taken up at the
meeting as the chair of the meeting shall determine. The chair of the meeting
shall determine all matters relating to the efficient conduct of the meeting,
including but not limited to the maintenance of order and decorum.
ARTICLE II.
The Conduct of Shareholders' Meetings
At all meetings of the shareholders, the holders of forty per centum of the
shares entitled to vote thereat shall constitute a quorum, except as otherwise
required by law; but the shareholders present may adjourn the meeting to another
time or place despite the absence of a quorum. Every shareholder entitled to
vote shall be entitled to one vote for each share standing in his name on the
record of shareholders; and every shareholder entitled to vote may vote in
person or by proxy.
<PAGE>
At all meetings of shareholders, a shareholder, or such person's duly
authorized attorney in fact, may vote by proxy, executed in writing or granted
or authorized in such other manner as is prescribed by the Business Corporation
Law of the State of New York.
All proxies, ballots and other voting materials, including Internet or
telephonic voting, that identify the vote of a shareholder, shall be kept
confidential and shall not be disclosed to the company or its officers and
directors, except (i) to meet applicable legal requirements, (ii) if a
shareholder requests disclosure or has made a comment in connection with such
voting material, or (iii) in the event of a contested proxy solicitation.
ARTICLE III.
Inspectors
The Board of Directors, in advance of any shareholders' meeting, shall appoint
three Inspectors to act at the meeting or any adjournment thereof. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat.
ARTICLE IV.
The Board of Directors
Section 1. The business of the company shall be managed under the direction of
its Board of Directors, who shall be elected by the shareholders at the annual
meeting.
Section 2. The number of Directors shall be not less than ten nor more than
twenty-five, the exact number of Directors within such minimum and maximum
limits to be fixed and determined by the vote of a majority of the entire Board.
In case of any increase in the number of Directors, the additional Directors may
be elected by a majority of the Directors then in office.
Section 3. Any vacancy in the Board may be filled by a majority vote of the
remaining Directors, though less than a quorum.
ARTICLE V.
Meetings of Directors
Section 1. Regular meetings shall be held at such times and places as the
Board may determine.
Section 2. Special meetings of the Directors may be called at any time by the
Chairman of the Board, or by two members of the Executive Committee, and shall
be called by the Chairman of the Board, or by the Secretary, forthwith upon
request in writing signed by two Directors and specifying the object of the
meeting. At least three days' notice of a special meeting shall be given in the
manner provided for herein.
Section 3. Any notice of a meeting of Directors required to be given may be
given to each Director by mail or telegraph, addressed to him at his residence
or usual place of business, or in person or by telephone, stating the time and
place of the proposed meeting.
<PAGE>
Section 4. One-third of the entire Board shall constitute a quorum.
Section 5. Meetings of the Directors may be held within or without the State
of New York.
Section 6. Any one or more members of the Board may participate in a meeting
of the Board by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
Any action required or permitted to be taken by the Board may be taken without
a meeting if all members of the Board consent in writing to the adoption of a
resolution authorizing the action. The resolution and the written consents
thereto by the members of the Board shall be filed with the minutes of the
proceedings of the Board.
ARTICLE VI.
Executive Committee and Other Committees
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from their number an Executive Committee and other
committees, and may determine the quorum thereof. Any such committee shall
consist of three or more members and shall serve at the pleasure of the Board.
The Chairman of the Board, one or more Vice Chairmen of the Board and the
President, if any, shall be members of the Executive Committee. The Executive
Committee shall, except as otherwise provided by law or by resolution of the
Board, have all the authority of the Board of Directors during the intervals
between the meetings of the Board. The Executive Committee shall keep a record
of its proceedings, which shall from time to time be reported to the Board of
Directors. The Chairman of the Board shall preside at the meetings of the
Executive Committee.
Committees other than the Executive Committee shall, except as otherwise
provided by law, have such authority as shall be provided by resolution of the
Board.
The Board may designate from time to time one or more Directors as alternate
members of the Executive Committee or of any other committee, who may replace
any absent member or members at any meeting of the committee.
Any one or more members of the Executive Committee or any other committee
established by the Board pursuant to this Article VI may participate in a
meeting of such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at the meeting.
Any action required or permitted to be taken by the Executive Committee or any
other committee established by the Board pursuant to this Article VI may be
taken without a meeting if all members of the committee consent in writing to
the adoption of a resolution authorizing the action. The resolution and written
consents thereto shall be filed with the minutes of the proceedings of the
committee.
The Board of Directors, by resolution adopted by a majority of the entire
Board, may form a Capital Stock Committee, which committee shall consist of one
<PAGE>
director elected pursuant to Section 7.15 of the Agreement and Plan of
Restructuring and Merger, dated June 23, 1998, among the company, Italy Merger
Corp. and Tele-Communications, Inc. and up to two directors who are not current
or former officers, directors or employees of the company or any of its
affiliates, or otherwise affiliated with the company (other than as members of
the Board of Directors or any committee thereof). The Capital Stock Committee
shall have the authority of the Board of Directors to (i) interpret, make
determinations under, and oversee the implementation of the policies set forth
in the policy statement regarding Liberty Media Group tracking stock matters
adopted by resolution of a majority of the entire Board, and (ii) to the extent
permitted by law, to take all actions required to be taken by the Board of
Directors of the company in connection with authorization of the issuance of
shares of Liberty Media Group tracking stock.
ARTICLE VII.
Officers of the Company
Section l. The officers of the company shall be elected by the Board of
Directors, and may consist of a Chairman of the Board, one or more Vice Chairmen
of the Board, a President, such number of Executive Vice Presidents and Senior
Vice Presidents as the Board of Directors shall from time to time determine, a
Secretary, a Treasurer and a Controller. The officers shall hold office until
their successors have been elected.
Section 2. The Board of Directors may appoint one or more Assistant
Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers, and such other officers and agents as the Board may consider
necessary.
ARTICLE VIII.
Duties of the Chairman of the Board,
President, Vice Chairmen of the Board,
Executive Vice Presidents and Senior Vice Presidents
Section 1. The Chairman of the Board shall be the chief executive officer of
the company and shall have such authority and perform such duties as usually
appertain to the chief executive office in business corporations.
He shall preside at the meetings of the Board of
Directors and he, or such officer as he may designate from time to time, shall
preside at meetings of the shareholders.
Section 2. The President, Vice Chairmen of the Board, Executive Vice
Presidents and Senior Vice Presidents shall perform such duties as the Board of
Directors or Chairman of the Board may from time to time determine.
Section 3. In case of absence or inability of the Chairman of the Board, the
President shall possess all the authority of the Chairman of the Board.
ARTICLE IX.
Duties of the Treasurer and Assistant Treasurers
Section 1. The Treasurer shall receive all the funds of the company, and shall
disburse them under the direction of the Board of Directors. All disbursement
instruments shall be signed by such person or persons and in such manner as the
Board may from time to time provide.
<PAGE>
Section 2. The Treasurer shall keep full and regular books, showing all his
receipts and disbursements, which books shall be open at all times to the
inspection of the Chairman of the Board or of any member of the Board of
Directors; and he shall make such reports and perform such other duties as the
Chairman of the Board or Board of Directors may require.
Section 3. The Treasurer shall deposit all moneys received by him, in the
corporate name of the company, with such depositories as shall be approved from
time to time by the Board of Directors or by the Chairman of the Board, the
President, a Vice Chairman of the Board or the Treasurer.
Section 4. Assistant Treasurers shall have such of the authority and perform
such of the duties of the Treasurer as may be provided in these By-Laws or
assigned to them by the Board of Directors or the Chairman of the Board or by
the Treasurer upon the approval of the Chairman of the Board, the President or a
Vice Chairman of the Board. During the Treasurer's absence or inability, his
authority and duties shall be possessed by such Assistant Treasurer or Assistant
Treasurers as the Board of Directors, the Chairman of the Board, the President
or a Vice Chairman of the Board may designate.
Section 5. The Board of Directors may require the Treasurer and Assistant
Treasurers to give such security for the faithful performance of their duties as
the Board shall from time to time determine.
ARTICLE X.
Duties of the Secretary and Assistant Secretaries
Section 1. The Secretary shall send notice to the shareholders of all annual
and special meetings, and to the Directors of meetings of the Board where notice
is required to be given; and he shall perform such other duties as may be
required of him by the Chairman of the Board or Board of Directors, and such as
usually appertain to the office of Secretary.
Section 2. The Secretary or in his absence an Assistant Secretary shall keep
an accurate record of the proceedings of the Board of Directors and of the
Executive Committee, and of all meetings of shareholders, and shall have the
custody of the seal of the company and affix it to all instruments requiring the
seal.
Section 3. Assistant Secretaries shall have such of the authority and perform
such of the duties of the Secretary as may be provided in these By-Laws or
assigned to them by the Board of Directors or the Chairman of the Board or by
the Secretary upon the approval of the Chairman of the Board, the President or a
Vice Chairman of the Board. During the Secretary's absence or inability, his
authority and duties shall be possessed by such Assistant Secretary or Assistant
Secretaries as the Board of Directors, the Chairman of the Board, the President
or a Vice Chairman of the Board may designate.
<PAGE>
ARTICLE XI.
Duties of the Controller
The Controller shall be the principal accounting officer of the company and
shall perform such duties as may be required of him by the Chairman of the Board
or Board of Directors.
ARTICLE XII.
Transfer of Shares
Section 1. Certificates for shares shall be issued by the Treasurer. Shares
shall be transferable only on the record of shareholders of the company by the
holder thereof in person or by attorney, upon surrender of the outstanding
certificate therefor. This requirement shall be embodied in each certificate.
Section 2. In case of the loss of a certificate, a new certificate may be
issued upon such terms as the Board of Directors may prescribe.
ARTICLE XIII.
Indemnification of Directors and Officers
The company is authorized, by (i) a resolution of shareholders, (ii) a
resolution of Directors, or (iii) an agreement providing for such
indemnification, to the fullest extent permitted by applicable law, to provide
indemnification and to advance expenses to its Directors and officers in respect
of claims, actions, suits or proceedings based upon, arising from, relating to
or by reason of the fact that any such Director or officer serves or served in
such capacity with the company or at the request of the company in any capacity
with any other enterprise.
ARTICLE XIV.
Seal
The common seal of the company shall be in the following form.
ARTICLE XV.
Amendments
These By-Laws may be amended by the shareholders at any meeting; or by the
Board of Directors at any meeting by a majority vote of the full Board, or at
two successive meetings of the Board by a majority vote of a quorum present,
provided that the third paragraph of Article II shall not be rescinded, amended
or waived except at a shareholders meeting in accordance with applicable state
law. The notice of a special meeting of the Board at which such action is to be
taken shall set forth the substance of the proposed amendment.
AT&T SENIOR MANAGEMENT INCENTIVE AWARD DEFERRAL PLAN
(as amended January 21, 1998)
1. ELIGIBILITY
Any Senior Manager (as defined in the AT&T 1997 Long Term Incentive
Program [the "1997 Plan"]) of AT&T Corp. ("AT&T") or an Affiliate (as defined in
the 1997 Plan) who is eligible for an award under the AT&T Short Term Incentive
Plan (the "Short Term Incentive Plan") and/or who has been granted a Performance
Award or a Stock Unit Award under the AT&T Senior Management Long Term Incentive
Plan (the "Long Term Incentive Plan") the 1987 Long Term Incentive Plan (the
"1987 Plan") or the 1997 Plan shall be eligible to participate in this AT&T
Senior Management Incentive Award Deferral Plan (the "Plan"). For purposes of
the Plan, AT&T and any Affiliate shall be referred to as a "Participating
Company". Prior to January 1, 1984, the Plan was named the Bell System Senior
Management Incentive Award Deferral Plan.
2. PARTICIPATION
(a) Prior to the beginning of any calendar year, any Senior Manager may
elect to participate in the Plan by directing that (i) all or part of an award
under the Short Term Incentive Plan, or a Performance Award or a Stock Unit
Award under the Long Term Incentive Plan, the 1987 Plan or the 1997 Plan and/or
(ii) all or part of the dividend equivalent payments under the Long Term
Incentive Plan, the 1987 Plan or the 1997 Plan, that such employee's
Participating Company would otherwise pay currently to such employee in such
calendar year, shall be credited to a deferred account subject to the terms of
the Plan. However, in no event shall the part of an award under any plan
credited during any calendar year be less than $1,000 (based on a valuation at
the time the award would otherwise be paid). There shall be no such minimum
limitation on amounts credited during any calendar year that are related to
dividend equivalent payments.
In addition, prior to the beginning of any calendar year, any Senior
Manager may elect to participate in the Plan by directing that all or part of
the compensation related to the exercise (more than six months following such
election and prior to the employee's retirement or other termination of
employment) of an Option awarded under the 1987 Plan or the 1997 Plan shall be
credited to a deferred account subject to the terms of the Plan. The exercise of
an Option shall be considered as an exercise described in the preceding sentence
only if the exercise would otherwise satisfy the requirements for a
stock-for-stock exercise under the stock option award agreement pertaining to
such Option.
<PAGE>
In addition, prior to the beginning of any calendar year, the Chairman
of the Board and any other Senior Manager designated by the Chairman of the
Board may elect to participate in the Plan by directing that all or part of such
Senior Manager's salary that such employee's Participating Company would
otherwise pay currently to such employee in such calendar year shall be credited
to a deferred account subject to the terms of the Plan.
In addition, provided such participation shall have been approved by
the Compensation and Employee Benefits Committee of the AT&T Board of Directors
(the "Committee"), prior to the beginning of any calendar year, any Senior
Manager may elect to participate in the Plan as to other awards under the 1987
Plan or 1997 Plan, or other amounts of compensation of such Senior Manager, by
directing that all or part of such awards or compensation that such Senior
Manager's Participating Company would otherwise pay currently to such Senior
Manager in such calendar year be credited to a deferred account subject to the
terms of the Plan.
(b) Such an election to participate in the Plan shall be in the form of
a document executed by the employee and filed with the employee's Participating
Company. An election related to awards, dividend equivalent payments, salary
and/ or other compensation otherwise payable currently in any calendar year
shall become irrevocable on the last day prior to the beginning of such calendar
year.
(c) Notwithstanding anything to the contrary contained in this Section
2, in the case of a Senior Manager who is newly eligible to participate in the
Plan, or in the case of any Senior Manager with respect to awards or
compensation newly eligible to be deferred under the Plan, a deferral election
may be made with respect to compensation otherwise receivable in the same
calendar year and subsequent to such election, provided such election is made
within ninety (90) days of such eligibility.
3. DEFERRED ACCOUNTS
(a) (i) Except as provided in Section 3(b)(iii), deferred amounts
related to awards, dividend equivalent payments which would otherwise have been
distributed in cash by a Participating Company and deferred amounts related to
salary and/or other cash compensation shall be credited to the employee's
account and shall bear interest from the date the awards, dividend equivalent
payments, salary and/or other cash compensation would otherwise have been paid.
The interest credited to the account will be compounded at the end of each
calendar quarter, and the annual rate of interest applied at the end of any
calendar quarter shall be determined by the Committee from time to time,
provided however, that the interest rate to be applied, for any subsequent
quarter, to an employee's (or former employee's) deferred account balance as of
December 31, 1998, plus any additions to such account after December 31, 1998
that result from deferral elections made by an employee prior to December 31,
1998, (reduced by any distributions attributable to such account balance) shall
not be less than the applicable 10 Year U.S. Treasury Note Rate for the prior
calendar quarter, plus five (5) percent.
<PAGE>
(ii) Furthermore, if an employee made an election described in Section
2, which election was effective on December 31, 1983, then such employee's
account shall also be credited during 1984 with an amount equal to the deferred
amounts which would have been credited to the employee's account during 1984 had
the company which employed the employee on December 31, 1983 continued to be a
Participating Company during 1984, and such amount shall bear interest in
accordance with (a)(i) above from the date such amount would have been credited
had such company continued to be a Participating Company during 1984.
(b)(i) Deferred amounts related to awards that would otherwise have
been distributed in AT&T common shares by a Participating Company shall be
credited to the employee's account as deferred AT&T shares. Furthermore, if an
employee made an election described in Section 2, which election was effective
on December 31, 1983, then such employee's account shall also be credited during
1984 with the deferred AT&T shares which would have been credited to the
employee's account had the company which employed the employee on December 31,
1983 continued to be a Participating Company in the Plan and in the Long Term
Incentive Plan during 1984.
(ii) Deferred amounts related to the compensation on the exercise of an
Option also shall be credited to the employee's account as deferred AT&T shares.
The number of deferred AT&T shares credited under the preceding sentence shall
equal the number of additional AT&T shares the employee would have received on
the actual stock-for-stock exercise of such Option.
(iii) Prior to the beginning of any calendar year, the Chairman of the
Board and any other Senior Manager designated by the Chairman of the Board may
elect that deferred amounts related to dividend equivalent payments, which would
otherwise have been distributed in cash by a Participating Company during such
calendar year, shall be credited to the employee's account as deferred AT&T
shares. The number of deferred AT&T shares credited, with respect to each
dividend equivalent, shall be determined in accordance with the conversion
formula set forth in the following paragraph, as if such dividend equivalent
were the amount to be converted to a number of additional deferred AT&T shares.
(iv) The employee's account shall also be credited on each dividend
payment date for AT&T shares with an amount equivalent to the dividend payable
on the number of AT&T common shares equal to the number of deferred AT&T shares
in the employee's account on the record date for such dividend. Such amount
shall then be converted to a number of additional deferred AT&T shares
determined by dividing such amount by the price of AT&T common shares, as
<PAGE>
determined in the following sentence. The price of AT&T common shares related to
any dividend payment date shall be the average of the daily high and low sale
prices of AT&T common shares on the New York Stock Exchange ("NYSE") for the
period of five trading days ending on such dividend payment date, or the period
of five trading days immediately preceding such dividend payment date if the
NYSE is closed on the dividend payment date.
(c) In the event of any change in outstanding AT&T common shares by
reason of any stock dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, the
Committee shall make such adjustments, if any, that it deems appropriate in the
number of deferred AT&T shares then credited to employees' accounts. Any and all
such adjustments shall be conclusive and binding upon all parties concerned.
4. DISTRIBUTION
(a) At the time an eligible employee makes an election to participate
in the Plan, the employee shall also make an election with respect to the
distribution (during the employee's lifetime or in the event of the employee's
death) of the amounts credited to the employee's deferred account. Such an
election related to the distribution during the employee's lifetime, of amounts
otherwise payable currently in any calendar year, shall become irrevocable on
the last day prior to the beginning of such calendar year.
The election related to the distribution in the event of the employee's
death, including the designation of a beneficiary or beneficiaries, may be
changed by the employee at any time by filing the appropriate document with the
Secretary of the Company.
Amounts credited as cash plus accumulated interest shall be distributed
in cash; amounts credited as deferred AT&T shares shall be distributed in the
form of an equal number of AT&T shares.
(b)(i) With respect to amounts related to deferred cash credited to the
employee's account under Section 3(a), and to deferred AT&T shares credited to
the employee's account under Section 3(b)(i) or (iii), an employee may elect to
receive such amounts in one payment or in some other number of approximately
equal annual installments (not exceeding 20), provided however, that the number
of annual installments may not extend beyond the life expectancy of the
employee, determined as of the date the first installment is paid. The
employee's election shall also specify that the first installment (or the single
payment if the employee has so elected) shall be paid either (1) as soon as
practicable after the first day of the calendar quarter next following the end
of the month in which the employee attains the age specified in such election,
which age shall not be earlier than age 55 or later than age 70-1/2, or (2) as
soon as practicable after the first day of the calendar quarter next following
<PAGE>
the end of the month in which the employee retires from a Participating Company
or otherwise terminates employment with a Participating Company (except for a
transfer to another Participating Company); provided, however, that the
Committee may, in its sole discretion, direct that the first installment (or the
single payment) shall be paid on the first day of the first calendar quarter in
the calendar year next following the year of retirement or other termination of
employment. In addition any Senior Manager eligible to defer salary may specify
that the first installment (or the single payment if the employee has so
elected) shall be paid as soon as practicable after the first day of the first
calendar quarter in the calendar year next following the calendar year in which
the employee retires from a Participating Company or otherwise terminates
employment with a Participating Company (except for a transfer to another
Participating Company).
(ii) With respect to deferred AT&T shares credited to the employee's
account under Section 3(b)(ii), an employee may elect to receive the deferred
AT&T shares in one payment or in some other number of approximately equal annual
installments (not exceeding 20), provided however, that the number of annual
installments may not extend beyond the life expectancy of the employee,
determined as of the date the first installment is paid. The employee's election
shall also specify that the first installment (or the single payment if the
employee has so elected) shall be paid as soon as practicable after the first
day of the calendar quarter next following the later of (1) the end of the month
that is five years following the month in which the related deferred AT&T shares
were initially credited, and (2)(A) the end of the month in which the employee
attains the age specified in such election, which age shall not be earlier than
age 55 or later than age 70-1/2, or (B) the end of the month in which the
employee retires from a Participating Company or otherwise terminates employment
with a Participating Company (except for a transfer to another Participating
Company); provided, however, that the Committee may, in its sole discretion,
direct that the first installment (or the single payment) shall be paid on the
first day of the first calendar quarter in the calendar year next following the
year of retirement or other termination of employment.
(c) Notwithstanding an election pursuant to Paragraph (b) of this
Section 4, the entire amount then credited to an employee's account shall be
paid immediately in a single payment (1) if the employee is discharged for cause
by his or her Participating Company, (2) if the such Participating Company
determines that the employee engaged in misconduct in connection with the
employee's employment with the Participating Company, (3) if the employee
without the consent of his or her Participating Company, while employed by such
Participating Company or after the termination of such employment, establishes a
relationship with a competitor of the Company or engages in activity which is in
conflict with or adverse to the interest of the Company as determined under the
<PAGE>
AT&T Non-Competition Guideline, or (4) the employee becomes employed by a
governmental agency having jurisdiction over the activities of a Participating
Company or any of its subsidiaries.
(d) An employee may elect that, in the event the employee should die
before full payment of all amounts credited to the employee's account, the
balance of the deferred amounts shall be distributed in one payment or in some
other number of approximately equal annual installments (not exceeding 10) to
the beneficiary or beneficiaries designated in writing by the employee, or if no
designation has been made, to the estate of the employee. The first installment
(or the single payment if the employee has so elected) shall be paid on the
first day of the calendar quarter next following the month of death; provided,
however, that the Committee may, in its sole discretion, direct that the first
installment (or the single payment) shall be paid on the first day of the first
calendar quarter in the calendar year next following the year of death.
(e) Installments subsequent to the first installment to the employee,
or to a beneficiary or to the employee's estate, shall be paid on the first day
of the applicable calendar quarter in each succeeding calendar year until the
entire amount credited to the employee's deferred account shall have been paid.
Deferred amounts held pending distribution shall continue to be credited with
interest or additional deferred AT&T shares, as applicable, determined in
accordance with Section 3(a) and (b).
(f) In the event an employee, or the employee's beneficiary after the
employee's death, incurs a severe financial hardship, the Committee, in its sole
discretion, may accelerate or otherwise revise the payment schedule from the
employee's account to the extent reasonably necessary to eliminate the severe
financial hardship. For the purpose of this subsection (f), a severe financial
hardship must have been caused by an accident, illness, or other event beyond
the control of the employee or, if applicable, the beneficiary.
(g) The obligation to make a distribution of deferred amounts credited
to an employee's account during any calendar year plus the additional amounts
credited on such deferred amounts pursuant to Section 3(a) and (b) shall be
borne by the Participating Company which otherwise would have paid the related
award or salary currently. However, the obligation to make distribution with
respect to deferred amounts which are related to amounts credited to an
employee's account under Section 3(a)(ii) and under the second sentence of
Section 3(b)(i), and with respect to which no Participating Company would
otherwise have paid the related award currently, shall be borne by the
Participating Company which employed the employee on January 1, 1984.
<PAGE>
(h) Nothwithstanding any provision to the contrary, the amount credited
to an employee's account shall be reduced by the amount specified in an Election
to Forego Compensation Form executed by the employee under the AT&T Corp. Estate
Enhancement Program, and the reduction shall be effective as of the effective
date of such election.
5. MISCELLANEOUS
(a) The deferred amounts shall be held in the general funds of the
Participating Companies. The Participating Companies shall not be required to
reserve, or otherwise set aside, funds for the payment of such amounts.
(b) The rights of an employee to any deferred amounts plus the
additional amounts credited pursuant to Section 3(a) and (b) shall not be
subject to assignment by the employee.
(c) The Executive Vice President - Human Resources of AT&T shall have
the authority to administer the Plan.
(d) The Committee may at any time amend the Plan or terminate the Plan,
but such amendment or termination shall not adversely affect the rights of any
employee, without his or her consent, to any benefit under the Plan to which
such employee may have previously become entitled prior to the effective date of
such amendment or termination. The Executive Vice President - Human Resources of
AT&T with the concurrence of the General Counsel of AT&T shall be authorized to
make minor or administrative changes to the Plan, as well as amendments required
by applicable federal or state law (or authorized or made desirable by such
statutes).
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
BENEFITS PROTECTION TRUST
WITH
WACHOVIA BANK OF NORTH CAROLINA, N.A., AS TRUSTEE
Amended and Restated
<PAGE>
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
TRUST AGREEMENT
TABLE OF CONTENTS
ARTICLE PAGE
Article I: Establishment of Trust...................................6
Article II: Funding of the Trust.....................................8
Article III: Trust Assets Subject to Creditors.......................18
Article IV: Trust Fund Administration...............................20
Article V: Notice to Trustee.......................................26
Article VI: Trust Investments.......................................28
Article VII: Trust Fees and Expenses.................................35
Article VIII: Records and Accounting..................................36
Article IX: Resignation, Removal or Replacement of Trustee..........38
Article X: Termination of Trust....................................41
Article XI: Amendment of Trust......................................42
Article XII: Miscellaneous...........................................43
Schedule A ...................................................47
<PAGE>
THIS AGREEMENT, amended and restated as of the day of November, 1993,
between American Telephone and Telegraph Company, a New York corporation (the
"Company"), and Wachovia Bank of North Carolina, N.A., a national banking
association (the "Trustee").
W I T N E S S E T H :
WHEREAS, the Company and the Trustee had previously entered into an
agreement (the "Agreement") to provide certain assurance to senior managers of
the Company, effective May 1, 1992; and
WHEREAS, the Company and the Trustee desire to make certain changes to
the Agreement to address the funding and administration intended under the
Agreement; and
WHEREAS, the Company and the Trustee desire to amend and restate the
terms of the Agreement to address the issues associated with such funding and
administration; and
WHEREAS, the Company has incurred and expects to continue to incur
certain unfunded retirement income liabilities and benefit obligations to or
with respect to all current employees who, as of December 18, 1991 or
thereafter, were at an employment band of Senior Manager or above (or equivalent
salary grade level), all future employees who are at any time at an employment
band of Senior Manager or above) (or equivalent salary grade levels), all
retired Senior Managers (or retired employees at equivalent salary grade levels)
who are receiving a service or disability pension under the AT&T Management
Pension Plan and were at equivalent salary grade levels at the time of their
retirement, and all former employees who between December 18, 1991 and November
17, 1993, inclusive, were at an employment band of Senior Manager and above (or
equivalent salary grade levels) (collectively, the "Participants") pursuant to
the terms of certain retirement and nonqualified plans or arrangements presently
or hereafter identified in Schedule A to this Agreement (hereinafter the "Plan"
or "Plans"); and
WHEREAS, the Company desires to provide additional assurance to such
Participants and their surviving spouses, beneficiaries or estates under the
Plans (collectively, the "Beneficiaries") that their unfunded retirement rights
and benefit entitlements under the Plans will in the future be met or
substantially met by application of the procedures set forth herein; and
WHEREAS, the Company wishes to establish separate accounts which will
include investment earnings and adjustments for charges, expenses and cash flow
on assets attributable with respect to the contributions to each such account
(hereinafter the "Accounts") with respect to each Plan or group of Plans (as
identified in Schedule A) in order to provide a source of payments under the
terms of such Plans; and
WHEREAS, amounts credited to each Account, as determined by the Company
from time to time in its sole discretion, other than during a Potential Change
in Control Period and upon a Change in Control, and the earnings thereon shall
be used by the Trustee solely in satisfaction of the liabilities of the Company
with respect to the Participants and the Beneficiaries in the Plans covered
under the respective Accounts, and expenses as provided herein, and such
utilization shall be in accordance with the procedures set forth herein; and
WHEREAS, the Company desires to grant additional powers to the Trustee
during a Potential Change in Control Period and upon a Change in Control in
order to provide the Participants and their Beneficiaries with some measure of
security during those events; and
<PAGE>
WHEREAS, except as expressly provided in this Agreement, upon
satisfaction of all liabilities of the Company with respect to Participants and
their Beneficiaries payable from a particular Account, the balance, if any,
remaining in such Account shall be allocated to other Accounts established under
this Agreement in accordance with the procedures set forth herein; and
WHEREAS, except as otherwise expressly provided in this Agreement, upon
satisfaction of all liabilities of the Company with respect to all Participants,
and their Beneficiaries under the Plans, the balance, if any, remaining in the
Accounts shall revert to the Company, provided, however, that all amounts in
such Accounts shall at all times be subject under this Agreement to the claims
of the Company's creditors as hereinafter provided;
NOW, THEREFORE, in consideration of the premises and mutual and
independent promises herein, the parties hereto covenant and agree to amend and
restate their Agreement as follows:
ARTICLE I
Establishment of Trust
1.1 The Company hereby establishes with the Trustee a Trust consisting
of such sums of cash, marketable securities and such other property acceptable
to the Trustee as shall, in accordance with Article II, be paid or delivered to
the Trustee and the earnings and profits thereon. All such cash, marketable
securities and other property, all investments made therewith and proceeds
thereof, less the payments or other distributions which, at the time of
reference, shall have been made by the Trustee, as authorized herein, are
referred to herein as the "Trust Fund" and shall be held by the Trustee, IN
TRUST, in accordance with the provisions of this Agreement.
1.2 The Trustee shall hold, manage, invest and otherwise administer the
Trust Fund pursuant to the terms of this Agreement. The Trustee shall be
responsible for contributions actually received by it and such other obligations
as it undertakes hereunder. The amount of each contribution by the Company to
the Trust Fund shall be determined in the sole discretion of the Company,
subject to the terms of this Agreement requiring contributions during a
Potential Change in Control Period and upon a Change in Control (as each term is
defined in Section 2.7 of this Agreement).
1.3 Subject to the provisions of Article X of this Agreement, the
Company and the Trustee agree that the Trust created herein shall not be
revocable by the Company. The Trust established hereunder is intended to be a
grantor trust within the meaning of Section 671 of the Internal Revenue Code of
1986, as thereafter amended, and all property contributed to the Trust and
interest and other income earned on the investments of the Trust shall be held
in trust in accordance with this Agreement, but shall be considered the property
of, and taxable to, the Company.
1.4 To the extent provided in this Agreement, the Trustee shall
maintain in an equitable manner a separate bookkeeping Account for each Plan or
group of Plans, as provided in Schedule A hereto, in which it shall keep a
separate record of the interest of such Participant or Beneficiary under each
Plan and Account under the Trust Fund. For purposes of this Agreement, the
interest of each Participant and Beneficiary payable from the Trust Fund with
respect to any Plan shall be determined by multiplying the Participant's or
Beneficiary's vested benefit under the Plan (as of the date the Participant and
Beneficiary becomes entitled to payments under the Plan) by the ratio obtained
by dividing the total assets for the Account (as determined in accordance with
Article IV of this Agreement) in which the Plan is included by the total vested
liabilities for all Plans included within such Account. The Company's Corporate
<PAGE>
Vice President - Investment Management, shall certify to the Trustee at the time
of each contribution to the Trust Fund the amount of such contribution being
made in respect of each Account established under this Agreement. If the Trust
Fund receives contributions in excess of the amounts initially contributed
pursuant to Section 2.1, the Trust Fund shall be revalued by the Trustee as of
the last business day of each calendar quarter (or more frequently, at the
request of the Company) at current market values, as determined by the Trustee.
At the discretion of the Company, each Participant in each Plan with respect to
which an Account has been established or his Beneficiary shall be entitled to
receive from the Company, or such person as is designated by the Company
("delegate"), a semi-annual statement of his entitlement with respect to each
such Plan and Account. During a Potential Change in Control Period and upon a
Change in Control, such statements shall be provided on a quarterly basis and
shall be required to be sent by the Trustee to such Participants (or their
Beneficiaries, if applicable).
ARTICLE II
Funding of the Trust
2.1 Concurrently with the execution of this Trust, the Company is
delivering to the Trustee, to be held in trust hereunder, the sum of one-hundred
dollars ($100) in cash with respect to each of the Plans identified in Schedule
A hereto to be administered and disposed of by the Trustee as provided herein.
In addition, subject to Section 2.2, the Company may from time to time
contribute additional cash, marketable securities (including securities of the
Company) or other property reasonably acceptable to the Trustee to be allocated
between and among the Accounts as designated by the Company's Corporate Vice
President - Investment Management.
2.2 Concurrently with the execution of this Trust and thereafter in
accordance with Section 4.3, the Company shall provide to the Trustee all
reasonably required information necessary for the Trustee to determine the
Company's (and its affiliates') liabilities and obligations under the Plans and
shall update such information from time to time as requested by the Trustee. If
the Company does not provide updated information to the Trustee within a
reasonable period of time following any request, the Trustee shall use its best
estimate to determine the Company's (and its affiliates') obligations and
liabilities under the Plans. The Trustee shall be protected in determining the
amount of the Company's (and its affiliates') obligations and liabilities under
the Plans so long as the Trustee acts in good faith in arriving at its best
estimate. The Trustee shall not perform any calculations with respect to such
information unless directed to do so by the Company, but shall be required to
perform such calculations during a Potential Change in Control Period and upon a
Change in Control as provided herein. Upon the occurrence of a Potential Change
in Control and a Change in Control, the Trustee shall determine, in accordance
with Section 2.5 hereof, based upon the last valuation available to the Trustee
with respect to the vested and nonvested liabilities of the Company (and its
affiliates) under the Plans, the aggregate amount which will be sufficient to
fund the Company's (and its affiliates') obligations and liabilities to pay the
vested and nonvested benefits due to Participants or Beneficiaries pursuant to
the Plans, plus the amount of one million dollars ($1,000,000) to provide for
expenses, including, but not limited to, legal expenses, administrative
expenses, and other costs of maintaining the Trust Fund (the aggregate amount
necessary to fund the Company's and its affiliates' liabilities under the Plans
and the expense amount shall collectively be referred to herein as the "Full
Funding Amount" and is more fully defined in Section 2.5 of this Agreement). The
determination by the Trustee shall include reasonable estimates and adjustments
for events occurring subsequent to such last valuation. The Trustee shall give
<PAGE>
notice to the Company of such Full Funding Amount as soon as possible but in any
event not later than fifteen (15) days after each occurrence of a Potential
Change in Control and a Change in Control. Not later than thirty (30) days after
each occurrence of a Potential Change in Control and a Change in Control, the
Company shall deliver to the Trustee an amount of cash (or marketable securities
acceptable to the Trustee and having a fair market value equal to such amount as
determined by the Trustee, or some combination thereof) equal to the Full
Funding Amount.
2.3 During a Potential Change in Control Period and upon a Change in
Control, the Trustee shall, every three months from the last day of the month in
which occurs each such Potential Change in Control and Change in Control,
whichever is applicable, unless the Full Funding Amount shall theretofore have
been returned to the Company pursuant to Article III hereof, recalculate the
Full Funding Amount as of the end of the month immediately preceding such
three-month interval date as if the Potential Change in Control or Change in
Control had occurred at the end of such month. Not later than thirty (30) days
after each three-month interval date, the Trustee shall give notice to the
Company as to the fair market value of assets then held in the Trust as of the
end of such three-month interval date. As soon as possible following completion
of the recalculation but in any event not later than forty-five (45) days after
each three-month interval date, the Trustee shall give notice to the Company of
(i) such recalculated Full Funding Amount, (ii) the additional payment to the
Trustee (if any) required from the Company by the following sentence, (iii) the
distribution to the Company (if any) required from the Trustee upon the
Company's written request pursuant to the last sentence of Section 2.4 hereof,
and (iv) all information required to be set forth in any currently-required
Payment Schedule described in Section 2.6 hereof. If such recalculated Full
Funding Amount exceeds the fair market value of the assets then held in the
Trust as determined by the Trustee, the Company shall promptly (and in no event
later than ten (10) days from the date of notice of any underfunding from the
Trustee) pay to the Trustee an amount in cash (or marketable securities
(including securities of the Company) reasonably acceptable to the Trustee or
any combination thereof) equal to such underfunding. The Trustee shall have the
duty, obligation and authority, by whatever means necessary, including, without
limitation, by means of commencing a lawsuit against the Company, to collect any
part of such amount which the Company fails to contribute to the Trust Fund in a
timely manner.
2.4 Notwithstanding the foregoing, if, other than during a Potential
Change in Control Period and prior to a Change in Control, the fair market value
of the assets then held in the Trust, as determined by the Trustee in its sole
discretion, is more than 125 percent of any such recalculated Full Funding
Amount, exclusive of the $1,000,000 for expenses as more fully described in
Section 2.2 hereof, the Trustee, upon receipt of a written request from the
Company's Corporate Vice President - Investment Management, shall distribute to
the Company such requested amount in excess of 125 percent of the Full Funding
Amount, exclusive of the $1,000,000 for expenses ("Excess Funds"). During a
Potential Change in Control Period and upon the occurrence of a Change in
Control, Excess Funds, if any, shall be used and applied by the Trustee to
expenses and other costs of maintaining the Trust Fund and shall not be returned
to the Company.
2.5 The Full Funding Amount, based on the best information available
(including, when necessary, estimates and forecasts) to the Trustee, shall be an
amount equal to the net present value of the amount of any vested and nonvested
payments, including any payments that would be accelerated by reason of any
potential or actual change in control (as defined in the respective Plans),
under the Plans determined, to the extent applicable, as if the potential or
<PAGE>
actual change in control referred to therein had occurred on the date as of
which the Full Funding Amount is calculated, and shall include an additional sum
of one million dollars ($1,000,000) as described in Section 2.2 of this
Agreement. For the purpose of calculating the Full Funding Amount (other than
the one million dollar ($1,000,000) portion for expenses), all Participants who
have previously retired or terminated from the active employment of the Company
and its affiliates shall be assumed to have retired (if eligible) or terminated
employment on the date of the Potential Change in Control or Change in Control.
Net present value and liabilities under the Plans shall be determined in a
manner consistent with the assumptions utilized by the Company under the
Company's qualified defined benefit pension plan applicable to management
employees (the "Pension Plan"), unless the terms of a specific Plan direct use
of different assumptions, in which case such different assumptions shall be used
solely with respect to the Plan to which they pertain. During a Potential Change
in Control Period and upon a Change in Control, the Pension Plan or Plan
assumptions utilized immediately prior to the Potential Change in Control or
Change in Control, as the case may be, shall remain in effect for the duration
of this Agreement, unless assumptions resulting in a greater benefit to
Participants under the Plans are uniformly adopted with respect to the Pension
Plan or Plans, in which case the latter assumptions shall be utilized for
purposes of this Agreement.
2.6 Contemporaneously with each payment by the Company pursuant to
Section 2.1, or 2.3 hereof (other than the initial payment of one-hundred
dollars ($100) for each of the Plans), the Company shall deliver Payment
Schedules (containing information with respect to a Participant's or
Beneficiary's entitlement under the Plans, as described in Section 2.5 hereof)
to each Participant, Beneficiary (if applicable) and the Trustee; provided,
however, that at the request of the Company, or during a Potential Change in
Control Period and upon a Change in Control, the Trustee shall prepare and
deliver such Payment Schedules to Participants (or their Beneficiaries, if
applicable) and to the Company.
2.7 For purposes of this Agreement, the terms set forth below shall be
defined as follows:
(a) "Change in Control" shall mean the occurrence of any of the
following events: (1) an acquisition (other than directly from the Company) of
any voting securities of the Company (the "Voting Securities") by any "Person"
(which shall mean any "person" or "group," in each case within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") immediately after which such Person is a "Beneficial Owner" (within
the meaning of Rule 13d-3 promulgated under the 1934 Act, provided, however,
that such Person shall be deemed to be the "Beneficial Owner" of all shares that
any such Person has the right to acquire pursuant to any agreement, arrangement
or understanding or upon exercise of conversion rights, warrants, options or
otherwise, without regard to the sixty day period referred to in such Rule) of
twenty percent (20%) or more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, in determining whether a
Change in Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (A) an employee benefit plan (or a trust forming a
part thereof) maintained by (i) the Company or (ii) any corporation or other
Person of which a majority of its voting power or its equity securities or
equity interest is owned directly or indirectly by the Company (a "Subsidiary"),
(B) the Company or any Subsidiary, or (C) any Person in connection with a
"Non-Control Transaction" (as defined below). For purposes of this Agreement,
the entities identified in Subparagraphs "(A)", "(B)" and "(C)" of this Section
2.7(a)(1) shall be referred to as "Related Persons."
<PAGE>
(2) The date when the individuals who, as of the date hereof, are
members of the Board of Directors (the "Board") of the Company (the "Incumbent
Board"), cease for any reason to constitute at least two-thirds of the Board;
provided, however, that if the election, or nomination for election by the
Company's stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this
Agreement be considered as a member of the Incumbent Board; provided, further,
however, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 of Regulation 14A
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the Company,
unless
(i) the stockholders of the Company immediately before such
merger, consolidation or reorganization own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least seventy-five
percent (75%) of the combined voting power of the outstanding voting securities
of the corporation resulting from such merger, consolidation or reorganization
(the "Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the members of
the board of directors of the Surviving Corporation;
(iii) no Person (other than the Company or any Subsidiary, any
employee benefit plan or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of fifteen percent (15%) or more of the then outstanding Voting
Securities) has Beneficial Ownership of fifteen percent (15%) or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities; and
(iv) for purposes of this Agreement, the immediately preceding
Subparagraphs (i) through (iii), inclusive, shall be referred to as a
"Non-Control Transaction".
(B) A liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
<PAGE>
the number of Voting Securities outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Person, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(b) "Potential Change in Control" shall mean the occurrence of any of
the following events:
(1) when any Person (including the Company) publicly announces
an intention (A) to acquire five percent (5%) or more of the then outstanding
Voting Securities, provided such acquisition is not by a Related Person or (B)
to merge or consolidate the Company with another entity, transfer or sell assets
of the Company, or liquidate or dissolve the Company, in each case described in
this clause (B) in a transaction that would, if completed, constitute a Change
in Control; or
(2) when any Person other than a Related Person,
(A) acquires five percent (5%) or more of the then outstanding
Voting Securities, other than as a holder whose investment in the Company is
eligible to be reported on Schedule 13G pursuant to Rule 13d-1(b)(1) promulgated
under the 1934 Act (hereinafter, the "Eligible Person"), or
(B) initiates a tender or exchange offer to acquire such
number of Voting Securities as would result in such Person holding twenty
percent (20%) or more of the then outstanding Voting Securities, or
(C) solicits proxies for votes to elect members of the Board
of Directors at a shareholders' meeting of the Company.
(c) "Potential Change in Control Period" shall mean the period
commencing on the date that a Potential Change in Control has occurred and
ending upon:
(1) the date any Person who made an announcement referred to in
Subparagraph (b)(1) of this Section 2.7 publicly announces he no longer intends
to take or is no longer considering the taking of such actions;
(2) the date the Person referred to in Subparagraph (b)(1)(A) of
this Section 2.7 qualifies as an Eligible Person;
(3) the date when any Person described in Subparagraph (b)(2) of
this Section 2.7, (A) shall own less than five percent (5%) of the then
outstanding Voting Securities, (B) shall have abandoned the tender or exchange
offer, or (C) following a shareholders' meeting, shall not have elected a member
of the Board, as the case may be; or
(4) the date a Change in Control occurs.
2.8 The Board or the Chief Executive Officer of the Company shall
notify the Trustee in writing of each occurrence of a Potential Change in
Control and Change in Control. All such notices shall be provided promptly and
in any event not later than five (5) days following the occurrence of such
event. Notwithstanding the foregoing, the Trustee shall be responsible for
<PAGE>
ascertaining whether a Potential Change in Control and a Change in Control has
occurred and the duration of the Potential Change in Control Period. The Trustee
may rely on such methods as are available to obtain notice, including reference
to periodicals of general circulation such as The Wall Street Journal and The
New York Times to determine whether a Potential Change in Control or Change in
Control has occurred and the duration of the Potential Change in Control Period
and the Company will provide to the Trustee, in a timely manner, any Proxy
Statements, Solicitation/Recommendation Statement on 14D-9 Schedules, and
information statements pursuant to Rule 14(f) of the 1934 Act, to the extent
that the Company has filed such documents pursuant to the federal securities
laws and copies of any initial filings and amendments thereto that the Company
receives pursuant to Sections 13(d) and 14(d) of the 1934 Act.
2.9 The Trustee shall be required to determine when the Potential
Change in Control Period has ended. Such determination may be made in the same
manner as provided in Section 2.8 of this Agreement. The determination as to the
end of a Potential Change in Control Period shall result in the obligations of
the parties hereto reverting to their pre-Potential Change in Control
requirements. Nothing contained in this Section 2.9 shall relieve any person of
any of its obligations under this Agreement upon a Change in Control.
ARTICLE III
Trust Assets Subject to Creditors
3.1 Notwithstanding any provision in this Agreement to the contrary, if
at any time while the Trust is still in existence the Company becomes insolvent
(as defined herein), the Trustee shall suspend the payment of all benefits from
the Trust Fund and shall thereafter hold the Trust Fund in suspense until it
receives a court order directing the disposition of the Fund; provided, however,
the Trustee may deduct its fees and expenses and other expenses of the Trust,
including taxes and the fees and expenses of any person retained by the Trustee
in connection with its administration of the Trust Fund, pending the receipt of
such court order. The Company shall be considered to be insolvent if (a) it is
unable to pay its debts as they fall due or (b) bankruptcy or insolvency
proceedings are initiated against it by its creditors or by the Company or any
third party under the Bankruptcy Act of the United States or the bankruptcy laws
of any State alleging that the Company is insolvent or bankrupt. By its approval
and execution of this Agreement, the Company represents and agrees that its
Board of Directors and Chief Executive Officer, as from time to time acting,
shall have the fiduciary duty and responsibility on behalf of the Company's
creditors to give to the Trustee prompt written notice of any event of the
Company's insolvency and the Trustee shall be entitled to rely thereon to the
exclusion of all directions or claims to pay benefits thereafter made. If, after
an event of insolvency, the Company later becomes solvent without the entry of a
court order concerning the disposition of the Trust Fund, the Company shall by
written notice so inform the Trustee and the Trustee shall thereupon resume all
its duties and responsibilities under this Agreement without regard for this
Section 3.1 until and unless the Company again becomes insolvent as such term is
defined herein.
3.2 The Company represents and agrees that the Trust established under
this Agreement does not fund and is not intended to fund the Plans or any other
employee benefit plan or program of the Company. Such Trust is intended to be a
depository arrangement with the Trustee for the setting aside of cash and other
assets of the Company for the meeting of part or all of its future retirement,
death, disability or other obligations to the Participants and their
Beneficiaries under the Plans. The purpose of this Trust is to provide a source
of funds from which Plan Participants and their Beneficiaries may receive
certain retirement, death, disability and deferred benefits under the Plans
<PAGE>
payable from the respective Accounts hereunder. Further, by following the
procedures set forth herein, Plan Participants and Beneficiaries may have access
to some or all of their benefits under the Plans as such benefits become due
without having the payment of such benefits subject to the administrative
control of the Company unless the Company becomes insolvent as defined in
Section 3.1. Nothing in this Agreement shall in any way diminish the rights of
any Participant or Beneficiary to pursue rights of a general creditor with
respect to amounts payable pursuant to the Plans. The Company represents that
the Plans are not qualified nor are they intended to qualify under Section 401
of the Internal Revenue Code of 1986 and therefore are not subject to any of the
Internal Revenue Code requirements applicable solely to tax-qualified plans.
ARTICLE IV
Trust Fund Administration
4.1 Except for the records dealing solely with the Trust Fund and its
investment, which shall be maintained by the Trustee, the Trustee shall be
furnished by the Company with and shall maintain such Participant records
necessary to perform its obligations under this Agreement; provided, however,
that in the absence of such records, the Trustee shall be entitled under this
Agreement to rely on the most recent information and data that is available or
as may be provided by the Participant or Beneficiary. At the request of the
Company, or, during a Potential Change in Control Period and upon a Change in
Control, the Trustee shall also prepare and distribute Participants' statements
and shall be responsible for providing information with respect to payments to
Participants and their Beneficiaries and shall perform such other duties and
responsibilities as set forth in this Agreement or as otherwise determined by
the Trustee as necessary or advisable consistent with the purposes of this
Trust.
4.2 Upon contribution by the Company to the Trust (other than for the
initial contribution as provided in Section 2.1), or as soon thereafter as
practicable but in any event not later than 30 days after a Potential Change in
Control and a Change in Control, the Company shall furnish to the Trustee all
information necessary for the Trustee to determine the Company's (and each of
its affiliates') separate liabilities and obligations under the Plans with
respect to each Participant in each Plan, including any benefits payable after
the Participant's death and the recipient of same. During a Potential Change in
Control Period and a Change in Control, the Company shall regularly, at least
quarterly, furnish revised updated information to the Trustee. Based on the
foregoing information, at the request of the Company or during a Potential
Change in Control Period and upon a Change in Control, the Trustee shall prepare
an annual estimated benefits statement in respect of each Participant and shall
furnish a copy of same to the Participant or his Beneficiary and to the Company.
In the event the Company refuses or neglects to provide updated Participant
information, as contemplated herein, the Trustee shall be entitled to rely upon
the most recent information furnished to it by the Company or a Participant (or
Beneficiary) and may make appropriate adjustments for events occurring
subsequent to the date with respect to which the most recent information
pertains.
4.3 Upon the written direction of the Company's Executive Human
Resources Department to the Trustee that a Participant's benefits under a Plan
have become payable or, if the Company's Executive Human Resources Department
fails to provide such notification within twenty (20) days of the event
entitling the Participant to a distribution, upon the written direction to the
Trustee and the Company by the Participant or Beneficiary of a deceased
Participant, the Trustee, upon review of the Plans and such other information as
it shall deem relevant and determination by the Trustee that such amount is
<PAGE>
properly payable under the Plans, shall prepare a certification to the Company
and Participant that a Participant's benefits under a Plan have become payable.
Such certification shall include the amount of such benefits, the manner of
payment and the name, address and social security number of the recipient and,
to the extent necessary, shall be updated quarterly or upon receipt by the
Trustee of a notice of a benefit change under a Plan from the Company. Upon the
Trustee's determination of the amount payable from the Trust Fund (in accordance
with the method described in Section 1.4 of this Agreement) and the appropriate
federal, state and local tax amount to be withheld from such amount, the Trustee
shall commence distributions from the Trust Fund in accordance with the terms of
the applicable Plan to the person or persons so indicated and to the Company
with respect to taxes required to be withheld and the Trustee shall charge the
Accounts established hereunder for the Participant's benefits and tax payments;
provided, however, that in the event the Company notifies the Trustee that a
Participant is entitled under one or more of the Plans to receive a distribution
in the form of shares of stock of the Company, or the Trustee makes such
determination, the Trustee shall distribute stock of the Company from the assets
of the Trust Fund or may purchase, on the open market or from the Company, as
determined by the Trustee, at fair market value, the requisite number of shares
with the cash distribution to the Participant attributable to the Plan requiring
distribution in shares of Company stock. The Trustee shall deliver the shares to
the Participant as soon as practicable following the purchase and registration
of such shares in the name of the Participant. The Company shall have full
responsibility for the payment of all withholding taxes to the appropriate
taxing authority and shall furnish each Participant or Beneficiary and the
Trustee with the appropriate tax information form evidencing such payment and
the amount thereof. The Trustee shall also furnish a copy of the tax withholding
certification to the Participant or to the Beneficiary of a deceased
Participant.
4.4 All benefits payable from the Trust Fund to a Participant or his
Beneficiary under any Plan shall be paid solely from the Account within this
Trust Fund in which such Plan has been assigned by the Company as described in
Schedule A to this Agreement. Upon the satisfaction of all vested liabilities
under a specific Account in respect of Participants and Beneficiaries for whom
Plan benefits are payable from such Account, the Company's Corporate Vice
President - Investment Management shall prepare a certification to the Trustee
showing the balance, if any, remaining in the particular Account attributable to
the Plans covered by or under such Account. Such balance shall thereupon be
reallocated ratably by the Company's Corporate Vice President - Investment
Management to the remaining Account under this Agreement in the ratio that
unfunded vested liabilities in respect of each such Participant and Beneficiary
payable from such other Account bear to the total unfunded vested liabilities to
all such Participants and Beneficiaries payable from such other Account. Upon
the satisfaction of all vested and nonvested liabilities of the Company (and its
affiliates) under the Accounts for Participants and Beneficiaries, the Company's
Corporate Vice President - Investment Management shall prepare a certification
to the Trustee, verified by the Trustee, and the Trustee shall thereupon hold or
distribute the Trust Funds in accordance with the written instructions of the
Company's Vice President - Investment Management. The Company shall not be
entitled to a return of assets contributed to the Trust Fund prior to the
Company's insolvency, as defined in Section 3.1, except in the following limited
circumstances: (a) upon termination of this Agreement pursuant to Article X; (b)
upon the existence of Excess Funds, to the limited extent described in Section
2.4, and then only to the extent of such Excess Funds; (c) upon the satisfaction
of all vested liabilities of the Company (and its affiliates') under the Plans
in respect of Participants and Beneficiaries eligible for payment from the
Accounts hereunder; or (d) upon conclusion of the Potential Change in Control
<PAGE>
Period (provided that a Change in Control has not occurred), but only to the
extent of amounts contributed on or after the occurrence of the Potential Change
in Control and any earnings thereon. The Trustee shall have no responsibility
for determining whether any Participant or Beneficiary has died and shall be
entitled to reasonably rely upon information furnished by the Company. All
certifications and reallocations required to be performed by the Company under
this Section 4.5 shall be performed by the Trustee during a Potential Change in
Control Period and upon a Change in Control or at any time upon request of the
Company. In the event the Trustee is to provide certifications or reallocations
under this Section 4.5, all notices and information otherwise shall also be
provided to the Company.
4.5 (a) The Company reserves the right to transfer to the Trust Fund
paid-up life insurance, retirement income or annuity policies or contracts on or
for the life or lives of any Participant or Participants eligible for benefits
from an Account established hereunder, or to direct the Trustee to purchase any
such policies or contracts on or for the life or lives of any such Participant
or Participants out of the amounts credited under one or more of the Accounts.
The Trustee shall hold such policies or contracts, and each Beneficiary
designation under such policies or contracts shall indicate the name of the
Trustee or its successors. Any such policy or contract shall be an asset of the
Trust Fund subject to the claims of the Company's creditors in the event of
insolvency, as specified in Section 3.1. The proceeds of any life insurance
policy shall upon the death of the insured Participant be credited to the
Accounts established under this Agreement ratably by the Trustee in the ratio
that unfunded liabilities (as determined pursuant to Section 2.5) in respect to
each such Participant and Beneficiary payable from an Account bear to the total
unfunded liabilities to all such Participants and Beneficiaries payable from all
such Accounts, or, upon direction by the Company's Corporate Vice President -
Investment Management, may be used by the Trustee to purchase additional life
insurance as described herein, and shall be an additional source of benefits, if
any, available for payment to Participants and Beneficiaries or estates as
provided under the respective Plan or Plans. If, upon the death of the
Participant, the balance remaining to the credit of such Participant in an
Account is not required to be paid to the Participant's Beneficiary or estate
under the terms of the Plan, such balance shall be reallocated to other
Participants eligible for benefits from the Accounts in accordance with Section
4.5.
(b) Premium notices with respect to policies owned by the Trustee shall
be delivered by the insurance carrier to the Trustee, with a copy to the
Company. Premiums on policies owned by the Trustee may be paid out of
contributions to the Trust Fund by the Company, or, at the request of the
Company, paid directly by the Company. All policies and/or annuity contacts held
by the Trustee shall be endorsed, to the extent available, to provide for an
"Automatic Premium Loan" against the cash values thereof in the event of any
default in the payment of premiums thereon. If any premium due on any insurance
policy owned by the Trustee is not otherwise fully paid or waived by the premium
due date, the Trustee may in its sole discretion pay that premium or any portion
thereof ratably from funds available in the Trust Fund. If the Trustee
determines that the amount in the Trust Fund is insufficient to pay the full
premium or elects not to reduce the assets of the Trust Fund by the amount of
premium required, the Trustee shall immediately notify the Company of the
insufficiency or unpaid amount, and shall afford the Company the opportunity to
pay such premium. If the Company fails to pay all of the insufficiency or unpaid
amount within five days after the premium due date, the Trustee shall have no
further obligation with respect to such policy.
4.6 Nothing provided in this Agreement shall relieve the Company of its
liabilities to pay the retirement, death, disability, deferred or other benefits
<PAGE>
provided under the Plans except to the extent such liabilities are met by
application of Trust Fund assets. It is the intent of the Company to provide
that the assets attributable to each Account established hereunder shall satisfy
in whole or in part the Company's legal liability under the Plans in respect of
the Participant for whom such Account has been established.
ARTICLE V
Notices to Trustee
5.1 The Company shall provide the Trustee with a certified copy of the
Plans at the time of execution of this Agreement and shall deliver copies of all
amendments thereto and of the resolutions of the Board approving all amendments
thereto, promptly upon their adoption. After the execution of this Agreement,
the Company shall promptly file with the Trustee a certified list of the names
and specimen signatures of the officers of the Company and any delegate
authorized to act for it and the names of all Participants and Beneficiaries.
The Company shall promptly notify the Trustee of the addition or deletion of any
person's name to or from such list, respectively. Until receipt by the Trustee
of notice that any person is no longer authorized so to act, the Trustee may
continue to rely on the authority of the person. All certifications, notices and
directions by any such person or persons to the Trustee shall be in writing
signed by such person or persons. The Trustee may rely on any such
certification, notice or direction purporting to have been signed by or on
behalf of such person or persons that the Trustee believes to have been signed
thereby. The Trustee may rely on any certification, notice or direction of the
Company that the Trustee believes to have been signed by a duly authorized
officer, agent of the Company or Participant (or Beneficiary of a deceased
Participant). The Trustee shall have no responsibility for acting or not acting
in reliance upon any notification believed by the Trustee to have been so signed
by a duly authorized officer or agent of the Company. The Company shall be
responsible for keeping accurate books and records with respect to the employees
of the Company, their compensation and their rights and interests in the Trust
Fund under the Plans.
5.2 The Company shall make its contributions to the Trust in accordance
with the terms of this Agreement and the Trustee shall add such contributions to
the Trust Fund, and subject to Section 6.6 hereof, the Trustee shall administer
such additional assets in accordance with the terms of this Agreement, including
crediting all investment earnings, income on assets and adjustments for charges,
expenses and cash flows on assets to the Account in which the contributions
subject to such earnings and adjustments have been credited.
5.3 Subject to the provisions of Sections 2.4 and 7.2, to the extent
the Company's contribution for expenses of administering the Trust (as provided
in Section 2.2) are inadequate to pay the Trustee's fees and expenses, the
Company (and its affiliates) shall indemnify and hold harmless the Trustee from
and against any and all claims, liabilities or expense, including without
limitation, advances for or prompt reimbursement of reasonable fees and expenses
of counsel and other agents retained by it, incurred by the Trustee with respect
to holding, managing, investing, the taking or refraining from taking any
actions hereunder or otherwise administering the Trust Fund, other than by its
negligence or willful misconduct.
ARTICLE VI
Trust Investments
6.1 The Trustee shall not be liable in discharging its duties
hereunder, including without limitation its duty to invest and reinvest the
Fund, if it acts without negligence, in good faith and in accordance with the
<PAGE>
terms of this Agreement and any applicable Federal or state laws, rules or
regulations.
6.2 Subject to appointment of an Investment Manager pursuant to Section
6.6, or the Company and the Trustee having mutually agreed in a separate writing
that the Trustee shall have and exercise investment discretion with respect to
Trust Fund assets, the Company's Corporate Vice President - Investment
Management shall have complete discretion with respect to the investment of such
assets at all times other than during a Potential Change in Control Period and
upon a Change in Control, and shall direct the Trustee accordingly. During a
Potential Change in Control Period and upon a Change in Control, the Trustee
shall have and exercise sole investment discretion with respect to all assets of
the Trust, including the power to appoint or terminate an Investment Manager
(who may be an affiliate of the Trustee), as more fully described in Section
6.6. Subject to the foregoing, the Trustee (or the Company's Corporate Vice
President - Investment Management or Investment Manager, to the extent
applicable) shall have the power in investing and reinvesting the Trust Fund in
its sole discretion:
(a) To invest and reinvest in any property, real, personal or mixed,
wherever situated and whether or not productive of income or consisting of
wasting assets, including without limitation, common and preferred stocks,
bonds, notes, debentures (including convertible stocks and securities but not
including any stock or security of the Trustee, an Investment Manager (as
provided in Section 6.6 of this Agreement) or any affiliate thereof),
leaseholds, mortgages, certificates of deposit or demand or time deposits
(including any such deposits with the Trustee), shares of investment companies
and mutual funds, interests in partnerships and trusts, insurance policies and
annuity contracts (in accordance with Section 4.6 hereof), and oil, mineral or
gas properties, royalties, interests or rights, without being limited to the
classes of property in which trustees are authorized to invest by any law or any
rule of court of any state and without regard to the proportion any such
property may bear to the entire amount of the Trust Fund;
(b) To invest and reinvest all or any portion of the Trust Fund
collectively through the medium of any common, collective or commingled trust
fund that may be established and maintained by the Trustee, subject to the
instrument or instruments establishing such trust fund or funds and with the
terms of such instrument or instruments, as from time to time amended, being
incorporated into this Agreement to the extent of the equitable share of the
fund in any such common, collective or commingled trust fund;
(c) To retain any property at any time received by the Trustee;
(d) To sell or exchange any property held by it at public or private
sale, for cash or on credit, to grant and exercise options for the purchase or
exchange thereof, to exercise all conversion or subscription rights pertaining
to any such property and to enter into any covenant or agreement to purchase any
property in the future;
(e) To participate in any plan of reorganization, consolidation,
merger, combination, liquidation or other similar plan relating to property held
by it and to consent to or oppose any such plan or any action thereunder or any
contract, lease, mortgage, purchase, sale or other action by any person;
(f) To deposit any property held by it with any protective,
reorganization or similar committee, to delegate discretionary power thereto,
and to pay part of the expenses and compensation thereof and any assessments
levied with respect to any such property so deposited;
(g) To extend the time of payment of any obligation held by it;
(h) To hold uninvested any moneys received by it, without liability for
interest thereon, until such moneys shall be invested, reinvested or disbursed;
(i) To exercise all voting or other rights with respect to any property
held by it and to grant proxies, discretionary or otherwise;
<PAGE>
(j) To manage, administer, operate, insure, repair, improve, develop,
preserve, mortgage, lease or otherwise deal with, for any period, any real
property or any oil, mineral or gas properties, royalties, interests or rights
held by it directly or through any corporation, either alone or by joining with
others, using other Trust assets for any such purposes, to modify, extend,
renew, waive or otherwise adjust any provision of any such mortgage or lease and
to make provision for amortization of the investment in or depreciation of the
value of such property;
(k) To employ suitable agents and counsel, who may be counsel to the
Company or the Trustee, and to pay their reasonable expenses and compensation
from the Trust Fund to the extent not paid by the Company;
(l) To cause any property held by it to be registered and held in the
name of one or more nominees, with or without the addition of words indicating
that such securities are held in a fiduciary capacity, and to hold securities in
bearer form;
(m) To settle compromise or submit to arbitration any claims, debts or
damages due or owing to or from the Trust, respectively, to commence or defend
suits or legal proceedings to protect any interest of the Trust, and to
represent the Trust in all suits or legal proceedings in any court or before any
other body or tribunal; provided, however, that the Trustee shall not be
required to take any such action unless it shall have been indemnified by the
Company to its reasonable satisfaction against liability or expenses it might
incur therefrom;
(n) To organize under the laws of any state a corporation or trust for
the purpose of acquiring and holding title to any property which it is
authorized to acquire hereunder and to exercise with respect thereto any or all
of the powers set forth herein;
(o) To appoint or discharge an Investment Manager (as provided in
Section 6.6);
(p) Upon reasonable notice, to acquire the assets in the Trust Fund, in
whole or in part, by substituting assets of equal or greater value and
investment quality to such assets reacquired, provided such substitute assets
may properly be held by the Trustee under the terms of this Agreement. No
substitution of assets shall be permitted unless, immediately following such
substitution, all Plans funded pursuant to Section 2.2 of this Agreement are
funded at an amount equal to or greater than the funded amount immediately prior
to such substitution of assets;
(q) To use Trust Fund assets to purchase shares of Company stock;
provided, that shares of Company Stock shall not become assets of the Trust Fund
unless such shares would be treated as issued and outstanding under the laws of
the Company's state of incorporation; and
(r) To invest and reinvest all or any portion of the Trust Fund in
futures and option contracts in accordance with applicable law; and
(s) To purchase annuity contracts from a licensed insurance company as
an investment for assets of the Trust Fund or for purposes of distributing
annuity contracts to Participants and Beneficiaries as provided under the Plans;
and
(t) Generally, to do all acts, whether or not expressly authorized,
that the Trustee (or the Company or Investment Manager, to the extent
applicable) may deem necessary or desirable for the protection of the Trust
Fund; and
(u) To invest the assets of the Trust Fund in such other investments as
may be permitted by applicable law, provided such investments are consistent
with the intent and purpose of the Trust.
6.3 No person dealing with the Trustee shall be under any obligation to
see to the proper application of any money paid or property delivered to the
Trustee or to inquire into the Trustee's authority as to any transaction.
<PAGE>
6.4 (a) The Trustee shall distribute cash or property from the Trust
Fund in accordance with Article IV hereof. (b) The Trustee may make any
distribution required hereunder by mailing its check for the specified amount,
or delivering the specified property, to the person to whom such distribution or
payment is to be made, at such address as may have been last furnished to the
Trustee, or if no such address shall have been so furnished, if so directed by
the Company, by crediting the account of such person or by transferring funds to
such person's account by bank or wire transfer.
6.5 If at any time there is no person authorized to act under this
Agreement in behalf of the Company, the Board or its delegate shall have the
authority to act hereunder.
6.6 (a) The Company's Corporate Vice President - Investment Management
(other than during a Potential Change in Control Period and upon a Change in
Control) or the Trustee (during a Potential Change in Control Period and upon a
Change in Control) may from time to time in the exercise of their fiduciary
responsibilities under this Agreement appoint one or more Investment Managers to
manage all or any portion of the Trust Fund and, with respect to such portion,
to direct the Trustee with respect to effecting investment transactions on
behalf of the Trust Fund and exercising such other powers as may be granted to
Investment Managers hereunder. Other than during a Potential Change in Control
Period and upon a Change in Control, the Company's Corporate Vice President -
Investment Management shall give prompt written notice to the Trustee of any
such appointment, upon which the Trustee shall rely until it receives from the
Company's Corporate Vice President - Investment Management written notice of the
termination of such appointment. In each case where such an appointment is made,
the Company's Corporate Vice President - Investment Management or the Trustee,
as the case may be, shall determine the assets of the Trust Fund to be allocated
to the Investment Manager from time to time and the Company's Corporate Vice
President - Investment Management, if applicable, shall issue appropriate
instructions to the Trustee with respect thereto.
(b) For the purpose of this Agreement, the term "Investment Manager"
shall mean a person (who shall not be a participant in any of the Plans) or
entity described as follows: An investment manager who has been appointed by the
Company (or by the Trustee during a Potential Change in Control Period and upon
a Change in Control) pursuant to this Agreement to serve as such hereunder and
who is and has acknowledged in writing that he is (A) a fiduciary with respect
to the Plans; and (B) either (1) an investment advisor registered under the
Investment Advisors Act of 1940, (2) a bank, as defined in the Investment
Advisors Act of 1940, (3) a state or federally chartered savings bank, savings
and loan association or other thrift institution, or (4) an insurance company
qualified under the laws of more than one state to manage, acquire or dispose of
the assets of the Trust Fund.
(c) The appointment of an Investment Manager by the Company's Corporate
Vice President - Investment Management shall become effective on the date
specified in such authorization but not before delivery of such authorization to
the Trustee.
(d) Any Investment Manager who is appointed hereunder must furnish the
Trustee with a written acknowledgment of the facts set forth in Section 6.6(b).
(e) To the extent that the Trust Fund or any portion thereof is subject
to the control of an Investment Manager, the Trustee (i) shall not have
exclusive management and control over that portion of the Trust Fund; (ii) shall
not invest or otherwise manage and control that portion of the Trust Fund which
is under the management and control of such Investment Manager; (iii) shall take
investment action only upon the written instruction of such Investment Manager;
and (iv) shall be subject to the directions of such Investment Manager properly
given pursuant to this Agreement. Purchase and sale orders may be placed by such
Investment Manager directly with brokers and/or dealers without the intervention
<PAGE>
of the Trustee, and, in such event, the Trustee's sole obligation shall be to
make payment for purchased assets and deliver those assets that have been sold
when advised of the transaction. To the extent that an Investment Manager has
been appointed by the Company's Corporate Vice President - Investment Management
prior to the earlier of a Potential Change in Control Period and a Change in
Control, the Trustee shall not have any duty concerning the investment of the
portion of the Trust Fund managed by such Investment Manager or to review or
make any recommendation of its own with respect to the making or retention of
any such investment prior to the earlier of a Potential Change in Control Period
and a Change in Control. Thereafter, the Trustee shall have the duty to question
the soundness of such Investment Manager's instructions and shall review and
make recommendations with respect to investments. The Trustee shall have no
liability to any person for any action taken or omitted in accordance with any
directions given by the aforementioned Investment Manager, or for the failure of
such Investment Manager to give such directions prior to the earlier of a
Potential Change in Control Period and a Change in Control. Thereafter, the
Trustee shall be liable for any such action or inaction.
(f) All restrictions imposed by Article VI upon the Trustee concerning
the Trustee's dealings in stock of the Company and the Company's right to direct
investments and all duties of care and prudence also shall apply to any
Investment Manager.
ARTICLE VII
Trust Fees and Expenses
7.1 The Company shall pay any Federal, state or local taxes on the
Trust Fund, or any part thereof, and on the income therefrom.
7.2 The Company shall pay to the Trustee its reasonable expenses for
the management and administration of the Trust Fund, including, without
limitation, advances for or prompt reimbursement of reasonable expenses of
counsel and other agents employed by the Trustee, and reasonable compensation
for its services as Trustee hereunder, the fee schedules of which shall be
agreed upon in advance from time to time by the Company's Corporate Vice
President - Investment Management and the Trustee in writing. Except as provided
below, the Trustee shall not deduct such fees and expenses from the assets of
the Trust Fund. During a Potential Change in Control Period or upon a Change in
Control, upon failure of the Company to pay such compensation and expenses of
the Trustee, the Trustee may satisfy such obligations out of the assets of the
Trust Fund, but only to the extent of the assets specifically contributed for
the payment of expenses pursuant to Section 2.2 or otherwise allocated for such
purpose pursuant to Section 2.4. The Trustee shall not be entitled or permitted
to reduce any Participant's benefits payable from an Account for the payment of
Trustee expenses. The Company shall remain responsible for all fees and expenses
incurred by the Trustee and not otherwise reimbursed from the Trust Fund.
ARTICLE VIII
Records and Accounting
8.1 The Trustee shall maintain records with respect to the Trust Fund
that show all its receipts and disbursements hereunder. The records of the
Trustee with respect to the Trust Fund shall be open to inspection by the
Company, or its representatives, at all reasonable times during normal business
hours of the Trustee and may be audited not more frequently than once each
fiscal year by an independent certified public accountant engaged by the
Company.
<PAGE>
8.2 Within a reasonable time after the close of each fiscal year of the
Company (or, in the Company's discretion, at more frequent intervals), or of any
termination of the duties of the Trustee hereunder, the Trustee shall prepare
and deliver to the Company a statement of transactions reflecting its acts and
transactions as Trustee during such fiscal year, portion thereof or during such
period from the close of the last fiscal year or last statement period to the
termination of the Trustee's duties, respectively, including a statement of the
then current value of the Trust Fund. At the request of the Company's Corporate
Vice President - Investment Management, the Trustee shall prepare and furnish to
the Company a statement of the then current value of each Account and benefit
entitlement of each Participant and Beneficiary of any Plan covered by such
Account. Any such statement by the Trustee shall be deemed an account stated and
accepted and approved by the Company, and the Trustee shall be relieved and
discharged, as if such account had been settled and allowed by a judgment or
decree of a court of competent jurisdiction, unless protested by written notice
to the Trustee within sixty (60) days of receipt thereof by the Company.
8.3 The Trustee shall have the right to apply at any time to a court of
competent jurisdiction for judicial settlement of any account of the Trustee not
previously settled as herein provided or for the determination of any question
of construction or for instructions. In any such action or proceeding it shall
be necessary to join as parties only the Trustee and the Company (although the
Trustee may also join such other parties as it may deem appropriate), and any
judgment or decree entered therein shall be conclusive.
ARTICLE IX
Resignation, Removal or Replacement of Trustee
9.1 Provided that a Potential Change in Control or a Change in Control
has not occurred, the Trustee may resign at any time by delivering written
notice thereof to the Company; provided, however, that no such resignation shall
take effect until the earlier of (i) sixty (60) days after the date of delivery
of such notice to the Company or (ii) the appointment of a successor trustee.
9.2 Provided that a Potential Change in Control or a Change in Control
has not occurred, the Trustee may be removed at any time by the Company's
Corporate Vice President - Investment Management, upon delivery to the Trustee
of a certified copy of such resolution and sixty (60) days' written notice;
provided, however, that advance written notice will not be required if (a) such
notice period is waived in whole or in part by the Trustee, (b) there has been a
breach of fiduciary duty by the Trustee, or (c) there has been a material breach
by the Trustee of the terms of this Agreement.
9.3 Provided that a Potential Change in Control or a Change in Control
has not occurred, upon the resignation or removal of the Trustee, a successor
trustee shall be appointed by the Company's Corporate Vice President -
Investment Management. Such successor trustee shall be a bank or trust company
(i) established under the laws of the United States or a State within the United
States, (ii) authorized to exercise trust powers, (iii) is among the 100 largest
banks in the United States, as measured by deposits or assets, (iv) which is not
an affiliate of the Company, and (v) which satisfies all minimum capital and
surplus requirements imposed by any federal or state law or regulatory agency.
Such appointment shall take effect upon the delivery to the Trustee of (a) a
written appointment of such successor trustee, duly executed by the Company, and
(b) a written acceptance by such successor trustee, duly executed thereby. Any
successor trustee shall have all rights, powers and duties granted the Trustee
hereunder.
<PAGE>
9.4 If, within sixty (60) days after the delivery of the Trustee's
written notice of resignation pursuant to Section 9.1 hereof, a successor
trustee shall not have been appointed, the Trustee may apply to any court of
competent jurisdiction for the appointment of a successor trustee. The date of
appointment of a successor trustee shall take effect as provided in Section 9.3.
9.5 During a Potential Change in Control Period and upon a Change in
Control, the Company's Corporate Vice President Investment Management shall have
no power to remove the Trustee, but following such occurrence the Trustee may be
removed and a successor trustee appointed pursuant to the procedures hereinafter
set forth in this Section 9.5 or may resign by delivering written notice thereof
to the Company; provided, however, that no such removal shall take effect until
the effective date of appointment of a successor trustee in accordance with
Section 9.3 and no such resignation shall take effect until the later of (i)
sixty (60) days after the date of delivery of written notice to the Company or
(ii) the effective date of appointment of a successor trustee. The appointment
of a successor trustee following the Trustee's resignation or the removal of the
Trustee and appointment of a successor trustee, as described above, shall be
accomplished by the written agreement of at least sixty-five percent (65%) of
the Participants and Beneficiaries (existing at the commencement of a Potential
Change in Control Period or on the date of a Change in Control, whichever is
applicable) entitled to benefits payable (at that time or in the future) from
the Trust Fund and written notice to the Trustee. For purposes of the preceding
sentence, a Beneficiary shall be considered in calculating the sixty-five
percent (65%) requirement only after the death of the corresponding Participant.
An independent bank selected by the Trustee shall tabulate all votes under this
Section 9.5 and, upon completion of such tabulation and forwarding of certified
results satisfactory to the Trustee that the written agreement of at least
sixty-five percent (65%) of all Participants and Beneficiaries has been
obtained, the Trustee shall be removed.
9.6 In the event that a successor trustee shall not be appointed
pursuant to Section 9.5 hereof within ninety (90) days following the date of
delivery of written notice of removal to the Trustee or the date of delivery of
written notice of resignation to the Company, the Trustee, in its discretion,
either shall appoint a successor trustee or shall apply to a court of competent
jurisdiction requesting that such appointment be made. Any successor trustee
appointed pursuant to Section 9.5 or this Section 9.6 shall satisfy the
successor trustee requirements set forth in Section 9.3 hereof, and such
appointment shall take effect upon the delivery to the Trustee and the Company
of a written acceptance by such successor trustee, duly executed thereby. Any
such successor trustee shall have all the rights, powers and duties granted the
Trustee hereunder.
9.7 Upon the removal or resignation of the Trustee and the appointment
of a successor trustee, and after the acceptance and approval of the Trustee's
account, the Trustee shall transfer and deliver the Trust Fund to such successor
together with all records pertaining to the Trust Fund and benefits payable from
the Trust Fund. Under no circumstances shall the Trustee transfer or deliver the
Trust Fund to any successor which does not satisfy the successor trustee
requirements set forth in Section 9.3 hereof.
ARTICLE X
Termination of Trust
10.1 The Trust established pursuant to this Agreement may not be
terminated by the Company prior to the first to occur of (a) satisfaction of all
vested and nonvested liabilities with respect to all Participants in the Plans
and their Beneficiaries or (b) the twenty-first anniversary of the death of the
last survivor of the Participants or Beneficiaries who are in being on the date
of this Agreement. A written certification from the Trustee that all liabilities
<PAGE>
have been satisfied with respect to all Participants in the Plans and their
Beneficiaries shall be required prior to termination of the Trust. The Board of
Directors may terminate the Trust upon receipt of the Trustee's certification
and delivery by the Board of Directors to the Trustee of (a) a certified copy of
a resolution of the Board of Directors terminating the Trust, and (b) a written
instrument of termination duly executed and acknowledged in the same form as
this Agreement.
10.2 Upon the termination of the Trust in accordance with Section 10.1,
the Trustee shall, after the acceptance and approval of its account, distribute
the Trust Fund to the Company. Upon completing such distribution, the Trustee
shall be relieved and discharged. The powers and duties of the Trustee shall
continue as long as any part of the Trust Fund remains in its possession.
ARTICLE XI
Amendment of Trust
11.1 Other than during a Potential Change in Control Period and upon a
Change in Control, this Agreement may be amended, in whole or in part, at any
time and from time to time, by the Company's Corporate Vice President -
Investment Management, with the consent of the Trustee, which consent shall not
be withheld unreasonably, pursuant to a written instrument executed by the
Company's Corporate Vice President - Investment Management and the Trustee.
Notwithstanding the foregoing, prior to a termination of the Trust as and to the
extent currently provided for under Article X hereof and subject to the current
provisions of Article III hereof, no amendment of this Agreement may be made
(either prior to or following a Change in Control) which would have the effect
of (i) eliminating or reducing the Company's obligation to make contributions to
the Trust Fund in the event of a Potential Change in Control and a Change in
Control as set forth under Article II hereof, (ii) except to the extent
currently permitted under this Agreement, permitting the use of the assets of
the Trust Fund for any purpose other than providing benefits to Participants and
Beneficiaries and defraying the reasonable expenses of the Trust as currently
contemplated hereunder, or (iii) changing the current definitions of Potential
Change in Control, Potential Change in Control Period and Change in Control or
altering the current provisions of this Article XI, in each case in a manner
which is adverse to the interests of the Participants and Beneficiaries; unless,
in each such instance, any such amendment is approved in writing by at least
sixty-five percent (65%) of the Participants and Beneficiaries entitled to
benefits payable (at that time or in the future) from the Trust Fund. During a
Potential Change in Control Period and upon a Change in Control, this Agreement
may be amended only by the Trustee with the written agreement of at least
sixty-five percent (65%) of the Participants and Beneficiaries (existing at the
commencement of a Potential Change in Control Period or on the date of a Change
in Control, whichever is applicable) entitled to benefits payable (at that time
or in the future) from the Trust Fund. For purposes of the preceding sentences,
a Beneficiary shall be considered in calculating the sixty-five percent (65%)
requirement only after the death of the corresponding Participant. The Trustee
shall tabulate all votes under this Section 11.1 and, upon completion of such
tabulation and forwarding of certified results to the Company, the Agreement
shall be amended.
ARTICLE XII
Miscellaneous
12.1 This Agreement shall be construed and interpreted under, and the
Trust hereby created shall be governed by the laws of the State of New Jersey
without regard to the conflicts of law principles insofar as such laws do not
contravene any applicable Federal laws, rules or regulations.
<PAGE>
12.2 Neither the gender not the number (singular or plural) of any word
shall be construed to exclude another gender or number when a different gender
or number would be appropriate.
12.3 No right or interest of any Participant under the Plans in the
Trust Fund shall be transferable or assignable or shall be subject to
alienation, anticipation or encumbrance, and no right or interest of any
Participant or Beneficiary in the Plans or in the Trust Fund shall be subject to
any garnishment, attachment or execution. The Trust Fund shall at all times
remain subject to claims of creditors of the Company in the event the Company
becomes insolvent as provided in Section 3.1.
12.4 The Company agrees that by the establishment of this Trust it
hereby foregoes any judicial review of certifications by the Trustee as to the
benefit payable to any persons hereunder. If a dispute arises between the
Trustee and the Company as to the amounts or timing of any such benefits or the
persons entitled thereto under the Plans or this Agreement, the Company agrees
that such dispute shall be resolved by binding arbitration proceedings initiated
in accordance with the rules of the American Arbitration Association and that
the results of such proceedings shall be conclusive and shall not be subject to
judicial review. It is expressly understood that pending the resolution of any
such dispute payment of benefits shall be made and continued by the Trustee in
accordance with the certification of the Trustee and that the Trustee shall have
no liability with respect to such payments, provided that such payments under
the Plans were reasonable based on all of the facts and circumstances. The
Company also agrees to pay the entire cost of any arbitration or legal
proceeding initiated under the Trust Fund including the legal fees of the
Trustee and the Plan Participant or the Beneficiary of any deceased Plan
Participant regardless of the outcome of any such proceeding.
12.5 This Agreement shall be binding upon and inure to the benefit of
any successor to the Company or its business as the result of merger,
consolidation, reorganization, transfer of assets or otherwise and any
subsequent successor thereto shall promptly notify the Trustee in writing of its
successorship and furnish the Trustee with the information specified in Section
5.1 of this Agreement. In no event shall any such transaction described herein
suspend or delay the rights of Plan Participants or the Beneficiaries of
deceased participants to receive benefits hereunder.
12.6 This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which shall together
constitute only one Agreement.
12.7 Communications to the Trustee shall be sent to Wachovia Bank of
North Carolina, N.A., Employee Benefit Trust Services, 301 North Main Street,
Winston-Salem, NC 27150-3099 - Attention: Senior Vice President-Manager of Legal
Administration or to such other address as the Trustee may specify in writing.
No communication shall be binding upon the Trustee until it is received by the
Trustee. Communications to the Company shall be sent to the offices of the
Company's Corporate Vice President - Investment Management or to such other
address or person as the Company may specify in writing.
12.8 In the event any Participant or his Beneficiary is determined to
be subject to Federal income tax on any amount to the credit of his Account
under this Agreement prior to the time of payment hereunder, the entire amount
determined to be so taxable shall be distributed by the Trustee to such
Participant or Beneficiary. An amount to the credit of a Participant's Account
shall be determined to be subject to Federal income tax upon the earlier of: (a)
a final determination by the United States Internal Revenue Service addressed to
the Participant or his Beneficiary which is not appealed to the courts; or (b) a
final determination by the United States Tax Court or any other Federal Court
affirming any such determination by the Internal Revenue Service. The Company
may undertake at its sole expense to defend any tax claims described in this
Section which are asserted by the Internal Revenue Service against any
<PAGE>
Participant or Beneficiary, including attorneys' fees and costs of appeal, and,
if the Company undertake to defend, the Company shall have the sole authority to
determine whether or not to appeal any determination made by the Internal
Revenue Service or by a lower court. The Company shall reimburse any Participant
or Beneficiary for any interest or penalties in respect of tax claims hereunder
upon receipt of documentation of same. Any distributions from the Trust Fund to
a Participant or Beneficiary under this Section 12.8 shall be applied to reduce
Company liabilities to such Participant and/or Beneficiary under the Plans.
IN WITNESS WHEREOF, the parties hereto have caused this amended and
restated Trust Agreement to be duly executed and their respective corporate
seals to be hereto affixed this day of , 1993.
Attest: WACHOVIA BANK OF NORTH CAROLINA,
N.A., As Trustee
By
Its Senior Vice President
Attest: AMERICAN TELEPHONE AND TELEGRAPH
COMPANY
By
Its Corporate Vice
President - Investment
Management
<PAGE>
STATE OF NORTH CAROLINA )
) ss.:
COUNTY OF STOKES )
Personally appeared Joe O. Long, Senior Vice President of Wachovia Bank
of North Carolina, N.A., signer and sealer of the foregoing instrument, and
acknowledged the same to be his free act and deed as such Senior Vice President
and the free act and deed of said Company, before me.
Notary Public
STATE OF NEW JERSEY )
) ss.:
COUNTY OF )
Personally appeared David P. Feldman, Corporate Vice President -
Investment Management of American Telephone and Telegraph Company, signer and
sealer of the foregoing instrument, and acknowledged the same to be his free act
and deed as such Corporate Vice President - Investment Management and the free
act and deed of said Company, before me.
Notary Public
<PAGE>
Account A
1. American Telephone and Telegraph Company Non-Qualified Pension Plan
2. American Telephone and Telegraph Company Mid-Career Pension Plan
3. American Telephone and Telegraph Company Excess Benefit Plan
4. American Telephone and Telegraph Company Senior Management Long-Term
Disability and Survivor Protection Plan
Account B
1. American Telephone and Telegraph Company Senior Management Incentive
Award Deferral Plan
<PAGE>
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
BENEFITS PROTECTION TRUST
FIRST AMENDMENT
WHEREAS, effective May 1, 1992, AT&T Corp. (formerly American Telephone
and Telegraph Company) (the "Company") entered into an agreement which was
subsequently amended and restated effective January 13, 1994 (the "Agreement")
with Wachovia Bank, N.A. (formerly Wachovia Bank of North Carolina, N.A.), as
Trustee ("Trustee"), to provide certain assurances to senior managers of AT&T
Corp. in connection with its nonqualified benefit plans and programs; and
WHEREAS, Lucent Technologies Inc. has entered into an Employee Benefits
Agreement with the Company wherein Lucent Technologies Inc. has agreed to
contribute cash to a generally comparable successor trust ("Lucent Trust")
established by Lucent Technologies Inc. in order to ensure that neither this
amendment nor the allocation of trust assets will adversely affect senior
managers whose nonqualified benefit plan liabilities were transferred to Lucent
Technologies Inc.; and
WHEREAS, the Company has completed a tax-free reorganization under
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended,
whereby the Company's ownership interest in its subsidiary, Lucent Technologies
Inc., was transferred to shareholders of the Company; and
WHEREAS, the Company and the Trustee desire to transfer certain trust
assets to the Lucent Trust; and
WHEREAS, the Company and the Trustee have agreed to amend the Trust to
expressly provide for this result, and to provide for certain administrative
changes to the Agreement.
NOW, THEREFORE, the Company and the Trustee (each for itself) agree as
follows, effective as of the date of this First Amendment.
1. The name "American Telephone and Telegraph Company Benefits Protection
Trust with Wachovia Bank of North Carolina, N.A., as Trustee" shall be
amended each and every place it appears to read as follows: "AT&T Corp.
Benefits Protection Trust."
2. Except as otherwise expressly provided in this First Amendment, the
name "American Telephone and Telegraph Company" shall be replaced by
the name "AT&T Corp.", and the name "Wachovia Bank of North Carolina,
N.A." shall be replaced by the name "Wachovia Bank, N.A.", where
applicable, each and every place they respectively appear.
3. Article IX of the Trust is amended by adding a new Section 9.8 to read
as follows:
(a) The Company shall determine, as of September 30, 1996, on a reasonable
actuarial basis, the liabilities of the Company related to senior
managers whose employment was assigned from the Company to Lucent
Technologies Inc., under the plans and arrangements (other than the
AT&T Senior Management Incentive Award Deferral Plan) covered under the
Trust. Subject to subparagraph (b) of this Section 9.8, following
completion of this actuarial determination and the reporting of such
information to the Trustee, and upon written direction by the Chairman
and Chief Executive Officer of the AT&T Investment Management
Corporation (or his delegate), the Trustee shall transfer or assign to
the Lucent Technologies Inc. Benefits Protection Trust, a successor
trust ("Lucent Trust"), and the Trustee hereby agrees to so transfer
or assign (1) one trust-owned life insurance policy, Group Policy
No. G-23334 (regardless of the entity to which the insured individuals
have been assigned), and (2) all cash in the Trust, as determined by
the Company in a manner consistent with subparagraph (b) below,
provided, however, that no assets shall be transferred to the Lucent
Trust until the Trustee has satisfied itself that contributions
required by Lucent Technologies Inc. to the Lucent Trust (as described
in subparagraph (b) below) have been made prior to or concurrent with
this transfer or assignment.
(b) Notwithstanding the foregoing, the Trustee shall be permitted to
transfer or assign assets from the Trust to the Lucent Trust only if
the transfer and assignment are consistent with the purpose and intent
of the Trust and provided that, prior to or concurrent with the
transfer or assignment of assets from the Trust to the Lucent Trust,
and including any additional cash contributions by Lucent Technologies
Inc. to the Lucent Trust, the ratio of the value of the assets in the
Lucent Trust (determined as of the date of the asset transfer or
assignment) to the liabilities under the executive benefit plans
covered under the Lucent Trust (other than liabilities under the Lucent
Technologies Inc. Officers Incentive Award Deferral Plan) (determined
as of September 30, 1996), as determined by the actuary for the
Company, will immediately thereafter not be less than the ratio of
assets (determined as of the date of the asset transfer or assignment)
to liabilities under the Trust (other than liabilities associated with
the AT&T Senior Management Incentive Award Deferral Plan)(determined as
of September 30, 1996) immediately before the allocation of such assets
to the Lucent Trust. For purposes of this Section 9.8, liabilities
shall be determined based upon the "Full Funding Amount" as defined in
Section 2.5 of the Trust.
(c) Following the Trustee's receipt of written notice from the Chairman
and Chief Executive Officer of the AT&T Investment Management
Corporation (or his delegate), the Trustee shall effect the transfers
and assignments as so directed pursuant to the Company's instructions
and the terms of this Agreement.
In all other respects, the Trust Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, AT&T Corp. has caused this First Amendment to the
Trust Agreement to be signed by the Chairman and Chief Executive Officer of AT&T
Investment Management Corporation and AT&T Corp. Vice President, thereunto duly
authorized, and its corporate seal to be affixed hereunto and the same to be
attested by its Secretary or an Assistant Secretary; and the Trustee has caused
this First Amendment to the Trust Agreement to be signed by one of its
authorized officers, thereunto duly authorized, and its association seal to be
affixed hereunto and the same to be attested by an Assistant Secretary or by one
of its officers, thereunto duly authorized, all as of this ___ day of
_____________, 1997.
AT&T CORP.
BY: _______________________________
S. Lawrence Prendergast
Chairman and Chief Executive Officer
AT&T Investment Management Corporation, and
Vice President of AT&T Corp.
Attest:
_________________________
WACHOVIA BANK, N.A., AS TRUSTEE
BY: _________________________________
Title: ______________________________
Attest:
_________________________
<PAGE>
Acknowledgment
STATE OF NEW JERSEY )
) ss.:
COUNTY OF SOMERSET )
On this ____ day of ________, in the year 1997, before me
personally came S. Lawrence Prendergast, to me known, who, being by me duly
sworn, did depose and say that he resides at
_____________________________________________________________that he is Chairman
and Chief Executive Office of the AT&T Investment Management Corporation and a
Vice President of AT&T Corp., that he has been delegated authority to execute
this First Amendment on behalf of AT&T Corp., the corporation described in and
which executed the above instrument; that he knows the corporate seal of said
corporation; that the seal affixed to the said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
_________________________
<PAGE>
Acknowledgment
STATE OF NORTH CAROLINA )
) ss.:
COUNTY OF STOKES )
On this ____ day of ______________, in the year 1997, before me
personally came _______________________________, to me known, who, being by me
duly sworn, did depose and say that he resides at
________________________________________________________, that he is
_______________________________ of Wachovia Bank, N.A., the trust company
described in and which executed the above instrument; that he knows the
association seal of said trust company; that the seal affixed to the said
instrument is such association seal; that it was so affixed by authority of the
Board of Directors of said trust company, and that he signed his name thereto by
like authority.
_________________________
EMPLOYMENT AGREEMENT
This Agreement, dated as of April ___, 1997, by and between AT&T Corp.,
a New York Corporation with its headquarters at 32 Avenue of the Americas, New
York, New York 10013 (hereinafter called the "Company" or "AT&T"), and Daniel E.
Somers (hereinafter called the "Employee").
WHEREAS Employee is currently employed as a senior executive with
another company; and
WHEREAS Employee has accepted employment with the Company; and
WHEREAS the Company has assigned and appointed Employee to a Senior
Management position as Senior Executive Vice President and Chief Financial
Officer, reporting to the Chairman of the Board and Chief Executive Officer of
the Company.
WHEREAS, it is of special importance for the Company to mitigate the
negative financial impact on Employee of his early departure from Employee's
current employer;
NOW, therefore, and in consideration of the promises and the mutual
agreements as set forth above and hereinafter contained, the Company and
Employee do hereby agree as follows:
1. Employment. Subject to the provisions set forth elsewhere in this
Agreement, the Company hereby employs the Employee, and the Employee hereby
accepts employment with the Company, as Senior Executive Vice President and
Chief Financial Officer of AT&T reporting to the Chairman of the Board and Chief
Executive Officer of the Company, during the employment term set forth in
Section 2 of this Agreement. Employee represents and warrants that, there are no
agreements or arrangements in effect, whether written or oral, which would
prevent him from rendering exclusive services to the Company during the term
hereof, and that he has not made and will not make any commitment, agreement or
arrangement, or do any act, in conflict with this Agreement and that entering
into this Agreement will not be in violation of any other agreement. Such
employment shall be upon the terms and conditions hereinafter contained.
Employee has provided the Company with a copy of his service agreement with Bell
Cablemedia PLC. The Company and Employee agree that no provision of such service
agreement is inconsistent with the representations made in this Section 1.
2. Term of Employment. The term of employment hereunder ("the
Employment Term") shall commence on the later of May 9, 1997 or the date
Employee's Federal immigration visa is effective (hereinafter the "Effective
Date") and will terminate at the will of either party to this Agreement upon
written notice to the other and shall be subject to the terms and conditions of
the Agreement.
3. Employee's Compensation and Benefits. Subject to this Agreement
and as more fully set forth hereinbelow, during the Employment Term, the
Employee shall be treated in the same manner as, and be entitled to such
benefits and other perquisites and terms and conditions of employment no less
favorable than Senior Managers of the Company at a similar level and with
comparable responsibilities. Employee shall receive no additional compensation
for serving as an officer or director of any subsidiary or affiliate.
<PAGE>
(a) Base Salary. The Company agrees to pay and Employee agrees
to accept for services to be rendered hereunder during the Employment Term, a
base salary of not less than $500,000 a year, payable in installments on a
monthly or other periodic basis in accordance with the prevailing payroll
practices of the Company. Employee will be eligible for consideration by the
Company of base salary increases as appropriate from time to time. Employee's
next base salary consideration will be applicable to a March 1, 1998 effective
date.
(b) Perquisites. During the Employment Term, the Company shall
(i) provide Employee with perquisites of employment as are commonly provided to
a Senior Manager of the Company at a similar level and with comparable
responsibilities, and (ii) reimburse Employee for reasonable and necessary
business expenses incurred in connection with his employment, in accordance with
employee business expense practices applicable to employees of the Company at a
similar level and with comparable responsibilities.
(c) Benefits. During the Employment Term, Employee shall be
entitled to coverage under or benefits in accordance with those employee, mid
career hire and Senior Management benefit plans and programs as are made
available, or which may subsequently become applicable, to other Senior Managers
of the Company at a comparable level. Attachment A is a very brief summary
outlining the Company's current employee and mid-career benefits as well as
special Senior Management benefits and perquisites. Employee shall be entitled
to five (5) weeks of annual vacation applicable to 1997 and subsequent years.
Employee may commence taking his 1997 vacation any time after the Effective
Date. Employee shall also be entitled to relocate under the terms of the AT&T
Management Relocation Plan (briefly outlined in Attachment B) which includes a
Miscellaneous Allowance equal to an uncapped cash amount of one month's base
salary as well as a provision to offset costs that may be incurred by Employee
in connection with the premature cancellation of the lease on his current
residence. (However, the Mortgage Interest, High Housing and Real Estate cost
differentials outlined in Attachment B will not apply for a Europe to U.S.
relocation). The Company will also reimburse Employee for reasonable US/UK
visits (via business class airfare) for him, his spouse and children during a
home search transition period and provide a tax gross up (in accordance with
Senior Management tax gross-up practices) to the extent such reimbursement
results in taxable income to Employee.
(d) Incentive Plans. During the Employment Term, Employee will
be eligible for consideration for both long term and annual incentive awards
pursuant to the terms of the Company's 1997 Long Term Incentive Program and the
Company's Annual Incentive/Short-Term Incentive Plan, respectively or
replacements thereof, as are in effect from time to time, at levels and on terms
and conditions consistent with target awards to other Senior Managers with
comparable responsibilities. Annual incentives for AT&T Senior Managers
currently take the form of AT&T Performance Awards (APA) and Merit Awards (MA).
Award levels under the APA program are predicated on overall corporate
performance and award levels under the MA program are determined by individual
and team contributions. The Company cannot make any representations regarding
the continuation of the APA/MA incentive format, the size of Employee's APA and
MA awards in any given year, if any. Notwithstanding the foregoing, Employee's
target (not actual) Annual Incentive opportunity for 1997 (payable in 1998)
shall be 80% of Employee's base salary as of the Effective Date and such
opportunity will be prorated to reflect Employee's Effective Date; provided,
however, that (assuming continued employment through December 31, 1997) in no
event will Employee's 1997 actual Annual Incentive be less than the prorated
target 1997 Annual Incentive.
<PAGE>
Historically, (1) the Company has utilized multiple long-term incentive
vehicles for compensating Senior Managers e.g., AT&T Stock Options and AT&T
Performance Shares, (2) such annual grants have been made in January of each
year and (3) approximately half of such long-term incentive value was delivered
in Stock Options and half in Performance Shares. (Based on market value of AT&T
Common Stock to value the Performance Shares and the Black Scholes method to
value Stock Options). For 1997 only, Employee will receive a AT&T Stock Option
grant that is more than double the value of awards that would have been made had
the historical annual pattern of long-term incentive grants been implemented in
1997.
AT&T 1987 Long Term Incentive Plan expired April 15, 1997 and, subject
to shareowner approval of the AT&T 1997 Long Term Incentive Plan, new awards are
scheduled to commence June 1, 1997. Accordingly, assuming such shareowner
approval is forthcoming, effective the later of June 1, 1997 or the Effective
Date, the Compensation Committee of the Board will award 11,600 Performance
Shares to the Employee under the Company's 1997 Long Term Incentive Program
covering the 1997 - 1999 performance period. Distributions of Long Term
Performance Shares will be in accordance with the applicable 1997 Long Term
Incentive Program and award provisions e.g., assuming continued Company
employment, payout from 0% to 150% of such Performance Shares is made in the
form of cash and/or AT&T shares at the end of the performance period based on a
measure of A&T's Total Shareholder Return vs. Total Shareholder Return for a
peer group of companies, (where Total Shareholder Return is defined as share
price appreciation and dividends), or such other measure of financial
performance as the Board may determine, during the three year performance
period. Dividend equivalents are paid quarterly on all undistributed Performance
Shares.
As of the later of June 1, 1997 or the Effective Date, a Stock Option
Award with respect to 86,000 shares of AT&T Common Stock will be granted to
Employee under the Company's 1997 Long Term Incentive Program. Such Award is
subject to the terms and conditions set forth in the Non-statutory Stock Option
agreement. For example; the term of the stock option grant is ten years.
Assuming continued Company employment, stock options vest as follows: one-third
of the options will vest on the first anniversary of the date of grant,
one-third on the second anniversary, and one-third on the third anniversary of
the date of grant. The option price is 100% of market price on the date of
grant.
As with the Annual Incentive Award, Long Term Incentives are closely
linked with the Company's strategy to meet the challenges of an ever changing
marketplace. Accordingly, other than the grants made under this Agreement, and
notwithstanding the historical long-term incentive information provided above,
the Company cannot guarantee continuation of the Long Term Incentive Plan in its
current format, nor can it guarantee annual grant levels to individual
participants.
(e) Hiring Bonus. To recognize certain forfeitures Employee
will incur when he leaves his current employer and to incent him to join the
Company, the Company will provide the following one-time special arrangements to
Employee:
<PAGE>
(i) In lieu of certain 1997 payments from his current employer
upon completion of a certain transition event in 1997,
Employee is eligible to receive payments aggregating $400,000
(hereinafter "Completion Bonus") some time in 1997. Although
the transition event in question is substantially complete as
of the date of this Agreement, because of his premature
departure from his current employer to accept AT&T's offer of
employment, it is unclear if his current employer will pay
Employee this Completion Bonus. It is understood and
specifically agreed that Employee will make a reasonable
effort to secure such Completion Bonus, (but not including
litigation or other legal action). In the event, however, such
endeavors are unsuccessful or only partially successful, the
Company will pay Employee a $400,000 cash amount (if Employee
is totally unsuccessful) or (if Employee partially
successful), a cash amount equal to the difference between the
actual Completion Bonus paid and $400,000. Such Company
payment, if any, will be made within twenty business days of
the Company's receipt of Employee's written notification of
the final outcome of his efforts to secure the Completion
Bonus from his current employer.
(ii) Employee may forfeit the bargain spread (currently about
$337,000) (hereinafter the "Bargain Spread") on stock options
granted to Employee by his current employer and the parent of
such employer. Because of his premature departure to accept
AT&T's offer of employment, it is unclear if his current
employer will permit Employee to retain and exercise these
options and thereby gain the $337,000 Bargain Spread. It is
understood and specifically agreed that Employee will make a
reasonable effort to secure such Bargain Spread, (but not
including litigation or other legal action). In the event,
however such endeavors are unsuccessful or only partially
successful, the Company will provide a $337,000 cash amount
(if Employee is totally unsuccessful) or (if Employee is
partially successful), a cash amount equal to the difference
between the actual Bargain Spread secured and $337,000. Such
Company payment, if any, will be made within twenty business
days of the Company's receipt of Employee's written
notification of the final outcome of his efforts to secure the
Bargain Spread from his current employer.
(iii) The Company will pay Employee a non-forfeiture related cash
bonus of $200,000 within twenty business days subsequent to
the Effective Date.
(iv) Effective as of the later of June 1, 1997 or the Effective
Date, two awards, each of 11,600 "Seasoned" AT&T Performance
Shares/Stock Units for the 1995-1997 and 1996-1998 performance
periods (i.e., Performance Shares/Stock Units which would have
been granted to Employee had he been with the Company in 1995
and 1996) under the AT&T 1997 Long Term Incentive Program, as
set forth in the Stock Unit Award Agreement provided to
Employee with this Agreement. As a result of Company's
restructuring and the difficulty of setting long-term
<PAGE>
financial targets while the restructure is in progress, the
performance criteria established for the 1995 - 1997 and
1996-1998 cycles are not applicable and for these performance
periods, the criteria are deemed to have been met at the
target level. However, the opportunity to earn a payout above
100% is eliminated, and all other terms and conditions of the
award continue to apply.
(f) Special Post-Retirement Benefits. In the event employee
terminates his Company employment for any reason (including Long Term
Disability) other than death or Company initiated termination for Cause, with a
minimum of ten years of Company service, he will be entitled to the following
post-termination Senior Management benefits, administered in a manner consistent
with the then-current treatment of Service Pension eligible Senior Managers and
in accordance with the terms and conditions applicable to each such Senior
Management plan, program or practice (or replacement therefor) as they may exist
from time to time.
(i) One times base salary Senior Management Basic Life Insurance
(ii) One and one-half times base salary Senior Management
Individual Life Insurance
(iii) Company sponsored medical coverage
The Company will adopt a cash balance pension arrangement under the
AT&T Management Pension Plan and AT&T Non-Qualified Pension Plan effective
January 1, 1998. Because of this change, the AT&T Mid-Career Pension Plan
(hereinafter AT&T MCPP) is expected to be either cancelled or revised
significantly. In such event (i.e., cancellation or significant change),
Employee will be accorded treatment (including possible "grandfathered"
treatment) applicable to similarly situated (i.e., age and service) Senior
Managers who were participants in the AT&T MCPP prior to the adoption of the
cash balance arrangement.
4. Definitions. For purposes of this Agreement:
(a) "Long Term Disability" shall mean termination of Employee's
employment with the Company with eligibility to receive a disability allowance
under the AT&T Senior Management Long Term Disability and Survivor Protection
Plan or a replacement plan.
(b) "Cause" shall mean:
(i) The Employee is convicted (including a plea of guilty or nolo
contendere) of a felony involving theft or moral turpitude,
other than a felony predicated on Employee's vicarious
liability. Vicarious liability means, and only means, any
liability which is based on acts of the Company for which the
Employee is charged solely as a result of his offices with the
Company and in which he was not directly involved or did not
have prior knowledge of such actions or intended actions.
(ii) The Employee engages in conduct that constitutes willful gross
neglect or willful gross misconduct in carrying out his duties
under this Agreement, resulting, in either case, in material
economic harm to the Company.
<PAGE>
(c) "Good Reason" shall mean any termination of Employee's Company
employment, initiated by Employee, resulting from any of the following events
which are not cured by the Company within 20 days of Employee giving the Company
written notice thereof:
(i) A reduction in Employee's annual total compensation (i.e.,
annual base salary rate, target annual incentive and "Long
Term Incentive" (as valued below) to less than $1,775,000. For
purposes of the prior sentence, the dollar value of your
annual "Long Term Incentive" grants shall be determined by
valuing Performance Shares, Performance Units, Stock Units,
Restricted Stock, Restricted Stock Units, etc., at the market
price when the Compensation Committee approves such grants,
and assuming 100% performance achievement if such grants
include performance criteria, and Stock Options and SARs will
be valued at 30% of the market price of the shares or related
shares when the Compensation Committee approves such grants,
as applicable.
(ii) The assignment to Employee, without his expressed written
consent, of any duties inconsistent with, or, any substantial
alteration in, his status or responsibilities as in effect as
of the Effective Date.
(iii) A change in Employee' s reporting relationship; provided,
however that subject to Employee's written consent, he may be
reassigned to an operating position of status comparable to
his position as of the Effective Date reporting to the Chief
Operating Officer of the Company.
(iv) A breach of Section 10(b).
5. Powers and Duties. The Employee shall devote his full
business time and best efforts and abilities to the performance of duties under
this Agreement, it being understood in connection therewith that he may, in his
discretion and subject to not interfering with his duties and responsibilities
hereunder, devote time to civic, public and professional activities and may
serve as a director of other business corporations not engaged in competition
with the Company or any subsidiary or affiliate of the Company; provided,
however, that he shall not accept directorships on more than three boards of
other business corporations; and provided, further, that for purposes of the
immediately preceding clause, directorships on the boards of two or more
companies with at least 50% common ownership shall count as a single company.
Furthermore, so long as it does not interfere with his Company duties and
subject to the AT&T Non-Competition Guideline, Employee may continue to manage
his passive investments.
6. Taxes. It is understood that certain payments and benefits provided
under this Agreement are subject to withholding for applicable federal, state
and local income and employment (or similar) taxes, as determined by the
Company.
<PAGE>
7. Restrictive Convenants.
(a) Competition. Notwithstanding any other provisions of this
Agreement, any and all payments (except those made from Company-sponsored Tax
Qualified Retirement or Welfare Plans), benefits or other entitlements to which
the Employee may be eligible in accordance with the terms hereof, may be
forfeited, whether or not in pay status, at the discretion of the Company, if
the Employee at any time without the consent of the Company "establishes a
relationship with a competitor" or "engages in an activity" which is in conflict
with or adverse to the interest of the Company, all within the meaning of the
Non-Competition Guidelines referred to below (a "Competitive Activity"). The
payments, benefits and other entitlements hereunder are being made in part in
consideration of the obligations of this Section 7 and in particular the
post-employment payments, benefits and other entitlements are being made in
consideration of, and dependent upon, compliance with this Section 7(a) and, to
the extent set forth in Section 8, the Release and Agreement referred to in
Section 8. Attachment C is a copy of the Non-Competition Guideline.
(b) Confidentiality. The Employee agrees that he will not, at
any time during his employment pursuant to this Agreement or thereafter,
disclose or use any trade secret, proprietary or confidential information of the
Company or any subsidiary or affiliate of the Company, obtained during the
course of his employment, except as required in the course of such employment or
with the written permission of the Company or, as applicable, any subsidiary or
affiliate of the Company or as may be required by law, provided that, if
Employee receives legal process with regard to disclosure of such information,
he shall promptly notify the Company and cooperate with the Company in seeking a
protective order.
The Employee agrees that at the time of the termination of his
employment with the Company, whether at the instance of the Employee or the
Company, and regardless of the reasons therefore, he will deliver to the
Company, and not keep or deliver to anyone else, any and all notes, files,
memoranda, papers and, in general, any and all physical matter containing
information, including any and all documents significant to the conduct of the
business of the Company or any subsidiary or affiliate of the Company which are
in his possession, except for any documents for which the Company or any
subsidiary or affiliate of the Company has given written consent to removal at
the time of the termination of the Employee's employment and his personal
rolodex, phone book and similar items.
Employee agrees that the Company's remedies at law would be inadequate
in the event of a breach or threatened breach of this Paragraph (b);
accordingly, the Company shall be entitled, in addition to its rights at law, to
an injunction and other equitable relief without the need to post a bond.
(c) Any Competitive Activity by the Employee not permitted by
the provisions of Section 7(a) above shall result, at the discretion of the
Company, in the cancellation of all rights and entitlements of the Employee
hereunder (including but not limited to those for payments or benefits) provided
that: (i) no forfeiture or cancellation shall take place with respect to any
payments, benefits or entitlements hereunder or under any other award agreement,
plan or practices unless the Company shall have first given the Employee written
notice of its intent to so forfeit, or cancel or pay out and Employee has not,
within thirty (30) days of giving such notice ceased such unpermitted
Competitive Activity, provided that the foregoing prior notice procedure shall
<PAGE>
not be required with respect to (x) a Competitive Activity which Employee
initiated after the Company had informed the Employee in writing that it
believed such Competitive Activity Section violated 7(a) or the AT&T
Non-Competition Guidelines, (y) any Competitive Activity regarding local,
regional or long distance telephone services or other products or services which
are part of a line of business which represents more than 5% percent of the
Company's consolidated gross revenues for its most recent completed fiscal year
at the time the Competitive Activity commences.
8. Termination Provision.
(a) If, at any time during the period beginning with the
Effective Date and ending on the fifth anniversary of the Effective Date,
Employee is terminated by the Company for any reason other than Cause or Long
Term Disability, or Employee elects to terminate his Company employment for Good
Reason, Employee will be entitled to:
(i) Monthly payments for a 12 month period following such
termination, each such payment in an amount equal to one
twelfth of the greater of (1) $900,000 or (2) 100% of the sum
of Employee's annual base salary rate plus target (not actual)
annual incentive award in effect as of the date of Employee's
termination.
(ii) An annual incentive award for the year of termination payable
at the target amount for such year of termination but prorated
to the nearest half month based on actual service in the final
performance year and payable to Employee within twenty (20)
business days after such termination.
(iii) Continuation after termination of all regular and "Seasoned"
Performance Shares/Stock Units granted under this Agreement as
of the later of June 1, 1997 or the Effective Date under the
terms and conditions applicable to a Service Pension eligible
Senior Manager.
(iv) Payment within 20 business days of termination of any then
unpaid cash amounts due under Sections 3(e) (i), (ii) and
(iii) of the Agreement.
(b) If, at any time after the Effective Date, Employee is
terminated by the Company for any reason other than Cause or Long Term
Disability, or Employee elects to terminate his Company employment for Good
Reason, Employee will be entitled to:
(i) Immediate (or, if later, six months from the date of grant)
vesting, exercisability and continuation of all outstanding
Stock Options granted under this Agreement as of the later of
June 1, 1997 or the Effective Date under the terms and
conditions applicable to Service Pension eligible Senior
Managers.
<PAGE>
(ii) Continuation of vesting and/or exercisability of long term
incentive awards granted in 1998 and subsequent years under
any long-term incentive plan, but only to the extent and under
the same terms and conditions applicable to Service Pension
eligible Senior Managers, all as set forth in the applicable
long-term award agreements.
(c) In the event Employee's employment terminates voluntarily
for other than "Good Reason," or as the result of a Company-initiated
termination for Cause, at any time during the period beginning with the
Effective Date and ending on the third anniversary of the Effective Date,
Employee shall not receive any benefits provided by this Agreement.
Employee, however, may be eligible for certain benefits under the Company's
tax qualified plans.
(d) Any payments or benefits made pursuant to this Section 8
are: (1) subject to the provisions, restrictions and limitations of Section 7(a)
and 7(c) above, but not otherwise subject to offset or mitigation, (2) subject
to Employee signing a Release and Agreement not to sue the Company. The form of
such Release and Agreement will be that then currently in use for departing
Company Senior Managers and (3) receipt of Employee's resignation from all
offices, directorships and fiduciary positions with the Company, its affiliates
and their respective benefit plans.
9. Dispute Resolution. At the option of Employee or the Company,
any dispute, controversy, or question arising under, out of or relating
to this Agreement or the breach thereof, other than that for injunctive
relief under Section 7(b), shall be referred for decision by arbitration in the
State of New Jersey by a neutral arbitrator selected by the parties hereto.
The proceeding shall be governed by the Rules of the American Arbitration
Association then in effect or such rules last in effect (in the event such
Association is no longer in existence). If the parties are unable to agree upon
such a neutral arbitrator within thirty (30) days after either party has given
the other written notice of the desire to submit the dispute, controversy or
question for decision as aforesaid, then either party may apply to the
American Arbitration Association for an appointment of a neutral arbitrator,
or if such Association is not then in existence or does not act in the matter
within 30 days of application, either party may apply to the Presiding Judge
of the Superior Court of any county in New Jersey for an appointment of a
neutral arbitrator to hear the parties and settle the dispute, controversy or
question, and such Judge is hereby authorized to make such appointment. In the
event that either party exercises the right to submit a dispute arising
hereunder to arbitration, the decision of the neutral arbitrator shall be final,
conclusive and binding on all interested persons and no action at law or equity
shall be instituted or, if instituted, further prosecuted by either party
other than to enforce the award of the neutral arbitrator. The award of the
neutral arbitrator may be entered in any court that has jurisdiction. In the
event that the Employee is successful in pursuing any material claim or dispute
arising out of this Agreement, the Company shall pay all of the Employee's
attorneys' fees and costs, including the compensation and expenses of any
Arbitrator. In any other case, the Employee and the Company shall each bear
all their own costs and attorneys fees, except the Company shall pay the costs
of any arbitrator appointed hereunder.
<PAGE>
10. Assignment.
(a) Employee. This Agreement is a personal contract and the
rights and interests of Employee hereunder may not be sold, transferred,
assigned, pledged or hypothecated by him, but shall be binding upon and inure to
the benefit of his heirs, administrators, and executors.
(b) Company. This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, provided that the
Company may not assign this Agreement except in connection with an assignment of
all or substantially all of the assets of the Company or by law as a result of a
merger or consolidation. In the event of such assignment, a failure by the
successor to specifically assume in writing, delivered to the Employee, the
obligations and liabilities of the Company hereunder shall be deemed a material
breach of this Section.
11. Other. The Company reserves the right to discontinue or modify its
compensation, incentive, benefit and perquisite plans, programs and practices.
Moreover, the very brief summaries contained herein are subject to the terms of
such plans, programs and practices. For purposes of the employee benefit plans,
the definition of compensation is as stated in the plans. Currently, pensions
are based on base salary and annual incentives. Other benefits are based on
either base salary or base salary plus annual incentives. All other compensation
and payments included in this Agreement are not included in the base for
calculation of employee benefits. The amounts paid under this Agreement upon a
termination of employment are in lieu of and inclusive of any amounts payable
under any other plan, program or practice of the Company with regard to
termination of employment.
12. Entire Agreement; Amendments. This Agreement, which may be executed
in two or more counterparts, comprises 18 pages, 16 Sections and 4 Attachments
and represents the entire Agreement between Employee and the Company in respect
of the subject matter contained herein and supersedes all prior agreements,
promises, convenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto. No amendments or modifications to this Agreement may be
made except in writing signed by the Company and Employee.
13. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of Employee's employment to the extent
necessary to the intended preservation of such rights and obligations.
14. Notices. Any notice given to a party shall be in writing and shall
be deemed to have been given when delivered personally or two days after mailing
if sent by certified or registered mail, postage prepaid, return receipt
requested, duly addressed to the party concerned at the address indicated below
or to such changed address as such party may subsequently give such notice of:
If to the Company: AT&T
295 North Maple Ave.
Basking Ridge, NJ 07920
Attn: Executive Vice President, Human Resources
If to the Employee: Daniel E. Somers
<PAGE>
15. Indemnification. The Company and Employee shall promptly enter
into the Indemnity Agreement annexed hereto as Attachment D.
16. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey. without consideration of
conflict of law principles.
In Witness Whereof, the parties hereto have executed this Agreement and
Company has affixed its corporate seal as of the day and year first above
written.
Company:
By: ________________________
H. W. Burlingame
Subject to Final Approval by the Compensation Committee
of the AT&T Board of Directors
Date: ________________________
Witnessed: ________________________
Date: ________________________
Employee: _______________________
Daniel E. Somers
Date: ________________________
Witnessed: ________________________
Date: ________________________
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
For the years ended December 31,
1998 1997 1996 1995 1994
Income from continuing
operations before
income taxes $8,307 $6,972 $8,697 $4,925 $6,989
Less interest capitalized
during the period 197 254 193 107 39
Add equity investment losses,
net of distributions of
less than 50% owned
affiliates 288 144 155 205 91
Add fixed charges 872 846 855 730 777
Total Earnings from
Continuing operations
before income taxes
and fixed charges $9,270 $7,708 $9,514 $5,753 $7,818
Fixed Charges:
Total interest expense
including capitalized
interest $ 624 $ 562 $ 610 $ 508 $ 540
Interest portion of
rental expense 248 284 245 222 237
Total fixed charges $ 872 $ 846 $ 855 $ 730 $ 777
Ratio of earnings
to fixed charges 10.6 9.1 11.1 7.9 10.1
List of Subsidiaries of AT&T Corp.
As of 3/17/99
Jurisdiction of
Incorporation
ACC Corp............................................Delaware
Alascom, Inc........................................Alaska
AT&T Canada Corp....................................Canada
AT&T Communications, Inc............................Delaware
AT&T Communications of California, Inc..............California
AT&T Communications of Delaware, Inc................Delaware
AT&T Communications of Hawaii, Inc..................Hawaii
AT&T Communications of Illinois, Inc................Illinois
AT&T Communications of Indiana, Inc.................Indiana
AT&T Communications of Maryland, Inc................Maryland
AT&T Communications of Michigan, Inc................Michigan
AT&T Communications of the Midwest, Inc.............Iowa
AT&T Communications of the Mountain States, Inc.....Colorado
AT&T Communications of Nevada, Inc..................Nevada
AT&T Communications of New England, Inc.............New York
AT&T Communications of New Hampshire, Inc...........New Hampshire
AT&T Communications of New Jersey, Inc..............New Jersey
AT&T Communications of New York, Inc................New York
AT&T Communications of Ohio, Inc....................Ohio
AT&T Communications of the Pacific Northwest, Inc...Washington
AT&T Communications of Pennsylvania, Inc............Pennsylvania
AT&T Communications of the South Central States,Inc.Delaware
AT&T Communications of the Southern States, Inc.....New York
AT&T Communications of the Southwest, Inc...........Delaware
AT&T Communications of Virginia, Inc................Virginia
AT&T Communications of Washington D.C., Inc.........New York
AT&T Communications of West Virginia, Inc...........West Virginia
AT&T Communications of Wisconsin, Inc...............Wisconsin
AT&T Communications Services International Inc......Delaware
AT&T Communications (UK) LTD........................United Kingdom
AT&T Global Communications Services Inc.............Delaware
AT&T Istel..........................................United Kingdom
AT&T Solutions Inc..................................Delaware
AT&T of Puerto Rico, Inc............................New York
AT&T Wireless Services, Inc.........................Delaware
LIN Broadcasting Corporation........................Delaware
Lucky Dog Phone Company Inc.........................Delaware
Teleport Communications Group Inc...................Delaware
Tele-Communications, Inc............................Delaware
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
AT&T Corp. ("AT&T" or the "Company") on Form S-3 for the Shareowner Dividend
Reinvestment and Stock Purchase Plan (Registration No. 333-00573), Form S-8 for
the AT&T Long Term Savings and Security Plan (Registration Nos. 333-47257 and
33-34265), Form S-8 for the AT&T Long Term Savings Plan for Management Employees
(Registration Nos. 33-34264, 33-29256 and 33-21937), Form S-8 for the AT&T
Retirement Savings and Profit Sharing Plan (Registration No. 33-39708), Form S-8
for Shares Issuable Under the Stock Option Plan of the AT&T 1987 Long Term
Incentive Program (Registration Nos. 33-47251 and 33-56643), Form S-8 for the
AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management Employees
(Registration No. 33-50819), Form S-8 for the AT&T of Puerto Rico, Inc. Long
Term Savings and Security Plan (Registration No. 33-50817), and Post-Effective
Amendment No. 1 on Form S-8 to Form S-8 Registration Statement (Registration No.
33-54797) for the AT&T 1996 Employee Stock Purchase Plan, Form S-8 for the AT&T
Shares for Growth Program (Registration No. 33-47255), Form S-8 for the AT&T
1997 Long Term Incentive Program (Registration No. 33-28665), Form S-3 for the
AT&T $2,600,000,000 Notes and Warrants to Purchase Notes (Registration No.
33-49589), Form S-3 for the AT&T $3,000,000,000 Notes and Warrants to Purchase
Notes (Registration No. 33-59495), Form S-4 for the AT&T 5,000,000 Common Shares
(Registration No. 33-57745), and in Post-Effective Amendment Nos. 1, 2 and 3 on
Form S-8 to Form S-4 Registration Statement (Registration No. 33-42150) for the
NCR Corporation 1989 Stock Compensation Plan (Registration No. 33-42150-01), the
NCR Corporation 1984 Stock Option Plan (Registration No. 33-42150-02) and the
NCR Corporation 1976 Stock Option Plan (Registration No. 33-42150-03),
respectively, and the Post-Effective Amendment Nos. 1, 2, 3 and 5 on Form S-8 to
Form S-4 Registration Statement (Registration No. 33-52119) for the McCaw
Cellular Communications, Inc. 1983 Non-Qualified Stock Option Plan (Registration
No. 33-52119-01), the McCaw Cellular Communications, Inc. 1987 Stock Option Plan
(Registration No. 33-52119-02), the McCaw Cellular Communications, Inc. Equity
Purchase Plan (Registration No. 33-52119-03) and the McCaw Cellular
Communications, Inc. Employee Stock Purchase Plan (Registration No.
33-52119-05), respectively, and Post-Effective Amendment No. 1 on Form S-8 to
Form S-4 Registration Statement (Registration No. 33-45302) for the Teradata
Corporation 1987 Incentive and Other Stock Option Plan (Registration No.
33-45302-01), Form S-8 for the AT&T Amended and Restated 1969 Stock Option Plan
for LIN Broadcasting Corp. (Registration No. 33-63195), and in Post Effective
Amendment Nos. 1, 2, 3, 4 and 5 on Form S-8 to Amendment No. 1 to Form S-4
Registration Statement (Registration No. 333-49419) for the Teleport
Communications Group Inc. 1993 Stock Option Plan (Registration No.
333-49419-01), Teleport Communications Group Inc. 1996 Equity Incentive Plan
(Registration No. 333-49419-02), ACC Corp. Employee Long Term Incentive Plan
(Registration No. 333-49419-03), ACC Corp. Non-Employee Directors' Stock Option
Plan (Registration No. 333-49419-04) and ACC Corp. 1996 UK Sharesave Scheme
(Registration No. 333-49419-05), and Form S-8 for AT&T Wireless Services, Inc.
Employee Stock Purchase Plan (Registration No. 333-52757), Form S-3 for the
$10,000,000,000 Debt Securities and Warrants to purchase debt securities
(Registration No. 333-71167) of our report dated January 25, 1999, on our audits
of the consolidated financial statements of the Company and its subsidiaries at
December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and
1996, which report is included in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS L.P.
1301 Avenue of the Americas
New York, New York
March 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of AT&T Corp. at December 31, 1998 and the
consolidated statement of income for the twelve-month period ended December 31,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,160
<SECURITIES> 0
<RECEIVABLES> 9,712
<ALLOWANCES> 1,060
<INVENTORY> 0
<CURRENT-ASSETS> 14,118
<PP&E> 52,277
<DEPRECIATION> 25,374
<TOTAL-ASSETS> 59,550
<CURRENT-LIABILITIES> 15,442
<BONDS> 5,556
0
0
<COMMON> 1,754
<OTHER-SE> 23,768
<TOTAL-LIABILITY-AND-EQUITY> 59,550
<SALES> 0
<TOTAL-REVENUES> 53,223
<CGS> 0
<TOTAL-COSTS> 45,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,389
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 8,307
<INCOME-TAX> 3,072
<INCOME-CONTINUING> 5,235
<DISCONTINUED> 1,300
<EXTRAORDINARY> (137)
<CHANGES> 0
<NET-INCOME> 6,398
<EPS-PRIMARY> 3.59
<EPS-DILUTED> 3.55
</TABLE>
