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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8519
CINCINNATI BELL INC.
An Ohio I.R.S. Employer
Corporation No. 31-1056105
201 East Fourth Street, Cincinnati, Ohio 45202
Telephone Number 513 397-9900
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Shares (par value $1.00 per share) New York Stock Exchange
Preferred Share Purchase Rights Cincinnati Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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At February 26, 1999, there were 137,357,138 common shares outstanding.
At February 26, 1999, the aggregate market value of the voting shares
owned by non-affiliates was $2,698,300,873.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to security holders for the
fiscal year ended December 31, 1998 (Parts I, II and IV)
(2) Portions of the registrant's definitive proxy statement dated March 24,
1999 issued in connection with the annual meeting of shareholders (Part III)
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TABLE OF CONTENTS
PART I
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Item Page
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1. Business ........................................................................... 1
2. Properties ......................................................................... 10
3. Legal Proceedings .................................................................. 10
4. Submission of Matters to a Vote of the Security Holders ............................ 10
PART II
5. Market for the Registrant's Common Equity and Related Security Holder Matters ...... 14
6. Selected Financial Data ............................................................ 14
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................... 14
7A. Quantitative and Qualitative Disclosures about Market Risk ......................... 14
8. Financial Statements and Supplementary Data ........................................ 14
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ......................................................................... 14
PART III
10. Directors and Executive Officers of Registrant ..................................... 15
11. Executive Compensation ............................................................. 15
12. Security Ownership of Certain Beneficial Owners and Management ..................... 15
13. Certain Relationships and Related Transactions ..................................... 15
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K .................... 16
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See page 11 for "Executive Officers of the Registrant".
This report contains trademarks, service marks and registered marks of the
Company and its subsidiaries, as indicated.
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PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT
Form 10-K contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about the beliefs and expectations of the Company
and its subsidiaries, are forward-looking statements. These statements
involve potential risks and uncertainties and, therefore, actual results may
differ materially. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they
were made. The Company does not undertake any obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Important factors that may affect these expectations include, but are
not limited to: changes in the overall economy; changes in competition in
markets in which the Company and its subsidiaries operate; advances in
telecommunications technology; changes in the telecommunications regulatory
environment; changes in the demand for the services and products of the
Company and its subsidiaries; the ability of the Company and its subsidiaries
to introduce new service and product offerings in a timely and cost effective
basis; failure of the Company and its subsidiaries to achieve Year 2000
compliance; and start-up of the Company's digital wireless communications
services business.
PART I
ITEM I. BUSINESS
GENERAL
Cincinnati Bell Inc. (the "Company" or "Cincinnati Bell") is a
diversified telecommunications services holding company that is organized on
the basis of products and services. The Company's segments are strategic
business units that offer distinct products and services, organized around a
telecommunications core, and are aligned with specific subsidiaries of the
Company.
The Local Communications Services segment provides local, long distance,
data networking and transport, Internet access and pay phone services, as
well as sales of communications equipment, in southwestern Ohio, northern
Kentucky and southeastern Indiana. These services are marketed and sold to
both residential and business customers and are delivered principally through
Cincinnati Bell Telephone Company ("CBT") and two recently organized
subsidiaries of the Company.
The Directory Services segment sells directory advertising and
information services primarily to customers in the geographic areas described
in the previous paragraph. This segment's most identifiable product is the
Yellow Pages directory delivered by Cincinnati Bell Directory Inc.
The Other Communications Services segment resells (i) long distance and
Internet access services and provides data services and products to small-
and medium-sized business customers mainly in a five-state Midwestern area,
and (ii) telecommunications and computer equipment in the secondary market.
These services are provided through Cincinnati Bell Long Distance Inc. and
Cincinnati Bell Supply Company, respectively.
The Company anticipates that its new digital wireless PCS business,
Cincinnati Bell Wireless Company LLC, will be reported as an operating
segment in 1999. In 1998, the assets and capital additions of this business
are included in the Other Communications Services segment.
The Company has formed two new subsidiaries. ZoomTown.com Inc., formed
in the first quarter of 1999, will provide its FUSE Internet access,
e-commerce and transactional services. EnterpriseWise IT Consulting LLC
(formerly KSM Consulting and the Network Solutions Group), formed in the
third quarter of
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1998, provides network integration and consulting services. These businesses
are included in the Local Communications Services segment.
On December 31, 1998, Cincinnati Bell completed its divestiture of
Convergys Corporation, a subsidiary that it had formed during 1998 consisting
of its billing and information services business (operated by Convergys
Information Management Group Inc., formerly known as Cincinnati Bell
Information Systems Inc.) and its customer management solutions business
(operated by Convergys Customer Management Group Inc., formerly known as
MATRIXX Marketing Inc.), as well as its 45% interest in a limited partnership
which operates a cellular telecommunications business in southwestern Ohio
and northern Kentucky.
The Company is incorporated under the laws of Ohio and has its principal
executive offices at 201 East Fourth Street, Cincinnati, Ohio 45202
(telephone number (513) 397-9900).
STRATEGY
Cincinnati Bell believes that it is the most recognized single source,
full-service communications provider in the Cincinnati metropolitan market
area. Cincinnati Bell's competitive strengths include its (i) well-regarded
brand name, (ii) technologically advanced network, (iii) communications
industry focus, knowledge and experience, (iv) reputation for service
quality, (v) large customer base and (vi) strategic relationships with
targeted industry leaders, including AT&T Corp. ("AT&T"), Lucent Technologies
("Lucent"),Cisco Systems and PSINet. By leveraging its competitive
strengths, Cincinnati Bell believes that it can increase the market
penetration of its existing services, effectively market new services,
establish and deliver its data network solutions and wireless capabilities,
and capture the full benefit of its strategic relationships with these
targeted industry leaders.
Cincinnati Bell is exploring growth opportunities on its own and in
partnership with other companies within and beyond its traditional geographic
market area. Cincinnati Bell's overall strategy is to expand beyond its
traditional telephone business and geographic market, to take advantage of
the expanding growth of the data transport business and to become an
integrated communications provider of end-to-end data and telecommunications
solutions to its customers. Cincinnati Bell has recently formed a network
integration business to offer end-to-end broadband network connectivity and
management. Cincinnati Bell also offers Digital Subscriber Line ("DSL")
technology and high capacity and dial-up Internet access. In 1998,
Cincinnati Bell expanded further its product offerings to include digital
wireless communications services through a venture with AT&T Wireless PCS
Inc. Cincinnati Bell believes that, by bundling core and advanced
telecommunication related services on one bill, it achieves a competitive
advantage over current and future competitors.
LOCAL COMMUNICATIONS SERVICES
Cincinnati Bell Telephone Company
Cincinnati Bell Telephone is the 12th largest local telecommunications
service company in the United States, based on its network access lines in
service at the end of 1998. In 1998, on a pro forma basis giving effect to
the Convergys divestiture, Cincinnati Bell Telephone provided 81% of
Cincinnati Bell's revenue and 79% of its operating income excluding special
charges and credits.
Cincinnati Bell Telephone provides telecommunications services to
business and residential customers in the Cincinnati metropolitan market
area. This market is 2,400 square miles located approximately within a 25
mile radius of Cincinnati and includes all or significant parts of four
counties of southwestern Ohio, six counties in northern Kentucky and two
counties in southeastern Indiana. Approximately 1.5 million people lived in
this region in 1990, including 656,000 households. Approximately 98% of
Cincinnati Bell Telephone's network access lines are in one local access
transport area ("LATA").
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Cincinnati Bell Telephone has historically focused on providing
telecommunication services to a single geographic market, which has allowed
it to introduce various innovative new products and services before many
other incumbent local exchange carriers ("ILECs"). To solidify its
reputation of being the most recognized single source, full-service
communications provider in the Cincinnati metropolitan market area,
Cincinnati Bell Telephone markets the following products and services, on its
own or through strategic relationships with industry leaders. FUSE-SM-, an
Internet access service, was launched in early 1997 by Cincinnati Bell
Telephone and has grown to serve approximately 31,500 subscribers as of
December 31, 1998 in the Cincinnati metropolitan market area. With this
launch, Cincinnati Bell Telephone became one of the first ILECs in the nation
to introduce an Internet access service for its residential and
small-business customers (ZoomTown.com Inc., a newly-formed subsidiary of the
Company, will offer its FUSE Internet access along with e-commerce and
transactional services). Additionally, Cincinnati Bell Telephone recently
began offering Digital Subscriber Line ("DSL") technology to approximately
half of its subscribers. DSL uses Cincinnati Bell Telephone's existing
copper telephone wiring to access data networks and the Internet to provide
enhanced high-speed data communications. This technology enables a customer
to stay connected to the Internet or other data networks over a dedicated
portion of its telephone line while being able to make or receive telephone
calls on the same line simultaneously. Cincinnati Bell Telephone serves as
the exclusive sales agent for Lucent in the Cincinnati metropolitan market
area providing a full service line of communications equipment to business
customers. Cincinnati Bell Telephone also owns a 10 Mhz "E block" PCS
license covering the Cincinnati metropolitan market area which it can use for
yet-to-be-determined wireless services.
Through its long-standing contractual relationships with AT&T,
Cincinnati Bell Telephone provides services to and for AT&T in the Cincinnati
metropolitan market area. As part of this relationship, Cincinnati Bell
Telephone is able to leverage AT&T's size and strength to acquire and deploy
technology under favorable terms.
Cincinnati Bell Telephone's service record is among the best in the
industry. Based on reports to the Federal Communications Commission ("FCC"),
Cincinnati Bell Telephone receives fewer customer reports of service trouble
per line than do nearly all other large U.S. telecommunications companies
reporting to the FCC. In 1997 (the latest year for which information is
available) Cincinnati Bell Telephone averaged only 1.18 trouble reports per
100 customer lines per month, while comparable rates for other large
reporting companies ranged from 1.29 to 2.68. Additionally, Cincinnati Bell
Telephone was recently awarded the second highest customer satisfaction
ranking by J.D. Power and Associates as part of a comprehensive 1998 survey
of 14,000 residential telephone customers of the 14 largest ILECs. In the
face of increased access line growth, Cincinnati Bell Telephone has a
superior record for keeping installation appointments and for completing new
service orders within five days.
As a result of previous investments, Cincinnati Bell Telephone's plant,
equipment and network are modern and capable of handling new service
offerings as they are developed. Of its network access lines, 97% are served
by digital switches, 100% have ISDN capability and 100% have Signaling System
7 capability, which supports enhanced features such as Caller ID, Call Trace
and Call Return. The network also includes more than 2,700 miles of
fiber-optic cable, with eight rings of cable equipped with SONET technology
linking Cincinnati's downtown and other major business centers. These SONET
rings offer increased reliability and redundancy to Cincinnati Bell
Telephone's major business customers.
On December 31, 1998, Cincinnati Bell Telephone had approximately
1,033,000 network access lines in service, an increase of 2.8% or 28,000
lines from December 31, 1997. Approximately 68% of Cincinnati Bell
Telephone's network access lines serve residential customers and 32% serve
business customers. These residential customers are adding lines for Internet
access, home offices and increased voice communications use. In 1998,
additional lines accounted for more than 34% of total access lines added
during the year. As of December 31, 1998, approximately 13% of Cincinnati
Bell Telephone's residential customers had additional access lines. In
addition, voice-grade equivalents, or VGEs, increased 40% in 1998.
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In 1998, Local Communications Services revenues consisted of local
services (57% of total) and network access (25% of total), with the remainder
(18%) coming from other communications services such as commissioned sales,
maintenance and repair services, and billing services.
Regulation
Cincinnati Bell Telephone's local exchange, network access and toll
telephone operations are regulated by the Public Utility Commission of Ohio
("PUCO"), the Public Service Commission of Kentucky ("PSCK") and the FCC with
respect to rates, services and other matters.
Present and future legislative and regulatory initiatives will have an
impact on Cincinnati Bell Telephone and other ILECs, including the Regional
Bell Operating Companies ("RBOCs") and other independent telephone companies.
The extent of that impact will not be known until the initiatives are fully
implemented. These initiatives are designed to encourage and accelerate the
development of competition in the telecommunications industry by removing
legal barriers to competition across major industry segments. Under the
initiatives, companies that were historically limited to providing service
within one or more of those segments, including local exchange, long
distance, wireless, cable television and information services, can enter
other segments to compete with the incumbent providers and other new entrants
after meeting certain regulatory requirements.
Federal - In July 1997 the U.S. Court of Appeals for the Eighth Circuit
issued a decision stating that certain FCC rules governing local competition
exceeded the FCC's authority under the Telecommunications Act of 1996 in
several areas. On January 25, 1999, the U.S. Supreme Court overturned the
U.S. Court of Appeals decision and reinstated the FCC's rules related to
local competition. While the FCC now has the ability to pre-empt a state's
rules when they are inconsistent with the FCC's, Ohio and Kentucky have both
followed the FCC's rules in most circumstances. The "pick and choose"
provision will likely move Cincinnati Bell Telephone in the future to a
single set of contractual provisions for all interconnectors.
In May 1997 the FCC adopted an order in the access charge reform
proceeding. The order generally removed from minute-of-use access rates
costs that are not incurred on a per minute-of-use basis. The order also
adopted changes to the interstate rate structure for transport services that
are designed to move the charges for these services to more cost-based
levels. Cincinnati Bell Telephone and numerous other local exchange carriers
("LECs") filed appeals in the U.S. Court of Appeals for the Eighth Circuit
challenging various aspects of the FCC's May 1997 order. On August 19, 1998,
the Court issued a decision upholding the FCC's order. Since Cincinnati Bell
Telephone had already begun complying with the FCC's order, the Court's
decision is not expected to have a material impact on Cincinnati Bell
Telephone's operations.
Also in May 1997 the FCC adopted an order on the new universal service
program. Several parties, including Cincinnati Bell Telephone, filed
petitions for review of the order in various circuits of the U.S. Court of
Appeals. U.S. Court of Appeals for the Fifth Circuit heard the case on
December 1, 1998, but a decision has not yet been rendered. Given the
ongoing judicial developments in this case, the Company cannot determine the
full impact that its ultimate resolution may have on Cincinnati Bell
Telephone's operations.
In July 1997 Cincinnati Bell Telephone's price cap tariff filing was
approved by the FCC without suspension. Cincinnati Bell Telephone and
another company have filed petitions for reconsideration with the FCC to
revisit the establishment of the 6.5% productivity offset. In addition,
several appeals have been filed with the U.S. Court of Appeals for the D.C.
Circuit regarding the order establishing the 6.5% productivity offset. At
this time, the outcome of the petition for reconsideration and the appeals
cannot be determined.
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On February 25, 1999, the FCC issued a Declaratory Ruling classifying
dial-up traffic to Internet service providers ("ISPs") as interstate traffic.
The FCC stated this conclusion does not in itself determine whether
reciprocal compensation is due in any particular instance and that the
parties should be bound by their existing interconnection agreements, as
interpreted by state commissions. In addition, the FCC issued a Notice of
Proposed Rulemaking, opening a proceeding which will address, on a
prospective basis, if Federal rules are required to address reciprocal
compensation issues for ISP traffic. In addition, on March 24, 1999,
Cincinnati Bell Telephone was served with a copy of a complaint filed with
the PUCO by Time Warner Telecom of Ohio, L.P. The complaint challenges
Cincinnati Bell Telephone's position that dial-up calls to ISPs are not local
calls for which terminating compensation is due under the parties'
interconnection agreement. At this time the Company cannot determine the
full impact these proceedings will have on Cincinnati Bell Telephone's
operations.
On May 12, 1998, the FCC released an order to allow telecommunications
carriers to recover over a five-year period their carrier-specific costs of
implementing local number portability. Local number portability allows
customers to retain their local telephone numbers in the event they change
local exchange carriers. Cincinnati Bell Telephone implemented local number
portability in May 1998. Although the May FCC order permits such cost
recovery through query charges to carriers who access Cincinnati Bell
Telephone's local number portability database and through an end-user charge,
a subsequent ruling by the FCC Common Carrier Bureau on December 14, 1998,
narrowly defined costs that telecommunications carriers can recover through
these charges. On January 13, 1999, Cincinnati Bell Telephone asked the FCC
to overturn the Common Carrier Bureau's ruling and allow carriers to recover
all costs for implementing local number portability. This Application for
Review is still pending. Cincinnati Bell Telephone's tariff for the charges
was approved by the FCC and became effective February 1, 1999, the earliest
date allowed under FCC rules.
Ohio - On March 19, 1998, Cincinnati Bell Telephone, the PUCO, the
Office of Consumers Counsel and other intervenors reached a settlement for
Cincinnati Bell Telephone's "Commitment 2000" alternative regulation plan
application. The settlement was approved by the PUCO on April 9, 1998.
Terms of the settlement include: (i) greater pricing flexibility for most
services and elimination of rate-of-return regulation; (ii) no increase in
basic residential access line rates for the term of the plan; (iii) business
rates set based on Cincinnati Bell Telephone's discretion and market
conditions; and (iv) a 30% reduction in basic rates for qualified, low income
residential customers. The term of the plan is three and one-half years but
can be extended up to an additional two years at Cincinnati Bell Telephone's
discretion as long as a service quality benchmark is maintained. A portion
of this case remains undecided; namely, the approval of rates that Cincinnati
Bell Telephone can charge competitive LECs for unbundled network elements
("UNEs"). Currently, Cincinnati Bell Telephone is charging interim rates
developed in contract negotiations. A hearing concerning these rates began
in March 1999.
Kentucky - On June 29, 1998, Cincinnati Bell Telephone filed an
application with the PSCK requesting a plan similar to the plan approved by
the PUCO. On January 25, 1999, the PSCK issued an order in this case. The
PSCK approved the alternative regulation plan with modifications, adopted an
earnings sharing plan for earnings on equity above 13.5%, with customers
receiving one-half of the amount above 13.5%, and ordered rate reductions of
approximately $2.2 million. Residential rates will be frozen for three years.
Cincinnati Bell Telephone filed a petition for rehearing with the PSCK on
February 12, 1999. This petition for rehearing on the earnings sharing plan
was granted on March 4, 1999.
DIRECTORY SERVICES
Cincinnati Bell Directory Inc.
Cincinnati Bell Directory Inc. ("CBD") provides Yellow Pages, other
directory products and related information and advertising services to more
than 1.2 million residential and business consumers. CBD recently launched
new Internet advertising services designed to add value to the printed
directory services it provides and to allow its customers to better target
and update their advertising message. These
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services include the development of a community focused Internet site
for directory customers, expanded audiotext services, a regional
business-to-business directory and CD-ROM directory listing services. CBD
continually evaluates new product offerings in both the print and electronic
categories of distribution.
OTHER COMMUNICATIONS SERVICES
Cincinnati Bell Long Distance Inc.
Cincinnati Bell Long Distance Inc. ("CBLD") is an integrated
communications provider that resells long distance telecommunications
services and products as well as voice mail and paging services mainly in
Ohio, Indiana, Michigan, Kentucky and Pennsylvania. CBLD is licensed,
however, as a long distance provider in every state except Alaska. Its
principal market focus is small- and medium-sized businesses. CBLD augments
its high-quality long-distance services with calling plans, network features
and enhanced calling services to create customized packages of communications
services for its clients. CBLD intends to add new data communications
services for business customers, including high-speed dedicated and dial-up
Internet access services and other high-speed data transport using frame
relay technology.
Cincinnati Bell Supply Company
Cincinnati Bell Supply Company ("CBS") markets telecommunications and
computer equipment. Its principal market is the secondary market for used
telecommunications systems, including AT&T- and Lucent-branded systems.
Cincinnati Bell Wireless Company
On December 31, 1998, Cincinnati Bell Wireless Company, a wholly owned
subsidiary of the Company ("Cincinnati Bell Wireless"), and AT&T Wireless
PCS, an indirect wholly owned subsidiary of AT&T Corp., executed a joint
venture agreement to provide digital wireless communications services in the
Cincinnati and Dayton metropolitan market areas. Prior to the execution of
the joint venture agreement, Cincinnati Bell Wireless and AT&T PCS had been
operating the digital wireless communications services business under an
interim operating agreement executed in February 1998, whereby losses would
be funded in the same percentages as they would be upon the joint venture
formation. The Company's required funding of the losses was $27.3 million
from February through December 31, 1998.
Cincinnati Bell Wireless contributed approximately $162 million to the
venture, Cincinnati Bell Wireless, LLC, an Ohio limited liability company
(the "Joint Venture"), in exchange for an 80.1% membership interest. Pursuant
to the joint venture agreement, the Joint Venture paid AT&T PCS approximately
$162 million and issued to AT&T PCS a 19.9% membership interest in exchange
for AT&T PCS's 20 Mhz partitioned PCS license for the geographic region, as
well as network assets and other related assets and liabilities of the
business. At December 31, 1998, the Company has recognized approximately $85
million as an estimate of the goodwill and other intangibles related to this
purchase which will be amortized over a 40-year period. Since the
independent valuation being performed to assess the value of assets purchased
is not yet complete, a further adjustment will be required in 1999 to reflect
the fair value of these assets. In addition, the purchase price will be
adjusted based on the final determination of assets transferred.
The digital wireless services offered by the Joint Venture, which are
sold under the Cincinnati Bell Wireless brand name, operate on AT&T PCS's
national network. The Joint Venture has contracted with AT&T Wireless
Services, Inc. ("AWS"), an affiliate of AT&T PCS, for a significant number of
operational services, including network management, billing, service
activation, fraud detection, information technology and roaming
administration services. As time goes on, the venture itself may choose to
perform many of these operational services. The Joint Venture oversees the
administration of the
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venture's day-to-day operations, which includes the marketing and sales,
financial and accounting, regulatory and legal functions.
Although it is not obligated to do so, the Company's present intention
is to make (through Cincinnati Bell Wireless) additional capital
contributions or loans to the Joint Venture to cover its 1999 capital
purchases and operating losses. The projected capital purchase amounts have
been included in the Company's estimated capital additions for 1999 (set
forth on page [9] below).
As of December 31, 1998, the joint venture had approximately 56,000
subscribers for its digital wireless communications services.
COMPETITION
Evolving technology, the preferences of consumers, the legislative and
regulatory initiatives of policymakers and the convergence of other
industries with the telecommunications industry are causes for increasing
competition throughout the telecommunications industry. The range of
communications services, the equipment available to provide and access such
services and the number of competitors offering such services continue to
increase. These initiatives and developments could make it difficult for
Cincinnati Bell Telephone to maintain current revenue and profit levels.
Cincinnati Bell Telephone's competitors include other ILECs, wireless
services providers, interexchange carriers, competitive local exchange
carriers and others. Cincinnati Bell's name and reputation are well regarded
as a result of its having provided telecommunications services to the
Cincinnati metropolitan market area since 1878 and having a record of
superior customer service. Thus, even though Cincinnati Bell Telephone has
signed 10 interconnection agreements with competitors as of December 31,
1998, Cincinnati Bell Telephone has transferred only approximately 4,000
access lines to competitors. Cincinnati Bell Telephone does not have any
information about how many potential new customers have been lost to
competitors.
Cincinnati Bell's other subsidiaries face intense competition in their
markets, principally from larger companies. These subsidiaries primarily seek
to differentiate themselves by leveraging the strength and recognition of the
Cincinnati Bell brand name, by providing customers with superior service and
by focusing on niche markets and opportunities to develop and market
customized packages of services. CBD's competitors are directory services
companies, newspapers and other media advertising services providers in the
Cincinnati metropolitan market area. CBD now competes with its former sales
representative for Yellow Pages directory customers; such competition may
affect CBD's ability to grow or maintain profits and revenues. CBLD's
competitors include interexchange carriers and certain local
telecommunications services companies. CBS's competitors include vendors of
new and used communications and computer equipment, operating regionally and
across the nation. Cincinnati Bell Wireless, LLC is one of five active
wireless service providers in the Cincinnati and Dayton metropolitan market
areas.
YEAR 2000
Since 1996, Cincinnati Bell has devoted significant time and resources
to achieve Year 2000 compliance.
A Steering Committee, chaired by Cincinnati Bell Telephone's Senior Vice
President, Operations and composed of upper-level management personnel, sets
the direction and monitors the activity of the Year-2000 Program Management
Office. The Program Management Office's responsibility is to make Cincinnati
Bell Telephone Year-2000 compliant and to provide oversight for the Company's
other subsidiaries as they track the status of their Year-2000 projects. In
addition to internal Year-2000 activities, the Program Management Office is
communicating with suppliers and clients with which
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Cincinnati Bell Telephone's systems interface or rely upon to determine their
progress toward Year-2000 compliance.
The Company has incurred cumulative Year-2000 expenses of $15.1 million,
including $10.9 million in 1998. Year-2000 expenses for 1999 are estimated
to be in the range of $5 million to $8 million.
Cincinnati Bell Telephone's goal is to have its network, information
technology ("IT") and facilities systems equipped with any required fixes,
upgrades or replacements, and tested, by July 31, 1999.
The Company's other subsidiaries hope to have their networks, IT,
facilities and billing systems equipped with any required fixes, upgrades or
replacements, and tested, by June 30, 1999.
The Company has no reason to believe that the July 31, 1999, target date
will not be achieved. However, because of the complexity of the Year-2000
problem, there can be no guarantee that the Company will achieve complete
Year-2000 compliance by those dates or before January 1, 2000.
To minimize the disruption to its operations that may result from a
variety of occurrences, the Company is developing a well-defined and
executable Year-2000 contingency plan and enhancing its business continuity
plans to ensure reasonable preparedness for any Year-2000 issues that might
arise. These plans are scheduled for testing in September. Although the
Company anticipates minimal business disruption as a result of the century
change, if the Company were to be unsuccessful in readying its software and
systems for the Year 2000 or preparing adequate plans to avoid business
interruption that could result from the century change, this would have a
material adverse impact on the Company. This material adverse effect could
include a disruption to the provision of services to its customers, which
could result in lost revenues, the incurrence of material contractual
penalties and damaged customer relationships.
The failure of one of the Company's significant customers to modify its
systems for the Year 2000 successfully or to provide the appropriate business
continuity planning also could have an adverse impact on the Company as the
Company is, to a certain extent, dependent on the success of its customers.
The Company's success in becoming Year-2000 compliant largely depends on
the Company's vendors and business partners being Year-2000 compliant. The
Program Management Office is working diligently with the Company's vendors
and business partners to assure itself, to the extent possible, that the
vendors and business partners are taking the necessary steps to become
Year-2000 compliant. To the extent that any of the Company's vendors or
business partners experience Year-2000 technology difficulties which
materially affect their businesses, such difficulties could have a material
adverse effect on the Company's business, results of operations and financial
condition.
CAPITAL ADDITIONS
The Company continues to make expenditures for construction of telephone
plant and investments in its existing subsidiaries and new businesses. As a
result of these expenditures, the Company expects to be able to introduce new
products and services, respond to competitive challenges and increase its
operating efficiency and productivity.
The following is a summary of capital additions for the years 1994
through 1998:
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Dollars in Millions
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Investments in
Telephone Plant Existing Subsidiaries Total Capital
Construction and New Businesses Additions
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1998 $ 136.3 $ 172.9 $ 309.2
1997 $ 141.1 $ 23.2 $ 164.3
1996 $ 101.4 $ 4.9 $ 106.3
1995 $ 90.3 $ 2.5 $ 92.8
1994 $ 112.8 $ 11.5 $ 124.3
</TABLE>
The total investment in telephone plant increased from approximately
$1,431 million at December 31, 1993, to approximately $1,739 million at
December 31, 1998, after giving effect to retirements but before deducting
accumulated depreciation at either date.
Capital additions for 1999, including software required to be
capitalized pursuant to AICPA Statement of Position 98-1, are estimated to be
$190 million. The estimated amount of capital additions does not include any
acquisitions that may occur in 1999.
EMPLOYEES
At December 31, 1998, the Company and its subsidiaries had approximately
3,500 employees. CBT had approximately 2,000 employees covered under a
collective bargaining agreement with the Communications Workers of America,
which is affiliated with the AFL-CIO. The collective bargaining agreement
expires in May 1999. Negotiations with representatives of the CWA to renew
the agreement have begun, and the outcome cannot be determined at this time.
BUSINESS SEGMENT INFORMATION
The amounts of revenues, operating income, assets, capital additions,
depreciation and amortization attributable to each of the business segments
of the Company for the year ended December 31, 1998, are set forth in the
table relating to business segment information in Note 9 of the Notes to
Financial Statements in the Company's annual report to security holders, and
such table is incorporated herein by reference.
9
<PAGE>
ITEM 2. PROPERTIES
The property of the Company is principally telephone plant which does
not lend itself to description by character and location of principal units.
Other property of the Company is principally computer equipment and
associated operating system software, furniture and fixtures, and assets
acquired as part of the Company's investment in the wireless venture with
AT&T PCS (most of the Company's property is located in southwestern Ohio and
northern Kentucky).
The gross investment in telephone plant and other property, in millions
of dollars, at December 31, 1998 was as follows:
<TABLE>
<S> <C>
Telephone Plant
Land, buildings and leasehold improvement $ 196.4
Central office equipment 720.9
Connecting lines (not on customer premises) 689.3
Station equipment 32.0
Furniture, fixtures, vehicles and other 88.0
Telephone plant under construction 12.5
---------
Total telephone plant 1,739.1
---------
Other Property
Other subsidiaries 134.0
---------
Total other property 134.0
---------
Total $ 1,873.1
---------
---------
</TABLE>
Substantially all of the central office switching stations are located
in buildings owned by CBT situated on land which it owns. Some CBT business
and administrative offices are located in rented facilities, some of which
are treated as capitalized leases and included in the "Furniture, fixtures,
vehicles and other" caption above. Facilities leased as part of an operating
lease arrangement are expensed as incurred and are not included in the above
totals.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year covered by this report.
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (DURING 1998)
The names, ages and positions of the executive officers of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
(as of 12/31/98)
<S> <C> <C>
Charles S. Mechem, Jr. (a,b, c) 67 Chairman of the Board
James D. Kiggen (c) 66 Chairman of the Board
John T. LaMacchia (a,b, d) 56 President and Chief
Executive Officer
James F. Orr (a,b, c) 52 Chief Operating Officer
Richard G. Ellenberger (a)(e) 45 Chief Operating Officer of the company and
President and Chief Executive Officer of
CBT
William D. Baskett III (c) 58 General Counsel and Secretary
Brian C. Henry (c) 41 Executive Vice President and Chief
Financial Officer
Robert J. Marino (c) 50 President and Chief Executive Officer of
Convergys Information Management Group Inc.
(formerly known as Cincinnati Bell
Information Systems Inc. ("CBIS"))
David F. Dougherty (c) 41 President and Chief Executive Officer of
Convergys Customer Management Group Inc.
(formerly known as MATRIXX Marketing Inc.
("MATRIXX"))
Kevin W. Mooney (c) 40 Chief Financial Officer
Thomas E. Taylor (c) 52 General Counsel and Secretary
</TABLE>
- ------------------------------
(a) Member of the Board of Directors
(b) Member of the Executive Committee
(c) Following the initial public offering of approximately 10% of the
outstanding shares of Convergys Corporation, effective September 1, 1998,
Mr. Orr became President and Chief Executive Officer of Convergys and
ceased to be the Chief Operating Officer of the Company, Mr. Baskett became
General Counsel and Secretary of Convergys and ceased to be General Counsel
and Secretary of the Company, Mr. Henry became Chief Operating Officer of
Convergys Information Management Group Inc. and ceased to be Executive Vice
President and Chief Financial Officer of the Company. Also effective
September 1, 1998, Mr. Mooney became Chief Financial Officer of
11
<PAGE>
the Company and Mr. Taylor became General Counsel and Secretary of the
Company. In conjunction with the completion of the spin-off of Convergys
on December 31, 1998, Mr. Mechem became Chairman of the Board of Convergys
and ceased to be Chairman of the Board of the Company, and Mr. Kiggen was
elected Chairman of the Board replacing Mr. Mechem.
(d) Effective February 28, 1999, Mr. LaMacchia resigned as President and Chief
Executive Officer of the Company but will continue to serve as a Director
of the Company.
(e) Effective September 1, 1998, Mr. Ellenberger became Chief Operating Officer
of the Company and, effective March 1, 1999, upon Mr. LaMacchia's
resignation, Mr. Ellenberger became President and Chief Executive Officer
of the Company.
Officers are elected annually but are removable at the discretion of the Board
of Directors.
CHARLES S. MECHEM, JR., Chairman of the Board of the Company, 1996; Commissioner
Emeritus, Ladies Professional Golf Association ("LPGA"); Commissioner of the
LPGA, 1991-1995; Chairman of The United States Shoe Corporation, 1993-1995;
Director of AGCO, Mead Corporation, Ohio National Life Insurance Company, J.M.
Smucker Company, Firstar Corporation and its subsidiary, Firstar Bank, N.A.
JAMES D. KIGGEN, Chairman of the Board of the Company since January 1, 1999;
Chairman of the Board of Xtek, Inc. since 1985; Chief Executive Officer of Xtek,
Inc., 1985-1988; President of Xtek, Inc., 1985-1995. Director of Fifth Third
Bancorp and its subsidiary, The Fifth Third Bank and The United States Playing
Card Company.
JOHN T. LAMACCHIA, President and Chief Executive Officer of the Company, 1993 -
February 28, 1999; President of the Company, 1988 - 1998; Chairman of CBT, 1993
- - 1998; Chief Operating Officer of the Company, 1988-1993; Chairman of CBIS,
1988-1996. Director of The Kroger Company and Burlington Resources Inc.
JAMES F. ORR, Chief Operating Officer of the Company and Chairman of CBIS, 1996
- - August 31, 1998; Chairman of MATRIXX, 1997 - August 31, 1998; Executive Vice
President of the Company and President and Chief Executive Officer of CBIS,
1995-1996; Chief Operating Officer of CBIS, 1994; President and Chief Executive
Officer of MATRIXX 1993-1994.
RICHARD G. ELLENBERGER, President and Chief Executive Officer of the Company
since March 1, 1999; Chief Operating Officer of the Company since September 1,
1998; President and Chief Executive Officer of CBT since June, 1997; Chief
Executive Officer of XLConnect, 1996-1997; President, Business Services of MCI
Telecommunications, 1995-1996; Senior Vice President, Worldwide Sales of MCI
Telecommunications, 1994-1995; Senior Vice President, Branch Operations of MCI
Telecommunications, 1993-1994; Vice President, Southeast Region of MCI
Telecommunications, 1992-1993; Chief Operating Officer of Entrade Corporation,
1990-1992.
WILLIAM D. BASKETT III, General Counsel and Chief Legal Officer of the Company,
1993 - August 31, 1998; Secretary of the Company, 1997 - August 31, 1998;
Partner of Frost & Jacobs LLP, 1970-1997.
BRIAN C. HENRY, Executive Vice President and Chief Financial Officer of the
Company, 1993 - August 31, 1998; Chief Operating Officer of CBIS, 1998 -
August 31, 1998. Vice President and Chief Financial Officer of Mentor
Graphics, 1986-1992.
ROBERT J. MARINO, President and Chief Executive Officer of CBIS, 1996 - August
31, 1998; Chief Operating Officer of CBIS, 1995 - 1996; President - Northeast
Region of Nextel, 1993 - 1995; President of Houston Cellular Telephone Company,
1990 - 1993.
12
<PAGE>
DAVID F. DOUGHERTY, President and Chief Executive Officer of MATRIXX, 1995 -
August 31, 1999; Senior Vice President and Chief Operating Officer U.S.
Operations, 1993-1994; President of the Consumer Division, 1991-1992.
KEVIN W. MOONEY, Chief Financial Officer of the Company since September 1, 1998;
Senior Vice President and Chief Financial Officer of CBT since January 1998;
Vice President and Controller of the Company, September, 1996 to January, 1998;
Vice President of Financial Planning and Analysis of the Company, January, 1994
to September, 1996; Director of Financial Planning and Analysis of the Company,
1990-1994.
THOMAS E. TAYLOR, General Counsel and Secretary of the Company since September
1, 1998; Senior Vice President and General Counsel of CBT since August 1, 1996;
prior to August 1, 1996, partner of Frost & Jacobs LLP.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
Cincinnati Bell Inc. (symbol: CSN) common shares are listed on the New York
Stock Exchange and on the Cincinnati Stock Exchange. As of February 26, 1999,
there were approximately 24,156 holders of record of the 137,357,138 outstanding
common shares of the Company. The high and low sales prices* and dividends
declared per common share each quarter for the last two fiscal years are listed
below:
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 High $ 36 5/16 $ 38 5/8 $ 33 3/16 $ 38 1/8
Low $ 30 1/8 $ 28 1/2 $ 22 1/2 $ 20 7/8
Dividend Declared $ .10 $ .10 $ .10 $ .10
1997 High $ 33 3/4 $ 33 1/4 $ 32 1/4 $ 31 1/8
Low $ 28 1/4 $ 26 1/16 $ 23 1/16 $ 25 3/8
Dividend Declared $ .10 $ .10 $ .10 $ .10
</TABLE>
- -------------------------
*Prices are before the spin-off of Convergys Corporation. Company shares began
trading on a post-spin-off basis on January 4, 1999.
ITEMS 6 THROUGH 8.
The Selected Financial Data, Management's Discussion and Analysis of
Financial Condition and Results of Operations, Quantitative and Qualitative
Disclosures about Market Risk and Financial Statements and Supplementary Data
required by these items are included in the registrant's annual report to
security holders for the fiscal year ended December 31, 1998, included in
Exhibit 13 and are incorporated herein by reference pursuant to General
Instruction G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any accounting or financial disclosure
or auditing scope or procedure occurred during the period covered by this
report.
14
<PAGE>
PART III
ITEMS 10 THROUGH 13.
Information regarding executive officers required by Item 401 of Regulation
S-K is furnished in a separate disclosure in Part I of this report under the
caption "Executive Officers of the Registrant" since the registrant did not
furnish such information in its definitive proxy statement prepared in
accordance with Schedule 14A.
The other information required by these items is included in the
registrant's definitive proxy statement dated March 24, 1999
[in the first paragraph on page 2, the accompanying notes on page 2
and the Section 16 (a) paragraph on page 2, the information under
"Election of Directors" on pages 6 and 7, the information under
"Share Ownership of Directors and Officers" on page 5, the information
under "Executive Compensation" on page 12 through 17.] The foregoing is
incorporated herein by reference pursuant to General Instruction G(3).
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report: Page
----
(1) Consolidated Financial Statements:
Report of Management *
Report of Independent Accountants *
Consolidated Statements of Income and Comprehensive Income *
Consolidated Balance Sheets *
Consolidated Statements of Cash Flows *
Consolidated Statements of Common Shareowners' Equity *
Notes to Financial Statements *
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement
Schedule 23
II - Valuation and Qualifying Accounts 24
Financial statements and financial statement schedules other than that
listed above have been omitted because the required information is
contained in the financial statements and notes thereto, or because
such schedules are not required or applicable.
* Incorporated herein by reference to the appropriate portions of the
registrant's annual report to security holders for the fiscal year ended
December 31, 1998. (See Part II)
(3) Exhibits
Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission ("SEC"), are incorporated herein by reference as exhibits
hereto.
Exhibit
Number
- ------
(3)(a) Amended Articles of Incorporation effective November 9,
1989. (Exhibit (3)(a) to Form 10-K for 1989, File No.
1-8519).
(3)(b) Amended Regulations of the registrant. (Exhibit 3.2 to
Registration Statement No. 2-96054).
(4)(a) Provisions of the Amended Articles of Incorporation and
the Amended Regulations of the registrant which define
the rights of holders of Common Shares and the Preferred
Shares are incorporated by reference to such Amended
Articles filed as Exhibit (3)(a) hereto and such Amended
Regulations filed as Exhibit (3)(b) hereto.
16
<PAGE>
(4)(b) Rights Agreement dated April 29, 1997 between the Company
and The Fifth Third Bank, Rights Agent.
4(c)(i) Indenture dated July 1, 1993, between Cincinnati Bell
Inc., Issuer, and The Bank of New York, Trustee, in
connection with $50,000,000 of Cincinnati Bell, Inc.
71/4% Notes Due June 15, 2023. Exhibit 4-A to Form 8-K,
date of report July 12, 1993, File No. 1-8519.
(4)(c)(ii) Indenture dated August 1, 1962, between Cincinnati Bell
Telephone Company and Bank of New York, Trustee
(formerly, The Central Trust Company was trustee), in
connection with $20,000,000 of Cincinnati Bell Telephone
Company Forty Year 4-3/8% Debentures, Due August 1, 2002.
(Exhibit 4(c)(iii) to Form 10-K for 1992, File No.
1-8519).
(4)(c)(iii) Indenture dated as of October 27, 1993, among Cincinnati
Bell Telephone Company, as Issuer, Cincinnati Bell Inc.,
as Guarantor, and The Bank of New York, as Trustee.
(Exhibit 4-A to Form 8-K, date of report October 27,
1993, File No. 1-8519).
4(c)(iv) Indenture dated as of November 30, 1998 among Cincinnati
Bell Telephone Company, as Issuer, Cincinnati Bell Inc.,
as Guarantor, and The Bank of New York, as Trustee
(Exhibit 4-A to Form 8-K, date of report November 30,
1998, File No. 1-8519).
(4)(c)(v) No other instrument which defines the rights of holders
of long term debt of the registrant 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) Plan of Reorganization and Distribution Agreement by and
between the Company and Convergys Corporation, dated as
of July 20, 1998.
(10)(i)(2) Services Agreement by and between the Company and
Convergys Corporation, dated as of July 20, 1998.
(10)(i)(3) Tax Separation and Allocation Agreement between the
Company and Convergys Corporation, dated as of July 20,
1998.
(10)(i)(4) Benefits Agreement between the Company and Convergys
Corporation, dated October 14, 1998.
(10)(iii)(A)(1)* Short Term Incentive Plan of Cincinnati Bell Inc., as
amended January 1, 1995. (Exhibit (10)(iii)(A)(1)(i) to
Form 10-K for 1995, File No. 1-8519).
(10)(iii)(A)(2)* Cincinnati Bell Inc. Deferred Compensation Plan for
Outside Directors, as amended and restated effective
February 1, 1999.
(10)(iii)(A)(3)(i)* Cincinnati Bell Inc. Pension Program, as amended
effective November 4, 1991. (Exhibit (10)(iii)(A)(4)(ii)
to Form 10-K for 1994, File No. 1-8519).
(10)(iii)(A)(3)(ii)* Cincinnati Bell Pension Program, as amended and restated
effective March 3, 1997. (Exhibit (10)(iii)(A)(3)(ii) to
Form 10-K for 1997 File No. 1-8519).
17
<PAGE>
(10)(iii)(A)(4)(i)* Executive Employment Agreement dated December 1, 1987,
between the Company and John T. LaMacchia. (Exhibit
(10)(iii)(A)(10) to Form 10-K for 1987, File No. 1-8519).
10(iii)(A)(4)(ii)* Employment Agreement dated January 1, 1999 between the
Company and John T. LaMacchia.
(10)(iii)(A)(5)(i)* Employment Agreement dated October 1, 1995, between
Cincinnati Bell Information Systems Inc. and Robert J.
Marino. (Exhibit (10)(iii)(A)(7) to Form 10-K for 1996,
File No. 1-8519).
(10)(iii)(A)(5)(ii)* Employment Agreement between Convergys Corporation and
Robert J. Marino and December 16, 1998 Amendment to
Employment Agreement.
(10)(iii)(A)(6)(i)* Employment Agreement dated as of January 1, 1995, between
the Company and David F. Dougherty. (Exhibit
(10)(iii)(A)(11) to Form 10-K for 1995, File No. 1-8519).
(10)(iii)(A)(6)(ii)* Amendment to Employment Agreement dated as of January 1,
1995, between the Company and David F. Dougherty.
(Exhibit (10)(iii)(A)(12) to Form 10-K for 1995, File No.
1-8519).
(10)(iii)(A)(6)(iii)* Employment Agreement between Convergys Corporation and
David F. Dougherty and December 16, 1998 Amendment to
Employment Agreement.
(10)(iii)(A)(7)* Executive Employment Agreement dated as of March 29,
1993, between the Company and Brian C. Henry. (Exhibit
(10)(iii)(A)(14) to Form 10-K for 1993, File No. 1-8519).
(10)(iii)(A)(8)(i)* Employment Agreement dated as of August 19, 1994, between
the Company and James F. Orr. (Exhibit
(10)(iii)(A)(17)(i) to Form 10-K for 1994, File No.
1-8519).
(10)(iii)(A)(8)(ii)* Amendment to Employment Agreement dated as of October 31,
1994, between the Company and James F. Orr. (Exhibit
(10)(iii)(A)(17)(ii) to Form 10-K for 1994, File No.
1-8519).
(10)(iii)(A)(8)(iii)* Employment Agreement between Convergys Corporation and
James F. Orr and December 16, 1998 Amendment to
Employment Agreement.
(10)(iii)(A)(9)* Employment Agreement dated January 1, 1999 between the
Company and Richard G. Ellenberger.
(10)(iii)(A)(10)(i)* Employment Agreement, dated January 1, 1998, between the
Company and William D. Baskett III. (Exhibit
(10)(iii)(A)(12) to Form 10-K for 1997, File No. 1-8519).
(10)(iii)(A)(10)(ii)* Employment Agreement between Convergys Corporation and
William D. Baskett III. and December 16, 1998 Amendment
to Employment Agreement.
(10)(iii)(A)(11)* Employment Agreement effective January 1, 1999 between
the Company and Kevin W. Mooney.
(10)(iii)(A)(12)* Employment Agreement dated January 1, 1999 between the
Company and Thomas E. Taylor.
18
<PAGE>
(10)(iii)(A)(13)* Cincinnati Bell Inc. Executive Deferred Compensation
Plan, as amended and restated effective October 25, 1998.
(10)(iii)(A)(14)* Cincinnati Bell Inc. 1997 Long Term Incentive Plan.
(Exhibit (10)(iii)(A)(14)(iii) to Form 10-K for 1997,
file No. 1-8519).
(10)(iii)(A)(15)* Cincinnati Bell Inc. 1997 Stock Option Plan for
Non-Employee Directors, as revised and restated effective
February 1, 1999.
(10)(iii)(A)(16)* Cincinnati Bell Inc. 1989 Stock Option Plan. (Exhibit
(10)(iii)(A)(14) to Form 10-K for 1989, File No. 1-8519).
(10)(iii)(A)(17)(i)* MATRIXX Marketing Inc. Executive Deferred Compensation
Plan. (Exhibit (10)(iii)(A)(21) to Form 10-K for 1996,
File No. 1-8519).
(10(iii)(A)(17)(ii)* Amendment to MATRIXX Marketing Inc. Executive Deferred
Compensation Plan (effective May 1, 1994). (Exhibit
(10)(iii)(A)(21)(i) to Form 10-K for 1996, File No.
1-8519).
(10)(iii)(A)(17)(iii)*Amendment to MATRIXX Marketing Inc. Executive Deferred
Compensation Plan (effective May 4, 1996). (Exhibit
(10)(iii)(A)(21)(ii) to Form 10-K for 1996, File No.
1-8519).
(12) Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends.
(13) Portions of the Cincinnati Bell Inc. annual report to
security holders for the fiscal year ended December 31,
1998, as incorporated by reference including the Selected
Financial Data, Report of Management, Report of
Independent Accountants, Management's Discussion and
Analysis and Consolidated Financial Statements.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(24) Powers of Attorney.
(27.1, 27.2, 27.3) Financial Data Schedules.
- ---------------
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
The Company will furnish, without charge, to a security holder upon
request, a copy of the documents, portions of which are incorporated by
reference (Annual Report to security holders and proxy statement), and will
furnish any other exhibit at cost.
19
<PAGE>
(b) Reports on Form 8-K.
(1) Form 8-K, date of report October 13, 1998, concerning certain
information about the Company and Cincinnati Bell Telephone Company.
(2) Form 8-K, date of report November 19, 1998, reporting matters related
to the Convergys Spin-Off and Mr. Ellenberger's election as a director
of the Company.
(3) Form 8-K, date of report November 30, 1998, reporting that Cincinnati
Bell Telephone Company consummated the sale of $150,000,000 of its
Guaranteed 6.30% Debentures due 2028.
(4) Form 8-K, date of report December 31, 1998, reporting that the Company
had completed the spin-off of Convergys Corporation.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CINCINNATI BELL INC.
March 29, 1999 By: /s/ Kevin W. Mooney
--------------------------
Kevin W. Mooney
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
Principal Executive Officer;
RICHARD G. ELLENBERGER* President, Chief Executive
- ------------------------------ Officer and Director
Richard G. Ellenberger
Principal Accounting and
Financial Officer;
KEVIN W. MOONEY* Chief Financial Officer
- ------------------------------
Kevin W. Mooney
PHILLIP R. COX* Director
- ------------------------------
Phillip R. Cox
WILLIAM A. FRIEDLANDER* Director
- ------------------------------
William A. Friedlander
KAREN M. HOGUET* Director
- ------------------------------
Karen M. Hoguet
ROBERT P. HUMMEL, M.D.* Director
- ------------------------------
Robert P. Hummel, M.D.
JAMES D. KIGGEN* Chairman of the Board and Director
- ------------------------------
James D. Kiggen
JOHN T. LAMACCHIA* Director
- ------------------------------
John t. LaMacchia
MARY D. NELSON* Director
- ------------------------------
Mary D. Nelson
21
<PAGE>
DAVID B. SHARROCK* Director
- ------------------------------
David B. Sharrock
*By: /s/ Kevin W. Mooney March 29, 1999
------------------
Kevin W. Mooney
as attorney-in-fact and on his behalf
as Chief Financial Officer
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTS
To the Shareowners of
Cincinnati Bell Inc.
Our report on the consolidated financial statements of Cincinnati Bell Inc.
has been incorporated by reference in this Form 10-K from page 29 of the 1998
annual report of Cincinnati Bell Inc. In connection with our audits of such
consolidated financial statements, we have also audited the related financial
statement schedule on page 24 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 29, 1999
23
<PAGE>
Schedule II
CINCINNATI BELL INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
(1) (2)
Balance at Charged Balance
Beginning Charged to to Other at End
Allowance for Doubtful Accounts of Period Expenses Accounts Deductions of Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1998......................... $ 9.1 $18.1 $11.0(a) $26.2(b) $12.0
Year 1997......................... $ 6.1 $12.2 $ 5.5(a) $14.7(b) $ 9.1
Year 1996......................... $ 4.4 $ 7.3 $ 7.8(a) $13.4(b) $ 6.1
</TABLE>
(a) Primarily includes amounts previously written off which were credited
directly to this account when recovered and an allocation of the purchase
price for receivables purchased from Interexchange Carriers.
(b) Primarily includes amounts written off as uncollectible.
- -----------
<TABLE>
<CAPTION>
Additions
--------------------------------
(1) (2)
Balance at Charged Balance
Reserves Related to 1995 Beginning Charged to to Other at End
Business Restructuring of Period Expenses Accounts Deductions of Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1998......................... $ 5.3 $ -- $ -- $ 4.8 $ .5
Year 1997......................... $ 8.7 $ -- $ -- $ 3.4 $ 5.3
Year 1996......................... $15,2 $ -- $ -- $ 6.5 $ 8.7
</TABLE>
24
<PAGE>
- ------------------------------------------------------------------------------
CINCINNATI BELL INC.
and
THE FIFTH THIRD BANK
Rights Agent
RIGHTS AGREEMENT
Dated as of April 29, 1997
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. CERTAIN DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. APPOINTMENT OF RIGHTS AGENT.. . . . . . . . . . . . . . . . . . . 8
SECTION 3. ISSUE OF RIGHT CERTIFICATES.. . . . . . . . . . . . . . . . . . . 8
SECTION 4. FORM OF RIGHT CERTIFICATES. . . . . . . . . . . . . . . . . . . . 11
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.. . . . . . . . . . . . . . . . 13
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT
CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.. . 15
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. . . . . . . . 19
SECTION 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES. . . . . . . . . 19
SECTION 10. PREFERRED SHARES RECORD DATE. . . . . . . . . . . . . . . . . . . 22
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. . . . 37
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.. . . . . . . . . . . . . 43
SECTION 15. RIGHTS OF ACTION. . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 16. AGREEMENT OF RIGHTS HOLDERS.. . . . . . . . . . . . . . . . . . . 46
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER.. . . . . . . . 47
SECTION 18. CONCERNING THE RIGHTS AGENT.. . . . . . . . . . . . . . . . . . . 48
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.. . . . 49
SECTION 20. DUTIES OF RIGHTS AGENT. . . . . . . . . . . . . . . . . . . . . . 50
SECTION 21. CHANGE OF RIGHTS AGENT. . . . . . . . . . . . . . . . . . . . . . 54
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. . . . . . . . . . . . . . . . 55
SECTION 23. REDEMPTION AND TERMINATION. . . . . . . . . . . . . . . . . . . . 55
SECTION 24. EXCHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 25. NOTICE OF CERTAIN EVENTS. . . . . . . . . . . . . . . . . . . . . 58
SECTION 26. NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 27. SUPPLEMENTS AND AMENDMENTS. . . . . . . . . . . . . . . . . . . . 61
SECTION 28. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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<S> <C>
SECTION 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.. . . . 62
SECTION 30. BENEFIT OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . 61
SECTION 31. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 32. GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 33. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 34. DESCRIPTIVE HEADINGS. . . . . . . . . . . . . . . . . . . . . . . 64
EXHIBIT A FORM OF CERTIFICATE OF AMENDMENT TO
AMENDED ARTICLES OF INCORPORATION OF CINCINNATI BELL INC. . . . . A-I
EXHIBIT B FORM OF RIGHTS CERTIFICATE . . . . . . . . . . . . . . . . . . . . . B-I
EXHIBIT C SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES . . . . . . . . . . . C-I
</TABLE>
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RIGHTS AGREEMENT
Agreement, dated as of April 29, 1997, between Cincinnati Bell Inc., an
Ohio corporation (the "Corporation"), and The Fifth Third Bank, an Ohio
corporation (the "Rights Agent").
The Board of Directors of the Corporation has authorized and declared a
dividend of one Right on each Common Share (as hereinafter defined) of the
Corporation outstanding at the close of business on May 2, 1997 (the "Record
Date"), each right representing the right to purchase one one-hundredth
(1/100) of a Series A Preferred Share, without par value, of the Corporation
having the rights and preferences set forth in the Form of Certificate of
Amendment to Amended Articles of Incorporation of Cincinnati Bell Inc.
attached hereto as Exhibit A, upon the terms and subject to the conditions
herein set forth (the "Rights"), and has further authorized the issuance of
one Right with respect to each Common Share of the Corporation that shall
become outstanding between the Record Date and the earliest of the
Distribution Date, the Expiration Date and the Final Expiration Date (as such
terms are hereinafter defined), except as otherwise shall be provided herein.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as hereinafter defined)
who or which, together with all Affiliates and Associates (as such terms are
hereinafter defined) of such Person, shall be the Beneficial Owner (as
hereinafter defined) of 15% or more of the Common Shares of the Corporation
then outstanding, but shall not include an Exempt Person (as such term is
hereinafter defined); PROVIDED, HOWEVER, that if the Board of Directors of
the Corporation
<PAGE>
determines in good faith that a Person who would otherwise be an "Acquiring
Person" has become such inadvertently (including, without limitation, because
(i) such Person was unaware that it beneficially owned a percentage of Common
Shares that would otherwise cause such Person to be an "Acquiring Person" or
(ii) such Person was aware of the extent of its Beneficial Ownership of
Common Shares but had no actual knowledge of the consequences of such
Beneficial Ownership under this Rights Agreement) and without any intention
of changing or influencing control of the Corporation, and such Person, as
promptly as practicable after being advised of such determination divested or
divests himself, herself or itself of Beneficial Ownership of a sufficient
number of Common Shares so that such Person would no longer be an Acquiring
Person, then such Person shall not be deemed to be or to have become an
"Acquiring Person" for any purposes of this Agreement. Notwithstanding the
foregoing, (i) if a Person would be deemed an Acquiring Person upon the
adoption of this Agreement because of ownership of 15% or more but less than
20% of the Common Shares on such date, such Person will not be deemed an
Acquiring Person for any purposes of this Agreement unless and until such
Person acquires Beneficial Ownership of any additional Common Shares (other
than pursuant to a dividend or distribution paid or made by the Corporation
on the outstanding Common Shares in Common Shares or pursuant to a split or
subdivision of the outstanding Common Shares), after the adoption of this
Agreement unless upon the consummation of the acquisition of such additional
Common Shares such Person does not own 15% or more of the Common Shares then
outstanding, and (ii) no Person shall become an "Acquiring Person" as the
result of an acquisition of Common Shares by the Corporation which, by
reducing the number of shares outstanding, increases the proportionate number
of shares beneficially owned by such Perso to 15% or more
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of the Common Shares then outstanding, PROVIDED, HOWEVER, that if a Person
shall become the Beneficial Owner of 15% or more of the Common Shares then
outstanding by reason of such share acquisitions by the Corporation and
thereafter become the Beneficial Owner of any additional Common Shares (other
than pursuant to a dividend or distribution paid or made by the Corporation
on the outstanding Common Shares in Common Shares or pursuant to a split or
subdivision of the outstanding Common Shares), then such Person shall be
deemed to be an "Acquiring Person" unless upon the consummation of the
acquisition of such additional Common Shares such Person does not own 15% or
more of the Common Shares then outstanding. For all purposes of this
Agreement, any calculation of the number of Common Shares outstanding at any
particular time, including for purposes of determining the particular
percentage of such outstanding Common Shares of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the
date hereof.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
(the "General Rules") promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own", any securities:
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<PAGE>
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing), (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights,
rights (other than these Rights at any time prior to the occurrence of a
Triggering Event (as hereinafter defined) but thereafter including Rights
acquired from and after the Distribution Date (as hereinafter defined) other
than Rights acquired pursuant to Section 3(a), Section 11(i) and Section 22
hereof), warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange; or (B) the
right to vote or dispose of or "beneficial ownership" (as determined pursuant
to Rule 13d-3 of the General Rules) of (including pursuant to any agreement,
arrangement or understanding, whether or not in writing); PROVIDED, HOWEVER,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this clause (B) as a result of an agreement,
arrangement or understanding to vote such security if such agreement,
arrangement or understanding (1) arises solely from a revocable proxy given
in response to a public proxy or consent solicitation made pursuant to, and
in accordance with, the
4
<PAGE>
applicable rules and regulations of the Exchange Act, and (2) is not also
then reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as described
in the proviso to clause (B) of subparagraph (ii) of this paragraph (c)) or
disposing of any securities of the Corporation.
(e) "Business Day" shall mean any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
(f) "Close of business" on any given date shall mean 5:00 P.M., New
York City time, on such date; PROVIDED, HOWEVER, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(g) "Common Shares" when used with reference to the Corporation shall
mean the Common Shares, par value $1.00 per share, of the Corporation.
"Common Shares" when used with reference to any Person other than the
Corporation shall mean the capital stock of such Person with the greatest
voting power (or, if such Person is a subsidiary of another Person, of the
Person which ultimately controls such first-mentioned Person), or the equity
securities or other equity interest having power to control or direct the
management of such Person.
(h) "Common Share Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
5
<PAGE>
(i) "Current Per Share Market Price" shall have the meaning set forth
in Section 11(d)(i) hereof.
(j) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(k) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(l) "equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
(m) "Exchange Act" shall have the meaning set forth in Section 1(d)
hereof.
(n) "Exempt Person" shall mean the Corporation, any Subsidiary (as such
term is hereinafter defined) of the Corporation, in each case including,
without limitation, in its fiduciary capacity, or, any employee benefit plan
of the Corporation or of any Subsidiary of the Corporation, or any entity or
trustee holding Common Shares for or pursuant to the terms of any such plan
or for the purpose of funding any such plan or funding other employee
benefits for employees of the Corporation or of any Subsidiary of the
Corporation.
(o) "Expiration Date" shall have the meaning set forth in Section 7(a)
hereof.
(p) "Final Expiration Date" shall mean the close of business on May 2,
2007.
(q) "Person" shall mean any individual, firm, corporation, partnership
or other entity and shall include any successor (by merger or otherwise) of
such entity.
(r) "Preferred Shares" shall mean Series A Preferred Shares, without
par value, of the Corporation.
(s) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(t) "Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
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<PAGE>
(u) "Record Date" shall have the meaning set forth in the second
paragraph of this Agreement.
(v) "Redemption Price" shall have the meaning set forth in section
23(a) hereof.
(w) "Rights" shall have the meaning set forth in the second paragraph
of this Agreement.
(x) "Rights Certificates" shall have the meaning set forth in Section 3
hereof.
(y) "Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii) hereof.
(z) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth
in section 11(a)(iii) hereof.
(aa) "Section 13 Event" shall mean any event described in Clause (i),
(ii) or (iii) of Section 13(a) hereof.
(bb) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition shall include, without
limitation, a report filed pursuant to Section 13(d) promulgated under the
Exchange Act) by the Corporation or by an Acquiring Person that an Acquiring
Person has become such or such earlier date as a majority of the Board of
Directors shall become aware of the existence of an Acquiring Person.
(cc) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(dd) "Subsidiary" shall mean, with reference to any Person, any
corporation of which securities or other ownership interests having ordinary
voting power sufficient to elect a majority of the board of directors or
other persons performing similar functions are beneficially owned,
7
<PAGE>
directly or indirectly, by such Person, and any corporation or other entity
that is otherwise controlled by such Person.
(ee) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(ff) "Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
(gg) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Any determination required by the definitions contained in this Section
shall be made by the Board of Directors of the Corporation in their good
faith judgment, which determination shall be final and binding on the Rights
Agent.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Corporation hereby
appoints the Rights Agent to act as agent for the Corporation in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts
such appointment. The Corporation may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable.
Section 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier of (i)
the close of business on the tenth Business Day after the Shares Acquisition
Date, or (ii) the close of business on the tenth Business Day after the date
of the commencement of, or first public announcement of the intent to
commence, a tender or exchange offer by any Person (other than an Exempt
Person) if upon consummation thereof, any such Person other than an Exempt
Person would be the Beneficial Owner of 15% or more of the Common Shares then
outstanding (the earlier of such dates, including any such date which is
after the date of this Agreement and prior to the issuance of the Rights,
being herein referred to as the "Distribution Date"): (x) the Rights will be
evidenced (subject to the provisions of paragraph (b) of this Section 3) by
the certificates for
8
<PAGE>
Common Shares registered in the names of the holders thereof (which
certificates for Common Shares shall be deemed also to be Right Certificates)
and not by separate Right Certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying Common
Shares (including a transfer to the Corporation). As soon as practicable
after the Distribution Date, the Rights Agent will send, by first-class,
insured, postage prepaid mail, or, if requested by or on behalf of a holder,
shall otherwise deliver, to each record holder of Common Shares as of the
close of business on the Distribution Date, at the address of such holder
shown on the records of the Corporation, one or more Right Certificates, in
substantially the form of Exhibit B hereto (the "Right Certificates"),
evidencing one Right for each Common Share so held, subject to adjustment.
In the event that an adjustment in the number of Rights per Common Share has
been made pursuant to Section 11(p) hereof, at the time of distribution the
Corporation shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Right Certificates evidencing
only whole numbers of Rights are distributed and cash is paid in lieu of
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) As promptly as practicable following the Record Date, the
Corporation will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form attached hereto as Exhibit C (the "Summary
of Rights"), by first-class, postage prepaid mail, to each record holder of
Common Shares as of the close of business on the Record Date, at the address
of such holder shown on the records of the Corporation. With respect to
certificates for Common Shares outstanding as of the Record Date until the
Distribution Date, the Rights will be evidenced by such certificates for
Common Shares registered in the names of the holders thereof, and the
9
<PAGE>
registered holders of the Common Shares shall also be the registered holders
of the associated Rights. Until the Distribution Date (or the earlier
Expiration Date or Final Expiration Date), the transfer of any certificate
for Common Shares in respect of which Rights have been issued shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby.
(c) Rights shall be issued in respect of all Common Shares that shall
become outstanding after the Record Date but prior to the earliest of the
Distribution Date or the Expiration Date or the Final Expiration Date, except
as otherwise provided in Section 11(p). Certificates representing such
Common Shares (and certificates delivered pursuant to Sections 6 and 7(d))
shall also be deemed to be Right Certificates, and shall have impressed on,
printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between
Cincinnati Bell Inc. and The Fifth Third Bank, as Rights Agent,
dated as of April 29, 1997 as the same may be amended from time
to time (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file
at the principal executive offices of Cincinnati Bell Inc. and
available for inspection by the holder of this certificate.
Under certain circumstances set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. Cincinnati Bell Inc.
will mail to the holder of this certificate a copy of the Rights
Agreement without charge within five days after receipt of a
written request therefor. Under certain circumstances set forth
in the Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights
Agreement) and any subsequent holder of such Rights may become
null and void. In no event may the Rights be exercised after May
2, 2007.
With respect to such certificates containing the foregoing legend, until
the Distribution Date (or the earlier Expiration or Final Expiration Date),
the Rights associated with the Common Shares represented by such certificates
shall be evidenced by such certificates alone and
10
<PAGE>
registered holders of Common Shares shall also be the registered holders of
the associated Rights, and the transfer of any such certificate shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Corporation purchases or
otherwise acquires any Common Shares after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Shares shall be
deemed cancelled and retired so that the Corporation shall not be entitled to
exercise any Rights associated with the Common Shares which are no longer
outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. FORM OF RIGHT CERTIFICATES. (a) The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on
the reverse thereof) shall be substantially in the form set forth as Exhibit
B hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Corporation may
deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law or with
any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Rights may from time to time be listed, or
to conform to usage. Subject to the provisions of Section 11 and Section 22
hereof, the Right Certificates, whenever issued, shall be dated as of the
Distribution Date, and on their face shall entitle the holders thereof to
purchase such number of Preferred Shares as shall be set forth therein at the
price per share set forth therein (the "Purchase Price"), but in any event
the amount and type of securities purchasable upon the exercise of each Right
and the Purchase Price thereof shall be subject to adjustment as provided
herein.
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<PAGE>
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or such Associate or Affiliate) who becomes a transferee
after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or such Associate or Affiliate) who becomes a transferee
prior to or concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom the Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of Section
7(e) hereof, and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible and otherwise reasonably identifiable as such) the following
legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined in the Rights Agreement). Accordingly,
this Right Certificate and the Rights represented hereby may
become void in the circumstances specified in Section 7(e) of
such Agreement.
Section 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates
shall be executed on behalf of the Corporation by its Chairman of the Board,
President or any Vice President, either manually or by facsimile signature,
and have affixed thereto the Corporation's seal or a facsimile thereof which
shall be attested by the Secretary or an Assistant Secretary of the
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<PAGE>
Corporation, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall
not be valid for any purpose unless so countersigned. In case any officer
of the Corporation who shall have signed any of the Right Certificates shall
cease to be such officer of the Corporation before countersignature by the
Rights Agent and issuance and delivery by the Corporation, such Right
Certificates nevertheless may be countersigned by the Rights Agent, and
issued and delivered by the Corporation, with the same force and effect as
though the person who signed such Right Certificates had not ceased to be
such officer of the Corporation; and any Right Certificate may be signed on
behalf of the Corporation by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the
Corporation to sign such Right Certificate, although at the date of the
execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at one of its offices in the United States, books for registration
and transfer of the Right Certificates issued hereunder. Such books shall
show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates, the Right Certificate number and the date of each of the Right
Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
Subject to the provisions of Sections 4(b), 7(e) and 14 hereof, at any time
after the close of business on the Distribution Date, and at or prior to the
close of business on the earlier of the Expiration Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to
13
<PAGE>
purchase a like number of Preferred Shares (or, following a Triggering Event,
Common Shares, other securities or property, as the case may be) as the Right
Certificate or Right Certificates surrendered then entitled such holder (or
former holder in case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Right Certificate or Right Certificates to be transferred,
split up, combined or exchanged at the principal office of the Rights Agent.
Neither the Rights Agent nor the Corporation shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate and the Corporation shall have been provided with such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Corporation
shall reasonably request. Thereupon the Rights Agent shall, subject to
Sections 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to
the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Corporation may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
Subject to the provisions of Section 7(e) hereof, at any time after the
Distribution Date and prior to the close of business on the earlier of the
Redemption Date or the Final Expiration Date, upon receipt by the Corporation
and the Rights Agent of evidence reasonably satisfactory to them of the loss,
theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory
to them, and, at the
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<PAGE>
Corporation's request, reimbursement to the Corporation and the Rights Agent
of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the
Corporation will make and deliver a new Right Certificate of like tenor to
the Rights Agent for countersignature and delivery to the registered owner in
lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated
for such purposes, together with payment of the Purchase Price with respect
to each surrendered Right for the total number of shares (or other securities
or property, as the case may be) as to which such surrendered Rights are
exercisable, at or prior to the earlier of (i) the Final Expiration Date;
(ii) the time at which the Rights are redeemed as provided in Section 23
(such earlier time being herein referred to as the "Expiration Date"); or
(iii) the time at which such Rights are exchanged as provided in Section 24
hereof. At the close of business on the Final Expiration Date, the Rights
shall become null and void.
(b) The "Purchase Price" for each one one-hundredth of a Preferred
Share pursuant to the exercise of a Right shall initially be $125, shall be
subject to adjustment from time to time as provided in Sections 11 and 13
hereof and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) below.
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(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment, with respect to each Right (in cash, or by
certified bank check or money order payable to the order of the Corporation)
of the Purchase Price for the shares (or other securities or property, as the
case may be) to be purchased and an amount equal to any applicable transfer
tax, the Rights Agent shall thereupon promptly (i) (A) requisition from the
Corporation or any transfer agent of the Preferred Shares (or make available,
if the Rights Agent is the transfer agent) certificates for the number of
Preferred Shares to be purchased and the Corporation will comply and hereby
authorizes its transfer agent to comply with all such requests, or (B) if the
Corporation shall have elected to deposit the Preferred Shares issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from
the depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the
Corporation hereby directs the depositary agent to comply with such request,
(ii) when appropriate, requisition from the Corporation the amount of cash to
be paid in lieu of issuance of fractional shares in accordance with Section
14, (iii) promptly after receipt of such certificates or depositary receipts,
cause the same to be delivered to or upon the order of the registered holder
of such Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt thereof,
promptly deliver such cash to or upon the order of the registered holder of
such Right Certificate. In the event that the Corporation is obligated to
issue other securities (including Common Shares) of the Corporation, pay cash
and/or distribute other property pursuant to Section 11(a)
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hereof, the Corporation will make all arrangements necessary so that such
other securities, cash and/or property are available for distribution by (or
on behalf of) the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent and delivered to the registered holder of such
Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the occurrence of a Triggering Event, any Rights beneficially owned
by (a) an Acquiring Person, or an Associate or Affiliate of an Acquiring
Person, (b) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such,
or (c) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either
(i) a transfer (whether or not for consideration) from the Acquiring Person
(or from any such Associate or Affiliate) to holders of equity interests in
such Acquiring Person (or in any such Associate or Affiliate) or to any
Person with whom the Acquiring Person (or any such Associate or Affiliate)
has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (ii) a transfer which the Board of Directors otherwise
concludes in good faith (whether before or after such transfer) is part of a
plan, arrangement or understanding which has as a primary purpose or effect
the avoidance of this Section 7(e), and subsequent transferees of such
Persons, shall become null and void without any
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further action, and any holder of such Rights shall thereupon have no rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise, from and after the occurrence of a Triggering Event.
The Corporation shall use all reasonable efforts to insure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with,
but shall have no liability to any holder of Rights or other Person for the
inability to make any determinations with respect to an Acquiring Person or
their Affiliates, Associates or transferees hereunder. No Right Certificate
shall be issued pursuant to Section 3 or Section 6 hereof that represents
Rights that are or have become void pursuant to the provisions of this
paragraph, and any Right Certificate delivered to the Rights Agent that
represents Rights that are or have become void pursuant to the provisions of
this paragraph shall be cancelled. The Corporation will inform the Rights
Agent of any rights that are of have become void pursuant to the provisions
of this paragraph.
(f) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Corporation shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any
purported transfer or exercise as set forth in Section 6 or in this Section 7
unless the certificate contained in the form of assignment or election to
purchase set forth on the reverse side of the Right Certificate surrendered
for such transfer or exercise shall have been completed and signed by the
registered holder thereof and the Corporation shall have been provided with
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Corporation
shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if
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surrendered to the Corporation or to any of its agents, be delivered to the
Rights Agent for cancellation or in cancelled form, or, if surrendered to the
Rights Agent, shall be cancelled by it, and no Right Certificates shall be
issued in lieu thereof except as expressly permitted by any of the provisions
of this Rights Agreement. The Corporation shall deliver to the Rights Agent
for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Corporation
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Corporation, or shall, at the written
request of the Corporation, destroy such cancelled Right Certificates and
deliver a certificate of destruction thereof to the Corporation.
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES. The
Corporation covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued Preferred Shares (and, following
the occurrence of a Triggering Event, Common Shares and/or other securities)
or any authorized and issued Preferred Shares (and, following the occurrence
of a Triggering Event, Common Shares and/or other securities) held in its
treasury, the number of Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) that will be
sufficient (in accordance with the terms of this Agreement, including Section
11(a)(iii) hereof) to permit the exercise in full of all outstanding Rights.
So long as the Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) issuable upon the
exercise of Rights may be listed on any national securities exchange or
quotation system, the Corporation shall use its best efforts to cause, from
and after such time as the Rights become exercisable, all shares reserved for
such
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issuance to be listed on such exchange or quotation system upon official
notice of issuance in connection with such exercise.
The Corporation shall use its best efforts to (i) file, as soon as
practicable following the first occurrence of a Triggering Event, a
registration statement under the Securities Act of 1933 (the "Act"), with
respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective
as soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the date of the expiration of the Rights. The
Corporation will also take such action as may be appropriate under the blue
sky laws of the various states. The Corporation may temporarily suspend, for
a period of time not to exceed ninety (90) days, the exercisability of the
Rights in order to prepare and file such registration statement or in order
to comply with such blue sky laws. Upon any such suspension, the Corporation
shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at
such time as the suspension is no longer in effect. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be
exercisable in any jurisdiction, unless the requisite qualification in such
jurisdiction shall have been obtained and until a registration statement has
been declared effective.
The Corporation covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid and nonassessable
shares.
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The Corporation further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right
Certificates or of any Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) upon the exercise of
Rights. The Corporation shall not, however, be required to pay any transfer
tax which may be payable in respect of any transfer or delivery of Right
Certificates to a person other than, or the issuance or delivery of
certificates for the Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise, or to issue or deliver any certificates for
Preferred Shares (and, following the occurrence of a Triggering Event, Common
Shares and/or other securities) upon the exercise of any Rights until any
such tax shall have been paid (any such tax being payable by the holder of
such Right Certificate at the time of surrender) or until it has been
established to the Corporation's satisfaction that no such tax is due.
Section 10. PREFERRED SHARES RECORD DATE. Each person in whose name any
certificate for Preferred Shares (or Common Shares and/or other securities,
as the case may be) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the Preferred
Shares (or Common Shares and/or other securities, as the case may be)
represented thereby on, and such certificate shall be dated, the date upon
which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
PROVIDED, HOWEVER, that if the date of such surrender and payment is a date
upon which the Preferred Shares (or Common Shares and/or
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other securities, as the case may be) transfer books of the Corporation are
closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business
Day on which the Preferred Shares (or Common Shares and/or other securities,
as the case may be) transfer books of the Corporation are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a shareholder of the Corporation with
respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled
to receive any notice of any proceedings of the Corporation, except as
provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Purchase Price, the number and kind of shares covered by each
Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of shares or (D) issue
any shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e) hereof,
the Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable
on such date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive the
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<PAGE>
aggregate number and kind of shares of capital stock which, if such Right had
been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Corporation were open, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; PROVIDED HOWEVER,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of
the Corporation issuable upon exercise of one Right. If an event occurs
which would require an adjustment under both Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required by Section
11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person then, promptly following the first
occurrence of a Section 11(a)(ii) Event, proper provision shall be made so
that each holder of a Right (except as provided below and in Section 7(e)
hereof) shall hereafter have the right to receive, upon exercise thereof at
the then-current Purchase Price in accordance with the terms of this
Agreement, in lieu of a number of one one-hundredths of a Preferred Share,
such number of Common Shares of the Corporation as shall equal the result
obtained by (x) multiplying the then-current Purchase Price by the
then-number of one one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event, and (y) dividing that product (which, following such first occurrence
shall thereafter be referred to as the "Purchase Price" for each Right and
for all purposes of this Agreement) by 50% of the current per share market
price (determined pursuant to Section 11(d) hereof) of the Common Shares on
the date of such first occurrence (such number of shares, the "Adjustment
Shares"); PROVIDED, HOWEVER, that
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the Purchase Price and the number of Common Shares so receivable upon
exercise of a Right shall thereafter be subject to further adjustment as
appropriate in accordance with Section 11(f) hereof.
(iii) The Corporation may at its option (evidenced by a certified
resolution of the Corporation's Board of Directors delivered to the Rights
Agent) substitute for a Common Share issuable upon the exercise of Rights in
accordance with the foregoing subparagraph (ii) such number of fractions of
Preferred Shares having an aggregate current market value equal to the
current per share market price of a Common Share. In the event that the
number of Common Shares which are authorized by the Corporation's Articles of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii) of this
Section 11(a), the Corporation shall to the extent permitted by applicable
law and any material agreement then in effect to which the Corporation is a
party: (A) determine the excess of (1) the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value") over (2) the
Purchase Price (such excess, the "Spread"), and (B) with respect to each
Right, (other than Rights which have become void pursuant to Section 7(e))
make adequate provision to substitute for the Adjustment Shares, upon payment
of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase
Price, (3) Common Shares or other equity securities of the Corporation
(including, without limitation, preferred shares which the Board of Directors
of the Corporation has deemed to have the same value as Common Shares (such
preferred shares, "common share equivalents")), (4) debt securities of the
Corporation, (5) other assets, or (6) any combination of the foregoing,
having an aggregate value equal to the Current Value (less the
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<PAGE>
amount of any reduction in the Purchase Price), where such aggregate value
has been determined by the Board of Directors of the Corporation based upon
the advice of one or more investment or financial advisors selected by the
Board of Directors of the Corporation; proided, however, if the Corporation
shall not have made adequate provisions to deliver value pursuant to clause
(B) above within thirty (30) days following the first occurrence of a Section
11(a)(ii) Event (the "Section 11(a)(ii) Trigger Date"), then the Corporation
shall be obligated to deliver, to the extent permitted by applicable law and
any material agreement then in effect to which the Corporation is a party,
upon the surrender for exercise of a Right and without requiring payment of
the Purchase Price, Common Shares (to the extent available) and then, if
necessary, such number of Preferred Shares or fractions of Preferred Shares
(to the extent available) and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Board of Directors
of the Corporation shall determine in good faith that it is likely that
sufficient additional Common Shares could be authorized for issuance upon
exercise in full of the Rights, the thirty (30) day period set forth above
may be extended to the extent necessary, but not more than ninety (90) days
after the Section 11(a)(ii) Trigger Date, in order that the Corporation may
seek shareholder approval for the authorization of such additional shares
(such period, as it may be extended, the "Substitution Period"). To the
extent that the Corporation determines that some action need be taken
pursuant to the second and/or third sentences of this Section 11(a)(iii), the
Corporation (x) shall provide, subject to Section 7(e) hereof, that such
action shall apply uniformly to all outstanding Rights, and (y) may suspend
the exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares and/or to
decide the appropriate form of distribution to be made pursuant to such
second sentence and to determine
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the value thereof. In the event of any such suspension, the Corporation
shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended,as well as a public announcement at
such time as the suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of the Common Shares shall be the current per
share market price (as determined pursuant to Section 11(d) hereof) of the
Common Shares on the Section 11(a)(ii) Trigger Date and the value of any
"common share equivalents" shall be deemed to have the same value as the
Common Shares on such date.
(iv) In lieu of issuing Common Shares in accordance with
subparagraph (ii) of this Section 11(a), the Corporation may with respect to
each Right, if a majority of members of the Board of Directors determines
that such action is in the best interests of the Corporation and not contrary
to the interests of the holders of Rights, make adequate provision to
substitute for the Adjustment Shares, (x) upon the surrender for exercise of
a Right and payment of the applicable Purchase Price, (1) cash, (2) a
reduction in Purchase Price, (3) Common Shares, or other equity securities of
the Corporation (including without limitation common share equivalents), (4)
debt securities of the Corporation, (5) other assets or (6) any combination
of the foregoing having an aggregate value equal to the Current Value where
such aggregate value has been determined by the Board of Directors of the
Corporation based upon the advice of one or more investment or financial
advisers selected by the Board of Directors of the Corporation or (y) upon
the surrender for exercise of a Right and without requiring payment of the
Purchase Price, (1) cash, (2) Common Shares or other equity securities of the
Corporation (including, without limitation, common share equivalents), (3)
debt securities of the Corporation, (4) other assets or (5) any combination
of the foregoing, having an aggregate value equal to the Spread
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<PAGE>
where such aggregate value has been determined by the Board of Directors of
the Corporation based upon the advice of one or more investment or financial
advisors selected by the Board of Directors of the Corporation.
(b) In the event the Corporation shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such
record date) to subscribe for or purchase Preferred Shares (or shares having
the same rights, privileges and preferences as the Preferred Shares
("equivalent preferred shares")) or securities convertible into Preferred
Shares or equivalent preferred shares at a price per Preferred Share or
equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares)
less than the current per share market price of the Preferred Shares (as
defined in Section 11(d)) on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Preferred Shares outstanding on
such record date plus the number of Preferred Shares which the aggregate
offering price of the total number of Preferred Shares and/or equivalent
preferred shares so to be offered (and/or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
current market price, and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares and/or equivalent preferred shares to be offered
for subscription or purchase (or into which the convertible securities so to
be offered are initially convertible) PROVIDED, HOWEVER, that in no event
shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the
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Corporation issuable upon exercise of one Right. In case such subscription
price may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined in
good faith by the Board of Directors of the Corporation, whose determination
shall be described in a statement filed with the Rights Agent (and shall be
binding on the Rights Agent and the holders of the Rights). Preferred Shares
owned by or held for the account of the Corporation shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event
that such rights or warrants are not so issued, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) In the event the Corporation shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular periodic cash dividend out of
the earnings or the retained earnings of the Corporation or a dividend
payable in Preferred Shares) or subscription rights or warrants (excluding
those referred to in Section 11(b)), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the current per share market price of the Preferred Shares (as
defined in Section 11(d)) on such record date, less the fair market value (as
determined in good faith by the Board of Directors of the Corporation, whose
determination shall be described in a statement filed with the Rights Agent)
of the portion of the assets or evidences of indebtedness so to be
distributed or of such
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subscription rights or warrants applicable to one Preferred Share, and the
denominator of which shall be such current per share market price of the
Preferred Shares PROVIDED, HOWEVER, that in no event shall the consideration
to be paid upon the exercise of one Right be less than the aggregate par
value of the shares of capital stock of the Corporation to be issued upon
exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not
so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) and Section 11(a)(iv)
hereof, the "current per share market price" of the Preferred Shares on any
date shall be deemed to be the average of the daily closing prices per share
of such Preferred Shares for the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; PROVIDED, HOWEVER, that
in the event that the current per share market price of the Preferred Shares
is determined during a period following the announcement by the issuer of
such Preferred Shares of (A) a dividend or distribution on such Preferred
Shares payable in such Preferred Shares or securities convertible into such
Preferred Shares (other than the Rights), or (B) any subdivision, combination
or reclassification of such Preferred Shares, and prior to the expiration of
the requisite 30 Trading Day period after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "current
per share market price" shall be appropriately adjusted to take into account
ex-dividend trading. The closing price for each Trading Day shall be the last
sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case
as reported
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in the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or,
if the Preferred Shares are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Preferred Shares are listed or admitted to
trading or, if the Preferred Shares are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") or such other system then in use, or,
if on any such date the Preferred Shares are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the Preferred Shares selected
by the Board of Directors of the Corporation. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Preferred Shares are listed or admitted to trading is open for the
transaction of business or, if the Preferred Shares are not listed or
admitted to trading on any national securities exchange, a Business Day. If
the current per share market price of the Preferred Shares on any date cannot
be determined in the manner provided above, the "current per share market
price" of the Preferred Shares shall be conclusively deemed to be an amount
equal to one hundred (as such number may be appropriately adjusted for such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Shares occurring after the date of this Agreement) multiplied by
the current per share market price of the Common Shares. If neither the
Common Shares nor the Preferred Shares is publicly held or so listed or
traded, "current per share market price" shall
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mean the fair value per share as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all
purposes.
(ii) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) and Section 11(a)(iv)
hereof, the "current per share market price" of the Common Shares shall be
determined in the same manner set forth above for Preferred Shares in clause
(i) of this Section 11(d), PROVIDED, HOWEVER, for the purpose of any
computation in Section 11(a)(iii) and Section 11(a)(iv) hereof, the "current
per share market price" of the Common Shares on any date shall be deemed to
be the average of the daily closing prices per Common Share for ten
consecutive Trading Days immediately following such date and the reference to
the "30 Trading Day period" in Section 11(d)(i)(B) shall be the "ten Trading
Day period."
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in such Purchase Price; PROVIDED,
HOWEVER, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a Common Share or
other share or one-ten-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three years from the date of the transaction which requires such adjustment
or (ii) the Expiration Date.
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(f) If as a result of an adjustment made pursuant to Section 11 or
Section 13 hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right and the Purchase Price thereof shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Section 11(a),
(b), (c), (e), (g), (h), (i), (j), (k) and (m) and the provisions of Sections
7, 9, 10, 13 and 14 hereof with respect to the Preferred Shares shall apply
on like terms to any such other shares.
(g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Preferred Shares
purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.
(h) Unless the Corporation shall have exercised its election as
provided in Section 11(i), below, upon each adjustment of the Purchase Price
as a result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of one one-hundredths of a Preferred Share (calculated to the
nearest one-millionth) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to such
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
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(i) In lieu of the adjustment in the number of one
one-hundredths of a Preferred Share purchasable upon the exercise of a Right,
the Corporation instead may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights. Each of the Rights
outstanding after such adjustment of the number of Rights shall be
exercisable for the number of shares or fraction of a Preferred Share for
which a Right was exercisable immediately prior to such adjustment. Each
Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Corporation shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if Right Certificates
have been issued, shall be at least 10 days later than the date of such
public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the
Corporation shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights
to which such holders shall be entitled as a result of such adjustment, or,
at the option of the Corporation, shall cause to be distributed to such
holders of record in substitution and replacement for the Right Certificates
held by such holders prior to the date of adjustment, and upon surrender
thereof, if required by the Corporation, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be
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issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Corporation, the adjusted Purchase Price) and
shall be registered in the names of the holders of record of Right
Certificates on the record date specified in such public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of Preferred Shares issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express
the Purchase Price per share and the number of Preferred Shares which were
expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Preferred Shares
issuable upon exercise of the Rights, the Corporation shall take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Corporation may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such
record date the Preferred Shares and other capital stock or securities of the
Corporation, if any, issuable upon such exercise over and above the Preferred
Shares and other capital stock or securities of the Corporation, if any,
issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; PROVIDED, HOWEVER, that the Corporation shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's
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right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price,
in addition to those adjustments expressly required by this Section 11, as
and to the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any of the Preferred Shares at less than
the current market price, issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, stock dividends or issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Corporation to holders
of its Preferred Shares shall not be taxable to such shareholders.
(n) The Corporation covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with, (ii) merge with or into,
or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in
one or more transactions, assets or earning power aggregating more than 50%
of the assets or earning power of the Corporation and its Subsidiaries (taken
as a whole) to, any other Person if at the time of or immediately after such
consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights.
(o) The Corporation covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 27 hereof,
take (or permit any Subsidiary to take)
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any action if at the time such action is taken it is reasonably foreseeable
that such action will diminish substantially or otherwise eliminate the
benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Corporation shall at any time after the date of this Agreement
and prior to the Distribution Date (i) pay a dividend on the outstanding
Common Shares payable in Common Shares, (ii) subdivide the outstanding Common
Shares, (iii) combine the outstanding Common Shares into a smaller number of
shares, or (iv) issue any shares of its capital stock in a reclassification
of the outstanding Common Shares, the number of Rights associated with each
Common Share then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so that the number
of Rights thereafter associated with each Common Share following any such
event (including other Common Shares issued after the date of such event, but
prior to the Distribution Date) shall equal the result obtained by
multiplying the number of Rights associated with each Common Share
immediately prior to such event by a fraction the numerator of which shall be
the total number of Common Shares outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total
number of Common Shares outstanding immediately following the occurrence of
such event.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Corporation shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Preferred Shares and the Common Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 26 hereof.
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Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER. (a) In the event that, following the Distribution Date,
directly or indirectly, (i) the Corporation shall consolidate with, or merge
with and into, any other Person, and the Corporation shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) any
Person shall consolidate with the Corporation, or merge with and into the
Corporation, and the Corporation shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the Common Shares of the Corporation
shall be changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or (iii) the Corporation shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Corporation
and its Subsidiaries (taken as a whole and calculated on the basis of the
Corporation's most recent regularly prepared financial statements) to any
Person or Persons (other than the Corporation or any Subsidiary of the
Corporation), then, and in each such case, proper provision shall be made so
that (1) each holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have the right to receive, upon the exercise thereof at the
then-current Purchase Price in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid, non-assessable and
freely tradable Common Shares of the Principal Party (as hereinafter
defined), not subject to any rights of first refusal or similar rights, as
shall be equal to the result obtained by (x) multiplying the then-current
Purchase Price by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable (or, if such Right is not currently
exercisable for a number of Preferred Shares, the number of such fractional
shares for which it
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was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event and dividing that product by (y) 50% of the current per share
market price of the Common Shares of such Principal Party (determined
pursuant to Section 11(d)(ii) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; PROVIDED that the Purchase Price and
the number of Common Shares of such Principal Party issuable upon exercise of
each Right shall be further adjusted as provided in Section 11(f) of this
Agreement to reflect any events occurring in respect of such Principal Party
after the date of such consolidation, merger, sale or transfer; (2) such
Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and
duties of the Corporation pursuant to this Agreement; (3) the term
"Corporation" shall thereafter be deemed to refer to such Principal Party, it
being specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal Party following the first occurrence of an event
set forth in Section 13(a) hereof; (4) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number
of its Common Shares in accordance with Section 9) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to its
Common Shares thereafter deliverable upon the exercise of the Rights;
PROVIDED that, upon the subsequent occurrence of any consolidation, merger,
sale or transfer of assets or other extraordinary transaction in respect of
such Principal Party, each holder of a Right shall thereupon be entitled to
receive, upon exercise of a Right and payment of the Purchase Price as
provided in this Section 13(a), such cash, shares, rights, warrants and other
property which such holder would have been entitled to receive had such
holder, at the time of such transaction, owned the Common Stock of the
Principal Party
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receivable upon the exercise of a Right pursuant to this Section 13(a), and
such Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property; and (5) the provisions of
Section 11(a)(ii) hereof shall be of no effect following the first occurrence
of any event set forth in this Section 13(a).
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (i) or
(ii) of the first sentence of Section 13(a) hereof: (A) the Person that is
the issuer of the securities into which the Common Shares are converted in
such merger or consolidation, or, if there is more than one such issuer, the
issuer of the shares of Common Stock which has the greatest aggregate market
value of shares outstanding, or (B) if no securities are so issued, (x) the
Person that is the other party to the merger, if such Person survives said
merger, or, if there is more than one such Person, the Person the shares of
Common Stock of which have the greatest aggregate market value of shares
outstanding or (y) if the Person that is the other party to the merger does
not survive the merger, the Person that does survive the merger (including
the Corporation if it survives) or (z) the Person resulting from the
consolidation; and
(ii) in the case of any transaction described in (iii) of
the first sentence in Section 13(a), the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions, or, if such Person that is a party to such
transaction or transactions receives the same portion of the assets or
earning power so transferred or if the Person receiving the greatest portion
of the assets or earning power cannot be
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determined, whichever of such Persons as is the issuer of Common Stock having
the greatest aggregate market value of shares outstanding; PROVIDED, HOWEVER,
that in any case described in the foregoing clauses (b)(i) and (b)(ii), (1)
if the Common Shares of such Person are not at such time and have not been
continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of
the Common Shares having the greatest aggregate market value or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person,
the rules set forth in clauses (1) and (2) above shall apply to each of the
owners having an interest in the venture as if the Person owned by the joint
venture was a Subsidiary of both or all of such joint venturers, and the
Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
(c) The Corporation shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have sufficient
Common Shares authorized to permit the full exercise of the Rights and prior
thereto the Corporation and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the
terms set forth in paragraphs (a) and (b) of this Section 13 and that such
consolidation, merger, sale or transfer of assets shall not result in a
default by the Principal Party under this Agreement as the
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same shall have been assumed by the Principal Party pursuant to paragraphs
(a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets
mentioned in paragraph (a) of this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon exercise of
the Rights on an appropriate form, and will use its best efforts to cause
such registration statement to (A) become effective as soon as practicable
after such filing and (B) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) use its best efforts, if the Common Stock of the Principal
Party shall be listed or admitted to trading on the New York Stock Exchange
or on another national securities exchange to list or admit to trading (or
continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Stock of the Principal Party shall not be listed
or admitted to trading on the New York Stock Exchange or a national
securities exchange, to cause the Rights and the securities receivable upon
exercise of the Rights to be reported by such other system then in use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Stock of the Principal Party subject to
purchase upon exercise of outstanding Rights.
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(d) In case the Principal party has provision in any of its authorized
securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence
of, the consummation of a transaction referred to in this Section 13, shares
of Common Stock of such Principal Party at less than the then current market
price per share thereof (determined pursuant to Section 11(d) hereof) or
securities exercisable for, or convertible into, Common Stock of such
Principal Party at less than such then current market price, or (ii)
providing for any special payment, tax or similar provision in connection
with the issuance of the Common Stock of such Principal Party pursuant to the
provisions of Section 13, then, in such event, the Corporation hereby agrees
with each holder of Rights that it shall not consummate any such transaction
unless prior thereto the Corporation and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
that the provision in question of such Principal Party shall have been
cancelled, waived or amended, or that the authorized securities shall be
redeemed, so that the applicable provision will have no effect in connection
with, or as a consequence of, the consummation of the proposed transaction.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event a
Section 13 Event shall occur at any time after the occurrence of a Section
11(a)(ii) Event, the Rights which have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a).
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
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(a) The Corporation shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or
to distribute Right Certificates which evidence fractional Rights. In lieu
of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for
any Trading Day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by NASDAQ or such other similar
system then in use or, if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Corporation. If on any such date
no such market maker is making a market in the Rights, the
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fair value of the Rights on such date as determined in good faith by the
Board of Directors of the Corporation shall be used.
(b) The Corporation shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other
than fractions which are integral multiples of one one-hundredth of a
Preferred Share). Fractions of Preferred Shares in integral multiples of one
one-hundredth of a share may, at the election of the Corporation, be
evidenced by depositary receipts, pursuant to an appropriate agreement
between the Corporation and a depositary selected by it, provided that such
agreement shall provide that the holders of such depositary receipts shall
have all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Corporation shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of a
Preferred Share. For purposes of this Section 14(b), the current market
value of a Preferred Share shall be the closing price of a Preferred Share
(as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Corporation
shall not be required to issue fractions of Common Shares upon exercise of
the Rights or to distribute certificates which evidence fractional Common
Shares. In lieu of fractional Common Shares, the Corporation shall pay to
the registered holders of Right Certificates at the time such Rights are
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exercised as herein provided an amount in cash equal to the same fraction of
the current market value of one Common Share. For purposes of this Section
14(c), the current market value of one Common Share shall be the closing
price of one Common Share (as determined pursuant to of Section 11(d)(ii)
hereof) for the Trading Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares
upon exercise of a Right, except as permitted by this Section 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior
to the Distribution Date, of any Common Shares), may, in his own behalf and
for his own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Corporation to enforce, or otherwise act in respect
of, his right to exercise the Rights evidenced by such Right Certificate in
the manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it
is specifically acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Agreement and will be entitled
to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement.
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Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Corporation and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution
Date, the associated Common Shares certificate) is registered as the absolute
owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Right Certificates or the associated
Common Shares certificate made by anyone other than the Corporation or the
Rights Agent) for all purposes whatsoever, and neither the Corporation nor
the Rights Agent shall be affected by any notice to the contrary.
(d) notwithstanding anything in this Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any liability to any
holder of a Right or other Person as a result of its inability to perform any
of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or
otherwise restraining performance of such obligation; provided,
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however, the Corporation must use its best efforts to have any such order,
decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or
any other securities of the Corporation which may at any time be issuable on
the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of
any Right Certificate, as such, any of the rights of a shareholder of the
Corporation or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders (except as provided in Section 25
hereof), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT. The Corporation agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Corporation also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability or expense incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by
the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. This
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indemnification shall survive the expiration or termination of the Rights or
this Rights Agreement.
The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Right Certificate
or certificate for Preferred or Common Shares or for other securities of the
Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any corporation into which the Rights Agent or any successor Rights Agent may
be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust or stock transfer business of the Rights Agent or any successor Rights
Agent, or any Affiliate of the Rights Agent that undertakes the corporate
trust or stock transfer business of the Rights Agent as a result of transfer,
assignment or any other means, shall be the successor to the Rights Agent
under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent
under the provisions of Section 21 hereof. In case at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent
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and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, the
Rights Agent may countersign such Right Certificates either in its prior name
or in its changed name; and in all such cases such Right Certificates shall
have the full force provided in the Right Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Corporation), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation,
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the identity of any Acquiring Person and the determination of "current per
share market price") be proved or established by the Corporation prior to
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed
to be conclusively proved and established by a certificate signed by any one
of the Chairman of the Board, the President, a Vice President, the Treasurer
or the Secretary of the Corporation and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the
Corporation and any other Person only for its own gross negligence, bad faith
or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required
to verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except as to its
countersignature thereof); nor shall it be responsible for any breach by the
Corporation of any covenant or condition contained in this Agreement or in
any Right Certificate; nor shall it be responsible for any adjustment
required under the provisions of Sections 11 or 13 hereof or responsible for
the manner, method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment (except with
respect to the exercise of
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Rights evidenced by Right Certificates after actual notice of any such
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares or Common Shares to be purchased pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares or Common Shares
will, when so issued, be validly authorized and issued, fully paid and
nonassessable; nor will it be liable for any federal or state transfer taxes or
charges that may be due upon the issuance or transfer of any Preferred Share,
Common Share or Right Certificate.
(f) The Corporation agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the President, a Vice President, the Secretary
or the Treasurer of the Corporation, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with the
instructions of any such officer or for any delay in acting while waiting for
such instructions. When applying to any such officer for instructions, the
Rights Agent may set forth in writing (i) any proposed action or omission of the
Rights Agent with respect to its duties or obligations under this Agreement and
(ii) the date on or after which the Rights Agent proposes such action will be
taken or omitted. Such date shall not be less than three Business Days after
any such officer receives such application for instructions from the Rights
Agent, unless an earlier date is
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<PAGE>
mutually agreed to by the parties. Unless the Rights Agent has received
written instructions from the Corporation (including any such officer) with
respect to such proposed action or omission prior to such date (or, if
longer, in the case of a proposed action to be taken, prior to the Rights
Agent actually taking such action), the Rights Agent shall not be liable for
the actions or omissions set forth in such application, provided that such
action or omission does not violate any express provisions of this Rights
Agreement. The Rights Agent may execute and exercise any of the rights or
powers vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the Corporation or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Corporation or for any other
legal entity.
(i) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its rights
hereunder if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is not
reasonably assured to the Rights Agent.
(j) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response
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to clause 1 and/or 2 thereof, the Rights Agent shall not take any further
action with respect to such requested exercise of transfer without first
consulting with the Corporation.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Corporation and to each transfer
agent of the Common Shares and the Preferred Shares by registered or certified
mail, and to the holders of the Right Certificates by first-class mail. The
Corporation may remove the Rights Agent or any successor Rights Agent upon 30
days' notice in writing, mailed to the Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent of the Common Shares and the
Preferred Shares, by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Corporation shall
appoint a successor to the Rights Agent. If the Corporation shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Corporation), then the incumbent Rights Agent or the
registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Corporation or by such a court, shall be (a) a
corporation organized and doing business under the laws of the United States or
any state therein, in good standing, having a principal office in a state in the
United States, which is authorized under such laws to exercise corporate trust
or stock transfer powers and is subject to supervision or examination by federal
or state authority and
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which has at the time of its appointment as Rights Agent a combined capital
and surplus of at least $100 million or (b) an Affiliate of a corporation
described in clause (a) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any
such appointment the Corporation shall file notice thereof in writing with
the predecessor Rights Agent and each transfer agent of the Common Shares and
the Preferred Shares, and as soon as practicable thereafter mail a notice
thereof in writing to the registered holders of the Right Certificates (which
notice may be included in any regularly scheduled mailing to shareholders
whether such mailing is by fist-class mail or otherwise). Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of
the Rights Agent or the appointment of the successor Rights Agent, as the
case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price per share and/or the number or kind
or class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
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<PAGE>
Section 23. REDEMPTION AND TERMINATION. (a) The Board of Directors of the
Corporation may, at its option, at any time prior to the Shares Acquisition
Date, redeem all but not less than all of the then outstanding Rights at a
redemption price of $.01 per Right, as such amount may be appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as
the "Redemption Price").
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors
ordering the redemption of the Rights, the Corporation shall give notice of such
redemption to the Rights Agent and to the holders of the then outstanding Rights
by mailing such notice to all such holders at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. The failure to give notice or
any defect in notice shall not affect the validity of the redemption. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Corporation nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights at
any time in any manner other than that specifically set forth in this Section 23
and other than in connection with the repurchase of Common Shares prior to the
Distribution Date.
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Section 24. EXCHANGE. (a) The Board of Directors of the Corporation may,
at its option, at any time after any Person first becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have not become effective or that have become void
pursuant to the provisions of Section 7(e) hereof) for Common Shares at an
exchange ratio of one Common Share per Right, approximately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such amount per Right being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time (1) after any Person (other than
an Exempt Person), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of Common Shares aggregating 50% or more of the
Common Shares then outstanding. From and after the occurrence of a Section 13
Event, any Rights that theretofore have not been exchanged pursuant to this
Section 24(a) shall thereafter be exercisable only in accordance with Section 13
and may not be exchanged pursuant to this Section 24(a). The exchange of the
Rights by the Board of Directors may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole discretion
may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Corporation ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of Common
Shares equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Corporation shall promptly give public notice of any such
exchange; PROVIDED, HOWEVER, that the failure to give, or any defect in, such
notice shall not affect the
56
<PAGE>
validity of such exchange. The Corporation shall promptly mail a notice of
any such exchange to all of the holders of the Rights so exchanged at their
last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number
of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become
void pursuant to the provisions of Section 11(a)(ii) hereof) held by each
holder of Rights.
(c) The Corporation may at its option and in the event that there shall
not be sufficient Common Shares issued but not outstanding or authorized but
unissued to permit an exchange of Rights as contemplated in accordance with this
Section 24, the Corporation shall substitute to the extent of such
insufficiency, for each Common Share that would otherwise be issuable upon
exchange of a Right, a number of Preferred Shares or fraction thereof (or
equivalent preferred shares as such term is defined in Section 11(b)) such that
the current per share market price (determined pursuant to Section 11(d) hereof)
of one Preferred Share (or equivalent preferred share) multiplied by such number
or fraction is equal to the current per share market price of one Common Share
(determined pursuant to Section 11(d) hereof) as of the date of such exchange.
Section 25. NOTICE OF CERTAIN EVENTS. In case the Corporation shall
propose, at any time after the Distribution Date, (a) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of Preferred Shares (other than a regular
periodic cash dividend out of earnings or retained earnings of the
57
<PAGE>
Corporation) or (b) to offer to the holders of its Preferred Shares rights or
warrants to subscribe for or to purchase any additional Preferred Shares or
shares of stock of any class or any other securities, rights or options, or
(c) to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred
Shares), or (d) to effect any consolidation or merger into or with, or to
effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more
transactions, of more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to, any other Person, or
(e) to effect the liquidation, dissolution or winding up of the Corporation,
then, in each such case, the Corporation shall give to each holder of a Right
Certificate, to the extent feasible and in accordance with Section 26 hereof,
a notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (a) or (b) above at least 20 days prior to the
record date for determining holders of the Preferred Shares for purposes of
such action, and in the case of any such other action, at least 20 days prior
to the date of the taking of such proposed action or the date of participaton
therein by the holders of the Preferred Shares, whichever shall be the
earlier.
In case any Section 11(a)(ii) Event shall occur, then, in any such case,
(i) the Corporation shall as soon as practicable thereafter give to each holder
of a Right Certificate, to the extent feasible and in accordance with Section 26
hereof, a notice of the occurrence of such event,
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which shall specify the event and the consequences of the event to holders of
Rights under Section 11(a)(ii) hereof, and (ii) all references in the
preceding paragraph to Preferred Shares shall be deemed thereafter to refer
to Common Shares and/or, if appropriate, other securities.
Section 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Corporation shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Rights Agent) as follows:
Cincinnati Bell Inc.
201 East Fourth Street
Cincinnati, Ohio 45202
Attention: Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Corporation or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Corporation) as follows:
The Fifth Third Bank
Corporate Trust Operations
Mail Drop 1090F5
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Subject to the provisions of Sections 19 and 21, notices or demands authorized
by this Agreement to be given or made by the Corporation or the Rights Agent to
the holder of any Right Certificate shall be sufficiently given or made if sent
by first class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Corporation.
Section 27. SUPPLEMENTS AND AMENDMENTS. Except as otherwise provided in
this Section 27, for so long as the Rights are then redeemable, the Corporation
may in its sole and
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absolute discretion, and the Rights Agent shall if the Corporation so
directs, supplement or amend any provision of this Agreement in any respect
without the approval of any holders of the Rights. At any time when the
Rights are no longer redeemable, except as otherwise provided in this Section
27, the Corporation may, and the Rights Agent shall, if the Corporation so
directs, supplement or amend this Agreement without the approval of any
holders of Rights Certificates in order to (i) cure any ambiguity, (ii)
correct or supplement any provision contained herein which may be defective
or inconsistent with any other provisions herein, (iii) shorten or lengthen
any time period hereunder, or (iv) change or supplement the provisions
hereunder in any manner which the Corporation may deem necessary or
desirable; provided that no such supplement or amendment shall adversely
affect the interests of the holders of Rights as such (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no
such amendment may cause the Rights again to become redeemable or cause the
Agreement again to become amendable other than in accordance with this
sentence. Notwithstanding anything contained in this Agreement to the
contrary, no supplement or amendment shall be made which decreases the
Redemption Price. Upon the delivery of a certificate from an appropriate
officer of the Corporation which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights
Agent shall execute such supplement or amendment.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Corporation or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
(a) For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any
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particular time, including for purposes of determining the particular
percentage of such outstanding Common Shares of which any Person is the
Beneficial Owner, shall be made in accordance with the provisions of Rule
13d-3(d)(1)(i) of the General Rules. The Board of Directors of the
Corporation shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board, or the Corporation, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement, and (ii) make
all determinations deemed necessary or advisable for the administration of
this Agreement (including a determination to redeem or not redeem the Rights
or to amend the Agreement. All such actions, calculations, interpretations
and determinations (including, for purpose of clause (ii) below, all
omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (i) be final, conclusive and binding on the Corporation,
the Rights Agent, the holders of the Right Certificates and all other parties
and (ii) not subject the Board to any liability to the holders of the Right
Certificates.
(b) For purposes of this Agreement, any determination to be made by the
Board of Directors of the Corporation may be by a duly constituted committee
thereof if so authorized to act by the Board of Directors pursuant to the
Corporation's Regulations, and in such circumstances any reference to the Board
of Directors herein shall be deemed to include a reference to such committee.
Section 30. BENEFIT OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Corporation, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, registered holders of the Common
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Shares) any legal or equitable right, remedy or claim under this Agreement;
but this Agreement shall be for the sole and exclusive benefit of the
Corporation, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, registered holders of the
Common Shares).
Section 31. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 32. GOVERNING LAW. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Ohio and for all purposes shall be governed by and
construed in accordance with the laws of Ohio applicable to contracts made and
to be performed entirely within such State.
Section 33. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: CINCINNATI BELL INC.
/s/ William H. Zimmer /s/ John T. LaMacchia
By --------------------- -------------------------------------
William H. Zimmer John T. LaMacchia
Secretary President and Chief Executive Officer
Attest: THE FIFTH THIRD BANK
/s/ Dana S. Hushak
By -------------------- -------------------------------------
Dana S. Hushak
Name Vice President and Trust Officer
--------------------
Title
--------------------
63
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Exhibit A Form of Certificate of Amendment to Amended Articles of
Incorporation of Cincinnati Bell Inc.
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<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
BY THE
BOARD OF DIRECTORS
OF
CINCINNATI BELL INC.
The undersigned, Brian C. Henry, Executive Vice President and Chief
Financial Officer, and William H. Zimmer III, Secretary, of Cincinnati Bell
Inc., an Ohio corporation (the "Corporation"), DO HEREBY CERTIFY that for and on
behalf of the Corporation as follows:
The following resolution to amend the Corporation's Amended Articles of
Incorporation was adopted by the Board of Directors of the Corporation, pursuant
to Section 1701.70(B)(1) of the Ohio Revised Code, at a meeting of such Board of
Directors duly called and held on March 3, 1997, at which meeting a quorum was
present. Of the 4,000,000 authorized Voting Preferred Shares of the
Corporation, without par value (the "Voting Preferred Shares"), of which all are
unissued, the following resolution was adopted to increase the number of
authorized shares of a series of such Voting Preferred Shares (the "Series A
Preferred Shares") from 250,000 to 2,000,000 and to read as follows:
RESOLVED FURTHER, that the first paragraph of Article
Fourth, Section 9, of the Corporation's Amended Articles of
Incorporation be amended and restated to increase the number
of authorized shares of the series from 250,000 to 2,000,000
and to read as follows:
Of the 4,000,000 Voting Preferred Shares of the corporation,
2,000,000 shall constitute a series of Voting Preferred
Shares designated as Series A Preferred Shares (the "Series
A Preferred Shares") and have, subject and in addition to
the other provisions of this Article Fourth, the following
relative rights, preferences and limitations:
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 23rd day of
April, 1997.
/s/ Brian C. Henry
-----------------------------------
Brian C. Henry, Executive Vice President and Chief
Financial Officer
/s/ William H. Zimmer III
-----------------------------------
William H. Zimmer III, Secretary
<PAGE>
Exhibit B Form of Right Certificate
65
<PAGE>
EXHIBIT B
[FORM OF RIGHTS CERTIFICATE]
Certificate No. R- ___________________ ___________________Rights
NOT EXERCISABLE AFTER MAY 2, 2007 OR EARLIER IF REDEEMED BY THE COMPANY (AS
DEFINED HEREINAFTER). THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF
THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON
(AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERM IS DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE
AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.] (1)
Rights Certificate
CINCINNATI BELL INC.
This certifies that ______________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions
of the Shareholder Rights Plan, the terms of which are set forth in the
Rights Agreement dated as of April 29, 1997 (the "Rights Agreement"),
between Cincinnati Bell Inc., an Ohio corporation (the "Company"), and The
Fifth Third Bank (the "Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M. (Cincinnati, Ohio time) on May 2, 2007 at
the office or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one one-hundredth of a fully paid, nonassessable
Series A Preferred Share (the "Preferred Shares") of the Company, at a
purchase price of $125 per one one-hundredth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The
Purchase Price may be paid in cash or by certified bank check or money order
payable to the order of the Company. The number of Rights evidenced by this
Rights Certificate (and the number of shares which may be purchased upon
- --------------------
(1) The portion of the legend in brackets shall be inserted only if
applicable, shall be modified to apply to an Acquiring Person, as applicable,
and shall replace the preceding sentence.
B-i
<PAGE>
exercise thereof) set forth above, and the Purchase Price per share set forth
above, are the number and Purchase Price as of May 2, 1997, based on the
Preferred Shares as constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person, or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate
or Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of any such Person, such
Rights shall become null and void and no holder hereof shall have any right
with respect to such Rights from and after the occurrence of such Section
11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of Preferred Shares or other securities which may be
purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events, including Triggering Events (as such term is defined in the
Rights Agreement).
This Rights Certificate is subject to all of the terms, provisions,
and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description
of the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Rights
Certificates, which limitations of rights include the temporary suspension of
the exercisability of such Rights under the specific circumstances set forth
in the Rights Agreement. Copies of the Rights Agreement are available upon
written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent
designated for such purpose, may be exchanged for another Rights Certificate
or Rights Certificates of like tenor and date evidencing Rights entitling the
holder to purchase a like aggregate number of Preferred Shares as the Rights
evidenced by the Rights Certificate or Rights Certificates surrendered shall
have entitled such holder to purchase. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender
hereof another Rights Certificate or Rights Certificates for the number of
whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at
a redemption price of $.01 per Right at any time prior to the Shares
Acquisition Date.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of
Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Company or any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any
B-ii
<PAGE>
corporate action, or, to receive notice of meetings or other actions
affecting shareholders except as provided in the Rights Agreement), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by this Rights Certificate shall have been exercised as
provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS, the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of _________________, ________.
ATTEST: CINCINNATI BELL INC.
_________________________ By:____________________________
Secretary
Title:___________________________
Countersigned:
THE FIFTH THIRD BANK, Rights Agent
By:_____________________________
Authorized Signature
B-iii
<PAGE>
[FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Rights Certificate.)
FOR VALUE RECEIVED _________________________________ hereby sells, assigns and
transfers unto ____________________________________________________________
(Please print name and address of transferee)
___________________________________________________________________________
___________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________, _______
_________________________________________
Signature
Signature Guaranteed:_________________________________
B-iv
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Person (as such
terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this
Rights Certificate from any Person who is, was or subsequently became an
Acquiring Person or an Affiliate or Associate of any such Person.
Dated: _________________, ______ _________________________________
Signature
Signature Guaranteed:_________________________________
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-v
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by Rights
Certificate.)
To: CINCINNATI BELL INC.
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Rights Certificate to purchase
the Preferred Shares issuable upon the exercise of the Rights (or such other
securities or property of the Company or of any other person which may be
issuable upon the exercise of the Rights) and requests that certificates for
such shares be issued in the name of and delivered to:
Please insert social security or other identifying number:_____________________
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security or other identifying number: _____________________
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: _____________________, _________
____________________________
Signature
Signature Guaranteed:________________________
B-vi
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an
Acquiring Person, or an Affiliate or Associate of any such Person (as such
terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ]did [ ] did not acquire the Rights evidenced by this
Rights Certificate from any Person who is, was or became an Acquiring Person,
or an Affiliate or Associate of any such Person.
Dated: __________________, ________
____________________________________
Signature
Signature Guaranteed: ____________________________________
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any
change whatsoever.
B-vii
<PAGE>
Exhibit C Summary of Rights to Purchase Preferred Shares
66
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES
On March 3, 1997, the Board of Directors of Cincinnati Bell Inc. (the
"Company") declared a dividend distribution of one right ("Right") on each of
the Company's outstanding Common Shares, par value $1.00 per share (the "Common
Shares"), to holders of record of the Common Shares at the close of business on
May 2, 1997 (the "Record Date"). One Right also will be distributed for each
Common Share issued after May 2, 1997, until the Distribution Date (which is
described in the next paragraph). Each Right entitles the registered holder to
purchase from the Company a unit ("Unit") consisting of one one-hundredth of a
Series A Preferred Share of the Company (the "Preferred Shares") at a purchase
price of $125 per Unit, subject to adjustment (the "Purchase Price"). The
description and terms of the Rights are set forth in a Rights Agreement dated as
of April 29, 1997 (the "Rights Agreement") between the Company and The Fifth
Third Bank, as Rights Agent.
Initially, the Rights will be attached to all Common Share
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the Common
Shares and a Distribution Date will occur upon the earliest of (i) 10
business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days following the commencement
of a tender offer or exchange offer that would if consummated result in a
person or group beneficially owning 15% or more of the outstanding Common
Shares.
Until the Distribution Date (i) the Rights will be evidenced by the
Common Share certificates and will be transferred with and only with such
Common Share certificates, (ii) new Common Share certificates issued after
May 2, 1997 will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Shares outstanding will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on May 2, 2007, unless earlier redeemed by
the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and, thereafter, the separate
Rights Certificates alone will represent the Rights. Except for certain
issuances in connection with outstanding options and convertible securities
and as otherwise determined by the Board of Directors, only Common Shares
issued prior to the Distribution Date will be issued with Rights.
If a person becomes the beneficial owner of 15% or more of the Common
Shares
C-i
<PAGE>
("Flip-In Event"), each holder of a Right will have the right to receive,
upon exercise, Common Shares having a value equal to two times the exercise
price (Purchase Price) of the Right. Moreover, the Rights will not be
exercisable until the Rights are no longer redeemable as described below. If
the Company does not have enough authorized Common Shares to satisfy the
exercise of the Rights, the Company will be required to substitute value in the
form of cash, property, debt or equity securities, or a reduction of the
Purchase Price, or any combination of the foregoing, in an aggregate amount
equal to the value of the Common Shares which would otherwise be issuable. In
addition, the Company may provide that, in lieu of payment of any exercise price
by holders of the Rights, the Company will issue to such holders securities
equal to the value of the spread between the exercise price and the value of the
Common Shares. The Acquiring Person would not be permitted to exercise any
Rights and any Rights held by such person (or certain transferees of such
person) will be null and void and non-transferable.
For example, at an exercise price of $125 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following a
Flip-In Event would entitle its holder to purchase $250 worth of Common
Shares (or other consideration, as noted above) for $125. Assuming that the
Common Shares had a per share value of $25 at such time, the holder of each
valid Right would be entitled to purchase ten Common Shares for $125.
Alternatively, at the discretion of the Board of Directors, each Right
following a Flip-In Event, without payment of the exercise price, would
entitle its holder to Common Shares (or other consideration, as noted above)
with a value of $125.
If, following the Distribution Date, the Company is acquired in
certain specified mergers or other business combinations (I.E., the Company
does not survive or its Common Shares are changed or exchanged), or 50% or
more of its assets or earning power (on a consolidated basis) is sold or
transferred in one transaction or a series of related transactions
("Flip-Over Events"), each Right becomes a Right to acquire common stock of
the other party to the transaction (or its ultimate parent in certain
circumstances) having a value equal to two times the Purchase Price. As an
enforcement mechanism, the Rights Agreement prohibits the Company from
entering into any such transaction unless the other party agrees to comply
with the provisions of the Rights.
The Purchase Price payable and the number of Units of Preferred
Shares or other securities or property issuable upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) if holders of the Preferred
Shares are granted certain rights or warrants to subscribe for Preferred
Shares or convertible securities at less than the current market price of the
Preferred Shares, or (iii) upon the distribution to holders of the Preferred
Shares of evidences of indebtedness or assets (excluding regular quarterly
cash dividends) or of subscription rights or warrants (other than those
referred to above).
With certain exceptions, no adjustment in the Purchase Price will
be required until cumulative adjustments amount to at least 1% of the
Purchase Price. No fractional Units will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the
C-ii
<PAGE>
Preferred Shares on the last trading date prior to the date of exercise.
In general, the Company may redeem the Rights in whole, but not in
part, at a price of $0.01 per Right, at any time prior to a Flip-In Event.
Immediately upon the action of the Board of Directors ordering redemption of
the Rights, the Rights will terminate and the only right of the holders of
Rights will be to receive the $0.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a shareholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to shareholders or to the Company, shareholders may,
depending upon the circumstances, recognize taxable income in the event that
the Rights become exercisable for shares (or other consideration) of the
Company or for common stock of the acquiring company as set forth above.
As long as the Rights are redeemable, the Company may amend any
provision of the Rights Agreement in any respect without the approval of the
holders of the Rights. At any time when the Rights are no longer redeemable,
the Company may amend the Rights Agreement without the approval of the
holders of the Rights in order to cure any ambiguity, correct or supplement
any provision which may be defective or inconsistent with any other
provision, shorten or lengthen any time period, or change or supplement the
provisions in any manner in which the Company may deem necessary or
desirable; provided that no such supplement or amendment shall adversely
affect the interests of the holders of the Rights, and no such amendment may
cause the Rights again to become redeemable or cause the Rights Agreement
again to become amendable other than in accordance with the terms of the
original Rights Agreement.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A
dated May 1, 1997. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by reference.
C-iii
<PAGE>
PLAN OF REORGANIZATION AND DISTRIBUTION AGREEMENT
THIS PLAN OF REORGANIZATION AND DISTRIBUTION AGREEMENT (the
"Agreement") is made and entered into this 20th day of July, 1998, by and
between CINCINNATI BELL INC., an Ohio corporation ("CBI"), and CONVERGYS
CORPORATION, an Ohio corporation ("CONVERGYS").
PRELIMINARY STATEMENT
CBI is the sole shareholder of CONVERGYS. The Board of Directors of CBI
has determined that it is in the best interest of CBI and its shareholders to
separate the billing and information services segment and the customer
management solutions segment of its business from the telephone operations
segment of its business. It is the intention of CBI to contribute to CONVERGYS
all of the outstanding shares of Cincinnati Bell Information Systems Inc.
("CBIS"), a wholly owned subsidiary of CBI, and of MATRIXX Marketing Inc.
("MATRIXX"), a wholly owned subsidiary of CBI, and certain assets and to assign
certain liabilities, and to make other arrangements to establish CONVERGYS as a
separate enterprise for the purpose of engaging in the billing and information
services and the customer management solutions businesses (the "Business").
CBI's Board of Directors has determined that CBI will cause CONVERGYS
to make an initial public offering (the "IPO") of up to 19.9% of its outstanding
common shares, without par value (the "Common Shares"), and, subsequent to the
IPO and subject to certain conditions, distribute to CBI's shareholders all of
the outstanding shares of CONVERGYS owned by CBI through a spinoff (the
"Distribution"). The IPO and the Distribution are together referred to herein as
the "Separation" and will result in the total and complete separation of the
Business and CONVERGYS from CBI at the time of the Distribution (the
"Distribution Date"); provided, however, that CONVERGYS may continue to provide
services to CBI and CBI may provide services to CONVERGYS pursuant to a services
agreement, after the Distribution Date.
The parties hereto have determined that it is necessary and
desirable to set forth in this Agreement and in other agreements,
instruments, understandings and assignments entered into in
<PAGE>
connection with the transactions contemplated hereby, including, without
limitation, a Services Agreement (the "Services Agreement"), a Tax Separation
and Allocation Agreement (the "Tax Allocation Agreement") and an Employee
Benefits Agreement ("the Employee Benefits Agreement") (collectively, the
"Ancillary Agreements"), all such agreements being between CONVERGYS and CBI,
the principal corporate transactions determined by CBI and CONVERGYS to be
appropriate to effect the Separation and that will govern certain other
matters between the date hereof and the Distribution and following the
Distribution.
Simultaneously with the execution of this Agreement, CBI and CONVERGYS
are entering into the Ancillary Agreements.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements contained herein,
other good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledged, the parties do hereby agree as follows:
ARTICLE 1
THE TRANSFER
1.1 TRANSFER OF ASSETS. On the terms and subject to the conditions set
forth in this Agreement, and the other agreements and instruments of conveyance
contemplated hereunder, simultaneously with the execution and delivery of this
Agreement, CBI has heretofore transferred, assigned and conveyed to CONVERGYS
all of CBI's right, title, and interest in the CONVERGYS Assets, and CONVERGYS
hereby acknowledges its receipt of the CONVERGYS Assets. CONVERGYS Assets means
any:
(a) All of the issued and outstanding shares of CBIS and MATRIXX;
(b) Any and all assets that are expressly contemplated by this
Agreement or any other agreement or document contemplated by this Agreement (or
any Schedule hereto or thereto) as assets to be transferred to CONVERGYS; and
(c) All assets reflected in the CONVERGYS balance sheet dated March
31, 1998 as assets of CONVERGYS, subject to any dispositions of such assets
subsequent to the date of such balance sheet.
2
<PAGE>
1.2 ASSUMPTION OF LIABILITIES. On the terms and subject to the
conditions set forth in this Agreement and the other agreements and instruments
of conveyance contemplated hereunder, simultaneous with the execution and
delivery of this Agreement, CONVERGYS hereby assumes and agrees faithfully to
perform and fulfill all of the CONVERGYS Liabilities, in accordance with their
respective terms. CONVERGYS shall be responsible for all the CONVERGYS
Liabilities, regardless of when or where such liabilities arose or arise, or
whether the facts on which they are based occurred prior to or subsequent to the
date hereof, regardless of where or against whom such liabilities are asserted
or determined or whether asserted or determined prior to the date hereof.
CONVERGYS Liabilities means:
(a) Any and all liabilities set forth on Schedule 1.2 attached
hereto, including those liabilities reflecting any inter-company indebtedness;
(b) Any and all liabilities that are expressly contemplated by
this Agreement or any other agreement or document contemplated by this
Agreement or otherwise (or the Schedules hereto or thereto) as liabilities to
be assumed by CONVERGYS; and
(c) All liabilities reflected as liabilities or obligations of
CONVERGYS in its balance sheet dated March 31, 1998, subject to any discharge of
such liabilities subsequent to the date of such balance sheet.
1.3 FURTHER ASSURANCES. In the event that at any time or from time to
time (whether prior to or after the Distribution Date), any party hereto shall
receive or otherwise possess any asset that is allocated to any other Person
pursuant to this Agreement or any Ancillary Agreement, such party shall promptly
transfer, or cause to be transferred, such asset to the Person so entitled
thereto. Prior to any such transfer, the Person receiving such asset shall hold
such asset in trust for any such other Person.
1.4 DOCUMENTS RELATING TO TRANSFER OF REAL PROPERTY INTERESTS AND
TANGIBLE PROPERTY LOCATED THEREON.
(a) In furtherance of the assignment, transfer and conveyance of
the Assets and the assumption of Liabilities set forth in Sections 1.1 and 1.2,
simultaneously with the execution and delivery hereof or as promptly as
practicable thereafter, each of CBI and
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CONVERGYS, or their applicable subsidiaries, is executing and delivering or will
execute and deliver deeds, lease assignments and assumptions, leases or
subleases to be mutually agreed to by CBI and CONVERGYS, with such changes as
may be necessary to conform to any laws, regulations or usage applicable in the
jurisdiction in which the relevant real property is located. Set forth in or
referenced by Schedule 1.4 attached hereto is, among other things, a summary of
each property or interest therein to be conveyed, assigned, leased or subleased,
the applicable entities relevant to each property and their capacities with
respect to each property (e.g., as transferor, transferee, assignor, assignee,
lessor, lessee, sub-lessor, or sub-lessee), and any terms applicable to each
property that are not specified in the forms of deed, lease assignment and
assumption, lease or sublease (e.g., rent and term).
(b) Except as otherwise expressly provided in this Agreement, all
tenant improvements, fixtures, furniture, office equipment, servers, private
branch exchanges, and other tangible property [(other than equipment subject to
capital or operating equipment leases, which will be transferred or retained
based on whether the associated capital or operating equipment lease is or is
not held pursuant to a contract of CBI)] located as of the Closing Date on any
real property that is referred to in Section 1.4(a), including the Schedules
thereto, shall, except to the extent expressly set forth on a Schedule referred
to in Section 1.4(a), be transferred or retained as follows:
(i) Deeds And Assignments. In the case of any real property
or leasehold interests set forth on Schedule 1.4 that is covered by a deed or
lease assignment and assumption, all such tangible property will be
transferred to the transferee or assignee of the applicable real property or
leasehold interest;
(ii) Shared Facilities With Third Party Leases. In the case of
any real property or leasehold interests covered by a lease, all such tangible
property will be retained by the lessor under the applicable lease, except that
any such tangible property (other than tenant improvements, fixtures and
furniture) used exclusively by the lessee shall be transferred to, or retained
by, the lessee.
(iii) Shared Domestic Facilities With Third Party Leases. In
the case of any real property or leasehold interests covered by a sublease, all
such tangible property will be
4
<PAGE>
retained by the sub-lessor under the applicable sublease, except that any such
tangible property (other than tenant improvements and fixtures), including
furniture used exclusively by the sub-lessee shall be transferred to, or
retained by, such sub-lessee.
In the case of this Section 1.4, all determinations as to exclusive use by any
member of a Group shall be made without regard to infrequent and immaterial use
by the members of any other Group, if the transfer of such Asset to, or the
retention of such Asset by, such first Group would not interfere in any material
respect with either the business or operations of any such other Group.
(c) In the case of any real property or leasehold interest that
is covered by Section 1.4(b)(i) and any of Section 1.4(b)(ii) or (iii), all such
tangible property shall first be allocated pursuant to the provisions of Section
1.4(b)(i) and thereafter pursuant to whichever of such other clauses is
applicable.
1.5 DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION
OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of the
CONVERGYS Assets and the assumption of CONVERGYS Liabilities set forth in
Sections 1.1 and 1.2, simultaneously with the execution and delivery hereof or
as promptly as practicable thereafter, (i) each of CBI and CONVERGYS shall
execute and deliver, and each shall cause its respective subsidiaries to execute
and deliver, such bills of sale, stock powers, certificates of title,
assignments of contracts and other instruments of transfer, conveyance and
assignment as and to the extent necessary to evidence the transfer, conveyance
and assignment of all of CBI's and its subsidiaries' right, title and interest
in and to the Assets to CONVERGYS and (ii) CONVERGYS shall execute and deliver,
to CBI and its subsidiaries such bills of sale, stock powers, certificates of
title, assumptions of contracts and other instruments of assumption as and to
the extent necessary to evidence the valid and effective assumption of the
CONVERGYS Liabilities by CONVERGYS.
1.6 OTHER ANCILLARY AGREEMENTS. Effective as of the date hereof,
each of CBI and CONVERGYS will execute and deliver all Ancillary Agreements
to which it is a party.
1.7 CONSENTS. Each party hereto understands and agrees that no
party hereto is, in this Agreement or in any other agreement or document
contemplated by this Agreement or otherwise,
5
<PAGE>
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any agreements or the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the requirements of any or all
applicable laws or judgments, it being agreed and understood that the party to
which any assets were or are transferred shall bear the economic and legal risk
that any necessary consents or approvals are not obtained or that any
requirements of laws or judgments are not complied with. Notwithstanding the
foregoing, the parties shall use reasonable best efforts to obtain all consents
and approvals, to enter into all agreements and to make all filings and
applications which may be required for the consummation of the filings and
applications which may be required for the consummation of the transactions
contemplated by this Agreement or any other agreement or document contemplated
by this Agreement or otherwise, including, without limitation, all applicable
regulatory filings or consents under federal or state laws and all necessary
consents, approvals, agreements, filings and applications.
1.8 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES.
(a) Each of CBI (on behalf of itself and each member of the CBI
Group) and CONVERGYS (on behalf of itself and each member of the CONVERGYS
Group) understands and agrees that, except as expressly set forth herein or in
any Ancillary Agreement, no party to this Agreement, any Ancillary Agreement or
any other agreement or document contemplated by this Agreement, any Ancillary
Agreement or otherwise, is representing or warranting in any way as to the
assets, businesses or liabilities transferred or assumed as contemplated hereby
or thereby, as to any consents or approvals required in connection therewith, as
to the value or freedom from any security interests of, or any other matter
concerning, any assets of such party, or as to the absence of any defenses or
right of setoff or freedom from counterclaim with respect to any claim or other
asset, including any accounts receivable, of any party, or as to the legal
sufficiency of any assignment, document or instrument delivered hereunder to
convey title to any asset or thing of value upon the execution, delivery and
filing hereof or thereof. Except as may expressly be set forth herein or in any
Ancillary Agreement, all such CONVERGYS Assets are being transferred on an "as
is, where is" basis (and, in the case of any real property, by means of a
quitclaim or similar form deed or conveyance), and the respective transferees
shall bear the
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<PAGE>
economic and legal risks that any conveyance shall prove to be insufficient to
vest in the transferee good and marketable title, free and clear of any security
interest.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF CBI
2.1 POWER AND AUTHORITY; EFFECT OF AGREEMENT. CBI is a corporation duly
organized, validly existing and in good standing under the laws of Ohio and has
requisite corporate power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by CBI of this Agreement and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on its part. This Agreement has been duly and validly executed
and delivered by CBI and constitutes its legal, valid and binding obligation
enforceable against it in accordance with its terms, except to the extent that
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally. The
execution, delivery and performance by CBI of this Agreement and the
consummation by it of the transactions contemplated by the Separation does not,
and will not, with or without the giving of notice or the lapse of time, or
both: (i) violate any provision of law, rule or regulation to which it is
subject; (ii) violate any order, judgment or decree applicable to it; (iii)
conflict with, or result in a breach or default under, its Amended Articles of
Incorporation or its Amended Regulations; or (iv) conflict with, or result in a
breach or default under, any contract to which it is a party; except, in each
case, for violations, conflicts, breaches or defaults which in the aggregate
would not materially hinder or impair the consummation of the transactions
contemplated hereby or have a material adverse effect on the Business.
2.2 STOCK OF TRANSFERRED SUBSIDIARIES. CBI is the owner, beneficially
and of record, of all of the issued and outstanding shares of CBIS and MATRIXX,
free and clear of all liens, encumbrances, security agreements, options, claims,
charges and restrictions.
2.3 GOVERNMENT CONSENTS. No consent, approval or authorization of, or
exemption from, or filing with any governmental or regulatory authority is
required in connection with the execution, delivery or performance by CBI of the
terms of this Article 2 or the taking by it of any other action required to
effectuate the Separation.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CONVERGYS
CONVERGYS represents and warrants to CBI as follows:
3.1 CONVERGYS' POWER AND AUTHORITY. CONVERGYS is a corporation duly
organized, validly existing and in good standing under the laws of Ohio, and
has all requisite corporate power and authority to carry on the Business as
it is now being conducted and as proposed to be conducted.
3.2 DUE AUTHORIZATION, EXECUTION AND DELIVERY; EFFECT OF AGREEMENT.
CONVERGYS has all requisite corporate power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by CONVERGYS of this Agreement
and the consummation by CONVERGYS of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of CONVERGYS.
This Agreement has been duly and validly executed and delivered by CONVERGYS and
constitutes the legal, valid and binding obligation of CONVERGYS enforceable
against CONVERGYS in accordance with its terms, except to the extent that such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally. The
execution, delivery and performance by CONVERGYS of this Agreement and the
consummation by CONVERGYS of the transactions contemplated by the Separation
does not, and will not, with or without the giving of notice of the lapse of
time, or both: (i) violate any provision of law, rule or regulation to which
CONVERGYS is subject; (ii) violate any order, judgment or decree applicable to
CONVERGYS; (iii) conflict with, or result in a breach or default under, the
Amended Articles of Incorporation or Regulations of CONVERGYS; or (iv) conflict
with, or result in a breach or default under, any contract to which it is a
party; except, in each case, for violations, conflicts, breaches or defaults
which in the aggregate would not materially hinder or impair the consummation of
the transactions contemplated hereby or have a material adverse effect on the
Business.
3.3 CONSENTS. No consent, approval or authorization of, or exemption
from, or filing with, any governmental or regulatory authority or any other
third party is required in connection with the execution, delivery or
performance by CONVERGYS of this Agreement or the taking
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<PAGE>
by CONVERGYS of any other action required to effectuate the Separation, except
as referred to in Article 8.
ARTICLE 4
COVENANTS OF CBI
4.1 BOOKS AND RECORDS; PERSONNEL. For a period of six years after the
Distribution Date (or such longer period as may be required by any law or
regulation, any governmental agency, any ongoing litigation or class of
litigation, or in connection with any administrative proceeding):
(a) CBI shall not dispose of or destroy any of the business records
and files of the Business retained by it or any of its subsidiaries (the
"Retained Records"). If CBI wishes to dispose of or destroy such records and
files after that time, it shall use reasonable efforts to first give 30 days'
prior written notice to CONVERGYS and CONVERGYS shall have the right, at its
option and expense, upon prior written notice to CBI within such 30 day period,
to take possession of the Retained Records within 60 days after the date of
CONVERGYS' notice to CBI.
(b) CBI shall allow CONVERGYS and its representatives reasonable
access to all Retained Records during regular business hours and upon reasonable
notice. CBI shall maintain the Retained Records in a manner and at locations
that reasonably facilitates retrieval and review by CONVERGYS. CONVERGYS shall
have the right, at its own expense, to make copies of any such records and files
and CBI shall provide convenient duplication facilities for such purpose,
provided, however, that any such access or copying shall be had or done in such
manner so as not to unreasonably interfere with the normal conduct of CBI's
business or operations.
(c) CBI shall make reasonably available to CONVERGYS, upon written
request and at CONVERGYS' expense: (i) personnel to assist in locating and
obtaining records and files maintained by it (including those created after the
date hereof, to the extent necessary and appropriate in connection with pending
and future claims against CONVERGYS relating to the Business) and (ii) any of
its personnel whose assistance or participation (including as a witness during
depositions or at trial) is reasonably required by CONVERGYS in anticipation of,
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or preparation for or during, existing or future litigation or other matters in
which CONVERGYS or any of its affiliates is involved and which is related to the
Business.
ARTICLE 5
COVENANTS OF CONVERGYS
5.1 COOPERATION. CONVERGYS agrees to cooperate with CBI, both before
and after the Distribution Date, to enable both parties to implement the
Separation, including but not limited to performing the obligations undertaken
by the parties hereunder. Such cooperation will include but not be limited to
preparing and submitting required financial reports after the Distribution Date
which may relate to periods whether before or after the Distribution Date and
executing such documents and doing such other acts and things as may be
necessary to carry out the intent of this Agreement as it relates to the
Separation.
5.2 BOOKS AND RECORDS; PERSONNEL. For a period of six years after the
Distribution Date (or such longer period as may be required by any law or
regulation, any governmental agency, any ongoing litigation or class of
litigation, or in connection with any administrative proceeding);
(a) CONVERGYS shall not dispose of or destroy any of the business
records and files of the Business that are transferred to it or any of its
subsidiaries in carrying out the transactions contemplated hereby (the
"Transferred Records"). If CONVERGYS wishes to dispose of or destroy such
records and files after that time, it shall use reasonable efforts to first give
30 days' prior written notice to CBI and CBI shall have the right at its option
and expense, upon prior written notice to CONVERGYS within such 30 day period,
to take possession of the Transferred Records within 60 days after the date of
CBI's notice to CONVERGYS.
(b) CONVERGYS shall allow CBI and its representatives reasonable
access to all Transferred Records during regular business hours and upon
reasonable notice. CONVERGYS shall maintain the Transferred Records in a manner
and at locations that reasonably facilitates retrieval and review by CBI. CBI
shall have the right, at its own expense, to make copies of any such records and
files and CONVERGYS shall provide convenient duplication facilities for such
purposes provided, however, that any such access or copying shall
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be had or done in such a manner so as not to unreasonably interfere with the
normal conduct of CONVERGYS' business or operations.
(c) CONVERGYS shall make reasonably available to CBI upon written
request and at CBI's expense: (i) CONVERGYS' personnel to assist in locating and
obtaining records and files maintained by it (including those created after the
date hereof, to the extent necessary and appropriate in connection with pending
and future claims against CBI relating to the Business), and (ii) any of its
personnel whose assistance or participation (including as a witness during
depositions or at trial) is reasonably required by CBI in anticipation of, or
preparation for or during, existing or future litigation or other matters in
which CBI or any of its affiliates is involved.
ARTICLE 6
INTER-COMPANY LENDING
6.1 CONTRIBUTION. As to inter-company debt payable to CBI by CONVERGYS,
CONVERGYS' obligation will be to repay to CBI on or before the Distribution Date
the amount reflected in its balance sheet dated March 31, 1998 ($724.7 million)
adjusted for the net cash flows resulting from CONVERGYS' operating and
investing activities for the period April 1, 1998 to the date of repayment and
for any other indebtedness incurred by CONVERGYS or for any other repayments
made to CBI in that period. Upon the Closing Date, CONVERGYS shall apply all
the net proceeds of the IPO to reduce CONVERGYS' portion of its inter-company
debt.
6.2 ON-GOING FUNDING. For the period between the Closing Date through
the day preceding the Distribution Date, CBI shall continue to provide CONVERGYS
with working capital funding pursuant to the existing inter-company arrangements
at an interest rate equal to CBI's average short-term borrowing cost or through
external short- or long-term financing to be arranged by CBI; provided, however,
that CONVERGYS may obtain and procure its own separate funding with such third
parties as it deems in its sole discretion appropriate and at its own expense.
CBI shall cooperate with CONVERGYS in its efforts to obtain such financing.
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ARTICLE 7
CONTINGENT GAINS AND CONTINGENT LIABILITIES
7.1 DEFINITIONS RELATING TO CONTINGENT GAINS AND CONTINGENT
LIABILITIES. For the purpose of this Agreement, the following terms shall have
the following meanings:
(a) AFFILIATE of any Person means a Person that controls, is
controlled by, or is under common control with such Person. As used herein,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such entity, whether
through ownership of voting securities or other interests, by contract or
otherwise.
(b) ACTION means any demand, action, suit, countersuit,
arbitration, inquiry, proceeding or investigation by or before any federal,
state, local, foreign or international governmental authority or any arbitration
or mediation tribunal.
(c) CBI GROUP means CBI and each Person (other than any member of
the CONVERGYS Group) that is an Affiliate of CBI immediately after the Closing
Date.
(d) CLOSING DATE means the first time at which any Common Shares of
CONVERGYS are sold to the Underwriters pursuant to the IPO in accordance with
the terms of the Underwriting Agreement.
(e) CONTINGENT CLAIM COMMITTEE means a committee composed of one
representative designated from time to time by each of CBI and CONVERGYS that
shall be established in accordance with Section 7.6.
(f) CONTINGENT GAIN means any claim or other right of CBI,
CONVERGYS or any of their respective Affiliates, whenever arising, against any
Person other than CBI, CONVERGYS or any of their respective Affiliates, if and
to the extent that (i) such claim or right has accrued as of the Closing Date
(based on then existing law) and (ii) the existence or scope of the obligation
of such other Person as of the Closing Date was not acknowledged, fixed or
determined in any material respect, due to a dispute or other uncertainty as of
the Closing Date or as a result of the failure of such claim or other right to
have been discovered or asserted as of the Closing Date. A claim or right
meeting the foregoing definition shall be considered a Contingent Gain
regardless of whether there was any Action pending, threatened or contemplated
as of the Closing Date with respect thereto. For purposes of the
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foregoing, a claim or right shall be deemed to have accrued as of the Closing
Date if all the elements of the claim necessary for its assertion shall have
occurred on or prior to the Closing Date, such that the claim or right, were
it asserted in an Action on or prior to the Closing Date, would not be
dismissed by a court on ripeness or similar grounds. Notwithstanding the
foregoing, none of (i) any insurance proceeds, (ii) any reversal of any
litigation or other reserve, or (iii) any matters relating to taxes (which
are governed by the Tax Allocation Agreement) shall be deemed to be a
Contingent Gain.
(g) CONTINGENT LIABILITY means any liability, other than
liabilities for taxes (which are governed by the Tax Allocation Agreement), of
CBI, CONVERGYS or any of their respective Affiliates, whenever arising, to any
Person other than CBI, CONVERGYS or any of their respective Affiliates, if and
to the extent that (i) such liability has accrued as of the Closing Date (based
on then existing law) and (ii) the existence or scope of the obligation of CBI,
CONVERGYS or any of their respective Affiliates as of the Closing Date with
respect to such liability was not acknowledged, fixed or determined in any
material respect, due to a dispute or other uncertainty as of the Closing Date
or as a result of the failure of such liability to have been discovered or
asserted as of the Closing Date (it being understood that the existence of a
litigation or other reserve with respect to any liability shall not be
sufficient for such liability to be considered acknowledged, fixed or
determined). In the case of any liability a portion of which had accrued as of
the Closing Date and a portion of which accrues after the Closing Date, only
that portion that had accrued as of the Closing Date shall be considered a
Contingent Liability. For purposes of the foregoing, a liability shall be deemed
to have accrued as of the Closing Date if all the elements necessary for the
assertion of a claim with respect to such liability shall have occurred on or
prior to the Closing Date, such that the claim, were it asserted in an Action on
or prior to the Closing Date, would not be dismissed by a court on ripeness or
similar grounds. For purposes of clarification of the foregoing, the parties
agree that no liability relating to, arising out of or resulting from any
obligation of any Person to perform the executory portion of any contract or
agreement existing as of the Closing Date, or to satisfy any obligation accrued
under any Plan (as defined in the Employee Benefits Agreement) as of the Closing
Date, shall be deemed to be a Contingent Liability.
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(h) CONVERGYS GROUP means CONVERGYS and each Person (other than any
member of the CBI Group) that is an Affiliate of CONVERGYS immediately after the
Closing Date.
(i) EXCLUSIVE CBI CONTINGENT GAIN means any Contingent Gain if such
Contingent Gain primarily relates to any business of any CBI Group Member or if
such Contingent Gain is expressly assigned to CBI pursuant to this Agreement or
any Ancillary Agreement.
(j) EXCLUSIVE CBI CONTINGENT LIABILITY means any Contingent
Liability if such Contingent Liability primarily relates to any business of any
CBI Group Member, or if such Contingent Liability is expressly assigned to CBI
pursuant to this Agreement or any Ancillary Agreement.
(k) EXCLUSIVE CONTINGENT LIABILITY means any Exclusive CBI
Contingent Liability or Exclusive CONVERGYS Contingent Liability.
(l) EXCLUSIVE CONVERGYS CONTINGENT GAIN means any Contingent Gain
if such Contingent Gain primarily relates to any business of any CONVERGYS Group
Member, or if such Contingent Gain is expressly assigned to CONVERGYS pursuant
to this Agreement or any Ancillary Agreement.
(m) EXCLUSIVE CONVERGYS CONTINGENT LIABILITY means any Contingent
Liability if such Contingent Liability primarily relates to any business of any
CONVERGYS Group Member or such Contingent Liability is expressly assigned to
CONVERGYS pursuant to this Agreement or any Ancillary Agreement.
(n) GROUP means any of the CBI Group or the CONVERGYS Group, as the
context requires.
(o) PERSON means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a limited
liability entity, any other entity or any governmental authority.
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(p) SHARED CONTINGENT GAIN means any Contingent Gain that is not an
Exclusive CBI Contingent Gain or an Exclusive CONVERGYS Contingent Gain.
(q) SHARED CONTINGENT LIABILITY means, without duplication, any
Contingent Liability that is not an Exclusive CBI Contingent Liability or an
Exclusive CONVERGYS Contingent Liability.
(r) VALUE means the aggregate amount of all cash payments, the fair
market value of all non-cash payments and the incremental cost of providing any
goods or services made or provided in respect of any Exclusive Contingent
Liability whether in satisfaction of any judgment, in settlement of any Action
or threatened Action or otherwise (including all costs and expenses of defending
or investigating any Action or threatened Action), net of: (i) any insurance
proceeds received or realized in respect of the applicable Exclusive Contingent
Liability, (ii) any tax benefits associated with such payments or the provision
of such goods or services (based on an assumed effective tax rate equal to the
effective tax rate of the applicable party for the fiscal year immediately
preceding the year in which such payments are made or goods or services provided
(it being understood that the effective tax rate of any party whose earnings for
such immediately preceding fiscal year are consolidated for federal income tax
purposes with another corporation shall be the effective tax rate of the
corporation filing such federal income tax return for such immediately preceding
fiscal year)), (iii) any other amounts recovered (including by way of set off)
from a third party in connection with any such Action or threatened Action and
(iv) the amount of any reserve, account payable or similar accrual in respect of
the Exclusive Contingent Liability, net of any offsetting receivables in respect
of such Exclusive Contingent Liability, in each case as reflected on the
CONVERGYS balance sheet or the audited consolidated balance sheet of CBI,
including the notes thereto, as of December 31, 1997 (and without giving effect
to any subsequent adjustment of any such reserve, account payable, accrual or
offsetting receivable).
7.2 CONTINGENT GAINS.
(a) Each of CBI and CONVERGYS shall have sole and exclusive right
to any benefit received with respect to any Exclusive CBI Contingent Gain or
Exclusive CONVERGYS Contingent Gain, respectively. Each of CBI and CONVERGYS
shall have sole and exclusive
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authority to commence, prosecute, settle, manage, control, conduct, waive,
forego, release, discharge, forgive and otherwise determine all matters
whatsoever with respect to any Exclusive CBI Contingent Gain or Exclusive
CONVERGYS Contingent Gain, respectively.
(b) Any benefit that may be received from any Shared Contingent
Gain shall be shared among CBI and CONVERGYS in proportion to CBI receiving 50%
and CONVERGYS receiving 50%, respectively (the "Shared Percentage"), and shall
be paid in accordance with Section 7.5. Notwithstanding the foregoing, CBI shall
have sole and exclusive authority to commence, prosecute, settle, manage,
control, conduct, waive, forego, release, discharge, forgive and otherwise
determine all matters whatsoever with respect to any Shared Contingent Gain.
CONVERGYS shall not take, or permit any member of its Group to take, any action
(including commencing any claim) that would interfere with such rights and
powers of CBI. CBI shall use its reasonable efforts to notify CONVERGYS in the
event that it commences an Action with respect to a Shared Contingent Gain;
provided that the failure to provide such notice shall not give rise to any
rights on the part of CONVERGYS against CBI or affect any other provision of
this Section 7.2. CONVERGYS acknowledges that CBI may elect not to pursue any
Shared Contingent Gain for any reason whatsoever (including a different
assessment of the merits of any Action, claim or right than CONVERGYS or any
business reasons that are in the best interests of CBI or a member of the CBI
Group, without regard to the best interests of any member of the CONVERGYS
Group) and that no member of the CBI Group shall have any liability to any
Person (including any member of the CONVERGYS Group) as a result of any such
determination.
(c) In the event of any dispute as to whether any claim or right is
a Contingent Gain or whether any Contingent Gain is a Shared Contingent Gain, an
Exclusive CBI Contingent Gain or an Exclusive CONVERGYS Contingent Gain, CBI
may, but shall not be obligated to, commence prosecution or other assertion of
such claim or right pending resolution of such dispute. In the event that CBI
commences any such prosecution or assertion and, upon resolution of the dispute,
a party other than CBI is determined hereunder to have the exclusive right to
such claim, CBI shall, promptly upon the request of such other party,
discontinue the prosecution or assertion of such right or claim and transfer the
control thereof to the party so determined to have the right thereto. In such
event, the party having the right to such a claim or
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right will reimburse CBI for all costs and expenses reasonably incurred prior to
resolution of such dispute in the prosecution or assertion of such claim or
right.
7.3 EXCLUSIVE CONTINGENT LIABILITIES. Except as otherwise provided in
this Section 7.3, each Exclusive Contingent Liability shall constitute a
liability for which indemnification is provided by CBI or CONVERGYS, as the case
may be, pursuant to Article 10 hereof and shall be subject to the procedures set
forth in Article 10 with respect thereto.
7.4 SHARED CONTINGENT LIABILITIES.
(a) As set forth in Section 10.5(c), CBI shall assume the defense
of, and may seek to settle or compromise, any Third Party Claim (as defined
herein) that is a Shared Contingent Liability, and the costs and expenses
thereof shall be included in the calculation of the amount of the applicable
Shared Contingent Liability in determining the reimbursement obligations of the
other parties with respect thereto pursuant to this Section 7.4.
(b) Each of CBI and CONVERGYS shall be responsible for its Shared
Percentage of any Shared Contingent Liability. It shall not be a defense to any
obligation by any party to pay any amount in respect of any Shared Contingent
Liability that such party was not consulted in the defense thereof, that such
party's views or opinions as to the conduct of such defense were not accepted or
adopted, that such party does not approve of the quality or manner of the
defense thereof or that such Shared Contingent Liability was incurred by reason
of a settlement rather than by a judgment or other determination of liability
(even if, subject to Section 10.5(g), such settlement was effected without the
consent or over the objection of such party).
7.5 PAYMENTS.
(a) Any amount owed in respect of any Shared Contingent Liabilities
(including reimbursement for the cost or expense of defense) of (i) any Third
Party Claim that is a Shared Contingent Liability or (ii) any Shared Contingent
Gain pursuant to this Article 6 shall be remitted promptly after the party
entitled to such amount provides an invoice (including reasonable supporting
information with respect thereto) to the party owing such amount.
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(b) In case of any Shared Contingent Liability, CBI shall be
entitled to reimbursement from CONVERGYS in advance of a final determination of
any Action for amounts paid in respect of costs and expenses related thereto,
from time to time as such costs and expenses are incurred. In the case of any
Shared Contingent Gain, CBI shall be entitled to retain from the amount of the
Shared Contingent Gain otherwise payable to CONVERGYS, CONVERGYS' Shared
Percentage of the costs and expenses paid or incurred by or on behalf of any
member of the CBI Group in connection with such Shared Contingent Gain.
(c) Any amounts billed and properly payable in accordance with this
Article 7 that are not paid within 30 days of such bill shall bear interest at
the Prime Rate plus 2% per annum.
7.6 PROCEDURES TO DETERMINE STATUS OF CONTINGENT LIABILITY OR
CONTINGENT GAIN.
(a) As of the Closing Date, CBI and CONVERGYS will form the
Contingent Claim Committee for the purpose of resolving any disagreement among
the parties as to whether:
(i) any claim or right is a Contingent Gain;
(ii) any Contingent Gain is a Shared Contingent Gain, an
Exclusive CBI Contingent Gain or an Exclusive CONVERGYS Contingent Gain;
(iii) any liability is a Contingent Liability; or
(iv) any Contingent Liability is a Shared Contingent
Liability, an Exclusive CBI Contingent Liability, or an Exclusive CONVERGYS
Contingent Liability.
(b) Any of the parties may refer any potential Contingent Gains or
Contingent Liabilities to the Contingent Claim Committee for resolution of a
disagreement described in Section 7.6(a) and the Contingent Claim Committee's
determination (which shall be made within 30 days of such referral), if
unanimous, shall be binding on all of the parties and their respective
successors and assigns. In the event that the Contingent Claim Committee cannot
reach a unanimous determination as to the nature or status of any such
Contingent Liabilities or Contingent Gains within 30 days after such referral,
the issue will be submitted for arbitration
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pursuant to the procedures set forth in Article 12 of this Agreement. The
outcome of the arbitration pursuant to Article 12 shall be final and binding on
all parties and their respective successors and assigns. The Contingent Claim
Committee shall consist of one member of the CBI Group and one member of the
CONVERGYS Group.
ARTICLE 8
THE IPO AND ACTIONS PENDING THE IPO
8.1 Transactions Prior to the IPO.
(a) Subject to the conditions specified in Section 8.2 hereof, CBI
and CONVERGYS shall use their reasonable best efforts to consummate the IPO.
Such actions shall include, but shall not necessarily be limited to, those
specified in this Section 8.1.
(b) CONVERGYS shall file with the Securities and Exchange
Commission (the "Commission") the IPO registration statement, and such
amendments or supplements thereto, as may be necessary in order to cause the
same to become and remain effective as required by law or by the Underwriters,
including, but not limited to, filing such amendments to the IPO registration
statement as may be required by the Underwriting Agreement, the Commission or
federal, state or foreign securities laws. CBI and CONVERGYS shall also
cooperate in preparing, filing with the Commission and causing to become
effective a registration statement registering the Common Shares under the
Exchange Act, and any registration statements or amendments thereof which are
required to reflect the establishment of, or amendments to, any employee benefit
and other plans necessary or appropriate in connection with the IPO, the
Separation, the Distribution or the other transactions contemplated by this
Agreement and the Ancillary Agreements.
(c) CONVERGYS, CBI, CBIS and MATRIXX shall enter into an
Underwriting Agreement (the "Underwriting Agreement"), with underwriters
selected jointly by CBI and CONVERGYS (the "Underwriters") in form and substance
reasonably satisfactory to CONVERGYS, CBI, CBIS and MATRIXX and shall comply
with their respective obligations thereunder.
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(d) CBI and CONVERGYS shall consult with each other and the
Underwriters regarding the timing, pricing and other material matters with
respect to the IPO.
(e) CONVERGYS shall use its reasonable best efforts to take all
such action as may be necessary or appropriate under state securities and blue
sky laws of the United States (and any comparable laws under any foreign
jurisdictions) in connection with the IPO.
(f) CONVERGYS shall prepare, file and use its reasonable best
efforts to seek to make effective an application for listing of the Common
Shares issued in the IPO on the New York Stock Exchange, subject to official
notice of issuance.
(g) CONVERGYS shall participate in the preparation of materials and
presentations as the Underwriters shall deem necessary or desirable.
(h) CONVERGYS shall pay all third party costs, fees and expenses
relating to the IPO, all of the reimbursable expenses of the Underwriters
pursuant to the Underwriting Agreement, all of the costs of producing, printing,
mailing and otherwise distributing the Prospectus, as well as the Underwriters'
discount as provided in the Underwriting Agreement.
8.2 CONDITIONS PRECEDENT TO CONSUMMATION OF THE IPO. As soon as
practicable after the date of this Agreement, the parties hereto shall use their
reasonable best efforts to satisfy the following conditions to the consummation
of the IPO. The obligations of the parties to consummate the IPO shall be
conditioned on the satisfaction, or waiver by CBI, of the following conditions:
(a) The IPO registration statement shall have been declared
effective by the Commission, and there shall be no stop-order in effect with
respect thereto.
(b) The actions and filings with regard to state securities and
blue sky laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 8.1 shall have been taken and, where
applicable, have become effective or been accepted.
(c) The Common Shares to be issued in the IPO shall have been
accepted for listing on the New York Stock Exchange, on official notice of
issuance.
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(d) CONVERGYS, CBI, CBIS and MATRIXX shall have entered into the
Underwriting Agreement and all conditions to the obligations of CONVERGYS, CBI,
CBIS and MATRIXX and the Underwriters shall have been satisfied or waived.
(e) CBI shall be satisfied in its sole discretion that it will own
at least 80.0% of the outstanding CONVERGYS voting stock following the IPO, and
all other conditions to permit the Distribution (to qualify as a tax free
distribution to CBI's shareholders) shall, to the extent applicable as of the
time of the IPO, be satisfied, and there shall be no event or condition that is
likely to cause any of such conditions not to be satisfied as of the time of the
Distribution or thereafter.
(f) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the IPO or the Distribution or any of the other transactions
contemplated by this Agreement or any Ancillary Agreement shall be in effect.
(g) Such other actions as the parties hereto may, based upon the
advice of counsel, reasonably request to be taken prior to the Separation in
order to assure the successful completion of the IPO and the Distribution and
the other transactions contemplated by this Agreement shall have been taken.
(h) This Agreement shall not have been terminated.
(i) A pricing committee of CONVERGYS directors designated by the
Board of Directors of CONVERGYS shall have determined that the terms of the IPO
are acceptable to CONVERGYS.
ARTICLE 9
THE DISTRIBUTION
9.1 THE DISTRIBUTION.
(a) Subject to the conditions specified in Section 9.3 hereof, on
or prior to the Distribution Date, CBI will deliver to an agent designated by
its Board of Directors ("the Agent") for the benefit of holders of record of CBI
common shares on the Record Date, a single
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stock certificate, endorsed by CBI in blank, representing all of the outstanding
shares of CONVERGYS then owned by CBI, and shall cause the transfer agent for
the shares of CBI common shares to instruct the Agent to distribute on the
Distribution Date such number of CONVERGYS Common Share to each such holder or
designated transferee or transferees of such holder for each CBI common share
then held by each such holder or designated transferee or transferees as
determined by the CBI Board of Directors.
(b) CONVERGYS and CBI, as the case may be, will provide to the
Agent all share certificates and any information required in order to complete
the Distribution on the basis specified above.
9.2 ACTIONS PRIOR TO THE DISTRIBUTION.
(a) CBI and CONVERGYS shall prepare and mail, prior to the
Distribution Date, to the holders of CBI common shares, such information
concerning CONVERGYS, its business, operations and management, the Distribution
and such other matters as CBI shall reasonably determine and as may be required
by law. CBI and CONVERGYS will prepare, and CONVERGYS will, to the extent
required under applicable law, file with the Commission any such documentation
and any requisite no-action letters which CBI determines are necessary or
desirable to effectuate the Distribution and CBI and CONVERGYS shall each use
its reasonable best efforts to obtain all necessary approvals from the
Commission with respect thereto as soon as practicable.
(b) CBI and CONVERGYS shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of the United
States (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.
(c) CBI and CONVERGYS shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 9.3(d) to be satisfied
and to effect the Distribution on the Distribution Date.
(d) CONVERGYS shall prepare and file, and shall use its reasonable
best efforts to have approved, an application for the listing of the Common
Shares to be distributed in the Distribution on the New York Stock Exchange,
subject to official notice of distribution.
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9.3 CONDITIONS TO DISTRIBUTION. Subject to any restrictions contained
in the Underwriting Agreement, the CBI Board shall have the sole discretion to
determine the date of consummation of the Distribution at any time after the
Closing Date and on or prior to the date that is six months after the Closing
Date. CBI shall be obligated to consummate the Distribution no later than the
date that is six months after the Closing Date, subject to the satisfaction, or
waiver by the CBI Board, in its sole discretion, of the conditions set forth
below. In the event that any such condition shall not have been satisfied or
waived on or before the date that is six months after the Closing Date, CBI
shall consummate the Distribution as promptly as practicable following the
satisfaction or waiver of all such conditions:
(a) a private letter ruling from the Internal Revenue Service shall
have been obtained and shall continue in effect, to the effect that, among other
things, the Distribution will qualify as a tax free distribution for federal
income tax purposes under Section 355 of the Code and will not result in the
recognition of any gain to CBI or CBI's shareholders, and such ruling shall be
in form and substance satisfactory to CBI in its sole discretion;
(b) any material governmental approvals and consents necessary to
consummate the Distribution shall have been obtained and be in full force and
effect;
(c) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event outside
the control of CBI shall have occurred or failed to occur that prevents the
consummation of the Distribution; and
(d) no other event or developments shall have occurred subsequent
to the date hereof that, in the judgment of the Board of Directors of CBI, would
result in the Distribution having a material adverse effect on CBI or on the
shareholders of CBI.
(e) Each of CBI and CONVERGYS shall have received such consents,
and shall have received executed copies of such agreements or amendments of
agreements, as they shall deem necessary in connection with the completion of
the transactions contemplated by this Agreement or any other agreement or
document contemplated by this Agreement or otherwise.
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(f) All action and other documents and instruments deemed
necessary or advisable in connection with the transactions contemplated hereby
shall have been taken or executed, as the case may be, in form and substance
satisfactory to CBI and CONVERGYS.
The foregoing conditions are for the sole benefit of CBI and shall not give rise
to or create any duty on the part of CBI or the CBI Board of Directors to waive
or not waive any such condition.
9.4 FRACTIONAL SHARES. As soon as practicable after the Distribution
Date, CBI shall direct the Agent to determine the number of whole shares and
fractional shares of Common Shares allocable to each holder of record or
beneficial owner of CBI common shares as of the Record Date, to aggregate all
such fractional shares and sell the whole shares obtained thereby at the
direction of CBI in open market transactions or otherwise, in each case at then
prevailing trading prices, and to cause to be distributed to each such holder or
for the benefit of each such beneficial owner, in lieu of any fractional share,
such holder's or owner's ratable share of the proceeds of such sale, after
making appropriate deductions of any amount required to be withheld for federal
income tax purposes and after deducting an amount equal to all brokerage
charges, commissions and transfer taxes attributed to such sale. CBI and the
Agent shall use their reasonable best efforts to aggregate the CBI common shares
that may be held by any beneficial owner thereof through more than one account
in determining the fractional share allocable to such beneficial owner.
ARTICLE 10
MUTUAL RELEASES; INDEMNIFICATIONS
10.1 RELEASE OF PRE-CLOSING CLAIMS.
(a) Except as provided in Section 10.1(c), effective as of the
Closing Date, CONVERGYS does hereby, for itself and each of its Affiliates,
successors and assigns, and all persons who at any time prior to the Closing
Date have been shareholders, directors, officers, agents or employees of
CONVERGYS (in each case, in their respective capacities as such), remise,
release and forever discharge each of CBI and its Affiliates, successors and
assigns, and all persons who at any time prior to the Closing Date have been
shareholders, directors, officers, agents or employees of CBI (in each case, in
their respective capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all liabilities
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whatsoever, whether at law or in equity (including any right of contribution),
whether arising under any contract or agreement, by operation of law or
otherwise, existing or arising from any acts or events occurring or failing to
occur or alleged to have occurred or to have failed to occur or any conditions
existing or alleged to have existed on or before the Closing Date, including in
connection with the transactions and all other activities to implement any of
the Separation, the IPO and the Distribution.
(b) Except as provided in Section 10.1(c), effective as of the
Closing Date, CBI does hereby, for itself and its Affiliates, successors and
assigns, and all persons who at any time prior to the Closing Date have been
shareholders, directors, officers, agents or employees of CBI (in each case, in
their respective capacities as such), remise, release and forever discharge
CONVERGYS, and its Affiliates, successors and assigns, and all persons who at
any time prior to the Closing Date have been shareholders, directors, officers,
agents or employees of CONVERGYS (in each case, in their respective capacities
as such), and their respective heirs, executors, administrators, successors and
assigns, from any and all liabilities whatsoever, whether at law or in equity
(including any right of contribution), whether arising under any contract or
agreement, by operation of law or otherwise, existing or arising from any acts
or events occurring or failing to occur or alleged to have occurred or to have
failed to occur or any conditions existing or alleged to have existed on or
before the Closing Date, including in connection with the transactions and all
other activities to implement any of the Separation, the IPO and the
Distribution.
(c) Nothing contained in Section 10.1(a) or (b) shall impair any
right of any Person to enforce this Agreement, any Ancillary Agreement or any
agreements, arrangements, commitments or understandings that are specified
herein or in the Schedules and Exhibits hereto not to terminate as of the
Closing Date, in each case in accordance with its terms. Nothing contained in
Section 10.1(a) or (b) shall release any Person from:
(i) any liability provided in or resulting from any agreement
between CBI and CONVERGYS that is specified herein or the Ancillary Agreements
hereto specified as not to terminate as of the Closing Date, or any other
liability specified as not to terminate as of the Closing Date;
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(ii) any liability, contingent or otherwise, assumed,
transferred, assigned or allocated to such person;
(iii) any liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims brought
against the parties by third persons, which liability shall be governed by this
Article 10 and, if applicable, the appropriate provisions of the Ancillary
Agreements.
(d) CONVERGYS shall not make any claim or demand, or commence any
action asserting any claim or demand, including any claim of contribution or any
indemnification, against CBI, or any other Person released pursuant to Section
10.1(a), with respect to any liabilities released pursuant to Section 10.1(a).
CBI shall not make any claim or demand, or commence any action asserting any
claim or demand, including any claim of contribution or any indemnification,
against CONVERGYS or any other Person released pursuant to Section 10.1(b), with
respect to any liabilities released pursuant to Section 10.1(b).
(e) It is the intent of each of CBI and CONVERGYS by virtue of the
provisions of this Section 10.1 to provide for a full and complete release and
discharge of all liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Closing Date, between or among CONVERGYS and its Affiliates on the one hand, and
CBI and its Affiliates on the other hand (including any contractual agreements
or arrangements existing or alleged to exist between or among any such Persons
on or before the Closing Date), except as expressly set forth in Section
10.1(c). At any time, at the request of any other party, each party shall
execute and deliver releases reflecting the provisions hereof.
10.2 INDEMNIFICATION BY CONVERGYS. Except as provided in Section 10.4,
CONVERGYS shall indemnify, defend and hold harmless CBI, and each of its
directors, officers and employees, and each of the heirs, executors, successors
and assigns of any of the foregoing (collectively, the "CBI Indemnitees"), from
and against any and all liabilities of the CBI Indemnitees relating to, arising
out of or resulting from any of the following items:
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(a) the failure of CONVERGYS or any other person to pay, perform
or otherwise promptly discharge any CONVERGYS Liabilities, whether prior to or
after the Closing Date or the date hereof;
(b) the business of CONVERGYS or any CONVERGYS Liabilities;
(c) any breach by CONVERGYS or its Affiliates of this Agreement or
any of the Ancillary Agreements; and
(d) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in any IPO Registration Statement or
Prospectus.
10.3 INDEMNIFICATION BY CBI. Except as provided in Section 10.4, CBI
shall indemnify, defend and hold harmless CONVERGYS, and each of its directors,
officers and employees, and each of the heirs, executors, successors and assigns
of any of the foregoing (collectively, the "CONVERGYS Indemnitees"), from and
against any and all liabilities of the CONVERGYS Indemnitees relating to,
arising out of or resulting from any of the following items:
(a) the failure of CBI or any other person to pay, perform or
otherwise promptly discharge any liabilities of CBI other than the CONVERGYS
liabilities whether prior to or after the Closing Date or the date hereof;
(b) the business of CBI or any liability of CBI other than the
CONVERGYS liabilities;
(c) any breach by CBI or any of its affiliates of this Agreement
or any of the Ancillary Agreements; and
(d) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to
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make the statements therein not misleading, with respect to all information
about CBI contained in any IPO Registration Statement or Prospectus.
10.4 INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER
AMOUNTS.
(a) The parties intend that any liability subject to
indemnification or reimbursement pursuant to this Article 9 will be net of
insurance proceeds that actually reduce the amount of the liability.
Accordingly, the amount which any party (an "Indemnifying Party") is required
to pay to any person entitled to indemnification hereunder (an "Indemnitee")
will be reduced by any insurance proceeds theretofore actually recovered by
or on behalf of the Indemnitee in reduction of the related liability. If an
Indemnitee receives a payment (an "Indemnity Payment") required by this
Agreement from an Indemnifying Party in respect of any liability and
subsequently receives insurance proceeds, then the Indemnitee will pay to the
Indemnifying Party an amount equal to the excess of the Indemnity Payment
received over the amount of the Indemnity Payment that would have been due if
the insurance proceeds recovery had been received, realized or recovered
before the Indemnity Payment was made.
(b) In the case of any Shared Contingent Liability, any insurance
proceeds actually received, realized or recovered by any party in respect of the
Shared Contingent Liability will be shared among the parties in such manner as
may be necessary so that the obligations of the parties for such Shared
Contingent Liability, net of such insurance proceeds, will remain in proportion
to their respective Shared Percentages, regardless of which party or parties may
actually receive, realize or recover such insurance proceeds.
(c) An insurer who would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third party shall be entitled to receive a benefit that they would
not be entitled to receive in the absence of the indemnification provisions by
virtue of the indemnification provisions hereof.
10.5 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS.
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(a) If an Indemnitee shall receive notice or otherwise learn of
the assertion by any Person other than the parties hereto (a "Third Party
Claim") with respect to which an Indemnifying Party may be obligated to provide
indemnification to such Indemnitee pursuant to Section 10.2 or 10.3, or any
other Section of this Agreement or any Ancillary Agreement, such Indemnitee
shall give such Indemnifying Party written notice thereof within 20 days after
becoming aware of such Third Party Claim. If any Person shall receive notice or
otherwise learn of the assertion of a Third Party Claim which may reasonably be
determined to be a Shared Contingent Liability, such Person (if other than CBI)
shall give CBI and any other party to this Agreement written notice thereof
within 20 days after becoming aware of such Third Party Claim. Any such notice
shall describe the Third Party Claim in reasonable detail. Notwithstanding the
foregoing, the failure of any Indemnitee or other Person to give notice as
provided in this Section 10.5(a) shall not relieve the related Indemnifying
Party of its obligations under this Article 10, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice.
(b) If the Indemnitee, the party receiving any notice pursuant
to Section 10.5(a) or any other party to this Agreement believes that the
Third Party Claim is or may be a Shared Contingent Liability, such Indemnitee
or other party may make a request for a determination of such matter to the
Contingent Claim Committee (a "Determination Request") at any time following
any notice given by the Indemnitee to an Indemnifying Party or given by any
other Person to CBI pursuant to Section 10.5(a). CBI may make such a
Determination Request at any time. Unless all parties have acknowledged that
the applicable Third Party Claim is not a Shared Contingent Liability or
unless a determination to such effect has been made in accordance with
Section 7.6, CBI shall be entitled (but not obligated) to assume the defense
of such Third Party Claim as if it were the Indemnifying Party hereunder. In
any such event, CBI shall be entitled to reimbursement of all the costs and
expenses of such defense once a final determination or acknowledgement is
made as to the status of the Third Party Claim from the applicable party or
parties that would have been required to pay such amounts if the status of
the Third Party Claim had been determined immediately; provided that, if such
Third Party Claim is determined to be a Shared Contingent Liability, such
costs and expenses shall be shared as provided in Section 7.4.
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(c) CBI shall assume the defense of, and may seek to settle or
compromise, any Third Party Claim that is a Shared Contingent Liability, and the
costs and expenses thereof shall be included in the calculation of the amount of
the applicable Shared Contingent Liability in determining the reimbursement
obligations of the other parties with respect thereto pursuant to Section 7.4.
Any Indemnitee in respect of a Shared Contingent Liability shall have the right
to employ separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof, but all fees and expenses of such counsel
shall be the expense of such Indemnitee.
(d) Other than in the case of a Shared Contingent Liability, an
Indemnifying Party may elect to defend (and, unless the Indemnifying Party has
specified any reservations or exceptions, to seek to settle or compromise), at
such Indemnifying Party's own expense and by such Indemnifying Party's own
counsel, any Third Party Claim. Within 30 days after the receipt of notice from
an Indemnitee in accordance with Section 10.5(a), the Indemnifying Party shall
notify the Indemnitee of its election whether the Indemnifying Party will assume
responsibility for defending such Third Party Claim, which election shall
specify any reservations or exceptions. After notice from an Indemnifying Party
to an Indemnitee of its election to assume the defense of a Third Party Claim,
such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnitee except as set forth in the next sentence. In the event that (i) the
Third Party Claim is not a Shared Contingent Liability and (ii) the Indemnifying
Party has elected to assume the defense of the Third Party Claim but has
specified, and continues to assert, any reservations or exceptions in such
notice, then, in any such case, the reasonable fees and expenses of one separate
counsel for all Indemnitees shall be borne by the Indemnifying Party.
(e) Other than in the case of a Shared Contingent Liability, if an
Indemnifying Party elects not to assume responsibility for defending a Third
Party Claim, or fails to notify an Indemnitee of its election as provided in
Section 10.5(d), such Indemnitee may defend such Third Party Claim at the cost
and expense of the Indemnifying Party.
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(f) Unless the Indemnifying Party has failed to assume the defense
of the Third Party Claim in accordance with the terms of this Agreement, no
Indemnitee may settle or compromise any Third Party Claim that is not a Shared
Contingent Liability without the consent of the Indemnifying Party. No
Indemnitee may settle or compromise any Third Party Claim that is a Shared
Contingent Liability without the consent of CBI.
(g) In the case of a Third Party Claim that is not a Shared
Contingent Liability, no Indemnifying Party shall consent to entry of any
judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee. In the case of a Third Party
Claim that is a Shared Contingent Liability, CBI shall not consent to entry of
any judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other non-monetary relief to be entered,
directly or indirectly, against any Indemnitee.
10.6 ADDITIONAL MATTERS.
(a) Any claim on account of a liability which does not result from
a Third Party Claim shall be asserted by written notice given by the Indemnitee
to the Indemnifying Party. Such Indemnifying Party shall have a period of 30
days after the receipt of such notice within which to respond thereto. If such
Indemnifying Party does not respond within such 30-day period, such Indemnifying
Party shall be deemed to have refused to accept responsibility to make payment.
If such Indemnifying Party does not respond within such 30-day period or rejects
such claim in whole or in part, such Indemnitee shall be free to pursue such
remedies as may be available to such party as contemplated by this Agreement and
the Ancillary Agreements.
(b) In the event of payment by or on behalf of any Indemnifying
Party to any Indemnitee in connection with any Third Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnitee as to any events or circumstances in respect of which such Indemnitee
may have the right, defense or claim relating to such Third Party Claim against
any claimant or plaintiff asserting such Third Party Claim or against any
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other person. Such Indemnitee shall cooperate with such Indemnifying Party in
a reasonable manner, and at the cost and expense of such Indemnifying Party,
in prosecuting any subrogated right, defense or claim; provided, however,
that CBI shall be entitled to control the prosecution of any such right,
defense or claim in respect of any Shared Contingent Liability.
(c) In the event of an Action in which the Indemnifying Party is
not a named defendant, if either the Indemnitee or Indemnifying Party shall so
request, the parties shall endeavor to substitute the Indemnifying Party for the
named defendant, or, in the case of a Shared Contingent Liability, add the
Indemnifying Party as a named defendant if at all possible. If such substitution
or addition cannot be achieved for any reason or is not requested, the named
defendant shall allow the Indemnifying Party to manage the Action as set forth
in this Section, and, subject to Section 7.4 with respect to Shared Contingent
Liabilities, the Indemnifying Party shall fully indemnify the named defendant
against all costs of defending the Action (including court costs, sanctions
imposed by a court, attorneys' fees, experts' fees and all other external
expenses), the costs of any judgment or settlement, and the cost of any interest
or penalties relating to any judgment or settlement.
10.7 REMEDIES CUMULATIVE. The remedies provided in this Article 10
shall be cumulative and shall not preclude assertion by an Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
ARTICLE 11
CONFIDENTIALITY
11.1 GENERAL.
(a) Subject to Section 11.2, each of CBI and CONVERGYS, on behalf
of itself and each member of its respective Group, agrees to hold, and to cause
its respective directors, officers, employees, agents, accountants, counsel and
other advisors and representatives to hold, in strict confidence, with at least
the same degree of care that applies to CBI's confidential and proprietary
information pursuant to policies in effect as of the Closing Date, all
Information (as defined herein) concerning each such other Group that is either
in its possession (including Information in its possession prior to any of the
date hereof, the Closing
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Date or the Distribution Date) or furnished by any such other Group or its
respective directors, officers, employees, agents, accountants, counsel and
other advisors and representatives at any time pursuant to this Agreement,
any Ancillary Agreement or otherwise, and shall not use any such Information
other than for such purposes as shall be expressly permitted hereunder or
thereunder, except, in each case, to the extent that such Information has
been (i) in the public domain through no fault of such party or any member of
such Group or any of their respective directors, officers, employees, agents,
accountants, counsel and other advisors and representatives, (ii) later
lawfully acquired from other sources by such party (or any member of such
party's Group) which sources are not themselves bound by a confidentiality
obligation), or (iii) independently generated without reference to any
proprietary or confidential Information of the other party.
(b) Each party agrees not to release or disclose, or permit to be
released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 11.2. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement
or any Ancillary Agreement, each party will promptly after request of the other
party either return to the other party all Information in a tangible form
(including all copies thereof and all notes, extracts or summaries based
thereon) or certify to the other party that it has destroyed such Information
(and such copies thereof and such notes, extracts or summaries based thereon).
11.2 In the event that any party or any member of its Group either
determines on the advice of its counsel that it is required to disclose any
Information pursuant to applicable law or receives any demand under lawful
process or from any Governmental Authority to disclose or provide Information of
any other party (or any member of any other party's Group) that is subject to
the confidentiality provisions hereof, such party shall notify the other party
prior to disclosing or providing such Information and shall cooperate at the
expense of the requesting party in seeking any reasonable protective
arrangements requested by such other party. Subject to the foregoing, the Person
that received such request may thereafter disclose or provide Information
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to the extent required by such law (as so advised by counsel) or by lawful
process or such Governmental Authority.
11.3 Information means information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, books, records,
contracts, instruments, surveys, ideas, concepts, know-how, techniques, designs,
drawings, blueprints, diagrams, models, flow charts, data, computer data, disks,
diskettes, tapes, computer programs or other software, marketing plans, customer
names, communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
ARTICLE 12
ARBITRATION; DISPUTE RESOLUTION
12.1 AGREEMENT TO ARBITRATE. Except as otherwise specifically
provided in any Ancillary Agreement, the procedures for discussion,
negotiation and arbitration set forth in this Article 12 shall apply to all
disputes, controversies or claims (whether sounding in contract, tort or
otherwise) that may arise out of or relate to, or arise under or in
connection with this Agreement or any Ancillary Agreement, or the
transactions contemplated hereby or thereby (including all actions taken in
furtherance of the transactions contemplated hereby or thereby on or prior to
the date hereof), or the commercial or economic relationship of the parties
relating hereto or thereto, between or among any member of the CBI Group and
the CONVERGYS Group. Each party agrees on behalf of itself and each member of
its respective Group that the procedures set forth in this Article 12 shall
be the sole and exclusive remedy in connection with any dispute, controversy
or claim relating to any of the foregoing matters and irrevocably waives any
right to commence any Action in or before any governmental authority, except
as expressly provided in Sections 12.7(b) and 12.8 and except to the extent
provided under the Arbitration Act in the case of judicial review of
arbitration results or awards. Each party on behalf of itself and each member
of its respective Group irrevocably waives any right to any trial by jury
with respect to any claim, controversy or dispute set forth in the first
sentence of this Section 12.1.
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12.2 ESCALATION.
(a) It is the intent of the parties to use their respective
reasonable best efforts to resolve expeditiously any dispute, controversy or
claim between or among them with respect to the matters covered hereby that may
arise from time to time on a mutually acceptable negotiated basis. In
furtherance of the foregoing, any party involved in a dispute, controversy or
claim may deliver a notice (an "Escalation Notice") demanding an in person
meeting involving representatives of the parties at a senior level of management
of the parties (or if the parties agree, of the appropriate strategic business
unit or division within such entity). A copy of any such Escalation Notice shall
be given to the General Counsel, or like officer or official, of each party
involved in the dispute, controversy or claim (which copy shall state that it is
an Escalation Notice pursuant to this Agreement). Any agenda, location or
procedures for such discussions or negotiations between the parties may be
established by the parties from time to time; provided, however, that the
parties shall use their reasonable best efforts to meet within 30 days of the
Escalation Notice.
(b) The parties may, by mutual consent, retain a mediator to aid
the parties in their discussions and negotiations by informally providing advice
to the parties. Any opinion expressed by the mediator shall be strictly advisory
and shall not be binding on the parties, nor shall any opinion expressed by the
mediator be admissible in any arbitration proceedings. The mediator may be
chosen from a list of mediators previously selected by the parties or by other
agreement of the parties. Costs of the mediation shall be borne equally by the
parties involved in the matter, except that each party shall be responsible for
its own expenses. Mediation is not a prerequisite to a demand for arbitration
under Section 12.3.
12.3 DEMAND FOR ARBITRATION.
(a) At any time after the first to occur of (i) the date of the
meeting actually held pursuant to the applicable Escalation Notice or (ii) 45
days after the delivery of an Escalation Notice (as applicable, the "Arbitration
Demand Date"), any party involved in the dispute, controversy or claim
(regardless of whether such party delivered the Escalation Notice)
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may, unless the Applicable Deadline has occurred, make a written demand (the
"Arbitration Demand Notice") that the dispute be resolved by binding
arbitration, which Arbitration Demand Notice shall be given to the parties to
the dispute, controversy or claim in the manner set forth in Section 12.3(b). In
the event that any party shall deliver an Arbitration Demand Notice to another
party, such other party may itself deliver an Arbitration Demand Notice to such
first party with respect to any related dispute, controversy or claim with
respect to which the Applicable Deadline has not passed without the requirement
of delivering an Escalation Notice. No party may assert that the failure to
resolve any matter during any discussions or negotiations, the course of conduct
during the discussions or negotiations or the failure to agree on a mutually
acceptable time, agenda, location or procedures for the meeting, in each case,
as contemplated by Section 12.2, is a prerequisite to a demand for arbitration
under Section 12.3.
(b) Except as may be expressly provided in any Ancillary
Agreement, any Arbitration Demand Notice may be given until one year and 45 days
after the later of the occurrence of the act or event giving rise to the
underlying claim or the date on which such act or event was, or should have
been, in the exercise of reasonable due diligence, discovered by the party
asserting the claim (as applicable and as it may in a particular case be
specifically extended by the parties in writing, the "Applicable Deadline"). Any
discussions, negotiations or mediations between the parties pursuant to this
Agreement or otherwise will not toll the Applicable Deadline unless expressly
agreed in writing by the parties. Each of the parties agrees on behalf of itself
and each member of its Group that if an Arbitration Demand Notice with respect
to a dispute, controversy or claim is not given prior to the expiration of the
Applicable Deadline, as between or among the parties and the members of their
Groups, such dispute, controversy or claim will be barred. Subject to Sections
12.7(d) and 12.8, upon delivery of an Arbitration Demand Notice pursuant to
Section 12.3(a) prior to the Applicable Deadline, the dispute, controversy or
claim shall be decided by a sole arbitrator in accordance with the rules set
forth in this Article 12.
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12.4 ARBITRATORS
(a) Within 15 days after a valid Arbitration Demand Notice is
given, the parties involved in the dispute, controversy or claim referenced
therein shall attempt to select a sole arbitrator satisfactory to all such
parties.
(b) In the event that such parties are not able jointly to select
a sole arbitrator within such 15-day period, such parties shall each appoint an
arbitrator within 30 days after delivery of the Arbitration Demand Notice. If
one party appoints an arbitrator within such time period and the other party or
parties fail to appoint an arbitrator within such time period, the arbitrator
appointed by the one party shall be the sole arbitrator of the matter.
(c) In the event that a sole arbitrator is not selected pursuant
to paragraph (a) or (b) above and, instead, two arbitrators are selected
pursuant to paragraph (b) above, the two arbitrators will, within 30 days after
the appointment of the later of them to be appointed, select an additional
arbitrator who shall act as the sole arbitrator of the dispute. After selection
of such sole arbitrator, the initial arbitrators shall have no further role with
respect to the dispute. In the event that the arbitrators so appointed do not,
within 30 days after the appointment of the later of them to be appointed, agree
on the selection of the sole arbitrator, any party involved in such dispute may
apply to the American Arbitration Association, Cincinnati, Ohio ("AAA"), to
select the sole arbitrator, which selection shall be made by such organization
within 30 days after such application. Any arbitrator selected pursuant to this
paragraph (c) shall be disinterested with respect to any of the parties and the
matter and shall be reasonably competent in the applicable subject matter.
(d) The sole arbitrator selected pursuant to paragraph (a), (b) or
(c) above will set a time for the hearing of the matter which will commence no
later than 90 days after the date of appointment of the sole arbitrator pursuant
to paragraph (a), (b) or (c) above and which hearing will be no longer than 30
days (unless in the judgment of the arbitrator the matter is unusually complex
and sophisticated and thereby requires a longer time, in which event such
hearing shall be no longer than 90 days). The final decision of such arbitrator
will be rendered in writing to the parties not later than 60 days after the last
hearing date, unless otherwise agreed by the parties in writing.
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(e) The place of any arbitration hereunder will be Cincinnati,
Ohio, unless otherwise agreed by the parties.
12.5 HEARINGS. Within the time period specified in Section 12.4(d),
the matter shall be presented to the arbitrator at a hearing by means of
written submissions of memoranda and verified witness statements, filed
simultaneously, and responses, if necessary in the judgment of the arbitrator
or both the parties. If the arbitrator deems it to be essential to a fair
resolution of the dispute, live cross-examination or direct examination may
be permitted, but is not generally contemplated to be necessary. The
arbitrator shall actively manage the arbitration with a view to achieving a
just, speedy and cost-effective resolution of the dispute, claim or
controversy. The arbitrator may, in his or her discretion, set time and other
limits on the presentation of each party's case, its memoranda or other
submissions, and refuse to receive any proffered evidence, which the
arbitrator, in his or her discretion, finds to be cumulative, unnecessary,
irrelevant or of low probative nature. Except as otherwise set forth herein,
any arbitration hereunder will be conducted in accordance with the AAA Rules
and Regulations then prevailing (except that the arbitration will not be
conducted under the auspices of the AAA and the fee schedule of the AAA will
not apply). Except as expressly set forth in Section 12.8(b), the decision of
the arbitrator will be final and binding on the parties, and judgment thereon
may be had and will be enforceable in any court having jurisdiction over the
parties. Arbitration awards will bear interest at an annual rate of the Prime
Rate plus 2% per annum. To the extent that the provisions of this Agreement
and the prevailing rules of the AAA conflict, the provisions of this
Agreement shall govern.
12.6 DISCOVERY AND CERTAIN OTHER MATTERS.
(a) Any party involved in the applicable dispute may request
limited document production from the other party or parties of specific and
expressly relevant documents, with the reasonable expenses of the producing
party incurred in such production paid by the requesting party. Any such
discovery (which rights to documents shall be substantially less than document
discovery rights prevailing under the Federal Rules of Civil Procedure) shall be
conducted expeditiously and shall not cause the hearing provided for in Section
12.5 to be adjourned except upon consent of all parties involved in the
applicable dispute or upon an
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extraordinary showing of cause demonstrating that such adjournment is necessary
to permit discovery essential to a party to the proceeding. Depositions,
interrogatories or other forms of discovery (other than the document production
set forth above) shall not occur except by consent of the parties involved in
the applicable dispute. Disputes concerning the scope of document production and
enforcement of the document production requests will be determined by written
agreement of the parties involved in the applicable dispute or, failing such
agreement, will be referred to the arbitrator for resolution. All discovery
requests will be subject to the proprietary rights and rights of privilege of
the parties, and the arbitrator will adopt procedures to protect such rights and
to maintain the confidential treatment of the arbitration proceedings (except as
may be required by law). Subject to the foregoing, the arbitrator shall have the
power to issue subpoenas to compel the production of documents relevant to the
dispute, controversy or claim.
(b) The arbitrator shall have full power and authority to
determine issues of arbitrability but shall otherwise be limited to
interpreting or construing the applicable provisions of this Agreement or any
Ancillary Agreement, and will have no authority or power to limit, expand,
alter, amend, modify, revoke or suspend any condition or provision of this
Agreement or any Ancillary Agreement; it being understood, however, that the
arbitrator will have full authority to implement the provisions of this
Agreement or any Ancillary Agreement, and to fashion appropriate remedies for
breaches of this Agreement (including interim or permanent injunctive
relief); provided that the arbitrator shall not have (i) any authority in
excess of the authority a court having jurisdiction over the parties and the
controversy or dispute would have absent these arbitration provisions or (ii)
any right or power to award punitive or treble damages. It is the intention
of the parties that in rendering a decision the arbitrator give effect to the
applicable provisions of this Agreement and the Ancillary Agreements and
follow applicable law (it being understood and agreed that this sentence
shall not give rise to a right of judicial review of the arbitrator's award).
(c) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
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(d) Arbitration costs will be borne equally by each party involved
in the matter, except that each party will be responsible for its own attorney's
fees and other costs and expenses, including the costs of witnesses selected by
such party.
12.7 CERTAIN ADDITIONAL MATTERS.
(a) Any arbitration award shall be a bare award limited to a
holding for or against a party and shall be without findings as to facts, issues
or conclusions of law and shall be without a statement of the reasoning on which
the award rests, but must be in adequate form so that a judgment of a court may
be entered thereupon. Judgment upon any arbitration award hereunder may be
entered in any court having jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed pursuant
to Section 12.4, any party may seek one or more temporary restraining orders in
a court of competent jurisdiction if necessary in order to preserve and protect
the status quo. Neither the request for, or grant or denial of, any such
temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein and the arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the arbitrator.
(c) Except as required by law, the parties shall hold, and shall
cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of Article 12 and
except as may be required in order to enforce any award. Each of the parties
shall request that any mediator or arbitrator comply with such confidentiality
requirement.
(d) In the event that at any time the sole arbitrator shall
fail to serve as an arbitrator for any reason, the parties shall select a new
arbitrator who shall be disinterested as to the parties and the matter in
accordance with the procedures set forth herein for the selection of the
initial arbitrator. The extent, if any, to which testimony previously given
shall be repeated or as to which the replacement arbitrator elects to rely on
the stenographic record (if there is one) of such testimony shall be
determined by the replacement arbitrator.
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12.8 LIMITED COURT ACTIONS.
(a) Notwithstanding anything herein to the contrary, in the event
that any party reasonably determines the amount in controversy in any dispute,
controversy or claim (or any series of related disputes, controversies or
claims) under this Agreement or any Ancillary Agreement is, or is reasonably
likely to be, in excess of $25 million and if such party desires to commence an
Action in lieu of complying with the arbitration provisions of this Article,
such party shall so state in its Arbitration Demand Notice. If the other parties
to the arbitration do not agree that the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is, or is reasonably likely to be, in excess of $25 million, the
arbitrator selected pursuant to Section 12.4 hereof shall decide whether the
amount in controversy in such dispute, controversy or claim (or such series of
related disputes, controversies or claims) is, or is reasonably likely to be, in
excess of $25 million. The arbitrator shall set a date that is no later than ten
days after the date of his or her appointment for submissions by the parties
with respect to such issue. There shall not be any discovery in connection with
such issue. The arbitrator shall render his or her decision on such issue within
five days of such date so set by the arbitrator. In the event that the
arbitrator determines that the amount in controversy in such dispute,
controversy or claim (or such series of related disputes, controversies or
claims) is or is reasonably likely to be in excess of $25 million, the
provisions of Sections 12.4(d) and (e), 12.5, 12.6, 12.7 and 12.10 hereof shall
not apply and on or before (but, except as expressly set forth in Section
12.8(b), not after) the tenth business day after the date of such decision, any
party to the arbitration may elect, in lieu of arbitration, to commence an
Action with respect to such dispute, controversy or claim (or such series of
related disputes, controversies or claims) in any court of competent
jurisdiction. If the arbitrator does not so determine, the provisions of this
Article (including with respect to time periods) shall apply as if no
determinations were sought or made pursuant to this Section 12.8(a).
(b) In the event that an arbitration award in excess of $25
million is issued in any arbitration proceeding commenced hereunder, any party
may, within 60 days after the date of such award, submit the dispute,
controversy or claim (or series of related disputes, controversies or claims)
giving rise thereto to a court of competent jurisdiction, regardless of
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whether such party or any other party sought to commence an Action in lieu of
proceeding with arbitration in accordance with Section 12.8(a). In such
event, the applicable court may elect to rely on the record developed in the
arbitration or, if it determines that it would be advisable in connection
with the matter, allow the parties to seek additional discovery or to present
additional evidence. Each party shall be entitled to present arguments to the
court with respect to whether any such additional discovery or evidence shall
be permitted and with respect to all other matters relating to the applicable
dispute, controversy or claim (or series of related disputes, controversies
or claims).
12.9 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article 11 with respect
to all matters not subject to such dispute, controversy or claim.
12.10 LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the
provisions of this Article 11, only insofar as they relate to the agreement to
arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed by the laws of the State of
Ohio.
ARTICLE 13
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
13.1 FURTHER ASSURANCES.
(a) In addition to the actions specifically provided for
elsewhere in this Agreement, each of the parties hereto shall use its reasonable
best efforts, prior to, on and after the Closing Date, to take, or cause to be
taken, all actions, and to do, or cause to be done, all things, reasonably
necessary, proper or advisable under applicable laws, regulations and agreements
to consummate and make effective the transactions contemplated by this Agreement
and the Ancillary Agreements.
(b) Without limiting the foregoing, prior to, on and after the
Closing Date, each party hereto shall cooperate with the other parties, and
without any further consideration,
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but at the expense of the requesting party, to execute and deliver, or use
its reasonable best efforts to cause to be executed and delivered, all
instruments, including instruments of conveyance, assignment and transfer,
and to make all filings with, and to obtain all consents, approvals or
authorizations of, any governmental authority or any other Person under any
permit, license, agreement, indenture or other instrument (including any
consents or governmental approvals), and to take all such other actions as
such party may reasonably be requested to take by any other party hereto from
time to time, consistent with the terms of this Agreement and the Ancillary
Agreements, in order to effectuate the provisions and purposes of this
Agreement and the Ancillary Agreements and the transfers of the CONVERGYS
Assets and the assignment and assumption of the liabilities and the other
transactions contemplated hereby and thereby. Without limiting the foregoing,
each party will, at the reasonable request, cost and expense of any other
party, take such other actions as may be reasonably necessary to vest in such
other party good and marketable title, free and clear of any liens and
encumbrances, if and to the extent it is practicable to do so.
(c) On or prior to the Closing Date, CBI and CONVERGYS, in their
respective capacities as direct and indirect shareholders of their respective
subsidiaries, shall each ratify any actions which are reasonably necessary or
desirable to be taken by CBI, CONVERGYS or any other subsidiary of CBI or
CONVERGYS, as the case may be, to effectuate the transactions contemplated by
this Agreement. On or prior to the Closing Date, CBI and CONVERGYS shall take
all actions as may be necessary to approve the stock-based employee benefit
plans of CONVERGYS in order to satisfy the requirement of Rule 16b-3 under the
Exchange Act and Section 162(m) of the Code.
(d) The parties hereto agree to take any reasonable actions
necessary in order for the Distribution to qualify as a tax-free distribution
pursuant to Section 355 of the Code.
13.2 QUALIFICATION AS TAX-FREE DISTRIBUTION. After the Closing Date,
neither CBI nor CONVERGYS shall take, or permit any member of its respective
Group to take, any action which could reasonably be expected to prevent the
Distribution from qualifying as a tax-free distribution within the meaning of
Section 355 of the Code or any other transaction contemplated by this Agreement
or any Ancillary Agreement which is intended by the parties to be tax-free
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from failing so to qualify. Without limiting the foregoing, after the Closing
Date and on or prior to the Distribution Date, CONVERGYS shall not issue or
grant, and shall not permit any member of the CONVERGYS Group to issue or grant,
directly or indirectly, any shares of CONVERGYS Common Shares or any rights,
warrants, options or other securities to purchase or acquire (whether upon
conversion, exchange or otherwise) any shares of CONVERGYS Common Shares
(whether or not then exercisable, convertible or exchangeable) if such issuance
or grant would prevent the Distribution from being tax-free under Section 355 of
the Code.
ARTICLE 14
TERMINATION
14.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time after the Closing Date and prior to the Distribution Date by the mutual
consent of CBI and CONVERGYS.
14.2 OTHER TERMINATION. This Agreement may be terminated by CBI at any
time prior to the Closing Date.
14.3 EFFECT OF TERMINATION.
(a) In the event of any termination of this Agreement prior to the
Closing Date, no party to this Agreement (or any of its directors or officers)
shall have any liability or further obligation to any other party.
(b) In the event of any termination of this Agreement on or after
the Closing Date, only the provisions of Article 8 will terminate and the other
provisions of this Agreement and each Ancillary Agreement shall remain in full
force and effect.
ARTICLE 15
MISCELLANEOUS
15.1 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER.
(a) This Agreement and each Ancillary Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall
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become effective when one or more counterparts have been signed by each of the
parties and delivered to the other party.
(b) This Agreement and the Ancillary Agreements and the Exhibits,
Schedules and Appendices hereto and thereto contain the entire agreement between
the parties with respect to the subject matter hereof, supersede all previous
agreements, negotiations, discussions, writings, understandings, commitments and
conversations with respect to such subject matter and there are no agreements or
understandings between the parties other than those set forth or referred to
herein or therein.
15.2 GOVERNING LAW. This Agreement and, unless expressly provided
therein, each Ancillary Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Ohio.
15.3 ASSIGNABILITY. Except as set forth in any Ancillary Agreement,
this Agreement and each Ancillary Agreement shall be binding upon and inure to
the benefit of the parties hereto and thereto, respectively, and their
respective successors and assigns; provided, however, that no party hereto or
thereto may assign its respective rights or delegate its respective obligations
under this Agreement or any Ancillary Agreement without the express prior
written consent of the other parties hereto or thereto.
15.4 THIRD PARTY BENEFICIARIES. Except for the indemnification
rights under this Agreement of any CBI Indemnitee or CONVERGYS Indemnitee in
their respective capacities as such, (a) the provisions of this Agreement and
each Ancillary Agreement are solely for the benefit of the parties and are
not intended to confer upon any person except the parties any rights or
remedies hereunder, and (b) there are no third party beneficiaries of this
Agreement or any Ancillary Agreement, and neither this Agreement nor any
Ancillary Agreement shall provide any third person with any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement or any Ancillary Agreement. No
party hereto shall have any right, remedy or claim with respect to any
provision of this Agreement or any Ancillary Agreement to the extent such
provision relates solely to the other two parties hereto or the members of
such other two parties' respective groups. No party shall be
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required to deliver any notice under this Agreement or under any Ancillary
Agreement to any other party with respect to any matter in which such other
party has no right, remedy or claim.
15.5 NOTICES. All notices or other communications under this Agreement
or any Ancillary Agreement shall be in writing and shall be deemed to be duly
given when (a) delivered in person or (b) deposited in the United States mail or
private express mail, postage prepaid, addressed as follows:
If to CBI, to: Cincinnati Bell Inc.
201 East Fourth Street
Cincinnati, OH 45202
Attn: President
If to CONVERGYS, to: CONVERGYS CORPORATION
201 East Fourth Street
Cincinnati, OH 45202
Attn: President
Each party may change, at any time, the person or the address to which notices
should be sent hereunder by sending notice of such change as provided in this
Section 15.5
15.6 SEVERABILITY. If any provision of this Agreement or any Ancillary
Agreement or the application thereof to any person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof or thereof, or the application of such provision to
persons or circumstances or in jurisdictions other than those as to which it has
been held invalid or unenforceable, shall remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby or thereby,
as the case may be, is not affected in any manner adverse to any party. Upon
such determination, the parties shall negotiate in good faith in an effort to
agree upon such a suitable and equitable provision to effect the original intent
of the parties.
15.7 FORCE MAJEURE. No party shall be deemed in default of this
Agreement or any Ancillary Agreement to the extent that any delay or failure in
the performance of its obligations under this Agreement or any Ancillary
Agreement results from any cause beyond its reasonable control and without its
fault or negligence, such as acts of God, acts of civil or military authority,
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embargoes, epidemics, wars, riots, insurrections, fires, explosions,
earthquakes, floods, unusually severe weather conditions, labor problems or
unavailability of parts, or, in the case of computer systems, any failure in
electrical or air conditioning equipment. In the event of any such excused
delay, the time for performance shall be extended for a period equal to the time
lost by reason of the delay.
15.8 PUBLICITY. Prior to the Distribution, each of CONVERGYS and CBI
shall consult with the other prior to issuing any press releases or otherwise
making public statements with respect to the IPO, the Distribution or any of the
other transactions contemplated hereby and prior to making any filings with any
governmental authority with respect thereto.
15.9 HEADINGS. The article, section and paragraph headings contained
in this Agreement and in the Ancillary Agreements are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement or any Ancillary Agreement.
15.10 SURVIVAL OF COVENANTS. Except as expressly set forth in any
Ancillary Agreement, the covenants, representations and warranties contained in
this Agreement and each Ancillary Agreement, and liability for the breach of any
obligations contained herein or therein, shall survive each of the Separation,
the IPO and the Distribution and shall remain in full force and effect
regardless of whether CBI shall consummate, delay, modify or abandon the
Distribution.
15.11 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this Agreement or any Ancillary Agreement shall
not be deemed a waiver by the waiving party of any subsequent or other default,
nor shall it prejudice the rights of the other party.
15.12 SPECIFIC PERFORMANCE. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement or any Ancillary Agreement, the party or parties who are or are to be
thereby aggrieved shall have the right to specific performance and injunctive or
other equitable relief of its rights under this Agreement or such Ancillary
Agreement, in addition to any and all other rights and remedies at law or in
equity, and all such rights and remedies shall be cumulative. The parties agree
that the remedies at law for any breach or threatened breach, including monetary
damages, are inadequate
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compensation for any loss and that any defense in any action for specific
performance that a remedy at law would be adequate is waived. Any requirements
for the securing or posting of any bond with such remedy are waived.
15.13 AMENDMENTS.
(a) No provisions of this Agreement or any Ancillary Agreement
shall be deemed waived, amended, supplemented or modified by any party, unless
such waiver, amendment, supplement or modification is in writing and signed by
the authorized representative of the party against whom it is sought to enforce
such waiver, amendment, supplement or modification.
(b) Without limiting the foregoing, the parties anticipate that,
prior to the Closing Date, some or all of the Schedules to this Agreement may be
amended or supplemented and, in such event, such amended or supplemented
Schedules shall be attached hereto in lieu of the original Schedules.
IN WITNESS WHEREOF, the parties have caused this Plan of Reorganization
and Distribution Agreement to be executed by their duly authorized
representatives on this 20th day of July, 1998.
CINCINNATI BELL INC.
By: /s/ JOHN T. LAMACCHIA
---------------------------------------
John T. LaMacchia, President
and Chief Executive Officer
CONVERGYS CORPORATION
By: /s/ JAMES F. ORR
---------------------------------------
James F. Orr, President
and Chief Executive Officer
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SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement"), dated as of July 20,
1998, is by and between Cincinnati Bell Inc., an Ohio corporation ("CBI"),
and CONVERGYS Corporation, an Ohio corporation ("CONVERGYS").
RECITALS
WHEREAS, the Board of Directors of CBI has determined that it is in
the best interests of CBI and its shareholders to separate CBI's existing
businesses into two independent businesses by transferring all of the
outstanding shares of Cincinnati Bell Information Systems Inc. ("CBIS") and
of MATRIXX Marketing Inc. ("MATRIXX") to CONVERGYS;
WHEREAS, CBI and CONVERGYS recognize that it is advisable for CBI to
continue providing certain administrative and other services to CONVERGYS
until the Distribution Date (as defined herein) and thereafter for CONVERGYS
to provide certain administrative and other services to CBI as provided
herein (individually a "Service" and, collectively, the "Services"); and
WHEREAS, this Agreement is entered into pursuant to the Plan of
Reorganization and Distribution Agreement, dated as of the date hereof,
between CBI and CONVERGYS (the "Plan of Reorganization and Distribution
Agreement"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings assigned to them in the Plan of Reorganization
and Distribution Agreement.
NOW, THEREFORE, in consideration of the premises and for other good
and valid consideration, the receipt and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE 1
SERVICES
1.1 SERVICES. Beginning on the Closing Date (the "Effective Date")
and continuing through the Distribution Date, CBI, through its corporate
staff, will provide or otherwise make available to CONVERGYS, upon the
reasonable request of CONVERGYS, certain general corporate services,
including, but not limited to, finance, treasury and accounting, tax, human
resource services, food services, transportation services and arrange for
administration of insurance and risk management and employee benefit
programs. Beginning the next day after the Distribution Date through the date
that is six months after the Distribution Date (the "Expiration Date"),
CONVERGYS, through its corporate staff, will provide or otherwise make
available to CBI, upon the reasonable request of CBI, certain general
corporate services, including, but not limited to accounting and audit,
finance and treasury, tax, human resource services, food services,
transportation services and arrange for administration of insurance and
<PAGE>
risk management and employee benefit programs. For purposes of this
Agreement, the party receiving the Services is sometimes referred to as the
"Receiving Party," and the party providing the Services is sometimes referred
to as the "Providing Party." The Services may include the following:
(a) FINANCE, TREASURY AND ACCOUNTING RELATED SERVICES.
Provision of general financial advice and services including, without
limitation, assistance with respect to matters such as raising of additional
capital, cash management and financial controls, inter-company lending, and
accounting and internal audit.
(b) TAX RELATED SERVICES. Preparation of Federal tax returns,
preparation of state and local tax returns (including income tax returns),
tax research and planning and assistance on tax audits (Federal, state and
local) in accordance with the terms of the Tax Separation and Allocation
Agreement.
(c) HUMAN RESOURCES. Provision of general advice regarding the
coordination of employment policies and executive compensation matters.
(d) FOOD SERVICES. Provision of general food services as
provided by CBI on the date of this Agreement.
(e) TRANSPORTATION SERVICES. Provision of general
transportation services as provided by CBI on the date of this Agreement.
(f) INSURANCE AND EMPLOYEE BENEFIT RELATED SERVICES. Provision
of liability, property, casualty, and other normal business insurance
coverage and assistance, if required, with respect to arrangement of such
insurance coverage. Assistance, if required, with respect to support for
product, worker safety and environmental programs. (The Receiving Party
acknowledges that principal responsibility for compliance rests with the
Receiving Party.) Administration of the Receiving Party's employee
participation in employee benefit plans and insurance programs sponsored by
the Providing Party in accordance with the Employee Benefits Agreement.
Filing of all required reports under ERISA for employee benefit plans
sponsored by CONVERGYS.
(g) ADDITIONAL SERVICES. Services in addition to those
enumerated in subsections 1.1(a) through 1.1(g), above, as may be agreed upon
by CBI and CONVERGYS from time to time ("Additional Services").
(1) The parties shall create an Exhibit for each
Additional Service setting forth a description of the Service, the time
period during which the Service will be provided, the charge, if any, for the
Service and any other terms applicable thereto. Except as set forth in the
paragraph immediately below, the parties may, but shall not be required to,
agree on Additional Services during the term of this Agreement.
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(2) Except as set forth in the next sentence, CBI shall
be obligated to perform, at charges established pursuant hereto, any
Additional Service that: (A) was provided by CBI immediately prior to the
Effective Date and that CONVERGYS reasonably believes was inadvertently or
unintentionally omitted from the list of Initial Services or (B) is essential
to effectuate an orderly transition under the Plan of Reorganization and
Distribution Agreement unless such performance would significantly disrupt
CBI's operations or materially increase the scope of its responsibility under
this Agreement. If CBI reasonably believes the performance of Additional
Services required under subparagraphs (A) or (B) would significantly disrupt
its operations or materially increase the scope of its responsibility under
this Agreement, CBI and CONVERGYS shall negotiate in good faith to establish
terms under which CBI can provide such Additional Services, but CBI shall not
be obligated to provide such Additional Services if, following good faith
negotiation, it is unable to reach agreement on such terms.
(h) SERVICES PERFORMED BY OTHERS. At its option, Providing
Party may cause any Service it is required to provide hereunder to be
provided by any other Person that is providing, or may from time to time
provide, the same or similar services for Providing Party. Providing Party
shall remain responsible, in accordance with the terms of this Agreement, for
performance of any Service it causes to be so provided.
1.2 TERM. The initial term of this Agreement shall begin on the
Effective Date of this Agreement and continue until the Expiration Date
unless terminated earlier as provided herein:
(a) Receiving Party may terminate any or all of the Services,
in whole or in part, upon 30 days written notice to Providing Party.
(b) This Agreement may be terminated at any time upon the
mutual consent of the parties.
(c) The non-defaulting party may terminate this Agreement if
the other party is in material default under this Agreement and fails to
correct such default within 30 days after receiving written notice of such
default.
1.3 CHARGES AND PAYMENT.
(a) GENERAL. For performing general services of the types
described above in Section 1, Providing Party will charge Receiving Party the
costs actually incurred or such other charges as the parties may agree. To
the extent such direct costs cannot be separately measured, Providing Party
shall charge Receiving Party for a portion of the total cost determined
according to a method reasonably selected by Providing Party and approved by
Receiving Party.
The charges for services above will be determined and
payable no less frequently than on a monthly basis. The charges will be due
when billed and shall be paid no later than thirty 30 days from the date of
billing.
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(b) CHARGES FOR THIRD-PARTY SERVICES. When services of the
type described above in Section 1 are provided, upon the mutual agreement of
Providing Party and Receiving Party, by outside providers or, in connection
with the provision of such Services out-of-pocket costs are incurred, such as
travel, the cost thereof will be paid by Receiving Party. To the extent that
Receiving Party is billed by the provider directly, Receiving Party shall pay
the bill directly. If Providing Party is billed for such Services, Providing
Party may pay the bill and charge Receiving Party the amount of the bill or
forward the bill to Receiving Party for payment by Receiving Party.
(c) TAXES. Receiving Party shall pay any sales, use or
similar tax, excluding any income tax or taxes levied with respect to gross
receipts, payable by Providing Party or Receiving Party with respect to
amounts payable under this Agreement.
1.4 GENERAL OBLIGATIONS; STANDARD OF CARE.
(a) TRANSITIONAL NATURE OF SERVICES; CHANGES. The parties
acknowledge the transitional nature of the Services and that Providing Party
may make changes from time to time in the manner of performing the Services
if Providing Party is making similar changes in performing similar services
for itself and its Affiliates and if Providing Party furnishes to Receiving
Party substantially the same notice that Providing Party shall provide its
Affiliates respecting such changes. Notwithstanding the foregoing, between
the date hereof and the Expiration Date, Providing Party will not make any
material change to Services affecting Receiving Party without first providing
thirty (30) days prior written notice and obtaining Receiving Party's prior
written consent, which consent shall not be unreasonably withheld or delayed.
For purposes of this Agreement, the term "Affiliates" means, with respect to
any person, any other person, corporation, partnership, or other entity,
directly or indirectly controlling, controlled by or under common control
with such person.
(b) GOOD FAITH COOPERATION; CONSENTS. The parties will use
good faith efforts to cooperate with each other in all matters relating to
the provision and receipt of Services. Such cooperation shall include
exchanging information, providing electronic access to systems used in
connection with Services, performing true-ups and adjustments and obtaining
all consents, licenses, sublicenses or approvals necessary to permit each
party to perform its obligations hereunder. The costs of obtaining such
consents, licenses, sublicenses or approvals shall be allocated in accordance
with Section 1.3(a). The parties will maintain documentation supporting the
information contained in the Exhibits and cooperate with each other in making
such information available as needed in the event of a tax audit, whether in
the United States or any other country.
(c) ALTERNATIVES. If Providing Party reasonably believes it
is unable to provide any Service because of a failure to obtain necessary
consents, licenses, sublicenses or approvals pursuant to subsection 1.4(b) or
because of Impracticability, the parties shall cooperate to determine the
best alternative approach. Until such alternative approach is found or the
problem otherwise resolved to the satisfaction of the parties, Providing
Party shall use reasonable efforts, subject to Section 1.4(g) and Section
1.5(d), to continue providing the Service or, in the
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case of systems, to support the function to which the system relates or
permit Receiving Party to have access to the system so Receiving Party can
support the function itself. To the extent an agreed upon alternative
approach requires payment above and beyond that which is included in
Providing Party's charge for the Service in question, the parties shall share
equally in making any such payment unless they otherwise agree in writing.
(d) IMPRACTICABILITY. Providing Party shall not be required
to provide any Service to the extent that the performance of such Service
becomes "Impracticable" as a result of a cause or causes outside the
reasonable control of Providing Party including unfeasible technological
requirements, or to the extent the performance of such Services would require
Providing Party to violate any applicable laws, rules or regulations or would
result in the breach of any software license or other applicable contract.
(e) RECEIVING PARTY'S DIRECTORS AND OFFICERS. Nothing
contained herein will be construed to relieve the directors or officers of
Receiving Party from the performance of their respective duties or to limit
the exercise of their powers in accordance with the Receiving Party's
Articles of Incorporation or Regulations or in accordance with any applicable
statute or regulation.
(f) LIABILITIES. In furnishing Receiving Party with
management advice and other services as herein provided, neither Providing
Party nor any of its officers, directors, employees or agents shall be liable
to Receiving Party, its officers, directors, employees or agents, for errors
of judgment or for anything except willful malfeasance, bad faith or gross
negligence in the performance of their duties or reckless disregard of their
obligations and duties under the terms of this Agreement. The provisions of
this Agreement are for the sole benefit of Providing Party and Receiving
Party and will not, except to the extent otherwise expressly stated herein,
inure to the benefits of any third party.
(g) STANDARD OF CARE. Providing Party will use (and will
cause its subsidiaries to use) reasonable efforts in providing the scheduled
Services to Receiving Party and will perform such Services with the same
degree of care, skill and prudence customarily exercised for its own
operations; provided, however, that Providing Party shall not be required to
devote full time and attention to the performance of its duties under this
Agreement, but shall devote only so much of its time and attention as it
deems reasonable or necessary to perform the Services required hereunder. To
the extent possible, such Services will be substantially identical in nature
and quality to the services currently provided or otherwise made available by
Providing Party to its wholly owned subsidiaries and their respective
operating divisions. Except as provided in an Exhibit for a specific Service,
in providing the Services, Providing Party shall not be obligated to: (i)
hire any additional employees; (ii) maintain the employment of any specific
employee; (iii) purchase, lease or license any additional equipment or
software; or (iv) pay any costs related to the transfer or conversion of
Receiving Party's data to Providing Party or any alternate supplier of
Services. Providing Party has the right to reasonably supplement, modify,
substitute or otherwise alter such services from time to time in a manner
consistent with supplements, modifications, substitutions or alterations made
with respect to similar services provided or otherwise made available by
Providing Party to its wholly owned subsidiaries and
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their respective operating divisions. In providing such services, Providing
Party will not be responsible for the accuracy, completeness or timeliness of
any advice or service or any return, report, filing or other document which
it provides, prepares or assists in preparing, except to the extent that any
inaccuracy, incompleteness or untimeliness arises from Providing Party's
willful malfeasance, bad faith or gross negligence. Providing Party and
Receiving Party will cooperate in planning the scope and timing of services
provided by Providing Party under this Agreement in order to minimize or
eliminate interference with the conduct of Providing Party's business
activities. If such interference is unavoidable, Providing Party will
apportion, in its sole discretion, the available services in a fair and
reasonable manner. Notwithstanding anything set forth in this Section 1.4(g),
neither Providing Party nor any of its officers, directors, employees or
agents shall have any liability under this Agreement except to the extent
provided in Section 1.4(f).
(h) NON-EXCLUSIVITY. Nothing in this Agreement precludes
Receiving Party from obtaining the scheduled Services, in whole or in part,
from its own employees or from providers other than Providing Party.
1.5 CERTAIN LIMITATIONS: NO SALE, TRANSFER, ASSIGNMENT. Receiving
Party may not sell, transfer, assign or otherwise use the Services provided
hereunder, in whole or in part, for the benefit of any person other than the
Receiving Party Affiliates.
1.6 CONFIDENTIALITY. Providing Party agrees to hold, and to use
its best efforts to cause its employees and representatives to hold, in
confidence all Confidential Information concerning Receiving Party, furnished
to or obtained by Providing Party after the Effective Date in the course of
providing the scheduled Services, in a manner consistent with Providing
Party's standard policies with respect to the preservation and disclosure of
Confidential Information concerning Providing Party and its subsidiaries and
operating units. Providing Party's systems used to perform the Services
provided hereunder are confidential and proprietary to Providing Party or
third parties. Receiving Party shall treat these systems and all related
procedures and documentation as confidential and proprietary to Providing
Party or its third party vendors.
1.7 DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY AND
INDEMNIFICATION.
(a) DISCLAIMER OF WARRANTIES. PROVIDING PARTY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE SERVICES. PROVIDING PARTY MAKES NO REPRESENTATIONS OR
WARRANTIES AS TO THE QUALITY, SUITABILITY OR ADEQUACY OF THE SERVICES FOR ANY
PURPOSE OR USE.
(b) LIMITATION OF LIABILITY; INDEMNIFICATION OF RECEIVING PARTY.
Providing Party shall have no Liability to Receiving Party with respect to
its furnishing any of the Services hereunder except for Liabilities arising
out of the willful malfeasance, bad faith or gross negligence of Providing
Party or any Affiliates of Providing Party. Providing Party will
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indemnify, defend and hold harmless Receiving Party and its officers,
directors, employees and agents in respect of all Liabilities related to,
arising from, asserted against or associated with such willful misconduct,
malfeasance, bad faith or gross negligence. Such indemnification obligation
shall be a liability of Providing Party for purposes of the Plan of
Reorganization and Distribution Agreement and the provisions with respect to
indemnification shall govern with respect thereto. In no event shall
Providing Party or any Providing Party Affiliate have any Liability for any
incidental, indirect, special or consequential damages, whether or not caused
by or resulting from negligence or breach of obligations hereunder and
whether or not informed of the possibility of the existence of such damages.
For purposes of this Agreement, the term "Liabilities" means any and all
losses, claims, charges, debts, demands, actions, causes of actions, suits,
damages, costs and expenses, and similar obligations, including those arising
under any law, rule, regulation, action, suit, proceeding (including
reasonable attorneys' fees) and any and all costs and expenses related
thereto.
(c) LIMITATION OF LIABILITY; INDEMNIFICATION OF PROVIDING PARTY.
Receiving Party shall indemnify and hold harmless Providing Party and its
officers, directors, employees and agents in respect of all Liabilities
related to, arising from, asserted against or associated with Providing
Party's furnishing or failing to furnish the Services provided for in this
Agreement, other than Liabilities arising out of the willful malfeasance, bad
faith or gross negligence of Providing Party or any Providing Party
Affiliate. The provisions of this indemnity shall apply only to losses which
relate directly to the provision of Services. Such indemnification obligation
shall be a liability of the Receiving Party for purposes of the Plan of
Reorganization and Distribution Agreement and the provisions with respect to
indemnification shall govern with respect thereto. In no event shall
Receiving Party or any Receiving Party Affiliate have any Liability for any
incidental, indirect, special or consequential damages, whether or not caused
by or resulting from negligence or breach of obligations hereunder and
whether or not informed of the possibility of the existence of such damages.
(d) SUBROGATION OF RIGHTS VIS-A-VIS THIRD PARTY CONTRACTORS. In the
event any Liability arises from the performance of Services hereunder by a
third party contractor, Receiving Party shall be subrogated to such rights,
if any, as Providing Party may have against such third party contractor with
respect to the Services provided by such third party contractor to or on
behalf of Receiving Party.
ARTICLE 2
INSURANCE AND FOUNDATION MATTERS
2.1 CONVERGYS agrees that it will reimburse CBI for its
proportionate share of premiums paid or accrued, from the Effective Date
until the Distribution Date or such other date to which the parties agree, in
respect of insurance policies under which CONVERGYS and its Affiliates will
continue to have coverage following the Effective Date hereof. CBI and
CONVERGYS agree to cooperate in good faith to provide for an orderly
transition of insurance coverage from the Effective Date through the
Distribution Date and for the treatment of any insurance policies that will
remain in effect following the Effective Date on a mutually agreeable
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basis. Such efforts shall include, without limitation, cooperation with the
insurance companies with respect to the determination and allocation of
premiums, fees, assessments and other associated costs, including, but not
limited to, the potential attainment of any aggregate maximum liability for
policies in place prior to the Distribution Date. To the extent that
insurance carriers are able to and agree to separately invoice each party for
its proportionate allocation of all premiums, fees, assessments and other
associated costs, each party shall fully cooperate with such arrangements.
CBI shall fully cooperate with CONVERGYS with respect to disclosing the
existence of, and providing certified original copies of, any applicable
insurance and claims agreements upon request.
2.2 Each party shall cooperate fully with the other with respect to
the administration and reporting of CONVERGYS claims, the payment of
CONVERGYS claims determined to be payable, and the transfer to CONVERGYS of
the administration and files pertaining to any CONVERGYS claims or
obligations. Nothing contained herein limits or in any way precludes
CONVERGYS, by or for itself, CBIS and/or MATRIXX from asserting its rights to
coverage under any CBI procured insurance policy that provided coverage to or
for CONVERGYS, CBIS and/or MATRIXX and/or any such entities' directors,
officers, employees or agents as insured parties prior to the Distribution
Date. After the Effective Date, neither CBI nor CONVERGYS shall, without the
consent of the other, provide any such insurance carrier with a release, or
amend, modify or waive any rights under any such policy or agreement, if such
release, amendment, modification or waiver would adversely affect any rights
or potential rights of the other hereunder; provided, however, that the
foregoing shall not (i) preclude either from presenting any claim or from
exhausting any policy limit, (ii) require either to pay any premium or other
amount or to incur any liability, or (iii) require either to renew, extend or
continue any policy in force. Each of CONVERGYS and CBI will share such
information as is reasonably necessary in order to permit the other to manage
and conduct its insurance matters in an orderly fashion.
2.3 In the event that any of the insurance policies that CBI
maintains expire before the Distribution Date, CBI shall use its reasonable
best efforts to renew such policy and to cause the issuing insurance company
to issue a separate policy to CONVERGYS. If CBI is not able to cause such
insurance company to issue such separate insurance policy, CONVERGYS shall
use its reasonable best efforts to procure a separate policy from another
insurance company, and CBI shall use its reasonable best efforts to continue
to cover CONVERGYS under its renewed policy until the date on which a
separate insurance policy is procured. CONVERGYS shall compensate CBI for all
costs incurred by CBI to continue such coverage. CBI shall use its reasonable
best efforts to maintain the premium rates for all insurance policies for
both CBI and CONVERGYS in effect for periods through the Distribution Date.
Any premiums due under the separate insurance policies issued to CONVERGYS
shall be payable by CONVERGYS. In no event shall CBI or any CBI Indemnitee
have any liability or obligation whatsoever to CONVERGYS in the event that
any insurance policy or other contract or policy of insurance shall be
terminated or otherwise cease to be in effect for any reason, shall be
unavailable or inadequate to cover any liability of CONVERGYS for any reason
whatsoever or shall not be renewed or extended beyond the current expiration
date.
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2.4 This Agreement shall not be considered as an attempted
assignment of any policy of insurance or as a contract of insurance and shall
not be construed to waive any right or remedy of either CBI or CONVERGYS in
respect of any insurance policy or any other contract or policy of insurance.
2.5 CONVERGYS does hereby, for itself and its Affiliates, agree
that CBI or any CBI Indemnitee shall not have any liability whatsoever as a
result of the insurance policies and practices of CBI and its Affiliates as
in effect at any time prior to the Effective Date, including as a result of
the level or scope of any such insurance, the creditworthiness of any
insurance carrier, the terms and conditions of any policy, the adequacy or
timeliness of any notice to any insurance carrier with respect to any claim
or potential claim or otherwise.
2.6 Notwithstanding the foregoing, CBI agrees that, to the extent
that CBI is providing indemnification (through insurance or otherwise) to any
Covered Individual at any time prior to the Distribution Date for such
individual's acts and omissions in any capacity, CBI shall continue to
provide such indemnification, for any acts or omissions occurring prior to
the Distribution Date, through the last day of the five-year period
commencing on the Distribution Date. To the extent that such indemnification
is being provided through insurance, any premiums for such insurance payable
after the Distribution Date shall be shared equally by CBI and CONVERGYS. For
purposes of this Section 2.6, "Covered Individual" means an officer, director
or employee of CBI or a CBI Affiliate (and, where appropriate, their spouses,
estates, heirs, legal representatives and assigns) (a) who is insured, in any
capacity, under CBI's Directors and Officers and Company Reimbursement Policy
at any time prior to the Distribution Date and (b) who is an officer,
director or employee of CONVERGYS or a CONVERGYS Affiliate on the day
immediately following the Distribution Date. The provisions of this Section
2.6 shall survive the termination of this Agreement.
2.7 To the extent that at the Distribution Date the Cincinnati Bell
Foundation has assets in excess of its commitments, the parties shall cause
the Foundation's trustees to contribute half of such excess to a foundation
established by CONVERGYS which qualifies as a charitable entity under Section
501(c)(3) of the Internal Revenue Code.
ARTICLE 3
MISCELLANEOUS
3.1 LAWS AND GOVERNMENTAL REGULATIONS. Receiving Party shall be
responsible for (i) compliance with all laws and governmental regulations
affecting its business and (ii) any use Receiving Party may make of the
Services to assist it in complying with such laws and governmental
regulations. While Providing Party shall not have any responsibility for
Receiving Party's compliance with the laws and regulations referred to above,
Providing Party agrees to use reasonable efforts, subject to subsection 1.5,
to cause the Services to be designed in such manner that such Services shall
be able to assist Receiving Party in complying with applicable legal and
regulatory responsibilities. Providing Party's charge, if any, for such
Service
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may reflect its efforts under this Section 3.1. In no event, however, shall
Receiving Party rely solely on its use of the Services in complying with any
laws and governmental regulations.
3.2 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein,
and no act of the parties, shall be deemed to create any relationship between
the parties other than the relationship of independent contractor nor be
deemed to vest any rights, interest or claims in any third parties.
3.3 INDEPENDENCE. All employees and representatives of Providing
Party providing the Services to Receiving Party will be deemed for purposes of
all compensation and employee benefits to be employees or representatives of
Providing Party and not employees or representatives of Receiving Party. In
performing such services, such employees and representatives will be under the
direction, control and supervision of Providing Party (and not of Receiving
Party), and Providing Party will have the sole right to exercise all authority
with respect to the employment (including termination of employment), assignment
and compensation of such employees and representatives.
3.4 AMENDMENTS; WAIVERS. This Agreement may be amended or modified
only in writing executed on behalf of CBI and CONVERGYS. No waiver shall operate
to waive any further or future act and no failure to object or forbearance shall
operate as a waiver.
3.5 INCONSISTENCY. In the event of any inconsistency between the
terms of this Agreement and any of the Exhibits hereto, the terms of this
Agreement, other than charges, shall control.
3.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns, provided that this Agreement and the rights and
obligations contained herein or in any exhibit or schedule hereto shall not
be assignable, in whole or in part, without the prior written consent of the
parties hereto and any attempt to effect any such assignment without such
consent shall be void.
3.7 ARBITRATION. Any dispute, controversy or claim arising out of
or in connection with this Agreement (including any questions of fraud or
questions concerning the validity and enforceability of this Agreement or any
of the rights herein), shall be determined and settled in accordance with
Article 11 of the Plan of Reorganization and Distribution Agreement.
3.8 NOTICES. All notices required or permitted to be given under
this Agreement shall be in writing and shall be sent by facsimile
transmission or mailed by registered or certified mail addressed to the party
to whom such notice is required or permitted to be given. All notices shall
be deemed to have been given when transmitted if given by facsimile and
confirmation of receipt is received or, if mailed, 48 hours after mailed as
evidenced by the postmark at the point of mailing.
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All notices to CBI shall be addressed as follows:
CINCINNATI BELL INC.
201 E. Fourth Street
Seventh Floor
Cincinnati, Ohio 45202
Fax No. 513-397-9900
Attention: President
All notices to CONVERGYS shall be addressed as follows:
CONVERGYS CORPORATION
201 E. Fourth Street
Twentieth Floor
Cincinnati, Ohio 45202
Fax No. 513-397-5364
Attention: President
Either party may, by written notice to the other, as provided herein
designate a new address to which notices to the party giving the notice shall
thereafter be mailed.
3.9 FORCE MAJEURE. Providing Party shall not be liable for any
delay or failure of performance to the extent such delay or failure is caused
by circumstances beyond its reasonable control and that by the exercise of
due diligence it is unable to prevent, provided that the party claiming
excuse use its best efforts to overcome the same.
3.10 ENTIRETY OF AGREEMENT. This Agreement, the Plan of
Reorganization and Distribution Agreement and the Ancillary Agreements set
forth the entire agreement and understanding of the parties relating to the
subject matter contained herein and merges all prior discussions between
them, and neither party shall be bound by any representation other than as
expressly stated in this Agreement or by a written amendment to this
Agreement, the Plan of Reorganization and Distribution agreement and the
Ancillary Agreements signed by authorized representatives of both parties.
3.11 SEVERABILITY. In the event any term of this Agreement is or
becomes or is declared to be invalid or void by any court of competent
jurisdiction, such term or terms shall be null and void and shall be deemed
deleted from this Agreement, and all the remaining terms of the Agreement
shall remain in full force and effect.
3.12 GOVERNING LAW. The validity, performance and construction of
this Agreement shall be governed by the laws of Ohio.
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IN WITNESS WHEREOF, the parties have executed this Services
Agreement as of the date first above written.
CINCINNATI BELL INC.
By: /s/ JOHN T. LAMACCHIA
-------------------------------------
John T. LaMacchia, President
and Chief Executive Officer
CONVERGYS CORPORATION
By: /s/ JAMES F. ORR
-------------------------------------
James F. Orr, President
and Chief Executive Officer
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TAX SEPARATION AND ALLOCATION AGREEMENT
This Tax Separation and Allocation Agreement (the "Agreement") is
made as of July 20, 1998 by and among Cincinnati Bell Inc., an Ohio
corporation ("CBI"), and Convergys Corporation, an Ohio corporation
("Convergys") (together with its subsidiaries existing immediately following
the Distribution, the "Convergys Group").
WHEREAS, CBI is the common parent of an Affiliated Group of
corporations engaged in separate and distinct lines of business, including
subsidiaries engaged in the telecommunication business and subsidiaries
engaged in information businesses that rely heavily on the latest
technological advances.
WHEREAS, CBI has formed Convergys as a holding company and
transferred to it all of the subsidiaries that comprise the Convergys Group.
WHEREAS, CBI intends to have Convergys issue slightly less than 20
percent of the shares of Convergys to the public leaving CBI as the owner of
more than 80 percent of the shares of Convergys.
WHEREAS, soon after such sale, CBI proposes to distribute to its
shareholders all of the shares of Convergys that it owns in a distribution
that is intended to be tax-free pursuant to the provisions of Section 355 of
the Code.
WHEREAS, CBI and Convergys have entered into a Distribution
Agreement (as defined below) providing for the distribution of all of the
Convergys stock owned by CBI to its shareholders in accordance with the
Distribution Agreement; and
WHEREAS, CBI and Convergys, for themselves and their respective
Groups, desire to set forth their agreement regarding the allocation between
CBI and the Convergys Group of all responsibilities, liabilities and benefits
pertaining to Taxes paid or payable by either of them for all Taxable periods.
NOW, THEREFORE, in consideration of their mutual promises, the
parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement:
a. "Affiliate" shall mean, with respect to any person, any other
person means any person, corporation, partnership or other entity
directly or indirectly controlling, controlled by or under common
control with such person.
b. "Affiliated Group" shall mean an affiliated group of corporations
within the meaning of Section 1504(a) of the Code for the taxable
period in question.
c. "Carryback or Carryforward Item" shall have the meaning set forth
in Section 2d.
<PAGE>
d. "CBI-Caused Taxes" means any liability for Taxes, including
interest and penalties, incurred by the CBI Group or the
Convergys Group arising from or attributable to any of the
transactions that are directly related to the Distribution
failing to qualify under Section 355 of the Code, but only if
such failure (i) was caused by an act that occurred after the
Distribution in which CBI or a member of the CBI Group
participated, or (ii) was otherwise attributable to one or more
of the representations contained in Section 5b or Section 5c
hereof failing to be true as of the date of this Agreement.
e. "CBI Group" shall mean, with respect to any taxable period, the
corporations that were members of the CBI Consolidated Group
during such period, exclusive of the corporations that are
included in the Convergys Group.
f. "Code" shall mean the Internal Revenue Code of 1986, as amended.
g. "Consolidated Group" shall mean those corporations that presently
are eligible to file certain tax returns on an affiliated or
consolidated basis with CBI as the common parent.
h. "Consolidated Return" shall mean the consolidated federal income
Tax return of CBI including the Convergys Group and all other
subsidiaries of CBI for the period commencing January 1, 1998
through and including the Distribution Date.
i. "Controlled Return" shall mean (a) the Consolidated Return, (b)
any Prior Period Consolidated Return and (c) any combined returns
with respect to 1998 and all prior years.
j. "Convergys-Caused Taxes" means any liability for Taxes, including
interest and penalties, incurred by the CBI Group or the
Convergys Group arising from or attributable to any of the
transactions that are directly related to the Distribution
failing to qualify under Section 355 of the Code, but only if
such failure (i) was caused by an act that occurred after the
Distribution in which Convergys or a member of the Convergys
Group participated, or (ii) was otherwise attributable to one or
more of the representations contained in Section 5a or Section 5c
hereof failing to be true as of the date of this Agreement.
k. "Convergys Group" shall have the meaning set forth in the first
paragraph of this Agreement.
l. "Convergys Tax Liability" shall mean, with respect to any
Consolidated Group in any Taxable Period, the Convergys Group's
share of the Tax liability of such Consolidated Group, computed
as if the relevant members of the Convergys Group were not and
never were part of such Consolidated Group, but rather, were a
separate Affiliated Group of corporations filing a similar group
Return (provided, however, any transaction with any member of the
CBI Group included in such Consolidated Group shall not be taken
into account until the first taxable
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period in which such transaction is required to be taken into
account for Tax purposes under applicable law). Such computation
shall be made (i) without regard to the income, deductions
(including the net operating loss and capital loss deductions)
and credits in any year of any member of the CBI Group, except to
the extent that a payment was made to any member of the CBI Group
with respect thereto, (ii) by taking account of any Tax Asset of
the Convergys Group, including net operating loss and capital
carryforwards and carrybacks and minimum Tax credits from earlier
years of the Convergys Group except to the extent that such
losses, carryforwards, carrybacks or credits have been used by
any member of the CBI Group, (iii) by applying the maximum
applicable statutory Tax rate in effect under applicable law
during the relevant year, and (iv) by reflecting the positions,
elections and accounting methods used by the Consolidated Group
preparing the relevant return for the Consolidated Group.
m. "Distribution" shall mean the distribution by CBI of all shares
of Convergys that are held by CBI to CBI's shareholders pursuant
to the Distribution Agreement.
n. "Distribution Agreement" shall mean the Plan of Reorganization
and Distribution Agreement dated _______________, 1998 between
CBI and Convergys.
o. "Distribution Date" shall mean the date on which the Distribution
shall be effected.
p. "Final Determination" shall mean the final resolution of
liability for any Tax for a taxable period, (i) by the Internal
Revenue Service Form 870 or Form 870-AD (or any successor forms
thereto), on the date of acceptance by or on behalf of the
taxpayer, or by comparable form under the laws of other
jurisdictions; except that a Form 870 or Form 870-AD or
comparable form that reserves (whether by its terms or by
operation of law) the right of the taxpayer to file a claim for
refund and/or the right of the taxing authority to assert a
further deficiency shall not constitute a Final Determination;
(ii) by decision, judgment, decree or other order by a court of
competent jurisdiction, which has become final and unappealable;
(iii) by a closing agreement or accepted offer in compromise
under Section 7121 or Section 7122 of the Code, or comparable
agreements under the laws of other jurisdictions; (iv) by any
allowance of a refund or credit in respect of an overpayment of
Tax, but only after the expiration of all periods during which
such refund may be recovered (including by way of offset) by the
Tax imposing jurisdiction; or (v) by any other final disposition,
including by reason of the expiration of the applicable statute
of limitations or by mutual agreement of the parties.
q. "Group" shall mean the Convergys Group and/or the CBI Group.
r. "Indemnitor" shall have the meaning set forth in Section
(6)(d)(ii).
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s. "Prior Period Consolidated Return" shall mean any consolidated
Tax Return of CBI filed, or to be filed, for taxable years prior
to the Consolidated Return year.
t. "Return" shall mean any tax return, statement, report, form,
election or claim (including all exhibits and schedules thereto)
required to be filed with a Taxing Authority with respect to any
Taxes.
u. "Tax" (and the correlative meaning, "Taxes," "Taxing," "Taxable")
shall mean any income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment,
environmental, excise, severance, stamp, transfer, recording
occupation, premium, property, value ad, winfall profit tax,
custom duty, or other tax of any kind whatsoever, together with
any interest and penalty, addition to tax or additional amount
imposed by any governmental authority (a "Taxing Authority")
responsible for the imposition of any such (domestic or foreign).
v. "Tax Administrators" shall mean the person designated by CBI as
having primary responsibility for tax matters for the CBI Group
and the person designated by Convergys as having primary
responsibility for tax matters for the Convergys Group, or such
other persons as may be mutually agreed upon by CBI and
Convergys.
w. "Tax Asset" shall mean any net operating loss, net capital loss,
tax credit, or any other loss, credit, or Tax attribute, which
could reduce any Tax.
x. "Tax Benefit" shall have the meaning set forth in Section 3d.
y. "Tax CPA" shall mean PricewaterhouseCoopers LLP or a comparable
firm of internationally recognized certified public accountants
mutually agreed upon by CBI and Convergys.
Any term used in this Agreement that is not defined in this Agreement
shall, to the extent the context requires, have the meaning assigned to
it in the Code or the applicable Treasury regulations thereunder (as
interpreted in administrative pronouncements and judicial decisions) or
in comparable provisions of applicable law.
2. ADMINISTRATIVE AND COMPLIANCE MATTERS.
a. TAX SHARING AGREEMENTS. Except for this Agreement and except as
provided in this Agreement, any and all existing Tax allocation
agreements or arrangements, written or unwritten, between any
member of the CBI Group and any member of the Convergys Group
shall terminate upon completion of the Distribution.
b. FILING OF RETURNS.
i. Consolidated and Prior Period Consolidated Returns. CBI
and Convergys will join, and will cause each of their
respective subsidiaries to join, in the
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Consolidated Return to the extent each is eligible to
join in such Return under the provisions of the Code or
the regulations thereunder. Each of the Groups will
prepare separate returns for members of such Groups. The
consolidation of those returns will be done under the
direction of the Tax Administrators, who will cause the
Consolidated Return to be timely prepared and filed. The
Tax Administrators shall make the Consolidated Return
available to the chief financial officers of CBI and
Convergys for their review prior to filing and shall
furnish them a copy of the return promptly after it is
filed. In addition, prior to filing such Return, the
consolidation will be reviewed by the Tax CPA whose costs
will be borne equally by CBI and Convergys. For each
Taxable period, the Tax liability of each member shall be
computed consistent with past practice and in accordance
with the terms of the Tax Allocation Agreement among the
members of the CBI Affiliated Group that was signed by
CBI on October 29, 1987 and by Cincinnati Bell
Information Systems Inc. on November 3, 1987.
ii. RETURN INFORMATION. CBI and Convergys agree that each
will cause their respective chief financial officers to
furnish to the Tax Administrators on a timely basis such
information, schedules, analyses and any other items as
may be necessary to prepare the Consolidated Return. Such
information, schedules, analyses and other items will be
prepared in a manner consistent with existing practice
and in accordance with the work plan scheduled to be
agreed upon by the Tax Administrators and the chief
financial officers of CBI and Convergys, acting
reasonably, as soon as practicable after the Distribution
Date.
iii. FILING PROCEDURES. The parties will execute and deliver
all documentation reasonably required (including powers
of attorney, if requested) to enable the Tax
Administrators to timely file, and to take all action
necessary or incidental to the filing of, the
Consolidated Return or any amendment of the Consolidated
Return or any prior period of the Consolidated Return.
CBI agrees that an officer of CBI will timely sign the
Consolidated Return (and any Prior Period Consolidated
Return which has not been filed as of the Distribution
Date) and any amendment of the Consolidated Return and
any Prior Period Consolidated Return after (a) receiving
written confirmation from the Tax Administrators that the
Tax Administrators have reviewed such return and
consulted with the Tax CPA and that it is in order for
filing, (b) such officer has reviewed such Consolidated
Return, and (c) any reasonable questions raised by such
officer in reviewing such return have been resolved
satisfactorily.
iv. COMBINED STATE TAX RETURNS. The Tax Administrators will
cause any combined state tax returns with respect to 1998
or any prior Tax year and any amendment of such returns
to be timely prepared, filed and paid, utilizing
procedures substantially similar to those provided in
Section 2
5
<PAGE>
and Section 3 of this Agreement with respect to the
Consolidated Return and Prior Period Consolidated
Returns.
v. OTHER TAX RETURNS. The parties and their respective
subsidiaries shall timely prepare and file Tax Returns
(other than Controlled Returns) in those jurisdictions in
which they are required to do so in a manner consistent
with past practice. Taxes for any Return filed by one of
the Companies pursuant to this section shall be paid or
caused to be paid by the party responsible under this
section for filing such return. The Tax Administrators
shall have the right to approve any Tax returns filed
pursuant to this section with regard to such filing.
c. TAX PAYMENTS.
i. INTERIM PAYMENTS. Following the Distribution Date, at the
request of the Tax Administrators, Convergys, on behalf
of the Convergys Group, shall make payment to CBI equal
to the excess of the estimated liability of the Convergys
Group for the Tax owing under the Consolidated Return (as
reasonably determined by the Tax Administrators and the
Tax CPA) over the prior payments made by such Group in
respect of such Tax. On or before March 15, 1999, an
interim Tax settlement payment shall be made to or by CBI
to the Convergys Group, as the case may be, equal to the
difference between the estimated liability of the
Convergys Group under the Consolidated Return and the
amounts previously paid by the Convergys Group with
respect to such Return. Such amounts will be reasonably
determined by the Tax Administrators and the Tax CPA.
ii. ADJUSTING PAYMENT. Based upon computations to be prepared
by the effected Group and approved by the Tax
Administrators and the Tax CPA, an adjusting payment
equal to the difference between amounts previously paid
with respect to estimated taxes for the Consolidated
Return shall be made by one Group to the other on or
before October 15, 1999 based on the Consolidated Return
as filed.
d. CARRYBACKS AND CARRYFORWARDS. If, for any Taxable period, a
member of the Convergys Group incurs a net operating loss, net
capital loss, unused general business tax credit or unused
foreign tax credit (a "Carryback or Carryforward Item"), that
may be carried back or carried forward to a Taxable year of the
CBI Group or the CBI Affiliated Group, CBI shall pay to
Convergys an amount equal to the amount by which the Tax
liability of the CBI Group is reduced by such Carryback or
Carryforward Item. Likewise, if, for any Taxable period, a
member of the CBI Group incurs Carryback or Carryforward Item
that may be carried back or carried forward to a Taxable year of
the CBI Affiliated Group, Convergys shall pay to CBI an amount
equal to the amount by which the Tax liability of the Convergys
Group is reduced by such Carryback or Carryforward Item.
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<PAGE>
e. AGENCY. Convergys irrevocably designates the Tax Administrator
designated by CBI (and shall cause each member of the Convergys
Group to irrevocably designate such Tax Administrator) as its
agent and attorney-in-fact (and shall execute any necessary
powers of attorney) for the purpose of taking any and all
actions necessary or incidental to the filing of Returns for (i)
any period during which any member of the Convergys Group or any
predecessor qualified to file a consolidated, combined, unitary
or similar Return with any member of the CBI Group, and (ii) any
period ending on or before the Distribution Date. CBI shall keep
Convergys reasonably informed of, and shall reasonably consult
with Convergys with respect to, all actions to be taken on
behalf of any member of the Convergys Group. CBI and Convergys
will each furnish the other any and all information that the
other may reasonably request in order to carry out the
provisions of this Agreement to determine the amount of any Tax
liability.
3. INDEMNITIES.
a. CBI INDEMNITY. CBI and each member of the CBI Group jointly and
severally indemnify Convergys, its shareholders, and the members
of the Convergys Group that were members of a Consolidated Group
that included such Convergys Affiliate against and hold them
harmless from:
i. Any Tax liability of the CBI Group and any CBI-Caused Tax
Liability;
ii. Any liability or damage resulting from a breach by CBI or
any member of the CBI Group of any representation or
covenant made by CBI herein;
iii. Any Tax liability resulting from the Distribution and
attributable to any action of CBI or any member of the CBI
Group; and
iv. All liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and
attorneys' fees and expenses), losses, damages,
assessments, settlements or judgments arising out of or
incident to the imposition, assessment or assertion of any
Tax liability or damage described in (i), (ii), or (iii),
including those incurred in the contest in good faith and
appropriate proceedings relating to the imposition,
assessment or assertion of any such Tax, liability or
damage.
b. CONVERGYS INDEMNITY. Convergys and each member of the Convergys
Group will jointly and severally indemnify CBI, its
shareholders, and the members of the CBI Group that were members
of a Consolidated Group that included such CBI Affiliate against
and hold them harmless from:
i. Any Convergys Tax Liability and Convergys-Caused Tax
Liability;
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<PAGE>
ii. Any liability or damage resulting from a breach by
Convergys or any member of the CBI Convergys of any
representation or covenant made by Convergys herein;
iii. Any Tax liability resulting from the Distribution and
attributable to any action of Convergys or any member of
the Convergys Group; and
iv. All liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and
attorneys' fees and expenses), losses, damages,
assessments, settlements or judgments arising out or
incident to the imposition, assessment or assertion of any
Tax liability or damage described in (i), (ii) or (iii)
including those incurred in the contest and good faith and
appropriate proceedings relating to the imposition,
assessment or assertion of any such Tax, liability or
damage.
c. DISCHARGE OF INDEMNITY. CBI, Convergys and the members of the
CBI Group and the Convergys Group, respectively, shall discharge
their obligations under Sections 3a and 3b, hereof,
respectively, by paying the relevant amount within thirty days
of demand therefor. The CBI Group shall be entitled to make such
a demand at any time after a member of the CBI Group makes a
payment or deposit in respect of a Tax for which any member of
the Convergys Group has an obligation under Section 3b. The
Convergys Group shall be entitled to make such a demand at any
time after a Final Determination of an obligation of any member
of the CBI Group under Section 3a. Any such demand shall include
a statement showing the amount due under Section 3a or Section
3b, as the case may be. If either Convergys, CBI or any member
of the Convergys Group or CBI Group disputes in good faith the
fact or the amount of its obligation, then no payment of the
amount of the dispute shall be required until any such good
faith dispute is resolved in accordance with Section 7 hereof;
provided, however, that any amount not paid within thirty days
of demand shall bear interest as provided in Section 6e.
d. TAX BENEFITS. If an indemnification obligation of any member of
the CBI Group or any member of the Convergys Group, as the case
may be, under this Section 3, arises in respect of an adjustment
that makes allowable to a member of the CBI Group or a member of
the Convergys Group, respectively, any deduction, amortization,
exclusion from income or other allowance (a "Tax Benefit") that
would not, but for such adjustment, be allowable, then any
payment by any member of the CBI Group or Convergys Group,
respectively, pursuant to this Section 3 shall be an amount
equal to (x) the amount otherwise due but for this subsection
3d, minus (y) the present value of the product of the Tax
Benefit multiplied (i) by the maximum applicable federal,
foreign or state, as the case may be, corporate tax rate in
effect at the time such Tax Benefit becomes allowable to a
member of the CBI Group or member of the Convergys Group (as the
case may be), or (ii) in the case of a Tax Credit, by 100%. The
present value of such product shall be determined by discounting
such product from the time
8
<PAGE>
that the Tax Benefit becomes allowable at a rate equal to the
applicable federal rate, as set forth from time to time in the
Internal Revenue Bulletin.
e. CALCULATION OF TAX. For purposes of this Section 3, in the case
of Taxes that are imposed on a periodic basis and are payable
for a Tax period that includes (but does not end on) the
Distribution Date, a portion of such Tax related to the portion
of such Tax period ending on the Distribution Date shall (i) in
the case of any Taxes other than Taxes based upon or related to
income, sales, gross receipts, wages, capital expenditures, or
expenses, be deemed to be the amount of such Tax for the entire
Tax period multiplied by a fraction the numerator of which is
the number of days in the Tax period ending on the Distribution
Date and the denominator of which is the number of days in the
entire Tax period, and (ii) in the case of any Tax based upon or
related to income, sales, gross receipts, wages, capital
expenditures or expenses, be deemed equal to the amount that
would be payable if the relevant Tax period ended on the
Distribution Date.
f. GUARANTEES. CBI or Convergys, as the case may be, shall
guarantee the obligations of each member of the CBI Group or the
Convergys Group, respectively, under this Agreement.
4. TAX DEFICIENCIES AND CLAIMS.
a. Except as otherwise provided in Section 4b, the Tax
Administrators shall control all audits, examinations and
proceedings with respect to Taxes with respect to any Controlled
Returns. The Tax Administrators shall have overall
responsibility for obtaining and coordinating all responses in
connection with any such proceedings with respect to any
Controlled Returns. To the extent that any such audit affects
one of the Groups, such Group shall prepare and submit such
responses in a manner consistent with prior practice, provided,
however, that the Tax Administrators shall have the right to
approve all such responses prior to their submission.
Adjustments affecting solely the Taxable income, loss or
deductions of, or Tax credits generated by any Group, may be
agreed upon or settled only upon approval of that Group, which
approval shall not be unreasonably withheld or delayed.
b. Any proposed or actual income Tax deficiencies or refund claims,
with respect to the Consolidated Return or any Prior Period
Consolidated Return that arises from the business activities of
a particular member and that do not otherwise affect any
Controlled Return, may be defended or prosecuted by that member
at its own cost and expense and with counsel and accountants of
its own selection. Each of the Tax Administrators may
participate in any such prosecution or defense at the expense of
the respective company employing the Tax Administrator. A member
may not compromise or settle any such tax deficiency or any
refund claim without the prior written consent of the Tax
Administrators, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, no member shall have a
right to an extension of the statute of limitations or to any
waiver of any other
9
<PAGE>
procedural safeguard without the prior written consent of the
Tax Administrators. The limitation expressed in the preceding
sentence applies, but is not limited to, the filing of a
petition in the United States Tax Court.
c. In connection with the defense of any audit of any Controlled
Return, except with regard to claims described in Section 4b,
above, the Tax Administrators may retain advisors and charge the
reasonable cost of their services to the appropriate Group or
Groups.
d. Refunds for any year will be allocated among the members in the
same manner as the Tax liability to which the refund relates was
allocated. If any member of the Convergys Group desires to file
a claim for refund with respect to a Taxable year for which it
was a member of the Consolidated Group, it shall prepare and
submit to CBI the claim for refund and a statement specifying
when the statute of limitations for filing the claim will
expire. The appropriate party to file such claim, under the
supervision of the Tax Administrators, will file the claim as
soon as practicable and will take such other action as may be
appropriate. Such member will reimburse CBI for all costs
incurred by CBI in complying with this section 4d.
5. REPRESENTATIONS AND COVENANTS.
a. CONVERGYS REPRESENTATIONS. Convergys, for itself and on behalf
of each member of the Convergys Group represents that, as of the
date hereof, and covenants that, on the Distribution Date, there
is no plan or intention (i) to liquidate Convergys or to merge
or consolidate Convergys, or any member of the Convergys Group
conducting an active trade or business relied upon in connection
with the restructuring or the Distribution, with any other
person subsequent to the Distribution, (ii) to sell, or
otherwise dispose of any asset, subsequent to the Distribution,
in a manner that would result in any increased Tax liability or
reduction of any Tax Asset of the CBI Group or any member
thereof, (iii) to take any action inconsistent with the
information or representations furnished to the Internal Revenue
Service or any other Tax Authority in connection with a request
for a private letter ruling (or any comparable pronouncement by
the Taxing Authority under applicable law) with respect to the
Distribution or the restructuring, (iv) to enter into any
negotiations, agreements, or arrangements with respect to
transactions or events (including stock issuances, pursuant to
the exercise of options or otherwise, capital contributions or
acquisitions, but not including the Distribution) which, if
treated as consummated before the proposed Distribution, would
result in CBI not having "control" of Convergys within the
meaning of Section 355(a)(1)(A) and Section 368(c) of the Code
at the time of the Distribution, (v) to make any change in
equity structure that would result in CBI not having such
"control" (except for the Distribution), (vi) to repurchase
stock of Convergys in a manner contrary to the requirements of
Revenue Procedure 96-30 or (vii) to take any action that
contravenes any agreement with a Taxing Authority to which any
member of the Convergys Group or the CBI Group is a party.
10
<PAGE>
b. CBI REPRESENTATIONS. CBI, for itself and on behalf of each
member of the CBI Group, represents that, as of the date hereof,
and covenants that, on the Distribution Date, there is no plan
or intention (i) to liquidate CBI or to merge or consolidate
CBI, or any member of the CBI Group conducting an active trade
or business relied upon in connection with the restructuring or
the Distribution, with any other person subsequent to the
Distribution, (ii) to sell, or otherwise dispose of any asset,
subsequent to the Distribution, in a manner that would result in
any increased Tax liability or reduction of any Tax Asset of the
Convergys Group or any member thereof, (iii) to take any action
inconsistent with the information or representations furnished
to the Internal Revenue Service or any other Tax Authority in
connection with a request for a private letter ruling (or any
comparable pronouncement by the Taxing Authority under
applicable law) with respect to the Distribution or the
restructuring, or (iv) to take any action that contravenes any
agreement with a Taxing Authority to which any member of the
Convergys Group or the CBI Group is a party.
c. CBI AND CONVERGYS REPRESENTATIONS. Each of CBI, Convergys and
the members of the CBI Group and the Convergys Group,
respectively, represent that, as of the date hereof, and
covenants that on the Distribution Date, neither Convergys, CBI
nor the members of the Convergys Group or CBI Group,
respectively, as applicable, is aware of any present plan or
intention by the current shareholders of CBI to sell, exchange,
transfer by gift, or otherwise dispose of any of their stock in,
or securities of, CBI or Convergys subsequent to the
Distribution. In making this representation, the parties hereto
recognize that the shares of CBI are, and the shares of
Convergys will be, listed on certain stock exchanges and regular
public trading of such shares can be expected.
6. COOPERATION.
a. ONGOING COOPERATION. CBI and Convergys will cooperate, and cause
each member and their respective Groups to cooperate, at such
time and to the extent reasonably requested by the other party
in connection with all matters subject to this Agreement. Such
cooperation will include, without limitation:
i. The retention and provision on reasonable request of any
and all information including books, records, documentation
or other information pertaining to Tax matters relating to
the Groups, any necessary explanations of information, and
access to personnel, until one year after the expiration of
the applicable statute of limitations (giving effect to any
extension, waiver, or mitigation thereof);
ii. The execution of any document that may be necessary or
helpful with any required Return or in connection with any
audit, proceeding, suit or action; and
11
<PAGE>
iii. The use of the party's best efforts to obtain any
documentation from a governmental authority or a third
party that may be necessary or helpful in connection with
the foregoing.
b. INFORMATION. CBI and Convergys shall keep each other fully
informed with respect to any material development relating to
the matters subject to this Agreement.
c. TAX ATTRIBUTES. CBI and Convergys shall promptly advise each
other with respect to any proposed Tax adjustments relating to a
Consolidated Group that are the subject of an audit or
investigation, or are the subject of any proceeding or
litigation, and it may affect any Tax liability or any Tax
attribution of CBI, Convergys, the CBI Group, the Convergys
Group or any member of the CBI Group or the Convergys Group.
d. AUDITS.
i. HANDLING OF AUDITS. Notwithstanding anything in this
Agreement to the contrary, the Tax Administrators shall be
kept apprised of all audits. CBI shall have full control
over all matters relating to any Return or any Tax
proceeding relating to any Tax matters of at least one
member of the CBI Group. Convergys shall have full control
over all matters relating to any Return or any Tax
Proceeding relating to any Tax matters of at least one
member of the Convergys Group. In the event that an audit
relates to any Tax matters of members from both the CBI
Group and the Convergys Group, oversight of such audit will
be handled by the Tax Administrators in consultation with
the chief financial officers of each of the respective
Groups.
ii. SETTLEMENTS. No settlement of any Tax proceeding relating
to any matter that would cause a payment obligation under
Sections 3a or 3b shall be accepted or entered into by or
on behalf of the party entitled to receive a payment under
Section 3a or 3b, whichever is applicable, unless a party
ultimately responsible for such payment under either
Section 3a or 3b, whichever is applicable (the
"Indemnitor"), consents thereto in writing, which consent
shall not be unreasonably withheld or delayed.
iii. NOTICE. The indemnified party agrees to give notice to the
Indemnitor of the assertion of any claim, or the
commencement of any suit, action or proceeding in respect
of which indemnity may be sought hereunder within thirty
days of such assertion or commencement, or such other time
that would allow the Indemnitor to timely respond to such
claim, suit, action or proceeding.
iv. OTHER ACTIONS. With respect to Returns relating to Taxes
solely attributable to the CBI Group or the Convergys
Group, as the case may be,
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<PAGE>
CBI and the members of the CBI Group, or Convergys and the
members of the Convergys Group, as the case may be, shall
have full control over all matters relating to any Tax
proceedings in connection therewith.
e. PAYMENTS. All payments to be made under this Agreement shall be
made in immediately available funds. Except as otherwise
provided, all payments required to be made pursuant to this
Agreement will be due thirty days after the receipt of notice of
such payment or, where no notice is required, thirty days after
the fixing of liability or the resolution of a dispute. Any
payment that is not made when due shall bear interest at a rate
equal to the "prime rate" then in effect, as quoted in the Wall
Street Journal, plus 2%.
f. TAX RESERVES. In connection with the Distribution, the Tax
Administrators will oversee the allocation of the tax reserves
shown on the balance sheet of CBI immediately prior to the
Distribution Date among the members of the CBI Group and the
Convergys Group in a manner that accurately reflects both the
parties to whom the reserves should be allocated and the amount
of reserves that should be allocated to each of such parties.
7. DISPUTE RESOLUTION. In the event of a disagreement between the Tax
Administrators or between the CBI Group or the Convergys Group, all
computations or recomputations of any Tax liability, Tax rate or other
similar items, and all determinations of the amount of payments or
repayments will be reviewed by the Tax CPA, with the cost of such
review being shared equally by the disputing Groups. The decision of
the Tax CPA shall be binding on the parties.
8. COSTS AND EXPENSES. Except as expressly set forth in this Agreement,
each party will bear its own costs and expenses incurred pursuant to
this Agreement. Notwithstanding anything to the contrary in this
Agreement, CBI and Convergys will share equally the cost of the Tax CPA
connected with reviewing the Consolidated Return.
9. EFFECTIVENESS. This Agreement will become effective upon the
consummation of the Distribution. All rights and obligations arising
hereunder with respect to a pre-Distribution Tax period will survive
until they are fully effectuated or performed and, provided further,
notwithstanding anything in this Agreement to the contrary, this
Agreement will remain in effect and its provisions will survive for one
year after the full period of all applicable statutes of limitation
(giving effect any extension, waiver or mitigation thereof) and, with
respect to any claim hereunder initiated prior to the end of such
period, and until such claim has been satisfied or otherwise resolved.
10. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which will be deemed an
original, and which together will constitute one and the same
instrument.
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<PAGE>
b. AMENDMENTS. This Agreement may be amended in writing duly
executed by all parties hereto.
c. GOVERNING LAW. This Agreement will be construed and enforced in
accordance with the laws of the State of Ohio.
d. BENEFICIARIES. This Agreement will be binding upon and inure to
the benefit of the parties hereto and their respective
successors and assigns, by merger, acquisition of assets or
otherwise. This Agreement is not intended to benefit any person
other than the parties hereto and such successors and assigns,
and no such other person will be a third-party beneficiary
hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the 20th day of July, 1998.
CINCINNATI BELL INC. CONVERGYS CORPORATION
By: /s/ JOHN T. LAMACCHIA By: /s/ JAMES F. ORR
-------------------------------- --------------------------------
14
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
CINCINNATI BELL INC.
AND
CONVERGYS CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II GENERAL PRINCIPLES. . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III DEFINED BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV DEFINED CONTRIBUTION PLANS. . . . . . . . . . . . . . . . . . . 6
ARTICLE V HEALTH AND WELFARE PLANS. . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE
DIRECTOR BENEFITS . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE VII GENERAL AND ADMINISTRATIVE. . . . . . . . . . . . . . . . . . .14
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
i
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EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT, dated as of October 14, 1998, is by
and between Cincinnati Bell Inc. ("CBI") and Convergys Corporation
("Convergys").
WHEREAS, CBI has determined to distribute to its shareholders all of the
Convergys common shares owned by CBI (the "Distribution"); and
WHEREAS, in conjunction with the Distribution, the parties have agreed
to enter into an agreement allocating assets, liabilities and
responsibilities with respect to certain employee compensation and benefit
programs;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 AGREEMENT means this Employee Benefits Agreement.
1.2 CBI ENTITY means CBI and any corporation that is, at the relevant
time, a direct or indirect subsidiary of CBI, except that, for periods
beginning on and after the Distribution Date, the term "CBI Entity" shall not
include a Convergys Entity.
1.3 CODE means the Internal Revenue Code of 1986, as amended, or any
successor federal income tax law. Reference to a specific Code provision
also includes any proposed, temporary, or final regulation in force under
that provision.
1.4 CONVERGYS ENTITY means Convergys and any corporation that is, at
the relevant time, a direct or indirect subsidiary of Convergys, Cincinnati
Bell Information Systems Inc. and its direct and indirect subsidiaries and
MATRIXX Marketing Inc. and its direct and indirect subsidiaries.
1.5 CONVERGYS INDIVIDUAL means any individual (a) who is either
actively employed by or on leave of absence from a Convergys Entity on the
Distribution Date; (b) who is transferred from a CBI Entity to a Convergys
Entity on the Distribution Date or (c) who retired or separated from a
Convergys Entity prior to the Distribution Date and has not been reemployed
by a CBI Entity or Convergys Entity since retiring or separating. In
addition, CBI and Convergys may designate, by mutual agreement, any other
individual or group of individuals as Convergys Individuals.
1.6 DISTRIBUTION DATE means the date on which the Distribution occurs.
<PAGE>
1.7 ERISA means the Employee Retirement Income Security Act of 1974, as
amended. Reference to a specific provision of ERISA also includes any
proposed, temporary, or final regulation in force under that provision.
1.8 IPO DATE means the date on which the initial public offering of
Convergy's common shares is closed.
1.9 NON-EMPLOYEE DIRECTOR, when immediately preceded by "CBI," means a
member of CBI's Board of Directors who is not an employee of a CBI Entity or
a Convergys Entity. When immediately preceded by "Convergys," Non-Employee
Director means a member of Convergys's Board of Directors who is not an
employee of a CBI Entity or a Convergys Entity.
1.10 PLAN, when immediately preceded by "CBI" or "Convergys," means any
plan, policy, program, payroll practice, on-going arrangement, contract,
trust, insurance policy or other agreement or funding vehicle providing
benefits to employees, former employees or Non-Employee Directors of a CBI
Entity or a Convergys Entity, as applicable.
ARTICLE II
GENERAL PRINCIPLES
2.1 ASSUMPTION OF LIABILITIES. Convergys hereby assumes and agrees to
pay, perform, fulfill and discharge, in accordance with their respective
terms, all of the following (regardless of when or where such liabilities
arose or arise or were or are incurred): (i) all liabilities, other than
those arising out of or relating to workers' compensation claims, arising out
of or relating to Convergys Individuals and their respective dependents and
beneficiaries, in each case relating to, arising out of or resulting from
employment by a CBI Entity before becoming Convergys Individuals (including
liabilities under CBI Plans and Convergys Plans); (ii) all other liabilities
to or relating to Convergys Individuals and other employees or former
employees of Convergys Entities, and their dependents and beneficiaries, to
the extent relating to, arising out of or resulting from future, present or
former employment with a Convergys Entity (including liabilities under CBI
Plans and Convergys Plans) and (iii) all other liabilities relating to,
arising out of or resulting from obligations, liabilities and
responsibilities expressly assumed or retained by a Convergys Entity or a
Convergys Plan pursuant to this Agreement.
2.2 CONVERGYS PARTICIPATION IN CBI PLANS.
(a) CBI'S GENERAL OBLIGATIONS AS PLAN SPONSOR. CBI shall continue
through the Distribution Date to administer, or cause to be administered, in
accordance with their terms and applicable law, the CBI Plans, and shall have
the sole discretion and authority to interpret the CBI Plans as set forth
therein. Before the Distribution Date, CBI shall not, without the prior
consent of Convergys, amend any material feature of any CBI Plan in which a
Convergys Entity is a participating company, except to the extent such
amendment
2
<PAGE>
would not affect any benefits of Convergys Individuals under such Plan or as
may be necessary or appropriate to comply with any collective bargaining
agreement or applicable law.
(b) CONVERGYS' GENERAL OBLIGATIONS AS PARTICIPATING COMPANY.
Convergys shall perform with respect to its participation in the CBI Plans,
and shall cause each other Convergys Entity that is a participating company
in any CBI Plan to perform, the duties of a participating company as set
forth in such Plans or any procedures adopted pursuant thereto, including:
(i) assisting in the administration of claims, to the extent requested by the
claims administrator of the applicable CBI Plan; (ii) cooperating fully with
CBI Plan auditors, benefit personnel and benefit vendors; (iii) preserving
the confidentiality of all financial arrangements CBI has or may have with
any vendors, claims administrators, trustees or any other entity or
individual with whom CBI has entered into an agreement relating to the CBI
Plans; and (iv) preserving the confidentiality of participant health
information (including health information in relation to FMLA leaves).
(c) TERMINATION OF PARTICIPATING COMPANY STATUS. Effective as of
the Distribution Date, each Convergys Entity shall cease to be a
participating company in the CBI Plans.
2.4 CONVERGYS PLANS. The Convergys Plans shall be, with respect to
Convergys Individuals who are participating in CBI Plans, in all respects the
successors in interest to, and shall not provide benefits that duplicate
benefits provided by, the corresponding CBI Plans. CBI and Convergys shall
agree on methods and procedures, including amending the respective plan
documents, to prevent Convergys Individuals from receiving duplicative
benefits from the CBI Plans and the Convergys Plans. With respect to
Convergys Individuals, each Convergys Plan shall provide that all service,
all compensation and all other benefit-affecting determinations that, as of
the Distribution Date, were recognized under the corresponding CBI Plan
shall, as of immediately after the Distribution Date, receive full
recognition, credit, and validity and be taken into account under such
Convergys Plan to the same extent as if such items occurred under such
Convergys Plan, except to the extent that duplication of benefits would
result. The provisions of this Agreement for the transfer of assets from
certain trusts relating to CBI Plans to the corresponding trusts relating to
Convergys Plans are based upon the understanding of the parties that each
such Convergys Plan will assume all liabilities of the corresponding CBI Plan
to or relating to Convergys Individuals, as provided for herein. If any such
liabilities are not effectively assumed by the appropriate Convergys Plan,
then the amount of assets transferred to the trust relating to such Convergys
Plan from the trust relating to the corresponding CBI Plan shall be
recomputed, ab initio, as set forth below but taking into account the
retention of such liabilities by such CBI Plan, and assets shall be
transferred by the trust relating to such Convergys Plan to the trust
relating to such CBI Plan so as to place each such trust in the position it
would have been in, had the initial asset transfer been made in accordance
with such recomputed amount of assets.
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2.5 PORTABILITY OF BENEFITS. On or before the Distribution Date, CBI
and Convergys may enter into an Interchange Agreement providing for (among
other things) the portability of benefits and mutual recognition of service
with respect to individuals who terminate employment with a CBI Entity and
who become employees of a Convergys Entity during the six month period
commencing on the Distribution Date or who terminate employment with a
Convergys Entity and who become employees of a CBI Entity during such six
month period.
ARTICLE III
DEFINED BENEFIT PLANS
3.1 ESTABLISHMENT OF MIRROR PENSION PLAN. Effective immediately after
the Distribution Date, Convergys shall establish a qualified defined benefit
pension plan (the "Convergys Pension Plan") for its eligible employees the
provisions of which shall mirror the provisions of CBPP and CBMPP.
3.2 ASSUMPTION OF LIABILITIES BY CONVERGYS PENSION PLAN. Immediately
after the Distribution Date, all liabilities to or relating to Convergys
Individuals under CBPP and CBMPP (collectively, the "CBI Pension Plans"),
shall cease to be liabilities of the CBI Pension Plans and shall be assumed
by the Convergys Pension Plan.
3.3 CALCULATION OF CBMPP ASSET ALLOCATION.
(a) As soon as practicable after the Distribution Date, CBI shall
cause to be calculated, for CBMPP and the Convergys Pension Plan, as of the
Distribution Date:
(i) An "Initial Allocation Amount," which shall reflect a 75%
probability that CBMPP and the Convergys Pension Plan assets at the end of
ten years will each exceed the present value of all projected future benefit
payments for each plan, with any difference (positive or negative) between
these assets and the present value of projected future benefit payments at
the end of ten years for the combined plans allocated between the plans on a
proportional basis reflecting the present value of all projected future
benefit payments at the end of ten years for each plan.
(ii) The Initial Allocation Amount for CBMPP and the
Convergys Pension Plan shall be determined in a manner consistent with CBI's
pension funding policy in effect on January 1, 1998, a summary of which is
attached hereto.
(b) A "414(1)(1) Amount" for each of CBMPP and the Convergys
Pension Plan shall be determined, which shall equal the minimum amount
necessary to fully fund benefits under CBMPP and the Convergys Pension Plan
on a "termination basis" (as that term is defined in Treas. Reg. Section
1.414(1)-1(b)(5)). The assumptions used in determining the 414(1)(1) Amounts
shall be those used in the determination of the minimum required contribution
under ERISA for the Plan Year beginning January 1, 1998, except that the
discount rate and mortality assumption shall be determined in accordance with
Internal Revenue Code Section 414(1).
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(c) If the aggregate amount of the assets of CBMPP as of the
Distribution Date is not less than the sum of the 414(1)(1) Amounts for CBMPP
and the Convergys Pension Plan, then such assets shall be allocated between
CBMPP and the Convergys Pension Plan in accordance with the following:
(i) If the Initial Allocation Amount is greater than or
equal to the 414(1)(1) Amount for CBMPP, and the Initial Allocation Amount is
greater than or equal to the 414(1)(1) Amount for the Convergys Pension Plan,
then the amounts of assets allocated to CBMPP and the Convergys Pension Plan
shall equal their respective Initial Allocation Amounts.
(ii) If the Initial Allocation Amount is greater than or
equal to the 414(1)(1) Amount for CBMPP, but the Initial Allocation Amount is
less than the 414(1)(1) Amount for the Convergys Pension Plan, then the
amount of assets allocated to the Convergys Pension Plan shall equal the
414(1)(1) Amount for the Convergys Pension Plan, and the amount of assets
allocated to CBMPP shall equal the excess of (x) the total amount of assets,
as of the Distribution Date, of CBMPP over (y) the 414(1)(1) Amount for the
Convergys Pension Plan.
(iii) If the Initial Allocation Amount is less than the
414(1)(1) Amount for the CBMPP, but the Initial Allocation Amount is greater
than or equal to the 414(1)(1) Amount for the Convergys Pension Plan, then
the amount of assets allocated to CBMPP shall equal the 414(1)(1) Amount for
CBMPP, and the amount of assets allocated to the Convergys Pension Plan shall
equal the excess of (x) the total amount of assets, as of the Distribution
Date, of CBMPP over (y) the 414(1)(1) Amount for CBMPP.
(d) If the aggregate amount of the assets of CBMPP as of the
Distribution Date is less than the sum of the 414(1)(1) Amounts for CBMPP and
the Convergys Pension Plan, then such assets shall be allocated between CBMPP
and the Convergys Pension Plan as follows:
(i) CBI and Convergys shall obtain a quote from a mutually
agreeable insurance company for the provision of immediate and deferred
annuities payable under CBMPP and the Convergys Pension Plan for all accrued
benefits under CBMPP as of the Distribution Date.
(ii) If the aggregate amount of assets of the Distribution
Date is not less than the amount of such quote, the amount of assets
allocated to CBMPP and the Convergys Pension Plan shall be determined in
accordance with Subsection (c) above, except that, in making that
determination, the amount of such quote for CBMPP and the Convergys Pension
Plan shall be substituted for the 414(1)(1) Amount for each plan.
(iii) If the aggregate amount of assets as of the
Distribution Date is less than the amount of such quote, the amount of assets
allocated to CBMPP and the Convergys Pension Plan shall be determined on a
plan termination basis in accordance with ERISA Section 4044 using the same
assumptions as those used in computing the 414(1)(1) Amounts.
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(e) For purposes of this Section 3.3, references to the "Convergys
Pension Plan" shall mean that portion of the Convergys Pension Plan
corresponding to CBMPP.
3.4 CALCULATION OF CBPP ASSET ALLOCATION. The asset allocation of the
CBPP and the Convergys Pension Plan shall be determined by applying Section
3.3 but substituting "CBPP" for "CBMPP" wherever it appears in that Section.
3.5 TRANSFER OF CONVERGYS PENSION PLAN'S INTERESTS FROM THE CBI
PENSION TRUST TO THE CONVERGYS PENSION TRUST. The actual segregation of the
interests of the Convergys Pension Plan in Cincinnati Bell Pension Plans
Trust (the "CBI Pension Trust") into separate trust accounts, and the
transfer of the Convergys Pension Plan's allocable share of the assets from
the CBI Pension Trust to the trust established in conjunction with the
Convergys Pension Plan (the "Convergys Pension Trust"), shall occur as soon
as practicable after the calculation of such interests pursuant to Sections
3.3 and 3.4. The assets to be transferred from the CBI Pension Trust to the
Convergys Pension Trust share shall consist of a pro rata share of each class
of assets in the CBI Pension Trust, unless CBI and Convergys agree otherwise.
ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 RETIREMENT SAVINGS PLANS. Effective as of the Distribution Date,
(a) a Convergys Savings Plan designated by Convergys shall assume and be
solely responsible for all liabilities relating to each Convergys Individual
under any CBI Savings Plan and (b) CBI shall cause the accounts of such
Convergys Individual under each CBI Savings Plan to be transferred to the
Convergys Savings Plan designated by Convergys and Convergys shall cause such
transferred accounts to be accepted by the Convergys Savings Plan. CBI and
Convergys shall take such action as may be needed to cause the assets
associated with each transferred account to be transferred from the trust
established in conjunction with the CBI Savings Plan to the trust established
in conjunction with the Convergys Savings Plan. For purposes of this Section
4.1, "CBI Savings Plan" means Cincinnati Bell Inc. Savings and Security Plan
and "Convergys Plan" means CBIS Retirement and Savings Plan and MATRIXX
Marketing Inc. Profit Sharing/401(k) Plan.
4.2 CBI ESOP. The Cincinnati Bell Inc. Employee Stock Ownership Plan
(the "CBI ESOP") shall be solely responsible for all liabilities relating to
Convergys Individuals under the CBI ESOP. The parties acknowledge that, as a
result of the Distribution, the CBI ESOP will, after the Distribution Date,
hold both CBI common shares and Convergys common shares and that, in order to
continue to qualify as an employee stock ownership plan, the CBI ESOP will be
required to dispose of the Convergys common shares and reinvest in CBI common
shares. The parties further acknowledge that applicable law generally
prohibits such plans from holding securities that are not "qualifying
employer securities" within the meaning of Code Section 409 for more than a
reasonable time after the Distribution Date unless the Internal Revenue
Service ("IRS") grants an extension of time. Accordingly, CBI shall request
the IRS to grant an
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extension of such holding period as its financial advisors shall deem prudent
to allow the CBI ESOP to dispose of the Convergys common shares received by
it as a result of the Distribution and, to reinvest in CBI common shares, in
a manner consistent with the best interests of the ESOP participants. It
also is understood that, for purposes of the CBI ESOP, each Convergys
Individual will be deemed to have terminated employment on the Distribution
Date.
ARTICLE V
HEALTH AND WELFARE PLANS
5.1 TRANSFER OF RETIREMENT FUNDING ACCOUNT ASSETS. This Section 5.1
shall apply to the CBI group life insurance contract that has a retirement
funding account (the "CBI RFA") maintained for the purpose of accumulating,
through employer contributions in advance of employee retirements, a fund to
be used to pay all or a portion of the costs for continuing life insurance
protection for employees after their retirement. As soon as practicable after
the Distribution Date, there shall be transferred to the retirement funding
account of a Convergys Entity group life insurance contract an amount of
assets having a fair market value as of the Distribution Date equal to the
product obtained by multiplying (a) the present value, as of the Distribution
Date, of the future benefit obligation with respect to Convergys Individuals
to be discharged from the CBI RFA, divided by the present value of the future
benefit obligations with respect to all individuals whose benefits are to be
discharged from the CBI RFA assets as of the Distribution Date times (b) the
fair market value of all CBI RFA assets as of the Distribution Date. CBI and
Convergys shall adopt, and shall use their reasonable best efforts to cause
their insurers to adopt, procedures to implement such asset transfers in a
reasonable and expeditious manner that is consistent with the underlying
group life insurance contracts and applicable legal requirements. Nothing in
this Agreement shall be interpreted to provide that any assets so transferred
have reverted to CBI or Convergys.
5.2 VENDOR CONTRACTS.
(a) GROUP INSURANCE POLICIES.
(i) This Section 5.2(a) applies to group insurance
policies other than the group life insurance contract referred to in Section
5.1 ("Group Insurance Policies").
(ii) To the extent that Convergys Individuals are covered
under a CBI Group Insurance Policy in existence as of the date of this
Agreement, at the request of Convergys, CBI shall use its reasonable best
efforts to amend such Group Insurance Policy to permit Convergys to
participate in the terms and conditions of such policy from immediately after
the Distribution Date until the expiration of the financial fee and rate
guarantees in effect under such Group Insurance Policy as of the Distribution
Date.
(iii) Convergys' participation in the terms and conditions
of each such Group Insurance Policy shall be effectuated by obligating the
insurance company that issued such insurance policy to CBI to issue one or
more separate policies to Convergys. Such terms
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and conditions shall include the financial and termination provisions,
performance standards and target claims.
(iv) If CBI is not successful in negotiating policy
provisions that will permit compliance with Sections 5.2(a)(ii) and (iii)
prior to the Distribution Date, at the request of Convergys, CBI shall use
its reasonable best efforts to either continue to cover Convergys under its
Group Insurance Policies or procure a separate policy for Convergys until
Convergys has procured such separate insurance policy or made other
arrangements for replacement coverage, and Convergys shall bear all costs
incurred by CBI to continue such coverage.
(b) EFFECT OF CHANGE IN RATES. CBI and Convergys shall use their
reasonable best efforts to cause each of the insurance companies, HMOs,
point-of-service vendors and third-party administrators providing services
and benefits under the CBI Health and Welfare Plans and the Convergys Health
and Welfare Plans to maintain the premium and/or administrative rates based
on the aggregate number of participants in both the CBI Health and Welfare
Plans and the Convergys Health and Welfare Plans through the expiration of
the financial fee or rate guarantees in effect as of the Distribution Date
under the respective ASO Contracts, Group Insurance Policies, and HMO
Agreements. To the extent they are not successful in such efforts, CBI and
Convergys shall each bear the revised premium or administrative rates
attributable to the individuals covered by their respective Health and
Welfare Plans.
5.3 CBI WORKERS' COMPENSATION PROGRAM.
(a) ADMINISTRATION.
(i) Through the Distribution Date or such earlier date as
may be agreed by CBI and Convergys, CBI shall continue to be responsible for
the administration of all claims and associated premiums, fees and other
costs that (1) are, or have been, incurred under the various arrangements
established by any CBI Entity to comply with the workers' compensation
regulations of the states where CBI and its affiliates conduct business (the
"CBI WCP") before the Distribution Date by Convergys Individuals and other
employees and former employees of the Convergys Entities through the
Distribution Date ("Convergys WCP Claims") and (2) have been historically
administered by CBI or its insurance company.
(ii) Effective immediately after the Distribution Date or
such earlier date as may be agreed by CBI and Convergys, (A) Convergys shall,
to the extent Legally Permissible (as defined below), be responsible for the
administration of all Convergys WCP Claims and associated premiums, fees and
other costs, whether those claims were previously administered by CBI or
Convergys, and (B) CBI shall be responsible for the administration of all
Convergys WCP Claims not administered by Convergys pursuant to clause (A),
whether previously administered by CBI or Convergys and whether under the
self-insured or insured portion of the CBI WCP. Any determination made, or
settlement entered into, by either party or its insurance company with
respect to Convergys WCP Claims for which it is administratively responsible
shall be final and binding upon the other party.
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(iii) Each party shall fully cooperate with the other with
respect to the administration and reporting of Convergys WCP Claims, the
payment of Convergys WCP Claims determined to be payable, and the transfer of
the administration of any Convergys WCP Claims to the other party as
determined under Section 5.3(a)(ii).
(iv) For purposes of this Section 5.3(a), "Legally
Permissible" shall be determined on a state-by-state basis, and shall mean
that administration of Convergys WCP Claims by Convergys both (A) is
permissible under the applicable state's workers' compensation laws (taking
into account all relevant facts, including that Convergys may have a
self-insurance certificate in that state) and (B) would not have a material
adverse effect on CBI's self-insurance certificate within that state. If it
is determined that, in a particular state, it is Legally Permissible for
Convergys to administer Convergys WCP Claims, then Convergys shall be
responsible for the administration of all Convergys WCP Claims incurred in
that state, whether previously administered by CBI, Convergys, or an
insurance company. If it is determined that, in a particular state, it is
not Legally Permissible for Convergys to administer Convergys WCP Claims,
then CBI shall be responsible for the administration of all Convergys WCP
Claims incurred in that state, whether previously administered by CBI,
Convergys, or an insurance company.
(b) SELF-INSURANCE STATUS.
(i) CBI shall amend its certificates of self-insurance with
respect to workers' compensation and any applicable group insurance policies
to include Convergys until the Distribution Date, and Convergys shall fully
cooperate with CBI in obtaining such amendments. All costs incurred by CBI
in amending such certificates or group insurance policies, including filing
fees, adjustments of security and excess loss policies and amendment of
safety programs, shall be shared equally by CBI and Convergys. CBI shall use
its reasonable best efforts to obtain self-insurance status for workers'
compensation for Convergys effective immediately after the Distribution Date
in each jurisdiction in which Convergys conducts business and in which CBI is
self-insured, if CBI determines that such status is beneficial to Convergys.
Convergys hereby authorizes CBI to take all actions necessary and appropriate
on its behalf in order to obtain such self-insurance status.
(ii) CBI shall also arrange a contingent insured or other
arrangement for payment of workers' compensation claims, into which Convergys
shall enter if and to the extent that CBI fails to obtain self-insured status
for Convergys as provided in Section 5.3(b)(i), unless Convergys obtains
another such arrangement that is effective immediately after the Distribution
Date, in which event Convergys shall reimburse CBI for any expenses incurred
by CBI in procuring such contingent arrangement.
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(c) INSURANCE POLICY.
(i) In the event the workers' compensation insurance policy
that CBI maintains under the CBI WCP expires before the Distribution Date,
CBI shall use its reasonable best efforts to renew such policy and to cause
the issuing insurance company to issue a separate policy to Convergys. If
CBI is not able to cause such insurance company to issue such separate
insurance policy, Convergys shall use its reasonable best efforts to procure
a separate policy from another insurance company or to obtain self-insurance
status, and CBI shall use its reasonable best efforts to continue to cover
Convergys under its renewed policy until the earlier of (A) the date on which
Convergys' application for such self-insurance status is approved or (B) the
date on which a separate insurance policy is procured. Convergys shall
compensate CBI for all costs incurred by CBI to continue such coverage. Any
claims incurred by Convergys Individuals after the Distribution Date that
will be covered under and during any such continuation of coverage shall be
treated as being incurred before the Distribution Date for purposes of
determining the party responsible for the administration of benefits.
(ii) CBI shall use its reasonable best efforts to maintain
the premium rates for all workers' compensation insurance policies for both
CBI and Convergys in effect for periods through the Distribution Date to be
based on the aggregate number of employees covered under the workers'
compensation insurance policies of both CBI and Convergys. Any premiums due
under the separate workers' compensation insurance issued to Convergys shall
be payable by Convergys.
5.4 CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS.
(a) The transfer or other movement of employment from CBI to
Convergys at any time before the Distribution Date shall constitute a "status
change" under the CBI Health and Welfare Plans or the Convergys Health and
Welfare Plans.
(b) Convergys shall cause the Convergys Health and Welfare Plans
to recognize and give credit for (i) all amounts applied to deductibles,
out-of-pocket maximums, and other applicable benefit coverage limits with
respect to which such expenses have been incurred by Convergys Individuals
under the CBI Health and Welfare Plans for the remainder of the year in which
the Distribution occurs, and (ii) all benefits paid to Convergys Individuals
under the CBI Health and Welfare Plans for purposes of determining when such
persons have reached their lifetime maximum benefits under the Convergys
Health and Welfare Plans.
(c) Convergys shall provide coverage to Convergys Individuals
under the Convergys Group Life Program without the need to undergo a physical
examination or otherwise provide evidence of insurability.
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ARTICLE VI
EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS
6.1 LONG TERM INCENTIVE PLANS. For purposes of this Agreement, "CBI
LTIP" means any of the CBI 1988 Long Term Incentive Plan, the CBI 1989 Stock
Option Plan, the CBI 1997 Long Term Incentive Plan, the CBI 1988 Stock Option
Plan for Non-Employee Directors and the CBI 1997 Stock Option Plan for
Non-Employee Directors and "Convergys LTIP" means the Convergys Corporation
1998 Long Term Incentive Plan.
(a) STOCK OPTIONS. For purposes of this Agreement, "CBI Option"
means an option to purchase CBI common shares pursuant to a CBI LTIP and
"Convergys Option" means an option to purchase Convergys common shares
pursuant to the Convergys LTIP. At the time of the Distribution, each holder
of a CBI Option shall receive a Convergys Option to purchase a number of
Convergys common shares equal to the number of CBI common shares subject to
the CBI Option. Each Convergys Option shall have the same terms and
conditions (including vesting) as the CBI Option with respect to which it is
granted, except that termination of employment shall mean (i) in the case of
a CBI employee or director, termination of employment with CBI and (ii) in
the case of a Convergys employee or director, termination of employment with
Convergys. Each CBI Option shall be amended to provide that, in the case of
a Convergys employee or director, termination of employment shall mean
termination of employment with Convergys. The exercise price per share of
each CBI Option (the "CBI Exercise Price") shall be reduced, and the exercise
price per share of the associated Convergys Option (the "Convergys Exercise
Price") shall be set so that (i) the sum of the CBI Exercise Price (after the
reduction provided herein) and the Convergys Exercise Price is equal to the
CBI Exercise Price (before the reduction provided herein) and (ii) the ratio
of the CBI Exercise Price (after the reduction provided herein) to the
Convergys Exercise Price is equal to the ratio of the average of the daily
high and low per-share prices of CBI common shares on the New York Stock
Exchange ("NYSE") during each of the five trading days starting on the
ex-dividend date for the Distribution to the average of the daily high and
low per-share prices of Convergys common shares on the NYSE during each of
the five trading days starting on the ex-dividend date for the Distribution.
Notwithstanding the foregoing, in the event that the number of Convergys
common shares to be distributed to each CBI shareholder at the time of the
Distribution with respect to each CBI common share owned by the shareholder
on the record date for the Distribution is greater or less than one, the
number of Convergys common shares represented by each Convergys Option and
the Convergys Exercise Price shall be adjusted to reflect such difference.
(b) RESTRICTED STOCK. For purposes of this Agreement, "CBI
Restricted Stock" means CBI common shares issued subject to restrictions
pursuant to a CBI LTIP and "Convergys Restricted Stock" means Convergys
common shares issued subject to restrictions pursuant to the Convergys LTIP.
At the time of the Distribution, the Convergys common shares distributable to
each holder of CBI Restricted Stock shall be issued pursuant to the Convergys
LTIP and shall be subject to the same restrictions, terms and conditions
(including vesting) as the CBI Restricted Stock with respect to which they
are distributed, except that termination of employment shall mean (i) in the
case of a CBI employee, termination of employment with CBI
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and (ii) in the case of a Convergys employee, termination of employment with
Convergys. Each CBI Restricted Stock grant shall be amended to provide that,
in the case of a Convergys employee or director, termination of employment
shall mean termination of employment with Convergys.
6.5 CBI EXECUTIVE DEFERRED COMPENSATION PLAN. Immediately after the
Distribution Date, the accrued benefit of any Convergys Individual in the CBI
Executive Deferred Compensation Plan shall be transferred to and assumed by
the Convergys Executive Deferred Compensation Plan.
6.6 DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS. Immediately
after the Distribution Date, the accrued benefit of any Convergys
Non-Employee Director in the CBI Deferred Compensation Plan for Outside
Directors (the "CBI Directors Plan") shall be transferred to and assumed by
the Convergys Deferred Compensation Plan for Non-Employee Directors (the
"Convergys Directors Plan"). The Convergys Directors Plan shall be, with
respect to the Convergys Non-Employee Directors who participated in the CBI
Director Plan, in all respects the successor in interest to, and shall not
provide benefits that duplicate benefits provided by, the CBI Directors Plan.
6.7 CONSENTS AND NOTIFICATIONS. CBI and Convergys shall use their
reasonable best efforts to obtain, or cause to be obtained, to the extent
necessary, the written consent of each Convergys Individual and Convergys
Director who is a party to an individual agreement and/or a participant in
the CBI Executive Deferred Compensation Plan, the CBI Long Term Plan, or the
CBI Deferred Compensation Plan for Outside Directors, to the treatment of
such individual agreement or plan, as applicable, in accordance with this
Article VI, including the assumption by Convergys and the Convergys Entities,
of sole responsibility for, and the release of the CBI Entities from, all
liabilities thereunder; provided, that no failure to seek or to obtain any
such consent shall have any effect upon the obligations of the Convergys
Entities with respect to such liabilities.
6.8 NON-COMPETITION AND CONFIDENTIALITY.
(a) NON-COMPETITION AGREEMENTS AND POLICIES. Prior to the
Distribution Date, CBI and Convergys shall take such action as may be
necessary to ensure that, during the 18-month period commencing on the
Distribution Date, (i) employment with a Convergys Entity shall not be deemed
to be in violation of any CBI Entity non-competition policy or agreement and
(ii) employment with any CBI Entity shall not be deemed to be in violation of
any Convergys Entity non-competition policy or agreement.
(b) CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of
this Agreement shall be deemed to release any individual for any violation of
any agreement or policy of a CBI Entity or Convergys Entity pertaining to
confidential or proprietary
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information of a CBI Entity or Convergys, or otherwise relieve any individual
of his or her obligations under such agreement or policy.
6.9 CORPORATE-OWNED LIFE INSURANCE. CBI shall retain all
corporate-owned life insurance policies that were purchased by CBI in 1986,
including those policies insuring Convergys Individuals. CBI shall continue,
liquidate and/or administer such corporate-owned life insurance policies on
terms and conditions agreed to by CBI and Convergys. Convergys and CBI shall
share all information that may be necessary to identify the individuals
insured by the corporate-owned life insurance policies owned by CBI and to
determine when and whether such individuals are deceased.
6.10 MANAGEMENT INCENTIVE COMPENSATION PAYMENTS. Effective as of the
Distribution Date, Convergys shall assume all liabilities to Convergys
Individuals for bonuses under CBI's 1998 bonus program and all liabilities to
Convergys Individuals for performance awards under CBI's Senior Management
Long Term Incentive Plan for the three-year performance periods commencing in
1996, 1997 and 1998. CBI and Convergys shall determine (a) the extent to
which established performance criteria (after taking into account the
effects of the initial public offering of Convergys common shares and the
Distribution) have been met and (b) the payment level for each Convergys
Individual.
ARTICLE VII
GENERAL AND ADMINISTRATIVE
7.1 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS.
(a) ACTUARIAL AND ACCOUNTING METHODOLOGIES AND ASSUMPTIONS. For
purposes of this Agreement, unless specifically indicated otherwise: (i) all
actuarial methodologies and assumptions used for a particular Plan shall
(except to the extent otherwise determined by CBI and Convergys to be
reasonable or necessary) be substantially the same as those used in the
actuarial valuation of that Plan used to determine minimum funding
requirements under ERISA Section 302 and Code Section 412 for 1998, or, if
such Plan is not subject to such minimum funding requirements, used to
determine CBI's deductible contributions under Code Section 419A or, if such
Plan is not subject to Code Section 419A, the assumptions used to prepare
CBI's audited financial statements for 1997, as the case may be; and (ii) the
value of plan assets shall be the value established for purposes of audited
financial statements of the relevant plan or trust for the period ending on
the date as of which the valuation is to be made. Convergys liabilities
relating to, arising out of or resulting from the status of the Convergys
Entities as participating companies in CBI and all accruals relating thereto
shall be determined using actuarial assumptions and methodologies (including
with respect to demographics, medical trends and other relevant factors) in a
manner consistent with CBI's practice as in effect on the effective date of
this Agreement and in conformance with the generally accepted actuarial
principles promulgated by the American Academy of Actuaries, the Code, ERISA,
and/or generally accepted accounting principles, as applicable, in each case
consistent with past CBI
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practice. Except as otherwise contemplated by this Agreement or as required
by law, all determinations as to the amount or valuation of any assets of or
relating to any CBI Plan (whether or not such assets are being transferred to
a Convergys Plan) shall be made pursuant to procedures to be established by
the parties before the Distribution Date.
(b) PAYMENT OF LIABILITIES; DETERMINATION OF EMPLOYEE STATUS.
Convergys shall pay directly, or reimburse CBI promptly for, all liabilities
assumed by it pursuant to this Agreement, including all compensation payable
to Convergys Individuals for services rendered to a Convergys Entity (i)
after the date of this Agreement, (ii) while in the employ of a CBI Entity
and (iii) before becoming a Convergys Individual. Determinations of what
entity employs or employed a particular individual shall be made by reference
to the applicable legal entity and/or other appropriate accounting code, to
the extent possible.
7.2 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No
provision of this Agreement shall be construed to create any right, or
accelerate entitlement, to any compensation or benefit whatsoever on the part
of any Convergys Individual or other future, present or former employee of
any CBI Entity or Convergys Entity under any CBI Plan or Convergys Plan or
otherwise. Without limiting the generality of the foregoing: (i) neither the
Distribution nor the termination of the participating company status of a
Convergys Entity shall cause any employee to be deemed to have incurred a
termination of employment which entitles such individual to the commencement
of benefits under any of the CBI Plans (other than the CBI ESOP), any of the
Convergys Plans, or any of the Individual Agreements; and (ii) except as
expressly provided in this Agreement, nothing in this Agreement shall
preclude Convergys, at any time after the Distribution Date, from amending,
merging, modifying, terminating, eliminating, reducing, or otherwise altering
in any respect any Convergys Plan, any benefit under any Convergys Plan or
any trust, insurance policy or funding vehicle related to any Convergys Plan.
7.3 BENEFICIARY DESIGNATIONS. All beneficiary designations made by
Convergys Individuals for CBI Plans shall be transferred to and be in full
force and effect under the corresponding Convergys Plans until such
beneficiary designations are replaced or revoked by the Convergys Individual
who made the beneficiary designation.
7.4 REQUESTS FOR IRS RULINGS AND DOL OPINIONS. The parties shall
cooperate fully with each other on any issue relating to the transactions
contemplated by this Agreement for which either party elects to seek a
determination letter or private letter ruling from the IRS or an advisory
opinion from the Department of Labor.
7.5 FIDUCIARY STATUS. CBI and Convergys each acknowledges that actions
required to be taken pursuant to this Agreement may be subject to fiduciary
duties or standards of conduct under ERISA or other applicable law, and no
party shall be deemed to be in violation of this Agreement if it fails to
comply with any provisions hereof based upon its good faith determination
that to do so would violate such a fiduciary duty or standard.
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7.6 CONSENT OF THIRD PARTIES. If any provision of this Agreement is
dependent on the consent of any third party and such consent is withheld, CBI
and Convergys shall use their reasonable best efforts to implement the
applicable provisions of this Agreement to the full extent practicable. If
any provision of this Agreement cannot be implemented due to the failure of
such third party to consent, CBI and Convergys shall negotiate in good faith
to implement the provision in a mutually satisfactory manner. The phrase
"reasonable best efforts" as used herein shall not be construed to require
the incurrence of any non-routine or unreasonable expense or liability or the
waiver of any right.
ARTICLE VIII
MISCELLANEOUS
8.1 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does
not occur, then all actions and events that are, under this Agreement, to be
taken or occur effective as of the Distribution Date, immediately after the
Distribution Date, or otherwise in connection with the Distribution, shall
not be taken or occur except to the extent specifically agreed by Convergys
and CBI.
8.2 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship
of principal and agent, partnership or joint venture between the parties, it
being understood and agreed that no provision contained herein, and no act of
the parties, shall be deemed to create any relationship between the parties
other than the relationship set forth herein.
8.3 AFFILIATES. Each of CBI and Convergys shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by a CBI Entity or a
Convergys Entity, respectively.
8.4 GOVERNING LAW. To the extent not preempted by applicable federal
law, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of Ohio, irrespective of the choice of
law principles of the State of Ohio, as to all matters, including matters of
validity, construction, effect, performance and remedies.
8.5 ARBITRATION. Any dispute, controversy or claim arising out of or
in connection with this Agreement (including any questions of fraud or
questions concerning the validity and enforceability of this Agreement or any
of the rights herein) shall be determined and settled in accordance with
Article 11 of the Plan of Reorganization.
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IN WITNESS WHEREOF, the parties have caused this Employee Benefits
Agreement to be duly executed as of the day and year first above written.
CINCINNATI BELL INC.
By: /s/ John T. LaMacchia
------------------------------------------
John T. LaMacchia, President
and Chief Executive Officer
CONVERGYS CORPORATION
By: /s/ James F. Orr
------------------------------------------
James F. Orr, President
and Chief Executive Officer
16
<PAGE>
SUMMARY OF CBI FUNDING POLICY
METHODOLOGY FOR PENSION BENEFITS
Establishment and periodical evaluation of the CBI funding policy
require the determination of current asset and liability values, as well as
simulating the financial operation of the pension plans in future years. A
financial modeling system described below is used to develop a distribution
of outcomes for the financial status of the pension plans in future periods.
Accrued benefit and total projected benefit payment liabilities are
actuarially calculated on the basis of existing plan obligations, and future
liabilities are calculated by projecting future plan operation and
experience, in accordance with reasonable actuarial methods and assumptions,
over specified time periods. The determination of the current market value
of plan assets is based upon market quotations of such values and upon
professionally determined appraisal values. The determination of the
distribution of potential future asset values for the plans is based upon
assumed rates of return for each such asset class, as well as the variability
of those returns (standard deviation) and the relative relationships across
each asset class (correlation coefficient). Once a distribution of possible
future asset values has been determined, the funding policy can be evaluated
by determining the probability of there being adequate assets to meet pension
liabilities in the future periods (e.g., 75% of the possible asset return
scenarios in ten years will provide adequate assets to meet the actuarially
determined pension liabilities). The expected rate of return for each
principal asset class, as well as the mathematical factors used in adjusting
each rate of return, are specified below.
The computations based on this Schedule are made using the following
assumptions:
- All actuarial assumptions, including assumptions related to accrued
liability, are identical to the assumptions to be used in the
determination of required minimum contributions under ERISA for the
plan year beginning on January 1, 1998.
- Level future eligible employee populations are assumed.
- No future employer contributions are assumed.
- No transfers in or out of the Plan of liabilities or assets are
assumed.
- Only employees of companies participating in the plan before
January 1, 1998 are taken into account.
- All demographic experience is assumed to occur in accordance with the
actuarial assumptions used to determine the minimum required
contributions under ERISA for the plan year beginning January 1, 1998.
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<PAGE>
- The Wilshire PENSIM model, incorporating ASA system enhancements, with
benefits and present values determined by ASA in accordance with the
assumptions and methods specified in this Schedule are used in the
application of the CBI funding policy requirements.
<TABLE>
<CAPTION>
ASSET CLASS EXPECTED RETURN STAND. DEVIATION
<S> <C> <C>
Large Cap Equities 9.50% 14.86%
Small Cap Equities 11.50% 23.01%
CBI Shares 10.50% 26.81%
International Equities 11.00% 18.87%
Renaissance 8.00% 12.00%
Domestic Bonds 6.00% 8.23%
Convertible Bonds 7.50% 12.82%
High-Yield Bonds 7.00% 8.39%
International Bonds 6.00% 12.42%
Real Estate 6.00% 6.93%
Venture Capital 12.00% 24.54%
Cash 5.00% 2.55%
</TABLE>
18
<PAGE>
CORRELATION COEFFICIENTS
<TABLE>
<CAPTION>
LRG SML HIGH
ASSET CLASS CAP CAP CBI INTL DMST CONV YIELD INTL REAL VENT
EQUITY EQUITY SHRS EQUIT REN BOND BOND BOND BOND ESTAT CAP CASH
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap
Equities 1.00
Small Cap
Equities 0.82 1.00
CBI Shares 0.40 0.34 1.00
International
Equities 0.46 0.40 0.20 1.00
Renaissance 0.66 0.56 0.35 0.35 1.00
Domestic
Bonds 0.37 0.24 0.30 0.25 0.59 1.00
Convertible
Bonds 0.88 0.79 0.39 0.44 0.64 0.37 1.00
High-Yield
Bonds 0.50 0.42 0.25 0.28 0.45 0.42 0.48 1.00
International
Bonds -0.04 -0.08 0.04 0.01 0.11 0.31 -0.04 0.07 1.00
Real Estate -0.06 -0.03 0.01 -0.12 -0.09 -0.21 -0.05 -0.14 -0.09 1.00
Venture
Capital 0.75 0.68 0.31 0.37 0.51 0.24 0.72 0.39 -0.06 -0.04 1.00
Cash -0.04 -0.03 0.07 -0.11 0.02 -0.03 -0.02 -0.09 -0.02 0.68 -0.04 1.00
</TABLE>
<PAGE>
CINCINNATI BELL INC.
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
(As amended and restated effective February 1, 1999)
SECTION 1
NAME OF PLAN; PREDECESSOR PLAN
1.1 NAME. The plan set forth herein shall be known as the Cincinnati
Bell Inc. Deferred Compensation Plan for Outside Directors (the "Plan").
1.2 PREDECESSOR PLAN. The Plan is intended to amend and supersede the
Cincinnati Bell Inc. Deferred Compensation Plan for Non-Employee Directors (the
"Predecessor Plan") effective December 31, 1996.
SECTION 2
GENERAL DEFINITIONS; GENDER AND NUMBER
2.1 GENERAL DEFINITIONS. For purposes of the Plan, the following
terms shall have the meanings hereinafter set forth unless the context otherwise
requires:
2.1.1 "Account" shall mean the Account established for an Outside
Director under Section 4.1.
2.1.2 "Board" shall mean the Board of Directors of the Company.
2.1.3 "Beneficiary" shall mean the person or entity designated by
a Participant, on forms furnished and in the manner prescribed by the Committee,
to receive any benefit payable under the Plan after the Participant's death. If
a Participant fails to designate a beneficiary or if, for any reason, such
designation is not effective, the Participant's "Beneficiary" shall be the
Participant's surviving spouse or, if none, the Participant's estate.
2.1.4 "CBI Shares" shall mean common shares of the Company.
2.1.5 "Committee" shall mean the Compensation Committee of the
Board.
2.1.6 "Company" shall mean Cincinnati Bell Inc.
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2.1.7 "Credited Service" shall mean active service as an Outside
Director, including service as an Outside Director prior to the Effective Date.
One year of Credited Service shall be given for each twelve full months of
Credited Service, whether or not consecutive. A fraction of a year of Credited
Service shall be rounded up or down to the nearest whole year.
2.1.8 "Effective Date" shall mean December 31, 1996.
2.1.9 "Other Fee" shall mean any fee for Outside Directors
established by the Board for attending Board or committee meetings or for
serving as a chair of a Board committee, but shall not include the Retainer or
expense reimbursements.
2.1.10 "Other Fee Payment Date" shall mean the date on which any
Other Fee is payable to an Outside Director.
2.1.11 "Outside Director" shall mean any member of the Board who
is not an employee of the Company, but shall not include any person serving as
Director Emeritus.
2.1.12 "Participant" shall mean a person who has served as an
Outside Director on or after the Effective Date and whose Account has not been
fully paid or forfeited, as the case may be.
2.1.13 "Retainer" shall mean the annual fee for Outside Directors
established by the Board, but shall not include meeting fees, fees for serving
as a chair of a Board committee or expense reimbursements.
2.1.14 "Retainer Payment Date" shall mean the quarterly dates on
which the Outside Directors' Retainer is paid.
2.1.15 "Retirement Plan" shall mean the Cincinnati Bell Inc.
Retirement Plan for Outside Directors.
2.1.16 "Valuation Date" means the last day of each calendar year
and the date as of which any payment is to be made under the Plan.
2.2 GENDER AND NUMBER. For purposes of the Plan, words used in any
gender shall include all other genders, words used in the singular form shall
include the plural form, and words used in the plural form shall include the
singular form, as the context may require.
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<PAGE>
SECTION 3
DEFERRALS
3.1 ELECTION OF DEFERRALS. Subject to such rules as the Committee may
prescribe, an Outside Director may elect to defer up to 100% of the Outside
Director's Retainer and/or Other Fees for any calendar year by completing a
deferral form and filing such form with the Committee prior to January 1 of such
calendar year (or such earlier date as may be prescribed by the Committee).
Notwithstanding the foregoing, if an Outside Director first becomes an Outside
Director after the first day of a calendar year, such Outside Director may elect
to defer up to 100% of the Outside Director's Retainer and/or Other Fees for the
remainder of the calendar year by completing and signing a deferral form
provided by the Committee and filing such form with the Committee within 30 days
of the date on which the Outside Director first becomes an Outside Director.
Any election under the preceding sentence shall be effective as of the first
Retainer Date or Other Fee Payment Date, as the case may be, after the date the
election is filed.
3.2 CHANGING DEFERRALS. Subject to such rules as the Committee may
prescribe, an Outside Director who has elected to defer a portion or all of any
Retainer and/or Other Fee may change the amount of the deferral from one
permissible amount to another, effective as of any January 1, by completing and
signing a new deferral form and filing such form with the Committee prior to
such January 1 (or such earlier date as may be prescribed by the Committee).
SECTION 4
MAINTENANCE AND VALUATION OF ACCOUNTS
4.1 DEFERRED COMPENSATION ACCOUNTS. A separate bookkeeping Account
shall be established for each Outside Director which shall reflect all amounts
credited to the Outside Director's Account under this Section 4.1 and the
assumed investment of those amounts.
4.1.1 On each Retainer Payment Date and Other Fee Payment Date
after the Effective Date, there shall be credited to each Outside Director's
Account the amount of the Retainer or Other Fee which the Outside Director has
elected to defer under Section 3.1 Amounts credited to the Outside Director's
Account under this Section 4.1.1 shall be assumed to be invested exclusively in
Cash Equivalents.
4.1.2 In the case of an Outside Director who was participating in
the Predecessor Plan immediately prior to the Effective Date, the balance then
credited to the Outside Director's account under the Predecessor Plan shall be
credited to the Outside Director's Account under this Plan as of the Effective
Date. Amounts credited to the
3
<PAGE>
Outside Director's Account under this Section 4.1.2 shall be assumed to be
invested exclusively in Cash Equivalents.
4.1.3 In the case of an Outside Director who was participating in
the Retirement Plan on July 1, 1996, an amount equal to the present value of the
Outside Director's accrued benefit under the Retirement Plan as of the Effective
Date (as determined by the Board) shall be credited to the Outside Director's
Account under this Plan as of the Effective Date. Amounts credited to an
Outside Director's Account under this Section 4.1.3 shall be assumed to be
invested exclusively in CBI Shares. For purposes of this Section 4.1.3, each
Outside Director who was an Outside Director on July 1, 1996 shall be deemed to
have been participating in the Retirement Plan on that date.
4.1.4 As of the first business day of 1999 and each subsequent
calendar year, there shall be credited to the Account of each person who is
an Outside Director on such day an amount equal to the value on such day of
the number of CBI Shares that are produced by multiplying 500 CBI Shares by a
fraction having a numerator equal to the sum of the average of the high and
low sale prices on the New York Stock Exchange of a CBI Share for January 4,
1999 and the average of the high and low sale prices on the New York Stock
Exchange of a common share of Convergys Corporation (for purposes of this
Plan, a "Convergys Share") for January 4, 1999 and a denominator equal to the
average of the high and low sale prices on the New York Stock Exchange of a
CBI Share for January 4, 1999. Amounts credited to an Outside Director's
Account under this Section 4.1.4 shall be assumed to be invested exclusively
in CBI Shares
4.1.5 As of January 4, 1999, there shall be credited to the
Account of each person who is an Outside Director on such date an amount equal
to the value on such date of the number of CBI Shares that are produced by
dividing $100,000 (or, in the case of the Outside Director who is the Chairman
of the Board on January 4, 1999, $200,000) by the product of 0.88 (a factor to
reflect the forfeiture provisions noted below in the this Section 4.1.5) and the
average of the high and low sale prices on the New York Stock Exchange of a CBI
Share for January 4, 1999. Amounts credited to an Outside Director's Account
under this Section 4.1.5 shall be assumed to be invested exclusively in CBI
Shares. Notwithstanding the foregoing, the amount credited to the Account of any
Outside Director under this Section 4.1.5 (and all other assumed investment
credits under Section 4.3 below to such Account that are attributable to the
amount credited to such Account under this Section 4.1.5) shall be forfeited and
entirely disregarded in determining the distributions to be made under this Plan
to such Outside Director if such Outside Director fails to remain a member of
the Board continuously from January 4, 1999 through January 3, 2003 for any
reason (other than death or retirement). In the event of death or retirement of
an Outside Director prior to January 3, 2003, no forfeiture of credits will be
applied in determining the distributions to be made under the Plan.
4
<PAGE>
4.1.6 As of December 31, 1998, there shall be credited to the
Account of each person who is then a Participant in the Plan an amount equal
to the value on December 31, 1998 of a number of Convergys Shares equal to
the number of CBI Shares which are assumed to be held in such Account as of
December 31, 1998 under the terms of the Plan. Except as is otherwise
provided in the immediately following sentence, the entire amount credited to
any Participant's Account under this Section 4.1.6 shall be assumed to be
invested exclusively in Convergys Shares. Notwithstanding the immediately
preceding sentence, each Participant who has an amount credited to his
Account under this Section 4.1.6 may elect, at any time during the period
that begins on February 1, 1999 and ends February 12, 1999 and by returning
to the Committee a form approved for this purpose by the Committee, to have
the entire value as of January 4, 1999 (the first business day after the date
of Distribution) of the portion of his Account that is attributable to the
amount credited under this Section 4.1.6 (and the assumed investments of such
portion to January 4, 1999) assumed to be invested from and after January 4,
1999 exclusively in CBI Shares.
4.2 ASSUMED INVESTMENT IN CASH EQUIVALENTS. To the extent that a
Participant's Account is assumed to be invested in Cash Equivalents and has
not been paid, the Account shall be credited with interest, compounded
quarterly at the end of each calendar quarter, equal to the average U.S.
Treasury 10-year note rate for the previous calendar quarter.
4.3 CBI SHARES. To the extent that a Participant's Account is
assumed to be invested in CBI Shares and has not been paid or forfeited, as
the case may be:
4.3.1 Whenever any cash dividends are paid with respect to CBI
Shares, an additional amount shall be credited to the Participant's Account
as of the dividend payment date. The additional amount to be credited to
each account shall be determined by multiplying the per share cash dividend
paid with respect to the CBI Shares on the dividend payment date by the
number of assumed CBI Shares credited to the Participant's Account on the day
preceding the dividend payment date. Such additional amount credited to the
Account shall be assumed to be invested in additional CBI Shares on the day
on which such dividends are paid.
4.3.2 If there is any change in CBI Shares through the
declaration of a stock dividend or a stock split or through a
recapitalization resulting in a stock split, or a combination or a change in
shares, the number of shares assumed to be purchased for each Account shall
be appropriately adjusted.
4.3.3 Whenever CBI Shares are to be valued for purposes of the
Plan, the value of each CBI Share shall be the average of the high and low
price per share as reported on the New York Stock Exchange on that date or,
if no CBI Shares were traded on that date, on the next preceding day on which
CBI Shares were traded.
5
<PAGE>
4.4 CONVERGYS SHARES. To the extent that a Participant's Account
is assumed to be invested in Convergys Shares, or has credited to it an
amount based on the value of the Convergys Shares as of any date, and has not
yet been paid or forfeited, as the case may be:
4.4.1 Whenever any cash dividends are paid with respect to
Convergys Shares, an additional amount shall be credited to the Participant's
Account as of the dividend payment date. The additional amount to be credited
to the Account shall be determined by multiplying the per share cash dividend
paid with respect to the Convergys Shares on the dividend payment date by the
number of assumed Convergys Shares credited to the Participant's Account on
the day preceding the dividend payment date. Such additional amount credited
to the Account shall be assumed to be invested in additional Convergys Shares
on the day on which such dividends are paid.
4.4.2 If there is any change in Convergys Shares through the
declaration of a stock dividend or a stock split or through a
recapitalization resulting in a stock split, or a combination or a change in
shares, the number of Convergys Shares assumed to be purchased for the
Participant's Account shall be appropriately adjusted.
4.4.3 Whenever Convergys Shares are to be valued for purposes
of the Plan, the value of each Convergys Share shall be the average of the
high and low sale price per Convergys Share as reported on the New York Stock
Exchange on that date or, if no Convergys Shares were traded on that date, on
the next preceding day on which Convergys Shares were traded.
4.5 VALUATION. As of each Valuation Date, each Participant's
Account shall be adjusted to reflect all amounts credited to the Account
since the preceding Valuation Date, any gains or losses in the value of the
Account's assumed investments (Cash Equivalents, CBI Shares, and/or Convergys
Shares) since the preceding Valuation Date and any payments or forfeitures
occurring as of the Valuation Date.
SECTION 5
DISTRIBUTION
5.1 GENERAL. Except as otherwise provided in Section 5.5, no
amount shall be paid with respect to a Participant's Account while the
Participant remains a member of the Board.
5.2 TERMINATION OF SERVICE. A Participant may elect to receive the
amounts credited to the Participant's Account in up to ten annual installment
payments as of or commencing as of the first business day of the calendar
year following the calendar year in which the Participant ceases to be a
member of the Board. If a Participant fails to make such an election, the
amounts credited to the Participant's Account shall be paid to
6
<PAGE>
the Participant in one lump sum as of the first business day of the calendar
year next following the calendar year in which the Participant ceases to be a
member of the Board
5.2.1. The amount of each annual installment payable under
this Section 5.2 shall be a fraction of the nonforfeitable amounts credited
to the Participant's Account as of the installment payment date, the
numerator of which is 1 and the denominator of which is equal to the total
number of installments remaining to be paid (including the installment to be
paid on the subject installment payment date).
5.2.2. Any election under this Section 5.2 must be made in
writing at least six months prior to the date on which the Participant ceases
to be a member of the Board.
5.2.3. Notwithstanding any other provision hereof to the
contrary, the right to receive payments with respect to that portion of the
Participant's Account which is attributable to amounts credited under
Sections 4.1.3, 4.1.4, and 4.1.6 (including the assumed investments of such
amounts) shall be conditioned on the Participant completing at least five
years of Credited Service prior to the date on which the Participant ceases
to be a member of the Board. To the extent that a Participant has not
satisfied such service requirement prior to the date on which the Participant
ceases to be a member of the Board (other than by reason of death), the
Participant shall not be entitled to receive any payment with respect to that
portion of the Participant's Account which is attributable to amounts
credited under Sections 4.1.3, 4.1.4, and 4.1.6 (including the assumed
investments of such amounts) and such portion shall be forfeited as of the
date on which the Participant ceases to be a member of the Board.
5.3 DEATH. If a Participant ceases to be a member of the Board by
reason of death, or if a Participant dies after ceasing to be a member of the
Board but before the amounts credited to the Participant's Account have been
paid, the amounts credited to the Participant's Account shall be paid to the
Participant's Beneficiary in one lump sum as of the first business day of the
calendar year next following the calendar year in which the Participant's
death occurs; provided, however, that if the Participant has elected to have
the Participant's Account distributed in installments and if the Participant
dies after distribution has commenced, the remaining installments shall be
paid to the Beneficiary as they become due.
5.4 FORM OF PAYMENT. All payments under the Plan shall be made in
cash.
5.5 CHANGE IN CONTROL. If a Change in Control of the Company occurs,
the amount credited to each Participant's Account shall be paid to the
Participant in one lump sum as of the day next following the date on which such
Change in Control occurs. A "Change in Control of the Company" shall be deemed
to have occurred if, on or after December 31, 1996, (i) a tender offer shall be
made and consummated for the ownership of 30% or more of the outstanding voting
securities of the Company; (ii) the Company shall be merged or consolidated with
another corporation and as a result of such merger or consolidation less than
75% of the outstanding voting securities of the surviving or
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<PAGE>
resulting corporation shall be owned in the aggregate by the former
shareholders of the Company, other than affiliates (within the meaning of the
Securities Exchange Act of 1934 (the "Act")) of any party to such merger or
consolidation, as the same shall have existed immediately prior to such
merger or consolidation; (iii) the Company shall sell substantially all of
its assets to another corporation which is not a wholly owned subsidiary;
(iv) a person, within the meaning of Section 3 (a)(9) or of Section 13(d)(3)
(as in effect on December 31, 1996) of the Act, shall acquire 20% or more of
the outstanding voting securities of the Company (whether directly,
indirectly, beneficially or of record), or a person, within the meaning of
Section 3(a)(9) or Section 13(d)(3) (as in effect on December 31, 1996) of
the Act, controls in any manner the election of a majority of the directors;
or (v) within any period of two consecutive years after December 31, 1996,
individuals who at the beginning of such period constitute the Board cease
for any reason to constitute at least a majority thereof, unless the election
of each director who was not a director at the beginning of such period has
been approved in advance by directors representing at least two-thirds of the
directors then in office who were directors at the beginning of the period.
For purposes hereof, ownership of voting securities shall take into account
and shall include ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) (as in effect on December 31, 1996) pursuant to the Act.
SECTION 6
ADMINISTRATION OF THE PLAN
6.1 GENERAL. The general administration of the Plan and the
responsibility for carrying out its provisions shall be placed in the
Committee.
6.2 EXPENSES. Expenses of administering the Plan shall be paid by
the Company.
6.3 COMPENSATION OF COMMITTEE. The members of the Committee shall
not receive compensation for their services as such, and, except as required
by law, no bond or other security need be required of them in such capacity
in any jurisdiction.
6.4 RULES OF PLAN. Subject to the limitations of the Plan, the
Committee may, from time to time, establish rules for the administration of
the Plan and the transaction of its business. The Committee may correct
errors, however arising, and as far as possible, adjust any benefit payments
accordingly. The determination of the Committee as to the interpretation of
the provisions of the Plan or any disputed question shall be conclusive upon
all interested parties.
6.5 AGENTS AND EMPLOYEES. The Committee may authorize one or more
agents to execute or deliver any instrument. The Committee may appoint or
employ such agents, counsel (including counsel of any Company), auditors
(including auditors of any Company), physicians, clerical help and actuaries
as in the Committee's judgment may seem reasonable or necessary for the
proper administration of the Plan.
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6.6 INDEMNIFICATION. The Company shall indemnify each member of
the Committee for all expenses and liabilities (including reasonable
attorney's fees) arising out of the administration of the Plan. The
foregoing right of indemnification shall be in addition to any other rights
to which the members of the Committee may be entitled as a matter of law.
SECTION 7
FUNDING OBLIGATION
The Company shall have no obligation to fund, either by the purchase
of CBI Shares or by any other means, its obligations to Participants
hereunder. If, however, the Company does elect to allocate assets to provide
for any such obligation, the assets allocated for such purpose shall be
assets of the Company subject to claims against the Company, including claims
of the Company's creditors, to the same extent as are other corporate assets,
and the Participants shall have no right or claim against the assets so
allocated, other than as general creditors of the Company.
SECTION 8
AMENDMENT AND TERMINATION
The Board may amend or terminate the Plan at any time; provided that
no amendment shall be made or act of termination taken which adversely
affects the accrued benefits of any Participant without such Participant's
consent.
SECTION 9
NON-ALIENATION OF BENEFITS
No Participant or Beneficiary shall alienate, commute, anticipate,
assign, pledge, encumber or dispose of the right to receive the payments
required to be made by the Company hereunder, which payments and the right to
receive them are expressly declared to be nonassignable and nontransferable.
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SECTION 10
MISCELLANEOUS
10.1 DELEGATION. The Committee may delegate to any person or
committee certain of its rights and duties hereunder. Any such delegation
shall be valid and binding on all persons and the person or committee to whom
or which authority is delegated shall have full power to act in all matters
so delegated until the authority expires by its terms or is revoked by the
Committee, as the case may be.
10.2 APPLICABLE LAW. The Plan shall be governed by applicable
federal law and, to the extent not preempted by applicable federal law, the
laws of the State of Ohio.
10.3 SEPARABILITY OF PROVISIONS. If any provision of the Plan is
held invalid or unenforceable, such invalidity or unenforceabilty shall not
affect any other provisions hereof, and the Plan shall be construed and
enforced as if such provisions had not been included.
10.4 HEADINGS. Headings used throughout the Plan are for
convenience only and shall not be given legal significance.
10.5 COUNTERPARTS. The Plan may be executed in any number of
counterparts, each of which shall be deemed an original. All counterparts
shall constitute one and the same instrument, which shall be sufficiently
evidenced by any one thereof.
IN WITNESS WHEREOF, Cincinnati Bell Inc. has caused its name to be
subscribed on the _____ day of _______________, 1996.
CINCINNATI BELL INC.
By ________________________________
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EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Cincinnati Bell
Inc., an Ohio corporation ("Employer"), and John T. LaMacchia ("Employee").
For purposes of this Agreement, "Effective Date" means the date following the
date on which the Employer distributes to its shareholders all of the common
shares of Convergys Corporation owned by Employer after the initial public
offering of Convergys Corporation common shares.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms
of Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Inc. dated
December 1, 1987, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement shall be the period
commencing on the Effective Date and ending on the day preceding the first
anniversary of the Effective Date or such earlier date as may be agreed upon by
the Employer and Employee. Notwithstanding the foregoing, the term of this
Agreement is subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President and Chief Executive Officer of
Employer or in such other equivalent capacity as may be designated by the Board
of Directors of Employer. Employee will report to the Board of Directors of
Employer. Employee will also serve as a member of the Board of Directors of
Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the Board of Directors of Employer.
D. Employee shall devote Employee's entire time, attention, and energies
to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places
as are necessary in the performance of Employee's duties. It is also
understood, however, that
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Employee may be devoting some effort to planning his activities that will
follow the term of this Agreement, but that such planning will not interfere
with his duties hereunder.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$600,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to receive
an annual bonus (the "Bonus") for each calendar year for which services are
performed under this Agreement. Any Bonus for a calendar year shall be payable
after the conclusion of the calendar year in accordance with Employer's regular
bonus payment policies. Each year, Employee shall be given a Bonus target, by
Employer's Compensation Committee, of not less than $358,000, subject to
proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in
the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 200,000 common shares of Employer under Employer's 1997 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1997 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 200,000 common shares of Employer. Such award shall be made under
Employer's 1997 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
Long Term Incentive target under Employer's 1997 Long Term Incentive Plan. In
no event will the value of
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Executive's long term incentives (stock options and performance shares) for
any year, as determined by Employer's Compensation Committee, be less than
$810,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
G. Upon Employee's termination of employment for any reason (other than
for Cause as defined in Section 13.C.) during the term of this Agreement (a) all
stock options granted to Employee shall become immediately exercisable, (b) the
restrictions applicable to any restricted stock grant shall immediately lapse,
and (c) for purposes of computing Employee's benefit under Employer's Pension
Program, the reduction for age shall be waived.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
telecommunications industry within the U.S. Employee acknowledges that in the
course of employment with the Employer, Employee will be entrusted with or
obtain access to information proprietary to the Employer and its Affiliates with
respect to the following (all of which information is referred to hereinafter
collectively as the "Information"): the organization and management of Employer
and its Affiliates; the names, addresses, buying habits, and other special
information regarding past, present and potential customers, employees and
suppliers of Employer and its Affiliates; customer and supplier contracts and
transactions or price lists of Employer, its Affiliates and their suppliers;
products, services, programs and processes sold, licensed or developed by the
Employer or its Affiliates; technical data, plans and specifications, present
and/or future development projects of Employer and its Affiliates; financial
and/or marketing data respecting the conduct of the present or future phases of
business of Employer and its Affiliates; computer programs, systems and/or
software; ideas, inventions, trademarks, business information, know-how,
processes, improvements, designs, redesigns, discoveries and developments of
Employer and its Affiliates; and other information considered confidential by
any of the Employer, its Affiliates or customers or suppliers of Employer or
its Affiliates. Employee agrees to retain the Information in absolute
confidence and not to disclose the Information to any person or organization
except as required in the performance of Employee's duties for Employer, without
the express written consent of Employer; provided that Employee's obligation of
confidentiality shall not extend to any Information which becomes generally
available to the public other than as a result of disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term of
Employee's employment, whether or not during working hours or on Employer's
premises, which are within the scope of or related to the business operations of
Employer or its Affiliates ("New Developments"), shall be and remain the
exclusive property of Employer. Employee shall do all things reasonably
necessary to ensure ownership of such New Developments by Employer, including
the execution of documents assigning and transferring to Employer, all of
Employee's rights, title and interest in and to such New Developments, and the
execution of all documents required to enable Employer to file and obtain
patents, trademarks, and copyrights in the United States and foreign countries
on any of such New Developments.
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9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee will immediately surrender to Employer all of the property
and other things of value in his possession or in the possession of any person
or entity under Employee's control that are the property of Employer or any of
its Affiliates, including without any limitation all personal notes, drawings,
manuals, documents, photographs, or the like, including copies and derivatives
thereof, relating directly or indirectly to any confidential information or
materials or New Developments, or relating directly or indirectly to the
business of Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration award
are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the Employment
Dispute Resolution Rules of the American Arbitration Association ("AAA") except
to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA rules and
the requirements that Employee must pay a filing fee for which the Employer has
agreed to split on an equal basis.
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(d) The arbitrator will be selected from a panel of arbitrators
chosen by the AAA in White Plains, New York. After the filing of a Request for
Arbitration, the AAA will send simultaneously to Employer and Employee an
identical list of names of five persons chosen from the panel. Each party will
have 10 days from the transmittal date in which to strike up to two names,
number the remaining names in order of preference and return the list to the
AAA.
(e) Any pre-hearing disputes will be presented to the arbitrator
for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and will set
forth each issue considered and the arbitrator's finding of fact and conclusions
of law as to each such issue.
(g) The remedy and relief that may be granted by the arbitrator
to Employee are limited to lost wages, benefits, cease and desist and
affirmative relief, compensatory, liquidated and punitive damages and reasonable
attorney's fees, and will not include reinstatement or promotion. If the
arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary benefit each
derives from arbitration is avoiding the delay and costs normally associated
with litigation. Therefore, neither party will be entitled to conduct any
discovery prior to the arbitration hearing except that: (i) Employer will
furnish Employee with copies of all non-privileged documents in Employee's
personnel file; (ii) if the claim is for discharge, Employee will furnish
Employer with records of earnings and benefits relating to Employee's subsequent
employment (including self-employment) and all documents relating to Employee's
efforts to obtain subsequent employment; (iii) the parties will exchange copies
of all documents they intend to introduce as evidence at the arbitration hearing
at least 10 days prior to such hearing; (iv) Employee will be allowed (at
Employee's expense) to take the depositions, for a period not to exceed four
hours each, of two representatives of Employer, and Employer will be allowed (at
its expense) to depose Employee for a period not to exceed four hours; and (v)
Employer or Employee may ask the arbitrator to grant additional discovery to the
extent permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is to
use the deposition in lieu of the witness testifying at the hearing and the
witness is, in good faith, unavailable to testify in person at the hearing due
to poor health, residency and employment more than 50 miles from the hearing
site, conflicting travel plans or other comparable reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate
5
<PAGE>
arbitration within the time limits herein will be considered a waiver and
release by that party with respect to any claim subject to arbitration under
this Agreement.
(iv) Employer and Employee consent that judgment upon the arbitration
award may be entered in any federal or state court that has jurisdiction.
(v) Except as provided in Section 10.A., neither party will commence
or pursue any litigation on any claim that is or was subject to arbitration
under this Agreement.
(vi) All aspects of any arbitration procedure under this Agreement,
including the hearing and the record of the proceedings, are confidential and
will not be open to the public, except to the extent the parties agree otherwise
in writing, or as may be appropriate in any subsequent proceedings between the
parties, or as may otherwise be appropriate in response to a governmental agency
or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venture, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee in any business activity in
competition with Employer. This restriction will be limited to the geographical
area where Employer is then engaged in such competing business activity or to
such other geographical area as a court shall find reasonably necessary to
protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee will not interfere with or
adversely affect, either directly or indirectly, Employer's relationships with
any person, firm, association, corporation or other entity which is known by
Employee to be, or is included on any listing to which Employee had access
during the course of employment as a customer, client, supplier, consultant or
employee of Employer and that Employee will not divert or change, or attempt to
divert or change, any such relationship to the detriment of Employer or to the
benefit of any other person, firm, association, corporation or other entity.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee shall not, without the prior
written consent of Employer, accept employment, as an employee, consultant, or
otherwise, with any company or entity which is a customer or supplier of
Employer at any time during the final year of Employee's employment with
Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
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12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally, or
with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this Agreement in
the event of a Terminating Disability, such termination shall be effective
immediately upon the giving of written notice by the terminating party to the
other.
(iii) Upon termination of this Agreement on account of Terminating
Disability, Employer shall pay Employee Employee's accrued compensation
hereunder, whether Base Salary, Bonus or otherwise (subject to offset for any
amounts received pursuant to the Disability Plans), to the date of
termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and
Employer shall provide Employee with disability benefits and all other
benefits according to the provisions of the Disability Plans and any other
Employer plans in which Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon an
event of a Terminating Disability and Employee returns to active employment with
Employer prior to such a termination, or if such disability exists for less than
one hundred twenty consecutive working days, the provisions of this Agreement
shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer
shall have "Cause" to terminate this Agreement only if Employer's Board of
Directors determines that there has been fraud, misappropriation or
embezzlement on the part of Employee.
D. Employer may terminate this Agreement immediately, upon written notice
to Employee, for any reason other than those set forth in Sections 13.A., B.
and C.; provided, however, that Employer shall have no right to terminate under
this Section 13.D. within two years after a Change in Control. In the event of
a termination by Employer under this Section 13.D., Employer shall, within five
days after the termination, pay Employee an amount equal to
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the greater of (i) two times the sum of the annual Base Salary rate in effect
at the time of termination plus the Bonus target in effect at the time of
termination or (ii) if the Current Term is longer than two years, the sum of
the Base Salary for the remainder of the Current Term (at the rate in effect
at the time of termination) plus the Bonus targets (at the amount in effect
at the time of termination) for each calendar year commencing or ending
during the remainder of the Current Term (subject to proration in the case of
any calendar year ending after the Current Term). For the remainder of the
Current Term, Employer shall continue to provide Employee with medical,
dental, vision and life insurance coverage comparable to the medical, dental,
vision and life insurance coverage in effect for Employee immediately prior
to the termination; and, to the extent that Employee would have been
eligible for any post-retirement medical, dental, vision or life insurance
benefits from Employer if Employee had continued in employment through the
end of the Current Term, Employer shall provide such post-retirement
benefits to Employee after the end of the Current Term. For purposes of any
stock option or restricted stock grant outstanding immediately prior to the
termination, Employee's employment with Employer shall not be deemed to have
terminated until the end of the Current Term. In addition, Employee shall be
entitled to receive, as soon as practicable after termination, an amount
equal to the sum of (i) any forfeitable benefits under any qualified or
nonqualified pension, profit sharing, 401(k) or deferred compensation plan of
Employer or any Affiliate which would have vested prior to the end of the
Current Term if Employee's employment had not terminated plus (ii) if
Employee is participating in a qualified or nonqualified defined benefit plan
of Employer or any Affiliate at the time of termination, an amount equal to
the present value of the additional vested benefits which would have accrued
for Employee under such plan if Employee's employment had not terminated
prior to the end of the Current Term and if Employee's annual Base Salary and
Bonus target had neither increased nor decreased after the termination. For
purposes of this Section 13.D., "Current Term" means the longer of (i) the
two year period beginning at the time of termination or (ii) the unexpired
term of this Agreement at the time of the termination, determined as provided
in Section 2 but assuming that there is no automatic extension of the
Agreement term after the termination. For purposes of this Section 13.D. and
Section 13.E., "Change in Control" means a change in control as defined in
Employer's 1997 Long Term Incentive Plan.
E. This Agreement shall terminate automatically in the event that there
is a Change in Control and either (i) Employee elects to resign within 90
days after the Change in Control or (ii) Employee's employment with Employer
is actually or constructively terminated by Employer within two years after
the Change in Control for any reason other than those set forth in Sections
13.A., B. and C. For purposes of the preceding sentence, a "constructive"
termination of Employee's employment shall be deemed to have occurred if,
without Employee's consent, there is a material reduction in Employee's
authority or responsibilities or if there is a reduction in Employee's Base
Salary or Bonus target from the amount in effect immediately prior to the
Change in Control or if Employee is required by Employer to relocate from the
city where Employee is residing immediately prior to the Change in Control.
In the event of a termination under this Section 13.E., Employer shall pay
Employee an amount equal to three times the sum of the annual Base Salary
rate in effect at the time of termination plus the Bonus target in effect at
the time of termination, all stock options shall become immediately
exercisable (and Employee shall be afforded the opportunity to exercise
them), the restrictions applicable to all restricted stock shall lapse and
any long term awards shall be paid out at target. For the
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remainder of the Current Term, Employer shall continue to provide Employee
with medical, dental, vision and life insurance coverage comparable to the
medical, dental, vision and life insurance coverage in effect for Employee
immediately prior to the termination; and, to the extent that Employee would
have been eligible for any post-retirement medical, dental, vision or life
insurance benefits from Employer if Employee had continued in employment
through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term.
Employee's accrued benefit under any nonqualified pension or deferred
compensation plan maintained by Employer or any Affiliate shall become
immediately vested and nonforfeitable and Employee also shall be entitled to
receive a payment equal to the sum of (i) any forfeitable benefits under any
qualified pension or profit sharing or 401(k) plan maintained by Employer or
any Affiliate plus (ii) if Employee is participating in a qualified or
nonqualified defined benefit plan of Employer or any Affiliate at the time of
termination, an amount equal to the present value of the additional benefits
which would have accrued for Employee under such plan if Employee's
employment had not terminated prior to the end of the Current Term and if
Employee's annual Base Salary and Bonus target had neither increased nor
decreased after the termination. Finally, to the extent that Employee is
deemed to have received an excess parachute payment by reason of the Change
in Control, Employer shall pay Employee an additional sum sufficient to pay
(i) any taxes imposed under section 4999 of the Code plus (ii) any federal,
state and local taxes applicable to any taxes imposed under section 4999 of
the Code. For purposes of this Section 13.E., "Current Term" means the
longer of (i) the three year period beginning at the time of termination or
(ii) the unexpired term of this Agreement at the time of the termination,
determined as provided in Section 2 but assuming that there is no automatic
extension of the Agreement term after the termination.
F. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus earned for the year preceding the
year in which the termination occurs and any nonforfeitable amounts payable
under any employee plan) and Section 6.G., all further compensation under this
Agreement shall terminate.
G. The termination of this Agreement shall not amend, alter or modify the
rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights and
duties of Employee arising under this Agreement, and the Agreement itself, are
non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, and if delivered personally or by certified
mail to Employee at Employee's place of residence as then recorded on the books
of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms contained
herein shall be valid unless in writing and duly executed by the party to be
charged therewith. The waiver by
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any party hereto of a breach of any provision of this Agreement by the other
party shall not operate or be construed as a waiver of any subsequent breach
by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the State
of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no other
contracts, agreements or understandings, whether oral or written, existing
between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this Agreement
is held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or other enforceability shall not affect any other
provisions hereof, and this Agreement shall be construed as if such invalid,
illegal, or unenforceable provisions have never been contained herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14 above,
this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall be
held in strict confidence by Employee and shall not be disclosed by Employee to
anyone other than Employee's spouse, Employee's legal counsel, and Employee's
other advisors, unless required by law. Further, except as provided in the
preceding sentence, Employee shall not reveal the existence of this Agreement or
discuss its terms with any person (including but not limited to any employee of
Employer or its Affiliates) without the express authorization of the President
or Board of Directors of Employer. To the extent that the terms of this
Agreement have been disclosed by Employer, in a public filing or otherwise, the
confidentiality requirements of this Section 21 shall no longer apply to such
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CINCINNATI BELL INC.
By: /s/ Charles S. Mechem, Jr.
-------------------------------------
EMPLOYEE
/s/ John T. LaMacchia
-----------------------------------------
John T. LaMacchia
10
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<S> <C>
Automobile Allowance Employer-provided leased automobile
Cellular Telephone Yes
Executive Deferred Compensation Plan No
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $10,000 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and Robert J. Marino
("Employee"). For purposes of this Agreement, "Effective Date" means the date on
which the initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Information
Systems Inc. dated October 1, 1995, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President of Information Services Group or in
such other equivalent capacity as may be designated by the President of
Employer. Employee will report to the President or Chief Operating Officer of
Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the President of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places as
are necessary
<PAGE>
in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$305,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $160,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in the
course of the performance of Employee's duties to Employer shall be reimbursable
in accordance with Employer's then current travel and expense policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 100,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 50,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
long term incentive target under Employer's 1998 Long Term Incentive Plan. In no
event will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as
<PAGE>
determined by Employer's Compensation Committee, be less than $316,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
outsourced customer care industry within the U.S. and world wide. Employee
acknowledges that in the course of employment with the Employer, Employee
will be entrusted with or obtain access to information proprietary to the
Employer and its Affiliates with respect to the following (all of which
information is referred to hereinafter collectively as the "Information");
the organization and management of Employer and its Affiliates; the names,
addresses, buying habits, and other special information regarding past,
present and potential customers, employees and suppliers of Employer and its
Affiliates; customer and supplier contracts and transactions or price lists
of Employer, its Affiliates and their suppliers; products, services, programs
and processes sold, licensed or developed by the Employer or its Affiliates;
technical data, plans and specifications, present and/or future development
projects of Employer and its Affiliates; financial and/or marketing data
respecting the conduct of the present or future phases of business of
Employer and its Affiliates; computer programs, systems and/or software;
ideas, inventions, trademarks, business information, know-how, processes,
improvements, designs, redesigns, discoveries and developments of Employer
and its Affiliates; and other information considered confidential by any of
the Employer, its Affiliates or customers or suppliers of Employer, its
Affiliates. Employee agrees to retain the Information in absolute confidence
and not to disclose the Information to any person or organization except as
required in the performance of Employee's duties for Employer, without the
express written consent of Employer; provided that Employee's obligation of
confidentiality shall not extend to any Information which becomes generally
available to the public other than as a result of disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term
of Employee's employment, whether or not during working hours or on
Employer's premises, which are within the scope of or related to the business
operations of Employer or its Affiliates ("New Developments"), shall be and
remain the exclusive property of Employer. Employee shall do all things
reasonably necessary to ensure ownership of such New Developments by
Employer, including the execution of documents assigning and transferring to
Employer, all of Employee's rights, title and interest in and to such New
Developments, and the execution of all documents required to enable Employer
to file and obtain patents, trademarks, and copyrights in the United States
and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that
upon cessation of Employee's employment, for whatever reason and whether
voluntary or involuntary, Employee will immediately surrender to Employer all
of the property and other things of value in his possession or in the
possession of any person or entity under Employee's control that are the
property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof,
<PAGE>
relating directly or indirectly to any confidential information or materials
or New Developments, or relating directly or indirectly to the business of
Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for
<PAGE>
expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from
taking the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more than 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits herein
will be considered a waiver and release by that party with respect to any claim
subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Except as provided in Section 10.A., neither party will
commence or
<PAGE>
pursue any litigation on any claim that is or was subject to arbitration
under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venturer, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee (i) in any business activity
in competition with Employer; (ii) in any position with any customer of Employer
which involves such customer's billing and/or billing related systems or; or
(iii) in any business that provides billing and/or billing related systems to
third parties engaged in the communication business (including wireless,
wireline and cable communication businesses). This restriction will be limited
to the geographical area where Employer is then engaged in such competing
business activity or to such other geographical area as a court shall find
reasonably necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way
<PAGE>
which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally,
or with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating party
to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections 13.A.,
B. and C.; provided, however, that Employer shall have no right to terminate
under this Section 13.D. within two years after a Change in Control. In the
event of a termination by Employer under this Section 13.D., Employer shall,
within five days after the termination, pay Employee an amount equal to the
greater of (i) two times the sum of the annual Base Salary rate in effect at the
time of
<PAGE>
termination plus the Bonus target in effect at the time of termination or
(ii) if the Current Term is longer than two years, the sum of the Base Salary
for the remainder of the Current Term (at the rate in effect at the time of
termination) plus the Bonus targets (at the amount in effect at the time of
termination) for each calendar year commencing or ending during the remainder
of the Current Term (subject to proration in the case of any calendar year
ending after the Current Term). For the remainder of the Current Term,
Employer shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible for
any post-retirement medical, dental, vision or life insurance benefits from
Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. For purposes of any stock option
or restricted stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have terminated
until the end of the Current Term. In addition, Employee shall be entitled to
receive, as soon as practicable after termination, an amount equal to the sum
of (i) any forfeitable benefits under any qualified or nonqualified pension,
profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1998
Long Term Incentive Plan.
H. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them), the restrictions applicable to all
restricted stock shall lapse and any long term awards shall be paid out at
target. For the remainder of the
<PAGE>
Current Term, Employer shall continue to provide Employee with medical,
dental, vision and life insurance coverage comparable to the medical, dental,
vision and life insurance coverage in effect for Employee immediately prior
to the termination; and, to the extent that Employee would have been eligible
for any post-retirement medical, dental, vision or life insurance benefits
from Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. Employee's accrued benefit under
any nonqualified pension or deferred compensation plan maintained by Employer
or any Affiliate shall become immediately vested and nonforfeitable and
Employee also shall be entitled to receive a payment equal to the sum of (i)
any forfeitable benefits under any qualified pension or profit sharing or
401(k) plan maintained by Employer or any Affiliate plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional benefits which would have accrued for Employee under
such plan if Employee's employment had not terminated prior to the end of the
Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. Finally, to the extent
that Employee is deemed to have received an excess parachute payment by
reason of the Change in Control, Employer shall pay Employee an additional
sum sufficient to pay (i) any taxes imposed under section 4999 of the Code
plus (ii) any federal, state and local taxes applicable to any taxes imposed
under section 4999 of the Code. For purposes of this Section 13.E., "Current
Term" means the longer of (i) the three year period beginning at the time of
termination or (ii) the unexpired term of this Agreement at the time of the
termination, determined as provided in Section 2 but assuming that there is
no automatic extension of the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates. For purposes of the
preceding sentence, service with Cincinnati Bell Inc. and its subsidiaries prior
to the Effective Date shall be deemed to be service with Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus
<PAGE>
earned for the year preceding the year in which the termination occurs and
any nonforfeitable amounts payable under any employee plan), all further
compensation under this Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights and
duties of Employee arising under this Agreement, and the Agreement itself, are
non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, and if delivered personally or by certified
mail to Employee at Employee's place of residence as then recorded on the books
of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms contained
herein shall be valid unless in writing and duly executed by the party to be
charged therewith. The waiver by any party hereto of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the State of
Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no other
contracts, agreements or understandings, whether oral or written, existing
between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this Agreement is
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or other enforceability shall not affect any other provisions
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provisions have never been contained herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14 above,
this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall be
held in strict confidence by Employee and shall not be disclosed by Employee to
anyone other than Employee's spouse, Employee's legal counsel, and Employee's
other advisors, unless required by law. Further, except as provided in the
preceding sentence, Employee shall not reveal the existence of this Agreement or
discuss its terms with any person (including but not limited to any employee of
Employer or its Affiliates) without the express authorization of the President
of Employer. To the extent that the terms of this Agreement have been disclosed
by Employer, in a public filing or otherwise, the confidentiality requirements
of this Section 21 shall no longer
<PAGE>
apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
-----------------------------------
EMPLOYEE
---------------------------------------
Robert J. Marino
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
Robert J. Marino ("Employee"), made as of the date on which the initial public
offering of Employer's common shares was closed, is hereby amended in the
following respects:
4. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of at
least $360,000 per year, payable not less frequently than monthly, for
each year after 1998 during the term of this Agreement, subject to
proration for any partial year. Such Base Salary, and all other
amounts payable under this Agreement, shall be subject to withholding
as required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar
year shall be payable after the conclusion of the calendar year in
accordance with Employer's regular bonus payment policies. The Bonus
target for the period from August 13, 1998 through December 31, 1998
shall be $61,808 ($160,000 on an annualized basis). Each year after
1998, Employee shall be given a minimum Bonus target, by Employer's
Compensation Committee, of not less than $105,000, subject to
proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
------------------------------
----------------------------------
Robert J. Marino
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and David F. Dougherty
("Employee"). For purposes of this Agreement, "Effective Date" means the date on
which the initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Inc. dated
January 1, 1995, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President of Teleservices Group or in such
other equivalent capacity as may be designated by the President of Employer.
Employee will report to the President or Chief Operating Officer of Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the President of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places as
are necessary
<PAGE>
in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$305,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $160,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee
in the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 100,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 50,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
long term incentive target under Employer's 1998 Long Term Incentive Plan. In no
event will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as
<PAGE>
determined by Employer's Compensation Committee, be less than $316,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
outsourced customer care industry within the U.S. and world wide. Employee
acknowledges that in the course of employment with the Employer, Employee
will be entrusted with or obtain access to information proprietary to the
Employer and its Affiliates with respect to the following (all of which
information is referred to hereinafter collectively as the "Information");
the organization and management of Employer and its Affiliates; the names,
addresses, buying habits, and other special information regarding past,
present and potential customers, employees and suppliers of Employer and its
Affiliates; customer and supplier contracts and transactions or price lists
of Employer, its Affiliates and their suppliers; products, services, programs
and processes sold, licensed or developed by the Employer or its Affiliates;
technical data, plans and specifications, present and/or future development
projects of Employer and its Affiliates; financial and/or marketing data
respecting the conduct of the present or future phases of business of
Employer and its Affiliates; computer programs, systems and/or software;
ideas, inventions, trademarks, business information, know-how, processes,
improvements, designs, redesigns, discoveries and developments of Employer
and its Affiliates; and other information considered confidential by any of
the Employer, its Affiliates or customers or suppliers of Employer, its
Affiliates. Employee agrees to retain the Information in absolute confidence
and not to disclose the Information to any person or organization except as
required in the performance of Employee's duties for Employer, without the
express written consent of Employer; provided that Employee's obligation of
confidentiality shall not extend to any Information which becomes generally
available to the public other than as a result of disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term
of Employee's employment, whether or not during working hours or on
Employer's premises, which are within the scope of or related to the business
operations of Employer or its Affiliates ("New Developments"), shall be and
remain the exclusive property of Employer. Employee shall do all things
reasonably necessary to ensure ownership of such New Developments by
Employer, including the execution of documents assigning and transferring to
Employer, all of Employee's rights, title and interest in and to such New
Developments, and the execution of all documents required to enable Employer
to file and obtain patents, trademarks, and copyrights in the United States
and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that
upon cessation of Employee's employment, for whatever reason and whether
voluntary or involuntary, Employee will immediately surrender to Employer all
of the property and other things of value in his possession or in the
possession of any person or entity under Employee's control that are the
property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof,
<PAGE>
relating directly or indirectly to any confidential information or materials
or New Developments, or relating directly or indirectly to the business of
Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for
<PAGE>
expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from
taking the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more than 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits herein
will be considered a waiver and release by that party with respect to any claim
subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Except as provided in Section 10.A., neither party will
commence or
<PAGE>
pursue any litigation on any claim that is or was subject to arbitration
under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the
term "Employer" shall mean, collectively, Employer and each of its
Affiliates. During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable
by law, then for such period as shall be enforceable) Employee will not
engage in any business offering services related to the current business of
Employer, whether as a principal, partner, joint venturer, agent, employee,
salesman, consultant, director or officer, where such position would involve
Employee (i) in any business activity in competition with Employer; (ii) in
any position with any customer of Employer which involves such customer's
billing and/or billing related systems or; or (iii) in any business that
provides billing and/or billing related systems to third parties engaged in
the communication business (including wireless, wireline and cable
communication businesses). This restriction will be limited to the
geographical area where Employer is then engaged in such competing business
activity or to such other geographical area as a court shall find reasonably
necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its
Affiliates in any way
<PAGE>
which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally,
or with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating party
to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections 13.A.,
B. and C.; provided, however, that Employer shall have no right to terminate
under this Section 13.D. within two years after a Change in Control. In the
event of a termination by Employer under this Section 13.D., Employer shall,
within five days after the termination, pay Employee an amount equal to the
greater of (i) two times the sum of the annual Base Salary rate in effect at the
time of
<PAGE>
termination plus the Bonus target in effect at the time of termination or
(ii) if the Current Term is longer than two years, the sum of the Base Salary
for the remainder of the Current Term (at the rate in effect at the time of
termination) plus the Bonus targets (at the amount in effect at the time of
termination) for each calendar year commencing or ending during the remainder
of the Current Term (subject to proration in the case of any calendar year
ending after the Current Term). For the remainder of the Current Term,
Employer shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible for
any post-retirement medical, dental, vision or life insurance benefits from
Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. For purposes of any stock option
or restricted stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have terminated
until the end of the Current Term. In addition, Employee shall be entitled to
receive, as soon as practicable after termination, an amount equal to the sum
of (i) any forfeitable benefits under any qualified or nonqualified pension,
profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1998
Long Term Incentive Plan.
I. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them), the restrictions applicable to all
restricted stock shall lapse and any long term awards shall be paid out at
target. For the remainder of the
<PAGE>
Current Term, Employer shall continue to provide Employee with medical,
dental, vision and life insurance coverage comparable to the medical, dental,
vision and life insurance coverage in effect for Employee immediately prior
to the termination; and, to the extent that Employee would have been eligible
for any post-retirement medical, dental, vision or life insurance benefits
from Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. Employee's accrued benefit under
any nonqualified pension or deferred compensation plan maintained by Employer
or any Affiliate shall become immediately vested and nonforfeitable and
Employee also shall be entitled to receive a payment equal to the sum of (i)
any forfeitable benefits under any qualified pension or profit sharing or
401(k) plan maintained by Employer or any Affiliate plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional benefits which would have accrued for Employee under
such plan if Employee's employment had not terminated prior to the end of the
Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. Finally, to the extent
that Employee is deemed to have received an excess parachute payment by
reason of the Change in Control, Employer shall pay Employee an additional
sum sufficient to pay (i) any taxes imposed under section 4999 of the Code
plus (ii) any federal, state and local taxes applicable to any taxes imposed
under section 4999 of the Code. For purposes of this Section 13.E., "Current
Term" means the longer of (i) the three year period beginning at the time of
termination or (ii) the unexpired term of this Agreement at the time of the
termination, determined as provided in Section 2 but assuming that there is
no automatic extension of the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates. For purposes of the
preceding sentence, service with Cincinnati Bell Inc. and its subsidiaries prior
to the Effective Date shall be deemed to be service with Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus
<PAGE>
earned for the year preceding the year in which the termination occurs and
any nonforfeitable amounts payable under any employee plan), all further
compensation under this Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving
a relation of confidence and a trust between Employer and Employee, all
rights and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement
shall be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the President of Employer. To the extent that the terms of
this Agreement have been disclosed by Employer, in a public filing or
otherwise, the confidentiality requirements of this Section 21 shall no
longer
<PAGE>
apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
-----------------------------------
EMPLOYEE
---------------------------------------
David F. Dougherty
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
David F. Dougherty ("Employee"), made as of the date on which the initial public
offering of Employer's common shares was closed, is hereby amended in the
following respects:
5. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of
at least $360,000 per year, payable not less frequently than monthly,
for each year after 1998 during the term of this Agreement, subject to
proration for any partial year. Such Base Salary, and all other amounts
payable under this Agreement, shall be subject to withholding as
required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled
to receive an annual bonus (the "Bonus") for each calendar year for
which services are performed under this Agreement. Any Bonus for a
calendar year shall be payable after the conclusion of the calendar
year in accordance with Employer's regular bonus payment policies. The
Bonus target for the period from August 13, 1998 through December 31,
1998 shall be $61,808 ($160,000 on an annualized basis). Each year
after 1998, Employee shall be given a minimum Bonus target, by
Employer's Compensation Committee, of not less than $105,000, subject
to proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
-----------------------------------
----------------------------------
David F. Dougherty
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and James F. Orr ("Employee").
For purposes of this Agreement, "Effective Date" means the date on which the
initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms of
Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Inc. dated August
19, 1994, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President and Chief Executive Officer of Employer
or in such other equivalent capacity as may be designated by the Board of
Directors of Employer. Employee will report to the Board of Directors of
Employer.
B. Employee shall furnish such managerial, executive, financial, technical,
and other skills, advice, and assistance in operating Employer and its
Affiliates as Employer may reasonably request. For purposes of this Agreement,
"Affiliate" means each corporation which is a member of a controlled group of
corporations (within the meaning of section 1563(a) of the Internal Revenue Code
of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably assigned
to Employee by the Board of Directors of Employer.
D. Employee shall devote Employee's entire time, attention, and energies to
the
<PAGE>
business of Employer and its Affiliates. The words "entire time, attention,
and energies" are intended to mean that Employee shall devote Employee's full
effort during reasonable working hours to the business of Employer and its
Affiliates and shall devote at least 40 hours per week to the business of
Employer and its Affiliates. Employee shall travel to such places as are
necessary in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at
least $660,000 per year, payable not less frequently than monthly, for each
year during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and all other amounts payable under this Agreement,
shall be subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $429,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in the
course of the performance of Employee's duties to Employer shall be reimbursable
in accordance with Employer's then current travel and expense policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 350,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 150,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
<PAGE>
E. In each year of this Agreement after 1998, Employee will be given a
long term incentive target under Employer's 1998 Long Term Incentive Plan. In no
event will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as determined by Employer's
Compensation Committee, be less than $1,353,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the outsourced
customer care industry within the U.S. and world wide. Employee acknowledges
that in the course of employment with the Employer, Employee will be entrusted
with or obtain access to information proprietary to the Employer and its
Affiliates with respect to the following (all of which information is referred
to hereinafter collectively as the "Information"); the organization and
management of Employer and its Affiliates; the names, addresses, buying habits,
and other special information regarding past, present and potential customers,
employees and suppliers of Employer and its Affiliates; customer and supplier
contracts and transactions or price lists of Employer, its Affiliates and their
suppliers; products, services, programs and processes sold, licensed or
developed by the Employer or its Affiliates; technical data, plans and
specifications, present and/or future development projects of Employer and its
Affiliates; financial and/or marketing data respecting the conduct of the
present or future phases of business of Employer and its Affiliates; computer
programs, systems and/or software; ideas, inventions, trademarks, business
information, know-how, processes, improvements, designs, redesigns, discoveries
and developments of Employer and its Affiliates; and other information
considered confidential by any of the Employer, its Affiliates or customers or
suppliers of Employer, its Affiliates. Employee agrees to retain the Information
in absolute confidence and not to disclose the Information to any person or
organization except as required in the performance of Employee's duties for
Employer, without the express written consent of Employer; provided that
Employee's obligation of confidentiality shall not extend to any Information
which becomes generally available to the public other than as a result of
disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts, trademarks,
or other developments or improvements, whether patentable or not, conceived by
the Employee, alone or with others, at any time during the term of Employee's
employment, whether or not during working hours or on Employer's premises, which
are within the scope of or related to the business operations of Employer or its
Affiliates ("New Developments"), shall be and remain the exclusive property of
Employer. Employee shall do all things reasonably necessary to ensure ownership
of such New Developments by Employer, including the execution of documents
assigning and transferring to Employer, all of Employee's rights, title and
interest in and to such New Developments, and the execution of all documents
required to enable Employer to file and obtain patents, trademarks, and
copyrights in the United States and foreign countries on any of such New
Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee
<PAGE>
will immediately surrender to Employer all of the property and other things
of value in his possession or in the possession of any person or entity under
Employee's control that are the property of Employer or any of its
Affiliates, including without any limitation all personal notes, drawings,
manuals, documents, photographs, or the like, including copies and
derivatives thereof, relating directly or indirectly to any confidential
information or materials or New Developments, or relating directly or
indirectly to the business of Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen
<PAGE>
from the panel. Each party will have 10 days from the transmittal date in
which to strike up to two names, number the remaining names in order of
preference and return the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is
to use the deposition in lieu of the witness testifying at the hearing and
the witness is, in good faith, unavailable to testify in person at the
hearing due to poor health, residency and employment more than 50 miles from
the hearing site, conflicting travel plans or other comparable reason.
(iii) Arbitration must be requested in writing no later than
6 months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits
herein will be considered a waiver and release by that party with respect to
any claim subject to arbitration under this Agreement.
<PAGE>
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venturer, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee (i) in any business activity
in competition with Employer; (ii) in any position with any customer of Employer
which involves such customer's billing and/or billing related systems or; or
(iii) in any business that provides billing and/or billing related systems to
third parties engaged in the communication business (including wireless,
wireline and cable communication businesses). This restriction will be limited
to the geographical area where Employer is then engaged in such competing
business activity or to such other geographical area as a court shall find
reasonably necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of
<PAGE>
Employee's employment with Employer, induce or seek to induce, any other
employee of Employer to terminate his or her employment relationship with
Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally, or
with any of their customers, suppliers or employees. Employer will not disparage
Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating party
to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections 13.A.,
B. and C.; provided,
<PAGE>
however, that Employer shall have no right to terminate under this Section
13.D. within two years after a Change in Control. In the event of a
termination by Employer under this Section 13.D., Employer shall, within five
days after the termination, pay Employee an amount equal to the greater of
(i) two times the sum of the annual Base Salary rate in effect at the time of
termination plus the Bonus target in effect at the time of termination or
(ii) if the Current Term is longer than two years, the sum of the Base Salary
for the remainder of the Current Term (at the rate in effect at the time of
termination) plus the Bonus targets (at the amount in effect at the time of
termination) for each calendar year commencing or ending during the remainder
of the Current Term (subject to proration in the case of any calendar year
ending after the Current Term). For the remainder of the Current Term,
Employer shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible for
any post-retirement medical, dental, vision or life insurance benefits from
Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. For purposes of any stock option
or restricted stock grant outstanding immediately prior to the termination,
Employee's employment with Employer shall not be deemed to have terminated
until the end of the Current Term. In addition, Employee shall be entitled to
receive, as soon as practicable after termination, an amount equal to the sum
of (i) any forfeitable benefits under any qualified or nonqualified pension,
profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1998
Long Term Incentive Plan.
E. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum
<PAGE>
of the annual Base Salary rate in effect at the time of termination plus the
Bonus target in effect at the time of termination, all stock options shall
become immediately exercisable (and Employee shall be afforded the
opportunity to exercise them), the restrictions applicable to all restricted
stock shall lapse and any long term awards shall be paid out at target. For
the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable
to the medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee had continued in
employment through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term.
Employee's accrued benefit under any nonqualified pension or deferred
compensation plan maintained by Employer or any Affiliate shall become
immediately vested and nonforfeitable and Employee also shall be entitled to
receive a payment equal to the sum of (i) any forfeitable benefits under any
qualified pension or profit sharing or 401(k) plan maintained by Employer or
any Affiliate plus (ii) if Employee is participating in a qualified or
nonqualified defined benefit plan of Employer or any Affiliate at the time of
termination, an amount equal to the present value of the additional benefits
which would have accrued for Employee under such plan if Employee's
employment had not terminated prior to the end of the Current Term and if
Employee's annual Base Salary and Bonus target had neither increased nor
decreased after the termination. Finally, to the extent that Employee is
deemed to have received an excess parachute payment by reason of the Change
in Control, Employer shall pay Employee an additional sum sufficient to pay
(i) any taxes imposed under section 4999 of the Code plus (ii) any federal,
state and local taxes applicable to any taxes imposed under section 4999 of
the Code. For purposes of this Section 13.E., "Current Term" means the longer
of (i) the three year period beginning at the time of termination or (ii) the
unexpired term of this Agreement at the time of the termination, determined
as provided in Section 2 but assuming that there is no automatic extension of
the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon one year's prior written notice to Employer
at any time after Employee has attained age 55 and completed at least ten years
of service with Employer and its Affiliates. For purposes of the preceding
sentence, service with Cincinnati Bell Inc. and its subsidiaries prior to the
Effective Date shall be deemed to be service with Employer. In the event of a
retirement under this Section 13.G., this Agreement shall terminate and Employee
shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
<PAGE>
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus earned for the year preceding the
year in which the termination occurs and any nonforfeitable amounts payable
under any employee plan), all further compensation under this Agreement shall
terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights and
duties of Employee arising under this Agreement, and the Agreement itself, are
non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, and if delivered personally or by certified
mail to Employee at Employee's place of residence as then recorded on the books
of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms contained
herein shall be valid unless in writing and duly executed by the party to be
charged therewith. The waiver by any party hereto of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the State of
Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no other
contracts, agreements or understandings, whether oral or written, existing
between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this Agreement is
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or other enforceability shall not affect any other provisions
hereof, and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provisions have never been contained herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14 above,
this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall be
held in strict confidence by Employee and shall not be disclosed by Employee to
anyone other than Employee's spouse, Employee's legal counsel, and Employee's
other advisors, unless required by law. Further, except as provided in the
preceding sentence, Employee shall not reveal the
<PAGE>
existence of this Agreement or discuss its terms with any person (including
but not limited to any employee of Employer or its Affiliates) without the
express authorization of the Board of Directors of Employer. To the extent
that the terms of this Agreement have been disclosed by Employer, in a public
filing or otherwise, the confidentiality requirements of this Section 21
shall no longer apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
------------------------------
EMPLOYEE
-----------------------------------
James F. Orr
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance Company-leased automobile
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $10,000 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
James F. Orr ("Employee"), made as of the date on which the initial public
offering of Employer's common shares was closed, is hereby amended in the
following respects:
1. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of at least
$765,000 per year, payable not less frequently than monthly, for each year after
1998 during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and all other amounts payable under this Agreement,
shall be subject to withholding as required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year
shall be payable after the conclusion of the calendar year in accordance
with Employer's regular bonus payment policies. The Bonus target for the
period from August 13, 1998 through December 31, 1998 shall be $165,723
($429,000 on an annualized basis). Each year after 1998, Employee shall be
given a minimum Bonus target, by Employer's Compensation Committee, of not
less than $324,000, subject to proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
------------------------------
-----------------------------------
James F. Orr
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Cincinnati Bell
Inc., an Ohio corporation ("Employer"), and Richard G. Ellenberger ("Employee").
For purposes of this Agreement, "Effective Date" means the first day after the
date on which Employer distributes to its shareholders all of the common shares
of Convergys Corporation owned by Employer after the initial public offering of
Convergys Corporation common shares.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms
of Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Telephone Company
dated June 9, 1997, are canceled as of the Effective Date. Notwithstanding the
preceding sentence, all stock options and restricted stock awards granted to
Employee prior to the Effective Date shall continue in effect in accordance with
their respective terms and shall not be modified, amended or canceled by this
Agreement.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Effective the day after the retirement of the current President and
Chief Executive Officer of Employer, John T. LaMacchia, Employee will serve as
President and Chief Executive Officer of Employer or in such other equivalent
capacity as may be designated by the Board of Directors of Employer. Employee
will have the title of Chief Operating Officer beginning January 1, 1999 and
continuing through the day of retirement of current President and Chief
Executive Officer of Employer, John T. LaMacchia. Employee will report to the
Board of Directors of Employer and will continue to serve as a member of the
Board of Directors of Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a
controlled group of corporations (within the meaning of section 1563(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) which includes
Employer.
<PAGE>
C. Employee shall also perform such other duties, consistent with the
provisions of Section 3.A., as are reasonably assigned to Employee by the
Board of Directors of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire
time, attention, and energies" are intended to mean that Employee shall
devote Employee's full effort during reasonable working hours to the business
of Employer and its Affiliates and shall devote at least 40 hours per week to
the business of Employer and its Affiliates. Employee shall travel to such
places as are necessary in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at
least $550,000 per year, payable not less frequently than monthly, for each
year during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and all other amounts payable under this Agreement,
shall be subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year
shall be payable after the conclusion of the calendar year in accordance with
Employer's regular bonus payment policies. Each year, Employee shall be
given a Bonus target, by Employer's Compensation Committee, of not less than
$360,000, subject to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in
the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, which are made available to
similarly situated officers of Employer, including the benefits set forth in
Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made
available to Employee by Employer.
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<PAGE>
C. As of the Effective Date, Employee shall be granted options to
purchase 300,000 common shares of Employer under Employer's 1997 Long Term
Incentive Plan. The options will become exercisable as to 75,000 options on
the day preceding each of the first four anniversaries of the Effective Date.
In each year of this Agreement after 1999, Employee will be granted stock
options under Employer's 1997 Long Term Incentive Plan or any similar plan
made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 300,000 common shares of Employer. Such award shall be made under
Employer's 1997 Long Term Incentive Plan on the terms set forth in Attachment
A. The Restrictions shall lapse and be of no further force and effect on the
day preceding the fourth anniversary of the Effective Date.
E. In each year of this Agreement after 1999, Employee will be given a
Long Term Incentive target under Employer's 1997 Long Term Incentive Plan.
In no event will the value of Executive's long term incentives (stock options
and performance shares) for any year, as determined by Employer's
Compensation Committee, be less than $750,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
G. Employer will immediately seek the consent of Convergys Corporation
to accelerate the lapse of restrictions on the Convergys Corporation
Restricted Shares, resulting from an award by Employer of 25,000 of its
shares on June 9, 1997, effective on the date on which the Employer
distributes to its shareholders all of the common shares of Convergys
Corporation owned by Employer.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
telecommunications industry within the U.S. Employee acknowledges that in
the course of employment with the Employer, Employee will be entrusted with
or obtain access to information proprietary to the Employer and its
Affiliates with respect to the following (all of which information is
referred to hereinafter collectively as the "Information"); the organization
and management of Employer and its Affiliates; the names, addresses, buying
habits, and other special information regarding past, present and potential
customers, employees and suppliers of Employer and its Affiliates; customer
and supplier contracts and transactions or price lists of Employer, its
Affiliates and their suppliers; products, services, programs and processes
sold, licensed or developed by the Employer or its Affiliates; technical
data, plans and specifications, present and/or future development projects of
Employer and its Affiliates; financial and/or marketing data respecting the
conduct of the present or future phases of business of Employer and its
Affiliates; computer programs, systems and/or software; ideas, inventions,
trademarks, business information, know-how, processes, improvements, designs,
redesigns, discoveries and developments of Employer and its Affiliates; and
other information considered confidential by any of the Employer, its
Affiliates or customers or suppliers of
3
<PAGE>
Employer, its Affiliates. Employee agrees to retain the Information in
absolute confidence and not to disclose the Information to any person or
organization except as required in the performance of Employee's duties for
Employer, without the express written consent of Employer; provided that
Employee's obligation of confidentiality shall not extend to any Information
which becomes generally available to the public other than as a result of
disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term
of Employee's employment, whether or not during working hours or on
Employer's premises, which are within the scope of or related to the business
operations of Employer or its Affiliates ("New Developments"), shall be and
remain the exclusive property of Employer. Employee shall do all things
reasonably necessary to ensure ownership of such New Developments by
Employer, including the execution of documents assigning and transferring to
Employer, all of Employee's rights, title and interest in and to such New
Developments, and the execution of all documents required to enable Employer
to file and obtain patents, trademarks, and copyrights in the United States
and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that
upon cessation of Employee's employment, for whatever reason and whether
voluntary or involuntary, Employee will immediately surrender to Employer all
of the property and other things of value in his possession or in the
possession of any person or entity under Employee's control that are the
property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof, relating directly or
indirectly to any confidential information or materials or New Developments,
or relating directly or indirectly to the business of Employer or any of its
Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the
services rendered by Employee to Employer, the information disclosed to
Employee during and by virtue of Employee's employment, and Employee's
commitments and obligations to Employer and its Affiliates herein are of a
special, unique and extraordinary character, and that the breach of any
provision of this Agreement by Employee will cause Employer irreparable
injury and damage, and consequently the Employer shall be entitled to, in
addition to all other remedies available to it, injunctive and equitable
relief to prevent a breach of Sections 7, 8, 9, 11 and 12 of this Agreement
and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party
would have been otherwise entitled to file or
4
<PAGE>
pursue in court or before any administrative agency (herein "claim"), and
waives all right to sue the other party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9
U.S.C. Section 1 et seq. ("FAA"). If the FAA is held not to apply for any
reason then Ohio Revised Code Chapter 2711 regarding the enforceability of
arbitration agreements and awards will govern this Agreement and the
arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is
waived and released. The arbitration hearing will take place in Cincinnati,
Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA rules
and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and will
set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
5
<PAGE>
(h) Employer and Employee recognize that a primary benefit
each derives from arbitration is avoiding the delay and costs normally
associated with litigation. Therefore, neither party will be entitled to
conduct any discovery prior to the arbitration hearing except that: (i)
Employer will furnish Employee with copies of all non-privileged documents in
Employee's personnel file; (ii) if the claim is for discharge, Employee will
furnish Employer with records of earnings and benefits relating to Employee's
subsequent employment (including self-employment) and all documents relating
to Employee's efforts to obtain subsequent employment; (iii) the parties will
exchange copies of all documents they intend to introduce as evidence at the
arbitration hearing at least 10 days prior to such hearing; (iv) Employee
will be allowed (at Employee's expense) to take the depositions, for a period
not to exceed four hours each, of two representatives of Employer, and
Employer will be allowed (at its expense) to depose Employee for a period not
to exceed four hours; and (v) Employer or Employee may ask the arbitrator to
grant additional discovery to the extent permitted by AAA rules upon a
showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is
to use the deposition in lieu of the witness testifying at the hearing and
the witness is, in good faith, unavailable to testify in person at the
hearing due to poor health, residency and employment more than 50 miles from
the hearing site, conflicting travel plans or other comparable reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits
herein will be considered a waiver and release by that party with respect to
any claim subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(v) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
(vi) All aspects of any arbitration procedure under this Agreement,
including the hearing and the record of the proceedings, are confidential and
will not be open to the public, except to the extent the parties agree
otherwise in writing, or as may be appropriate in any subsequent proceedings
between the parties, or as may otherwise be appropriate in response to a
governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee will not engage in any
business offering services related to the
6
<PAGE>
current business of Employer, whether as a principal, partner, joint venture,
agent, employee, salesman, consultant, director or officer, where such
position would involve Employee in any business activity in competition with
Employer. This restriction will be limited to the geographical area where
Employer is then engaged in such competing business activity or to such other
geographical area as a court shall find reasonably necessary to protect the
goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable
by law, then for such period as shall be enforceable) Employee will not
interfere with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not
divert or change, or attempt to divert or change, any such relationship to
the detriment of Employer or to the benefit of any other person, firm,
association, corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable
by law, then for such period as shall be enforceable) Employee shall not,
without the prior written consent of Employer, accept employment, as an
employee, consultant, or otherwise, with any company or entity which is a
customer or supplier of Employer at any time during the final year of
Employee's employment with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment
relationship with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates
in any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally,
or with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this Agreement in
the event of a Terminating Disability, such termination shall be effective
immediately upon the giving of written notice by the terminating party to the
other.
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<PAGE>
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the
date of termination. For as long as such Terminating Disability may exist,
Employee shall continue to be an employee of Employer for all other purposes
and Employer shall provide Employee with disability benefits and all other
benefits according to the provisions of the Disability Plans and any other
Employer plans in which Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon an
event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for
less than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the
death of the Employee, provided, however, that the Employee's estate shall be
paid Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer
shall have "Cause" to terminate this Agreement only if Employer's Board of
Directors determines that there has been fraud, misappropriation or
embezzlement on the part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections
13.A., B. and C.; provided, however, that Employer shall have no right to
terminate under this Section 13.D. within two years after a Change in
Control. In the event of a termination by Employer under this Section
13.D., Employer shall, within five days after the termination, pay Employee
an amount equal to the greater of (i) two times the sum of the annual Base
Salary rate in effect at the time of termination plus the Bonus target in
effect at the time of termination or (ii) if the Current Term is longer than
two years, the sum of the Base Salary for the remainder of the Current Term
(at the rate in effect at the time of termination) plus the Bonus targets (at
the amount in effect at the time of termination) for each calendar year
commencing or ending during the remainder of the Current Term (subject to
proration in the case of any calendar year ending after the Current Term).
For the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable
to the medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee had continued in
employment through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term. For
purposes of any stock option or restricted stock grant outstanding
immediately prior to
8
<PAGE>
the termination, Employee's employment with Employer shall not be deemed to
have terminated until the end of the Current Term. In addition, Employee
shall be entitled to receive, as soon as practicable after termination, an
amount equal to the sum of (i) any forfeitable benefits under any qualified
or nonqualified pension, profit sharing, 401(k) or deferred compensation plan
of Employer or any Affiliate which would have vested prior to the end of the
Current Term if Employee's employment had not terminated plus (ii) if
Employee is participating in a qualified or nonqualified defined benefit plan
of Employer or any Affiliate at the time of termination, an amount equal to
the present value of the additional vested benefits which would have accrued
for Employee under such plan if Employee's employment had not terminated
prior to the end of the Current Term and if Employee's annual Base Salary and
Bonus target had neither increased nor decreased after the termination. For
purposes of this Section 13.D., "Current Term" means the longer of (i) the
two year period beginning at the time of termination or (ii) the unexpired
term of this Agreement at the time of the termination, determined as provided
in Section 2 but assuming that there is no automatic extension of the
Agreement term after the termination. For purposes of this Section 13.D. and
Section 13.E., "Change in Control" means a change in control as defined in
Employer's 1997 Long Term Incentive Plan.
E. This Agreement shall terminate automatically in the event that there
is a Change in Control and either (i) Employee elects to resign within 90
days after the Change in Control or (ii) Employee's employment with Employer
is actually or constructively terminated by Employer within two years after
the Change in Control for any reason other than those set forth in Sections
13.A., B. and C. For purposes of the preceding sentence, a "constructive"
termination of Employee's employment shall be deemed to have occurred if,
without Employee's consent, there is a material reduction in Employee's
authority or responsibilities or if there is a reduction in Employee's Base
Salary or Bonus target from the amount in effect immediately prior to the
Change in Control or if Employee is required by Employer to relocate from the
city where Employee is residing immediately prior to the Change in Control.
In the event of a termination under this Section 13.E., Employer shall pay
Employee an amount equal to three times the sum of the annual Base Salary
rate in effect at the time of termination plus the Bonus target in effect at
the time of termination, all stock options shall become immediately
exercisable (and Employee shall be afforded the opportunity to exercise
them), the restrictions applicable to all restricted stock shall lapse and
any long term awards shall be paid out at target. For the remainder of the
Current Term, Employer shall continue to provide Employee with medical,
dental, vision and life insurance coverage comparable to the medical, dental,
vision and life insurance coverage in effect for Employee immediately prior
to the termination; and, to the extent that Employee would have been
eligible for any post-retirement medical, dental, vision or life insurance
benefits from Employer if Employee had continued in employment through the
end of the Current Term, Employer shall provide such post-retirement
benefits to Employee after the end of the Current Term. Employee's accrued
benefit under any nonqualified pension or deferred compensation plan
maintained by Employer or any Affiliate shall become immediately vested and
nonforfeitable and Employee also shall be entitled to receive a payment equal
to the sum of (i) any forfeitable benefits under any qualified pension or
profit sharing or 401(k) plan maintained by Employer or any Affiliate plus
(ii) if
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Employee is participating in a qualified or nonqualified defined benefit plan
of Employer or any Affiliate at the time of termination, an amount equal to
the present value of the additional benefits which would have accrued for
Employee under such plan if Employee's employment had not terminated prior to
the end of the Current Term and if Employee's annual Base Salary and Bonus
target had neither increased nor decreased after the termination. Finally, to
the extent that Employee is deemed to have received an excess parachute
payment by reason of the Change in Control, Employer shall pay Employee an
additional sum sufficient to pay (i) any taxes imposed under section 4999 of
the Code plus (ii) any federal, state and local taxes applicable to any taxes
imposed under section 4999 of the Code. For purposes of this Section 13.E.,
"Current Term" means the longer of (i) the three year period beginning at the
time of termination or (ii) the unexpired term of this Agreement at the time
of the termination, determined as provided in Section 2 but assuming that
there is no automatic extension of the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under
any compensation plan or program of Employer.
G. Employee may retire (a) upon one year's prior written notice to
Employer at any time after Employee has attained age 55 and completed at
least ten years of service with Employer and its Affiliates or (b) on such
earlier date as may be approved by the Board of Directors of Employer. In
the event of a retirement under this Section 13.G., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination and any Bonus earned but not paid at the time
of termination. In addition, Employee shall be entitled to receive any
compensation or benefits made available to retirees under Employer's standard
policies and programs, including retiree medical and life insurance benefits,
a prorated Bonus for the year of termination, and the right to exercise
options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary
accrued through the date of termination, any Bonus earned for the year
preceding the year in which the termination occurs and any nonforfeitable
amounts payable under any employee plan), all further compensation under this
Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify the
rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
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14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights
and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall
be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the Board of Directors of Employer. To the extent that the
terms of this Agreement have been disclosed by Employer, in a public filing
or otherwise, the confidentiality requirements of this Section 21 shall no
longer apply to such terms.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CINCINNATI BELL INC.
By: /s/ James D. Kiggen
------------------------------------ ------------
James D. Kiggen - Chairman of the Board Date
By: /s/ John T. LaMacchia
------------------------------------ ------------
John T. LaMacchia - President & CEO Date
EMPLOYEE
/s/ Richard G. Ellenberger
------------------------------------ ------------
Richard G. Ellenberger Date
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Attachment B
EMPLOYEE BENEFITS
<TABLE>
<S> <C>
Automobile Allowance Employer provided leased vehicle or
$850/mo
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $10,000 per year
Parking Yes
Business Club Memberships Up to 3
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Convergys
Corporation, an Ohio corporation ("Employer"), and William D. Baskett III
("Employee"). For purposes of this Agreement, "Effective Date" means the date on
which the initial public offering of Employer's common shares is closed.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the
terms of Employer's employment of Employee on and after the Effective Date.
Any prior agreements or understandings with respect to Employee's employment
by Employer, including Employee's Employment Agreement with Cincinnati Bell
Inc. dated January 1, 1998, are canceled as of the Effective Date.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the
four year period commencing on the Effective Date. On the third anniversary
of the Effective Date and on each subsequent anniversary of the Effective
Date, the term of this Agreement automatically shall be extended for a period
of one additional year. Notwithstanding the foregoing, the term of this
Agreement is subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as Chief Legal Officer of Employer or in such
other equivalent capacity as may be designated by the President of Employer.
Employee will report to the President of Employer.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties as are reasonably
assigned to Employee by the President of Employer.
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working
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hours to the business of Employer and its Affiliates and shall devote at
least 40 hours per week to the business of Employer and its Affiliates.
Employee shall travel to such places as are necessary in the performance of
Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$275,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which services
are performed under this Agreement. Any Bonus for a calendar year shall be
payable after the conclusion of the calendar year in accordance with Employer's
regular bonus payment policies. Each year, Employee shall be given a Bonus
target, by Employer's Compensation Committee, of not less than $135,000, subject
to proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee
in the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, set forth in Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 50,000 common shares of Employer under Employer's 1998 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1998 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 25,000 common shares of Employer. Such award shall be made under
Employer's 1998 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
long term
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incentive target under Employer's 1998 Long Term Incentive Plan. In no event
will the value of Executive's long term incentives (stock options and
performance share targets) for any year, as determined by Employer's
Compensation Committee, be less than $250,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the outsourced
customer care industry within the U.S. and world wide. Employee acknowledges
that in the course of employment with the Employer, Employee will be entrusted
with or obtain access to information proprietary to the Employer and its
Affiliates with respect to the following (all of which information is referred
to hereinafter collectively as the "Information"); the organization and
management of Employer and its Affiliates; the names, addresses, buying habits,
and other special information regarding past, present and potential customers,
employees and suppliers of Employer and its Affiliates; customer and supplier
contracts and transactions or price lists of Employer, its Affiliates and their
suppliers; products, services, programs and processes sold, licensed or
developed by the Employer or its Affiliates; technical data, plans and
specifications, present and/or future development projects of Employer and its
Affiliates; financial and/or marketing data respecting the conduct of the
present or future phases of business of Employer and its Affiliates; computer
programs, systems and/or software; ideas, inventions, trademarks, business
information, know-how, processes, improvements, designs, redesigns, discoveries
and developments of Employer and its Affiliates; and other information
considered confidential by any of the Employer, its Affiliates or customers or
suppliers of Employer, its Affiliates. Employee agrees to retain the Information
in absolute confidence and not to disclose the Information to any person or
organization except as required in the performance of Employee's duties for
Employer, without the express written consent of Employer; provided that
Employee's obligation of confidentiality shall not extend to any Information
which becomes generally available to the public other than as a result of
disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts, trademarks,
or other developments or improvements, whether patentable or not, conceived by
the Employee, alone or with others, at any time during the term of Employee's
employment, whether or not during working hours or on Employer's premises, which
are within the scope of or related to the business operations of Employer or its
Affiliates ("New Developments"), shall be and remain the exclusive property of
Employer. Employee shall do all things reasonably necessary to ensure ownership
of such New Developments by Employer, including the execution of documents
assigning and transferring to Employer, all of Employee's rights, title and
interest in and to such New Developments, and the execution of all documents
required to enable Employer to file and obtain patents, trademarks, and
copyrights in the United States and foreign countries on any of such New
Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee will immediately surrender to Employer all of the property
and other things of value in his possession or in the possession of any person
or entity under Employee's control that are the
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property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof, relating directly or
indirectly to any confidential information or materials or New Developments,
or relating directly or indirectly to the business of Employer or any of its
Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA
rules and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
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(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and
will set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary
benefit each derives from arbitration is avoiding the delay and costs
normally associated with litigation. Therefore, neither party will be
entitled to conduct any discovery prior to the arbitration hearing except
that: (i) Employer will furnish Employee with copies of all non-privileged
documents in Employee's personnel file; (ii) if the claim is for discharge,
Employee will furnish Employer with records of earnings and benefits relating
to Employee's subsequent employment (including self-employment) and all
documents relating to Employee's efforts to obtain subsequent employment;
(iii) the parties will exchange copies of all documents they intend to
introduce as evidence at the arbitration hearing at least 10 days prior to
such hearing; (iv) Employee will be allowed (at Employee's expense) to take
the depositions, for a period not to exceed four hours each, of two
representatives of Employer, and Employer will be allowed (at its expense) to
depose Employee for a period not to exceed four hours; and (v) Employer or
Employee may ask the arbitrator to grant additional discovery to the extent
permitted by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking
the deposition of any witness where the sole purpose for taking the
deposition is to use the deposition in lieu of the witness testifying at the
hearing and the witness is, in good faith, unavailable to testify in person
at the hearing due to poor health, residency and employment more than 50
miles from the hearing site, conflicting travel plans or other comparable
reason.
(iii) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits herein
will be considered a waiver and release by that party with respect to any claim
subject to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
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(v) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
(vi) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any subsequent
proceedings between the parties, or as may otherwise be appropriate in response
to a governmental agency or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venturer, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee (i) in any business activity
in competition with Employer; (ii) in any position with any customer of Employer
which involves such customer's billing and/or billing related systems or; or
(iii) in any business that provides billing and/or billing related systems to
third parties engaged in the communication business (including wireless,
wireline and cable communication businesses). This restriction will be limited
to the geographical area where Employer is then engaged in such competing
business activity or to such other geographical area as a court shall find
reasonably necessary to protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee will not interfere
with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not divert
or change, or attempt to divert or change, any such relationship to the
detriment of Employer or to the benefit of any other person, firm, association,
corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable by
law, then for such period as shall be enforceable) Employee shall not, without
the prior written consent of Employer, accept employment, as an employee,
consultant, or otherwise, with any company or entity which is a customer or
supplier of Employer at any time during the final year of Employee's employment
with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
<PAGE>
12. GOODWILL. Employee will not disparage Employer or any of its
Affiliates in any way which could adversely affect the goodwill, reputation
and business relationships of Employer or any of its Affiliates with the
public generally, or with any of their customers, suppliers or employees.
Employer will not disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this
Agreement in the event of a Terminating Disability, such termination shall be
effective immediately upon the giving of written notice by the terminating
party to the other.
(iii) Upon termination of this Agreement on account of
Terminating Disability, Employer shall pay Employee Employee's accrued
compensation hereunder, whether Base Salary, Bonus or otherwise (subject to
offset for any amounts received pursuant to the Disability Plans), to the date
of termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and Employer
shall provide Employee with disability benefits and all other benefits according
to the provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon
an event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for less
than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer shall
have "Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections
13.A., B. and C.; provided, however, that Employer shall have no right to
terminate under this Section 13.D. within two years after a Change in
Control. In the event of a termination by Employer under this Section
<PAGE>
13.D., Employer shall, within five days after the termination, pay Employee
an amount equal to the greater of (i) two times the sum of the annual Base
Salary rate in effect at the time of termination plus the Bonus target in
effect at the time of termination or (ii) if the Current Term is longer than
two years, the sum of the Base Salary for the remainder of the Current Term
(at the rate in effect at the time of termination) plus the Bonus targets (at
the amount in effect at the time of termination) for each calendar year
commencing or ending during the remainder of the Current Term (subject to
proration in the case of any calendar year ending after the Current Term).
For the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable
to the medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee had continued in
employment through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term. For
purposes of any stock option or restricted stock grant outstanding
immediately prior to the termination, Employee's employment with Employer
shall not be deemed to have terminated until the end of the Current Term. In
addition, Employee shall be entitled to receive, as soon as practicable after
termination, an amount equal to the sum of (i) any forfeitable benefits under
any qualified or nonqualified pension, profit sharing, 401(k) or deferred
compensation plan of Employer or any Affiliate which would have vested prior
to the end of the Current Term if Employee's employment had not terminated
plus (ii) if Employee is participating in a qualified or nonqualified defined
benefit plan of Employer or any Affiliate at the time of termination, an
amount equal to the present value of the additional vested benefits which
would have accrued for Employee under such plan if Employee's employment had
not terminated prior to the end of the Current Term and if Employee's annual
Base Salary and Bonus target had neither increased nor decreased after the
termination. For purposes of this Section 13.D., "Current Term" means the
longer of (i) the two year period beginning at the time of termination or
(ii) the unexpired term of this Agreement at the time of the termination,
determined as provided in Section 2 but assuming that there is no automatic
extension of the Agreement term after the termination. For purposes of this
Section 13.D. and Section 13.E., "Change in Control" means a change in
control as defined in Employer's 1998 Long Term Incentive Plan.
F. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee
<PAGE>
shall be afforded the opportunity to exercise them), the restrictions
applicable to all restricted stock shall lapse and any long term awards shall
be paid out at target. For the remainder of the Current Term, Employer shall
continue to provide Employee with medical, dental, vision and life insurance
coverage comparable to the medical, dental, vision and life insurance
coverage in effect for Employee immediately prior to the termination; and, to
the extent that Employee would have been eligible for any post-retirement
medical, dental, vision or life insurance benefits from Employer if Employee
had continued in employment through the end of the Current Term, Employer
shall provide such post-retirement benefits to Employee after the end of the
Current Term. Employee's accrued benefit under any nonqualified pension or
deferred compensation plan maintained by Employer or any Affiliate shall
become immediately vested and nonforfeitable and Employee also shall be
entitled to receive a payment equal to the sum of (i) any forfeitable
benefits under any qualified pension or profit sharing or 401(k) plan
maintained by Employer or any Affiliate plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional benefits which would have accrued for Employee under
such plan if Employee's employment had not terminated prior to the end of the
Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. Finally, to the extent
that Employee is deemed to have received an excess parachute payment by
reason of the Change in Control, Employer shall pay Employee an additional
sum sufficient to pay (i) any taxes imposed under section 4999 of the Code
plus (ii) any federal, state and local taxes applicable to any taxes imposed
under section 4999 of the Code. For purposes of this Section 13.E., "Current
Term" means the longer of (i) the three year period beginning at the time of
termination or (ii) the unexpired term of this Agreement at the time of the
termination, determined as provided in Section 2 but assuming that there is
no automatic extension of the Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates. For purposes of the
preceding sentence, service with Cincinnati Bell Inc. and its subsidiaries prior
to the Effective Date shall be deemed to be service with Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under
<PAGE>
this Section 13 (including any Base Salary accrued through the date of
termination, any Bonus earned for the year preceding the year in which the
termination occurs and any nonforfeitable amounts payable under any employee
plan), all further compensation under this Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving
a relation of confidence and a trust between Employer and Employee, all
rights and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement
shall be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the President of Employer. To the extent that the terms of
this Agreement have been disclosed by Employer, in a
<PAGE>
public filing or otherwise, the confidentiality requirements of this Section
21 shall no longer apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CONVERGYS CORPORATION
By:
-----------------------------------
EMPLOYEE
---------------------------------------
William D. Baskett III
<PAGE>
Attachment B
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
The Employment Agreement between Convergys Corporation ("Employer") and
William D. Baskett III ("Employee"), made as of the date on which the initial
public offering of Employer's common shares was closed, is hereby amended in the
following respects:
2. Section 4.A. is hereby amended to read as follows:
A. Employee shall receive a base salary (the "Base Salary") of at
least $310,000 per year, payable not less frequently than monthly, for
each year after 1998 during the term of this Agreement, subject to
proration for any partial year. Such Base Salary, and all other amounts
payable under this Agreement, shall be subject to withholding as
required by law.
2. Section 4.B. is hereby amended to read as follows:
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year
shall be payable after the conclusion of the calendar year in accordance
with Employer's regular bonus payment policies. The Bonus target for the
period from August 13, 1998 through December 31, 1998 shall be $52,151
($135,000 on an annualized basis). Each year after 1998, Employee shall be
given a minimum Bonus target, by Employer's Compensation Committee, of not
less than $100,000, subject to proration for a partial year.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on December ___, 1998.
CONVERGYS CORPORATION
By:
------------------------------
----------------------------------
William D. Baskett III
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Cincinnati Bell
Inc., an Ohio corporation ("Employer"), and Kevin W. Mooney ("Employee"). For
purposes of this Agreement, "Effective Date" means the date on which Employer
distributes to its shareholders all of the common shares of Convergys
Corporation owned by Employer after the initial public offering of Convergys
Corporation common shares.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms
of Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Telephone Company
dated December 9, 1997, as amended on January 14, 1998, are canceled as of the
Effective Date. Notwithstanding the preceding sentence, all stock options and
restricted stock awards granted to Employee prior to the Effective Date shall
continue in effect in accordance with their respective terms and shall not be
modified, amended or canceled by this Agreement.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the four
year period commencing on the Effective Date. On the third anniversary of the
Effective Date and on each subsequent anniversary of the Effective Date, the
term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as Chief Financial Officer of Employer or in such
other equivalent capacity as may be designated by the President of Employer.
Employee will report to the President or Chief Operating Officer of Employer, as
the President of Employer may direct.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties, consistent with the
provisions of Section 3.A., as are reasonably assigned to Employee by the
President of Employer.
<PAGE>
D. Employee shall devote Employee's entire time, attention, and energies
to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places
as are necessary in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$230,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to receive
an annual bonus (the "Bonus") for each calendar year for which services are
performed under this Agreement. Any Bonus for a calendar year shall be payable
after the conclusion of the calendar year in accordance with Employer's regular
bonus payment policies. Each year, Employee shall be given a Bonus target, by
Employer's Compensation Committee, of not less than $105,000, subject to
proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in
the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, which are made available to
similarly situated officers of Employer, including the benefits set forth in
Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 30,000 common shares of Employer under Employer's 1997 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under
2
<PAGE>
Employer's 1997 Long Term Incentive Plan or any similar plan made available
to employees of Employer.
D. As of the Effective Date, Employee shall receive a restricted stock
award of 50,000 common shares of Employer. Such award shall be made under
Employer's 1997 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
Long Term Incentive target under Employer's 1997 Long Term Incentive Plan. In
no event will the value of Executive's long term incentives (stock options and
performance shares) for any year, as determined by Employer's Compensation
Committee, be less than $130,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
telecommunications industry within the U.S. Employee acknowledges that in the
course of employment with the Employer, Employee will be entrusted with or
obtain access to information proprietary to the Employer and its Affiliates with
respect to the following (all of which information is referred to hereinafter
collectively as the "Information"); the organization and management of Employer
and its Affiliates; the names, addresses, buying habits, and other special
information regarding past, present and potential customers, employees and
suppliers of Employer and its Affiliates; customer and supplier contracts and
transactions or price lists of Employer, its Affiliates and their suppliers;
products, services, programs and processes sold, licensed or developed by the
Employer or its Affiliates; technical data, plans and specifications, present
and/or future development projects of Employer and its Affiliates; financial
and/or marketing data respecting the conduct of the present or future phases of
business of Employer and its Affiliates; computer programs, systems and/or
software; ideas, inventions, trademarks, business information, know-how,
processes, improvements, designs, redesigns, discoveries and developments of
Employer and its Affiliates; and other information considered confidential by
any of the Employer, its Affiliates or customers or suppliers of Employer, its
Affiliates. Employee agrees to retain the Information in absolute confidence
and not to disclose the Information to any person or organization except as
required in the performance of Employee's duties for Employer, without the
express written consent of Employer; provided that Employee's obligation of
confidentiality shall not extend to any Information which becomes generally
available to the public other than as a result of disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term of
Employee's employment, whether or not during working hours or on Employer's
premises, which are within the scope of or related to the business operations of
Employer or its Affiliates ("New Developments"), shall be and remain the
exclusive property of Employer. Employee
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<PAGE>
shall do all things reasonably necessary to ensure ownership of such New
Developments by Employer, including the execution of documents assigning and
transferring to Employer, all of Employee's rights, title and interest in and
to such New Developments, and the execution of all documents required to
enable Employer to file and obtain patents, trademarks, and copyrights in the
United States and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee will immediately surrender to Employer all of the property
and other things of value in his possession or in the possession of any person
or entity under Employee's control that are the property of Employer or any of
its Affiliates, including without any limitation all personal notes, drawings,
manuals, documents, photographs, or the like, including copies and derivatives
thereof, relating directly or indirectly to any confidential information or
materials or New Developments, or relating directly or indirectly to the
business of Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the services
rendered by Employee to Employer, the information disclosed to Employee during
and by virtue of Employee's employment, and Employee's commitments and
obligations to Employer and its Affiliates herein are of a special, unique and
extraordinary character, and that the breach of any provision of this Agreement
by Employee will cause Employer irreparable injury and damage, and consequently
the Employer shall be entitled to, in addition to all other remedies available
to it, injunctive and equitable relief to prevent a breach of Sections 7, 8, 9,
11 and 12 of this Agreement and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party would
have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration award
are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
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<PAGE>
(b) The arbitration process will be governed by the Employment
Dispute Resolution Rules of the American Arbitration Association ("AAA") except
to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA rules and
the requirements that Employee must pay a filing fee for which the Employer has
agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of arbitrators
chosen by the AAA in White Plains, New York. After the filing of a Request for
Arbitration, the AAA will send simultaneously to Employer and Employee an
identical list of names of five persons chosen from the panel. Each party will
have 10 days from the transmittal date in which to strike up to two names,
number the remaining names in order of preference and return the list to the
AAA.
(e) Any pre-hearing disputes will be presented to the arbitrator
for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and will set
forth each issue considered and the arbitrator's finding of fact and conclusions
of law as to each such issue.
(g) The remedy and relief that may be granted by the arbitrator
to Employee are limited to lost wages, benefits, cease and desist and
affirmative relief, compensatory, liquidated and punitive damages and reasonable
attorney's fees, and will not include reinstatement or promotion. If the
arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary benefit
each derives from arbitration is avoiding the delay and costs normally
associated with litigation. Therefore, neither party will be entitled to
conduct any discovery prior to the arbitration hearing except that: (i)
Employer will furnish Employee with copies of all non-privileged documents in
Employee's personnel file; (ii) if the claim is for discharge, Employee will
furnish Employer with records of earnings and benefits relating to Employee's
subsequent employment (including self-employment) and all documents relating
to Employee's efforts to obtain subsequent employment; (iii) the parties will
exchange copies of all documents they intend to introduce as evidence at the
arbitration hearing at least 10 days prior to such hearing; (iv) Employee
will be allowed (at Employee's expense) to take the depositions, for a period
not to exceed four hours each, of two representatives of Employer, and
Employer will be allowed (at its expense) to depose Employee for a period not
to exceed four hours; and (v) Employer or Employee
5
<PAGE>
may ask the arbitrator to grant additional discovery to the extent permitted
by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is to
use the deposition in lieu of the witness testifying at the hearing and the
witness is, in good faith, unavailable to testify in person at the hearing due
to poor health, residency and employment more than 50 miles from the hearing
site, conflicting travel plans or other comparable reason.
(iii) Arbitration must be requested in writing no later than 6 months
from the date of the party's knowledge of the matter disputed by the claim. A
party's failure to initiate arbitration within the time limits herein will be
considered a waiver and release by that party with respect to any claim subject
to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the arbitration
award may be entered in any federal or state court that has jurisdiction.
(v) Except as provided in Section 10.A., neither party will commence
or pursue any litigation on any claim that is or was subject to arbitration
under this Agreement.
(vi) All aspects of any arbitration procedure under this Agreement,
including the hearing and the record of the proceedings, are confidential and
will not be open to the public, except to the extent the parties agree otherwise
in writing, or as may be appropriate in any subsequent proceedings between the
parties, or as may otherwise be appropriate in response to a governmental agency
or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venture, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee in any business activity in
competition with Employer. This restriction will be limited to the geographical
area where Employer is then engaged in such competing business activity or to
such other geographical area as a court shall find reasonably necessary to
protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee will not interfere with or
adversely affect, either directly or indirectly, Employer's relationships with
any person, firm, association, corporation or other entity which is known by
Employee to be, or is included on any
6
<PAGE>
listing to which Employee had access during the course of employment as a
customer, client, supplier, consultant or employee of Employer and that
Employee will not divert or change, or attempt to divert or change, any such
relationship to the detriment of Employer or to the benefit of any other
person, firm, association, corporation or other entity.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee shall not, without the prior
written consent of Employer, accept employment, as an employee, consultant, or
otherwise, with any company or entity which is a customer or supplier of
Employer at any time during the final year of Employee's employment with
Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally, or
with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon Employee's
failure or inability to perform the services required hereunder because of any
physical or mental infirmity for which Employee receives disability benefits
under any disability benefit plans made available to Employee by Employer (the
"Disability Plans"), over a period of one hundred twenty consecutive working
days during any twelve consecutive month period (a "Terminating Disability").
(ii) If Employer or Employee elects to terminate this Agreement in
the event of a Terminating Disability, such termination shall be effective
immediately upon the giving of written notice by the terminating party to the
other.
(iii) Upon termination of this Agreement on account of Terminating
Disability, Employer shall pay Employee Employee's accrued compensation
hereunder, whether Base Salary, Bonus or otherwise (subject to offset for any
amounts received pursuant to the Disability Plans), to the date of termination.
For as long as such Terminating Disability may exist, Employee shall continue to
be an employee of Employer for all other purposes and Employer shall provide
Employee with disability benefits and all other benefits according to the
provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon an
event of a Terminating Disability and Employee returns to active employment with
Employer
7
<PAGE>
prior to such a termination, or if such disability exists for less than one
hundred twenty consecutive working days, the provisions of this Agreement
shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written notice
to Employee, for Cause. For purposes of this Agreement, Employer shall have
"Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written notice
to Employee, for any reason other than those set forth in Sections 13.A., B.
and C.; provided, however, that Employer shall have no right to terminate under
this Section 13.D. within two years after a Change in Control. In the event of
a termination by Employer under this Section 13.D., Employer shall, within five
days after the termination, pay Employee an amount equal to the greater of (i)
two times the sum of the annual Base Salary rate in effect at the time of
termination plus the Bonus target in effect at the time of termination or (ii)
if the Current Term is longer than two years, the sum of the Base Salary for the
remainder of the Current Term (at the rate in effect at the time of termination)
plus the Bonus targets (at the amount in effect at the time of termination) for
each calendar year commencing or ending during the remainder of the Current Term
(subject to proration in the case of any calendar year ending after the Current
Term). For the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable to
the medical, dental, vision and life insurance coverage in effect for Employee
immediately prior to the termination; and, to the extent that Employee would
have been eligible for any post-retirement medical, dental, vision or life
insurance benefits from Employer if Employee had continued in employment through
the end of the Current Term, Employer shall provide such post-retirement
benefits to Employee after the end of the Current Term. For purposes of any
stock option or restricted stock grant outstanding immediately prior to the
termination, Employee's employment with Employer shall not be deemed to have
terminated until the end of the Current Term. In addition, Employee shall be
entitled to receive, as soon as practicable after termination, an amount equal
to the sum of (i) any forfeitable benefits under any qualified or nonqualified
pension, profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is participating
in a qualified or nonqualified defined benefit plan of Employer or any Affiliate
at the time of termination, an amount equal to the present value of the
additional vested benefits which would have accrued for Employee under such plan
if Employee's employment had not terminated prior to the end of the Current Term
and if Employee's annual Base Salary and Bonus target had neither increased nor
decreased after the termination. For purposes of this Section 13.D., "Current
Term" means the
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<PAGE>
longer of (i) the two year period beginning at the time of termination or
(ii) the unexpired term of this Agreement at the time of the termination,
determined as provided in Section 2 but assuming that there is no automatic
extension of the Agreement term after the termination. For purposes of this
Section 13.D. and Section 13.E., "Change in Control" means a change in
control as defined in Employer's 1997 Long Term Incentive Plan.
E. This Agreement shall terminate automatically in the event that
there is a Change in Control and either (i) Employee elects to resign within
90 days after the Change in Control or (ii) Employee's employment with
Employer is actually or constructively terminated by Employer within two
years after the Change in Control for any reason other than those set forth
in Sections 13.A., B. and C. For purposes of the preceding sentence, a
"constructive" termination of Employee's employment shall be deemed to have
occurred if, without Employee's consent, there is a material reduction in
Employee's authority or responsibilities or if there is a reduction in
Employee's Base Salary or Bonus target from the amount in effect immediately
prior to the Change in Control or if Employee is required by Employer to
relocate from the city where Employee is residing immediately prior to the
Change in Control. In the event of a termination under this Section 13.E.,
Employer shall pay Employee an amount equal to three times the sum of the
annual Base Salary rate in effect at the time of termination plus the Bonus
target in effect at the time of termination, all stock options shall become
immediately exercisable (and Employee shall be afforded the opportunity to
exercise them), the restrictions applicable to all restricted stock shall
lapse and any long term awards shall be paid out at target. For the remainder
of the Current Term, Employer shall continue to provide Employee with
medical, dental, vision and life insurance coverage comparable to the
medical, dental, vision and life insurance coverage in effect for Employee
immediately prior to the termination; and, to the extent that Employee would
have been eligible for any post-retirement medical, dental, vision or life
insurance benefits from Employer if Employee had continued in employment
through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term.
Employee's accrued benefit under any nonqualified pension or deferred
compensation plan maintained by Employer or any Affiliate shall become
immediately vested and nonforfeitable and Employee also shall be entitled to
receive a payment equal to the sum of (i) any forfeitable benefits under any
qualified pension or profit sharing or 401(k) plan maintained by Employer or
any Affiliate plus (ii) if Employee is participating in a qualified or
nonqualified defined benefit plan of Employer or any Affiliate at the time of
termination, an amount equal to the present value of the additional benefits
which would have accrued for Employee under such plan if Employee's
employment had not terminated prior to the end of the Current Term and if
Employee's annual Base Salary and Bonus target had neither increased nor
decreased after the termination. Finally, to the extent that Employee is
deemed to have received an excess parachute payment by reason of the Change
in Control, Employer shall pay Employee an additional sum sufficient to pay
(i) any taxes imposed under section 4999 of the Code plus (ii) any federal,
state and local taxes applicable to any taxes imposed under section 4999 of
the Code. For purposes of this Section 13.E., "Current Term" means the
longer of (i) the three year period beginning at the time of termination or
(ii) the unexpired term of this Agreement at the time of the termination,
determined as provided
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<PAGE>
in Section 2 but assuming that there is no automatic extension of the
Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under
any compensation plan or program of Employer.
G. Employee may retire (a) upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at
least ten years of service with Employer and its Affiliates or (b) on such
earlier date as may be approved by the President of Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date
of termination and any bonus earned but not paid at the time of termination.
In addition, Employee shall be entitled to receive any compensation or
benefits made available to retirees under Employer's standard policies and
programs, including retiree medical and life insurance benefits, a prorated
Bonus for the year of termination, and the right to exercise options after
retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary
accrued through the date of termination, any Bonus earned for the year
preceding the year in which the termination occurs and any nonforfeitable
amounts payable under any employee plan), all further compensation under this
Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify the
rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights
and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this
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Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall
be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the President of Employer. To the extent that the terms of
this Agreement have been disclosed by Employer, in a public filing or
otherwise, the confidentiality requirements of this Section 21 shall no
longer apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CINCINNATI BELL INC.
By:
-------------------------------------
EMPLOYEE
/s/ Kevin W. Mooney
----------------------------------------
Kevin W. Mooney
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Attachment B
EMPLOYEE BENEFITS
<TABLE>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Cincinnati Bell
Inc., an Ohio corporation ("Employer"), and Thomas E. Taylor ("Employee"). For
purposes of this Agreement, "Effective Date" means the date on which Employer
distributes to its shareholders all of the common shares of Convergys
Corporation owned by Employer after the initial public offering of Convergys
Corporation common shares.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the terms
of Employer's employment of Employee on and after the Effective Date. Any prior
agreements or understandings with respect to Employee's employment by Employer,
including Employee's Employment Agreement with Cincinnati Bell Telephone Company
dated August 1, 1996, are canceled as of the Effective Date. Notwithstanding
the preceding sentence, all stock options and restricted stock awards granted to
Employee prior to the Effective Date shall continue in effect in accordance with
their respective terms and shall not be modified, amended or canceled by this
Agreement.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the
four year period commencing on the Effective Date. On the third anniversary of
the Effective Date and on each subsequent anniversary of the Effective Date,
the term of this Agreement automatically shall be extended for a period of one
additional year. Notwithstanding the foregoing, the term of this Agreement is
subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as Secretary and General Counsel of Employer or
in such other equivalent capacity as may be designated by the President of
Employer. Employee will report to the President or Chief Operating Officer of
Employer, as the President of Employer may direct.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating Employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a controlled
group of corporations (within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code")) which includes Employer.
C. Employee shall also perform such other duties, consistent with the
provisions of Section 3.A., as are reasonably assigned to Employee by the
President of Employer.
<PAGE>
D. Employee shall devote Employee's entire time, attention, and energies
to the business of Employer and its Affiliates. The words "entire time,
attention, and energies" are intended to mean that Employee shall devote
Employee's full effort during reasonable working hours to the business of
Employer and its Affiliates and shall devote at least 40 hours per week to the
business of Employer and its Affiliates. Employee shall travel to such places
as are necessary in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at least
$205,000 per year, payable not less frequently than monthly, for each year
during the term of this Agreement, subject to proration for any partial year.
Such Base Salary, and all other amounts payable under this Agreement, shall be
subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to receive
an annual bonus (the "Bonus") for each calendar year for which services are
performed under this Agreement. Any Bonus for a calendar year shall be payable
after the conclusion of the calendar year in accordance with Employer's regular
bonus payment policies. Each year, Employee shall be given a Bonus target, by
Employer's Compensation Committee, of not less than $85,000, subject to
proration for a partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in
the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, which are made available to
similarly situated officers of Employer, including the benefits set forth in
Attachment B.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made available
to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 30,000 common shares of Employer under Employer's 1997 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1997 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
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<PAGE>
D. As of the Effective Date, Employee shall receive a restricted stock
award of 50,000 common shares of Employer. Such award shall be made under
Employer's 1997 Long Term Incentive Plan on the terms set forth in Attachment A.
E. In each year of this Agreement after 1998, Employee will be given a
Long Term Incentive target under Employer's 1997 Long Term Incentive Plan. In
no event will the value of Executive's long term incentives (stock options and
performance shares) for any year, as determined by Employer's Compensation
Committee, be less than $105,000.
F. As long as Employee remains employed under this Agreement, Employee
shall be entitled to participate in Employer's Pension Program.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
telecommunications industry within the U.S. Employee acknowledges that in the
course of employment with the Employer, Employee will be entrusted with or
obtain access to information proprietary to the Employer and its Affiliates with
respect to the following (all of which information is referred to hereinafter
collectively as the "Information"); the organization and management of Employer
and its Affiliates; the names, addresses, buying habits, and other special
information regarding past, present and potential customers, employees and
suppliers of Employer and its Affiliates; customer and supplier contracts and
transactions or price lists of Employer, its Affiliates and their suppliers;
products, services, programs and processes sold, licensed or developed by the
Employer or its Affiliates; technical data, plans and specifications, present
and/or future development projects of Employer and its Affiliates; financial
and/or marketing data respecting the conduct of the present or future phases of
business of Employer and its Affiliates; computer programs, systems and/or
software; ideas, inventions, trademarks, business information, know-how,
processes, improvements, designs, redesigns, discoveries and developments of
Employer and its Affiliates; and other information considered confidential by
any of the Employer, its Affiliates or customers or suppliers of Employer, its
Affiliates. Employee agrees to retain the Information in absolute confidence
and not to disclose the Information to any person or organization except as
required in the performance of Employee's duties for Employer, without the
express written consent of Employer; provided that Employee's obligation of
confidentiality shall not extend to any Information which becomes generally
available to the public other than as a result of disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term of
Employee's employment, whether or not during working hours or on Employer's
premises, which are within the scope of or related to the business operations of
Employer or its Affiliates ("New Developments"), shall be and remain the
exclusive property of Employer. Employee shall do all things reasonably
necessary to ensure ownership of such New Developments by Employer, including
the execution of documents assigning and transferring to
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<PAGE>
Employer, all of Employee's rights, title and interest in and to such New
Developments, and the execution of all documents required to enable Employer
to file and obtain patents, trademarks, and copyrights in the United States
and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that upon
cessation of Employee's employment, for whatever reason and whether voluntary or
involuntary, Employee will immediately surrender to Employer all of the property
and other things of value in his possession or in the possession of any person
or entity under Employee's control that are the property of Employer or any of
its Affiliates, including without any limitation all personal notes, drawings,
manuals, documents, photographs, or the like, including copies and derivatives
thereof, relating directly or indirectly to any confidential information or
materials or New Developments, or relating directly or indirectly to the
business of Employer or any of its Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the
services rendered by Employee to Employer, the information disclosed to
Employee during and by virtue of Employee's employment, and Employee's
commitments and obligations to Employer and its Affiliates herein are of a
special, unique and extraordinary character, and that the breach of any
provision of this Agreement by Employee will cause Employer irreparable
injury and damage, and consequently the Employer shall be entitled to, in
addition to all other remedies available to it, injunctive and equitable
relief to prevent a breach of Sections 7, 8, 9, 11 and 12 of this Agreement
and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party
would have been otherwise entitled to file or pursue in court or before any
administrative agency (herein "claim"), and waives all right to sue the other
party.
(i) This agreement to arbitrate and any resulting arbitration award
are enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.
Section 1 et seq. ("FAA"). If the FAA is held not to apply for any reason then
Ohio Revised Code Chapter 2711 regarding the enforceability of arbitration
agreements and awards will govern this Agreement and the arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is waived
and released. The arbitration hearing will take place in Cincinnati, Ohio.
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<PAGE>
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA rules and
the requirements that Employee must pay a filing fee for which the Employer has
agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of arbitrators
chosen by the AAA in White Plains, New York. After the filing of a Request for
Arbitration, the AAA will send simultaneously to Employer and Employee an
identical list of names of five persons chosen from the panel. Each party will
have 10 days from the transmittal date in which to strike up to two names,
number the remaining names in order of preference and return the list to the
AAA.
(e) Any pre-hearing disputes will be presented to the arbitrator
for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and will set
forth each issue considered and the arbitrator's finding of fact and conclusions
of law as to each such issue.
(g) The remedy and relief that may be granted by the arbitrator
to Employee are limited to lost wages, benefits, cease and desist and
affirmative relief, compensatory, liquidated and punitive damages and reasonable
attorney's fees, and will not include reinstatement or promotion. If the
arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
(h) Employer and Employee recognize that a primary benefit each
derives from arbitration is avoiding the delay and costs normally associated
with litigation. Therefore, neither party will be entitled to conduct any
discovery prior to the arbitration hearing except that: (i) Employer will
furnish Employee with copies of all non-privileged documents in Employee's
personnel file; (ii) if the claim is for discharge, Employee will furnish
Employer with records of earnings and benefits relating to Employee's subsequent
employment (including self-employment) and all documents relating to Employee's
efforts to obtain subsequent employment; (iii) the parties will exchange copies
of all documents they intend to introduce as evidence at the arbitration hearing
at least 10 days prior to such hearing; (iv) Employee will be allowed (at
Employee's expense) to take the depositions, for a period not to exceed four
hours each, of two representatives of Employer, and Employer will be allowed (at
its expense) to depose Employee for a period not to exceed four hours; and (v)
Employer or Employee
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<PAGE>
may ask the arbitrator to grant additional discovery to the extent permitted
by AAA rules upon a showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is to
use the deposition in lieu of the witness testifying at the hearing and the
witness is, in good faith, unavailable to testify in person at the hearing due
to poor health, residency and employment more than 50 miles from the hearing
site, conflicting travel plans or other comparable reason.
(iii) Arbitration must be requested in writing no later than 6 months
from the date of the party's knowledge of the matter disputed by the claim. A
party's failure to initiate arbitration within the time limits herein will be
considered a waiver and release by that party with respect to any claim subject
to arbitration under this Agreement.
(iv) Employer and Employee consent that judgment upon the arbitration
award may be entered in any federal or state court that has jurisdiction.
(v) Except as provided in Section 10.A., neither party will commence
or pursue any litigation on any claim that is or was subject to arbitration
under this Agreement.
(vi) All aspects of any arbitration procedure under this Agreement,
including the hearing and the record of the proceedings, are confidential and
will not be open to the public, except to the extent the parties agree otherwise
in writing, or as may be appropriate in any subsequent proceedings between the
parties, or as may otherwise be appropriate in response to a governmental agency
or legal process.
11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates. During
the two-year period following termination of Employee's employment with Employer
for any reason (or if this period is unenforceable by law, then for such period
as shall be enforceable) Employee will not engage in any business offering
services related to the current business of Employer, whether as a principal,
partner, joint venture, agent, employee, salesman, consultant, director or
officer, where such position would involve Employee in any business activity in
competition with Employer. This restriction will be limited to the geographical
area where Employer is then engaged in such competing business activity or to
such other geographical area as a court shall find reasonably necessary to
protect the goodwill and business of the Employer.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee will not interfere with or
adversely affect, either directly or indirectly, Employer's relationships with
any person, firm, association, corporation or other entity which is known by
Employee to be, or is included on any
6
<PAGE>
listing to which Employee had access during the course of employment as a
customer, client, supplier, consultant or employee of Employer and that
Employee will not divert or change, or attempt to divert or change, any such
relationship to the detriment of Employer or to the benefit of any other
person, firm, association, corporation or other entity.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee shall not, without the prior
written consent of Employer, accept employment, as an employee, consultant, or
otherwise, with any company or entity which is a customer or supplier of
Employer at any time during the final year of Employee's employment with
Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment relationship
with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates in
any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally, or
with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"), over a period of one hundred
twenty consecutive working days during any twelve consecutive month period (a
"Terminating Disability").
(ii) If Employer or Employee elects to terminate this Agreement in
the event of a Terminating Disability, such termination shall be effective
immediately upon the giving of written notice by the terminating party to the
other.
(iii) Upon termination of this Agreement on account of Terminating
Disability, Employer shall pay Employee Employee's accrued compensation
hereunder, whether Base Salary, Bonus or otherwise (subject to offset for any
amounts received pursuant to the Disability Plans), to the date of termination.
For as long as such Terminating Disability may exist, Employee shall continue to
be an employee of Employer for all other purposes and Employer shall provide
Employee with disability benefits and all other benefits according to the
provisions of the Disability Plans and any other Employer plans in which
Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon an
event of a Terminating Disability and Employee returns to active employment with
Employer
7
<PAGE>
prior to such a termination, or if such disability exists for less than one
hundred twenty consecutive working days, the provisions of this Agreement
shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the death
of the Employee, provided, however, that the Employee's estate shall be paid
Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written notice
to Employee, for Cause. For purposes of this Agreement, Employer shall have
"Cause" to terminate this Agreement only if Employer's Board of Directors
determines that there has been fraud, misappropriation or embezzlement on the
part of Employee.
D. Employer may terminate this Agreement immediately, upon written notice
to Employee, for any reason other than those set forth in Sections 13.A., B.
and C.; provided, however, that Employer shall have no right to terminate under
this Section 13.D. within two years after a Change in Control. In the event of
a termination by Employer under this Section 13.D., Employer shall, within five
days after the termination, pay Employee an amount equal to the greater of (i)
two times the sum of the annual Base Salary rate in effect at the time of
termination plus the Bonus target in effect at the time of termination or (ii)
if the Current Term is longer than two years, the sum of the Base Salary for the
remainder of the Current Term (at the rate in effect at the time of termination)
plus the Bonus targets (at the amount in effect at the time of termination) for
each calendar year commencing or ending during the remainder of the Current Term
(subject to proration in the case of any calendar year ending after the Current
Term). For the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable to
the medical, dental, vision and life insurance coverage in effect for Employee
immediately prior to the termination; and, to the extent that Employee would
have been eligible for any post-retirement medical, dental, vision or life
insurance benefits from Employer if Employee had continued in employment through
the end of the Current Term, Employer shall provide such post-retirement
benefits to Employee after the end of the Current Term. For purposes of any
stock option or restricted stock grant outstanding immediately prior to the
termination, Employee's employment with Employer shall not be deemed to have
terminated until the end of the Current Term. In addition, Employee shall be
entitled to receive, as soon as practicable after termination, an amount equal
to the sum of (i) any forfeitable benefits under any qualified or nonqualified
pension, profit sharing, 401(k) or deferred compensation plan of Employer or any
Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is participating
in a qualified or nonqualified defined benefit plan of Employer or any Affiliate
at the time of termination, an amount equal to the present value of the
additional vested benefits which would have accrued for Employee under such plan
if Employee's employment had not terminated prior to the end of the Current Term
and if Employee's annual Base Salary and Bonus target had neither increased nor
decreased after the termination. For purposes of this Section 13.D., "Current
Term" means the
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<PAGE>
longer of (i) the two year period beginning at the time of termination or
(ii) the unexpired term of this Agreement at the time of the termination,
determined as provided in Section 2 but assuming that there is no automatic
extension of the Agreement term after the termination. For purposes of this
Section 13.D. and Section 13.E., "Change in Control" means a change in
control as defined in Employer's 1997 Long Term Incentive Plan.
E. This Agreement shall terminate automatically in the event that there is
a Change in Control and either (i) Employee elects to resign within 90 days
after the Change in Control or (ii) Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections 13.A.,
B. and C. For purposes of the preceding sentence, a "constructive" termination
of Employee's employment shall be deemed to have occurred if, without Employee's
consent, there is a material reduction in Employee's authority or
responsibilities or if there is a reduction in Employee's Base Salary or Bonus
target from the amount in effect immediately prior to the Change in Control or
if Employee is required by Employer to relocate from the city where Employee is
residing immediately prior to the Change in Control. In the event of a
termination under this Section 13.E., Employer shall pay Employee an amount
equal to three times the sum of the annual Base Salary rate in effect at the
time of termination plus the Bonus target in effect at the time of termination,
all stock options shall become immediately exercisable (and Employee shall be
afforded the opportunity to exercise them), the restrictions applicable to all
restricted stock shall lapse and any long term awards shall be paid out at
target. For the remainder of the Current Term, Employer shall continue to
provide Employee with medical, dental, vision and life insurance coverage
comparable to the medical, dental, vision and life insurance coverage in effect
for Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee had continued in
employment through the end of the Current Term, Employer shall provide such
post-retirement benefits to Employee after the end of the Current Term.
Employee's accrued benefit under any nonqualified pension or deferred
compensation plan maintained by Employer or any Affiliate shall become
immediately vested and nonforfeitable and Employee also shall be entitled to
receive a payment equal to the sum of (i) any forfeitable benefits under any
qualified pension or profit sharing or 401(k) plan maintained by Employer or
any Affiliate plus (ii) if Employee is participating in a qualified or
nonqualified defined benefit plan of Employer or any Affiliate at the time of
termination, an amount equal to the present value of the additional benefits
which would have accrued for Employee under such plan if Employee's employment
had not terminated prior to the end of the Current Term and if Employee's annual
Base Salary and Bonus target had neither increased nor decreased after the
termination. Finally, to the extent that Employee is deemed to have received an
excess parachute payment by reason of the Change in Control, Employer shall pay
Employee an additional sum sufficient to pay (i) any taxes imposed under section
4999 of the Code plus (ii) any federal, state and local taxes applicable to any
taxes imposed under section 4999 of the Code. For purposes of this Section
13.E., "Current Term" means the longer of (i) the three year period beginning at
the time of termination or (ii) the unexpired term of this Agreement at the time
of the termination, determined as provided
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<PAGE>
in Section 2 but assuming that there is no automatic extension of the
Agreement term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under
any compensation plan or program of Employer.
G. Employee may retire (a) upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at
least ten years of service with Employer and its Affiliates or (b) on such
earlier date as may be approved by the President of Employer. In the event
of a retirement under this Section 13.G., this Agreement shall terminate and
Employee shall be entitled to receive Employee's Base Salary through the date
of termination and any Bonus earned but not paid at the time of termination.
In addition, Employee shall be entitled to receive any compensation or
benefits made available to retirees under Employer's standard policies and
programs, including retiree medical and life insurance benefits, a prorated
Bonus for the year of termination, and the right to exercise options after
retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary
accrued through the date of termination, any Bonus earned for the year
preceding the year in which the termination occurs and any nonforfeitable
amounts payable under any employee plan), all further compensation under this
Agreement shall terminate.
I. The termination of this Agreement shall not amend, alter or modify
the rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and
12 hereof, the terms of which shall survive the termination of this Agreement.
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights
and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this
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Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall
be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the President of Employer. To the extent that the terms of
this Agreement have been disclosed by Employer, in a public filing or
otherwise, the confidentiality requirements of this Section 21 shall no
longer apply to such terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CINCINNATI BELL INC.
By:
------------------------------------
EMPLOYEE
/s/ Thomas E. Taylor
----------------------------------------
Thomas E. Taylor
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Attachment B
EMPLOYEE BENEFITS
<TABLE>
<S> <C>
Automobile Allowance $850 per month
Cellular Telephone Yes
Executive Deferred Compensation Plan Yes
Group Accident Life $500,000
Legal/Financial/Insurance Allowance $7,500 per year
Parking Yes
Annual Physical Yes
Short Term Disability Supplement Yes
Travel Insurance (Spouse) $50,000
Vacation 5 weeks per year
</TABLE>
<PAGE>
CINCINNATI BELL INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(As amended and restated effective January 1, 1998)
SECTION 1
NAME AND PURPOSE OF PLAN
1.1 NAME. The plan set forth herein shall be known as the Cincinnati
Bell Inc. Executive Deferred Compensation Plan (the "Plan").
1.2 PURPOSE. The purpose of the Plan is to provide deferred
compensation for a select group of officers and highly compensated employees
of Cincinnati Bell Inc. and its affiliates.
SECTION 2
GENERAL DEFINITIONS; GENDER AND NUMBER
2.1 GENERAL DEFINITIONS. For purposes of the Plan, the following terms
shall have the meanings hereinafter set forth unless the context otherwise
requires:
2.1.1 "Accounts" means, collectively, all outstanding Cash
Deferral Accounts, Share Deferral Accounts, Restricted Stock Accounts and
Company Matching Accounts maintained for a Key Employee.
2.1.2 "Beneficiary" means the person or entity designated by a
Key Employee, on forms furnished and in the manner prescribed by the
Committee, to receive any benefit payable under the Plan after the Key
Employee's death. If a Key Employee fails to designate a beneficiary or if,
for any reason, such designation is not effective, his "Beneficiary" shall be
his surviving spouse or, if none, his estate.
2.1.3 "CBI" means Cincinnati Bell Inc.
2.1.4 "CBI Shares" means common shares of CBI.
2.1.5 "Company" means CBI, each corporation which is a member
of a controlled group of corporations (within the meaning of section 414(b)
of the Code, as modified by section 415(h) of the Code) which includes CBI,
each trade or business (whether or not incorporated) which is under common
control (within the meaning of section 414(c) of the Code as modified by
section 415(h) of the Code) with CBI, each
<PAGE>
member of an affiliated service group (within the meaning of section 414(m)
of the Code) which includes CBI and each other entity required to be
aggregated with CBI under section 414(o) of the Code.
2.1.5 "Code" means the Internal Revenue Code of 1986 as such
Code now exists or is hereafter amended.
2.1.6 "Committee" means Compensation Committee of the Board of
Directors of CBI.
2.1.7 "Employee" means any person who is an employee of a
Company.
2.1.8 "Key Employee" means, with respect to any calendar year
("Subject Year"), an Employee whose base pay and target bonus for the
calendar year immediately preceding the Subject Year total at least $150,000
(or, in the case of an Employee hired during the Subject Year, whose
annualized rate of base pay and annualized target bonus for the Subject Year
total at least $150,000) and who has been designated by the Employee's
Company as a "Key Employee" for the Subject Year.
2.2 GENDER AND NUMBER. For purposes of the Plan, words used in any
gender shall include all other genders, words used in the singular form shall
include the plural form, and words used in the plural form shall include the
singular form, as the context may require.
SECTION 3
DEFERRALS; COMPANY MATCH
3.1 ELECTION OF DEFERRALS.
3.1.1 Subject to such rules as the Committee may prescribe, a
Key Employee may elect to defer up to 75% of his Basic Salary for any
calendar year (or such larger percentage of his Basic Salary as may be
prescribed by the Committee) by completing a deferral form and filing such
form with the Committee prior to January 1 of such calendar year (or such
earlier date as may be prescribed by the Committee). Notwithstanding the
foregoing, if an Employee first becomes a Key Employee after the first day of
a calendar year, such Key Employee may elect to defer a permissible
percentage of his Basic Salary for the remainder of the calendar year by
completing and signing a deferral form provided by the Committee and filing
such form with the Committee within 30 days of the date which he first
becomes a Key Employee. Any election under the preceding sentence shall be
effective as of the first payroll period beginning after the date the
election is filed. For purposes of the Plan, "Basic Salary" means the basic
salary payable to a Key Employee by a Company.
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3.1.2 Subject to such rules as the Committee may prescribe, a
Key Employee may elect to defer up to 100% or a specific dollar amount (not
less than $1,000) of any Cash Award otherwise payable during the calendar
year by completing a deferral form and filing such form with the Committee
prior to January 1 of such calendar year (or such earlier date as may be
prescribed by the Committee). For purposes of the Plan, "Cash Award" means
an award or bonus payable in cash to a Key Employee by a Company, including a
cash award under CBI's 1988 Long Term Incentive Plan, 1997 Long Term
Incentive Plan or Short Term Incentive Plan.
3.1.3 Subject to such rules as the Committee may prescribe, a
Key Employee may elect to defer up to 100% of any Share Award otherwise
payable during a calendar year by completing a deferral form and filing such
form with the Committee prior to January 1 of such calendar year (or such
earlier date as maybe prescribed by the Committee). For purposes of the
Plan, "Share Award" means an award under CBI's 1988 Long Term Incentive Plan
or 1997 Long Term Incentive Plan which is payable in the form of CBI Shares,
provided that stock option awards and awards of restricted stock shall not be
considered "Share Awards" for purposes of the Plan.
3.1.4. Subject to such rules as the Committee may prescribe, a
Key Employee who has received a Restricted Stock Award may elect to surrender
any of the restricted CBI Shares as of any date permitted by the Committee
(not later than six months prior to the date on which the restrictions
otherwise applicable to such shares would lapse). For purposes of the Plan,
"Restricted Stock Award" means an award of CBI Shares under CBI's 1988 Long
Term Incentive Plan or 1997 Long Term Incentive Plan which is in the form of
restricted stock.
3.2 CHANGING DEFERRALS. Subject to such rules as the Committee may
prescribe, a Key Employee who has elected to defer a portion of his Basic
Salary, Cash Award, or Share Award may change the amount of his deferral from
one permissible amount to another, effective as of any January 1, by
completing and signing a new deferral form and filing such form with the
Committee prior to such January 1 (or such earlier date as may be prescribed
by the Committee).
3.3 SUSPENDING DEFERRALS.
3.3.1 Subject to such rules as the Committee may prescribe, a
Key Employee who has elected to defer a portion of his Basic Salary may
suspend such election, as of the first day of any payroll period, by
completing and signing a form provided by the Committee and filing such form
with the Committee prior to the first day of such payroll period. A Key
Employee who has suspended his election for deferrals in accordance with this
Section 3.3.1 may again elect to defer a portion of his Basic Salary,
effective as of any January 1 following the six month period beginning on the
effective date of the suspension, by completing and signing a new deferral
form and filing such form with the Committee prior to such January 1 (or such
earlier date as may be prescribed by the Committee).
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3.3.2 A Key Employee's election to defer a portion of a Cash
Award or Share Award or to surrender any portion of a Restricted Stock Award
may not be revoked during the calendar year.
3.4 COMPANY MATCH. As of each day on which Basic Salary or Cash Award
deferrals are credited, under Section 4.1, to the Cash Deferral Account of a
Key Employee who is not a Class 1 Senior Manager under the Cincinnati Bell
Inc. Pension Program ("Deferral Date"), there shall also be credited to such
Key Employee's Company Matching Account under Section 4.3, an amount computed
in accordance with the provisions of this Section 3.4
3.4.1 To the extent that the Key Employee's aggregate
non-deferred Basic Salary and Cash Awards for the calendar year through the
Deferral Date are not in excess the maximum dollar amount permitted for such
year under section of 401(a)(17) of the Code, the Company match to be
credited to such Key Employee's Company Matching Account on the Deferral Date
shall be 4% (or such lesser percentage as may be prescribed by the Committee)
of the Basic Salary and Cash Award deferred on the Deferral Date.
3.4.2 To the extent that the Key Employee's aggregate
non-deferred Basic Salary and Cash Awards for the calendar year through the
Deferral Date exceed the maximum dollar amount permitted for such year under
section 401(a)(17) of the Code, the Company match to be credited to such Key
Employee's Company Matching Account on the Deferral Date shall be the lesser
of (a) 66-2/3% (or such lesser percentage as may be prescribed by the
Committee) of the Basic Salary and Cash Award deferred on the Deferral Date
or (b) 4% (or such lesser percentage as may be prescribed by the Committee)
of the sum of (i) that portion of the Basic Salary and Cash Award deferred on
the Deferral Date plus (ii) that portion of the Key Employee's Basic Salary
and Cash Award paid on the Deferral Date.
For purposes of this Section 3.4, the term "Cash Award" shall not include any
amounts payable under CBI's 1988 Long Term Incentive Plan or 1997 Long Term
Incentive Plan or any other long term incentive plan maintained by a Company
and such amounts shall not be eligible for a Company match under this Section
3.4
SECTION 4
MAINTENANCE AND VALUATION OF ACCOUNTS
4.1 CASH DEFERRAL ACCOUNTS. There shall be established for each Key
Employee who has elected to defer a portion of his Basic Salary or Cash Award
under Section 3.1.1 or 3.1.2 a separate Account, called a Cash Deferral
Account, which shall reflect the amounts deferred by the Key
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Employee and the assumed investment thereof. Subject to such rules as the
Committee may prescribe, any amount deferred by a Key Employee under Section
3.1.1 or 3.1.2 shall be credited to the Key Employee's Cash Deferral Account
as of the day on which such deferred amount would have otherwise been paid to
the Key Employee and shall be assumed to have been invested in the
investments designated by the Key Employee on a form provided by and filed
with the Committee.
4.2 SHARE DEFERRAL ACCOUNTS. There shall be established for each Key
Employee who has elected to defer all or a portion of a Share Award under
Section 3.1.3 a separate Account, called a Share Deferral Account, which
shall reflect the amounts deferred by the Key Employee under Section 3.1.3
and the assumed investment thereof. Subject to such rules as the Committee
may prescribe, the amounted deferred by a Key Employee under Section 3.1.3
shall be credited to the Key Employee's Share Deferral Account as of the day
on which such amount would have otherwise been paid to the Key Employee.
Amounts credited to the Key Employee's Share Deferral Account shall be
assumed to have been invested exclusively in CBI Shares.
4.3 RESTRICTED STOCK ACCOUNTS. There shall be established for each Key
Employee who has elected to surrender all or a portion of a Restricted Stock
Award under Section 3.1.4 a separate Account, called a Restricted Stock
Account, which shall reflect the value of the CBI Shares surrendered by the
Key Employee under Section 3.1.4 and the assumed investment thereof. Subject
to such rules as the Committee may prescribe, an amount equal to the value of
the CBI Shares surrendered by the Key Employee under Section 3.1.4 shall be
credited to the Key Employee's Restricted Stock Account as of the day on
which the CBI Shares are surrendered to CBI. Amounts credited to the Key
Employee's Restricted Stock Account shall be assumed to have been invested
exclusively in CBI Shares until six months after the Applicable Lapse Date
for the surrendered CBI Shares. Thereafter, such amounts shall be assumed to
have been invested in the investments designated by the Key Employee on a
form provided by and filed with the Committee. For purposes of the Plan,
"Applicable Lapse Date" means, with respect to any Restricted Stock Award,
the date on which the restrictions would have lapsed if the restricted CBI
Shares had not been surrendered.
4.4 COMPANY MATCHING ACCOUNTS. There shall be established for each Key
Employee who is entitled to a Company match under Section 3.4 a separate
Account called a Company Matching Account, which shall reflect the Company
match to be credited on behalf of the Key Employee under Section 3.4 and the
assumed investment thereof. The amount of the Company's match shall be
credited to the Key Employee's Company Matching Account as of the day on
which the deferred Basic Salary or Cash Award to which the Company match
relates would have otherwise been paid to the Key Employee. Amounts credited
to the Key Employee's Company Matching Account shall be assumed to have been
invested in the investments designed by the Key Employee on a form provided
by and filed with the Committee.
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4.5 VALUATION. As soon as practical following the end of each calendar
year, each Key Employee or, in the event of his death, his Beneficiary, shall
be furnished a statement as of December 31 showing the balance of the Key
Employee's Accounts, the total credits to such Accounts during the preceding
calendar year, and, if amounts credited to any such Accounts are assumed to
have been invested in securities, a description of such securities including
the number of shares assumed to have been purchased by the amounts credited
to such Accounts.
4.6 CBI SHARES. To the extent Key Employee's Accounts are assumed to
have been invested in CBI Shares:
4.6.1. Whenever any cash dividends are paid with respect to CBI
Shares, additional amounts shall be credited to the Key Employee's Accounts
as of the dividend payment date. The additional amount to be credited to
each account shall be determined by multiplying the per share cash dividend
paid with respect to the CBI Shares on the dividend payment date by the
number of assumed CBI Shares credited to the Key Employee's Accounts on the
day preceding the dividend payment date. Such additional amount credited to
the Key Employee's Account shall be assumed to have been invested in
additional CBI Shares on the day on which such dividends are paid.
4.6.2. If there is any change in CBI Shares through the
declaration of a stock dividend or a stock split or through a
recapitalization resulting in a stock split, or a combination or a change in
shares, the number of shares assumed to have been purchased for each Account
shall be appropriately adjusted.
4.6.3 Whenever CBI Shares are to be valued for purposes of the
Plan, the value of each such share shall be the average of the high and low
price per share as reported on the composite tape on the last business day
preceding the date as of which the distribution is made or, if no sales were
made on that date, on the next preceding day on which sales were made.
4.6.4 Effective on or about December 31, 1998, CBI will
distribute to its shareholders one common share of Convergys Corporation
("Convergys Share") for each CBI Share owned by its shareholders on the
record date for the distribution. Upon such distribution, the Accounts of
each Key Employee shall be credited with an assumed investment in one
Convergys Share for each CBI Share then assumed to be credited to the
Accounts. Thereafter, each Key Employee shall have the option of either
retaining such assumed investment into in Convergys Shares or converting part
or all of such assumed investment into an assumed investment in additional
CBI Shares or any other assumed investment permitted under the Plan;
provided, however, that any Convergys Shares shares credited to a Restricted
Account shall be subject to the same restrictions (including restrictions on
switching to alternate assumed investments) as apply to the CBI Shares
credited to that Account to which the Convergys Shares Relate.
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SECTION 5
DISTRIBUTION
5.1 GENERAL. Except as otherwise provided in Section 5.5, no amount
shall be paid with respect to a Key Employee's Accounts while he remains an
Employee. Unless the Committee otherwise provides, all payments with respect
to a Key Employee's Accounts shall be made by the Company which otherwise
would have paid the Basic Salary, Cash Award, Share Award or Restricted Stock
Award deferred by the Key Employee.
5.2 TERMINATION OF EMPLOYMENT. A Key Employee may elect to receive the
amounts credited to his Accounts in up to ten annual installment payments,
commencing on the first business day of March of the calendar year following
the calendar year in which he ceases to be an Employee. If a Key Employee
fails to make such election, the amounts credited to the Key Employee's
Account shall be paid to the Key Employee in two annual installments with the
first installment being made on the first business day of March of the
calendar year following the calendar year in which the Key Employee ceases to
be an Employee.
5.2.1. The amount of each annual installment payable under this
Section 5.2 shall be, at the election of the Key Employee, either (1) a
specific dollar amount specified by the Key Employee (not less than $50,000
or more than $1,000,000), or (2) a fraction of the amounts credited to the
Key Employee's Accounts as of the installment payment date, the numerator of
which is 1 and the denominator of which is equal to the total number of
installments remaining to be paid (including the installment to be paid on
the subject installment payment date). If a Key Employee elects (2) above
and the amount of any annual installment is less than $50,000 or more than
$1,000,000, it shall be increased to $50,000 or reduced to $1,000,000, as the
case may be; provided that if the remaining amount credited to the Accounts
on any annual installment date is less than $50,000, the payment shall be the
amount necessary to reduce the amount credited to the Account to $0.
5.2.2. Any election under this Section 5.2 must be made prior to
the effective date of the Key Employee's termination and within the time
prescribed by the Key Employee's Company but in no event later than four
months prior to the effective date of the Key Employee's termination. With
the consent of the Committee, and subject to such rules as the Committee may
prescribe, a Key Employee may elect (a) to receive the amounts credited to
his Accounts in up to 120 monthly installments and (b) to accelerate the time
at which any payment may be made (to a date not earlier than the date on
which he ceases to be an Employee).
5.2.3. In its discretion, the Committee may condition the right
to receive payments with respect to a portion of all of a Key Employee's
Company Matching
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Account on the Key Employee's completing a minimum period of service prior to
the date on which he ceases to be an Employee. To the extent that a Key
Employee has not satisfied any applicable service requirements prior to the
date on which he ceases to be an Employee (other than by reason of his
death), he shall not be entitled to receive any payment with respect to his
Company Matching Account.
5.2.4. In the case of a Restricted Stock Account, amounts
credited to such Account under Section 4.3 shall be subject to forfeiture at
the same time and to the same extent that the CBI Shares surrendered under
Section 3.1.4 would have been if such CBI Shares had not been surrendered.
The provisions of this Section 5.2.4 shall not apply to amounts credited to
the Restricted Stock Account under Section 4.6.1
5.3 DEATH. Except as provided in Section 5.2.4, if a Key Employee
ceases to be a Employee by reason of his death, or if a Key Employee dies
after ceasing to be an Employee but before the amounts credited to his
Accounts have been paid, the amounts credited to the Key Employee's Accounts
shall be paid to the Key Employee's Beneficiary in one lump sum as of the
first business day of the third quarter following the date of the Key
Employee's death; provided, however, that if the Key Employee has elected to
have his Accounts distributed in installments and if he dies after
distribution has commenced, the remaining installments shall be paid to the
Beneficiary as they become due.
5.4 FORM OF PAYMENT. Payments with respect to assumed investments
other than CBI Shares shall be made in cash. Payments with respect to
assumed investments in CBI Shares shall be made in CBI Shares or cash, in the
discretion of the Committee.
5.5 CHANGE IN CONTROL. If a Change in Control of CBI occurs, each Key
Employee's Plan Accounts shall be paid to him in one lump sum as of the day
next following the date on which such Change in Control occurred. A "Change
in Control of CBI" shall be deemed to have occurred if (i) a tender offer
shall be made and consummated for the ownership of 30% or more of the
outstanding voting securities of CBI; (ii) CBI shall be merged or
consolidated with another corporation and as a result of such merger or
consolidation less than 75% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the
former shareholders of CBI, other than affiliates (within the meaning of the
Securities Exchange Act of 1934) of any party to such merger or
consolidation, as the same shall have existed immediately prior to such
merger or consolidation; (iii) CBI shall sell substantially all of its assets
to another corporation which is not a wholly owned subsidiary; (iv) a person
within the meaning of Section 3 (a)(9) or of Section 13(d)(3) (as in effect
on January 1, 1994) of the Securities Exchange Act of 1923, shall acquire 20%
or more of the outstanding voting securities of CBI (whether directly,
indirectly, beneficially or of record), or a person, within the meaning of
Section 3(a)(9) or Section 13(d)(3) (as in effect on January 1, 1994) of the
Securities Exchange Act of 1934 controls in any manner the election of a
majority of the directors of CBI; or (v) within any period of two consecutive
years after January 1, 1994, individuals who at the beginning of such period
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constitute CBI's Board of Directors cease for any reason to constitute at
least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds of the directors then in office
who were directors at the beginning of the period. For purposes hereof,
ownership of voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as
in effect on January 1, 1994) pursuant to the Exchange Act of 1934.
5.6 TRANSFER TO THE CONVERGYS CORPORATION EXECUTIVE DEFERRED
COMPENSATION COMPENSATION PLAN. Effective as of the date on which Convergys
Corporation ceases to be a subsidiary of CBI, the accrued benefit of each Key
Employee who thereupon ceases to be an Employee shall not be distributed or
forfeited by reason of such termination of service as an Employee but shall
be transferred to and assumed by the Convergys Corporation Executive Deferred
Compensation Plan. From and after such transfer and assumption, neither CBI
nor the Key Employee shall have any further rights or obligations under this
Plan; provided, however, that to the extent that CBI has elected to purchase
any assets to fund its obligations under this Plan for such Key Employees,
such assets shall be transferred to Convergys Corporation.
SECTION 6
ADMINISTRATION OF THE PLAN
6.1 GENERAL. The general administration of the Plan and the
responsibility for carrying out its provisions shall be placed in the
Committee.
6.2 EXPENSES. Expenses of administering the Plan shall be shared by
each Company participating in this Plan in such proportions as may be
determined by CBI.
6.3 COMPENSATION OF COMMITTEE. The members of the Committee shall not
receive compensation for their services as such, and, except as required by
law, no bond or other security need be required of them in such capacity in
any jurisdiction.
6.4 RULES OF PLAN. Subject to the limitations of the Plan, the
Committee may, from time to time, establish rules for the administration of
the Plan and the transaction of its business. The Committee may correct
errors, however arising, and as far as possible, adjust any benefit payments
accordingly. The determination of the Committee as to the interpretation of
the provisions of the Plan or any disputed question shall be conclusive upon
all interested parties.
6.5 AGENTS AND EMPLOYEES. The Committee may authorize one or more
agents to execute or deliver any instrument. The Committee may appoint or
employ such agents, counsel (including counsel of any Company), auditors
(including auditors of any
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Company), physicians, clerical help and actuaries as in the Committee's
judgment may seem reasonable or necessary for the proper administration of
the Plan.
6.6 INDEMNIFICATION. Each Company participating in the Plan shall
indemnify each member of the Committee for all expenses and liabilities
(including reasonable attorney's fees) arising out of the administration of
the Plan, other than any expenses of liabilities resulting from the
Committee's own gross negligence or willful misconduct. The foregoing right
of indemnification shall be in addition to any other rights to which the
members of the Committee may be entitled as a matter of law.
SECTION 7
FUNDING OBLIGATION
No Company shall have any obligation to fund, either by the purchase of
CBI Shares or the investment in any account or by any other means, its
obligation to Key Employees hereunder. If, however, a Company does elect to
allocate assets to provide for any such obligation, the assets allocated for
such purpose shall be assets of the Company subject to claims against the
Company, including claims of the Company's creditors, to the same extent as
are other corporate assets, and the Key Employee shall have no right or claim
against the assets so allocated, other than as general creditors of the
Company.
SECTION 8
AMENDMENT AND TERMINATION
The Committee or CBI may, without the consent of any Key Employee or
Beneficiary, amend or terminate the Plan at any time; provided that no
amendment shall be made or act of termination taken which divests any Key
Employee of the right to receive payments under the plan with respect to
amount heretofore credited to the Key Employee's Accounts.
SECTION 9
NON-ALIENATION OF BENEFITS
No Key Employee or Beneficiary shall alienate, commute, anticipate,
assign, pledge, encumber or dispose of the right to receive the payments
required to be made by any Company hereunder, which payments and the right to
receive them are expressly declared to be nonassignable and nontransferable.
In the event of any attempt to assign or transfer any such payment or the
right to receive them, no Company shall have any further obligation to make
any payments otherwise required of it hereunder.
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SECTION 10
MISCELLANEOUS
10.1 DELEGATION. The Committee may delegate to any Company, person or
committee certain of its rights and duties hereunder. Any such delegation
shall be valid and binding on all persons and the person or committee to whom
or which authority is delegated shall have full power to act in all matters
so delegated until the authority expires by its terms or is revoked by the
Committee, as the case may be. Unless the Committee otherwise provides, each
Company shall have and may exercise, with respect to its Key Employee, the
powers reserved to the Committee in Sections 3, 4, 5.1 and 5.2.
10.2 APPLICABLE LAW. The Plan shall be governed by applicable federal
law and, to the extent not preempted by applicable federal law, the laws of
the State of Ohio.
10.3 SEPARABILITY OF PROVISIONS. If any provision of the Plan is held
invalid or unenforceable, such invalidity or unenforceabilty shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as
if such provisions had not been included.
10.4 HEADINGS. Headings used throughout the Plan are for convenience
only and shall not be given legal significance.
10.5 COUNTERPARTS. The Plan may be executed in any number of
counterparts, each of which shall be deemed an original. All counterparts
shall constitute one and the same instrument, which shall be sufficiently
evidenced by any one thereof.
IN WITNESS WHEREOF, Cincinnati Bell Inc. has caused its name to be
subscribed on the _____ day of_______________, 199___.
CINCINNATI BELL INC.
By
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CINCINNATI BELL INC.
1997 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(As revised and restated effective February 1, 1999)
1. PURPOSE.
The 1997 Stock Option Plan for Non-Employee Directors (the "Plan") is
intended to attract and retain the services of experienced and knowledgeable
independent directors of Cincinnati Bell Inc. (the "Company") for the benefit
of the Company and its shareholders and to provide additional incentive for
such directors to continue to work for the best interest of the Company and
its shareholders.
2. SHARES SUBJECT TO THE PLAN.
There are reserved for issuance upon the exercise of options granted
under the Plan 1,368,721 Common Shares $1.00 par value, of the Company (the
"Common Shares"). Such Common Shares may be authorized and unissued Common
Shares or previously outstanding Common Shares then held in the Company's
treasury. If any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full, the Common Shares subject
thereto shall again be available for the purposes of issuance upon the
exercise of options granted under the Plan.
3. ADMINISTRATION,
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). Subject to the express provisions of the Plan, the Board
shall have authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to it, to determine the terms and provisions
of the option grants and agreements (which shall comply with and be subject
to the terms and conditions of the Plan) and to make all other determinations
necessary or advisable for the administration of the Plan. The Board's
determination of the matters referred to in this Paragraph 3 shall be
conclusive.
4. ELIGIBILITY.
For purposes of the Plan, "Outside Director" means a member of the Board
who is not an employee of the Company or a subsidiary of the Company. Each
individual who first becomes an Outside Director on or after the effective
date of the Plan shall automatically be granted an option to purchase 25,000
Common Shares on the first day of such individual's first term of office as
an Outside Director. On the date of each annual meeting of the shareholders
of the Company subsequent to the effective date of the Plan, each Outside
Director who first became an Outside Director prior to such annual meeting
and who will continue to serve as an Outside Director after such annual
meeting shall automatically be granted an option to purchase 9,000 Common
Shares.
Only non-statutory stock options shall be granted under the Plan.
<PAGE>
5. OPTION GRANTS.
(a) The purchase price of the Common Shares under each option granted
under the Plan shall be 100% of the Fair Market Value of the Common Shares on
the date such option is granted. For purposes of the Plan, "Fair Market
Value" shall be taken as the average (rounded to the next highest cent in the
case of fractions of a cent) of the high and low sales prices of the Common
Shares on the composite tape on the specified date or, if no Common Shares
are traded on the specified date, on the next preceding date on which Common
Shares are traded.
(b) All options shall be exercisable on the date of grant. The term of
each option shall be ten years from the date of grant, or such shorter period
as is prescribed in Paragraphs 5(d) and 5(e). Except as provided in
Paragraphs 5(c), 5(d) and 5(e), no option may be exercised at any time unless
the holder is then a director of the Company.
Upon exercise, the option price is to be paid in full in cash or, at the
discretion of the Board, in Common Shares owned by the optionee having a Fair
Market Value on the date of exercise equal to the aggregate option price or,
at the discretion of the Board, in a combination of cash and Common Shares.
Upon exercise of an option, the Company shall have the right to retain or
sell without notice sufficient Common Shares to cover government withholding
taxes or deductions, if any, as described in Paragraph 9.
(c) For purposes of the Plan, "Retirement" means retirement from the
Board either (i) after attaining age 68 or (ii) with the permission of the
Board. In the event that an optionee shall cease to be a director because of
Retirement, the optionee may exercise the option at any time during the
remaining term of the option
(d) In the event that an optionee shall cease to be a director of the
Company, other than by reason of Retirement or death, the optionee may
exercise the option during the six-month period following such termination,
but not after the expiration of the option. In the event that the option is
not exercised during the six-month period following termination, it shall
expire at the end of such six-month period.
(e) In the event of the death of a director to whom an option has been
granted under the Plan, the option theretofore granted to the optionee may be
exercised by a legatee or legatees of the optionee under the optionee's last
will or by the optionee's personal representative or distributees at any time
during the remaining term of the option.
In the event that an optionee ceases to be a director other than by
reason of Retirement and dies during the six-month period following such
termination of service as a director, the option may be exercised by a
legatee or legatees of the optionee under the optionee's last will, or by the
optionee's personal representatives or distributees, at any time within a
period of one year after the optionee's death, but not after expiration of
the
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option. In the event the option is not exercised during the one-year period
after the optionee's death, it shall expire at the end of such one-year
period.
In the event that an optionee dies following Retirement, the option
theretofore granted to the optionee may be exercised by the legatee or
legatees of the optionee under the optionee's last will, or by the optionee's
personal representatives or distributees, at any time during the remaining
term of the option.
(f) Nothing in the Plan or in any option granted pursuant to the Plan
shall confer on any individual any right to continue as a director of the
Company.
6. TRANSFERABILITY AND SHAREHOLDER RIGHTS OF HOLDERS OF OPTIONS.
No option granted under the Plan shall be transferable otherwise than by
will or by the laws of descent and distribution, and an option may be
exercised, during the lifetime of an optionee, only by the optionee. An
optionee shall have none of the rights of a shareholder of the Company until
the option has been exercised and the Common Shares subject to the option
have been registered in the name of the optionee on the transfer books of the
Company. Notwithstanding the foregoing, the Board, in its discretion, may
permit transfers of options by gift or otherwise, subject to such terms and
conditions as the Board may prescribe.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provisions of the Plan, the number and class
of shares subject to the options and the option prices of options covered
thereby shall be proportionately adjusted in the event of changes in the
outstanding Common Shares by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of
shares, split-ups, split-off, spin-offs, liquidations or other similar
changes in capitalization, or any distribution to common shareholders other
than cash dividends and, in the event of any such change in the outstanding
Common Shares, the aggregate number and class of shares available under the
Plan and the number of shares as to which options may be granted shall be
appropriately adjusted by the Board.
8. AMENDMENT AND TERMINATION.
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate on, and no awards of options shall be made
after, the tenth anniversary of the effective date of the Plan; provided,
however, that such termination shall have no effect on options granted prior
thereto. The Plan may be terminated, modified or amended by the shareholders
of the Company. The Board may also terminate the Plan or modify or amend the
Plan in such respects as it shall deem advisable in order to conform to any
change in any law or regulation applicable thereto, or in other respects
which shall not change (i) the total number of shares as to which options may
be granted, (ii) the class of persons eligible to receive options under the
Plan, (iii) the manner of determining the option prices, (iv) the period
during which
3
<PAGE>
options may be granted or exercised or (v) the provisions relating to the
administration of the Plan by the Board.
9. WITHHOLDING.
Upon the issuance of Common Shares as a result of the exercise of an
option, the Company shall have the right to retain or sell without notice
sufficient Common Shares to cover the amount of any tax required by any
government to be withheld or otherwise deducted and paid with respect to such
Common Shares being issued, remitting any balance to the optionee; provided,
however, that the optionee shall have the right to provide the Company with
the funds to enable it to pay such tax.
10. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective on the day following the date the Plan
is approved by the vote of the holders of a majority of the outstanding
Common Shares at a meeting of the shareholders. The Board may in its
discretion authorize the granting of options which shall be expressly subject
to the conditions that (i) the Common Shares reserved for issue under the
Plan shall have been duly listed, upon official notice of issuance, upon each
stock exchange in the United States upon which the Common Stock is traded and
(ii) a registration statement under the Securities Act of 1933 with respect
to such shares shall have become effective.
11. PREDECESSOR PLAN.
The Plan is intended to supersede the Cincinnati Bell Inc. 1988 Stock
Option Plan for Non-Employee Directors (the "1988 Plan") for all options
granted on or after the effective date of the Plan. Options granted under
the 1988 Plan which are outstanding on the effective date of the Plan will
not be affected by the Plan, provided that the Board, in its discretion, may
permit transfers by gift or otherwise of options granted under the 1988 Plan,
subject to such terms and conditions as the Board may prescribe.
4
<PAGE>
Exhibit 12
to
Form 10-K for 1998
CINCINNATI BELL INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings
(a) Income (loss) from continuing
operations before income taxes,
extraordinary charges and cumulative
effect of change in accounting principle $ 126.1 $ 158.6 $ 153.2 $ (45.1) $ 67.4
(c) Interest expense 24.2 30.1 27.9 45.4 40.1
(d) One-third of rental expense 3.9 3.9 3.0 4.0 4.2
----------- ----------- ---------- ----------- -----------
Total Earnings (1) $ 154.2 $ 192.6 $ 184.1 $ 4.3 $ 111.7
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Fixed Charges
(a) Interest expense $ 24.2 $ 30.1 $ 27.9 $ 45.4 $ 40.1
(b) One-third of rental expense 3.9 3.9 3.0 4.0 4.2
---- ---- ---- ---- ----
Total Fixed Charges $ 28.1 $ 34.0 $ 30.9 $ 49.4 $ 44.3
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
Ratio of earnings to combined fixed charges 5.49 5.66 5.96 - 2.52
Coverage deficiency - - - $ 45.1 -
</TABLE>
(1) Results for 1995 decreased by $131.6 million for a charge associated with
business restructuring. Results for 1996 and 1997 include credits in the
amount of $27.4 million and $21.0 million, respectively, for pension
settlement gains recognized as part of the business restructuring. Results
in 1998 reflect the dilutive effect of the Company's new wireless venture
which resulted in a $27.3 million loss in 1998.
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA Cincinnati Bell Inc.
<TABLE>
<CAPTION>
Millions of dollars except per share amounts 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $ 885.1 $ 834.5 $ 779.8 $ 736.0 $ 704.3
Costs and expenses excluding special charges (credits) 706.2 664.1 628.9 595.0 587.8
-------- -------- -------- -------- --------
Operating income excluding special charges (credits) 178.9 170.4 150.9 141.0 116.5
Special charges (credits) (a) (1.1) (21.0) (29.7) 131.6 7.7
-------- -------- -------- -------- --------
Operating income 180.0 191.4 180.6 9.4 108.8
Wireless venture loss 27.3 -- -- -- --
Other (income) expense, net 2.4 2.7 (.5) 9.1 1.3
Interest expense 24.2 30.1 27.9 45.4 40.1
-------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary items
and cumulative effect of change in accounting principle 126.1 158.6 153.2 (45.1) 67.4
Income taxes 44.3 56.3 53.7 (16.0) 24.4
-------- -------- -------- -------- --------
Income (loss) from continuing operations 81.8 102.3 99.5 (29.1) 43.0
Income from discontinued operations, net of taxes (b) 69.1 91.3 85.5 3.8 32.0
-------- -------- -------- -------- --------
Income (loss) before extraordinary items 150.9 193.6 185.0 (25.3) 75.0
Extraordinary items and cumulative effect of
change in accounting principle (c) (1.0) (210.0) -- (7.0) (2.4)
-------- -------- -------- -------- --------
Net income (loss) $ 149.9 $ (16.4) $ 185.0 $ (32.3) $ 72.6
-------- -------- -------- -------- --------
Basic earnings (loss) per common share:
Income (loss) from continuing operations $ .60 $ .76 $ .74 $ (.22) $ .33
Income from discontinued operations, net of taxes .51 .67 .64 .03 .25
Extraordinary items, net of taxes (.01) (1.55) -- (.05) (.02)
Income (loss) $ 1.10 $ (.12) $ 1.38 $ (.24) $ .56
Diluted earnings (loss) per common share:
Income (loss) from continuing operations $ .59 $ .74 $ .73 $ (.22) $ .33
Income from discontinued operations, net of taxes .50 .67 .62 .03 .24
Extraordinary items, net of taxes (.01) (1.53) -- (.05) (.02)
Income (loss) $ 1.08 $ (.12) $ 1.35 $ (.24) $ .55
Dividends declared per common share $ .40 $ .40 $ .40 $ .40 $ .40
Weighted average common shares (millions)
Basic 136.0 135.2 133.9 132.0 130.7
Diluted 138.2 137.7 137.2 133.5 130.9
FINANCIAL POSITION
Total assets (b) (c) $1,041.0 $1,275.1 $1,415.9 $1,363.8 $1,474.8
Long-term debt $ 366.8 $ 268.0 $ 271.2 $ 370.0 $ 523.7
Total debt $ 553.0 $ 399.5 $ 409.0 $ 423.7 $ 514.9
Common shareowners' equity (b) (c) $ 142.1 $ 579.7 $ 634.4 $ 478.1 $ 552.4
OTHER DATA
Telephone plant construction $ 136.3 $ 141.1 $ 101.4 $ 90.3 $ 112.8
Network access lines (000) 1,033 1,005 958 906 877
Access minutes of use (millions)
Interstate 3,151 2,945 2,744 2,536 2,336
Intrastate 1,112 1,055 963 956 932
Employees 3,500 3,300 3,100 3,100 3,700
Market price per share (d)
High $ 38.625 $ 33.750 $ 30.813 $ 17.625 $ 10.063
Low $ 20.875 $ 23.063 $ 15.875 $ 8.438 $ 7.688
Close $ 37.813 $ 31.000 $ 30.813 $ 17.375 $ 8.500
</TABLE>
(a) See Note 12 of Notes to Financial Statements.
(b) See Note 3 of Notes to Financial Statements.
(c) See Note 4 of Notes to Financial Statements.
(d) Prices are before spin-off of Convergys. Cincinnati Bell Inc. stock began
trading on a post-spin-off basis on January 4, 1999.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cincinnati Bell Inc.
Cincinnati Bell Inc. (the Company) is a full-service telecommunications company
that conducts its operations through the following reportable segments:
LOCAL COMMUNICATIONS SERVICES -- The Company provides local, long distance,
data networking and transport, Internet and payphone services, as well as
sales of communications equipment, in southwestern Ohio, northern Kentucky
and southeastern Indiana. Services are marketed and sold to both residential
and business customers and are delivered via the Company's Cincinnati Bell
Telephone (CBT) subsidiary.
DIRECTORY SERVICES -- The Company sells directory advertising and information
services, primarily to business customers in the aforementioned area. This
segment's identifiable product is the yellow pages directory delivered via
the Company's Cincinnati Bell Directory (CBD) subsidiary.
OTHER COMMUNICATIONS SERVICES -- The Company (i) resells long distance and
Internet access services and provides data services and products to small-
and medium-sized business customers in a five-state Midwestern area and (ii)
resells telecommunications and computer equipment in the secondary market.
These services are provided through the Company's Cincinnati Bell Long
Distance (CBLD) and Cincinnati Bell Supply (CBS) subsidiaries, respectively.
On December 31, 1998, the Company acquired an 80% interest from AT&T
Wireless PCS, Inc. (AT&T PCS) in a venture offering personal communications
services (PCS) in the Greater Cincinnati and Dayton markets. The Company
anticipates that this new digital wireless communications business,
Cincinnati Bell Wireless, will be reported as an operating segment in 1999.
The Company recently formed two new subsidiaries. ZoomTown.com Inc.,
formed in the first quarter of 1999, provides FUSE Internet access,
e-commerce and transactional services. EnterpriseWise IT Consulting LLC
(formerly KSM Consulting and the Network Solutions Group) was formed in the
third quarter of 1998 and provides network integration and consulting
services. Operating results from these services have been included in the
Local Communications Services segment.
This report and the related consolidated financial statements and
accompanying notes contain certain forward-looking statements that involve
potential risks and uncertainties. The Company's future results could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed herein. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to review or update these forward-looking
statements or to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
- --------------------------------------------------------------------------------
CONSOLIDATED OVERVIEW
The Company is a full-service provider of local, long distance, wireless,
data, Internet, payphone, directory services and related communications
equipment to customers in the Midwest.
The Company's competitive strengths include its (i) well-regarded brand
name, (ii) technologically advanced network, (iii) communications industry
focus, knowledge and experience, (iv) reputation for service quality, (v)
large customer base and (vi) strategic relationships with targeted industry
leaders, including AT&T Corp. (AT&T), Lucent Technologies, Cisco Systems and
PSINet. By leveraging its competitive strengths, the Company believes that it
can capture the full benefit of its strategic relationships with these
targeted industry leaders to provide world-class service.
In May 1998, the Company formed a new subsidiary, Convergys Corporation
(Convergys), to hold the Company's information management and customer
management businesses (formerly CBIS and MATRIXX Marketing, respectively) and
the Company's interest in a cellular partnership.
In November, the Company's Board of Directors authorized the Company to
complete the divestiture of Convergys. On December 31, 1998, the Company
distributed one share of Convergys stock for each share of Company stock
owned by those Company shareholders of record on December 1, 1998. Subsequent
to the divestiture on December 31, 1998, the Company has no ownership
interest in Convergys.
20
<PAGE>
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Revenues were $885.1 million, up 6% from $834.5 million in 1997, primarily as
a result of increased activities in Local Communications Services. Costs and
expenses, excluding special credits, were $706.2 million, up 6% from $664.1
million. Operating margins, excluding special credits in both years, were
comparable.
Income from continuing operations was $81.8 million, or $.59 per share in
1998 compared with $102.3 million, or $.74 per share in 1997. In 1998, the
Company recognized $1.1 million in special credits resulting from the 1995
business restructuring, compared with $21.0 million in 1997 (see Note 12 of
Notes to Financial Statements). The Company also recorded a $27.3 million
loss on its new wireless venture in 1998, while no such loss was recorded in
1997. Excluding special credits and the wireless dilution, income from
continuing operations on a per share basis was $.72 in 1998 compared with
$.64 in 1997.
Extraordinary items affected both years. In 1998, retirement of long-term
debt and a portion of a credit facility resulted in an extraordinary charge
of $1.0 million, net of taxes. In 1997, the discontinuation of Statement of
Financial Accounting Standard (SFAS) 71,"Accounting for the Effects of
Certain Types of Regulation," at CBT resulted in a non-cash charge of $210.0
million after-tax.
Costs to reprogram information systems for the Year 2000 and to implement
regulator-mandated interconnection and local number portability also affected
operating results. These costs were $21.5 million in 1998 compared with $10.5
million in 1997.
1997 COMPARED TO 1996
Revenues were $834.5 million, up 7% from $779.8 million in 1996, as a result
of balanced growth across the Company's businesses. Costs and expenses,
excluding special credits, were $664.1 million, up 6% from 1996. Operating
income, excluding special credits, increased to $170.4 million, a 20.4%
margin, from $150.9 million, a 19.4% margin, in 1996. Income from continuing
operations was $102.3 million, or $.74 per share in 1997, compared with $99.5
million, or $.73 per share in 1996. Excluding special credits, income from
continuing operations increased to $88.9 million, or $.64 per share from
$80.2 million, or $.59 per share in 1996.
In 1997, the Company recognized $21.0 million in special credits resulting
from the 1995 business restructuring, compared with $29.7 million in 1996
(see Note 12 of Notes to Financial Statements). Interest expense of $30.1
million in 1997 was $2.2 million higher than in 1996 due to a non-recurring
reversal of $2.5 million in interest expense associated with overearnings
liabilities recorded in 1996. Results in 1997 also included an extraordinary,
non-cash charge of $210.0 million due to the discontinuance of SFAS 71. This
charge was net of a related tax benefit of $129.2 million (see Note 4 of
Notes to Financial Statements).
Operating results were also affected by two significant initiatives that
began in 1997. The first initiative was the effort to reprogram the Company's
information systems for the Year 2000. The second was the effort to modify
CBT's network, as mandated by regulators, to accommodate connections with
competing networks and to allow customers to maintain their telephone numbers
when they switch local service providers.
- --------------------------------------------------------------------------------
LOCAL COMMUNICATIONS SERVICES
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1998 1997 98 vs. 97 1996 97 vs. 96
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Local service $407.9 $386.2 6 $370.6 4
Network access 180.9 170.0 6 161.9 5
Other services 129.6 113.9 14 118.3 (4)
------ ------ ------
Total 718.4 670.1 7 650.8 3
Costs and expenses:
Operating expenses 555.2 533.8 4 523.6 2
Year-2000
programming costs 10.9 4.2 160 -- --
Mandated
telecommunications
costs 10.6 6.3 68 -- --
Special credits:
Restructuring/
settlement gains -- (21.0) -- (28.5) --
------ ------ ------
Total 576.7 523.3 10 495.1 6
Operating income $141.7 $146.8 (3) $155.7 (6)
Excluding special
credits:
Operating income $141.7 $125.8 13 $127.2 (1)
Operating margin 19.7% 18.8% 19.6%
</TABLE>
1998 COMPARED TO 1997
The Local Communications Services segment had another strong performance in
1998, enjoying the benefits of continued growth in access lines, voice grade
equivalents and value-added services, such as Caller ID and other custom
calling features. This, in combination with increased usage of the Company's
network on a minutes-of-use basis, contributed significantly to the increase
in revenue over 1997. Excluding special credits, continued focus on the
Company's cost structure allowed for the improvement of operating margins
over 1997. In 1997, a pension settlement gain of $21.0 million benefited
operating income, while no such gain was realized in 1998.
21
<PAGE>
REVENUES
Revenues increased $48.3 million, or 7%. Local service revenues increased
$21.7 million, primarily due to access line growth of 3% and increased usage
of the Company's suite of custom calling services.
Network access revenues increased $10.9 million, or 6%. This was primarily
due to growth in high-capacity digital services; voice grade equivalents
increased 40%. Minutes of use increased 6.6% along with an increase in
end-user access charges, but these were offset by a reduction in interstate
per-minute rates instituted by the Federal Communications Commission (FCC)
and by a reduction in intrastate rates instituted as part of the "Commitment
2000" plan as approved by the Public Utilities Commission of Ohio.
Revenues from other services increased $15.7 million, or 14%. Revenues
from the Company's National Payphone Clearinghouse business and commissions
associated with the deregulation of the public payphone business increased
$6.9 million in 1998. The Company's FUSE Internet access service increased
$2.6 million in 1998. The remainder of the increase in this category is
attributable to equipment and wiring sales and consulting revenues from the
Company's new data services business, partially offset by increased
uncollectible expense of $4.3 million.
COSTS AND EXPENSES
Operating expenses increased $21.4 million, or 4%. Approximately $12 million
of the increase is attributable to increased headcount and higher wages.
Right-to-use fees for network switching systems decreased by $2.3 million,
but were offset by increased expenditures for contract and consulting
services. Expenses also increased approximately $5 million due to mandated
charges to fund universal service initiatives and $2.3 million for increased
advertising.
Depreciation expense was approximately $14 million lower in 1998,
attributable to the discontinuance of SFAS 71, "Accounting for the Effects of
Certain Types of Regulation," in the fourth quarter of 1997 (see further
discussion in Note 4 of Notes to Financial Statements).
Year-2000 programming expenses totaled $10.9 million, a $6.7 million
increase. Regulator-mandated interconnection and local number portability
expenses totaled $10.6 million in 1998, $4.3 million more than the prior year.
No pension settlement gains or adjustments relating to the 1995
restructuring were recognized in 1998, whereas 1997 costs and expenses
included a credit of $21.0 million.
1997 COMPARED TO 1996
REVENUES
Revenues increased $19.3 million, or 3%. Local service revenues increased
$15.6 million, or 4%, primarily from continuing growth in access lines. The
strong business economy, higher installations of second lines and demand for
access to on-line computer services increased access lines 5% for the year.
Revenues from enhanced custom calling features increased as a result of
access line growth, promotions and increased advertising.
Network access revenues increased $8.1 million or 5%. Digital services
revenues increased $3.3 million; voice grade equivalents increased 25%.
End-user charges associated with access line growth increased $3.2 million.
Usage-sensitive revenues increased $1.6 million on an 8% increase in minutes
of use.
Other services decreased $4.4 million, or 4% due to the repricing of
directory listing information provided to CBD, offset by increased revenues
for existing products, the introduction of new services such as Internet
access and the deregulation of pay telephone services.
COSTS AND EXPENSES
Operating expenses increased $10.2 million, or 2%. Contract labor, consulting
fees and right-to-use fees increased $14.1 million. Depreciation expense
increased $4.0 million, primarily as a result of higher telephone plant
balances throughout 1997. This was somewhat offset by a $4.0 million lower
pension and benefit expense and a $4.3 million reduction in taxes imposed
upon the gross revenues of the segment.
Year-2000 programming costs totaled $4.2 million while regulator-mandated
spending for interconnection and local number portability totaled $6.3
million.
Special credits were $21.0 million in pension settlement gains in 1997 and
$28.5 million in pension settlement gains and restructuring adjustments in
1996.
In the fourth quarter of 1997, the application of SFAS 71, "Accounting for
the Effects of Certain Types of Regulation," was discontinued and a $210.0
million non-cash, extraordinary charge was recognized. The discontinuance of
SFAS 71 did not have a significant effect on 1997 operating results (see Note
4 of Notes to Financial Statements).
22
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORY SERVICES
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1998 1997 98 vs. 97 1996 97 vs. 96
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $72.9 $72.9 -- $72.6 --
Costs and expenses 47.5 48.0 (1) 51.6 (7)
Operating income 25.4 24.9 2 21.0 19
Operating margin 34.8% 34.1% 28.9%
</TABLE>
1998 COMPARED TO 1997
REVENUES
Despite the advent of full-scale competition into our market area during
1998, Directory Services managed to preserve its revenue stream from 1997.
While some degree of competitive loss was felt from two new competitors, one
of which was previously a sales agent for the Company, revenues were
maintained as a result of the introduction of new listing options that
resulted in additional revenues.
COSTS AND EXPENSES
Costs and expenses in 1998 were virtually unchanged in comparison to the
prior year. Sales commissions decreased as a result of slightly lower sales
volume and a renegotiated commission rate. Advertising spending increased as
new campaigns were designed to preserve market share and stimulate demand for
value-added listings.
1997 COMPARED TO 1996
REVENUES
Revenues were essentially unchanged in comparison to 1996, due to a
realignment of responsibility between segments as to the Company's white
pages directory. The production of the white pages directory, and its
approximately $3 million in revenues, were transitioned to the Local
Communications Services segment in 1997. Excepting this, the segment would
have shown growth of 5% versus the previous year.
COSTS AND EXPENSES
Costs and expenses decreased $3.6 million, or 7%. The majority of this
decrease resulted from lower charges from CBT pursuant to changes in contract
pricing for directory listing information and lower sales commissions. Some
of the reduction in expense was offset by the development of a complementary,
Internet-based service named "Cincinnati Today." Management believes that
this Internet presence is necessary for more robust revenue growth in the
face of new competition from other directory publishers.
- --------------------------------------------------------------------------------
OTHER COMMUNICATIONS SERVICES
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1998 1997 98 vs. 97 1996 97 vs. 96
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $106.1 $101.7 4 $ 81.8 24
Costs and expenses 95.6 90.2 6 70.9 27
Operating income 10.5 11.5 (9) 10.9 5
Operating margin 9.9% 11.3% 13.3%
</TABLE>
1998 COMPARED TO 1997
REVENUES
Revenues increased $4.4 million, or 4%. The Company's long distance
subsidiary contributed a substantial gain in revenues over the prior year,
adding $10.0 million of revenue as a result of increased subscribership and
usage. The Company's equipment reseller reported a $5.6 million decline in
its revenues, due to the reduction in sales volume with a major customer and
lower salvage prices on reclaimed materials for resale.
COSTS AND EXPENSES
Costs and expenses increased $5.4 million, or 6%. The long distance
subsidiary experienced increased selling and administrative expenses to
acquire new subscribers and enter the data market with the introduction of
frame relay service and Internet access. The equipment reseller operation
reported lower product costs due to the decreased sales volume previously
discussed.
23
<PAGE>
1997 COMPARED TO 1996
REVENUES
Revenues increased $19.9 million, or 24%. The Company's long distance subsidiary
reported an $8.0 million increase in revenues from 1996 results. This was the
result of increased subscribership and usage by end-user customers and increased
sales of station equipment to business customers. The Company's equipment
reseller reported an increase of $11.9 million as a result of increased sales of
personal computers to a large customer.
COSTS AND EXPENSES
Costs and expenses increased $19.3 million, or 27%. The long distance subsidiary
experienced increased selling and administrative expenses to acquire new
subscribers and higher product costs related to the sale of station equipment to
business customers. The equipment reseller operation showed a $10.5 million
increase in product costs related to the sale of personal computers.
- -------------------------------------------------------------------------------
WIRELESS VENTURE LOSS AND
OTHER (INCOME) EXPENSE, NET
<TABLE>
% Change % Change
($ in millions) 1998 1997 98 vs. 97 1996 97 vs. 96
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Wireless venture loss $27.3 -- -- -- --
Other (income)
expense, net 2.4 $2.7 -- $(.5) --
</TABLE>
1998 COMPARED TO 1997
On December 31, 1998, the Company acquired an 80% interest from AT&TPCS in a
venture offering PCS in the Greater Cincinnati and Dayton markets. The agreement
specified that prior to the funding of the venture, the Company and AT&T PCS
would operate under an interim agreement whereby losses would be funded in the
same percentages as the proposed venture. In 1998, this resulted in a loss of
$27.3 million. It is anticipated that this PCS business will be reported as an
operating segment in 1999.
1997 COMPARED TO 1996
The net reduction in income is primarily the result of reduced interest income
and higher corporate expenses.
- -------------------------------------------------------------------------------
INTEREST EXPENSE
<TABLE>
% Change % Change
($ in millions) 1998 1997 98 vs. 97 1996 97 vs. 96
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$24.2 $30.1 (20) $27.9 8
</TABLE>
1998 COMPARED TO 1997
Interest expense declined in 1998 due to lower weighted average interest rates
and a reclassification of interest during construction in 1998.
1997 COMPARED TO 1996
Excluding a reversal of $2.5 million in interest expense related to overearnings
liabilities in the third quarter 1996, interest expense in 1997 was comparable
to 1996.
- ------------------------------------------------------------------------------
INCOME TAXES
<TABLE>
% Change % Change
($ in millions) 1998 1997 98 vs. 97 1996 97 vs. 96
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income taxes $44.3 $56.3 (21) $53.7 5
Effective tax rate 35.1% 35.5% 35.1%
</TABLE>
1998 COMPARED TO 1997 AND 1997 COMPARED TO 1996
In 1998, the decrease in tax expense was the result of lower pre-tax income,
primarily due to the wireless venture loss. The 1997 increase was the result of
higher pre-tax income. The effective tax rates were comparable.
- -------------------------------------------------------------------------------
EXTRAORDINARY ITEMS, NET OF TAXES
<TABLE>
% Change % Change
($ in millions) 1998 1997 98 vs. 97 1996 97 vs. 96
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.0 $210.0 -- -- --
</TABLE>
1998 COMPARED TO 1997 AND 1997 COMPARED TO 1996
In the fourth quarter of 1998, the Company retired debt and a portion of a
credit facility, and recorded an extraordinary non-cash charge of $1.0 million,
which is net of a related tax benefit of $.5 million.
In 1997, as described in Note 4 of Notes to Financial Statements, the Company
discontinued the application of SFAS 71 which resulted in an extraordinary,
non-cash charge of $210.0 million, net of income taxes.
24
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL CONDITION
CAPITAL INVESTMENT, RESOURCES AND LIQUIDITY
Management believes that the Company has adequate internal and external
resources available to finance its on-going operating requirements, including
network expansion and modernization, business development and dividend programs.
In October 1998, the Company and CBT filed a shelf registration with the
Securities and Exchange Commission for the sale of up to $350 million in debt
securities, with terms to be determined at the time of sale. Proceeds of any
issues will be used to repay debt and for general corporate purposes.
In November, CBT used the shelf registration to issue $150 million of 6.3%
debentures due 2028. The proceeds were used to finance the early redemption of
$50 million of 7 3/8% debentures due in August 2011, and to reduce short-term
debt.
On December 31, 1998, the Company paid approximately $162 million in cash to
AT&T PCS in exchange for an 80% interest in a PCS venture, including the license
for the operating area and other operating assets and liabilities. The
transaction was financed by the issuance of short-term debt.
The Company plans to issue $100 million of long-term debt securities in the
first half of 1999. The proceeds will be used to pay down short-term debt
incurred for the acquisition of the PCS venture. The Company would still have
$100 million of unused capacity from the shelf registration.
Cash provided by operating activities was $212 million compared to $197
million in 1997. Earnings, adjusted for non-cash expenses, special credits and
extraordinary items, were higher in 1998. Increases in payables and other
liabilities were partially offset by an increase in accounts receivable.
The Company's significant investing activities are capital expenditures and
acquisitions. Capital expenditures were approximately $143 million, down from
$167 million in 1997. This decrease is attributable to lower equipment purchases
by CBT in 1998 and CBT's 1997 purchase of a separate 10 mega-hertz wireless
license. Acquisitions totaled approximately $166 million for the investment in
the PCS venture, and for the purchase of a network integration and consulting
business.
Capital expenditures for 1999, including capitalization of software as
required by AICPA Statement of Position 98-1, are estimated to be $190 million,
excluding acquisitions.
BALANCE SHEET
Receivables increased $10.1 million primarily as a result of higher revenues.
Significant increases in property, plant and equipment, goodwill and other
intangibles, and short-term and long-term debt were primarily due to the
acquisitions noted in other sections of this report. Total net assets and
shareholders' equity were reduced by $520.7 million to reflect the spin-off of
Convergys.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes. To manage its
exposure to interest rate changes, the Company uses a combination of variable
rate short-term and fixed rate long-term financial instruments. The Company may,
from time to time, employ a small number of financial instruments to manage its
exposure to fluctuations in interest rates. The Company does not hold or issue
derivative financial instruments for trading purposes, or enter into interest
rate transactions for speculative purposes.
Interest Rate Risk Management -- The Company's objective in managing its
exposure to interest rate changes is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs.
The following table describes the financial instruments that were held by the
Company at December 31, 1998:
MATURITY DATES FOR LONG-TERM DEBENTURES AND NOTES
<TABLE>
($ in millions) 1999-2001 2002 Thereafter Total Fair Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed-rate debentures
and notes -- $20.0 $320.0 $340.0 $355.1
Average interest rate -- 4.4% 6.7% 6.5%
25
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
REGULATORY MATTERS AND COMPETITIVE TRENDS
FEDERAL -- In July 1997, the U.S. Court of Appeals issued a decision stating
that the FCC exceeded its authority under the Telecommunications Act of 1996 in
several areas regarding rules governing local competition. On January 25, 1999,
the U.S. Supreme Court overturned the U.S. Court of Appeals decision and
reinstated the FCC's rules involving local competition. While the FCC now has
the ability to pre-empt a state's rules when they are inconsistent with the
FCC's, Ohio and Kentucky have both followed the FCC's rules in most
circumstances. The "pick and choose" provision will likely move CBT in the
future to a single set of contractual provisions for all interconnectors.
In May 1997, the FCC adopted an order in the access charge reform proceeding.
The order generally removed from minute-of-use access rates, costs that are not
incurred on a per minute-of-use basis. The order also adopted changes to the
interstate rate structure for transport services that are designed to move the
charges for these services to more cost-based levels. CBT and numerous other
local exchange carriers (LECs) filed appeals in the U.S. Court of Appeals for
the Eighth Circuit challenging various aspects of the FCC's May 1997 order. On
August 19, 1998, the Court issued a decision upholding the FCC's order. Since
CBT had already begun complying with the FCC's order, the Court's decision is
not expected to have a material impact on CBT's operations.
Also in May 1997, the FCC adopted an order on the new universal service
program. Several parties, including CBT, filed petitions for review of the order
in various circuits of the U.S. Court of Appeals. The court heard the case on
December 1, 1998, but a decision has not yet been rendered. Given the ongoing
judicial developments in this case, the Company cannot determine the full impact
that its ultimate resolution may have on CBT's operations.
In July 1997, CBT's price cap tariff filing was approved by the FCC without
suspension. CBT and another company have filed petitions for reconsideration
with the FCC to revisit the establishment of the 6.5% productivity offset. In
addition, several appeals have been filed with the U.S. Court of Appeals
regarding the order establishing the 6.5% productivity offset. At this time, the
outcome of the petition for reconsideration and the appeals cannot be
determined.
On February 25, 1999, the FCC issued a Declaratory Ruling classifying dial-up
traffic to Internet service providers (ISPs) as interstate traffic. The FCC
stated this conclusion does not in itself determine whether reciprocal
compensation is due in any particular instance and that the parties should be
bound by their existing interconnection agreements, as interpreted by state
commissions. In addition, the FCC issued a Notice of Proposed Rule Making,
opening a proceeding which will address, on a prospective basis, if Federal
rules are required to address reciprocal compensation issues for ISP traffic. At
this time, the Company cannot determine the full impact that the ultimate
outcome of the proceeding will have on CBT's operations.
On May 12, 1998, the FCC released an order allowing telecommunications
carriers to recover their carrier-specific costs of implementing local number
portability over a five-year period. Local number portability allows customers
to retain their local telephone numbers in the event they change local exchange
carriers. CBT implemented local number portability in May 1998. Although the May
FCC order permits such cost recovery through query charges to carriers who
access CBT's local number portability database and through an end-user charge, a
subsequent ruling by the Common Carrier Bureau on December 14, 1998, narrowly
defined costs that the telecommunications carriers can recover through these
charges. On January 13, 1999, CBT asked the FCC to overturn the Common Carrier
Bureau's ruling and allow carriers to recover all costs for implementing local
number portability. This Application for Review is still pending. CBT's tariff
for the charges was approved by the FCC and became effective February 1, 1999,
the earliest date allowed under FCC rules.
26
<PAGE>
OHIO -- On March 19, 1998, CBT, the PUCO, the Office of Consumers Counsel and
other intervenors reached a settlement on CBT's "Commitment 2000" alternative
regulation plan application. The settlement was approved by the PUCO on April 9,
1998. Terms of the settlement include: (i) greater pricing flexibility for most
services and elimination of rate-of-return regulation; (ii) no increase in basic
residential access line rates for the term of the plan; (iii) business rates set
based on CBT's discretion and market conditions; and (iv) a 30% reduction in
basic rates for qualified, low-income residential customers. The term of the
plan is three and one-half years but can be extended up to an additional two
years at CBT's discretion as long as a service quality benchmark is maintained.
The portion of this case pertaining to the rates that CBT can charge competitive
LECs for unbundled network elements (UNEs) remains undecided. Currently, CBT is
charging interim rates developed in contract negotiations. A hearing concerning
these rates began in March 1999.
KENTUCKY -- On June 29, 1998, CBT filed an application with the Public Service
Commission of Kentucky (PSCK) requesting a plan similar to the "Commitment 2000"
plan approved by the PUCO. On January 25, 1999, the PSCK issued an order in this
case. The PSCK approved the alternative regulation plan with modifications,
adopting an earnings sharing plan allowing customers to receive one-half the
earnings on equity in excess of 13.5%. The PSCK also specified that residential
rates be frozen for three years and ordered rate reductions of approximately $3
million per year versus current rates. CBT filed a petition for rehearing with
the PSCK on February 12, 1999. This petition for rehearing on the earnings
sharing plan was granted on March 4, 1999.
- --------------------------------------------------------------------------------
BUSINESS OUTLOOK
Evolving technology, the preferences of consumers, the legislative and
regulatory initiatives of policy makers and the convergence of other industries
with the telecommunications industry are causes for increasing competition
throughout the telecommunications industry. The range of communications
services, the equipment available to provide and access such services, and the
number of competitors offering such services, continue to increase. These
initiatives and developments could make it difficult for the Company to maintain
current revenue and profit levels.
CBT's competitors could include other incumbent LECs, wireless services
providers, interexchange carriers, competitive local exchange carriers and
others. To date, CBT has signed 10 interconnection agreements with competitors,
and approximately 4,000 access lines have been transferred to competitors.
The Company's other subsidiaries face intense competition in their markets,
principally from larger companies. These subsidiaries primarily seek to
differentiate themselves by leveraging the strength and recognition of the
Company brand name, by providing customers with superior service and by focusing
on niche markets and opportunities to develop and market customized packages of
services. CBD's competitors are directory services companies, newspapers and
other media advertising services providers in the Cincinnati metropolitan market
area. CBD now competes with its former sales representative for Yellow Pages
directory customers. This competition may affect CBD's ability to grow or
maintain profits and revenues. CBLD's competitors include interexchange carriers
and certain local exchange companies. CBS's competitors include vendors of new
and used communications and computer equipment operating regionally and across
the nation. CBW is one of five active wireless service providers in the
Cincinnati and Dayton metropolitan market areas.
YEAR-2000 READINESS
Since 1996, the Company has devoted significant time and resources to achieve
Year-2000 compliance.
A Steering Committee, chaired by the CBT's Senior Vice President,
Operations, and composed of upper-level management personnel, sets the
direction and monitors the activity of the Year-2000 Program Management
Office. The Program Management Office's responsibility is to make CBT
Year-2000 compliant and to provide oversight for the Company's other
subsidiaries as they track the status of their Year-2000 projects. In
addition to internal Year-2000 activities, the Program Management Office is
communicating with suppliers and clients with which CBT's systems interface
or rely upon, to determine their progress toward Year-2000 compliance.
27
<PAGE>
The Company incurred Year-2000 expenses of $10.9 million in 1998. Year-2000
expenses in 1999 are estimated to be in the range of $5 million to $8 million.
CBT's goal is to have its network, information technology (IT) and facilities
systems equipped with any required fixes, upgrades or replacements, and tested,
by July 31, 1999.
The Company's other subsidiaries hope to have their networks, IT, facilities
and billing systems equipped with any required fixes, upgrades or replacements,
and tested, by June 30, 1999.
The Company has no reason to believe that the July 31, 1999, target date will
not be achieved. However, because of the complexity of the Year-2000 problem,
there can be no guarantee that the Company will achieve complete Year-2000
compliance by this date or before the Year 2000.
To minimize the disruption to its operations that may result from a variety
of occurences, the Company is developing a well-defined and executable Year-2000
contingency plan and enhancing its business continuity plans to ensure
reasonable preparedness for any Year-2000 issues that might arise. These plans
are scheduled for testing in September. Although the Company anticipates minimal
business disruption as a result of the century change, if the Company were to be
unsuccessful in readying its software and systems for the Year 2000 or preparing
adequate plans to avoid business interruption that could result from the century
change, this would have a material adverse impact on the Company. This material
adverse effect could include a disruption to the provision of services to its
customers, which could result in lost revenues, the incurrence of material
contractual penalties and damaged customer relationships.
The failure of one of the Company's significant customers to modify its
systems for the Year 2000 successfully or to provide the appropriate business
continuity planning also could have an adverse impact on the Company as the
Company is, to a certain extent dependent on the success of its customers.
The Company's success in becoming Year-2000 compliant largely depends on the
Company's vendors and business partners being Year-2000 compliant. The Program
Management Office is working diligently with the Company's vendors and business
partners to assure itself, to the extent possible, that the vendors and business
partners are taking the necessary steps to become Year-2000 compliant. To the
extent that any of the Company's vendors or business partners experience
Year-2000 technology difficulties which materially affect their businesses, such
difficulties could have a material adverse effect on the Company's business,
results of operations and financial condition.
RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1999, the Company adopted AICPA Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires the capitalization of certain expenditures for
software that is purchased or internally developed for use in the business. As
compared to prior years when these types of expenditures were expensed as
incurred, the 1999 adoption of SOP 98-1 is estimated to result in the
capitalization of as much as $9 million to $12 million of internal use software
development costs, which will be amortized over a three-year period.
In June 1998, Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
these instruments at fair value. The Company may, from time to time, employ a
small number of financial instruments to manage its exposure to fluctuations in
interest rates. The Company will adopt SFAS 133, as required in the year 2000,
and does not expect the impact of adoption to be material.
BUSINESS DEVELOPMENT
To enhance shareowner value, the Company continues to review opportunities for
acquisitions, divestitures and strategic partnerships.
28
<PAGE>
REPORTS OF MANAGEMENT AND INDEPENDENT ACCOUNTANTS CINCINNATI BELL INC.
REPORT OF MANAGEMENT
The management of Cincinnati Bell Inc. is responsible for the information and
representations contained in this Annual Report. Management believes that the
financial statements have been prepared in accordance with generally accepted
accounting principles and that the other information in the Annual Report is
consistent with those statements. In preparing the financial statements,
management is required to include amounts based on estimates and judgments that
it believes are reasonable under the circumstances.
In meeting its responsibility for the reliability of the financial
statements, management maintains a system of internal accounting controls, which
is continually reviewed and evaluated. Our internal auditors monitor compliance
with the system of internal controls in connection with their program of
internal audits. However, there are inherent limitations that should be
recognized in considering the assurances provided by any system of internal
accounting controls. Management believes that its system provides reasonable
assurance that assets are safeguarded and that transactions are properly
recorded and executed in accordance with management's authorization, that the
recorded accountability for assets is compared with the existing assets at
reasonable intervals, and that appropriate action is taken with respect to any
differences. Management also seeks to assure the objectivity and integrity of
its financial data by the careful selection of its managers, by organization
arrangements that provide an appropriate division of responsibility, and by
communications programs aimed at assuring that its policies, standards and
managerial authorities are understood throughout the organization.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants. Their audit was conducted in accordance with generally
accepted auditing standards.
The Audit & Finance Committee of the Board of Directors (see page 45), which
is composed of four directors who are not employees, meets periodically with
management, the internal auditors and PricewaterhouseCoopers LLP to review their
performance and responsibilities and to discuss auditing, internal accounting
controls and financial reporting matters. Both the internal auditors and the
independent accountants periodically meet alone with the Audit & Finance
Committee and have access to the Audit & Finance Committee at any time.
/s/ Kevin W. Mooney
- ------------------------
Kevin W. Mooney
CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND THE
SHAREOWNERS OF CINCINNATI BELL INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income, of shareowners'
equity and of cash flows present fairly, in all material respects, the financial
position of Cincinnati Bell Inc. (the Company) and its subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 4 to the Financial Statements, the Company discontinued
applying the provisions of Statement of Financial Accounting Standard 71,
"Accounting for the Effects of Certain Types of Regulation," in 1997.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 12, 1999
29
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (LOSS) Cincinnati Bell Inc.
<TABLE>
<CAPTION>
Millions of dollars except per share amounts Year ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
REVENUES $ 885.1 $ 834.5 $ 779.8
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Costs of providing services and products sold 369.6 344.6 321.3
Selling, general and administrative 204.0 184.7 186.6
Depreciation and amortization 111.1 124.3 121.0
Year 2000 programming costs 10.9 4.2 --
Mandated telecommunications costs 10.6 6.3 --
Special charges (credits) (1.1) (21.0) (29.7)
------- ------- -------
Total costs and expenses 705.1 643.1 599.2
------- ------- -------
OPERATING INCOME 180.0 191.4 180.6
- ------------------------------------------------------------------------------------------------------------------------
Wireless Venture Loss 27.3 -- --
Other (Income) Expense, Net 2.4 2.7 (.5)
Interest Expense 24.2 30.1 27.9
------- ------- -------
Income from Continuing Operations Before Income Taxes 126.1 158.6 153.2
Income Taxes 44.3 56.3 53.7
------- ------- -------
Income from Continuing Operations 81.8 102.3 99.5
Income from Discontinued Operations, Net of Taxes 69.1 91.3 85.5
------- ------- -------
Income Before Extraordinary Items 150.9 193.6 185.0
Extraordinary Items, Net of Taxes (1.0) (210.0) --
------- ------- -------
NET INCOME (LOSS) $ 149.9 $ (16.4) $ 185.0
------- ------- -------
------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss), Net of Tax:
Currency translation adjustments $ (4.8) $ (1.6) $ (.5)
Additional minimum pension liability adjustment (2.5) .8 --
------- ------- -------
Total other comprehensive income (loss) (7.3) (.8) (.5)
------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ 142.6 $ (17.2) $ 184.5
------- ------- -------
------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income from Continuing Operations $ .60 $ .76 $ .74
Income from Discontinued Operations, Net of Taxes .51 .67 .64
Extraordinary Items, Net of Taxes (.01) (1.55) --
------- ------- -------
Net Income (Loss) $ 1.10 $ (.12) $ 1.38
------- ------- -------
------- ------- -------
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income from Continuing Operations $ .59 $ .74 $ .73
Income from Discontinued Operations, Net of Taxes .50 .67 .62
Extraordinary Items, Net of Taxes (.01) (1.53) --
------- ------- -------
Net Income (Loss) $ 1.08 $ (.12) $ 1.35
------- ------- -------
------- ------- -------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (MILLIONS)
Basic 136.0 135.2 133.9
Diluted 138.2 137.7 137.2
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
CONSOLIDATED BALANCE SHEETS Cincinnati Bell Inc.
<TABLE>
<CAPTION>
Millions of dollars except per share amounts at December 31 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10.1 $ 7.8
Receivables, less allowances of $12.0 and $9.1 138.0 127.9
Material and supplies 16.9 16.3
Deferred income tax benefits 13.8 10.9
Prepaid expenses and other current assets 18.6 21.3
-------- --------
Total current assets 197.4 184.2
PROPERTY, PLANT AND EQUIPMENT, NET 698.2 573.2
GOODWILL AND OTHER INTANGIBLES 103.3 17.4
INVESTMENTS IN UNCONSOLIDATED ENTITIES 2.5 4.9
DEFERRED CHARGES AND OTHER ASSETS 39.6 64.6
NET ASSETS OF DISCONTINUED OPERATIONS -- 430.8
-------- --------
TOTAL ASSETS $1,041.0 $1,275.1
-------- --------
-------- --------
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Debt maturing within one year $ 186.2 $ 131.5
Payables and other current liabilities 219.1 186.8
-------- --------
Total current liabilities 405.3 318.3
LONG-TERM DEBT 366.8 268.0
DEFERRED INCOME TAXES 6.3 14.4
OTHER POSTRETIREMENT BENEFITS 47.5 50.0
OTHER LONG-TERM LIABILITIES 73.0 44.7
-------- --------
Total liabilities 898.9 695.4
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREOWNERS' EQUITY
Preferred shares, no par value; 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common shares, $1 par value; 480,000,000 shares authorized;
136,381,509 and 136,066,965 shares issued and outstanding 136.4 136.1
Additional paid-in capital 12.4 229.8
Retained earnings -- 221.9
Accumulated other comprehensive income (loss) (6.7) (8.1)
-------- --------
Total shareowners' equity 142.1 579.7
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $1,041.0 $1,275.1
-------- --------
-------- --------
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Cincinnati Bell Inc.
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 149.9 $ (16.4) $185.0
Less: income from discontinued operations, net of taxes (69.1) (91.3) (85.5)
------- ------- ------
Net income (loss) from continuing operations 80.8 (107.7) 99.5
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 111.1 124.3 121.0
Special charges (credits) (1.1) (21.0) (29.7)
Provision for loss on receivables 15.8 7.3 8.0
Extraordinary items, net of taxes 1.0 210.0 --
Other, net -- (6.4) 10.8
Change in operating assets and liabilities net of effects from acquisitions
and disposals:
Increase in receivables (24.9) (26.3) (1.3)
Decrease (increase) in other current assets 2.1 (7.4) .1
Increase (decrease) in accounts payable and accrued liabilities 40.9 45.1 (53.4)
Increase (decrease) in other current liabilities (7.5) (43.2) (21.7)
Increase (decrease) in deferred income taxes and unamortized
investment tax credits (11.0) 17.4 7.1
Decrease (increase) in other assets and liabilities, net 5.1 5.3 (8.4)
------- ------- ------
Net cash provided by operating activities of continuing operations 212.3 197.4 132.0
------- ------- ------
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - telephone plant (136.3) (143.9) (99.3)
Capital expenditures - other (7.0) (23.2) (.7)
Acquisitions (165.9) -- (.3)
Dispositions of assets -- -- 12.7
Other investing activities, net -- 13.3 (4.9)
------- ------- ------
Net cash used in investing activities of continuing operations (309.2) (153.8) (92.5)
------- ------- ------
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 150.0 -- --
Repayment of long-term debt (51.2) (99.6) (82.4)
Short-term borrowings, net 54.7 109.5 67.4
Issuance of common shares .3 9.1 23.7
Dividends paid (54.4) (54.3) (53.7)
------- ------- ------
Net cash provided by (used in) financing activities of continuing operations 99.4 (35.3) (45.0)
------- ------- ------
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by discontinued operations (.2) (.2) 2.3
------- ------- ------
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2.3 8.1 (3.2)
Cash and cash equivalents at beginning of year 7.8 (.3) 2.9
------- ------- ------
Cash and cash equivalents at end of year $ 10.1 $ 7.8 $ (.3)
------- ------- ------
------- ------- ------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
CONSOLIDATED STATEMENTS OF COMMON SHAREOWNERS' EQUITY Cincinnati Bell Inc.
<TABLE>
<CAPTION>
Common Shareowners' Equity
-------------------------------------------------------------
Accumulated
Common Other
Shares Additional Compre-
Outstanding Common Paid-In Retained hensive
Millions of dollars except per share amounts (millions) Shares Capital Earnings Income Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 133.4 $133.4 $ 189.4 $ 162.1 $(6.8) $478.1
Shares issued under shareowner and employee plans 1.7 1.7 23.7 .3 -- 25.7
Net income -- -- -- 185.0 -- 185.0
Currency translation adjustments -- -- -- -- (.5) (.5)
Dividends on common shares, $.40 per share -- -- -- (53.9) -- (53.9)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 135.1 135.1 213.1 293.5 (7.3) 634.4
Shares issued under shareowner and employee plans 1.0 1.0 16.7 (.8) -- 16.9
Net loss -- -- -- (16.4) -- (16.4)
Additional minimum pension liability adjustment -- -- -- -- .8 .8
Currency translation adjustments -- -- -- -- (1.6) (1.6)
Dividends on common shares, $.40 per share -- -- -- (54.4) -- (54.4)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 136.1 136.1 229.8 221.9 (8.1) 579.7
Shares issued under shareowner and employee plans .3 .3 (.3) -- -- --
Net income -- -- -- 149.9 -- 149.9
Additional minimum pension liability adjustment -- -- -- -- (2.5) (2.5)
Currency translation adjustments -- -- -- -- (4.8) (4.8)
Restricted stock issuance -- -- (4.9) -- -- (4.9)
Dividends on common shares, $.40 per share -- -- -- (54.6) -- (54.6)
Spin-off of Convergys -- -- (212.2) (317.2) 8.7 (520.7)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 136.4 $136.4 $ 12.4 $ -- $(6.7) $142.1
------ ------- ------ ------ ------ ------
------ ------- ------ ------ ------ ------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
CONSOLIDATION AND BASIS OF PRESENTATION -- The consolidated financial
statements include the accounts of Cincinnati Bell Inc. and its majority
owned subsidiaries in which the Company exercises control (the Company). The
Company provides diversified communications services through businesses in
three industry segments: Local Communications Services, Directory Services,
and Other Communications Services. All significant intercompany transactions
and balances have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform to the current classifications with
no effect on financial results.
REGULATORY ACCOUNTING -- In the fourth quarter of 1997, the Company
discontinued accounting under Statement of Financial Accounting Standards
(SFAS) 71, "Accounting for the Effects of Certain Types of Regulation," at
CBT (see Note 4).
USE OF ESTIMATES -- Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported. Actual results
could differ from those estimates.
CASH EQUIVALENTS -- Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less.
MATERIALS AND SUPPLIES -- Materials and supplies are carried at the lower of
average cost or market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. The Company's provision for depreciation of telephone plant is
determined on a straight-line basis using the whole life and remaining life
methods. Prior to the discontinuation of SFAS 71, the depreciation of
telephone plant at CBT was determined using lives allowed by regulators. As a
result of the discontinuation of SFAS 71 in the fourth quarter of 1997, CBT
recognized shorter, more economically realistic lives than those prescribed
by regulators and increased its accumulated depreciation balance by $309.0
million (see Note 4). Provision for depreciation of other property is based
on the straight-line method over the estimated useful life.
Telephone plant is retired at its original cost, net of cost of removal and
salvage, and is charged to accumulated depreciation. For other property, plant
and equipment retired or sold, the gain or loss is recognized in other income.
GOODWILL AND OTHER INTANGIBLES -- Goodwill resulting from the purchase of
businesses and other intangibles are recorded at cost and amortized on a
straight-line basis from 5 to 40 years. Goodwill and other intangibles are
evaluated periodically as events or circumstances indicate a possible
inability to recover their carrying amount. Such evaluation is based on
various analyses, including cash flow and profitability projections. If future
expected undiscounted cash flows are insufficient to recover the carrying
amount of the asset, an impairment loss is recognized, based on expected
discounted cash flows.
REVENUE RECOGNITION -- Within the Local Communications Services segment,
local service revenues are generally billed monthly, in advance, with
revenues recognized as earned. Network access revenues are billed according
to usage and are recognized as earned. Other local communications services
revenues are recognized as earned. Directory Services revenues and related
directory costs are generally deferred and recognized over the life of the
associated directory, normally twelve months. Other Communications Services
revenues are recognized as earned.
ADVERTISING -- Costs related to advertising are expensed as incurred.
INCOME TAXES -- The provision for income taxes consists of an amount for
taxes currently payable and a provision for tax consequences deferred to
future periods using the liability method. For financial statement purposes,
deferred investment tax credits are being amortized as a reduction of the
provision for income taxes over the estimated useful lives of the related
property, plant and equipment.
STOCK-BASED COMPENSATION -- Compensation cost is measured under the intrinsic
value method. Pro forma disclosures of net income and earnings per share are
presented as if the fair value method had been applied.
FINANCIAL INSTRUMENTS -- In the normal course of business, the Company may,
from time to time, employ a small number of financial instruments to manage
its exposure to fluctuations in interest rates. The Company does not hold or
issue derivative financial instruments for trading purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS -- On January 1,1999, the Company
adopted AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," issued in March
1998. SOP 98-1 requires the capitalization of certain expenditures for
software that are purchased or internally developed for use in the business.
The Company's adoption of this standard will result in capitalization of
software development costs in 1999.
In June 1998, Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative instruments and Hedging Activities," was issued.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
34
<PAGE>
financial position and measure those instruments at fair value. The Company
may, from time to time, employ a small number of financial instruments to
manage its exposure to fluctuations in interest rates. The Company does not
hold or issue such financial instruments for trading purposes. The Company
will adopt SFAS 133, as required in the year 2000, and does not expect the
impact of adoption to be material.
- --------------------------------------------------------------------------------
2. ACQUISITIONS
In February 1998, the Company announced its intention to acquire from AT&T
Wireless PCS, Inc. (AT&T PCS), an 80% interest in a venture offering personal
communications services (PCS) in the Greater Cincinnati and Dayton markets.
The agreement specified that prior to the funding of the venture, the Company
and AT&T PCS would operate under an interim agreement where losses would be
funded in the same percentages as the proposed venture. The Company's
required funding of the losses was $27.3 million from February through
December 31, 1998, the closing date of the acquisition. This loss has been
included in the Company's Consolidated Statements of Income and Comprehensive
Income under the caption, "Wireless Venture Loss."
On December 31, 1998, the Company paid approximately $162 million in cash
to AT&T PCS in exchange for an 80% interest in the wireless venture,
including a PCS license and other assets and liabilities. At the balance
sheet date, the Company has recognized approximately $85 million as an
estimate of the goodwill and other intangibles related to this purchase which
will be amortized over a 40-year period. Since the independent valuation
being performed to assess the value of assets purchased is not yet complete,
a further adjustment will be required in 1999 to reflect the fair value of
these assets. In addition, the purchase price will be adjusted based on the
final determination of assets transferred.
The following table illustrates the effects of the venture acquisition on
a pro-forma basis as though it had occurred at January 1, 1998. The unaudited
pro-forma combined financial information presented below is provided for
informational purposes only and does not purport to be indicative of future
results or what the results of operations would have been had the acquisition
been effective with the inception of this business:
<TABLE>
<CAPTION>
Millions of dollars
except per share
amount (unaudited) Year ended December 31 1998
- -------------------------------------------------------------------------------
<S> <C>
Revenues $903.4
Income from continuing operations before tax $110.7
Income from continuing operations $ 72.6
Income from continuing operations per diluted common share $ .53
</TABLE>
In October 1998, the Company acquired KSM Consulting, a software solutions
company (now part of a newly-created subsidiary named EnterpriseWise IT
Consulting LLC). The purchase price was approximately $3.9 million and was
accounted for by the purchase method of accounting. The goodwill recorded for
this acquisition was $3.0 million, and will be amortized over a 10-year
period.
- --------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS
On May 8, 1998, the Company formed a new subsidiary, Convergys Corporation
(Convergys), to hold the Company's billing and customer management businesses
(formerly CBIS and MATRIXX Marketing, respectively) and the Company's
interest in a cellular partnership. In August 1998, Convergys sold
approximately 15 million common shares to the public, reducing the company's
interest in Convergys to approximately 90% of shares outstanding. On December
31, 1998, the Company completed the tax-free spin-off of Convergys by
distributing to Company shareowners the remaining Convergys shares on a
one-for-one basis, resulting in a $520.7 million reduction in the Company's
common shareowners' equity.
The consolidated financial statements have been restated to reflect the
disposition of Convergys and its subsidiaries as discontinued operations.
Accordingly, the revenues, costs and expenses, assets and liabilities, and
cash flows of Convergys have been reported through December 31, 1998, as
"Income from Discontinued Operations, Net of Taxes," or "Net Assets of
Discontinued Operations," or "Net Cash Provided by Discontinued Operations."
Summarized financial information for the discontinued operations is as
follows:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $1,387.3 $ 922.3 $ 793.9
Income before income taxes 118.3 138.3 131.5
Income taxes 49.2 47.0 46.0
Net income 69.1 91.3 85.5
FINANCIAL POSITION
Current assets 360.5 265.8
Total assets 1,450.9 654.4
Current liabilities 697.9 216.7
Total liabilities 930.2 223.6
Net assets of discontinued operations 520.7 430.8
</TABLE>
Income before income taxes includes allocated interest expense of $33.7
million, $5.4 million, and $6.0 million in 1998, 1997 and 1996, respectively.
Interest expense was allocated based on the capital structure of Convergys
anticipated at the date of distribution and the Company's weighted average
interest rates. The effective tax rates for discontinued operations were 42%,
34% and 35%, respectively.
In 1998, 1997 and 1996, the Company had revenues from Convergys of $10.1
million, $18.6 million and $6.2 million, respectively, resulting from the
provision of communications and other services.
35
<PAGE>
In 1998, 1997 and 1996, the Company incurred costs for services provided by
Convergys of $49.8 million, $49.6 million and $45.0 million, respectively,
resulting from billing and customer management services.
At December 31, 1998 and 1997, the Company had net receivables from Convergys
of $3.9 million and $1.6 million, respectively.
The Company and Convergys entered into the Plan of Reorganization and
Distribution Agreement (the Plan) dated July 20, 1998. The Plan provides, among
other things, that the Company will indemnify Convergys for all liabilities
arising from the Company's business and operations and for all contingent
liabilities related to the Company's business and operations otherwise assigned
to the Company. The Plan provides for the equal sharing of contingent
liabilities not allocated to one of the companies. In addition, the Company has
a number of other agreements with Convergys regarding federal, state and local
tax allocation and sharing, employee benefits, general services, billing and
information services provided to the Company by Convergys, and
telecommunications support services provided by the Company to Convergys.
- -------------------------------------------------------------------------------
4. DISCONTINUATION OF SFAS 71
In the fourth quarter of 1997, the Company determined that the application of
SFAS 71 was no longer appropriate, as a result of changes in CBT's competitive
and regulatory environment. Accordingly, CBT discontinued the application of
SFAS 71, and recorded an extraordinary non-cash charge of $210.0 million, which
is net of a related tax benefit of $129.2 million.
The components of the charge are as follows:
<TABLE>
<CAPTION>
Millions of dollars
- -------------------------------------------------------------------------------
<S> <C>
Reduction in plant-related balances $327.7
Elimination of other net regulatory assets and liabilities 11.5
------
Total pre-tax charge $339.2
Total after-tax charge $210.0
</TABLE>
The change in plant balances primarily represents an increase in accumulated
depreciation of $309.0 million for the removal of an embedded regulatory asset
resulting from the use of regulatory lives for depreciation of plant assets
which have typically been longer than the estimated economic lives. The
adjustment was supported by a discounted cash flow analysis which estimated
amounts of plant that may not be recoverable from future cash flows. The
adjustment also included elimination of accumulated depreciation reserve
deficiencies recognized by regulators and amortized as part of depreciation
expense and an adjustment of approximately $9.5 million to fully depreciate
analog switching equipment scheduled for replacement.
The following is a comparison of new depreciation lives to those prescribed
by regulators for selected plant categories:
<TABLE>
<CAPTION>
Regulator- Estimated
Average lives in years Prescribed Economic
- -------------------------------------------------------------------------------
<S> <C> <C>
Digital switch 15 12
Digital circuit 11 9
Conduit 50 50
Copper cable 18-25 15-17
Fiber cable 25 20-22
</TABLE>
The discontinuance of SFAS 71 also required CBT to eliminate from its balance
sheet the effects of any other actions of regulators that had been recognized as
assets and liabilities pursuant to SFAS 71, but would not have been recognized
as assets and liabilities by enterprises in general. Prior to the discontinuance
of SFAS 71, CBT had recorded deferred income taxes based upon the cumulative
amount of income tax benefits previously flowed through to ratepayers and
recorded a regulatory asset for the same amount ($10.2 million at December 31,
1996). Also, CBT had recorded a regulatory liability of $22.1 million at
December 31, 1996, a substantial portion of which represents the excess deferred
income taxes on depreciable assets, resulting primarily from the reduction in
the statutory federal income tax rate from 46% to 35%. The discontinuation of
SFAS 71 at CBT had no effect on the accounting for the Company's other
subsidiaries.
- -------------------------------------------------------------------------------
5. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $51.1 $57.3 $36.1
State and local 7.6 4.3 4.8
----- ----- -----
Total current 58.7 61.6 40.9
Deferred (12.8) (4.1) 14.7
Investment tax credits (1.6) (1.2) (1.9)
----- ----- -----
Total $44.3 $56.3 $53.7
----- ----- -----
----- ----- -----
</TABLE>
The components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
Millions of dollars at December 31 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Employee benefits $19.8 $15.7
Unamortized investment tax credit 3.0 3.5
Wireless venture loss 9.6 -
Bad debt 3.4 1.2
Capitalized leases 3.3 3.0
State taxes 2.5 .5
Other 7.3 9.5
----- -----
Total deferred tax asset 48.9 33.4
----- -----
Deferred tax liability:
Depreciation and amortization 22.3 19.3
Other - .3
----- -----
Total deferred tax liability 22.3 19.6
Net deferred tax asset $26.6 $13.8
----- -----
----- -----
</TABLE>
36
<PAGE>
The losses from the wireless venture were primarily responsible for the
significant increase in the Company's deferred tax asset in 1998.
The following is a reconciliation of the statutory Federal income tax rate
with the effective tax rate for each year:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
Rate differential on reversing
temporary differences - (.2) (.7)
State and local income taxes, net
of federal income tax benefit 3.3 .9 2.3
Investment and research tax credits (1.6) (1.5) (1.4)
Other differences (1.6) 1.3 (.1)
----- ----- -----
Effective rate 35.1% 35.5% 35.1%
----- ----- -----
----- ----- -----
</TABLE>
- -------------------------------------------------------------
6. EMPLOYEE BENEFIT PLANS
PENSIONS AND POSTRETIREMENT PLANS
The Company sponsors three noncontributory defined benefit pension plans: one
for eligible management employees, one for nonmanagement employees and one
supplementary, nonqualified, unfunded plan for certain senior managers. The
pension benefit formula for the management plan is a cash balance plan; the
pension benefit is determined by a combination of compensation-based credits
and annual guaranteed interest credits. The nonmanagement pension is also a
cash balance plan; the pension benefit is determined by a combination of
service and job-classification-based credits and annual interest credits.
Benefits for the supplementary plan are based on years of service and
eligible pay. Funding of the management and nonmanagement plans is achieved
through contributions to an irrevocable trust fund. The contributions are
determined using the aggregate cost method.
Effective January 1, 1999, pension assets were divided between the pension
trusts of the Company and Convergys so that each company's plans have the
required assets to meet the minimum requirements set forth in applicable
benefit and tax regulations. The remaining assets in excess of the minimum
requirements were divided between the pension trusts of the Company and
Convergys in accordance with the Employee Benefits Agreement between the two
companies. As of December 31, 1998, subject to final adjustment, the
projected benefit obligations and plan assets to be retained by the Company's
plans, effective January 1, 1999, were $476.5 million and $579.3 million,
respectively. The Company's share of the plans' transition asset, prior
service cost and net gains at December 31, 1998, were $14.4 million, $19.2
million and $105.5 million, respectively. The Company has recorded a prepaid
pension asset of $2.1 million at December 31, 1998.
The Company uses the projected unit credit cost method for determining
pension cost for financial reporting purposes. It accounts for certain
benefits provided under early retirement packages, discussed in Note 12 as a
special termination benefit.
The following information relates to all Company non-contributory
defined-benefit pension plans, including amounts related to Convergys.
Pension cost includes the following components:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ 15.5 $ 8.5 $ 7.2
Interest cost on projected
benefit obligation 35.0 37.6 35.3
Expected return on plan assets (44.5) (42.9) (33.5)
Amortization of transition asset (2.7) (2.9) (3.8)
Amortization of prior service cost 1.7 1.7 1.6
Amortization of net loss .3 .3 1.2
Settlement gains -- (21.0) (27.4)
Curtailment loss 1.4 .3 --
----- ------- ------
Pension cost (income) $ 6.7 $(18.4) $(19.4)
----- ------- ------
----- ------- ------
Pension cost (income) from
continuing operations $ .7 $(20.6) $(21.2)
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $514.9 $ 587.3
Service cost 15.5 8.5
Interest cost 35.0 37.6
Amendments 1.8 3.5
Actuarial loss 32.3 1.1
Settlement - (76.3)
Curtailment .9 (.2)
Benefits paid (44.4) (46.6)
------- ------
Benefit obligation at end of year $556.0 $514.9
------- ------
------- ------
Change in plan assets:
Fair value of plan assets at
beginning of year $700.0 $698.6
Actual return on plan assets 86.5 108.1
Employer contribution 5.4 16.2
Benefits paid (44.4) (46.6)
Settlement - (76.3)
------- ------
Fair value of plan assets at end of year $747.5 $700.0
------- ------
Funded status $ 191.5 $185.1
Unrecognized transition asset (16.5) (18.7)
Unrecognized prior service cost 23.9 23.8
Unrecognized net gain (172.8) (162.7)
------- ------
Net prepaid benefit expense $ 26.1 $27.5
------- ------
------- ------
</TABLE>
The combined net prepaid benefit expense consists of:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Prepaid benefit cost $40.0 $38.7
Accrued benefit liability (22.4) (18.0)
Intangible asset 1.8 2.5
Accumulated other comprehensive income 6.7 4.3
------ -----
Net amount recognized $26.1 $27.5
------ -----
------ -----
</TABLE>
At December 31, 1998, plan assets include $52.8 million in Company and
Convergys common stocks.
37
<PAGE>
The Company used the following rates in determining
the actuarial present value of the projected benefit
obligation and pension cost for the three pension plans:
<TABLE>
<CAPTION>
At December 31 1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Discount rate - projected
benefit obligation 6.50% 7.00% 7.25%
Future compensation growth rate 4.00% 4.00% 4.00%
Expected long-term rate of
return on plan assets 8.25% 8.25% 8.25%
</TABLE>
SAVINGS PLANS
The Company sponsors several defined contribution plans covering substantially
all employees. The Company's contributions to the plans are based on matching a
portion of the employee contributions or on a percentage of employee earnings or
net income for the year. Total Company contributions to the defined contribution
plans were $4.0 million, $3.4 million and $3.2 million for 1998, 1997 and 1996,
respectively. These amounts exclude $6.8 million, $5.8 million and $6.2 million
in 1998, 1997 and 1996, respectively, related to the spin-off of Convergys.
OTHER POSTRETIREMENT BENEFITS
The Company provides health care and group life insurance benefits for retirees
with a service pension. The Company funds its group life insurance benefits
through Retirement Funding Accounts (RFA) and funds health care benefits using
Voluntary Employee Benefit Association (VEBA) trusts. It is the Company's
practice to fund amounts as deemed appropriate from time to time. Contributions
are subject to IRS limitations developed using the aggregate cost method. The
associated plan assets are primarily equity securities and fixed income
investments.
Immediately following the spin-off of Convergys, Convergys established
separate health and life insurance plans for certain of its employees. As of
December 31, 1998, subject to final adjustment, the projected benefit obligation
and plan assets to be retained by the Company's plans effective January 1, 1999,
were $234.8 million and $127.9 million, respectively. The Company's share of the
unrecognized transition obligation, prior service costs and net gains at
December 31, 1998, were estimated to be $68.6 million, $2.6 million and $11.8
million, respectively. The Company recorded an accrued postretirement benefit
liability of $47.5 million at December 31, 1998.
The following information relates to all Company postretirement healthcare
and life insurance benefit plans, including amounts related to Convergys.
The components of postretirement benefit cost are as follows:
<TABLE>
<CAPTION>>
Millions of dollars Year ended December 31 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ 2.5 $ 2.1 $ 1.8
Interest cost on accumulated
postretirement benefit obligation 16.1 16.1 15.6
Expected return on plan assets (9.4) (7.3) (5.7)
Amortization of transition asset/obligation 5.1 5.1 5.1
Amortization of prior service cost .2 .2 .2
Amortization of net gain (.2) (.1) --
----- ----- -----
Postretirement benefit cost $14.3 $16.1 $17.0
----- ----- -----
----- ----- -----
Postretirement benefit cost
from continuing operations $12.3 $14.3 $15.4
</TABLE>
The funded status of the plan is:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $236.7 $227.3
Service cost 2.5 2.1
Interest cost 16.1 16.1
Actuarial loss 14.1 6.2
Benefits paid (17.0) (15.0)
------ ------
Benefit obligation at end of year $252.4 $236.7
------ ------
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year $116.8 $ 95.1
Actual return on plan assets 18.7 23.7
Employer contribution 15.2 13.0
Benefits paid (17.0) (15.0)
------ ------
Fair value of plan assets at end of year $133.7 $116.8
------ ------
------ ------
Funded status $(118.7) $ (119.9)
Unrecognized transition obligation 72.2 77.3
Unrecognized prior service cost 2.9 3.1
Unrecognized net gain (10.3) (15.3)
------ ------
Accrued benefit expense $(53.9) $(54.8)
------ ------
------ ------
</TABLE>
The transition obligation is being amortized over 20 years.
The Company used the following rates to determine the actuarial present
value of the accumulated postretirement benefit obligation (APBO) and of
postretirement benefit costs:
<TABLE>
<CAPTION>
at December 31 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate - APBO 6.50% 7.00% 7.25%
Expected long-term rate of
return for VEBA assets 8.25% 8.25% 8.25%
Expected long-term rate of
return for RFA assets 8.00% 8.00% 8.00%
</TABLE>
The assumed health care cost trend rate used to measure the postretirement
health benefit obligation at December 31, 1998, was 5.4% and is assumed to
decrease gradually to 4.3% by the year 2005. In addition, a one percentage point
change in assumed health care cost trend rates would have the following effect
on the postretirement benefit costs and obligation:
<TABLE>
<CAPTION>
Millions of dollars 1% Increase 1% Decrease
- ---------------------------------------------------------------------------
<S> <C> <C>
1998 service and interest costs $.8 $(.7)
Postretirement benefit obligation
at December 31, 1998 $9.8 $(8.4)
</TABLE>
- ---------------------------------------------------------------------------
7. DEBT OBLIGATIONS
Debt maturing within one year consists of the following:
<TABLE>
<CAPTION>
Millions of dollars at December 31 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Debt:
Commercial paper $185.5 $57.0 $ --
Bank notes -- 71.0 37.1
Current maturities of long-term debt .7 3.5 100.7
------ ------ ------
Total $186.2 $131.5 $137.8
------ ------ ------
------ ------ ------
Weighted average interest rates
on short-term debt 5.6% 5.7% 5.6%
</TABLE>
<PAGE>
Average balances of short-term debt and related interest rates for the last
three years are as follows:
<TABLE>
<CAPTION>
Millions of dollars 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average amounts of short-term debt
outstanding during the year* $ 87.5 $ 64.2 $ 35.6
Weighted average interest rate
during the year** 5.6% 5.7% 5.6%
Maximum amounts of short-term debt
at any month-end during the year $185.5 $129.5 $ 62.1
</TABLE>
* Amounts represent the average daily face amount of notes.
** Weighted average interest rates are computed by dividing the daily average
face amount of notes into the aggregate related interest expense.
In the first quarter of 1998, the Company entered into a $1,250 million debt
facility primarily to fund Convergys' short-term borrowing needs prior to the
spin-off. In the fourth quarter of 1998, the Company retired $650 million of
this facility, resulting in an extraordinary charge of $.4 million, net of a
related tax benefit of $.3 million. At December 31, 1998, the Company had
approximately $415 million of unused bank lines of credit under this facility,
which are available to provide support for commercial paper borrowings. These
lines of credit are available for general corporate purposes. There are no
material compensating balances or commitment fee agreements under these credit
arrangements.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Millions of dollars at December 31 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debentures/Notes
Year of Maturity Interest Rate %
2002 4.375 $ 20.0 $ 20.0
2003 6.240 20.0 20.0
2005 6.330 20.0 20.0
2011 7.375 -- 50.0
2023 7.250 50.0 50.0
2023 7.180-7.270 80.0 80.0
2028 6.300 150.0 --
-------- --------
340.0 240.0
Capital leases and other 28.4 31.5
-------- --------
368.4 271.5
Current maturities (1.6) (3.5)
-------- --------
Total $ 366.8 $ 268.0
-------- --------
-------- --------
</TABLE>
In October 1998, the Company and CBT filed a shelf registration with the
Securities and Exchange Commission (SEC) for the sale of up to $350 million in
debt securities with terms to be determined at the time of sale. The proceeds
will be used to repay debt and for general corporate purposes.
In November, CBT issued $150 million of 6.3% debentures due 2028 and redeemed
$50 million of 7.375% notes due 2011. The early redemption of this debt resulted
in an extraordinary non-cash charge of $.6 million, which is net of a related
tax benefit of $.2 million.
- -------------------------------------------------------------------------------
8. STOCK-BASED COMPENSATION PLANS
During 1998 and in prior years, certain employees of the Company were granted
stock options and other stock-based awards under the Company's Long-Term
Incentive Plan (Company LTIP). Effective December 31, 1998, awards outstanding
under the Company LTIP were modified such that, for each Company option or share
award, the holder also received a Convergys option or share award pursuant to
Convergys' Long-Term Incentive Plan (Convergys LTIP). These Convergys stock
options or share awards have the same vesting provisions, option periods and
other terms and conditions as the original Company options. Under the Company
LTIP, options are granted with exercise prices that are no less than market
value of the stock at the grant date. Generally, stock options have ten-year
terms and vesting terms of three to four years. There were no Company stock
appreciation rights granted or outstanding during the three-year period ended
December 31, 1998.
The Company follows the disclosure-only provisions of SFAS 123, "Accounting
for Stock-Based Compensation," but applies Accounting Principles Board Opinion
25 and related interpretations in accounting for its plans. If the Company had
elected to recognize compensation cost for the issuance of the Company or
Convergys options to employees based on the fair value at the grant dates for
awards consistent with the method prescribed by SFAS 123, net income and
earnings per share would have been impacted as follows:
<TABLE>
<CAPTION>
Millions of dollars Year ended
except per share amounts December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $149.9 $ (16.4) $ 185.0
Pro forma compensation expense,
net of tax benefits (2.1) (5.1) (1.9)
------- ------- -------
Total pro forma $ 147.8 $ (21.5) $ 183.1
------- ------- -------
------- ------- -------
Diluted earnings (loss) per share:
As reported $ 1.08 $ (.12) $ 1.35
Pro forma $ 1.06 $ (.16) $ 1.33
</TABLE>
The pro forma effect on net income (loss) for all periods shown above is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995. Additionally, the pro forma disclosure for 1998
includes incremental compensation expense based on the difference in the fair
value of the replacement options issued at the date of the distribution to
employees who held Company options.
39
<PAGE>
The weighted average fair value on the date of grant for the
Convergys options granted during 1998 was $7.68. The weighted average fair
values at the date of grant for the Company options granted to employees
during 1998, 1997 and 1996 were $8.73, $9.64 and $4.60, respectively. Such
amounts were estimated using the Black-Scholes option-pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
Convergys
1998 1997 1996 1998
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Expected dividend yield 1.4% 1.8% 3.5% -
Expected volatility 25.0% 29.9% 29.2% 44.9%
Risk-free interest rate 5.7% 6.2% 5.5% 5.4%
Expected holding
period -- years 4 4 4 4
</TABLE>
Presented below is a summary of the status of outstanding Company stock
options issued to employees, the issuance of Convergys options to Company
option holders at the date of distribution, and related transactions:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Millions of dollars Shares Price
- ---------------------------------------------------------------
<S> <C> <C>
Company options held by
employees at January 1, 1996 3,016 $ 9.63
Granted 531 $20.20
Exercised (760) $9.45
Forfeited/expired (269) $13.76
-----
Company options held by
employees at December 31, 1996 2,518 $13.14
-----
Granted 357 $30.01
Exercised (196) $10.08
Forfeited/expired (15) $23.90
-----
Company options held by
employees at December 31, 1997 2,664 $17.16
-----
Granted 374 $31.25
Exercised (124) $12.02
Forfeited/expired (80) $28.26
-----
Company options held by
employees at December 31, 1998 2,834 $20.33
-----
Total Company options outstanding
at December 31, 1998,
(including options held by
Convergys employees) 7,284 $20.33
Total Company options outstanding
after re-pricing for Convergys
spin-off at December 31, 1998,
(including options held by
Convergys employees) 7,284 $8.73
</TABLE>
The following table summarizes the status of Company stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Options
Shares in thousands Outstanding Exercisable
- --------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life in Years Price Shares Price
- --------------- --------------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
$3.360 to $4.999 2,674 4.34 $4.02 2,675 $4.01
$5.228 to $12.887 1,957 7.24 $8.91 819 $7.75
$12.981 to $16.125 2,653 8.62 $13.27 356 $13.53
----- -----
Total 7,284 6.69 $8.73 3,850 $5.69
----- -----
----- -----
</TABLE>
Restricted stock awards during 1998, 1997 and 1996 were 320,000 shares,
126,000 shares and 100,000 shares, respectively. The weighted average market
value of the shares, on a pre-spin-off basis, on the grant date were $32.59,
$29.48 and $20.21, respectively. Restricted stock awards generally vest
within one to five years.
On January 4, 1999, the Company announced stock option grants to each of
its approximately 3,500 employees. According to the terms of this program,
stock option grant recipients remaining with the Company until January 4,
2002, can exercise their options to purchase up to 500 common shares each.
The exercise price for these options is $16.75 per share, the average of the
opening and closing prices for the Company's common stock on the date of the
grant. This plan includes a provision for option grants to future employees,
in smaller amounts and at an exercise price based on the month of hire. The
terms of the program allow for cashless exercises. Grant recipients must
exercise their options prior to January 4, 2009. The Company does not expect
a significant amount of dilution as a result of this grant.
- -------------------------------------------------------------------------------
9. BUSINESS SEGMENT INFORMATION
In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes a new framework for
segment reporting and requires that externally reported segments be aligned
in the same manner as is viewed by a company's "chief operating decision
maker." The chief operating decision maker, or decision-making group, is the
person (or persons) who decides on resource allocation among a company's
operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision-making
group.
The Company evaluates performance based on several factors, of which the
primary financial measure is business segment operating income. The Company
generally accounts for inter-segment sales and transfers as if the sales or
transfers were to third parties, i.e., at current market prices. The
accounting policies of the business segments are the same as those described
in Accounting Policies (see Note 1). Certain corporate
40
<PAGE>
administrative expenses have been allocated to segments based upon the nature
of the expense.
The Company is organized on the basis of products and services. The Company's
segments are strategic business units that offer distinct products and services,
organized around a telecommunications core, and are aligned with specific
subsidiaries of the Company.
The Local Communications Services segment provides local, long distance, data
networking and transport, Internet and payphone services, as well as sales of
communications equipment, in southwestern Ohio, northern Kentucky, and
southeastern Indiana. Services are marketed and sold to both residential and
business customers, and are delivered via the Company's Cincinnati Bell
Telephone subsidiary.
The Directory Services segment sells directory advertising and information
services primarily to business customers in the aforementioned area. This
segment's identifiable product is the yellow pages directory delivered via the
Company's Cincinnati Bell Directory subsidiary.
The Other Communications Services segment (i) resells long distance and
Internet access services and provides data services and products to small- and
medium-sized business customers mainly in a five-state Midwestern area and (ii)
resells telecommunications and computer equipment in the secondary market. These
services are provided through the Company's Cincinnati Bell Long Distance and
Cincinnati Bell Supply subsidiaries, respectively.
The Company anticipates that its new digital wireless PCS business,
Cincinnati Bell Wireless, will be reported as an operating segment in 1999. In
1998, total assets of $212.1 million and capital additions of $164.2 million,
including acquisitions, are included in the segment financial information under
the caption "Other Communications Services."
The Company has formed two new subsidiaries. ZoomTown.com Inc., formed in the
first quarter of 1999, provides FUSE Internet access, e-commerce, and
transactional services. EnterpriseWise IT Consulting LLC (formerly KSM
Consulting and the Network Solutions Group) formed in the third quarter of 1998,
provides network integration and consulting services. Operating results from
these services have been included in the Local Communications Services segment.
The Company's segment financial information is as follows:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Local Communications Services $ 718.4 $ 670.1 $ 650.8
Directory Services 72.9 72.9 72.6
Other Communications Services 106.1 101.7 81.8
Intersegment (12.3) (10.2) (25.4)
---------- ---------- ----------
Total $ 885.1 $ 834.5 $ 779.8
---------- ---------- ----------
---------- ---------- ----------
Intersegment Revenues
Local Communications Services $ 6.8 $ 6.0 $ 22.3
Directory Services .4 -- --
Other Communications Services 5.1 4.2 3.1
---------- ---------- ----------
Total $ 12.3 $ 10.2 $ 25.4
---------- ---------- ----------
---------- ---------- ----------
Operating Income
Local Communications Services $ 141.7 $ 146.8 $ 155.7
Directory Services 25.4 24.9 21.0
Other Communications Services 10.5 11.5 10.9
Corporate and Eliminations 2.4 8.2 (7.0)
---------- ---------- ----------
Total $ 180.0 $ 191.4 $ 180.6
---------- ---------- ----------
---------- ---------- ----------
Assets
Local Communications Services $ 749.5 $ 706.4 $ 1,005.5
Directory Services 28.4 30.6 26.7
Other Communications Services 247.3 32.6 24.6
Corporate and Eliminations 15.8 74.7 (5.1)
---------- ---------- ----------
Total $ 1,041.0 $ 844.3 $ 1,051.7
---------- ---------- ----------
---------- ---------- ----------
Capital Additions (including acquisitions)
Local Communications Services $ 140.2 $ 141.1 $ 101.4
Directory Services -- -- .2
Other Communications Services 168.2 7.1 4.5
Corporate .8 16.1 .2
---------- ---------- ----------
Total $ 309.2 $ 164.3 $ 106.3
---------- ---------- ----------
---------- ---------- ----------
Depreciation and Amortization
Local Communications Services $ 106.2 $ 120.6 $ 116.6
Directory Services .1 -- --
Other Communications Services 3.7 3.3 4.0
Corporate 1.1 .4 .4
---------- ---------- ----------
Total $ 111.1 $ 124.3 $ 121.0
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company derives significant revenues from AT&T and its affiliates
primarily by providing network access services. Revenues from AT&T were 9%, 11%
and 12% of the Company's consolidated revenues for 1998, 1997, and 1996,
respectively.
- ----------------------------------------------------------------------------
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate, where practicable,
the fair value of each class of financial instruments:
Cash and cash equivalents, and short-term debt -- the carrying amount
approximates fair value because of the short-term maturity of these instruments.
Long-term debt -- the fair value is estimated based on year-end closing
market prices of the Company's debt and of similar liabilities. The carrying
amounts at December 31, 1998, and
41
<PAGE>
1997 were $340.0 million and $240.0 million, respectively. The estimated fair
values at December 31, 1998 and 1997, were $355.1 million and $250.8 million,
respectively.
Interest rate risk management -- the Company is exposed to the impact of
interest rate changes. The Company's objective is to manage the impact of
interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. The Company continuously monitors the ratio of variable to
fixed interest rate debt to maximize its total return. As of December 31,
1998, approximately 65% of debt was long-term, fixed-rate debt and
approximately 35% was commercial paper and bank loans with variable interest
rates and original maturities of less than one year.
- ------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain facilities and equipment used in its operations.
Total rental expenses were approximately $11.7 million, $10.5 million and
$9.3 million in 1998, 1997 and 1996, respectively.
At December 31, 1998, the total minimum annual rental commitments under
noncancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
MILLIONS OF DOLLARS LEASES LEASES
<S> <C> <C>
- ------------------------------------------------------------------------------
1999 $13.6 $ 4.6
2000 12.9 4.6
2001 11.6 4.6
2002 9.8 4.6
2003 6.0 4.7
Thereafter 27.7 40.9
----- -----
Total $81.6 64.0
-----
-----
Amount representing interest 35.6
-----
Present value of net minimum lease payments 28.4
-----
-----
</TABLE>
The effects of a new operating lease for equipment associated with the
Company's new high-bandwidth service offering are included in "total minimum
annual rental commitments" above. This lease takes effect on January 1, 1999,
and extends through 2002.
CONTINGENCIES
In the normal course of business, the Company is subject to various
regulatory proceedings, lawsuits, claims, and other matters. Such matters are
subject to many uncertainties, and outcomes are not predictable with
assurance. However, the Company believes that the resolution of such matters
for amounts above those reflected in the consolidated financial statements
would not likely have a materially adverse effect on the Company's financial
condition.
At December 31, 1998, the Company had approximately 3,500 employees. CBT
had approximately 2,000 employees covered under collective bargaining
agreements with the Communications Workers of America (CWA), which is
affiliated with the AFL-CIO. This agreement expires in May 1999. Negotiations
with representatives of the CWA are planned to begin in March 1999, and the
outcome cannot be determined at this time.
- ------------------------------------------------------------------------------
12. SPECIAL CHARGES (CREDITS)
In 1995, the Company initiated a restructuring plan in response to a need for
fewer employees. A restructuring liability was established to provide for the
voluntary and involuntary separation of employees. Provisions were made for
early retirements and more than 1,300 employees accepted the early retirement
offer. The Company recorded charges of $131.6 million, net of pension
settlement gains, to reflect the cost of this plan. The charges included
$58.0 million for pension enhancements, $54.0 million of curtailment losses
for postretirement health care costs, $7.0 million for lease terminations and
$4.0 million for vacation buyouts and severance pay. The remainder was for
other costs. These charges reduced 1995 net income by approximately $84.0
million.
The following table illustrates activity in this reserve since 1996:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Restructure liability
Remaining balance, beginning of year $5.3 $8.7 $15.2
Vacation/severance .9 2.6 2.0
Real estate and lease 1.7 .6 1.2
Reversal of unneeded amounts 1.1 -- 2.3
Other -- .2 1.0
Transfer to Convergys at spin-off 1.1 -- --
---- ---- ----
Remaining balance, end of year $.5 $5.3 $8.7
---- ---- ----
---- ---- ----
</TABLE>
Management believes that the remaining balance of $.5 million at December
31, 1998, is adequate to complete the restructuring plan.
Since the establishment of the reserve, certain gains have been realized
that have been reflected in income. These appear in the Consolidated
Statements of Income and Comprehensive Income under the caption, "Special
charges (credits)." Associated amounts are as follows:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Special charges (credits)
Non-cash settlement gains $ -- $(21.0) $(27.4)
Reversal of unneeded amounts (1.1) -- (2.3)
---- ------ ------
Total $(1.1) $(21.0) $(29.7)
---- ------ ------
---- ------ ------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
13. CINCINNATI BELL TELEPHONE COMPANY
The following summarized financial information is for the Company's
consolidated wholly-owned subsidiary, Cincinnati Bell Telephone Company:
Income Statement
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 718.4 $ 670.1 $650.8
Costs and expenses $ 576.7 $ 523.3 $495.1
Income before extraordinary item $ 81.7 $ 85.2 $ 92.6
Net income (loss) $ 81.1 $(124.8) $ 92.6
</TABLE>
Balance Sheet
<TABLE>
<CAPTION>
Millions of dollars at December 31 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Current assets $151.6 $142.5
Telephone plant - net 580.8 550.6
Other noncurrent assets 17.1 13.3
------ ------
Total assets $749.5 $706.4
------ ------
------ ------
Current liabilities $144.2 $214.0
Noncurrent liabilities 38.7 33.8
Long-term debt 317.1 218.4
Shareowner's equity 249.5 240.2
------ ------
Total liabilities and shareowner's equity $749.5 $706.4
------ ------
------ ------
</TABLE>
Results for 1997 include an extraordinary, non-cash charge of $339.2 from the
discontinuance of SFAS 71. The charge reduced net income $210.0 million (see
Note 4).
Results for 1997 and 1996 include $21.0 million and $28.5 million,
respectively, for pension settlement gains from lump sum distributions to
employees under the 1995 business restructuring. The settlement gains increased
net income $13.4 million and $18.2 million, respectively.
Results for 1996 also include a reversal of $2.5 million of accrued interest
expense related to overearnings liabilities which increased net income by $1.6
million.
- -------------------------------------------------------------------------------
14. ADDITIONAL FINANCIAL INFORMATION
Income Statement
<TABLE>
Millions of dollars Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense:
Long-term debt $20.8 $23.2 $23.7
Short-term debt 4.9 6.1 5.7
Other (1.5) .8 (1.5)
----- ----- -----
Total $24.2 $ 30.1 $ 27.9
----- ----- -----
----- ----- -----
</TABLE>
Balance Sheet
<TABLE>
<CAPTION>
Millions of dollars at December 31 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment, net:
Telephone plant $ 1,739.1 $ 1,633.7
Accumulated depreciation (1,158.3) (1,083.1)
--------- ---------
Net telephone plant 580.8 550.6
Other property and equipment 134.0 37.1
Accumulated depreciation (16.6) (14.5)
--------- ---------
Total $ 698.2 $ 573.2
--------- ---------
--------- ---------
Goodwill and other Intangibles:
Goodwill and other intangibles - gross $ 108.9 $ 23.0
Accumulated amortization (5.6) (5.6)
--------- ---------
Total $ 103.3 $ 17.4
--------- ---------
--------- ---------
Payables and other current liabilities:
Accounts payable $ 57.9 $ 75.4
Accrued payroll and benefits 33.9 33.0
Accrued taxes 40.6 35.1
Advance billing and customers' deposits 26.8 25.9
Other current liabilities 59.9 17.4
--------- ---------
Total $ 219.1 $ 186.8
--------- ---------
--------- ---------
Accumulated other comprehensive income (loss):
Currency translation adjustment $ -- $ (3.9)
Additional minimum pension liability (6.7) (4.2)
--------- ---------
Total $ (6.7) $ (8.1)
--------- ---------
--------- ---------
</TABLE>
Statement of Cash Flows
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for:
Interest (net of amount capitalized) $26.8 $29.6 $31.3
Income taxes (net of refunds) $81.4 $82.8 $55.6
</TABLE>
- -------------------------------------------------------------------------------
15. COMMON AND PREFERRED SHARES
COMMON SHARES
Par value of the common shares is $1 per share. At December 31, 1998 and 1997,
common shares outstanding were 136.4 million and 136.1 million, respectively.
COMMON SHARE PURCHASE RIGHTS PLAN
In the first quarter of 1997, the Company's Board of Directors adopted a Share
Purchase Rights Plan by granting a dividend of one preferred share purchase
right for each outstanding common share to shareowners of record at the close
of business on May 2, 1997. Under certain conditions, each right entitles the
holder to purchase one-hundredth of a Series A Preferred Share. The rights
cannot be exercised or transferred apart from
43
<PAGE>
common shares, unless a person or group acquires 15% or more of the Company's
outstanding common shares. The rights will expire May 2, 2007, if they have
not been redeemed.
PREFERRED SHARES
The Company is authorized to issue up to 4 million voting preferred shares and 1
million nonvoting preferred shares.
EARNINGS PER SHARE
Basic earnings per share is based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflects the
potential dilution that would occur if common stock equivalents were exercised.
The following table is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for income from continuing
operations, before extraordinary items, for the following periods:
<TABLE>
<CAPTION>
Millions of dollars
except per share
amounts Year ended December 31 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income from continuing operations $ 81.8 $102.3 $ 99.5
Weighted average common shares
outstanding (in millions) 136.0 135.2 133.9
Earnings per share from
continuing operations $.60 $.76 $.74
Fully diluted earnings per share:
Income from continuing operations $ 81.8 $102.3 $ 99.5
Effect of dilutive securities:
Weighted average common shares
outstanding (in millions) 136.0 135.2 133.9
Stock options (in millions) 1.7 1.9 2.7
Stock-based compensation
arrangements (in millions) .5 .6 .6
------ ------ ------
Weighted average common shares
outstanding, fully diluted
(in millions) 138.2 137.7 137.2
Fully diluted earnings per share
from continuing operations $ .59 $ .74 $ .73
</TABLE>
Options to purchase 1,360,077 weighted average shares of common stock at an
average of $30.19 per share were outstanding during the year ended December 31,
1997, but were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares for the year.
- -------------------------------------------------------------------------------
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
All adjustments necessary for a fair statement of income for each period have
been included.
<TABLE>
<CAPTION>
Millions of dollars
except per share amounts 1st 2nd 3rd 4th Total
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
REVENUES $216.5 $219.5 $222.6 $ 226.5 $ 885.1
OPERATING INCOME $ 41.2 $ 39.5 $ 47.1 $ 52.2 $ 180.0
INCOME FROM:
CONTINUING
OPERATIONS $ 22.5 $ 16.1 $ 21.0 $ 22.2 $ 81.8
DISCONTINUED
OPERATIONS,
NET OF TAXES $ .3 $ 26.4 $ 27.4 $ 15.0 $ 69.1
EXTRAORDINARY ITEM $ -- $ -- $ -- $ (1.0) $ (1.0)
NET INCOME $ 22.8 $ 42.5 $ 48.4 $ 36.2 $ 149.9
BASIC EARNINGS
PER SHARE $ .17 $ .31 $ .36 $ .26 $ 1.10
DILUTED EARNINGS
PER SHARE $ .16 $ .31 $ .35 $ .26 $ 1.08
1997
Revenues $199.9 $207.1 $211.0 $ 216.5 $ 834.5
Operating Income $ 54.5 $ 47.5 $ 45.5 $ 43.9 $ 191.4
Income from:
Continuing
Operations $ 29.9 $ 25.3 $ 24.6 $ 22.5 $ 102.3
Discontinued
Operations,
Net of Taxes $ 27.3 $ 28.9 $ 27.2 $ 7.9 $ 91.3
Extraordinary Item $ -- $ -- $ -- $(210.0) $(210.0)
Net Income (Loss) $ 57.2 $ 54.2 $ 51.8 $(179.6) $ (16.4)
Basic Earnings
(Loss) Per Share $ .42 $ .40 $ .38 $ (1.32) $ (.12)
Diluted Earnings
(Loss) Per Share $ .41 $ .39 $ .38 $ (1.30) $ (.12)
</TABLE>
In the fourth quarter of 1998, the extraordinary items were for retirement of
long-term debt and a portion of a credit facility, which, net of tax, reduced
net income by $1.0 million or $.01 per share.
In the fourth quarter of 1997, the extraordinary item, net of tax, was the
result of CBT's discontinuance of SFAS 71, which reduced net income $210.0
million, or $1.52 per share.
In the first and second quarters of 1997, pension
settlement gains from the business restructuring increased net income $9.6
million, or $.07 per share and $3.8 million, or $.03 per share, respectively.
44
<PAGE>
Exhibit 21
to
Form 10-K for 1998
Subsidiaries of the Registrant
(as of March 31, 1999)
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation
- ---------- -------------
<S> <C>
Cincinnati Bell Telephone Company Ohio
Cincinnati Bell Telecommunications Services Inc. Ohio
Cincinnati Bell Network Solutions Inc. Ohio
Cincinnati Bell Software Solutions LLC Indiana
Cincinnati Bell Long Distance Inc. Ohio
Cincinnati Bell Supply Company Ohio
Cincinnati Bell Directory Inc. Ohio
Cincinnati Bell Wireless Company Ohio
Cincinnati Bell Wireless LLC Ohio
</TABLE>
<PAGE>
EXHIBIT 23
TO
FORM 10-K FOR 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Cincinnati Bell Inc. on Form S-8 (File No. 33-29332), Form S-8 (File No.
33-60209), Form S-8 (File No. 33-1462), Form S-8 (File No. 33-1487), Form S-8
(File No. 33-29331), Form S-8 (File No. 33-36381), Form S-8 (File No.
33-36380), Form S-14 (File No. 2-82253), Form S-8 (Form No. 333-38743), Form
S-8 (File No. 333-28381), Form S-8 (File No. 333-38763), Form S-8 (File No.
333-28385), and Form S-3 (File No. 333-65581) of our report dated March 12,
1999 on our audits of the consolidated financial statements and financial
statement schedules of Cincinnati Bell Inc. as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998, which
report is incorporated by reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 30, 1999
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ Richard G. Ellenberger
---------------------------------------
Richard G. Ellenberger
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me Richard G.
Ellenberger, to me known and known to me to be the person described in and
who executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ James D. Kiggen
---------------------------------------
James D. Kiggen
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me James D.
Kiggen, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ David B. Sharrock
---------------------------------------
David B. Sharrock
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me David B.
Sharrock, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ Mary D. Nelson
---------------------------------------
Mary D. Nelson
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me Mary D.
Nelson, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ William A. Friedlander
---------------------------------------
William A. Friedlander
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me William A.
Friedlander, to me known and known to me to be the person described in and
who executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ John T. LaMacchia
---------------------------------------
John T. LaMacchia
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me John T.
LaMacchia, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ Phillip R. Cox
---------------------------------------
Phillip R. Cox
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me Phillip R.
Cox, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ Robert P. Hummel, M.D.
---------------------------------------
Robert P. Hummel, M.D.
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me Robert P.
Hummel, M.D., to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc., an Ohio corporation (hereinafter referred
to as the "Company"), proposes shortly to file with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, an annual report
on Form 10-K for the year ended December 31, 1998; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints, Richard
G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and
authority to do and perform all and every act and thing whatsoever requisite
and necessary to be done in and about the premises as fully to all intents
and purposes as he might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 1st
day of March, 1999.
/s/ Karen M. Houget
---------------------------------------
Karen M. Houget
Director
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
On the 1st day of March, 1999, personally appeared before me Karen M.
Houget, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 1st day of March, 1999.
/s/ Susan D. McClarnon
---------------------------------------
Notary Public
SUSAN D. McCLARNON
Notary Public, State of Ohio
My Commission Expires March 16, 2003
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