<PAGE>COVER
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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Form 10-K
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Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
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Commission File Number 1-8612
Ameritech Corporation
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A Delaware Corporation
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30 S. Wacker Drive
Chicago, Illinois 60606
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I.R.S. Employer Identification
Number 36-3251481
Telephone number (800) 257-0902
Securities registered under Section 12(b) of the Act: Common Stock (Par
Value $1.00 Per Share)
Preference Stock Purchase Rights
Ameritech's Common Stock is registered on the New York, Chicago, Boston,
Pacific and Philadelphia stock exchanges. The Preference Stock Purchase
Rights attached to the shares of Common Stock are registered on the New
York Stock Exchange.
We have no securities registered under Section 12(g) of the Act. We are
subject to certain filing requirements under Sections 13 and 15 (d) of the
Securities Exchange Act of 1934 and have filed all the required reports
during the preceding 12 months.
Disclosure of delinquent filers under Item 405 of Regulation S-K is not
contained in this report and will not be contained in the 1998 annual
meeting proxy statement, which is incorporated by reference in this report.
Based on the average sales price, the aggregate market value of the voting
stock held by nonaffiliates of Ameritech Corporation on February 27, 1998
was approximately $45,541,000,000. As of that date, 1,100,694,827 common
shares and preference stock purchase rights were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Ameritech's annual report to shareowners for the year ended
December 31, 1997
Portions of Ameritech's 1998 annual meeting proxy statement dated February
27, 1998
These documents are available on Ameritech's Internet site at
www.ameritech.com/investor
<PAGE>
TABLE OF CONTENTS
PART I
Item Page
---- ----
1. Business......................................... 1
2. Properties....................................... 12
3. Legal Proceedings................................ 12
4. Submission of Matters to a Vote of Security
Holders ........................................ 14
Executive Officers............................... 14
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters............................. 15
6. Selected Financial and Operating Data............ 15
7. Management's Discussion and Analysis of
Results of Operations and
Financial Condition .......................... 15
8. Financial Statements and Supplementary Data...... 15
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 16
PART III
10. Directors and Executive Officers
of the Registrant................................ 16
11. Executive Compensation........................... 16
12. Security Ownership of Certain Beneficial Owners
and Management.................................. 16
13. Certain Relationships and Related Transactions... 16
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K......................... 16
Glossary.......................................... 22
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<PAGE>1
When reading this annual report, you should be familiar with the
terminology unique to our business. We have defined a number of
terms in the Glossary on page 22.
PART I
Item 1. Business.
General
Ameritech Corporation is a holding company incorporated in 1983
under the laws of the State of Delaware. We provide a wide range
of communications services, including local and long distance
telephone, cellular, paging, security, cable TV, Internet access
and directory publishing services. We operate our business within
the framework of customer-specific business units delivering
specialized services to various categories of customers, each with
unique requirements. Our business units provide a complete menu of
communication options to consumers and businesses as well as other
companies in the communications industry. The products and services
of all of our companies are marketed, under the "Ameritech" brand
identity, in all 50 states and 40 countries.
Our executive offices are located at 30 South Wacker Drive,
Chicago, Illinois 60606 (telephone number 1-800-257-0902). Our
Internet site (www.ameritech.com) offers extensive information on
our company and industry.
The Telecommunications Act
The Telecommunications Act of 1996 (the 1996 Act), signed into
law in February 1996, was intended to stimulate competition in the
market for communications services and to remove barriers that
prevented the telecommunications, cable TV and broadcast industries
from entering each others' businesses. The 1996 Act addresses
various aspects of competition within, and regulation of, the
communications industry. It provides that all conduct or
activities subject to the consent decree issued at the time of AT&T
Corp.'s court-approved divestiture in 1984 of certain assets to
seven regional holding companies (RHCs), including Ameritech, are
now subject to the provisions of the 1996 Act. Among other things,
the law defines the conditions under which Ameritech and the other
RHCs may offer long distance service and provides certain
mechanisms intended to facilitate local exchange competition. The
1996 Act gives the Federal Communications Commission (FCC)
authority to determine when incumbent local exchange carriers have
satisfied the statutory criteria required to provide long distance
service in an in-region state, including meeting a 14-point
competitive checklist. For the RHCs, immediate relief under the
law included permission to provide in and out-of-region cellular
long distance, out-of-region landline long distance and certain
incidental long distance services.
Since passage of the 1996 Act, there have been numerous
challenges to the rules, discussed further in the section on
Regulatory Environment - Federal. It is difficult to determine how
the rules will evolve and exactly what effect competition fostered
by the 1996 Act will have on our business over time.
Ameritech's Full-Service Communications Business
Landline Communications Services
Our five landline communications subsidiaries (Illinois Bell
Telephone Company; Indiana Bell Telephone Company, Incorporated;
Michigan Bell Telephone Company; The Ohio Bell Telephone Company
and Wisconsin Bell, Inc.) are responsible for providing telephone
and other communications services, subject to regulation by the FCC
and the state regulatory commissions, in their respective service
areas. In this report, we refer to these companies collectively as
the "Ameritech landline communications subsidiaries" and
individually as Ameritech Illinois, Ameritech Indiana, etc.
The Ameritech landline communications subsidiaries furnish a
wide variety of advanced communications services, including local
exchange and toll service and network access, and communications
products to more than 12 million business, residential and
communications company customers in an operating area comprised of
37 Local Access and Transport Areas (LATAs) in our region. These
LATAs are generally centered on a city or other identifiable
community of interest. Each LATA marks the boundary within which
each company may provide telephone service. The Ameritech landline
communications subsidiaries provide two basic types of
communications services:
<PAGE>2
- - They transport communications traffic between a customer's
equipment and the telephone exchange offices located within the
same LATA (intraLATA service). These services include local
exchange, private line and intraLATA toll services (including 800
and special services for data, radio and video transport).
- - They provide exchange access service, which links a subscriber's
telephone or other equipment to the transmission facilities of
long distance carriers, which in turn provide communications
service between LATAs (interLATA, or long distance, service).
Ameritech also provides directory publishing, public telephone
and local and toll operator services (including collect calls,
third number billing, person-to-person and calling card calls). A
national directory assistance service is offered in Chicago,
Detroit and Grand Rapids, with plans to expand across the region.
We offer call management services (including voice mail, Caller ID,
call waiting and call forwarding), as well as digital network
services (such as online database access and fax messaging,
document sharing functions and video conferencing for desktop
computers). We provide billing and collection services for several
companies, including billing for long distance services offered by
certain long distance carriers. We currently offer a single
monthly statement for a variety of Ameritech services. The single
bill option and around-the-clock customer service is available in
all five states in our core market area for all residential, small
business, Internet, cellular, cable TV and home office customers.
We market our local phone services on a wholesale basis to
certain other companies that resell our network services. At year
end, we served more than 3,000 network and information providers,
including cellular, personal communications services (PCS) and
competing local service companies, who buy our services to use in
their product offerings.
We added 840,000 customer access lines in 1997, including
133,000 residential and business lines we acquired in November 1997
with the purchase of the telecommunications assets of Sprint
Corporation's local exchange business in suburban Chicago. We now
serve more than 20.5 million lines in our upper Midwest market
region, a 4.3% increase over lines served in 1996 (3.6% without the
lines acquired from Sprint). Customer access line growth was
fueled by second line additions and increased business usage.
Demand for speed and access drove record growth in our data
services. Sales of ISDN lines, which carry voice, data and video
simultaneously at many times the capacity of conventional phone
lines, were up more than 71% and sales of high speed circuits
increased 20%. Revenues from call management services grew by 20%
as customers sought greater convenience and control over their
telephone communications. At the end of 1997, we led our industry
peers in productivity with 401 customer lines per phone company
employee, improving in this measure of operational efficiency with
a 50% increase over the past five years.
Now that we have approval from the Missouri public service
commission, we plan to offer local and long distance phone service
to residential customers in the St. Louis metropolitan area in
early 1998. This move expands our communications offerings in
Missouri and marks the first time we will offer local phone service
to customers beyond our traditional operating territory. Our
offerings in the St. Louis market will include local phone, long
distance, cellular, paging and wireless data services. Customers
will have the option of a consolidated bill.
Cellular and Other Wireless Services
Ameritech provides wireless transport of voice, data and video,
plus certain call management services, to about 3.2 million
cellular customers in Illinois, Indiana, Hawaii, Michigan,
Missouri, Ohio and Wisconsin. In 1997, we added approximately
665,000 cellular customers to our base, a 27% increase over the
prior year. We offer long distance service to our cellular
customers in Illinois, Indiana, Michigan, Ohio, Wisconsin and
Missouri and we are currently serving more than 1.7 million
customers with cellular long distance service.
In 1997, we increased our cellular retail capacities by
acquiring twenty-four stores from Triangle Stereo Inc., which
doubles the number of Ameritech-owned retail stores in the Chicago
metropolitan and northwest Indiana area. Commercial use of
ClearPathSM, our new digital cellular service, debuted in the
Chicago area and in Detroit in September 1997. ClearPath offers
outstanding call clarity, longer battery life, enhanced privacy,
nationwide roaming, fraud protection and advanced calling features,
such as Caller ID and text and numeric messaging. We plan to
expand the new digital service to Milwaukee, Cleveland, Columbus,
Cincinnati, Indianapolis and St. Louis in 1998.
We currently provide local and nationwide paging services to
customers using more than 1.5 million paging units in Illinois,
Indiana, Michigan, Minnesota, Missouri, Ohio and Wisconsin, a 31%
increase over 1996. We began offering 2-way paging to customers
regionwide in 1997. The return paging channel enables users of two-
way pagers to acknowledge a page and to provide a detailed
<PAGE>3
response. We offer features such as fax notification, voice mail
and alphanumeric paging. In 1995, Ameritech acquired broadband PCS
licenses in the Cleveland and Indianapolis major trading areas and
we have begun system construction in both of these markets. These
licenses cover almost 8 million potential customers and provide an
effective complement to our existing cellular and landline
networks. We plan to provide ClearPath digital PCS service in
these markets beginning in mid-1998.
Directories and Electronic Advertising Services
Ameritech provides directory and electronic advertising to
local, regional and national businesses throughout our region. We
publish Ameritech PagesPlusr white and yellow pages directories in
Illinois, Indiana, Michigan, Ohio and Wisconsin with a total
distribution of over 40 million directories.
In order to complement our existing product lines and leverage
our present content investments, we offer online Yellow Pages. The
service links Internet users to millions of businesses in the
United States and thousands of other World Wide Web information and
shopping sources. The Ameritech Internet Yellow PagesSM, located
at yp.ameritech.com, provides extensive national, regional and
local information in the familiar yellow pages directory format.
In addition to offering simple listings, we develop custom web
sites to help advertisers meet their promotional and business
needs.
Capital Services
Ameritech provides a wide range of competitive leasing and
equipment financing solutions for businesses ranging from sole
proprietorships to multi-million dollar corporations and government
units. Serving 6,700 communications and information systems
customers nationwide, we have financed more than $3.2 billion worth
of equipment and services since 1984.
Cable TV
We currently offer enhanced cable TV service in 40 communities
in the Chicago, Cleveland, Columbus and Detroit metropolitan areas.
We have signed cable TV franchise agreements giving us the ability
to compete with incumbent providers in 65 Midwestern cities with
2.5 million people residing in more than 1 million households.
Ameritech, The Walt Disney Company, BellSouth Corporation, GTE
Corporation and Southern New England Telecommunications Corporation
are partners in a venture called Americast, designed to develop,
acquire, package and market traditional and interactive video
programming to millions of consumers nationwide. Customers who
choose americastr service receive 90 channels of video programming,
including local broadcast, expanded basic and premium channels, and
a new in-home movie service called americast express cinemaT,
offering pay-per-view movies.
Security Services
SecurityLink from Ameritech offers a full array of security
products and services for homes and businesses, including burglar
and fire alarm systems, personal emergency response service, closed
circuit TV and electronic access control. SecurityLink is North
America's second largest security monitoring provider in a $15
billion market, currently serving more than 1 million residential
and business customers. We now have a presence in 92 of the United
States' 100 largest metropolitan areas, as well as in Canada where
we are the largest security monitoring provider. In October 1997,
SecurityLink purchased the security monitoring assets of Republic
Security Company Holdings, a subsidiary of Florida-based Republic
Industries, Inc. In the same month, we also acquired the security
monitoring assets of Rollins Protective Services, a subsidiary of
Rollins, Inc. headquartered in Georgia. Earlier in 1997,
SecurityLink from Ameritech purchased assets of Masada Security,
Inc. based in Alabama, Norman Security Systems, Inc. based in
Illinois, Central Controls Alarm Corp. based in Wisconsin and Cross-
Global Alarms based in Ontario, Canada.
Long Distance Services
InterLATA long distance is a $9 billion market in the Ameritech
region. Under the 1996 Act, Ameritech and the other RHCs must open
their respective local markets to competition by implementing a 14-
point checklist before they can offer interLATA long distance
service to their local landline customers. In considering an
application to offer interLATA long distance services, the FCC must
<PAGE>4
determine whether or not an RHC has satisfied the statutory
criteria, including the competitive checklist, compliance with
structural and accounting rules and whether its entry into long
distance is consistent with the public interest. An RHC is
restricted from providing interLATA long distance service until the
FCC determines that the statutory criteria have been met. The FCC
will give substantial weight to Department of Justice
recommendations in reviewing RHC applications to enter the market.
In August 1997, the FCC denied Ameritech's application to
provide long distance service in Michigan, stating in its order
that we failed to meet three of the 14 requirements included in the
competitive checklist. The order set forth various actions that we
must take in order to demonstrate compliance with the checklist.
In March 1998, we sought permission from the FCC to offer long
distance data services in our region under a portion of the 1996
Act that allows the FCC to grant regulatory relief to carriers
seeking to deploy advanced data networks. We are working with the
courts, the FCC and the state commissions toward full long distance
entry consistent with the 1996 Act and under terms and conditions
that make economic sense for Ameritech.
Ameritech Communications, Inc., a subsidiary of Ameritech, is
certified to provide long distance service in all states outside
our five-state region. With approval from the Missouri public
service commission, we plan to offer local and long distance phone
service to residential customers in the St. Louis metropolitan area
in early 1998.
With passage of the 1996 Act, Ameritech and the other RHCs were
allowed to provide long distance service to their cellular
customers, regardless of location. Currently, more than 1.7
million of our cellular customers use Ameritech's cellular long
distance service.
In 1997, we expanded our long distance capabilities through our
new Ameritech Global Calling Service, which offers wholesale
international switching and transport capabilities to the hundreds
of long distance companies, wireless communications companies,
independent phone companies and emerging local and Internet service
providers that do not have their own international facilities.
Ameritech Global Calling Service will also carry international
calls from the Ameritech landline communications subsidiaries once
we receive approval from the FCC to offer domestic long distance
services in our region. International long distance minutes of use
are growing 12% annually, making it one of the fastest growing
segments of the telecommunications industry.
Managed Services
We formed an alliance with IBM Corporation that joins our
companies as leaders in the $35 billion desktop computing and
communications market. Together we provide voice, data and video
managed desktop services for businesses. We offer customers a
single point of contact for managing every aspect of desktop-based
communications and computing systems, including personal computers,
software, telephones, videoconferencing, PBXs and local area
networks. Ameritech GlobalDesk targets major corporate clients
concerned with improving their information and telecommunications
systems in multiple locations, including employees working in
remote locations or from their homes. We operate a 24-hour
customer service facility seven days a week to provide technical
and consulting support for these services. Through GlobalDesk, we
now support more than 2 million users serving major customers
throughout the United States including Baxter Healthcare, Comerica,
Ford Motor Company, IBM and United Airlines.
Internet Access
Our dial-up Internet access service was launched in January
1997. Ameritech.netSM provides easy-to-use Internet service
designed specifically for consumers and small businesses. In
addition to affordable pricing plans, users have access to the
Internet's most popular features, including the millions of
Internet websites worldwide, E-mail and chat and news groups. We
offer Ameritech.net in the Chicago, Cleveland, Columbus, Dayton,
Detroit, Grand Rapids, Indianapolis, Kalamazoo and Milwaukee
metropolitan areas, making Internet access available to nearly 8
out of 10 Ameritech customers. In December 1997, we expanded our
Internet service by offering Ameritech.netSM High-Speed Internet
access which lets subscribers access the Internet at speeds up to
fifty times faster than traditional modems. This service uses ASDL
technology which uses standard copper phone wiring and a special
high speed modem. Ameritech has a partnership with Microsoft to
make the service easier to install and uses Microsoft's Internet
Explorer software as the browser for our high speed Internet
service. We plan to offer Ameritech.net High-Speed Internet
Service to 7 out of 10 Ameritech customers over the next three
years. Businesses in the Chicago, Cleveland and Detroit
metropolitan areas can now get continuous Internet connectivity
supported by around-the-clock network monitoring and technical
help.
<PAGE>5
Electronic Commerce
In May 1994, we invested $473 million in GE Information
Services, Inc. (GEIS), a wholly owned subsidiary of General
Electric Company and a global leader in the electronic commerce
market. Our investment was in the form of a four-year interest
bearing convertible debenture, guaranteed as to repayment by GE,
which was to convert to equity upon the lifting of legal
restrictions. In early 1998, with legal restrictions still in
place, our agreement with GE was suspended and GE repaid the note.
Other Business Interests
In November 1997, the RHCs completed the sale of their jointly
owned research company, Bell Communications Research, Inc.
(Bellcore), based in New Jersey, to a California-based defense
contractor, Science Applications International Corp. (SAIC).
Ameritech and each of the other original RHCs owned an equal one-
seventh interest in Bellcore. The sale was precipitated by the
owners' diverging strategies and business plans and the desire to
allow Bellcore more freedom to operate in a less restrictive and
more competitive environment. Bellcore had furnished the RHCs with
technical support, such as applied research, network planning,
engineering and software development, and had served as a central
point of contact for coordinating the efforts of the RHCs in
meeting national security and emergency preparedness requirements
of the federal government.
SAIC, which derives most of its business from government
contracts, primarily from consulting, will utilize Bellcore's
considerable software and programming talent. Under terms of the
sale, SAIC will honor contractual obligations to provide Bellcore's
former owners with technical support and basic research and
software assistance. Bellcore's current national security
functions will be handled by a new organization to be funded
initially by the RHCs. The new organization, the National
Telecommunications Alliance, will continue to ensure that the RHCs'
national security and emergency preparedness responsibilities are
met.
Ameritech's Global Presence
Ameritech's businesses reach customers in all 50 states and more
than 40 countries. With our January 1998 investment in Tele
Danmark A/S, Ameritech is the largest U.S. investor in the European
telecommunications industry with investments totaling approximately
$6 billion in market value and financial interests in 15 European
countries. We expect to continue to pursue other opportunities in
North America and Europe, concentrating on expanding markets in
countries that combine substantial growth potential with a high
degree of economic and political stability. We have invested in
four of the world's largest privatizations, in Belgium, Denmark,
Hungary and New Zealand.
Belgium
Ameritech and our consortium partners, Tele Danmark, Singapore
Telecommunications Limited and several Belgian investors, have a
49.9% stake in Belgacom S.A., the national telecommunications
operator in Belgium. With 4.8 million access lines, Belgacom
provides local and long distance service, serves 700,000 cellular
customers and offers Internet, security and other telecommunication
services to a country of 11 million people. Belgacom is growing
through the rapid introduction of new services, such as 800 service
and call management features. Through its 35% interest in the
consortium, Ameritech holds an approximate 17.5% interest in
Belgacom.
Canada
Ameritech is the largest security monitoring services provider
in Canada. The full scope of our service offerings is covered
earlier in the section entitled "Security Services."
China
In 1997, we withdrew from a joint venture with China
Communications System Company Ltd. (ChinaCom), a communications
systems and engineering company. The joint venture was originally
established in 1995 to assist the People's Republic of China in the
development of its telecommunications infrastructure. We made the
decision to redirect that part of our foreign investment because of
certain restrictions and poor prospects for returns on our
investment.
<PAGE>6
Denmark
In January 1998, we purchased a 34% interest in Tele Danmark,
the national communications provider in Denmark, from the Kingdom
of Denmark for approximately $3.1 billion. As part of the
investment agreement, Tele Danmark is in the process of buying back
and retiring the remaining shares owned by the Danish government.
When this repurchase is completed in April 1998, we will hold
approximately 42% of Tele Danmark's outstanding capital stock.
Tele Danmark serves domestic customers through 3.3 million phone
lines, 850,000 cellular phones and 750,000 cable TV connections.
In addition to its 16.5% investment in Belgacom, Tele Danmark has
investments in wireless services in Hungary, Poland, the Ukraine
and Lithuania and in competitive telecom operators in Sweden,
Germany, Hungary, Switzerland, and the Czech Republic. Denmark's
telephone penetration of 63 phone lines per 100 people is
comparable to that of the United States.
Germany
We own WLW, a leading Germany-based publisher of business-to-
business directories for Germany, Austria, Switzerland, Belgium,
Luxembourg, the Netherlands, Croatia, Solenia, Slovakia and the
Czech Republic. WLW publishes product and company information on
approximately 232,000 European companies and has a current annual
circulation of over 90,000, more than three quarters of which is
distributed on CD-ROM. WLW provides electronic commerce services
in 10 countries using the Internet.
Hungary
Since 1993, Ameritech and our partner, Deutsche Telekom AG, have
had an interest in MATAV, the Hungarian telecommunications company.
After MATAV's initial public offering in November 1997, MagyarCom,
the alliance owned in equal shares by Ameritech and Deutsche
Telekom, owns approximately 59% of MATAV. The Hungarian government
owns 6%. MATAV is the principal provider of local, long distance
and international telephone service and the controlling shareowner
in cellular ventures using both analog and GSM digital technology.
MATAV has approximately 2.4 million access lines in a country of
10.5 million people and serves more than 442,000 cellular
subscribers. MATAV has added more than 1 million telephone lines
since 1994 and expects to increase the number of access lines in
Hungary by more than 8% annually through the year 2001. In 1997,
MATAV eliminated Hungary's 13-year waiting list for phone lines and
became the first central European company to be listed on the New
York Stock Exchange.
New Zealand
In 1990, Ameritech and Bell Atlantic Corporation purchased
Telecom Corporation of New Zealand Limited (New Zealand Telecom),
New Zealand's state-owned principal supplier of domestic and
international communications services, including local, long
distance, cellular, satellite TV and directory services. After
public offerings and private sales of New Zealand Telecom stock
required by the government at the time of the acquisition,
Ameritech and Bell Atlantic each had a 24.8% interest in the
company. New Zealand Telecom currently serves approximately 1.8
million customer lines and approximately 470,000 cellular
customers. In 1997, New Zealand Telecom repurchased a portion of
its stock in the open market. Because the New Zealand government
prohibits foreign companies from owning more than 49.9% of New
Zealand Telecom's stock, we sold a pro rata share of our holdings
to New Zealand Telecom, as did Bell Atlantic. The repurchase
program had no material effect on our holdings, increasing our
ownership interest to 24.95%. In December 1997, we announced plans
to sell our stake in New Zealand Telecom in a global public
offering of the shares. The offering is scheduled for the first
half of 1998.
In 1997, we sold our 12.5% interest in Sky Network Television
Limited of New Zealand, a satellite pay-TV company. We acquired
our interest in the Sky TV in May 1991 and helped to increase its
customer base six-fold over the six-year period of our ownership
interest.
Norway
Since 1993, Ameritech has held an interest in NetCom, a
Norwegian cellular telephone company. NetCom began providing GSM
digital cellular service in September 1993. Norway has the highest
per capita use of cellular telephones in the world at over 30%.
Cellular penetration is expected to grow to 50% or more by 2005.
With more than 400,000 current customers, NetCom has constructed an
extensive mobile infrastructure network covering over 91% of the
population. After a public offering in 1996, we own 19.7% of
NetCom.
<PAGE>7
Worldwide
Ameritech Library Services provides advanced management systems
and information access solutions to national and international
library markets.
Ameritech's Human Resources
We employed 74,359 people as of December 31, 1997, compared with
66,128 as of December 31, 1996. This increase was primarily
attributable to growth in the security services, PCS and cable TV
businesses.
The Communications Workers of America (CWA) and the
International Brotherhood of Electrical Workers (IBEW) represent
more than 42,500 of Ameritech's employees. Of the union-
represented employees, about 70% are members of the CWA and about
30% are members of the IBEW, both of which are affiliated with the
AFL-CIO. Current three-year contracts expire this summer; the IBEW
on June 28, 1998 and the CWA on August 8, 1998.
In January 1997, a three-year agreement between Ameritech's
advertising services unit and the CWA was ratified. Terms of the
agreement were retroactive to August 11, 1996, the expiration date
of the prior contract. At year end, the CWA represented
approximately 800 of advertising service's 1,260 employees.
Patents, Trademarks and Other Intellectual Property
Certain Ameritech companies own or have licenses to use various
patents, copyrights, trademarks and other intellectual property
necessary to conduct our business. We also license other companies
to use this property. We do not believe that the expiration of any
of our intellectual property, or the nonrenewal of rights to use
it, would have a material adverse affect on our business.
Regulatory Environment - Federal
The FCC develops and implements policies concerning interstate
and international communications by radio, television, wire,
satellite and cable. In addition to developing regulations to
carry out the intent of the 1996 Act, the FCC prescribes for
certain communications companies a uniform system of accounts and
rules for apportioning costs between regulated and nonregulated
services. The FCC, in consultation with representatives of state
regulatory commissions, is also responsible for the principles and
standard procedures used to separate regulated property, plant and
equipment costs, revenues, expenses, taxes and reserves between
those applicable to interstate services under FCC jurisdiction and
those applicable to intrastate services under the respective state
regulatory commission's jurisdiction.
Local Competition
The 1996 Act directed the FCC to establish rules and regulations
to enforce the law and to preempt specific state provisions in
certain circumstances. As required by the 1996 Act, in August 1996
the FCC adopted rules to implement the local competition
provisions. The rules required local exchange carriers, including
the Ameritech landline communications subsidiaries, among other
duties, to:
- - provide interconnection to any telecommunications carrier at any
technically feasible point, equal in quality to that provided
for the local exchange carrier's own operations;
- - provide those carriers with access to network elements on an
unbundled basis; and
- - offer for resale, at wholesale rates, any telecommunications
services that the local exchange carrier provides at retail to
subscribers who are not telecommunications carriers.
The FCC's rules addressed pricing for interconnection, unbundled
network elements and resale of telecommunications services. In
October 1996, in an order entered in an appeal filed by certain
local exchange carriers, the United States Court of Appeals for the
Eighth Circuit stayed the portion of the FCC rules with respect to
pricing and the FCC's so-called "pick and choose" rule that would
allow requesting carriers to pick and choose among individual
provisions of existing interconnection agreements. The United
States Supreme Court declined to overturn the appeals court stay.
In July 1997, the court of appeals struck down several provisions
of the FCC's August 1996 order designed to implement the
interconnection provisions of the 1996 Act, ruling that:
<PAGE>8
- - the FCC's pricing guidelines intrude upon the rights of state
regulatory commissions to implement key elements of the 1996
Act;
- - the FCC lacks jurisdiction to review state regulatory commission
decisions regarding interconnection agreements between incumbent
local exchange carriers and their competitors;
- - the FCC's pick and choose rule does not promote negotiated
agreements and is unreasonable;
- - local exchange carriers must provide unbundled network elements
(including operations support systems and certain other
services) in a manner that allows competing carriers to combine
them, but they need not actually combine the elements; and
- - the 1996 Act does not require incumbent local exchange carriers
to provide competitors with superior quality connections.
In October 1997, the Eighth Circuit Court overturned the FCC
ruling requiring Ameritech and other incumbent local exchange
carriers to resell bundled network services at unbundled wholesale
rates. As a result of the court's decision, if new entrants to the
local exchange market wish to purchase network elements at
unbundled discounted prices, they must recombine the elements
themselves. The RHCs had maintained that when a new entrant seeks
a pre-existing combination of network elements, they are purchasing
a service for resale and do not qualify for the deep discounts
applicable to unbundled network elements.
In January 1998, the Eighth Circuit Court ordered the FCC to
uphold the court's earlier ruling transferring the power of the
federal agency to set terms on prices and connections to local
phone networks to the state commissions. The order came a day
before the United States Supreme Court agreed to consolidate
numerous appeals centering on the 1996 Act filed by AT&T, MCI, the
FCC and others. Barring additional action, the case will be argued
before the Supreme Court in October 1998.
In December 1997, the United States District Court in Wichita
Falls, Texas, declared unconstitutional a key part of the 1996 Act
that excludes only the RHCs' landline communications subsidiaries
from the long distance market. Two of those companies, SBC
Communications Inc. and US West Communications, Inc. initiated the
lawsuit. Long distance industry opponents of the ruling, the FCC
and the Department of Justice asked the court for an injunction
barring SBC Communications, US West and Bell Atlantic Corporation,
which joined in the suit, from preparing to provide in-region long
distance service until the court ruled on their stay requests. In
February 1998, the court issued two orders: the final judgment
giving legal effect to the court's earlier opinion and an order
staying that decision pending resolution of appeals from it. The
court denied the motions for injunctions.
In addition, BellSouth Communications, Inc. brought two appeals
to the United States Court of Appeals for the District of Columbia
challenging the constitutionality of many of the same provisions of
the 1996 Act for which SBC Communications and US West sought review
in the Texas District Court. One action challenges the section of
the 1996 Act covering electronic publishing and another challenges
the sections which address long distance. Ameritech has intervened
in this later appeal. Consequently, the Fifth Circuit Court and
the D.C. Circuit Court are deciding the constitutionality of the
provisions of the 1996 Act specifically applicable to the RHCs'
landline communications subsidiaries.
Price Cap Reform
Ameritech's interstate revenues are regulated by a price cap
mechanism rather than by rate-of-return regulation. The FCC's
price cap regulatory scheme sets maximum limits on the prices that
local exchange carriers can charge other carriers to access their
facilities to originate or terminate interstate long distance calls
and other communications. The limits are adjusted each year to
reflect inflation, a productivity factor and certain other cost
changes. Under price caps, local exchange carriers have increased
flexibility to change prices of access services, as well as prices
for interstate intraLATA service, provided they do not exceed the
allowed price cap.
In May 1997, the FCC issued three closely related orders
addressing revisions to the original price cap plan, interstate
access charge reform and funding for universal service. The new
price cap rules reduced access charges by increasing the price cap
productivity offset factor to 6.5% from the prior 5.3% and by
applying this factor uniformly to all access providers. The new
rates were effective July 1, 1997 and local exchange carriers were
required to compute the new rates as if the 6.5% productivity
factor had been in effect since July 1, 1996.
<PAGE>9
Access Charge Reform
The FCC's original access charge structure was adopted at the
time of the divestiture by AT&T. These policies were designed
primarily to promote competition in the interstate long distance
market by ensuring that all long distance companies would be able
to originate and terminate their traffic over incumbent local
exchange carriers' networks at just, reasonable and
nondiscriminatory rates. Although these policies contemplated long
distance competition, they did not attempt to address the potential
effects of local or access competition. In December 1996, the FCC
laid out its proposals on access charge reform, asking for comments
on a number of steps it proposed to take to restructure the fees to
make the system compatible with the pro-competitive deregulatory
framework established by the 1996 Act.
In its May 1997 access charge reform order, the FCC adopted
changes to its tariff structure requiring usage-sensitive recovery
that is more reflective of the way in which costs are incurred. In
general, the order provides that only costs incurred on a usage-
sensitive basis should be recovered in per-minute access charges
and costs not incurred on a usage-sensitive basis should be
recovered through flat rate charges.
Universal Service
In November 1996, the Federal-State Universal Service Joint
Board issued its recommendations to the FCC for reforming the
existing system of subsidizing universal basic telephone service.
The goal was to preserve and advance universal service in a manner
that permits local telephone markets to move from monopoly to
competition. The FCC's May 1997 ruling required creation of a
multi-billion-dollar universal service fund for subsidizing low-
income customers, high cost service areas, rural health care
providers, schools and libraries. Telecommunications service
providers began to pay into this new universal service fund
beginning on January 1, 1998. Subsidies to low-income and rural
customers became available on that date and funds for linking
schools and libraries to the Internet will be available as needed.
Other FCC Matters
As part of the process of reforming the interstate access charge
system, the FCC sought comment on the treatment of Internet and
other information service providers (sometimes referred to as
enhanced service providers) that also use the local exchange
carriers' facilities. Since the access charge system was
established in 1983, enhanced service providers have been
classified, for purposes of the access charge rules, as end users
rather than carriers and have been exempt from access charges. In
1997, the FCC concluded that enhanced service providers should
continue to be exempt from access charges.
The FCC ruled in April 1997 that Ameritech has met all
competitive requirements under the pay phone portion of the 1996
Act. The move to deregulate pay phone services culminated in
October 1997, when responsibility for setting the price of a local
pay phone call was transferred from state regulators to the
competitive marketplace. Many of the provisions included in the
1996 Act, which served as the road map for pay phone deregulation,
were patterned after competitive pay phone measures already in
place in Illinois and Michigan.
In November 1997, the FCC approved measures to implement the
World Trade Organization's (WTO) landmark telecommunications
agreement, opening the United States market to competition from
foreign carriers and satellite providers. The FCC approved two
measures that end existing requirements that foreign companies from
WTO-member countries must meet tough conditions about the state of
competition in their home countries before being allowed to enter
the United States market. The new rules open the United States
market to any of the 132-member nations of the WTO.
In December 1997, the FCC announced plans to reduce rates by
promoting cable competition. It proposed rules that would give
cable competitors, including Ameritech, greater access to cable TV
channels and called for better enforcement of existing rules to
promote competition. Under the Cable Act of 1992, cable
competitors are supposed to be able to broadcast any channel they
choose and pay the same price as incumbent carriers.
In addition, in December the United States Court of Appeals for
the District of Columbia Circuit remanded to the FCC a case
involving a claim that the purchase of security monitoring assets
of a certain company by SecurityLink violated a provision of the
1996 Act. The FCC had previously ruled that the transaction was
permissible under the Act. On remand, the court directed the FCC
to resolve an ambiguity in the statute. In addition to the case on
remand, three similar challenges to transactions involving
purchases of security monitoring assets by SecurityLink are
currently pending before the FCC.
<PAGE>10
Regulatory Environment - State
The Ameritech landline communications subsidiaries are also
subject to regulation by state commissions with respect to certain
intrastate rates and services.
Illinois
In 1994, the Illinois Commerce Commission (ICC) approved
Advantage Illinois, providing a framework for regulating Ameritech
Illinois by capping prices for noncompetitive services. At the
same time, the ICC approved a cap on the monthly line charge for
residential customers and residential calling rates within local
calling areas at November 1994 levels for five years. In return
for these price protections, the ICC removed a ceiling on earnings
to reflect the increasingly competitive communications industry and
to create incentives to invest in new technology, develop new
services and improve efficiency. In 1996, Ameritech Illinois
offered Dial-1-plus capability (dialing parity) in local toll
markets, giving customers the ability to choose an alternate
carrier for intraLATA toll calls. In July 1997, we reduced rates
in Illinois by $54 million annually. Lower prices are reflected in
several product and service areas, but the largest portion of the
reductions comes from increased volume discounts for certain local
calls. 1997 marked the fourth consecutive year of price
reductions, now totaling $461 million, under the Advantage Illinois
price cap plan.
Indiana
In 1994, the Indiana Utility Regulatory Commission (IURC)
approved the Opportunity Indiana plan. Under the plan, market-
based pricing and flexibility was instituted for competitive
services, including Centrex, dedicated communications services, 800
service, WATS, operator services and business intraLATA toll
service. In 1997, Ameritech Indiana filed a revised alternative
regulation plan and requested an interim extension of Opportunity
Indiana, which was due to expire at the end of 1997. The revised
plan has not yet been acted upon by the IURC.
In December 1997, the IURC issued an interim order in the
Opportunity Indiana proceeding. The order addressed the manner in
which Ameritech Indiana will be regulated until such time as a
longer term replacement regulatory structure is finalized. The
ruling extended the alternative regulation plan that had been in
place since 1994. However, it also ordered Ameritech Indiana to
reduce rates for basic residential and business service by 4.6% and
to continue infrastructure spending on fiber optics for interested
schools, hospitals and government centers, and on contributions to
a fund to provide distance learning equipment and courses in
schools all over the state. Ameritech Indiana has initiated an
appeal of this order to the Indiana Court of Appeals. The record
in the appeal is not due to be filed until June 1, 1998. Until
such time as the Court of Appeals issues a ruling, Ameritech
Indiana will operate under the provisions of the IURC's order, with
the exception of the requirement to reduce basic local service
rates. Because Indiana law provides that Ameritech Indiana can
continue charging current rates until the order is entered on the
appeal, basic local rates will be maintained at current levels.
The prices residential customers pay in Indiana have decreased
by 16% over the past three years under Opportunity Indiana.
Ameritech Indiana has not increased basic local service prices in
11 years.
Michigan
The Michigan Telecommunications Act (MTA), which is in effect
until January 2001, regulates Ameritech Michigan. Ameritech
Michigan began adjusting local exchange pricing structure in
February 1996 to remove historical subsidies that deterred
competition. We increased prices in Michigan for basic local
services for business and certain residential customers. This was
our first increase in residential prices and the second increase in
business prices since 1984.
In 1996, the Michigan Public Services Commission (MPSC) ordered
Ameritech Michigan to provide statewide dialing parity on intraLATA
toll calls or to discount intraLATA toll access rates. In January
1997, the Michigan Court of Appeals issued a stay of the MPSC
order. In August, the Michigan Supreme Court declined AT&T's and
MCI's motion to vacate the court of appeal's stay. The court of
appeals held oral arguments on the main appeal in October, but has
not issued a decision. To date, Ameritech Michigan is providing
Dial-1-plus capability in Michigan in over 70% of our access lines
on a voluntary basis. We have reduced certain access fees to long
distance companies in Michigan by 55% where Dial-1-plus capability
does not exist.
<PAGE>11
Ohio
In January 1995, Ameritech Ohio implemented the Advantage Ohio
price regulation plan following approval by the Public Utility
Commission of Ohio (PUCO). Under the plan, overall rate changes
are subject to price caps. Rates for all services were capped in
1995 and rates for basic access lines and usage were capped for an
additional five years. The plan provides for the ability to
flexibly price competitive and discretionary services. We are
phasing in a series of annual rate reductions totaling $84 million
over a six-year period including reductions in the rates for
residential local usage and access lines, reductions in carrier
access charges and the deaveraging of access line rates. Ameritech
Ohio has committed to meeting certain benchmarks for the deployment
of advanced technology to schools, hospitals and libraries, funding
of community computer centers, a discounted Lifeline telephone
service for low-income customers and $21 million in grants for new
technology in public schools and for economic development.
Under the plan, in 1997, Ameritech Ohio reduced rates by $5
million annually on popular phone features including Caller ID and
call waiting.
Wisconsin
Under telecommunications legislation passed in 1994, the Public
Service Commission of Wisconsin (PSCW) regulates Ameritech
Wisconsin's prices rather than earnings. By the year 2000,
Ameritech Wisconsin will invest at least $700 million on new
equipment and technology, extending fiber optics to hundreds of
secondary schools, technical colleges, universities, hospitals and
libraries in the state. Ameritech Wisconsin has committed to
meeting a number of infrastructure benchmarks along with the
deployment of the infrastructure investment.
Beginning in 1994, residential and small business access line
rates were reduced by 10% and then frozen over the next three
years. IntraLATA access rates have also declined along with
interLATA access rates. Since September 1996, all of Ameritech
Wisconsin's service area has had Dial-1-plus capability.
Under the law, the Wisconsin Advanced Telecommunications
Foundation was established to fund advanced telecommunications
technology application projects and efforts to educate consumers
about advanced services. Ameritech Wisconsin has contributed over
$6 million through 1997 to the fund and has committed to funding at
least an additional $7 million through 2001.
Other State Matters
In January 1998, the Michigan Public Service Commission ruled
that we owe compensation under interconnection agreements to other
local exchange carriers. This compensation relates to calls made
by our customers to the Internet using Internet service providers
who, in turn, are the customers of those other local exchange
carriers. Similar issues involving the interpretation of the
interconnection agreements are the subject of regulatory
proceedings pending in the four other states in our region. These
issues ultimately may be determined by the FCC, where a docket is
currently pending.
We have negotiated and secured state commission approval of over
150 agreements with competing local carriers to interconnect to our
network, as provided under the 1996 Act. More agreements are
pending approval. The state commissions have, in some cases,
arbitrated agreements between Ameritech and competitive carriers.
These agreements provide competitive carriers with the services and
network elements they need to enter the local service market.
Evolution of the Industry
Growing customer need for new services, new technologies,
regulatory reform and corporate alliances are accelerating the pace
of change and creating intense competition in the communications
industry. That will mean greater choice, an explosion of new
products and services and better values for consumers. Ameritech
faces competitors in virtually every aspect of our business. In
business pursuits in and outside of the United States, we face as
competitors the other RHCs, long distance service providers, cable
TV companies and Internet and wireless service providers, as well
as a variety of foreign entities and other entrants from adjacent
segments of the communications and information services industries.
Competition is global and increasingly between multinational firms
with partners from different nations. More competition in our
industry is inevitable.
<PAGE>12
We see competition as an opportunity for Ameritech to grow as
the overall market expands. To stay competitive, we have continued
to transform our culture, hone our strategies, achieve regulatory
reform, adjust our workforce, control costs and expand our
interests globally. We continue to prepare to be a formidable
competitor at the heart of our dynamic industry.
Item 2. Properties.
General
The large number and widespread locations of Ameritech's
properties make it difficult to provide detailed descriptions of
the physical characteristics of the individual components. In
general, however, we can categorize our investment in property,
plant and equipment at year-end 1997 as follows:
- - "Land and Buildings," consisting of land owned by Ameritech,
including improvements (namely central and administrative
offices), represents 10% of our total investment;
- - "Central office equipment," including switching and transmission
equipment and related facilities, represents 39%;
- - "Cable, wiring and conduit (or outside plant)," including aerial
cable, poles, underground cable, conduit and wiring, represents
40%;
- - "Other," including motor vehicles, computers and other support
assets, represents 10%, and
- - "Plant under construction" represents 1%.
Capital Expenditures
We believe that investment in Ameritech's core communications
business (local phone, wireless, advertising and capital services)
will:
- - facilitate the introduction of new products and services;
- - enhance our responsiveness to ever-increasing competitive
challenges; and
- - increase the operating efficiency and productivity of our
network.
Growth in capital expenditures was driven by demand in our core
business, deployment of digital technology in our cellular networks
and regulatory requirements, such as those related to the 1996 Act.
Capital expenditures, the single largest use of Ameritech's funds,
were $ 2.7 billion in 1997, $2.5 billion in 1996, $2.2 billion in
1995, $2.0 billion in 1994 and $2.1 billion in 1993.
Our capital spending is based on customer needs and our business
plans. Investments in technologies that will enable us to provide
customers with new products and services represent a high priority.
We continued to modernize the landline communications network
throughout 1997. By year end, 86% of our customer access lines
were served by digital switches. We also had installed 1,556,000
miles of fiber optic cable. By investing in our telecommunications
infrastructure, we can anticipate and meet the demands on the
network by customers wanting Internet access, high speed data
transmission, information management and other communications
services. We estimate capital spending to be about $2.9 billion
for 1998. That amount will include building of our PCS networks in
Cleveland and Indianapolis.
Item 3. Legal Proceedings.
The United States District Court for the District of Columbia
signed and approved a Plan of Reorganization in connection with
AT&T's divestiture, effective January 1, 1984, of certain assets to
the RHCs, including Ameritech. The Plan provides for the
recognition and payment of liabilities that are attributable to
predivestiture events (including transactions to implement the
divestiture) but that do not become certain until after the
divestiture. These contingent liabilities relate principally to
litigation and other claims with respect to the Bell Companies'
(the former Bell telephone company subsidiaries of AT&T) rates,
taxes, contracts, equal employment matters, environmental matters
and torts (including business torts, such as alleged violations of
the antitrust laws).
<PAGE>13
With respect to these liabilities, under agreements entered into
at divestiture AT&T and the Bell Companies will share:
- - the costs of any judgment or other determination of liability
entered by a court or administrative agency;
- - the costs of defending the claim (including attorneys' fees and
court costs); and
- - the cost of interest or penalties with respect to any judgment
or determination.
Unless the affected parties agree otherwise, the general rule is
that responsibility for contingent liabilities will be divided
among AT&T and the Bell Companies on the basis of their relative
net investment (defined as total assets less accumulated
depreciation) as of January 1, 1984. Different allocation rules
apply to liabilities which relate exclusively to predivestiture
interstate or intrastate operations.
In January 1995, Ameritech and the other RHCs agreed to
terminate the sharing arrangement among the Bell Companies with
respect to predivestiture contingent liabilities for certain
matters. AT&T did not enter into the agreement and, accordingly,
the sharing arrangement remains in effect with respect to AT&T's
pre-divestiture liabilities and AT&T's share of Bell Company
predivestiture liabilities.
In November 1997, we reached an agreement in principle to settle
class action lawsuits regarding our inside wire maintenance and
LINE-BACKERr services. Those customers who subscribe to these
services pay a monthly fee to cover repairs to inside telephone
wiring and jacks. They thereby avoid charges for labor and
material at the time of repair. The lawsuits charged unfair sales
practices and violations of the antitrust laws allegedly arising
from our sales and marketing practices. The settlement consists
of, among other things, free calling cards and pay-per-use services
over specified time periods, as well as billing credits.
Ameritech and its subsidiaries are also subject to claims
arising in the ordinary course of business. Although we can not be
sure of the outcome of any litigation, in management's opinion any
financial impact would not have a material effect on our financial
results.
<PAGE>14
Item 4. Submission of Matters to a Vote of Security Holders.
We did not submit any matter to a vote of shareowners in the
fourth quarter of 1997.
EXECUTIVE OFFICERS OF AMERITECH
(AS OF MARCH 12, 1998)
The following table includes the name, age, office and term of
office of each of Ameritech's executive officers.
Held
Name Age Officer Since
- ---- --- ------ -----
Management Committee
Richard C. Notebaert* 50 Chairman, President and Chief 1994
Executive Officer
Barry K. Allen 49 Executive Vice President -- 1997
Regulatory and Wholesale Operations
W. Patrick Campbell 51 Executive Vice President -- Corporate 1994
Strategy and Business Development
Walter M. Oliver 52 Senior Vice President -- Human 1994
Resources
Thomas E. Richards 43 Executive Vice President -- 1997
Communications and Information
Products
Oren G. Shaffer 55 Executive Vice President and Chief 1994
Financial Officer
Joan H. Walker 50 Senior Vice President -- Corporate 1996
Communications
Kelly R. Welsh 45 Executive Vice President and General 1996
Counsel
Other Corporate
Officers
Walter S. Catlow 52 President -- International 1996
Bruce B. Howat 53 Secretary 1983
Barbara A. Klein 43 Vice President and Comptroller 1996
Gary R. Lytle 53 Vice President -- Federal Relations 1994
Sari L. Macrie 40 Vice President -- Investor Relations 1994
Richard W. Pehlke 43 Vice President and Treasurer 1994
* Member of the board of directors and Chairman of the Executive
Committee
<PAGE>15
For at least the past five years, Mr. Notebaert, Mr. Catlow, Mr.
Lytle, Mr. Pehlke and Mr. Howat have held high level management or
executive positions with Ameritech or our subsidiaries. Prior to
assuming their present positions with Ameritech, for the last five
years the other executive officers were employed as follows:
Mr. President Ameritech enhanced 1995 to 1997
Allen President business services 1993 to 1995
President and Chief Marquette Electronics, 1993
Executive Officer Inc. 1989 to 1993
President Illinois Bell
Telephone Company
Wisconsin Bell, Inc.
Mr. President and Chief Columbia TriStar Home 1989 to 1994
Campbell Executive Officer Video
Mr. VP-Human Resources Johnson Controls 1989 to 1994
Oliver
Mr. President Ameritech network 1995 to 1997
Richards Vice President -- services 1991 to 1995
Network Operations Bell Atlantic
Mr. President Virgo Cap Inc. 1992 to 1994
Shaffer
Ms. Partner Bozell Sawyer Miller 1996
Walker President and Chief Group 1993 to 1996
Executive Officer Bozell Public
Relations
Mr. Corporation Counsel City of Chicago 1989 to 1993
Welsh
Ms. Vice President and The Pillsbury Co. 1996
Klein Controller Pillsbury Bakeries & 1993 to 1996
Vice President - Finance Foodservice 1988 to 1993
Controller Sears Direct Marketing
(Sears, Roebuck and
Co.)
Ms. VP and Director of Christensen & 1990 to 1994
Macrie Research Associates
Under the By-Laws of Ameritech, officers are elected annually, but
may be removed at any time at the discretion of the board of
directors.
PART II
Items 5 Through 8.
There were 760,075 owners of record of Ameritech Common Stock as
of December 31, 1997. Ameritech Common Stock is listed on the New
York, Boston, Chicago, Pacific, Philadelphia, London, Tokyo,
Amsterdam, Basel, Geneva and Zurich stock exchanges. We have
included the rest of the information required by these items in the
financial section of our 1997 annual report to shareowners on pages
22 through 33, pages 35 through 49 and on the inside back cover.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP provides authoritative guidance for the
capitalization of certain computer software costs developed or
obtained for our internal applications, such as:
- - external direct costs of materials and services, such as
programming costs,
- - payroll costs for employees devoting time to the software
project, and
- - interest costs to be capitalized.
<PAGE>16
Costs incurred during the preliminary project stage, as well as
training and data conversion costs, are to be expensed as incurred.
The SOP is effective for fiscal years beginning after December 15,
1998, however earlier application is encouraged. We have not yet
quantified the impacts of adopting this SOP on our financial
statements and have not determined the timing of our adoption. We
have historically expensed most computer software costs as
incurred.
In March 1998, Ameritech Wisconsin entered into a definitive
agreement to sell to Century Telephone Enterprises, Inc. the assets
related to a portion of our local exchange business in Wisconsin
for approximately $225 million. Under terms of the agreement,
Ameritech Wisconsin will sell assets used to serve about 85,000
residential and business access lines in northern and parts of
central Wisconsin. We anticipate that the transaction will
conclude in late 1998, pending regulatory approval.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
We have agreed with our accountants on all matters concerning
accounting principles and practices, financial statement
disclosure, auditing scope and procedure during the period covered
by this annual report.
PART III
Items 10 Through 13.
We are including certain information regarding executive
officers in a separate disclosure in Part I of this report.
We have included the other information required by these items
in our 1998 annual meeting proxy statement dated February 27, 1998.
You will find our responses to these items on pages 2 through 6, in
the section on Compensation of Directors on page 6, in the section
on Officer and Director Stock Ownership on page 7, and in the
section on Executive Compensation on pages 10 through 19.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Documents filed as part of this report (a):
(1)Financial Statements (You will find these financial statements
in our 1997 annual report to shareowners on the page noted):
Page
----
Selected Financial and Operating Data.................... 22
Report of Management.............................. 34
Report of Independent Public Accountants................. 35
Consolidated Statements of Income........................ 36
Consolidated Balance Sheets.............................. 37
Consolidated Statements of Shareowners' Equity........... 38
Consolidated Statements of Cash Flows.................... 39
Notes to Consolidated Financial Statements............... 40
(2)Financial Statement Schedule - (We have omitted additional
financial statement schedules because the required information
is contained in the consolidated financial statements and notes
listed above, or because schedules are not required or
applicable. We have omitted separate financial statements of
subsidiaries not consolidated and 50% or less owned entities
because these companies are not "significant subsidiaries" as
defined in the SEC rules):
II -- Valuation and Qualifying Accounts.................. 25
(3)Report of Independent Public Accountants................. 24
<PAGE>17
(4)Exhibits - (We are including as exhibits to this report certain
documents we have previously filed with the SEC, identified in
parentheses below):
Exhibit
Number
------
3a - Ameritech's Certificate of Incorporation, as amended
on April 30, 1996 (Exhibit 3a to Form 10-Q for the
quarter ended March 31, 1996, File No. 1-8612).
3b - Ameritech's By-Laws, as amended on March 19, 1997
(Exhibit 3b to Form 10-Q for the quarter ended March
31, 1997, File No. 1-8612).
4b - We are not required to file documents which define the
rights of holders of long and intermediate term debt
of Ameritech and all of its consolidated subsidiaries.
We have agreed to furnish a copy of these documents to
the SEC on request.
10a - Reorganization and Divestiture Agreement between
American Telephone and Telegraph Company and American
Information Technologies Corporation and Affiliates,
dated as of November 1, 1983 (Exhibit 10a to Form 10-K
for 1983, File No. 1-8612).
10b - Agreement Concerning Contingent Liabilities, Tax
Matters and Termination of Certain Agreements, among
American Telephone and Telegraph Company, Bell System
Operating Companies, Regional Holding Companies and
Affiliates dated as of November 1, 1983 (Exhibit 10j
to Form 10-K for 1983, File No. 1-8612).
10c - Ameritech Senior Management Short Term Incentive Plan
as amended and restated effective as of February 1,
1998.
10d - Ameritech Stock Retirement Plan for Non-Employee
Directors (Exhibit 10ll to Form 10-K for 1986, File
No.
1-8612).
10d- - First Amendment of Ameritech Stock Retirement Plan for
1 Non-Employee Directors (Exhibit 10ll-1 to Form 10-K
for 1988, File No. 1-8612).
10d- - Second Amendment of Ameritech Stock Retirement Plan
2 for Non-Employee Directors (Exhibit 10ll-2 to Form 10-
K for 1989, File No. 1-8612).
10e - Ameritech Senior Management Life Insurance Plan
Agreements (Exhibit 10cc to Form 10-K for 1990, File
No. 1-8612).
10f - Ameritech Perquisite Program (Exhibit 10ff to Form 10-
K for 1991, File No. 1-8612)
10g - Ameritech Deferred Compensation Plan for Non-Employee
Directors (Exhibit 10gg to Form 10-K for 1985, File
No. 1-8612).
10g- - First Amendment of Deferred Compensation Plan for Non-
1 Employee Directors (Exhibit 10gg-1 to Form 10-K for
1986, File No. 1-8612).
10g- - First Amendment of American Information Technologies
2 Corporation Deferred Compensation Plan for Non-
Employee Directors effective as of January 1, 1989
(Exhibit 10gg-2 to Form 10-K for 1988, File No.
1-8612).
10g- - Second Amendment of American Information Technologies
3 Corporation Deferred Compensation Plan for Non-
Employee Directors (Exhibit 10gg-3 to Form 10-K for
1990, File No. 1-8612).
10g- - Third Amendment of American Information Technologies
4 Corporation Deferred Compensation Plan for Non-
Employee Directors (Exhibit 10gg-4 to Form 10-K for
1990, File No. 1-8612).
10g- - Fourth Amendment of American Information Technologies
5 Corporation Deferred Compensation Plan for Non-
Employee Directors (Exhibit 10gg-5 to Form 10-K for
1992, File No. 1-8612).
10h - Ameritech Plan for Non-Employee Directors' Travel
Accident Insurance (Exhibit 10hh to Registration
Statement No. 2-87838).
10i - Ameritech Management Supplemental Pension Plan as
amended through the Seventh Amendment (Exhibit 10ii to
Form 10-K for 1991, File No. 1-8612).
10i- - Eighth Amendment of Ameritech Management Supplemental
1 Pension Plan (Exhibit 10ii-1 to Form 10-K for 1991,
<PAGE>18
File No. 1-8612).
10i- - Ninth Amendment of Ameritech Management Supplemental
2 Pension Plan (Exhibit 10ii-2 to Form 10-K for 1991,
File No. 1-8612).
10i- - Tenth Amendment to Ameritech Management Supplemental
3 Pension Plan (Exhibit 10ii-3 to Form 10-K for 1993,
File No. 1-8612).
10I- - Eleventh Amendment to Ameritech Management
4 Supplemental Pension Plan (Exhibit 10ii-4 to Form 10-K
for 1993, File No. 1-8612).
10I- - Twelfth Amendment to Ameritech Management Supplemental
5 Pension Plan (Exhibit 10ii-5 to Form 10-K for 1993,
File No. 1-8612).
10I- - Thirteenth Amendment to Ameritech Management
6 Supplemental Pension Plan (Exhibit 10j-6 to Form 10-K
for 1994, File No. 1-8612).
10j - Ameritech 1989 Long Term Incentive Plan as amended and
restated effective as of January 1, 1992 (Exhibit 10oo
to Form 10-K for 1991, File No. 1-8612).
10j- - First Amendment to 1989 Long Term Incentive Plan
1 (Exhibit 10oo-1 to Form 10-K for 1993, File No. 1-
8612).
10j- - Resolution concerning the exercisability of stock
2 options granted under the Ameritech 1989 Long Term
Incentive Plan, approved on January 17, 1995 (Exhibit
10k-2 to Form 10-K for 1995, File No. 1-8612).
10k - Ameritech (Subsidiary) Senior Management Short Term
Incentive Plan as amended and restated effective
January 1, 1992 (Exhibit 10pp to Form 10-K for 1991,
File No. 1-8612).
10l - Ameritech Management Employees Benefit Protection
Trust as amended and restated effective as of December
1, 1997.
10m - Ameritech Corporate Resource Severance Pay Trust as
amended and restated effective as of December 1, 1997.
10n - Ameritech Mid-Career Pension Plan (Exhibit 10ff to
Form 10-K for 1994, File No. 1-8612).
10n- - First Amendment to Ameritech Mid-Career Pension Plan
1 (Exhibit 10ff-1 to Form 10-K for 1994, File No.
1-8612).
10n- - Second Amendment to Ameritech Mid-Career Pension Plan
2 (Exhibit 10ff-2 to Form 10-K for 1994, File No.
1-8612).
10n- - Third Amendment to Ameritech Mid-Career Pension Plan
3 (Exhibit 10ff-3 to Form 10-K for 1994, File No.
1-8612).
10n- - Fourth Amendment to Ameritech Mid-Career Pension Plan
4 (Exhibit 10ff-4 to Form 10-K for 1994, File No.
1-8612).
10n- - Fifth Amendment to Ameritech Mid-Career Pension Plan
5 (Exhibit 10ff-5 to Form 10-K for 1994, File No.
1-8612).
10n- - Sixth Amendment to Ameritech Mid-Career Pension Plan
6 (Exhibit 10ff-6 to Form 10-K for 1994, File No.
1-8612).
10n- - Seventh Amendment to Ameritech Mid-Career Pension Plan
7 (Exhibit 10ff-7 to Form 10-K for 1994, File No. 1-
8612).
10n- - Eighth Amendment to Ameritech Mid-Career Pension Plan
8 (Exhibit 10ff-8 to Form 10-K for 1994, File No.
1-8612).
10n- Ninth Amendment to Ameritech Mid-Career Pension Plan
9 (Exhibit 10o-9 to Form 10-K for 1995, File No.
1-8612).
10o - Agreement Regarding Change in Control dated as of
January 19, 1994 between Ameritech and Richard C.
Notebaert, together with a schedule identifying other
documents (Exhibit 10mm to Form 10-K for 1993, File
No. 1-8612).
<PAGE>19
10p - Agreement Regarding Change in Control dated as of
September 9, 1994 between Ameritech and W. Patrick
Campbell (Exhibit 10z to Form 10-K for 1994, File No.
1-8612).
10q - Agreement Regarding Change in Control dated as of
September 9, 1994 between Ameritech and Walter M.
Oliver (Exhibit 10aa to Form 10-K for 1994, File No. 1-
8612).
10r - Agreement Regarding Change in Control dated as of
January 1, 1995 between Ameritech and Oren G. Shaffer
(Exhibit 10bb to Form 10-K for 1994, File No. 1-8612).
10s - Agreement Regarding Change in Control dated as of
December 1, 1995 between Ameritech and Barry K. Allen
(Exhibit 10v to Form 10-K for 1995, File No. 1-8612).
10t - Agreement Regarding Change in Control dated as of
August 1, 1996 between Ameritech and Joan H. Walker
(Exhibit 10u to Form 10-K for 1997, File No. 1-8612).
10u - Agreement Regarding Change in Control dated as of
December 20, 1996 between Ameritech and Kelly R. Welsh
(Exhibit 10-v to Form 10-K for 1997, File No. 1-8612).
10v - Agreement Regarding Change in Control dated as of
January 20, 1997 between Ameritech and Thomas E.
Richards (Exhibit 10-w to Form 10-K for 1997, File No.
1-8612).
10w - Ameritech Key Management Life Insurance Plan as
amended and restated effective as of February 1, 1998.
10x - Ameritech Estate Preservation Plan as amended and
restated effective as of February 1, 1998.
10y - Ameritech Corporate Resource Long Term Disability Plan
as amended and restated effective as of February 1,
1998.
10z - Ameritech Corporate Resource Transfer Program as
amended and restated effective as of February 1, 1998.
10aa - Ameritech Corporate Resource Supplemental Pension Plan
as amended and restated effective as of December 1,
1995 (Exhibit 10bb to Form 10-K for 1995, File No. 1-
8612).
10bb - Ameritech Corporate Resource Supplemental Pension
Trust as amended and restated effective as of May 1,
1996 (Exhibit 10cc to Form 10-K for 1997, File No. 1-
8612).
10cc - Ameritech Corporate Resource Deferral Plan as amended
and restated effective as of February 1, 1998.
10dd - Ameritech Corporate Resource Severance Pay Plan as
amended and restated effective as of February 1, 1998.
10ee - Ameritech Management Committee Short Term Incentive
Plan as amended and restated effective February 1,
1998.
10ff - Ameritech Long-Term Stock Incentive Plan as amended
and restated effective as of February 1, 1998.
12 - Computation of ratio of earnings to fixed charges for
the five years ended December 31, 1997.
13 - Portions of Ameritech's 1997 annual report to
shareowners.
21 - Ameritech's subsidiaries.
23 - Consent of Arthur Andersen LLP.
24 - Powers of Attorney.
27 - Financial Data Schedule for current period and
restated Financial Data Schedules for other periods.
99a - Form 11-K Annual Report for the fiscal year ended
December 31, 1997 of the Ameritech Savings Plan for
Salaried Employees, to be filed by amendment.
99b - Form 11-K Annual Report for the fiscal year ended
December 31, 1997 of the Ameritech Savings and
Security Plan (Non-Salaried Employees), to be filed by
amendment.
99c - Form 11-K Annual Report for the fiscal year ended
December 31, 1997 of the DonTech Profit Participation
Plan, to be filed by amendment.
<PAGE>20
We will furnish to a shareowner on request, without charge, a
copy of the 1997 annual report to shareowners and the notice of
1998 annual meeting and proxy statement, portions of which are
referred to in and considered part of this report. Copies of these
two documents are also available on Ameritech's Internet site at
www.ameritech.com. We will furnish any other exhibit at cost.
(5)Reports on Form 8-K:
We filed a Current Report on Form 8-K dated December 17, 1997
under Item 5, Other Items, to report a two-for-one stock split
effected as a stock dividend, authorization of a stock repurchase
plan and increase of the quarterly dividend to 30 cents per post-
split share, payable February 2, 1998 to shareowners of record on
December 31, 1997.
We filed another Form 8-K dated January 13, 1998 under Item 7,
Financial Statements and Exhibits, to report Ameritech's earnings
for the fourth quarter and year ended December 31, 1997.
<PAGE>21
SIGNATURES
----------
According to requirements of the Securities Exchange Act of 1934,
an authorized company official has signed this report on our behalf.
AMERITECH CORPORATION
/s/ Barbara A. Klein
-----------------------------
Barbara A. Klein,
Vice President and Comptroller
March 12, 1998
<PAGE>22
According to the requirements of the Securities Act of 1934, the
following officers and directors have signed this report on our
behalf.
Principal Executive Officer:
R. C. Notebaert*
Chairman, President and
Chief Executive Officer
Principal Financial Officer:
O. G. Shaffer*
Executive Vice President
and Chief Financial Officer
Principal Accounting Officer:
B. A. Klein /s/ Barbara A. Klein
-----------------------------
Vice President and Comptroller (*Barbara A. Klein,
for herself and as
Attorney-in-Fact)
March 12, 1998
Directors:
D. C. Clark*
M. R. Goodes*
H. H. Gray*
J. A. Henderson*
S. B. Lubar*
A. C. Martinez*
J. B. McCoy*
R. C. Notebaert*
J. D. Ong*
A. B. Rand*
L. D. Tyson*
J. A. Unruh*
<PAGE>
GLOSSARY
Access charges -
- --------------
fees that local phone companies charge to long distance carriers
for the handling of long distance calls on our local network.
Access line -
- -----------
a telephone line for voice, data or video reaching from a local
phone company to a home or business.
ADSL (Asymmetric Digital Subscriber Line) -
- -----------------------------------------
a technology that uses the existing copper phone wiring serving
virtually all homes and businesses to provide faster network access
to the Internet and other popular multimedia and data services at
speeds more than 50 times faster than an ordinary phone line.
Advanced data services -
- ----------------------
services that use advanced technology to allow faster network
access to the Internet and other multimedia and data services.
Bell Companies -
- --------------
the former Bell telephone subsidiaries of AT&T, including
Ameritech's five local exchange companies in Illinois, Indiana,
Michigan, Ohio and Wisconsin.
Bundled (unbundled) network elements -
- ------------------------------------
two or more components of a regulated service for which one
inclusive rate is charged; separate components of a regulated
service for which separate rates are charged.
Call management services -
- ------------------------
services that add value and convenience for phone customers, such
as call waiting, call forwarding and Caller ID. These services are
sold to customers individually or in packages.
Cellular -
- --------
a communications system that transmits voice, data or video over
radio frequencies.
Data communications -
- -------------------
digital transmissions through wired or wireless networks, usually
linking computers.
Derivative -
- ----------
an instrument that derives its value from the value of something
else, usually a price index, an interest rate, a foreign exchange
rate, or the price of a financial instrument or commodity.
Dial-1-plus (Dialing parity) -
- -------------------------
a feature that allows local phone customers to designate a carrier
other than the local service provider for toll calls within their
calling area by simply dialing 1 plus the telephone number.
Digital -
- -------
an alternative to traditional analog communications, digital
systems transport information in the 1's and 0's of computer code
for improved clarity and quality.
Federal Communications Commission (FCC) -
- ---------------------------------------
an independent government agency whose mission is to encourage
competition in all communications markets and to protect the public
interest. In response to direction from the Congress, the FCC
develops and implements policy concerning interstate communications
by radio, television, wire, satellite, and cable.
Financial Accounting Standards Board (FASB) -
- -------------------------------------------
the independent body responsible for setting accounting and
financial reporting standards to be followed by United States
business enterprises.
Hedging activities -
- -------------------
risk management activities involving derivatives.
Interconnection -
- ---------------
allowing a competitive local service provider to use the local
phone company's network, or elements of the network, to provide
local phone service to its customers.
Internet -
- --------
the global web of networks that connects computers around the world
providing rapid access to information from multiple sources.
Internet service providers (ISPs) -
- ---------------------------------
those companies providing access to the Internet and other computer-
based information networks.
Landline -
- --------
referring to conventional wired phone service.
Local access -
- ------------
the local portion of long distance calls.
<PAGE>23
Local access and transport areas (LATAs) -
- ----------------------------------------
geographic areas established in connection with AT&T's 1982
antitrust settlement with the United States government. LATAs are
applicable only to the former Bell Companies and mark the
boundaries within which each company, including the Ameritech
landline communications subsidiaries, may provide telephone
service. They are generally centered on a city or other
identifiable community of interest.
Local exchange carriers (LECs) -
- --------------------------------------
those companies primarily involved in providing local phone service
and access to the local phone network, including Ameritech's
landline in Illinois, Indiana, Michigan, Ohio and Wisconsin.
Long distance -
- -------------
voice, data and video communications to locations beyond local
service areas.
Operations support systems -
the databases and information used to support the provision of
telephone service to end users.
Personal communications services (PCS) -
wireless services, such as cellular phone service and two-way
paging, that use digital technology to provide enhanced call
security, longer battery life and other convenience features.
Price caps -
- ----------
a form of regulation that sets maximum limits on the prices that
local exchange carriers can charge for access services instead of
limits on rate of return or profits.
Privatization -
- -------------
a government sale of part or all of a national company to private
firms and investors.
Productivity factor -
- -------------------
a portion of the interstate price cap formula that requires local
exchange carriers to reduce the price cap based on an assumed
increase in productivity.
RHCs -
- ----
the seven regional holding companies formed in connection with the
court-approved divestiture of certain assets of AT&T Corp.,
formerly American Telephone and Telegraph Company. With the 1997
mergers of two of the RHCs, Pacific Telesis Group into SBC
Communications Inc. and NYNEX Corporation into Bell Atlantic
Corporation, five RHCs remain.
Securities and Exchange Commission (SEC) -
- ----------------------------------------
the federal agency that regulates the issuance and trading of
public debt and equity securities in the United States and monitors
compliance with these regulations.
Security services -
- -----------------
services that help secure people and property, including burglar
and fire alarm systems, closed circuit cameras and electronic card
access. Most of our revenue in this area is from the installation
and monitoring of alarm systems.
Switching and transport -
- -----------------------
the process of carrying information from one end point to another
by connecting appropriate communications channels to form a desired
circuit between the two end points.
Universal service -
- -----------------
a concept designed to ensure access to the telecommunications
network in rural and low-income areas at affordable prices.
Funding typically comes from urban telecommunications operators.
Wireless -
- --------
voice, data and video communications that use radio frequencies
rather than wires for transmission. Includes cellular, paging and
personal communications services.
<PAGE>24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Ameritech Corporation
We have audited in accordance with generally accepted auditing
standards the financial statements included in Ameritech
Corporation's annual report to shareowners for the year ended
December 31, 1997, incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 13, 1998. Our audits
were made for the purpose of forming an opinion on those financial
statements taken as a whole. The financial statement schedule
listed in Item 14(a)(2) is the responsibility of Ameritech's
management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 13, 1998
<PAGE>25
AMERITECH CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(Dollars in Millions)
COL. A COL. B COL. C COL. D COL. E
------ ------ ----------------- ------ ------
Additions
-----------------
Balance at Charged Charged Balance
Beginning to to Other at End of
of Period Expense (a) Accounts (b) Deductions (c) Period
--------- ---------- ----------- ------------- ------
Year 1997...........$ 320 $ 355 $493 $ 860 $ 308
Year 1996........... 166 421 368 635 320
Year 1995........... 147 205 231 417 166
----------------------
(a)Excludes direct charges and credits to expense on the statements of
income and reinvested earnings related to interexchange carrier
receivables.
(b)Includes principally amounts previously written off which were
credited directly to this account when recovered and amounts related
to long distance carrier receivables which are being billed by
Ameritech, as well as a reclassification in 1996 of $42 million from
current liabilities to more accurately state the allowance.
(c)Amounts written off as uncollectible.
AMERITECH SENIOR MANAGEMENT
SHORT TERM INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH SENIOR MANAGEMENT
SHORT TERM INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 Purpose 1
2 Awards 1
3 Eligibility 2
4 Adjustments 4
5 Other Conditions 5
6 Change in Control 6
7 Designation of Beneficiaries 8
8 Plan Administration 8
9 Amendment and Termination of the Plan 9
AMERITECH SENIOR MANAGEMENT
SHORT TERM INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
1. Purpose. The purpose of the Ameritech Senior Management
Short Term Incentive Plan (the "Plan") is to provide Senior
Management Employees of Ameritech Corporation, a Delaware
corporation (the "Company") or of any Subsidiary or Affiliate of
the Company (an "Employer"), with incentive compensation based upon
the achievement of financial, service and management performance
goals for the Company and its Subsidiaries or Affiliates. For
purposes of the Plan, the term "Subsidiary" means any corporation
of which the Company owns at least 50% of the combined voting power
of all classes of stock entitled to vote. The term "Affiliate"
means any corporation other than a Subsidiary which would be a
member of a controlled group of corporations with the Company under
section 1563(a) of the Code. The "Effective Date" of the amended
and restated Plan is February 1, 1998.
2. Awards.
(a) The Board of Directors of the Company (the "Board") may
make awards in each calendar year with respect to the
preceding calendar year (the "Award Year"), beginning
with awards made in 1985 with respect to Award Year 1984,
in such amounts and to such of the eligible Senior
Management Employees (as defined in Section 3) as it may
determine in its sole discretion, subject to the
conditions and limitations of the Plan. Awards shall be
paid in cash in the calendar year during which such
awards are made, except to the extent that an eligible
employee has made an election to defer the receipt of
such award pursuant to the Ameritech Corporate Resource
Deferral Plan.
(b) The Board shall approve a standard award ("Standard
Award") for each level of management eligible to receive
awards under the Plan for each Award Year for which it
intends to grant awards. The Board shall also determine
a percentage rate (the "Annual Percentage Rate")
applicable to the Standard Awards based upon the criteria
contained in subsection (c) below relating to the
achievement of annual financial and other corporate goals
during the Award Year. Annual Percentage Rate shall serve
as a guideline in making awards to eligible Senior
Management Employees under the Plan whose awards may,
depending upon individual performance, be more or less
(including no award) than such Annual Percentage Rate
applied to the Standard Awards for an Award Year.
.
(c) The Annual Percentage Rate applicable to the Standard
Awards referred to in subsection (b) above shall be based
upon the level of achievement during the Award Year with
regard to:
A. Financial performance of the Company and its
[consolidated subsidiaries] (prepared on the same basis
as the financial statements published for financial
reporting purposes and determined in accordance with
subsection 8(a));
B. Service performance of the Company and its
[consolidated subsidiaries]; and
C. Management performance.
The Board shall establish the performance criteria described in
paragraphs A and B above and shall evaluate the management
performance described in paragraph C above.
3. Eligibility.
(a) An award may be granted for an Award Year to, or on
account of, each Senior Management Employee of the Company
or its Subsidiaries or Affiliates who is in active service
during such Award Year (whether or not such Senior
Management Employee is employed or alive on the date an
award is actually granted); provided, however, that such
Senior Management Employee has completed at least three
months of active service at such level with the Company or
a Subsidiary or Affiliate during the Award Year (excluding
any time during which the Senior Management Employee was
absent from service on account of sickness or disability
and was receiving any benefits under a Sickness and
Accident Disability Benefit Plan ("SADBP") maintained by
the Company or an Associated Company ("Disability
Benefits")). The term "Senior Management Employee" means
an employee who has attained any of salary grades CR5
through 9 and any individual who was a participant in the
Plan as of December 31, 1994 as long as such individual
continues to meet the requirements to be a Senior
Management Employee under the Plan as it existed as of
December 31, 1994 or meets such requirements under the
Plan as it exists from time to time after that date.
Employees are not rendered ineligible under the Plan
solely by reason of being a member of the Board.
(b) Subject to the provisions of Section 6 below, the Standard
Award applicable to an employee otherwise eligible to
receive an award under the Plan for an Award Year shall be
prorated over the Award Year, or the employee shall be
ineligible to receive an award for an Award Year, as
determined below:
(1) entrance to or exit from - prorate from the date
a level of management of entrance or exit
eligible for awards after to the nearest half month
the beginning of the
Award Year
(2) changes in market rate - prorate according to time
during an Award Year of active service at each
position rate to the
nearest half month
(3) receipt of Disability - prorate to the day based
Benefits for more than on time of service while
three months in an not receiving Disability
Award Year under the
Company or any Associated
Company SADBP
(4) receipt of Disability - no reduction in
Benefits for three months applicable Standard
or less in an Award Year Award
under the Company or any
Associated Company SADBP
(5) normal retirement, early - prorate to date of
retirement with the retirement or transfer
approval of the Company
or transfer to another
Associated Company during
an Award Year
(6) leave of absence during - prorate to date leave
an Award Year commences unless
otherwise provided by
the Board
(7) death during an Award - prorate to date of death
Year
(8) early retirement during - no award
an Award Year without the
approval of the Company
(9) resignation during an - no award
Award Year
(10)demotion during or after - no award
an Award Year because of
unsatisfactory performance
to a position within a
compensation group below
the compensation group
designated as "Senior Management Employee"
(11) dismissal during or - no award
after an Award Year by
the Company or any
Associated Company
For all purposes under the Plan, the term
"normal retirement" shall mean retirement on
or after the date on which the employee
reaches age 65 (or, if later, the fourth
anniversary of the date the employee
commenced participation in the Ameritech
Management Pension Plan), and the term "early
retirement" shall mean retirement on or after
the date on which the Senior Management
Employee's combined age and years of service
equals 75, subject to Committee
authorization. For all purposes under the
Plan, an employee shall be deemed to have
retired only if he has terminated employment
with the Company and its Subsidiaries or
Affiliates and is receiving retirement
benefits under a pension plan maintained by
the Company or a Subsidiary or Affiliated
Company.
(c) Notwithstanding any other provision of the
Plan, with respect to eligible employees
transferred between Subsidiaries or
Affiliated Companies during an Award Year,
the Subsidiary or Affiliated Company last
employing the employee during such Award Year
shall determine and pay the entire short term
award, if any, for such Award Year.
4. Adjustments.
(a) In order to effectuate the purpose of the
Plan, the Board may make adjustments in the
criteria established for any Award Year under
Section 2 which reflect any extraordinary
changes that may have occurred during the
Award Year or which significantly alter the
basis upon which such performance levels were
determined. Such changes may include, without
limitation, changes in accounting practices,
tax, regulatory or other laws or regulations,
or economic changes not in the ordinary
course of business cycles. Any adjustments
made by the Board can be made at any time and
in any manner that the Board in its sole
discretion deems appropriate and any and all
such adjustments shall be conclusive and
binding upon all parties concerned.
(b) In the event of any change in the number of
outstanding shares of the Company by reason
of any stock dividend or split,
recapitalization, merger, consolidation,
combination or exchange of shares, or other
similar corporate change, the Board shall
make such adjustments, if any, that it deems
appropriate in the performance levels
established under Section 2 for any Award
Year not then completed and any and all such
adjustments shall be conclusive and binding
upon all parties concerned.
5. Other Conditions.
(a) No person shall have any claim to be granted
an award under the Plan and there is no
obligation for uniformity of treatment of
eligible employees under the Plan. Awards
under the Plan may not be voluntarily or
involuntarily assigned or alienated.
(b) Neither the Plan, nor any action taken
hereunder shall be construed as giving to any
employee the right to be retained in the
employ of the Company or any Associated
Company.
(c) The Company and any Associated Company shall
have the right to
deduct from any award to be paid under the
Plan any Federal, state or local taxes
required by law to be withheld with respect
to such payment.
(d) The amount of any award payable under the
Plan shall be paid from the general revenues
of the Company or an Associated Company, as
the case may be.
(e) Notwithstanding any other provision of the
Plan, no awards will be
made if, at the time payment would have been
made:
(i) the regular quarterly dividend on any
outstanding common or preferred shares of
the Company has been omitted and not
subsequently paid or there exists any
default in payment of dividends on any
such outstanding shares;
(ii) the rate of dividends on common shares
of the Company is lower than any regular
quarterly dividend paid during the Award
Year, adjusted for any stock split,
combination, exchange or similar change;
or
(iii) estimated net income of the
Company, and its consolidated subsidiaries
for the twelve-month period preceding the
month the awards would otherwise have been
made is less than the sum of: (1) the
amount of the awards to be made under the
Plan and the Short Term Incentive Plans of
Associated Companies ("Associated Company
Plans"); (2) the amount of payments and
awards eligible for distribution to Senior
Management Employees under the Ameritech
Long Term Incentive Plan, the Ameritech
1989 Long Term Incentive Plan, the Long
Term Stock Incentive Plan, and any
successor plans, (the "Long Term Plans")
in that month; and (3) all dividends
applicable to such period on an accrual
basis, either paid, declared or accrued at
the most recently paid rate, on all
outstanding preferred and common shares of
the Company.
In the event that net income available under
clause (iii) next above for awards under the Plan,
the Associated Company Plans and for payments and
awards eligible for distribution under the Long
Term Plans is sufficient to cover part but not all
of such amounts, the following order shall be
applied, pro rata, within each category:
(i) dividend equivalent payments under the Long Term Plans;
(ii) units eligible for distribution
under the Long Term Plans;
(iii)awards under the Plan and the Associated Company Plans.
(f) Unless otherwise provided by the Board, awards under the Plan shall be
excluded in determining benefits under any pension, retirement,
disability, death, savings or other benefit plan of the Company
excluding any non-qualified pension plan maintained by the Company for
the purpose of providing non-qualified pension benefits with respect
to such awards."
6. Change in Control. If a Change in Control
(as defined below) occurs, then each eligible employee
(determined under Section 3 but without regard to
whether the employee has completed at least three
months of active service in the applicable Award Year)
who is also actively employed by the Company on the
date of the Change in Control shall receive as soon as
practicable following the earlier of his termination of
employment or the end of the calendar year in which
such Change in Control occurs, not less than 100% of
the Standard Award for the Award Year in which the
Change in Control occurs, subject to upward adjustment
based on the criteria established by the Board of
Directors of the Company prior to the Change in
Control. For purposes of the Plan, the term "Change in
Control" means a change in the beneficial ownership of
the Company's voting stock or a change in the
composition of the Company's Board of Directors which
is as follows:
(i) any "person" (as such term is used in
Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) other than:
(A) a trustee or other fiduciary holding
securities under an employee benefit
plan of the Company; or
(B) the Participant or any other person
acting in concert with the Participant;
is or becomes a beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of
stock of the Company representing 20% or more
of the total voting power of the Company's
then outstanding stock; provided, however,
that this paragraph (i) shall not apply to
any tender offer made pursuant to an
agreement with the Company approved by the
Company's Board of Directors and entered into
before the offeror has become a beneficial
owner of stock of the Company representing 5%
or more of the combined voting power of the
Company's then outstanding stock;
(ii) a tender offer is made for the stock of the Company, and the person
making the offer owns or has accepted for payment stock of the
Company representing 20% or more of the total voting power of the
Company's then outstanding stock; provided, however, that this
paragraph (ii) shall not apply to any tender offer made pursuant to
an agreement with the Company approved by the Company's Board of
Directors and entered into before the offeror has become a beneficial
owner of stock of the Company representing 5% or more of the combined
voting power of the Company's then outstanding stock;
(iii) during any period of 12 consecutive
months there shall cease to be a majority of
the Board of Directors comprised as follows:
individuals who at the beginning of such
period constitute the Board of Directors and
any new director(s) whose election by the
Board of Directors or nomination for
election by the Company's stockholders was
approved by a vote of at least 80% of the
directors then still in office who either
were directors at the beginning of the
period or whose election or nomination for
election was previously so approved; or
(iv) the stockholders of the Company approve a
merger or consolidation of the Company with,
or a sale of all or substantially all of the
Company's assets to, any other company other
than:
(A) a merger or consolidation which would
result in the Company's voting stock
outstanding immediately prior thereto
continuing to represent (either by
remaining outstanding or by being
converted into voting stock of the
surviving entity) more than 55% of the
combined voting power of the Company's
or such surviving entity's outstanding
voting stock immediately after such
merger or consolidation; or
(B) a merger or consolidation which would
result in the directors of the Company
who were directors immediately prior
thereto continuing to constitute at
least a majority of the directors of
the surviving entity immediately after
such merger or consolidation.
For purposes of paragraph (iv) above, the phrase
"surviving entity" shall mean only an entity in which
all of the Company's stockholders who are stockholders
immediately before the merger or consolidation (other
than stockholders exercising dissenter rights) become
stockholders by the terms of the merger or
consolidation, and the phrase "directors of the Company
who were directors immediately prior thereto" shall not
include (1) any director of the Company who was
designated by a person who has entered into an
agreement with the Company to effect a transaction
described in paragraph (i) or paragraph (iv) above, or
(2) any director who was not a director at the
beginning of the 12-consecutive-month period preceding
the date of such merger or consolidation, unless his
election by the Board of Directors or nomination for
election by the Company's stockholders was approved by
a vote of at least 80% of the directors who were
directors before the beginning of such period.
7. Designation of Beneficiaries. An eligible
employee may designate a beneficiary or beneficiaries
(who may be designated contingently or concurrently) to
receive all or part of the awards which may be granted
to the employee under the Plan in case of the eligible
employee's death. A designation of beneficiary may be
replaced by a new designation or may be revoked by the
employee at any time. A designation or revocation shall
be made on a form provided by the Company for the
purpose and shall be signed by the employee and
delivered to the Company prior to the employee's death.
In case of the employee's death, an award granted under
the Plan with respect to which a designation of
beneficiary has been made (to the extent it is valid
and enforceable under applicable law) shall be paid to
the designated beneficiary or beneficiaries. Any award
granted to a deceased employee with respect to whom a
designation of beneficiary is not effective, either
because the employee failed to designate a beneficiary
or because the designated beneficiary has predeceased
the employee, shall be distributed to the employee's
estate. If there shall be any question as to the legal
right of any beneficiary to receive an award under the
Plan, the amount in question may be paid to the estate
of the employee, in which event the Company shall have
no further liability to anyone with respect to such
amount.
8. Plan Administration.
(a) The Board shall have the exclusive right and
discretion to administer and interpret the
Plan, to establish rules for its
administration and to determine the
entitlement to benefits under the Plan. Any
decision made by the Board on any matter
within its discretion is conclusive, final
and binding on all persons and not subject to
further review. The level of financial,
service and management performance referred
to in Section 2 achieved for each Award Year
shall be conclusively determined by the
Board. The determination of financial
performance achieved for any Award Year may
but need not be adjusted to reflect
extraordinary financial items and adjustment
or restatements of the financial statements,
in the discretion of the Board. Any such
determination shall not be affected by
subsequent adjustments or restatements. Any
determinations or actions required or
permitted to be made by the Board may be
delegated to the Compensation Committee of
the Board. The Board, and such Committee of
the Board, in making any determinations under
or referred to in the Plan shall be entitled
to rely on opinions, reports or statements of
officers or employees of the Company and any
Subsidiary or Affiliated Company and of
counsel, public accountants and other
professional or expert persons.
(b) The Plan shall be governed by the laws of the
State of Illinois, to the extent not
superseded by any applicable Federal law.
9. Amendment and Termination of the Plan. The Board
may, at any time, amend or terminate the Plan; provided,
however, that neither an amendment of nor the termination of the
Plan shall reduce or impair the interests of eligible employees
in awards made under the Plan as at the date of amendment or
termination, as the case may be.
AMERITECH MANAGEMENT EMPLOYEES
BENEFIT PROTECTION TRUST
(As Amended and Restated Effective as of December 1, 1997)
TABLE OF CONTENTS
SECTION PAGE
1 Establishment, Name and Administration 1
1.1 Name 1
1.2 Definitions 1
1.3 Plans 2
1.4 Plan and Trust Administration 2
1.5 Change in Control 2
1.6 Trust Contributions 4
1.7 Minimum Funding Amount 5
2 Management and Control of Trust Fund Assets 5
2.1 The Trust Fund 5
2.2 Investment Guidelines and Investment Funds 5
2.3 Proxies 6
2.4 Exercise of Trustee's Duties 6
2.5 General Powers 6
2.6 Administrative Powers 12
3 Appointment of Investment Managers 13
3.1 Investment Managers 13
3.2 Investment Manager Account Cash 13
3.3 Directions 14
3.4 Notice 14
4 Establishment of Company Investment Account 14
4.1 Company Investment Accounts 14
5 Accounting and Distribution of Trust Assets 15
5.1 Common Fund 15
5.2 Trustee Records and Accounts 15
5.3 Benefit Payments 16
5.4 Withdrawals 17
6 Trustee Compensation and Expenses 17
6.1 Compensation and Expenses 17
7 Indemnification of Trustee 18
7.1 Indemnification of Trustee 18
TABLE OF CONTENTS
SECTION PAGE
8 Trust Fund Assets 19
8.1 Reversions to the Company and the
Subsidiaries 19
8.2 Claims of Creditors 19
8.3 Claims of Participants 20
9 Adoption by Subsidiaries 20
9.1 Adoption by and Definition of Subsidiaries 20
10 Tax Matters 21
10.1 Nature of Trust 21
10.2 Federal and State Reporting Requirements 2 1
10.3 Tax Matters 21
11 Change of Trustee 21
11.1 Resignation 21
11.2 Removal of Trustee 22
11.3 Duties of Resigning or Removed Trustee
and of Successor Trustee 22
11.4 Additional Trustees 23
12 Amendment, Revocation and Termination 23
12.1 Amendment and Revocation 23
12.2 Termination 24
13 Miscellaneous 24
13.1 Disagreement as to Acts 24
13.2 Persons Dealing with Trustee 24
13.3 Evidence 24
13.4 Waiver of Notice 24
13.5 Counterparts 24
13.6 Governing Laws 24
13.7 Successors, Etc. 25
13.8 Service of Legal Process 25
13.9 Severability 25
13.10 Gender and Numbers 25
13.11 Headings 25
13.12 Action by Company and Subsidiaries 25
13.13 Nonalienation of Benefits 25
AMERITECH MANAGEMENT EMPLOYEES
BENEFIT PROTECTION TRUST
(As Amended and Restated Effective as of December 1, 1997)
THIS TRUST AGREEMENT, made this _____ day of
__________, 1997, by Ameritech Corporation, a Delaware
corporation (the "Company") on behalf of itself and such of
its subsidiaries and affiliates which have employees and
former employees who may receive benefits from the Trust
(the "Subsidiaries"), and State Street Bank and Trust
Company, a trust company organized under the laws of the
Commonwealth of Massachusetts, as trustee (the "Trustee"),
WITNESSETH THAT:
WHEREAS, the Company and the Subsidiaries have
established or entered into various plans, arrangements and
agreements to provide compensation, employee benefits and
severance payments to or on account of eligible current and
former employees of the Company and the Subsidiaries; and
WHEREAS, since effective as of January 1, 1989, the
Company and the Subsidiaries have maintained a grantor trust
(as described in section 671 of the Internal Revenue Code of
1986, as amended (the "Code")) known as the Ameritech
Management Employees Benefit Protection Trust to assure such
employees and former employees that the payment of such
amounts will not be improperly withheld in the event of a
Change in Control of the Company (as defined in subsection
1.5); and
WHEREAS, the Company and the Subsidiaries now wish to
amend and
restate this Trust in its entirety effective as of December
1, 1997; and
NOW, THEREFORE, in consideration of the provisions and
mutual covenants in this Trust, is it agreed by and between
the Company on behalf of itself and the Subsidiaries and the
Trustee as follows:
Section 1. Establishment, Name and Administration
1.1 Name. The Company and the Trustee hereby amend
and restate in its entirety the Ameritech Management
Employees Benefit Protection Trust (the or this "Trust")
effective as of December 1, 1997.
1.2 Definitions. Unless the context clearly requires
otherwise, any word, term or phrase used in the Trust shall
have the same meaning as is assigned to it under the terms
of the Plans (defined below).
1.3 Plans. Subject to the provisions of Section 8,
the Trust has been established to provide for the payment of
compensation, employee benefits and severance benefits after
a Change in Control (as defined herein) to persons entitled
thereto (the "Participants" or "Participant") under the
terms of the plans, arrangements and agreements listed on
Schedule A of this Trust Agreement, which plans,
arrangements and agreements are sometimes referred to below
collectively as the "Plans" and individually as a "Plan".
The Secretary of the Company shall deliver to the Trustee a
certified copy of each Plan document and a copy of any
amendments thereto for convenience of reference, but the
rights, powers and duties of the Trustee shall be governed
solely by the terms of this Agreement without reference to
the provisions of any Plan. A payment under the Trust to a
Participant shall, for purposes of the Plan, be deemed a
payment under the Plan by the Company or the Subsidiary
responsible for such payment under the Plan.
1.4 Plan and Trust Administration. Except as
otherwise provided in subsection 2.2, all directions to the
Trustee under this Trust shall be made by the Compensation
Committee of the Company's Board of Directors (the
"Committee"), and all notices from the Trustee shall be made
to the Committee. The Secretary of the Company will certify
the names of the members and provide the Trustee with a
specimen signature of each member of the Committee. The
Trustee may rely on the latest certificate without further
inquiry or verification. The Committee shall act by a
majority of its then members, by meeting or by writing
(either a single document or concurrent documents) signed
without meeting. The certificate of a majority of the
members of the Committee that it has taken or authorized any
action shall be conclusive in favor of any person relying on
the certificate. A Committee member may delegate any of his
rights, powers or duties with respect to the Trust to any
other Committee member who accepts such delegation, provided
that written evidence of the delegation and acceptance are
filed with the Trustee. Further, as used in this Trust, the
terms "Company", "Committee" or "Asset Management Committee"
("AMC") shall include, where appropriate, any applicable
subcommittee or duly authorized delegate of the Company, the
Committee or the AMC, as the case may be. Such duly
authorized delegate may be an individual or organization
within the Company, the Committee or the AMC, or may be an
unrelated third party, individual or organization.
1.5 Change in Control. For purposes of the Trust, the
term "Change in Control" means a change in the beneficial
ownership of the Company's voting stock or a change in the
composition of the Company's Board of Directors which occurs
as follows:
(a) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934), other than a trustee
or other fiduciary holding securities under
an employee benefit plan of the Company, is
or becomes a beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of stock of
the Company representing 20% or more of the
total voting power of the Company's then
outstanding stock; provided, however, that
this subparagraph (a) shall not apply to any
tender offer made pursuant to an agreement
with the Company approved by the Company's
Board of Directors and entered into before
the offeror has become a beneficial owner of
stock of the Company representing 5% or more
of the combined voting power of the Company's
then outstanding stock;
(b) a tender offer is made for the stock of the
Company, and one of the following occurs:
(i) the person making the offer owns or has
accepted for payment stock of the
Company representing 20% or more of the
total voting power of the Company's then
outstanding stock; or
(ii) three business days before the offer is
to terminate (unless the offer is
withdrawn first) such person could own,
by the terms of the offer plus any
shares owned by such person, stock
representing 50% or more of the total
voting power of the Company's
outstanding stock when the offer
terminates,
provided, however, that this subparagraph (b)
shall not apply to any tender offer made
pursuant to an agreement with the Company
approved by the Company's Board of Directors
and entered into before the offeror has
become a beneficial owner of stock of the
Company representing 5% or more of the
combined voting power of the Company's then
outstanding stock;
(c) during any period of twelve consecutive
months there shall cease to be a majority of
the Board of Directors comprised as follows:
individuals who at the beginning of such
period constitute the Board of Directors and
any new Director(s) whose election by the
Board of Directors or nomination for election
by the Company's stockholders was approved by
a vote of at least eighty percent (80%) of
the Directors then still in office who either
were Directors at the beginning of the period
or whose election or nomination for election
was previously so approved; or
(d) the stockholders of the Company approve a
merger or consolidation of the Company with,
or a sale of all or substantially all of the
Company's assets to, any other company other
than:
(i) a merger or consolidation which would
result in the Company's voting stock
outstanding immediately prior thereto
continuing to represent (either by
remaining outstanding or by being
converted into voting stock of the
surviving entity) more than fifty-five
percent (55%) of the combined voting
power of the Company's or such surviving
entity's outstanding voting stock
immediately after such merger or
consolidation; or
(ii) a merger or consolidation which would
result in the directors of the Company
who were directors immediately prior
thereto continuing to constitute at
least a majority of the directors of the
surviving entity immediately after such
merger or consolidation.
For purposes of subparagraph (d) above, the phrase
"surviving entity" shall mean only an entity in which all of
the Company's stockholders who are stockholders immediately
before the merger or consolidation (other than stockholders
exercising dissenter rights) become stockholders by the
terms of the merger or consolidation, and the phrase
"directors of the Company who were directors immediately
prior thereto" shall not include (A) any director of the
Company who was designated by a person who has entered into
an agreement with the Company to effect a transaction
described in subparagraph (a) or subparagraph (d) above, or
(B) any director who was not a director at the beginning of
the twelve-consecutive-month period preceding the date of
such merger or consolidation, unless his election by the
Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least
eighty percent (80%) of the directors who were directors
before the beginning of such period. The Secretary of the
Company shall promptly notify the Trustee of the occurrence
of a Change in Control and the circumstances described in
subparagraphs (a), (b), (c) or (d) of this subsection 1.5
under which there is a Change in Control.
1.6 Trust Contributions. The Company has contributed
$10,000 to the Trust. No additional contributions shall be
required of the Company or any Subsidiary prior to a Change
in Control. The Company and the Subsidiaries, however, at
any time and from time to time, may contribute amounts to
the Trust to be held, invested and distributed in accordance
with the provisions of this Trust. As soon as possible, but
no later than three business days, after a Change in
Control, the Company shall contribute an amount to the Trust
which is no less than the most recent Minimum Funding Amount
(as defined in subsection 1.7) certified by the Committee to
the Trust. As soon as possible, but no later than three
business days, after each subsequent Minimum Funding Amount
is certified to the Trust, the Company shall make an
additional contribution of such subsequent Minimum Funding
Amount to the Trust. Each Subsidiary shall reimburse the
Company for each Minimum Funding Amount which is contributed
to the Trust by the Company but is attributable to the
potential liabilities of the Subsidiary under the Plans.
After a Change in Control has occurred, if the Company fails
to make a timely contribution to the Trust of any Minimum
Funding Amount, the Trustee shall be obligated to commence
legal action to compel the Company to make the contributions
required by this subsection 1.6 unless the Company is
Insolvent (as defined in subsection 8.2).
1.7 Minimum Funding Amount. The "Minimum Funding
Amount" as of any date means the amount determined as
follows:
(a) the maximum potential liability of the
Company and each Subsidiary with respect to
the Plans determined as of that date in
accordance with the following provisions of
this subsection 1.7,
REDUCED BY
(b) the assets of the Trust Fund, if any,
credited as of that date to the Accounts in
accordance with the provisions of Section 5.
The maximum potential liability of the Company and each
Subsidiary with respect to each Plan shall be determined and
certified as of the last day of each third calendar year, or
of any interim calendar year in which changes to the
compensation and/or benefit plans of eligible current or
former employees would significantly affect the maximum
potential liability as determined by the Secretary of the
Committee, by an independent actuary (who shall be a Fellow
of the Society of Actuaries selected by the Committee) on
the basis of the employment period and earnings prior to the
date of each individual who is participating in the Plan on
that date and on the basis of the assumptions, if any, set
forth with respect to that Plan on Schedule A and such
actuarial assumptions as the actuary deems reasonable;
provided, however, that after a Change in Control such
actuarial assumptions shall not be changed, if the change
would reduce the maximum potential liability for any Plan
from the amount that would be determined as of the date of
such change using the actuarial assumptions which were
utilized for the last determination of the Minimum Funding
Amount which was certified to the Trustee prior to the
Change in Control. No later than sixty days after the end
of each such third or interim calendar year, the Committee
shall certify to the Trustee the amount of the maximum
potential liability with respect to the Plans and the
Minimum Funding Amount and shall furnish the Trustee with a
copy of the applicable certificates of the actuary. In any
year in which a calculation of the maximum potential
liability is not required pursuant to the preceding
sentences, the maximum potential liability shall be
determined by using the prior year's maximum potential
liability.
Section 2. Management and Control of Trust Fund Assets
2.1 The Trust Fund. The term "Trust Fund" means all
property of any
kind held by the Trustee from time to time pursuant to this
Trust.
2.2 Investment Guidelines and Investment Funds. Prior
to a Change in Control, the Company's Asset Management
Committee ("AMC") shall have the power to direct the Trustee
with respect to the investment, retention, disposition and
reinvestment of the Trust Fund other than the assets
attributable to the Company or any Subsidiary after the date
on which the Company or such Subsidiary becomes Insolvent.
The AMC shall exercise such discretion with the care, skill,
prudence and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. Anything
in this Trust to the contrary notwithstanding, after a
Change in Control, the Trustee shall invest the Trust Fund,
directly or through a trust or fund described in subsection
2.5(p), in short-term, fixed income investments, including,
but not limited to, United States Treasury Bills, commercial
paper, broker's acceptances and certificates of deposit.
2.3 Proxies. On behalf of itself and the
Subsidiaries, the Company may, from time to time, direct the
Trustee with respect to the handling and voting of proxies
for all or any portion of the securities held in the Trust
Fund, in which case the Trustee shall vote such proxies
solely in accordance with the directions of the Company,
notwithstanding the provisions of subsections 2.5(e) and
3.1.
2.4 Exercise of Trustee's Duties. Subject to the
provisions of Section 8, the Trustee shall discharge its
duties hereunder solely in the interest of the Participants
and other persons entitled to benefits under the Plans, and:
(a) for the exclusive purpose of:
(i) providing benefits to or on account of
the Participants and other persons
entitled thereto under the Plans; and
(ii) defraying the reasonable expenses of
administering the Trust; and
(b) with the care, skill, prudence and diligence
under the circumstances then prevailing that
a prudent man acting in a like capacity and
familiar with such matters would use in the
conduct of an enterprise of a like character
and with like aims.
2.5 General Powers. Subject to the provisions of
subsection 2.2 and subsection 2.4 and Sections 3 and 4, with
respect to the Trust Fund, the Trustee shall have the
following powers, rights and duties in addition to those
provided elsewhere in this Trust or by law:
(a) To receive and hold all contributions paid to
it by the Company or any Subsidiary;
provided, however, that except as otherwise
provided in subsection 1.6, the Trustee shall
have no duty to require any contributions to
be made, or to determine that any of the
contributions received comply with the
conditions and limitations of the Plan.
(b) To apply for, pay premiums on and maintain in
force on the lives of the Participants
individual or group ordinary, term or
universal life insurance policies for the
benefit of the Participants on whose lives
the policies are issued; to acquire such a
policy from the Company or a Subsidiary or
from the Participant on whose life the policy
is issued, but only if the Trustee pays,
transfers or otherwise exchanges for the
policy no more than the cash surrender value
of the policy and the policy is not subject
to a mortgage or similar lien which the
Trustee would be required to assume; to
dispose of any such policy including a
disposition to the Company or a Subsidiary or
Participant, provided that, upon such
disposition, the Trustee receives an amount
which is not less than the cash surrender
value of the policy; and to have with respect
to such policies all of the rights, powers,
options, privileges and benefits usually
comprised in the term "incidents of
ownership" and normally vested in an insured
or owner of such policies.
(c) To invest the Trust Fund in bonds, notes,
debentures, certificates or other
governmental, corporate, partnership, trust
or personal obligations or evidences of
indebtedness, mortgages, equipment trust
certificates, certificates of deposit, money
market securities, investment trust
certificates, forward contracts, options,
index options, warrants, rights, shares in
mutual funds, commodities, derivative
securities or instruments, futures contracts,
preferred or common stocks (including
securities of the Company), insurance and
annuity contracts, investment contracts or
other investment arrangements with insurance
companies, banks or other financial
institutions, common, group or collective
trust funds, partnerships, shares of limited
liability companies or in such other
property, real or personal or any interest
therein.
(d) To purchase, retain, manage, sell, contract
to purchase or sell, grant options to
purchase or sell, convert, redeem, convey,
exchange, transfer, abandon, improve, repair,
insure, lease for any term even though
commencing in the future or extending beyond
the term of the Trust, and otherwise deal
with all property, real or personal,
(including selling short securities, futures,
derivatives or other similar investments) on
such terms and conditions as appropriate, and
no person dealing with the Trustee shall be
required to see to the application of any
money or property delivered to the Trustee or
to inquire into the validity or propriety of
any transaction with the Trustee; and to
acquire, hold or dispose of property, real or
personal, in any form or manner including,
without limitation, directly or indirectly
through general or limited partnerships,
corporations, trusts, participating or
convertible mortgages or any other form.
(e) Subject to the provisions of subsection 2.3,
to have and exercise, with respect to the
Trust Fund, all of the rights of an
individual owner, including but not limited
to the power to give proxies, to participate
or oppose participation in voting trusts,
mergers, consolidations, foreclosures,
reorganizations or liquidations, to tender
securities pursuant to tender offers, to
exercise, buy or sell any stock subscription
or conversion rights or privileges available
in connection with any securities or other
property and to deposit any property with any
protective, reorganization or similar
committee or with depositories designated
thereby, to delegate power thereto, and to
pay or agree to pay part of the expenses and
compensation of any such committee and any
assessments levied with respect to property
so deposited.
(f) To hold any securities or other property in
the name of the Trustee or its nominee, or in
such form as appropriate, with or without
disclosing the trust relationship and to hold
any securities in bearer form.
(g) To engage in the lending of securities to
banks, broker-dealers and other borrowers
pursuant to any applicable regulatory
authority and in accordance with a written
agreement entered into with the Company
containing any guidelines and directions
provided by the Company, and to receive and
invest collateral provided by the borrower.
(h) To deposit securities with a clearing
corporation as defined in Article 8 of the
Massachusetts Uniform Commercial Code and to
deposit or pledge securities or other
property with any broker-dealer or other
person (including the Trustee). The
certificates representing securities,
including those in bearer form, may be held
in bulk form with, and may be merged into,
certificates of the same class of the same
issuer which constitute assets of other
accounts or owners, without certification as
to the ownership attached. Utilization of a
book-entry system may be made for the
transfer or pledge of securities held by the
Trustee or by a clearing corporation. The
Trustee shall at all times, however, maintain
a separate and distinct record of the
securities owned by the Trust Fund.
(i) To participate in and use the Federal Book-
entry Account System, a service provided by
the Federal Reserve Bank for its member banks
for deposit of Treasury securities.
(j) To purchase, sell, hold and generally deal in
any manner in and with interest rate, stock
index, commodity, currency or other futures
contracts and to close any open futures
contracts positions prior to or in the
contract's delivery month.
(k) To grant, purchase, sell, exercise, permit to
exercise, permit to beheld in escrow and
otherwise to acquire, dispose of, hold and
generally deal in any manner with or in all
forms of options, including index options and
over-the-counter options, in any combination.
(l) To enter into and engage in any form of swap
transaction.
(m) To purchase, sell and otherwise acquire,
dispose of, hold and generally deal in any
manner with or in domestic or international
currency or currency contracts, including
transactions entered into with the Trustee,
its agents or sub-custodians.
(n) To manage, administer, operate, lease for any
number of years, develop, improve, repair,
alter, demolish, mortgage, pledge, grant
options or easements with respect to, or
otherwise deal with real property or any
interest therein.
(o) To renew or extend or participate in the
renewal or extension of any mortgage, upon
such terms as may be deemed advisable and to
agree to a reduction in the rate of interest
on any mortgage or to any other modification
or change in the terms of any mortgage or to
any guarantee pertaining thereto in any
manner and to any extent that may be deemed
advisable for the protection of the Trust or
the preservation of the value of the
investment; to waive any default, whether in
the performance of any covenant or condition
of any mortgage or in the performance of any
guarantee, or to enforce any such default in
such manner and to such extent as may be
deemed advisable; to exercise and enforce any
and all rights of foreclosure, to bid on
property in foreclosure, to take a deed in
lieu of foreclosure with or without paying a
consideration therefor and in connection
therewith to release the obligation on the
bond secured by such mortgage, and to
exercise and enforce in any action, suit or
proceeding at law or in equity any rights or
remedies with respect to any such mortgage or
guarantee.
(p) To invest all or any portion of the assets of
the Trust Fund in any collective, combined,
common or group investment trust or fund,
including any such trust or fund maintained
by the Trustee.
(q) Subject to such directions as the Company
provides (which may be either standing
directions in the form of a written agreement
with the Trustee or a separate letter of
direction) to retain or invest any reasonable
portion of the Trust Fund (including cash
balances held from time to time as part of an
Investment Manager or Company Investment
Account as described in Sections 3 and 4) in
cash or cash equivalents (pending other
investment, reinvestment or payment of
expenses or benefits), including, but not
limited to, savings accounts, certificates of
deposit, repurchase agreements (including
savings accounts, certificates of deposit and
repurchase agreements with the Trustee in its
banking capacity or its affiliates, so long
as such investments bear a reasonable rate of
interest), United States Treasury bills,
commercial paper and similar types of
securities and any collective trust or mutual
fund maintained by the Trustee for the
management of cash or cash equivalents; and
to sell any such cash equivalent instruments.
(r) To borrow money to cover any overdraft; to
borrow or lend money or otherwise extend
credit from time to time, with or without
security, from or to any legally permissible
source in the best interest of the Trust
Fund; to mortgage, encumber or pledge any
part of the Trust Fund to secure repayment of
any indebtedness resulting from such
borrowing; to provide guarantees with respect
to the extension of credit or other benefits
by any entity; to assume liens on property
acquired by the Trust and to acquire property
subject to liens.
(s) To convert any monies into any currency
through foreign exchange transactions (which
may be effected with the Trustee or an
affiliate of the Trustee).
(t) To form corporations and limited liability
companies and to create partnerships or
trusts to acquire, dispose of or hold title
to any securities or other property of the
Trust.
(u) To settle, compromise, contest, submit to
arbitration or abandon any claims, debts,
damages or demands by or against the Trust
Fund; to commence, maintain or defend suits
or legal proceedings and to represent the
Trust in all suits or legal proceedings;
provided that the Trustee shall not settle,
compromise or abandon any such matter without
the Company's written consent.
(v) To retain any funds or property subject to
any dispute without liability for payment of
interest to any third party, and to withhold
payment or delivery thereof until final
adjudication of the dispute by a court of
competent jurisdiction.
(w) To make payments from the Trust Fund in
accordance with subsection 5.3 and to pay out
of or withhold from any benefit distributable
from the Trust Fund any estate, inheritance,
income or other tax, charge or assessment
attributable thereto, subject to the
provisions of subsection 6.1 and Section 10
and to require such release or other
documents from any lawful taxing authority
and such indemnity from the intended payee as
may be necessary for the protection of the
Trust, the Company, the Subsidiaries or the
Trustee.
(x) To employ agents experts, custodians
(including but not limited to affiliates of
the Trustee), sub-custodians and counsel
(which may be counsel to the Company) and to
delegate discretionary powers to, and
reasonably rely upon information and advice
furnished by, such agents, experts,
custodians, sub-custodians and counsel.
(y) To appoint trustees, sub-trustees, custodians
or sub-custodians to hold title to property
of the Trust in those jurisdictions in which
the Trustee is not authorized to do business
or as may otherwise be reasonable and
necessary to carry out the purposes of the
Trust and, subject to the provisions of this
Trust, to define the scope of the
responsibilities of each such trustee, sub-
trustee, custodian and subcustodian.
(z) To grant powers of attorney to such
individuals or organizations as may be
necessary or appropriate.
(aa) To perform any and all other acts in its
judgment necessary or appropriate for the
proper and advantageous management,
investment, and distribution of the Trust
Fund or to carry out any of the foregoing
powers and the purposes of the Trust.
The Trustee shall transmit promptly to the Company or an
Investment Manager, as the case may be, all notices of
conversion, redemption, tender, exchange, subscription,
class action, claim in insolvency proceedings or other
rights or powers relating to any of the securities in a
Company Investment Account or an Investment Manager Account
managed by the Company or such Investment Manager, which
notices are received by the Trustee from its agents or
custodians, from issuers of the securities in question and
from the party (or its agents) extending such rights. On a
monthly basis (or at such other periodic intervals as the
Company and the Trustee may agree upon), the Trustee shall
transmit to the Company a summary of information regarding
all class actions or claim in insolvency proceedings
received by the Trustee in the preceding month (or other
agreed-upon period), regardless of whether the Company or an
Investment Manager is responsible for the securities in the
Company Investment Account or Investment Manager Account to
which such actions or proceedings relate. The Company may
from time to time direct the Trustee to cease transmitting
such reports if the Company determines they are not
necessary at that time. The Trustee shall have no
obligation to determine the existence of any conversion,
redemption, tender, exchange, subscription, class action,
claim in insolvency proceedings or other right or power
relating to any of the securities in the Trust Fund of which
notice was given prior to the purchase of such securities by
the Trust Fund, and shall have no obligation to exercise any
such right or power unless the Trustee is informed of the
existence of the right or power.
The Trustee shall not be liable for any untimely exercise or
assertion of such rights or powers described in the
subsection immediately above in connection with securities
held in a Company Investment Account or an Investment
Manager Account managed by the Company or an Investment
Manager unless (i) the Trustee or its agents or custodians
are in actual possession of such securities and (ii) the
Trustee receives directions to exercise any such rights or
powers from the Company or the Investment Manager, as the
case may be, and both (i) and (ii) occur at least three
business days prior to the date on which such rights or
powers are to be exercised; provided, however, that the
Trustee shall not be relieved from liability under this
subsection for the untimely assertion of such rights or
powers due to failure to timely receive direction with
respect to any securities held in a Investment Manager
Account for which the Trustee has been named the Investment
Manager.
2.6 Administrative Powers. Notwithstanding the
appointment of an Investment Manager, the Trustee shall have
the following powers and authority to be exercised in its
sole discretion, with respect to the Trust Fund:
(a) To employ suitable agents, experts,
custodians, sub-custodians and counsel.
(b) To appoint ancillary trustees, sub-trustees,
custodians or subcustodians to hold any
portion of the assets of the Trust.
(c) To register any securities held by the
Trustee hereunder in its own name or in the
name of a nominee with or without the
addition of words indicating that such
securities are held in a fiduciary capacity
and to hold any securities in bearer form and
to deposit any securities or other property
in a depository or clearing corporation.
(d) To make, execute and deliver, as Trustee, any
and all deeds, leases, mortgages,
conveyances, waivers, releases or other
instruments in writing necessary or desirable
for the accomplishment of any of the
foregoing powers.
(e) Generally to do all ministerial acts, whether
or not expressly authorized, which the
Trustee may deem necessary or desirable in
carrying out its duties under this Trust.
Section 3. Appointment of Investment Managers
3.1 Investment Managers. Notwithstanding anything in
this Trust to the contrary, the Company (or any organization
or individual to whom the Company has delegated such
authority) shall have the right from time to time to appoint
or remove an individual, partnership or corporation (which
may be a subsidiary of the Company or any other Subsidiary)
as Investment Manager each of whom shall have the power to
manage and to direct the Trustee with respect to the
acquisition and disposal of assets constituting all or a
portion of the Trust Fund, to be known as an "Investment
Manager Account". Written notice of any such appointment
and/or removal shall be given to the Trustee and the
Investment Manager so appointed or removed. As long as an
Investment Manager is acting, such Investment Manager shall
direct the Trustee to invest and the Trustee shall invest
the applicable Investment Manager Account (subject to the
provisions of subsection 2.5(q)) in any property in which
the Trustee could invest under this Trust. Subject to the
provisions of the investment management agreement and
subsection 2.5(q)), the Investment Manager of any Investment
Manager Account shall have all of the investment powers and
duties granted to or imposed on the Trustee under the
provisions of subsection 2.5. Subject to the provisions of
subsection 2.3, the Investment Manager shall have full
authority and the responsibility to direct the Trustee with
respect to the acquisition, retention, management, and
disposition of all of the assets from time to time
comprising the Investment Manager Account being managed by
such Investment Manager and the voting of proxies thereon,
and the Trustee shall have no duty or obligation to review
the assets from time to time comprising such Investment
Manager Account, to make recommendations with respect to the
investment, reinvestment, or retention thereof, nor with
respect to the voting of proxies thereon, except as would
otherwise be required to meet the Trustee's obligations
under the Trust, or any applicable law. At the request of
the Trustee, an Investment Manager shall certify the value
of any securities or other property held in the Investment
Manager Account managed by the Investment Manager and the
Trustee shall be entitled to incorporate such information in
its reports. The Trustee shall inform the Company if the
Trustee uses an Investment Manager's valuation for a
particular security or other property.
3.2 Investment Manager Account Cash. Pending receipt
of directions from the Investment Manager, cash received by
the Trustee from time to time for any Investment Manager
Account shall be fully invested in accordance with Company
directions which may be either standing directions in the
form of a written agreement with the Trustee or a separate
letter of direction.
3.3 Directions. Any direction given to the Trustee by
an Investment Manager with respect to an Investment Manager
Account shall either (1) be made in writing or via facsimile
or other electronic communications as shall be agreed upon
by the Investment Manager and the Trustee or (2) if oral,
shall be confirmed in writing or via facsimile or other
electronic communications as shall be agreed upon by the
Investment Manager and the Trustee within a reasonable
period. The Trustee may issue to an Investment Manager
security codes or passwords in order that the Trustee may
verify that certain transmissions of information, including
directions or instructions have been originated by the
Investment Manager. To the extent that directions or
instructions using such security codes or passwords
constitute proper directions, Trustee liability associated
with such directions shall be governed by Section 7 of this
Trust. Except as otherwise provided in this Trust, the
Investment Manager of an Investment Manager Account shall
have the power and authority, to be exercised in its sole
discretion at any time and from time to time, to issue
orders for the purchase or sale of securities directly to a
broker. Written notification of the issuance of each such
order shall be given promptly to the Trustee by the
Investment Manager and the confirmation of each such order
shall be confirmed to the Trustee by the broker. Unless
otherwise directed by the Investment Manager, such
notification shall be authority for the Trustee to pay for
securities purchased or to deliver securities sold as the
case may be. Upon the direction of the Investment Manager,
the Trustee will execute and deliver appropriate trading
authorizations, but no such authorization shall be deemed to
increase the liability or responsibility of the Trustee
under this Trust Agreement.
3.4 Notice. The Trustee may assume that any
Investment Manager Account previously established and the
appointment of any Investment Manager for that account
continues in force until receipt of written notice to the
contrary from the Company, In addition, except as otherwise
provided in subsection 3.2, the Trustee shall have no
responsibility to invest or manage any asset held in an
Investment Manger Account (unless the Trustee has itself
been appointed Investment Manager for such account as
described below) until the Trustee is (1) notified by the
Company in writing of the termination of the Investment
Manager's authority over the assets of such account and (2)
directed in writing to terminate the Investment Manager
Account and to transfer the assets of such account to the
Trustee's management as part of the Trust Fund pursuant to a
separate, written agreement. In the event that the Trustee
enters into such an agreement, it shall have the powers and
duties of an Investment Manager with regard to such account,
in addition to its powers and duties as Trustee.
Section 4. Establishment of Company Investment Account
4.1 Company Investment Accounts. The Company may, by
writing filed with the Trustee, assume investment
responsibility over any portion of the Trust Fund designated
by it as a "Company Investment Account". In addition,
during any time when there is no Investment Manager
(including the Trustee if appointed as an Investment Manager
) appointed with respect to all or part of the Trust Fund,
the Company shall direct the investment and reinvestment of
all or such portion of the Trust Fund. With respect to
assets of Company Investment Accounts over which the Company
has assumed investment responsibility, the Company shall
direct the Trustee to invest and the Trustee, shall invest
the applicable Company Investment Account (subject to
subsection 2.5(q)) in any property in which the Trustee
could invest under this Trust. With respect to any Company
Investment Account for which the Company has assumed
investment responsibility, the Company shall have all of the
investment powers and duties granted to or imposed on the
Trustee under the provisions of subsection 2.5. The Company
shall have full authority and the responsibility to direct
the Trustee with respect to the acquisition, retention,
management, and disposition of all of the assets from time
to time comprising the Company Investment Account being
managed by the Company and the voting of proxies thereon,
and the Trustee shall have no duty or obligation to review
the assets from time to time comprising such Company
Investment Account, to make recommendations with respect to
the investment, reinvestment or retention thereof nor with
respect to the voting of proxies thereon, except as would
otherwise be required to meet the Trustee's obligations
under the Trust or any applicable law. The Company shall
have the powers and duties with regard to the manner of
giving direction to the Trustee which an Investment Manager
would have under subsection 3.3 and the Trustee shall be
protected to the same extent as if those directions came
from an Investment Manager.
Section 5. Accounting and Distribution of Trust Assets
5.1 Common Fund. Subject to the following provisions
of this subsection 5.1 and the provisions of subsection 8.2,
the Trustee shall not be required to make any separate
investment of the Trust Fund for the account of the Plan as
applied to the Company or any Subsidiary and may administer
and invest all contributions made to the Trustee as one
Trust Fund. The Trustee shall establish and maintain
records which reflect the portion of the Trust Fund
attributable to the Company and each of the Subsidiaries.
Such records shall be adjusted, as of the last day of each
calendar year and at such other times as the Company shall
direct, to reflect changes in the Trust Fund and in the
Company's and each Subsidiary's portion of the Trust Fund.
The Trustee shall establish, maintain and adjust such
records based upon information provided by the Company on
behalf of itself and the Subsidiaries; or, if the Company
fails to provide such information, the Trustee shall
establish, maintain and adjust such records based upon the
information otherwise reasonably available to the Trustee
and subject to the Company's review and confirmation of such
information. The Trustee shall not be required to make any
separate investment of the Trust Fund for the account of any
creditor of the Company or any Subsidiary prior to receipt
of directions to make payments to such creditor in
accordance with subsection 8.2.
5.2 Trustee Records and Accounts. The Trustee shall
maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions
hereunder; and all accounts, books and records relating
hereto shall be open at all reasonable times to inspection
and audit by such person or persons as the Company may
designate. The Trustee shall submit to the auditors for the
Company or to anyone the Company designates, such
valuations, reports or other information as they may
reasonably require. The Trustee and the Company acknowledge
that cooperation with such audits could exceed the scope of
the usual Trustee services, in which case the Trustee shall
be entitled to reasonable compensation and reimbursement of
its reasonable expenses incurred in connection with such
audits, as agreed to by the Company and the Trustee at that
time. The Trustee shall establish and maintain for
operational and accounting purposes such other accounts or
records as the Company and the Trustee may from time to time
agree upon.
Within ninety (90) days following the close of each calendar
year (or following the close of such other period as may be
agreed upon by the Trustee and the Company) and as often as
may reasonably be requested by the Company and agreed to by
the Trustee, the Trustee shall file with the Company a
written account pursuant to guidelines provided by the
Company and agreed to by the Trustee setting forth a
description of all securities and other property purchased
and sold, and all receipts, disbursements and other
transactions effected by it upon its own authority or
pursuant to the directions of any Investment Manager or the
Company during such annual or shorter period, and showing
the securities and other properties held at the end of such
period, and their current value. Such securities and other
property shall be valued at their market values, or if none,
at their fair values as determined in good faith and
pursuant to procedures established by the Trustee. Market
values or fair values may be taken by the Trustee as of such
times as the Trustee determines to be appropriate, and from
such financial publications, pricing services, or other
services or sources, including an Investment Manager, as the
Trustee reasonably believes appropriate.
The Company may approve such accounting by written notice of
approval delivered to the Trustee or by failure to express
objection to such accounting in writing delivered to the
Trustee within twelve months from the date upon which the
accounting was delivered to the Company.
Upon the receipt of a written approval of the accounting, or
upon the passage of the period of time within which
objection may be filed without written objections having
been delivered to the Trustee, such accounting shall be
deemed to be approved, and the Trustee shall be released and
discharged as to all items, matters and things set forth in
such account.
5.3 Benefit Payments. Subject to the provisions of
subsection 8.2, the Trustee shall make payments from the
Trust Fund to Participants or other persons entitled to
benefits under the Plan, in such manner, at such times and
in such amounts as the Committee may certify to the Trustee,
subject to the following:
(a) If any payment directed to be made from the
Trust Fund is not claimed, the Trustee shall
notify the Committee of that fact within a
reasonable time period and shall dispose of
unclaimed distributions and take such further
action as directed by the Committee.
(b) If a benefit to which a Participant or other
person is entitled under the terms of the
Plan has not been paid when due (whether due
to the failure of the Committee to notify the
Trustee as required by this subsection or
otherwise), then such individual may notify
the Trustee thereof and request payment in
writing. The Trustee shall notify the
Committee within 10 days of the receipt of
such payment request. If the Committee does
not provide the Trustee with evidence
satisfactory to the Trustee of the payment of
any amount to which the individual is
entitled within 30 days of the date the
Trustee notifies the Committee of the payment
request, subject to the provisions of
subparagraph (c) below and the provisions of
subsection 8.2, the Trustee shall make such
payment to the individual and shall notify
the Committee thereof.
(c) In no event shall the Trustee make any
payment to or on account of a Participant or
any other person to the extent that such
payment would exceed the portion of the Trust
Fund then attributable to the Company or the
Subsidiary responsible for such payment under
the Plan.
(d) Any payment under the Trust shall be made in
cash unless the Trustee is otherwise directed
by the Committee.
5.4 Withdrawals. If a Change in Control within the
meaning of subsection 1.5(b)(ii) occurs but such event does
not cause, and there does not otherwise occur within the
immediately following 180-day period, a Change in Control
within the meaning of subsections 1.5(a), 1.5(b)(i), or
1.5(c), the Trustee, upon receipt of a written withdrawal
request from the Company or any Subsidiary, shall make a
distribution from the Trust fund to the Company or
Subsidiary, as the case may be, in an amount not in excess
of the portion of the Trust Fund attributable to the Company
or such Subsidiary under subsection 5.1.
Section 6. Trustee Compensation and Expenses
6.1 Compensation and Expenses. The Trustee is
authorized to pay from the Trust Fund such compensation and
all reasonable and proper expenses, and charges (including
fees of persons employed by the Trustee in accordance with
subsection 2.5(x) and 2.5(y) and subsection 2.6(a) and
2.6(b) incurred in connection with the collection,
administration, management, investment, protection and
distribution of the Trust Fund as shall be agreed upon in
writing by the Company and the Trustee and to the extent
that they are not paid directly by the Company or any
Subsidiary. In addition, the Trustee is authorized to pay
from the Trust Fund any tax or assessment levied against the
Trust Fund by any governmental authority. The Trustee shall
notify the Company as soon as reasonably practicable (but in
any event no later than five (5) business days) after the
Trustee receives notice of such tax or assessment and shall
provide the Company with such information as the Trustee has
received concerning such tax or assessment. The Company may
direct that the Trustee refrain from paying the tax or
assessment for a period of up to 120 days (or, if longer,
such period as may be available until such tax or assessment
is due and payable under applicable law (the "Review
Period")), during which time the Trustee will provide all
reasonable assistance to the Company in determining the
validity of such tax or assessment and will cooperate in all
reasonable efforts to have the tax or assessment waived or
mitigated if such tax or assessment is considered not to be
owed by the Trust. At the end of such 120 days (or the
Review Period), if the tax or assessment remains
outstanding, the Trustee may pay the tax or assessment
unless otherwise directed in writing by the Company, upon
the advice of counsel satisfactory to both the Company and
the Trustee. If the Trustee engages in the lending of
securities or the investment of cash or cash equivalents
pursuant to subsection 2.5(g) or 2.5(q), the Trustee's
compensation shall include any additional compensation
agreed to in writing by the Company and the Trustee with
respect to such activities. In addition, the Trustee is
authorized to pay from the Trust Fund all reasonable
Investment Manager or investment advisor fees, legal fees,
actuarial fees, accounting fees, and other reasonable
administrative expenses of the Trust including Trust
administration expenses incurred by the Company or any other
Subsidiary at the direction of the Company, to the extent
that they are not paid directly by the Company or any
Subsidiary. To the extent that the foregoing expenses are
paid directly by the Company or any Subsidiary, the Trustee
shall reimburse the Company or such Subsidiary from the
Trust Fund to the extent directed by the Company.
Section 7. Indemnification of Trustee
7.1 Indemnification of Trustee. To the extent not
prohibited by applicable law, the Company agrees to
indemnify the Trustee and hold it harmless, from any and all
liability or expense (including any reasonable legal fees
and reasonable expenses incurred by the Trustee in its
defense if the Company fails to provide such defense or any
reasonable legal fees and reasonable expenses incurred by
the Trustee pursuant to subsection 7.1(a) below), which the
Trustee may sustain by (a) bringing any legal action
required pursuant to subsection 1.6, (b) following any
proper direction of an Investment Manager, the Company, the
Committee or the AMC made in accordance with this Trust or
(c) any failure to act in the absence of proper directions
from an Investment Manager, the Company, the Committee or
the AMC, provided that the Trustee's action or failure to
act is otherwise consistent with its fiduciary obligations
under any applicable law and the Trust, and provided
further, that the Trustee shall not be indemnified if such
liability or expense results from the Trustee's negligence
or if the Trustee knowingly participates in, or knowingly
undertakes to conceal an act or omission of such Investment
Manager, the Company, the Committee, or the AMC, knowing
such act or omission to be a breach. Anything in this Trust
to the contrary notwithstanding, the preceding sentence
shall not apply to the extent the Trustee is acting as an
Investment Manager with respect to all or any portion of the
Trust Fund. This Section shall survive the termination of
the Trust or the resignation or removal of the Trustee with
respect to liability or expense arising from events which
occurred before the transfer of assets to a successor
Trustee.
Section 8. Trust Fund Assets
8.1 Reversions to the Company and the Subsidiaries.
Subject to the following provisions of this subsection 8.1
and the provisions of subsection 8.2 on and after the date
on which the Trust becomes irrevocable under subsection
12.1, no part of the corpus or income of the Trust Fund
shall revert to the Company or any Subsidiary or be used
for, or diverted to, purposes other than the exclusive
benefit of Participants or other persons entitled to
benefits under the Plan; provided, however, that if any
funds attributable to contributions of the Company or any
Subsidiary (or earnings thereon) remain after the
satisfaction of all liabilities of the Trust with respect to
all Participants who were previously employed by, or are
entitled to benefits by reason of being a survivor or
beneficiary of an employee of, the Company or such
Subsidiary such amounts shall be returned to the Company or
such Subsidiary.
8.2 Claims of Creditors. Notwithstanding any
provision of this Trust, any property held in the Trust Fund
shall be treated as an asset of the Company and the
Subsidiaries and shall be subject to the claims of the
general creditors of the Company and each Subsidiary to the
extent of their respective interests under the Trust if such
claims are not satisfied by payment from the other general
assets of the Company or the Subsidiary, as the case may be,
because of the Company's or Subsidiary's Insolvency (as
described below). The Chairman of the Board of Directors
and the Chief Executive Officer of the Company on behalf of
the Company and/or any Subsidiary shall have a duty to
notify the Trustee, in writing, of the Insolvency of the
Company or such Subsidiary. In addition, if a person
claiming to be creditor of the Company or a Subsidiary
alleges in writing to the Trustee that the Company or such
Subsidiary has become Insolvent, the Trustee shall determine
whether the Company or such Subsidiary is Insolvent and,
pending such determination, the Trustee shall discontinue
payment of benefits to the Plan Participants (or their
beneficiaries) of the Company or such Subsidiary. Unless
the Trustee has actual knowledge of the Company's or a
Subsidiary's Insolvency, or has received notice from the
Company or a person claiming to be a creditor alleging that
the Company or a Subsidiary is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent.
The Trustee may in all events rely on such evidence
concerning the Company's or a Subsidiary's solvency as may
be furnished to the Trustee and that provides the Trustee
with a reasonable basis for making a determination
concerning the Company's or a Subsidiary's solvency.
If at any time the Trustee has determined that the Company
or a Subsidiary is Insolvent, the Trustee shall discontinue
payments to Plan Participants (or their beneficiaries) of
the Company or such Subsidiary and shall hold the assets of
the Trust equal to that portion of the Trust Fund
attributable to the Company or such Subsidiary for the
benefit of the Company's or such Subsidiary's general
creditors. Nothing in this Trust shall in any way diminish
any rights of Plan Participants or their beneficiaries to
pursue their rights as general creditors of the Company or a
Subsidiary with respect to benefits due under the Plan or
otherwise. The Trustee shall resume the payment of benefits
to the affected Plan Participants (or their beneficiaries)
only after the Trustee has determined that the Company or
such Subsidiary is not Insolvent (or is no longer
Insolvent).
Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to this subsection 8.2 and subsequently resumes such
payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to
Plan Participants or their beneficiaries under the terms of
the Plan for the period of such discontinuance, less the
aggregate amount of any payments made to the Plan
Participants or their beneficiaries by the Company or a
Subsidiary in lieu of the payments provided for hereunder
during any such period of discontinuance.
The Company or any Subsidiary shall be considered as
"Insolvent" (or in a condition of "Insolvency") for purposes
of this Trust if it is (i) unable to pay its debts generally
as they become due or (ii) engaged as a debtor in a
proceeding under the Bankruptcy Code (11 U.S.C. 101 et
seq.).
8.3 Claims of Participants. Neither the Participants
nor other persons entitled to benefits under the terms of
the Plans nor the Plans shall have any preferred claim on,
or any beneficial ownership in, any assets of the Trust, or
be entitled to any payment from the Trust, except to the
extent that payment is due and unpaid, and all rights of a
Participant (or such other person) created under the Plans
and this Trust shall constitute unsecured contractual rights
of the Participant (or such other person). It is intended
that neither the Plans nor the Trust be subject to the
provisions of part 4 of Title I of the Employee Retirement
Income Security Act of 1974, as amended, ("ERISA"). To the
extent the assets of the Trust are insufficient to pay all
benefits of a Participant (or other person) when due, the
Company and the Subsidiaries shall continue to be liable to
the Participant (or other person) for such benefit payments
in accordance with the terms of the Plans.
Section 9. Adoption by Subsidiaries
9.1 Adoption by and Definition of Subsidiaries. Any
Subsidiary may
join in this Trust by obtaining the written consent of the
Company and providing notice to the Trustee. The term
"Subsidiary" means (i) any corporation of which the Company
owns at least 50% of the combined voting power of all
classes of stock entitled to vote and which previously
adopted or hereafter adopts the Plan and (ii) any affiliate,
which means any corporation (other than a subsidiary
described in (i) above) which would be a member of a
controlled group of corporations with the Company under
Section 1563(a) of the Code which previously adopted or
hereafter adopts the Plan.
Section 10. Tax Matters
10.1 Nature of Trust. This Trust is intended to
constitute a grantor trust, as described in section 671 of
the Code. The Company and the Subsidiaries agree that all
income of the Trust is attributable to them as owners of the
Trust assets for income tax purposes and will be income to
the Company and the Subsidiaries. The Company and the
Subsidiaries shall pay the Federal, state or local taxes on
such Trust income or shall direct the Trustee to pay such
taxes from Trust income based upon the information provided
to the Company by the Trustee concerning such income in
accordance with subsection 5.2.
10.2 Federal and State Reporting Requirements. The
Trustee shall withhold Federal, state and local taxes which
are assessable on amounts paid to or on account of the
Participants based upon direction provided to the Trustee by
the Company, or such larger amounts as may be requested by
the Participant, and shall transmit the amount withheld
either (i) to the Company which shall deposit and report
such amounts to the applicable taxing authority or (ii) to
the applicable taxing authority at the direction of the
Company. The Company and the Trustee shall furnish to the
Participants all withholding and benefit payment information
with respect to amounts transmitted by them to the
applicable taxing authorities as soon as practicable after
the end of each calendar year.
10.3 Tax Matters. If the Internal Revenue Service
determines that a Participant is subject to Federal income
taxation on any amounts held in the Trust for his benefit in
a calendar year prior to the calendar year in which he would
otherwise receive such benefits then as soon as practicable
after its receipt of a copy of the applicable notice of
deficiency issued by the Internal Revenue Service, the
Trustee shall distribute the amount of the benefits
determined to be taxable to the Participant unless the
Company or applicable Subsidiary provides satisfactory
evidence to the Trustee that such benefits have previously
been paid to the Participant under the Plan or that such
Participant is not entitled to such benefits under the Plan.
Section 11. Change of Trustee
11.1 Resignation. The Trustee may resign at any time
prior to a Change in Control by giving one hundred twenty
(120) days' advance written notice to the Company, the
Committee, and the Participants, provided that if the
Trustee is resigning because it will no longer be providing
trustee services to plans such as the Plans, the Trustee
must give one hundred eighty (180) days advance written
notice of such resignation to the Company, the Committee,
and the Participants. Prior to the effective date of any
such resignation, the Company shall appoint a successor
Trustee which is a corporation with not less than $5 billion
in trust assets.
After a Change in Control has occurred, the Trustee may
resign only after the first to occur of: (i) a final
decision of a court of competent jurisdiction removing the
Trustee by reason of such court's determination of the
existence of a conflict of interest which prevents the
Trustee from properly performing its duties hereunder; or
(ii) the third anniversary of the Change in Control. The
Trustee agrees to use its best efforts to avoid any such
conflict described in clause (i) above. For purposes of
this subsection, the decision of a court shall not be deemed
to be final unless the decision is not appealable, or no
appeal has been taken from the decision and the time for an
appeal has expired. Notwithstanding the foregoing
provisions of this subsection, any such resignation pursuant
to clauses (i) or (ii) above shall not be effective unless
the Trustee has appointed and obtained the agreement of a
corporation which is not affiliated with the Company and
which has trust assets of not less than $5 billion to serve
as successor trustee.
11.2 Removal of Trustee.
(a) Except as provided in subparagraph (b) of this
subsection 11.2 below, the Committee may remove
any Trustee by giving thirty (30) days' advance
written notice to the Trustee, subject to
providing the removed Trustee with satisfactory
written evidence of the appointment of a successor
Trustee with not less than $5 billion in trust
assets and of the successor Trustee's acceptance
of the trusteeship;
(b) Anything in this Trust to the contrary
notwithstanding, in the event of a Change in
Control as defined in subsection 5.4, the Company,
by action of its Board of Directors or of a person
or persons designated by its Board of Directors,
may remove any Trustee only with the consent of
all of the Participants, by giving thirty (30)
days' advance written notice to the Trustee,
subject to providing the removed Trustee with
satisfactory written evidence of the appointment
of a successor Trustee with not less than $5
billion in trust assets and of the successor
Trustee's acceptance of the trusteeship.
11.3 Duties of Resigning or Removed Trustee and of
Successor Trustee. Each successor Trustee shall succeed to
the title to the Trust Fund vested in its predecessor,
without the signing or filing of any further instrument, but
any resigning or removed Trustee shall execute all documents
and do all acts necessary to vest such title of record in
any successor Trustee. In the event of the resignation or
removal of the Trustee, the Trustee shall assign, transfer
and pay over to the duly appointed successor Trustee the
assets then constituting the Trust Fund, and only thereafter
shall the resigning or removed Trustee be relieved of its
duties and responsibilities as Trustee hereunder. Within
ninety (90) days following the effective date of such
resignation or removal, the resigned or removed Trustee
shall furnish to the Company and the successor Trustee an
account of its administration of the Trust from the date of
its last account in accordance with the procedures described
in subsection 5.2; provided, that if at such time current
valuation information is not available for any individual or
group of securities or other property, the Trustee shall use
such values for this accounting as may then be available
and, as soon as reasonably practicable after such current
valuation information for such accounting period becomes
available, shall provide the current values for that period
to the Company and the successor Trustee. The Company and
the successor Trustee may approve such accounting by written
notice of approval delivered to the Trustee or by failure to
express objection to such accounting in writing delivered to
the Trustee within twelve months from the date upon which
the account was delivered to the Company and the successor
Trustee. Upon the receipt of a written approval of the
account, or upon the passage of the period of time within
which objection may be filed without written objections
having been delivered to the Trustee, such accounting shall
be deemed to be approved, and the Trustee shall be relieved
and discharged as to all items, matters and things set forth
in such account. Each successor Trustee shall have all the
powers, rights and duties conferred by this Trust as if
originally named Trustee. Except as otherwise provided
under applicable law, neither the Trustee hereunder nor any
successor Trustee shall be personally liable for any act or
failure to act of a predecessor Trustee.
11.4 Additional Trustees. The Committee shall
have authority at any time
and for any purpose, to designate additional trustees and to
define the scope of authority for each. Each additional
trustee appointed under this Trust shall signify its
acceptance of trusteeship by an instrument executed and
acknowledged by it and delivered to the Committee. If there
are two or more trustees acting hereunder, the Committee may
at any time direct that all or any portion of the Trust Fund
and the accounts, books and records relating thereto shall
be transferred from one trustee to another. Each trustee
shall individually hold, administer, invest and keep
invested the portion of the Trust Fund held by it from time
to time upon the terms, conditions, and limitations set
forth in this Trust, as though the Company had entered into
a separate trust agreement with each trustee having the same
terms and conditions as this Trust, and each trustee shall
be subject to the same duties and responsibilities and shall
have the same powers and rights with respect to the portion
of the Trust Fund held by it as a single trustee would have
with respect to the entire Trust and each trustee shall have
no duties or responsibilities and shall have no powers or
rights with respect to that portion of the Trust Fund not
held by it but held by another trustee, except as otherwise
provided under the Code or other applicable law. As used in
this Trust, the term "Trustee" shall mean any one or more
duly appointed trustees with respect to that portion of the
Trust Fund held from time to time by each such trustee.
Section 12. Amendment, Revocation and Termination
12.1 Amendment and Revocation. The Company may amend
or revoke this Trust, including Schedule A hereof, at any
time prior to the earlier of a Change in Control or the date
on which a tender offer which has not been negotiated and
approved by the Company's Board of Directors is made for
stock representing twenty percent or more of the total
voting power of the Company's stock. This Trust, including
Schedule A hereof, may be amended or revoked after a Change
in Control or any such tender offer only with the consent of
75% of all employees and former employees who are currently
or contingently entitled to benefits under the Plan. No
amendment shall materially change the rights, duties and
responsibilities of the Trustee without its consent.
Subject to the foregoing provisions of this subsection 12.1,
the Company's Senior Vice President - Human Resources, or
such other officer of the Company as may from time to time
be primarily responsible for human resources matters, may,
with the concurrence of the Company's Executive Vice
President and General Counsel, or such other officer of the
Company as may from time to time be primarily responsible
for legal matters, make minor or administrative amendments
to the Trust.
12.2 Termination. Unless otherwise revoked in
accordance with the provisions of subsection 12.1, this
Trust shall continue in effect until such time as all of the
assets of the Trust Fund have been distributed in accordance
with the terms of this Trust. Upon termination of the Trust
all of the provisions of the Trust as evidenced by this
agreement nevertheless shall continue in effect until the
Trust Fund has been distributed by the Trustee.
Section 13. Miscellaneous
13.1 Disagreement as to Acts. If there is a
disagreement between the Trustee and anyone as to any act or
transaction reported in any accounting, the Trustee shall
have the right to have its account settled by a court of
competent jurisdiction.
13.2 Persons Dealing with Trustee. No person dealing
with the Trustee shall be required to see to the application
of any money paid or property delivered to the Trustee, or
to determine whether or not the Trustee is acting pursuant
to any authority granted to it under this Trust.
13.3 Evidence. Evidence required of anyone under this
Trust may be by certificate, affidavit, document or other
instrument which the person acting in reliance thereon
reasonably considers pertinent and reliable, and signed,
made or represented by the proper party.
13.4 Waiver of Notice. Any notice required under
this Trust may be
waived by the person entitled thereto.
13.5 Counterparts. This Trust may be executed in any
number of counterparts, each of which shall be deemed an
original and no other counterpart need be produced.
13.6 Governing Laws. This Trust shall be construed and
administered according to the laws of the Commonwealth of
Massachusetts to the extent that such laws are not preempted
by the laws of the United States of America, provided that
in the event that an action is brought by the Trustee on
behalf of the Trust, the Company shall have the right to
determine that such action shall be brought in an
appropriate state or federal forum in the State of Illinois
or elsewhere as the Company shall deem appropriate, and the
Trustee shall follow any direction of the Company to that
effect; and provided further, that in the event an action is
brought by the Company against the Trustee, the Company
shall have the right to determine that such action shall be
brought in an appropriate state or federal forum either in
the Commonwealth of Massachusetts or in the State of
Illinois, subject to any right of the Trustee to remove such
action from state court to an appropriate federal court in
that state.
13.7 Successors, Etc. The provisions of this Trust
shall be binding on the Company, the Subsidiaries and the
Trustee and their successors and on all persons entitled to
benefits under the Plan and their respective heirs and legal
representatives. Neither the Company nor any Subsidiary
shall merge or consolidate with any other corporation or
liquidate or dissolve without making suitable arrangements
for the fulfillment of all of its obligations under this
Trust and the Plan.
13.8 Service of Legal Process. If the Trustee receives
service of summons, subpoena or other legal process of any
court with respect to any action relating to the Plan or
this Trust, it shall promptly inform the Company of such
service and, at the request of the Company, shall provide it
with a copy of the document served.
13.9 Severability. In case any provision of this Trust
is held invalid or illegal for any reason, such invalidity
or illegality shall not affect the remaining provisions of
this Trust and this Trust shall be construed and enforced as
if such invalid or illegal provision had never been
incorporated in this Trust.
13.10 Gender and Numbers. Where the context
admits, words in the masculine gender shall include the
feminine, the singular shall include the plural, and the
plural shall include the singular.
13.11 Headings. The headings of Sections of this
Trust are for convenience of reference only and shall have
no substantive effect on the provisions of this Trust.
13.12 Action by Company and Subsidiaries. Except
as otherwise
provided in this Trust, any action required or permitted to
be taken by the Company or any Subsidiary under the
provisions of this Trust shall be by resolution of its Board
of Directors, or by the person or persons authorized by
resolution of its Board of Directors or if the Company or
Subsidiary has no Board of Directors and is managed by its
shareholder or shareholders, then by such shareholder or
shareholders.
13.13 Nonalienation of Benefits. The interests
under this Trust of Participants and any other persons
entitled to benefits under the Plan are not subject to the
claims of their creditors and may not be voluntarily or
involuntarily assigned, alienated or encumbered.
IN WITNESS WHEREOF, the Company and the Trustee have
caused this Trust to be signed and their seals to be
hereunto affixed and attested by their duly authorized
representatives, as of the day and year first above written.
AMERITECH CORPORATION
By:______________________________
Title:____________________________
ATTEST:
By:____________________________ STATE STREET BANK AND TRUST
Title:__________________________ COMPANY
By:_______________________________
Title:_____________________________
ATTEST:
By:____________________________
Title:__________________________
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY TRUST
(As Amended and Restated Effective As of December 1, 1997 )
TABLE OF CONTENTS
SECTION PAGE
1 Establishment, Name and Administration 1
1.1 Name 1
1.2 Definitions 2
1.3 Plan 2
1.4 Plan and Trust Administration 2
1.5 Change in Control 2
1.6 Trust Contributions 4
1.7 Minimum Funding Amount 5
2 Management and Control of Trust Fund Assets 5
2.1 The Trust Fund 5
2.2 Investment Guidelines and Investment Funds 6
2.3 Proxies 6
2.4 Exercise of Trustee's Duties 6
2.5 General Powers 6
2.6 Administrative Powers 12
3 Appointment of Investment Managers 13
3.1 Investment Managers 13
3.2 Investment Manager Account Cash 13
3.3 Directions 14
3.4 Notice 14
4 Establishment of Company Investment Account 14
4.1 Company Investment Accounts 14
5 Accounting and Distribution of Trust Assets 15
5.1 Common Fund 15
5.2 Trustee Records and Accounts 15
5.3 Benefit Payments 16
5.4 Withdrawals 17
6 Trustee Compensation and Expenses 17
6.1 Compensation and Expenses 17
7 Indemnification of Trustee 18
7.1 Indemnification of Trustee 18
TABLE OF CONTENTS
SECTION PAGE
8 Trust Fund Assets 19
8.1 Reversions to the Company and the
Subsidiaries 19
8.2 Claims of Creditors 19
8.3 Claims of Participants 20
9 Adoption by Subsidiaries 20
9.1 Adoption by and Definition of Subsidiaries 20
10 Tax Matters 21
10.1 Nature of Trust 21
10.2 Federal and State Reporting Requirements 21
10.3 Tax Matters 21
11 Change of Trustee 21
11.1 Resignation 21
11.2 Removal of Trustee 22
11.3 Duties of Resigning or Removed Trustee
and of Successor Trustee 22
11.4 Additional Trustees 23
12 Amendment, Revocation and Termination 23
12.1 Amendment and Revocation 23
12.2 Termination 24
13 Miscellaneous 24
13.1 Disagreement as to Acts 24
13.2 Persons Dealing with Trustee 24
13.3 Evidence 24
13.4 Waiver of Notice 24
13.5 Counterparts 24
13.6 Governing Laws 24
13.7 Successors, Etc. 25
13.8 Service of Legal Process 25
13.9 Severability 25
13.10 Gender and Numbers 25
13.11 Headings 25
13.12 Action by Company and Subsidiaries 25
13.13 Nonalienation of Benefits 25
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY TRUST
(As Amended and Restated Effective as of December 1, 1997)
THIS TRUST AGREEMENT, made this _____ day of
__________, 1997, by Ameritech Corporation, a Delaware
corporation (the "Company") on behalf of itself and such of
its subsidiaries and affiliates which have employees and
former employees who may receive benefits from the Trust
(the "Subsidiaries"), and State Street Bank and Trust
Company, a trust company organized under the laws of the
Commonwealth of Massachusetts, as trustee (the "Trustee"),
WITNESSETH THAT:
WHEREAS, the Company maintains the Ameritech Corporate
Resource Severance Pay Plan (the "Plan") to promote the long
term financial interests of the Company and its shareholders
by (i) providing the executives of the Company and its
Subsidiaries with assurances of fair and equitable treatment
as well as severance benefits consistent with competitive
practices in the event of certain changes in control of the
Company and (ii) reducing the risk of departures and
distractions of key executives in a change in control
situation which would be detrimental to the Company and its
shareholders; and
WHEREAS, since effective as of January 1, 1989, the
Company and the Subsidiaries have maintained a grantor trust
(as described in section 671 of the Internal Revenue Code of
1986, as amended (the "Code")) to provide for the payment of
certain benefits under the Plan; and
WHEREAS, the Company and the Subsidiaries now wish to
amend and
restate this Trust in its entirety effective as of December
1, 1997; and
NOW, THEREFORE, in consideration of the provisions and
mutual covenants in this Trust, it is agreed by and between
the Company on behalf of itself and the Subsidiaries and the
Trustee as follows:
Section 1. Establishment, Name and Administration
1.1 Name. The Company and the Trustee hereby amend
and restate in its entirety the Ameritech Corporate Resource
Severance Pay Trust, formerly known as the Ameritech Senior
Management Severance Pay Trust, (the or this "Trust")
effective as of December 1, 1997.
1.2 Definitions. Unless the context clearly requires
otherwise, any word, term or phrase used in the Trust shall
have the same meaning as is assigned to it under the terms
of the Plan.
1.3 Plan. Subject to the provisions of Section 8,
the Trust has been established to provide for the payment of
benefits after a Change in Control (as defined herein) to
persons entitled thereto (the "Participants" or
"Participant") under the terms of the Plan. The Secretary
of the Company shall deliver to the Trustee a certified or
executed copy of the Plan and of any amendments thereto for
convenience of reference, but the rights, powers and duties
of the Trustee shall be governed solely by the terms of this
Trust. A payment under the Trust to a Participant shall,
for purposes of the Plan, be deemed a payment under the Plan
by the Company or the Subsidiary responsible for such
payment under the Plan.
1.4 Plan and Trust Administration. Except as
otherwise provided in subsection 2.2, all directions to the
Trustee under this Trust shall be made by the Compensation
Committee of the Company's Board of Directors (the
"Committee"), and all notices from the Trustee shall be made
to the Committee. The Secretary of the Company will certify
the names of the members and provide the Trustee with a
specimen signature of each member of the Committee. The
Trustee may rely on the latest certificate without further
inquiry or verification. The Committee shall act by a
majority of its then members, by meeting or by writing
(either a single document or concurrent documents) signed
without meeting. The certificate of a majority of the
members of the Committee that it has taken or authorized any
action shall be conclusive in favor of any person relying on
the certificate. A Committee member may delegate any of his
rights, powers or duties with respect to the Trust to any
other Committee member who accepts such delegation, provided
that written evidence of the delegation and acceptance are
filed with the Trustee. Further, as used in this Trust, the
terms "Company", "Committee" or "Asset Management Committee"
("AMC") shall include, where appropriate, any applicable
subcommittee or duly authorized delegate of the Company, the
Committee or the AMC, as the case may be. Such duly
authorized delegate may be an individual or organization
within the Company, the Committee or the AMC, or may be an
unrelated third party, individual or organization.
1.5 Change in Control. For purposes of the Trust, the
term "Change in Control" means a change in the beneficial
ownership of the Company's voting stock or a change in the
composition of the Company's Board of Directors which occurs
as follows:
(a) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934), other than a trustee
or other fiduciary holding securities under
an employee benefit plan of the Company, is
or becomes a beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of stock of
the Company representing 20% or more of the
total voting power of the Company's then
outstanding stock; provided, however, that
this subparagraph (a) shall not apply to any
tender offer made pursuant to an agreement
with the Company approved by the Company's
Board of Directors and entered into before
the offeror has become a beneficial owner of
stock of the Company representing 5% or more
of the combined voting power of the Company's
then outstanding stock;
(b) a tender offer is made for the stock of the
Company, and one of the following occurs:
(i) the person making the offer owns or has
accepted for payment stock of the
Company representing 20% or more of the
total voting power of the Company's then
outstanding stock; or
(ii) three business days before the offer is
to terminate (unless the offer is
withdrawn first) such person could own,
by the terms of the offer plus any
shares owned by such person, stock
representing 50% or more of the total
voting power of the Company's
outstanding stock when the offer
terminates,
provided, however, that this subparagraph (b)
shall not apply to any tender offer made
pursuant to an agreement with the Company
approved by the Company's Board of Directors
and entered into before the offeror has
become a beneficial owner of stock of the
Company representing 5% or more of the
combined voting power of the Company's then
outstanding stock;
(c) during any period of twelve consecutive
months there shall cease to be a majority of
the Board of Directors comprised as follows:
individuals who at the beginning of such
period constitute the Board of Directors and
any new Director(s) whose election by the
Board of Directors or nomination for election
by the Company's stockholders was approved by
a vote of at least eighty percent (80%) of
the Directors then still in office who either
were Directors at the beginning of the period
or whose election or nomination for election
was previously so approved; or
(d) the stockholders of the Company approve a
merger or consolidation of the Company with,
or a sale of all or substantially all of the
Company's assets to, any other company other
than:
(i) a merger or consolidation which would
result in the Company's voting stock
outstanding immediately prior thereto
continuing to represent (either by
remaining outstanding or by being
converted into voting stock of the
surviving entity) more than fifty-five
percent (55%) of the combined voting
power of the Company's or such surviving
entity's outstanding voting stock
immediately after such merger or
consolidation; or
(ii) a merger or consolidation which would
result in the directors of the Company
who were directors immediately prior
thereto continuing to constitute at
least a majority of the directors of the
surviving entity immediately after such
merger or consolidation.
For purposes of subparagraph (d) above, the phrase
"surviving entity" shall mean only an entity in which all of
the Company's stockholders who are stockholders immediately
before the merger or consolidation (other than stockholders
exercising dissenter rights) become stockholders by the
terms of the merger or consolidation, and the phrase
"directors of the Company who were directors immediately
prior thereto" shall not include (A) any director of the
Company who was designated by a person who has entered into
an agreement with the Company to effect a transaction
described in subparagraph (a) or subparagraph (d) above, or
(B) any director who was not a director at the beginning of
the twelve-consecutive-month period preceding the date of
such merger or consolidation, unless his election by the
Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least
eighty percent (80%) of the directors who were directors
before the beginning of such period. The Secretary of the
Company shall promptly notify the Trustee of the occurrence
of a Change in Control and the circumstances described in
subparagraphs (a), (b), (c) or (d) of this subsection 1.5
under which there is a Change in Control.
1.6 Trust Contributions. The Company has contributed
$10,000 to the Trustee. No additional contributions shall
be required of the Company or any Subsidiary prior to a
Change in Control. The Company and the Subsidiaries,
however, at any time and from time to time, may contribute
amounts to the Trustee to be held, invested and distributed
in accordance with the provisions of this Trust. As soon as
possible, but no later than three business days, after a
Change in Control, the Company shall contribute an amount to
the Trust which is no less than the most recent Minimum
Funding Amount (as defined in subsection 1.7) certified by
the Committee to the Trustee. As soon as possible, but no
later than three business days, after each subsequent
Minimum Funding Amount is certified to the Trustee, the
Company shall make an additional contribution of such
subsequent Minimum Funding Amount to the Trust. Each
Subsidiary shall reimburse the Company for each Minimum
Funding Amount which is contributed to the Trust by the
Company but is attributable to the potential liabilities of
the Subsidiary under the Plan. After a Change in Control
has occurred, if the Company fails to make a timely
contribution to the Trust of any Minimum Funding Amount, the
Trustee shall be obligated to commence legal action to
compel the Company to make the contributions required by
this subsection 1.6 unless the Company is Insolvent (as
defined in subsection 8.2).
1.7 Minimum Funding Amount. The "Minimum Funding
Amount" as of any date means the amount determined as
follows:
(a) the maximum potential liability of the
Company and each Subsidiary with respect to
the Plan determined as of that date in
accordance with the following provisions of
this subsection 1.7,
REDUCED BY
(b) the assets of the Trust Fund, if any,
credited as of that date in accordance with
the provisions of Section 5.
The maximum potential liability of the Company and each
Subsidiary with respect to the Plan shall be determined and
certified as of the last day of each third calendar year, or
of any interim calendar year in which changes to the
compensation and/or benefit plans of eligible current or
former employees would significantly affect the maximum
potential liability as determined by the Secretary of the
Committee, by an independent actuary (who shall be a Fellow
of the Society of Actuaries selected by the Committee) on
the basis of the employment period and earnings prior to
that date of each individual who is participating in the
Plan on that date and on the basis of the assumptions, if
any, set forth with respect to that Plan on Schedule A and
such actuarial assumptions as the actuary deems reasonable;
provided, however, that after a Change in Control such
actuarial assumptions shall not be changed, if the change
would reduce the maximum potential liability for the Plan
from the amount that would be determined as of the date of
such change using the actuarial assumptions which were
utilized for the last determination of the Minimum Funding
Amount which was certified to the Trustee prior to the
Change in Control. No later than sixty days after the end
of each such third or interim calendar year, the Committee
shall certify to the Trustee the amount of the maximum
potential liability with respect to the Plan and the Minimum
Funding Amount and shall furnish the Trustee with a copy of
the applicable certificates of the actuary. In any year in
which a calculation of the maximum potential liability is
not required pursuant to the preceding sentences, the
maximum potential liability shall be determined by using the
prior year's maximum potential liability adjusted by a
factor approved by the Committee. No later than sixty days
after the end of any such calendar year, the Committee shall
certify to the Trustee the amount of the adjusted maximum
potential liability and the Minimum Funding Amount, as
determined in accordance with the preceding sentence.
Section 2. Management and Control of Trust Fund Assets
2.1 The Trust Fund. The term "Trust Fund" means all
property of any kind held by the Trustee from time to time
pursuant to this Trust.
2.2 Investment Guidelines and Investment Funds. Prior
to a Change in Control, the Company's Asset Management
Committee ("AMC") shall have the power to direct the Trustee
with respect to the investment, retention, disposition and
reinvestment of the Trust Fund other than the assets
attributable to the Company or any Subsidiary after the date
on which the Company or such Subsidiary becomes Insolvent.
The AMC shall exercise such discretion with the care, skill,
prudence and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. Anything
in this Trust to the contrary notwithstanding, after a
Change in Control, the Trustee shall invest the Trust Fund,
directly or through a trust or fund described in subsection
2.5(p), in short-term, fixed income investments, including,
but not limited to, United States Treasury Bills, commercial
paper, broker's acceptances and certificates of deposit.
2.3 Proxies. On behalf of itself and the
Subsidiaries, the Company may, from time to time, direct the
Trustee with respect to the handling and voting of proxies
for all or any portion of the securities held in the Trust
Fund, in which case the Trustee shall vote such proxies
solely in accordance with the directions of the Company,
notwithstanding the provisions of subsections 2.5(e) and
3.1.
2.4 Exercise of Trustee's Duties. Subject to the
provisions of Section 8, the Trustee shall discharge its
duties hereunder solely in the interest of the Participants
and other persons entitled to benefits under the Plan, and:
(a) for the exclusive purpose of:
(i) providing benefits to or on account of
the Participants and other persons
entitled thereto under the Plan; and
(ii) defraying the reasonable expenses of
administering the Trust; and
(b) with the care, skill, prudence and diligence
under the circumstances then prevailing that
a prudent man acting in a like capacity and
familiar with such matters would use in the
conduct of an enterprise of a like character
and with like aims.
2.5 General Powers. Subject to the provisions of
subsection 2.2 and subsection 2.4 and Sections 3 and 4, with
respect to the Trust Fund, the Trustee shall have the
following powers, rights and duties in addition to those
provided elsewhere in this Trust or by law:
(a) to receive and hold all contributions paid to
it by the Company or any Subsidiary;
provided, however, that, except as otherwise
provided in subsection 1.6, the Trustee shall
have no duty to require any contributions to
be made, or to determine that any of the
contributions received comply with the
conditions and limitations of the Plan.
(b) to apply for, pay premiums on and maintain in
force on the lives of Participants individual
or group ordinary, term or universal life
insurance policies for the benefit of the
Participants on whose lives the policies are
issued; to acquire such a policy from the
Company or a Subsidiary or from the
Participant on whose life the policy is
issued, but only if the Trustee pays,
transfers or otherwise exchanges for the
policy no more than the cash surrender value
of the policy and the policy is not subject
to a mortgage or similar lien which the
Trustee would be required to assume; to
dispose of any such policy including a
disposition to the Company or a Subsidiary or
Participant, provided that, upon such
disposition, the Trustee receives an amount
which is not less than the cash surrender
value of the policy; and to have with respect
to such policies all of the rights, powers,
options, privileges and benefits usually
comprised in the term "incidents of
ownership" and normally vested in an insured
or owner of such policies.
(c) To invest the Trust Fund in bonds, notes,
debentures, certificates or other
governmental, corporate, partnership, trust
or personal obligations or evidences of
indebtedness, mortgages, equipment trust
certificates, certificates of deposit, money
market securities, investment trust
certificates, forward contracts, options,
index options, warrants, rights, shares in
mutual funds, commodities, derivative
securities or instruments, futures contracts,
preferred or common stocks (including
securities of the Company), insurance and
annuity contracts, investment contracts or
other investment arrangements with insurance
companies, banks or other financial
institutions, common, group or collective
trust funds, partnerships, shares of limited
liability companies or in such other
property, real or personal or any interest
therein.
(d) To purchase, retain, manage, sell, contract
to purchase or sell, grant options to
purchase or sell, convert, redeem, convey,
exchange, transfer, abandon, improve, repair,
insure, lease for any term even though
commencing in the future or extending beyond
the term of the Trust, and otherwise deal
with all property, real or personal,
(including selling short securities, futures,
derivatives or other similar investments) on
such terms and conditions as appropriate, and
no person dealing with the Trustee shall be
required to see to the application of any
money or property delivered to the Trustee or
to inquire into the validity or propriety of
any transaction with the Trustee; and to
acquire, hold or dispose of property, real or
personal, in any form or manner including,
without limitation, directly or indirectly
through general or limited partnerships,
corporations, trusts, participating or
convertible mortgages or any other form.
(e) Subject to the provisions of subsection 2.3,
to have and exercise, with respect to the
Trust Fund, all of the rights of an
individual owner, including but not limited
to the power to give proxies, to participate
or oppose participation in voting trusts,
mergers, consolidations, foreclosures,
reorganizations or liquidations, to tender
securities pursuant to tender offers, to
exercise, buy or sell any stock subscription
or conversion rights or privileges available
in connection with any securities or other
property and to deposit any property with any
protective, reorganization or similar
committee or with depositories designated
thereby, to delegate power thereto, and to
pay or agree to pay part of the expenses and
compensation of any such committee and any
assessments levied with respect to property
so deposited.
(f) To hold any securities or other property in
the name of the Trustee or its nominee, or in
such form as appropriate, with or without
disclosing the trust relationship and to hold
any securities in bearer form.
(g) To engage in the lending of securities to
banks, broker-dealers and other borrowers
pursuant to any applicable regulatory
authority and in accordance with a written
agreement entered into with the Company
containing any guidelines and directions
provided by the Company, and to receive and
invest collateral provided by the borrower.
(h) To deposit securities with a clearing
corporation as defined in Article 8 of the
Massachusetts Uniform Commercial Code and to
deposit or pledge securities or other
property with any broker-dealer or other
person (including the Trustee). The
certificates representing securities,
including those in bearer form, may be held
in bulk form with, and may be merged into,
certificates of the same class of the same
issuer which constitute assets of other
accounts or owners, without certification as
to the ownership attached. Utilization of a
book-entry system may be made for the
transfer or pledge of securities held by the
Trustee or by a clearing corporation. The
Trustee shall at all times, however, maintain
a separate and distinct record of the
securities owned by the Trust Fund.
(i) To participate in and use the Federal Book-
entry Account System, a service provided by
the Federal Reserve Bank for its member banks
for deposit of Treasury securities.
(j) To purchase, sell, hold and generally deal in
any manner in and with interest rate, stock
index, commodity, currency or other futures
contracts and to close any open futures
contracts positions prior to or in the
contract's delivery month.
(k) To grant, purchase, sell, exercise, permit to
exercise, permit to be held in escrow and
otherwise to acquire, dispose of, hold and
generally deal in any manner with or in all
forms of options, including index options and
over-the-counter options, in any combination.
(l) To enter into and engage in any form of swap
transaction.
(m) To purchase, sell and otherwise acquire,
dispose of, hold and generally deal in any
manner with or in domestic or international
currency or currency contracts, including
transactions entered into with the Trustee,
its agents or sub-custodians.
(n) To manage, administer, operate, lease for any
number of years, develop, improve, repair,
alter, demolish, mortgage, pledge, grant
options or easements with respect to, or
otherwise deal with real property or any
interest therein.
(o) To renew or extend or participate in the
renewal or extension of any mortgage, upon
such terms as may be deemed advisable and to
agree to a reduction in the rate of interest
on any mortgage or to any other modification
or change in the terms of any mortgage or to
any guarantee pertaining thereto in any
manner and to any extent that may be deemed
advisable for the protection of the Trust or
the preservation of the value of the
investment; to waive any default, whether in
the performance of any covenant or condition
of any mortgage or in the performance of any
guarantee, or to enforce any such default in
such manner and to such extent as may be
deemed advisable; to exercise and enforce any
and all rights of foreclosure, to bid on
property in foreclosure, to take a deed in
lieu of foreclosure with or without paying a
consideration therefor and in connection
therewith to release the obligation on the
bond secured by such mortgage, and to
exercise and enforce in any action, suit or
proceeding at law or in equity any rights or
remedies with respect to any such mortgage or
guarantee.
(p) To invest all or any portion of the assets of
the Trust Fund in any collective, combined,
common or group investment trust or fund,
including any such trust or fund maintained
by the Trustee.
(q) Subject to such directions as the Company
provides (which may be either standing
directions in the form of a written agreement
with the Trustee or a separate letter of
direction) to retain or invest any reasonable
portion of the Trust Fund (including cash
balances held from time to time as part of an
Investment Manager or Company Investment
Account as described in Sections 3 and 4) in
cash or cash equivalents (pending other
investment, reinvestment or payment of
expenses or benefits), including, but not
limited to, savings accounts, certificates of
deposit, repurchase agreements (including
savings accounts, certificates of deposit and
repurchase agreements with the Trustee in its
banking capacity or its affiliates, so long
as such investments bear a reasonable rate of
interest), United States Treasury bills,
commercial paper and similar types of
securities and any collective trust or mutual
fund maintained by the Trustee for the
management of cash or cash equivalents; and
to sell any such cash equivalent instruments.
(r) To borrow money to cover any overdraft; to
borrow or lend money or otherwise extend
credit from time to time, with or without
security, from or to any legally permissible
source in the best interest of the Trust
Fund; to mortgage, encumber or pledge any
part of the Trust Fund to secure repayment of
any indebtedness resulting from such
borrowing; to provide guarantees with respect
to the extension of credit or other benefits
by any entity; to assume liens on property
acquired by the Trust and to acquire property
subject to liens.
(s) To convert any monies into any currency
through foreign exchange transactions (which
may be effected with the Trustee or an
affiliate of the Trustee).
(t) To form corporations and limited liability
companies and to create partnerships or
trusts to acquire, dispose of or hold title
to any securities or other property of the
Trust.
(u) To settle, compromise, contest, submit to
arbitration or abandon any claims, debts,
damages or demands by or against the Trust
Fund; to commence, maintain or defend suits
or legal proceedings and to represent the
Trust in all suits or legal proceedings;
provided that the Trustee shall not settle,
compromise or abandon any such matter without
the Company's written consent.
(v) To retain any funds or property subject to
any dispute without liability for payment of
interest to any third party, and to withhold
payment or delivery thereof until final
adjudication of the dispute by a court of
competent jurisdiction.
(w) To make payments from the Trust Fund in
accordance with subsection 5.3 and to pay out
of or withhold from any benefit distributable
from the Trust Fund any estate, inheritance,
income or other tax, charge or assessment
attributable thereto, subject to the
provisions of subsection 6.1 and Section 10
and to require such release or other
documents from any lawful taxing authority
and such indemnity from the intended payee as
may be necessary for the protection of the
Trust, the Company, the Subsidiaries or the
Trustee.
(x) To employ agents, experts, custodians
(including but not limited to affiliates of
the Trustee), sub-custodians and counsel
(which may be counsel to the Company) and to
delegate discretionary powers to, and
reasonably rely upon information and advice
furnished by, such agents, experts,
custodians, sub-custodians and counsel.
(y) To appoint trustees, sub-trustees, custodians
or sub-custodians to hold title to property
of the Trust in those jurisdictions in which
the Trustee is not authorized to do business
or as may otherwise be reasonable and
necessary to carry out the purposes of the
Trust and, subject to the provisions of this
Trust, to define the scope of the
responsibilities of each such trustee, sub-
trustee, custodian and subcustodian.
(z) To grant powers of attorney to such
individuals or organizations as may be
necessary or appropriate.
(aa) To perform any and all other acts in its
judgment necessary or appropriate for the
proper and advantageous management,
investment, and distribution of the Trust
Fund or to carry out any of the foregoing
powers and the purposes of the Trust.
The Trustee shall transmit promptly to the Company or an
Investment Manager, as the case may be, all notices of
conversion, redemption, tender, exchange, subscription,
class action, claim in insolvency proceedings or other
rights or powers relating to any of the securities in a
Company Investment Account or an Investment Manager Account
managed by the Company or such Investment Manager, which
notices are received by the Trustee from its agents or
custodians, from issuers of the securities in question and
from the party (or its agents) extending such rights. On a
monthly basis (or at such other periodic intervals as the
Company and the Trustee may agree upon), the Trustee shall
transmit to the Company a summary of information regarding
all class actions or claim in insolvency proceedings
received by the Trustee in the preceding month (or other
agreed-upon period), regardless of whether the Company or an
Investment Manager is responsible for the securities in the
Company Investment Account or Investment Manager Account to
which such actions or proceedings relate. The Company may
from time to time direct the Trustee to cease transmitting
such reports if the Company determines they are not
necessary at that time. The Trustee shall have no
obligation to determine the existence of any conversion,
redemption, tender, exchange, subscription, class action,
claim in insolvency proceedings or other right or power
relating to any of the securities in the Trust Fund of which
notice was given prior to the purchase of such securities by
the Trust Fund, and shall have no obligation to exercise any
such right or power unless the Trustee is informed of the
existence of the right or power.
The Trustee shall not be liable for any untimely exercise or
assertion of such rights or powers described in the
subsection immediately above in connection with securities
held in a Company Investment Account or an Investment
Manager Account managed by the Company or an Investment
Manager unless (i) the Trustee or its agents or custodians
are in actual possession of such securities and (ii) the
Trustee receives directions to exercise any such rights or
powers from the Company or the Investment Manager, as the
case may be, and both (i) and (ii) occur at least three
business days prior to the date on which such rights or
powers are to be exercised; provided, however, that the
Trustee shall not be relieved from liability under this
subsection for the untimely assertion of such rights or
powers due to failure to timely receive direction with
respect to any securities held in a Investment Manager
Account for which the Trustee has been named the Investment
Manager.
2.6 Administrative Powers. Notwithstanding the
appointment of an Investment Manager, the Trustee shall have
the following powers and authority to be exercised in its
sole discretion, with respect to the Trust Fund:
(a) To employ suitable agents, experts,
custodians, sub-custodians and counsel.
(b) To appoint ancillary trustees, sub-trustees,
custodians or subcustodians to hold any
portion of the assets of the Trust.
(c) To register any securities held by the
Trustee hereunder in its own name or in the
name of a nominee with or without the
addition of words indicating that such
securities are held in a fiduciary capacity
and to hold any securities in bearer form and
to deposit any securities or other property
in a depository or clearing corporation.
(d) To make, execute and deliver, as Trustee, any
and all deeds, leases, mortgages,
conveyances, waivers, releases or other
instruments in writing necessary or desirable
for the accomplishment of any of the
foregoing powers.
(e) Generally to do all ministerial acts, whether
or not expressly authorized, which the
Trustee may deem necessary or desirable in
carrying out its duties under this Trust.
Section 3. Appointment of Investment Managers
3.1 Investment Managers. Notwithstanding anything in
this Trust to the contrary, the Company (or any organization
or individual to whom the Company has delegated such
authority) shall have the right from time to time to appoint
or remove an individual, partnership or corporation (which
may be a subsidiary of the Company or any other Subsidiary)
as Investment Manager each of whom shall have the power to
manage and to direct the Trustee with respect to the
acquisition and disposal of assets constituting all or a
portion of the Trust Fund, to be known as an "Investment
Manager Account". Written notice of any such appointment
and/or removal shall be given to the Trustee and the
Investment Manager so appointed or removed. As long as an
Investment Manager is acting, such Investment Manager shall
direct the Trustee to invest and the Trustee shall invest
the applicable Investment Manager Account (subject to the
provisions of subsection 2.5(q)) in any property in which
the Trustee could invest under this Trust. Subject to the
provisions of the investment management agreement and
subsection 2.5(q)), the Investment Manager of any Investment
Manager Account shall have all of the investment powers and
duties granted to or imposed on the Trustee under the
provisions of subsection 2.5. Subject to the provisions of
subsection 2.3, the Investment Manager shall have full
authority and the responsibility to direct the Trustee with
respect to the acquisition, retention, management, and
disposition of all of the assets from time to time
comprising the Investment Manager Account being managed by
such Investment Manager and the voting of proxies thereon,
and the Trustee shall have no duty or obligation to review
the assets from time to time comprising such Investment
Manager Account, to make recommendations with respect to the
investment, reinvestment, or retention thereof, nor with
respect to the voting of proxies thereon, except as would
otherwise be required to meet the Trustee's obligations
under the Trust, or any applicable law. At the request of
the Trustee, an Investment Manager shall certify the value
of any securities or other property held in the Investment
Manager Account managed by the Investment Manager and the
Trustee shall be entitled to incorporate such information in
its reports. The Trustee shall inform the Company if the
Trustee uses an Investment Manager's valuation for a
particular security or other property.
3.2 Investment Manager Account Cash. Pending receipt
of directions from the Investment Manager, cash received by
the Trustee from time to time for any Investment Manager
Account shall be fully invested in accordance with Company
directions which may be either standing directions in the
form of a written agreement with the Trustee or a separate
letter of direction.
3.3 Directions. Any direction given to the Trustee by
an Investment Manager with respect to an Investment Manager
Account shall either (1) be made in writing or via facsimile
or other electronic communications as shall be agreed upon
by the Investment Manager and the Trustee or (2) if oral,
shall be confirmed in writing or via facsimile or other
electronic communications as shall be agreed upon by the
Investment Manager and the Trustee within a reasonable
period. The Trustee may issue to an Investment Manager
security codes or passwords in order that the Trustee may
verify that certain transmissions of information, including
directions or instructions have been originated by the
Investment Manager. To the extent that directions or
instructions using such security codes or passwords
constitute proper directions, Trustee liability associated
with such directions shall be governed by Section 7 of this
Trust. Except as otherwise provided in this Trust, the
Investment Manager of an Investment Manager Account shall
have the power and authority, to be exercised in its sole
discretion at any time and from time to time, to issue
orders for the purchase or sale of securities directly to a
broker. Written notification of the issuance of each such
order shall be given promptly to the Trustee by the
Investment Manager and the confirmation of each such order
shall be confirmed to the Trustee by the broker. Unless
otherwise directed by the Investment Manager, such
notification shall be authority for the Trustee to pay for
securities purchased or to deliver securities sold as the
case may be. Upon the direction of the Investment Manager,
the Trustee will execute and deliver appropriate trading
authorizations, but no such authorization shall be deemed to
increase the liability or responsibility of the Trustee
under this Trust Agreement.
3.4 Notice. The Trustee may assume that any
Investment Manager Account previously established and the
appointment of any Investment Manager for that account
continues in force until receipt of written notice to the
contrary from the Company. In addition, except as otherwise
provided in Section 3.2, the Trustee shall have no
responsibility to invest or manage any asset held in an
Investment Manger Account (unless the Trustee has itself
been appointed Investment Manager for such account as
described below) until the Trustee is (1) notified by the
Company in writing of the termination of the Investment
Manager's authority over the assets of such account and (2)
directed in writing to terminate the Investment Manager
Account and to transfer the assets of such account to the
Trustee's management as part of the Trust Fund pursuant to a
separate, written agreement. In the event that the Trustee
enters into such an agreement, it shall have the powers and
duties of an Investment Manager with regard to such account,
in addition to its powers and duties as Trustee.
Section 4. Establishment of Company Investment Account
4.1 Company Investment Accounts. The Company may, by
writing filed with the Trustee, assume investment
responsibility over any portion of the Trust Fund designated
by it as a "Company Investment Account". In addition,
during any time when there is no Investment Manager
(including the Trustee if appointed as an Investment Manager
) appointed with respect to all or part of the Trust Fund,
the Company shall direct the investment and reinvestment of
all or such portion of the Trust Fund. With respect to
assets of Company Investment Accounts over which the Company
has assumed investment responsibility, the Company shall
direct the Trustee to invest and the Trustee, shall invest
the applicable Company Investment Account (subject to
subsection 2.5(q)) in any property in which the Trustee
could invest under this Trust. With respect to any Company
Investment Account for which the Company has assumed
investment responsibility, the Company shall have all of the
investment powers and duties granted to or imposed on the
Trustee under the provisions of subsection 2.5. The Company
shall have full authority and the responsibility to direct
the Trustee with respect to the acquisition, retention,
management, and disposition of all of the assets from time
to time comprising the Company Investment Account being
managed by the Company and the voting of proxies thereon,
and the Trustee shall have no duty or obligation to review
the assets from time to time comprising such Company
Investment Account, to make recommendations with respect to
the investment, reinvestment or retention thereof nor with
respect to the voting of proxies thereon, except as would
otherwise be required to meet the Trustee's obligations
under the Trust or any applicable law. The Company shall
have the powers and duties with regard to the manner of
giving direction to the Trustee which an Investment Manager
would have under subsection 3.3 and the Trustee shall be
protected to the same extent as if those directions came
from an Investment Manager.
Section 5. Accounting and Distribution of Trust Assets
5.1 Common Fund. Subject to the following provisions
of this subsection 5.1 and the provisions of subsection 8.2,
the Trustee shall not be required to make any separate
investment of the Trust Fund for the account of the Plan as
applied to the Company or any Subsidiary and may administer
and invest all contributions made to the Trustee as one
Trust Fund. The Trustee shall establish and maintain
records which reflect the portion of the Trust Fund
attributable to the Company and each of the Subsidiaries.
Such records shall be adjusted, as of the last day of each
calendar year and at such other times as the Company shall
direct, to reflect changes in the Trust Fund and in the
Company's and each Subsidiary's portion of the Trust Fund.
The Trustee shall establish, maintain and adjust such
records based upon information provided by the Company on
behalf of itself and the Subsidiaries; or, if the Company
fails to provide such information, the Trustee shall
establish, maintain and adjust such records based upon the
information otherwise reasonably available to the Trustee
and subject to the Company's review and confirmation of such
information. The Trustee shall not be required to make any
separate investment of the Trust Fund for the account of any
creditor of the Company or any Subsidiary prior to receipt
of directions to make payments to such creditor in
accordance with subsection 8.2.
5.2 Trustee Records and Accounts. The Trustee shall
maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions
hereunder; and all accounts, books and records relating
hereto shall be open at all reasonable times to inspection
and audit by such person or persons as the Company may
designate. The Trustee shall submit to the auditors for the
Company or to anyone the Company designates, such
valuations, reports or other information as they may
reasonably require. The Trustee and the Company acknowledge
that cooperation with such audits could exceed the scope of
the usual Trustee services, in which case the Trustee shall
be entitled to reasonable compensation and reimbursement of
its reasonable expenses incurred in connection with such
audits, as agreed to by the Company and the Trustee at that
time. The Trustee shall establish and maintain for
operational and accounting purposes such other accounts or
records as the Company and the Trustee may from time to time
agree upon .
Within ninety (90) days following the close of each calendar
year (or following the close of such other period as may be
agreed upon by the Trustee and the Company) and as often as
may reasonably be requested by the Company and agreed to by
the Trustee, the Trustee shall file with the Company a
written account pursuant to guidelines provided by the
Company and agreed to by the Trustee setting forth a
description of all securities and other property purchased
and sold, and all receipts, disbursements and other
transactions effected by it upon its own authority or
pursuant to the directions of any Investment Manager or the
Company during such annual or shorter period, and showing
the securities and other properties held at the end of such
period, and their current value. Such securities and other
property shall be valued at their market values, or if none,
at their fair values as determined in good faith and
pursuant to procedures established by the Trustee. Market
values or fair values may be taken by the Trustee as of such
times as the Trustee determines to be appropriate, and from
such financial publications, pricing services, or other
services or sources, including an Investment Manager, as the
Trustee reasonably believes appropriate.
The Company may approve such accounting by written notice of
approval delivered to the Trustee or by failure to express
objection to such accounting in writing delivered to the
Trustee within twelve months from the date upon which the
accounting was delivered to the Company.
Upon the receipt of a written approval of the accounting, or
upon the passage of the period of time within which
objection may be filed without written objections having
been delivered to the Trustee, such accounting shall be
deemed to be approved, and the Trustee shall be released and
discharged as to all items, matters and things set forth in
such account.
5.3 Benefit Payments. Subject to the provisions of
subsection 8.2, the Trustee shall make payments from the
Trust Fund to Participants or other persons entitled to
benefits under the Plan, in such manner, at such times and
in such amounts as the Committee may certify to the Trustee,
subject to the following:
(a) If any payment directed to be made from the
Trust Fund is not claimed, the Trustee shall
notify the Committee of that fact within a
reasonable time period and shall dispose of
unclaimed distributions and take such further
action as directed by the Committee.
(b) If a benefit to which a Participant or other
person is entitled under the terms of the
Plan has not been paid when due (whether due
to the failure of the Committee to notify the
Trustee as required by this subsection or
otherwise), then such individual may notify
the Trustee thereof and request payment in
writing. The Trustee shall notify the
Committee within 10 days of the receipt of
such payment request. If the Committee does
not provide the Trustee with evidence
satisfactory to the Trustee of the payment of
any amount to which the individual is
entitled within 30 days of the date the
Trustee notifies the Committee of the payment
request, subject to the provisions of
subparagraph (c) below and the provisions of
subsection 8.2, the Trustee shall make such
payment to the individual and shall notify
the Committee thereof.
(c) In no event shall the Trustee make any
payment to or on account of a Participant or
any other person to the extent that such
payment would exceed the portion of the Trust
Fund then attributable to the Company or the
Subsidiary responsible for such payment under
the Plan.
(d) Any payment under the Trust shall be made in
cash unless the Trustee is otherwise directed
by the Committee.
5.4 Withdrawals. If a Change in Control within the
meaning of subsection 1.5(b)(ii) occurs but such event does
not cause, and there does not otherwise occur within the
immediately following 180-day period, a Change in Control
within the meaning of subsections 1.5(a), 1.5(b)(i) or
1.5(c), the Trustee upon receipt of a written withdrawal
request from the Company or any Subsidiary, shall make
distribution from the Trust Fund to the Company or
Subsidiary, as the case may be, in an amount not in excess
of the portion of the Trust Fund attributable to the Company
or such Subsidiary under subsection 5.1.
Section 6. Trustee Compensation and Expenses
6.1 Compensation and Expenses. The Trustee is
authorized to pay from the Trust Fund such compensation and
all reasonable and proper expenses, and charges (including
fees of persons employed by the Trustee in accordance with
subsection 2.5(x) and 2.5(y) and subsection 2.6(a) and
2.6(b) incurred in connection with the collection,
administration, management, investment, protection and
distribution of the Trust Fund as shall be agreed upon in
writing by the Company and the Trustee and to the extent
that they are not paid directly by the Company or any
Subsidiary. In addition, the Trustee is authorized to pay
from the Trust Fund any tax or assessment levied against the
Trust Fund by any governmental authority. The Trustee shall
notify the Company as soon as reasonably practicable (but in
any event no later than five (5) business days) after the
Trustee receives notice of such tax or assessment and shall
provide the Company with such information as the Trustee has
received concerning such tax or assessment. The Company may
direct that the Trustee refrain from paying the tax or
assessment for a period of up to 120 days (or, if longer,
such period as may be available until such tax or assessment
is due and payable under applicable law (the "Review
Period")), during which time the Trustee will provide all
reasonable assistance to the Company in determining the
validity of such tax or assessment and will cooperate in all
reasonable efforts to have the tax or assessment waived or
mitigated if such tax or assessment is considered not to be
owed by the Trust. At the end of such 120 days (or the
Review Period), if the tax or assessment remains
outstanding, the Trustee may pay the tax or assessment
unless otherwise directed in writing by the Company, upon
the advice of counsel satisfactory to both the Company and
the Trustee. If the Trustee engages in the lending of
securities or the investment of cash or cash equivalents
pursuant to subsection 2.5(g) or 2.5(q), the Trustee's
compensation shall include any additional compensation
agreed to in writing by the Company and the Trustee with
respect to such activities. In addition, the Trustee is
authorized to pay from the Trust Fund all reasonable
Investment Manager or investment advisor fees, legal fees,
actuarial fees, accounting fees, and other reasonable
administrative expenses of the Trust including Trust
administration expenses incurred by the Company or any other
Subsidiary at the direction of the Company, to the extent
that they are not paid directly by the Company or any
Subsidiary. To the extent that the foregoing expenses are
paid directly by the Company or any Subsidiary, the Trustee
shall reimburse the Company or such Subsidiary from the
Trust Fund to the extent directed by the Company.
Section 7. Indemnification of Trustee
7.1 Indemnification of Trustee. To the extent not
prohibited by applicable law, the Company agrees to
indemnify the Trustee and hold it harmless, from any and all
liability or expense (including any reasonable legal fees
and reasonable expenses incurred by the Trustee in its
defense if the Company fails to provide such defense or any
reasonable legal fees and reasonable expenses incurred by
the Trustee pursuant to subsection 7.1(a) below), which the
Trustee may sustain by (a) bringing any legal action
required pursuant to subsection 1.6, (b) following any
proper direction of an Investment Manager, the Company, the
Committee or the AMC made in accordance with this Trust or
(c) any failure to act in the absence of proper directions
from an Investment Manager, the Company, the Committee or
the AMC, provided that the Trustee's action or failure to
act is otherwise consistent with its fiduciary obligations
under any applicable law and the Trust, and provided
further, that the Trustee shall not be indemnified if such
liability or expense results from the Trustee's negligence
or if the Trustee knowingly participates in, or knowingly
undertakes to conceal an act or omission of such Investment
Manager, the Company, the Committee, or the AMC, knowing
such act or omission to be a breach. Anything in this Trust
to the contrary notwithstanding, the preceding sentence
shall not apply to the extent the Trustee is acting as an
Investment Manager with respect to all or any portion of the
Trust Fund. This Section shall survive the termination of
the Trust or the resignation or removal of the Trustee with
respect to liability or expense arising from events which
occurred before the transfer of assets to a successor
Trustee.
Section 8. Trust Fund Assets
8.1 Reversions to the Company and the Subsidiaries.
Subject to the following provisions of this subsection 8.1
and the provisions of subsection 8.2, on and after the date
on which the Trust becomes irrevocable under subsection
12.1, no part of the corpus or income of the Trust Fund
shall revert to the Company or any Subsidiary or be used
for, or diverted to, purposes other than the exclusive
benefit of Participants or other persons entitled to
benefits under the Plan; provided, however, that if any
funds attributable to contributions of the Company or any
Subsidiary (or earnings thereon) remain after the
satisfaction of all liabilities of the Trust with respect to
all Participants who were previously employed by, or are
entitled to benefits by reason of being a survivor or
beneficiary of an employee of, the Company or such
Subsidiary such amounts shall be returned to the Company or
such Subsidiary.
8.2 Claims of Creditors. Notwithstanding any
provision of this Trust, any property held in the Trust Fund
shall be treated as an asset of the Company and the
Subsidiaries and shall be subject to the claims of the
general creditors of the Company and each Subsidiary to the
extent of their respective interests under the Trust if such
claims are not satisfied by payment from the other general
assets of the Company or the Subsidiary, as the case may be,
because of the Company's or Subsidiary's Insolvency (as
described below). The Chairman of the Board of Directors
and the Chief Executive Officer of the Company on behalf of
the Company and/or any Subsidiary shall have a duty to
notify the Trustee, in writing, of the Insolvency of the
Company or such Subsidiary. In addition, if a person
claiming to be creditor of the Company or a Subsidiary
alleges in writing to the Trustee that the Company or such
Subsidiary has become Insolvent, the Trustee shall determine
whether the Company or such Subsidiary is Insolvent and,
pending such determination, the Trustee shall discontinue
payment of benefits to the Plan Participants (or their
beneficiaries) of the Company or such Subsidiary. Unless
the Trustee has actual knowledge of the Company's or a
Subsidiary's Insolvency, or has received notice from the
Company or a person claiming to be a creditor alleging that
the Company or a Subsidiary is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent.
The Trustee may in all events rely on such evidence
concerning the Company's or a Subsidiary's solvency as may
be furnished to the Trustee and that provides the Trustee
with a reasonable basis for making a determination
concerning the Company's or a Subsidiary's solvency.
If at any time the Trustee has determined that the Company
or a Subsidiary is Insolvent, the Trustee shall discontinue
payments to Plan Participants (or their beneficiaries) of
the Company or such Subsidiary and shall hold the assets of
the Trust equal to that portion of the Trust Fund
attributable to the Company or such Subsidiary for the
benefit of the Company's or such Subsidiary's general
creditors. Nothing in this Trust shall in any way diminish
any rights of Plan Participants or their beneficiaries to
pursue their rights as general creditors of the Company or a
Subsidiary with respect to benefits due under the Plan or
otherwise. The Trustee shall resume the payment of benefits
to the affected Plan Participants or their beneficiaries
only after the Trustee has determined that the Company or
such Subsidiary is not Insolvent (or is no longer
Insolvent).
Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to this subsection 8.2 and subsequently resumes such
payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to
Plan Participants or their beneficiaries under the terms of
the Plan for the period of such discontinuance, less the
aggregate amount of any payments made to the Plan
Participants or their beneficiaries by the Company or a
Subsidiary in lieu of the payments provided for hereunder
during any such period of discontinuance.
The Company or any Subsidiary shall be considered as
"Insolvent" (or in a condition of "Insolvency") for purposes
of this Trust if it is (i) unable to pay its debts generally
as they become due or (ii) engaged as a debtor in a
proceeding under the Bankruptcy Code (11 U.S.C. 101 et
seq.).
8.3 Claims of Participants. Neither the Participants
nor other persons entitled to benefits under the terms of
the Plan nor the Plan shall have any preferred claim on, or
any beneficial ownership in, any assets of the Trust, or be
entitled to any payment from the Trust, except to the extent
that payment is due and unpaid, and all rights of a
Participant (or such other person) created under the Plan
and this Trust shall constitute unsecured contractual rights
of the Participant (or such other person). It is intended
that neither the Plan nor the Trust be subject to the
provisions of part 4 of Title I of the Employee Retirement
Income Security Act of 1974, as amended, ("ERISA"). To the
extent the assets of the Trust are insufficient to pay all
benefits of a Participant (or other person) when due, the
Company and the Subsidiaries shall continue to be liable to
the Participant (or other person) for such benefit payments
in accordance with the terms of the Plan.
Section 9. Adoption by Subsidiaries
9.1 Adoption by and Definition of Subsidiaries.
Any Subsidiary may
join in this Trust by obtaining the written consent of the
Company and providing notice to the Trustee. The term
"Subsidiary" means (i) any corporation of which the Company
owns at least 50% of the combined voting power of all
classes of stock entitled to vote and which previously
adopted or hereafter adopts the Plan and (ii) any affiliate,
which means any corporation (other than a subsidiary
described in (i) above) which would be a member of a
controlled group of corporations with the Company under
Section 1563(a) of the Code which previously adopted or
hereafter adopts the Plan.
Section 10. Tax Matters
10.1 Nature of Trust. This Trust is intended to
constitute a grantor trust, as described in section 671 of
the Code. The Company and the Subsidiaries agree that all
income of the Trust is attributable to them as owners of the
Trust assets for income tax purposes and will be income to
the Company and the Subsidiaries. The Company and the
Subsidiaries shall pay the Federal, state or local taxes on
such Trust income or shall direct the Trustee to pay such
taxes from Trust income based upon the information provided
to the Company by the Trustee concerning such income in
accordance with subsection 5.2.
10.2 Federal and State Reporting Requirements. The
Trustee shall withhold Federal, state and local taxes which
are assessable on amounts paid to or on account of the
Participants based upon direction provided to the Trustee by
the Company, or such larger amounts as may be requested by
the Participant, and shall transmit the amount withheld
either (i) to the Company which shall deposit and report
such amounts to the applicable taxing authority or (ii) to
the applicable taxing authority at the direction of the
Company. The Company and the Trustee shall furnish to the
Participants all withholding and benefit payment information
with respect to amounts transmitted by them to the
applicable taxing authorities as soon as practicable after
the end of each calendar year.
10.3 Tax Matters. If the Internal Revenue Service
determines that a Participant is subject to Federal income
taxation on any amounts held in the Trust for his benefit in
a calendar year prior to the calendar year in which he would
otherwise receive such benefits, then as soon as practicable
after its receipt of a copy of the applicable notice of
deficiency issued by the Internal Revenue Service the
Trustee shall distribute the amount of the benefits
determined to be taxable to the Participant unless the
Company or applicable Subsidiary provides satisfactory
evidence to the Trustee that such benefits have previously
been paid to the Participant under the Plan or that such
Participant is not entitled to such benefits under the Plan.
Section 11. Change of Trustee
11.1 Resignation. The Trustee may resign at any time
prior to a Change in Control by giving one hundred twenty
(120) days' advance written notice to the Company, the
Committee and the Participants, provided that if the Trustee
is resigning because it will no longer be providing trustee
services to plans such as the Plan, the Trustee must give
one hundred eighty (180) days advance written notice of such
resignation to the Company, the Committee and the
Participants. Prior to the effective date of any such
resignation, the Company shall appoint a successor Trustee
which is a corporation with not less than $5 billion in
trust assets.
After a Change in Control has occurred, the Trustee may
resign only after the first to occur of: (i) a final
decision of a court of competent jurisdiction removing the
Trustee by reason of such court's determination of the
existence of a conflict of interest which prevents the
Trustee from properly performing its duties hereunder; or
(ii) the third anniversary of the Change in Control. The
Trustee agrees to use its best efforts to avoid any such
conflict described in clause (i) above. For purposes of
this subsection, the decision of a court shall not be deemed
to be final unless the decision is not appealable, or no
appeal has been taken from the decision and the time for an
appeal has expired. Notwithstanding the foregoing
provisions of this subsection, any such resignation pursuant
to clauses (i) or (ii) above shall not be effective unless
the Trustee has appointed and obtained the agreement of a
corporation which is not affiliated with the Company and
which has trust assets of not less than $5 billion to serve
as successor trustee.
11.2 Removal of Trustee.
(a) Except as provided in subparagraph (b) of
this subsection 11.2 below, the Committee may
remove any Trustee by giving thirty (30) days
advance written notice to the Trustee,
subject to providing the removed Trustee with
satisfactory written evidence of the
appointment of a successor Trustee with not
less than $5 billion in trust assets and of
the successor Trustee's acceptance of the
trusteeship;
(b) Anything in this Trust to the contrary
notwithstanding, in the event of a Change in
Control as defined in subsection 5.4, the
Company, by action of its Board of Directors
or of a person or persons designated by its
Board of Directors, may remove any Trustee
only with the consent of all of the
Participants, by giving thirty (30) days'
advance written notice to the Trustee,
subject to providing the removed Trustee with
satisfactory written evidence of the
appointment of a successor Trustee with not
less than $5 billion in trust assets and of
the successor Trustee's acceptance of the
trusteeship.
11.3 Duties of Resigning or Removed Trustee and of
Successor Trustee. Each successor Trustee shall succeed to
the title to the Trust Fund vested in its predecessor,
without the signing or filing of any further instrument, but
any resigning or removed Trustee shall execute all documents
and do all acts necessary to vest such title of record in
any successor Trustee. In the event of the resignation or
removal of the Trustee, the Trustee shall assign, transfer
and pay over to the duly appointed successor Trustee the
assets then constituting the Trust Fund, and only thereafter
shall the resigning or removed Trustee be relieved of its
duties and responsibilities as Trustee hereunder. Within
ninety (90) days following the effective date of such
resignation or removal, the resigned or removed Trustee
shall furnish to the Company and the successor Trustee an
account of its administration of the Trust from the date of
its last account in accordance with the procedures described
in subsection 5.2; provided, that if at such time current
valuation information is not available for any individual or
group of securities or other property, the Trustee shall use
such values for this accounting as may then be available
and, as soon as reasonably practicable after such current
valuation information for such accounting period becomes
available, shall provide the current values for that period
to the Company and the successor Trustee. The Company and
the successor Trustee may approve such accounting by written
notice of approval delivered to the Trustee or by failure to
express objection to such accounting in writing delivered to
the Trustee within twelve months from the date upon which
the account was delivered to the Company and the successor
Trustee. Upon the receipt of a written approval of the
account, or upon the passage of the period of time within
which objection may be filed without written objections
having been delivered to the Trustee, such accounting shall
be deemed to be approved, and the Trustee shall be relieved
and discharged as to all items, matters and things set forth
in such account. Each successor Trustee shall have all the
powers, rights and duties conferred by this Trust as if
originally named Trustee. Except as otherwise provided
under applicable law, neither the Trustee hereunder nor any
successor Trustee shall be personally liable for any act or
failure to act of a predecessor Trustee.
11.4 Additional Trustees. The Committee shall
have authority at any time
and for any purpose, to designate additional trustees and to
define the scope of
authority for each. Each additional trustee appointed
under this Trust shall signify its acceptance of trusteeship
by an instrument executed and acknowledged by it and
delivered to the Committee. If there are two or more
trustees acting hereunder, the Committee may at any time
direct that all or any portion of the Trust Fund and the
accounts, books and records relating thereto shall be
transferred from one trustee to another. Each trustee shall
individually hold, administer, invest and keep invested the
portion of the Trust Fund held by it from time to time upon
the terms, conditions, and limitations set forth in this
Trust, as though the Company had entered into a separate
trust agreement with each trustee having the same terms and
conditions as this Trust, and each trustee shall be subject
to the same duties and responsibilities and shall have the
same powers and rights with respect to the portion of the
Trust Fund held by it as a single trustee would have with
respect to the entire Trust and each trustee shall have no
duties or responsibilities and shall have no powers or
rights with respect to that portion of the Trust Fund not
held by it but held by another trustee, except as otherwise
provided under the Code or other applicable law. As used in
this Trust, the term "Trustee" shall mean any one or more
duly appointed trustees with respect to that portion of the
Trust Fund held from time to time by each such trustee.
Section 12. Amendment, Revocation and Termination
12.1 Amendment and Revocation. The Company may amend
or revoke this Trust, including Schedule A hereof, at any
time prior to the earlier of a Change in Control or the date
on which a tender offer which has not been negotiated and
approved by the Company's Board of Directors is made for
stock representing twenty percent or more of the total
voting power of the Company's stock. This Trust, including
Schedule A hereof, may be amended or revoked after a Change
in Control or any such tender offer only with the consent of
75% of all employees and former employees who are currently
or contingently entitled to benefits under the Plan. No
amendment shall materially change the rights, duties and
responsibilities of the Trustee without its consent.
Subject to the foregoing provisions of this subsection 12.1,
the Company's Senior Vice President - Human Resources, or
such other officer of the Company as may from time to time
be primarily responsible for human resources matters, may,
with the concurrence of the Company's Executive Vice
President and General Counsel, or such other officer of the
Company as may from time to time be primarily responsible
for legal matters, make minor or administrative amendments
to the Trust.
12.2 Termination. Unless otherwise revoked in
accordance with the provisions of subsection 12.1, this
Trust shall continue in effect until such time as all of the
assets of the Trust Fund have been distributed in accordance
with the terms of this Trust. Upon termination of the Trust
all of the provisions of the Trust as evidenced by this
agreement nevertheless shall continue in effect until the
Trust Fund has been distributed by the Trustee.
Section 13. Miscellaneous
13.1 Disagreement as to Acts. If there is a
disagreement between the Trustee and anyone as to any act or
transaction reported in any accounting, the Trustee shall
have the right to have its account settled by a court of
competent jurisdiction.
13.2 Persons Dealing with Trustee. No person dealing
with the Trustee shall be required to see to the application
of any money paid or property delivered to the Trustee, or
to determine whether or not the Trustee is acting pursuant
to any authority granted to it under this Trust.
13.3 Evidence. Evidence required of anyone under this
Trust may be by certificate, affidavit, document or other
instrument which the person acting in reliance thereon
reasonably considers pertinent and reliable, and signed,
made or represented by the proper party.
13.4 Waiver of Notice. Any notice required under this
Trust may be
waived by the person entitled thereto.
13.5 Counterparts. This Trust may be executed in any
number of counterparts, each of which shall be deemed an
original, and no other counterpart need be produced.
13.6 Governing Laws. This Trust shall be construed and
administered according to the laws of the Commonwealth of
Massachusetts to the extent that such laws are not preempted
by the laws of the United States of America, provided that
in the event that an action is brought by the Trustee on
behalf of the Trust, the Company shall have the right to
determine that such action shall be brought in an
appropriate state or federal forum in the State of Illinois
or elsewhere as the Company shall deem appropriate, and the
Trustee shall follow any direction of the Company to that
effect; and provided further, that in the event an action is
brought by the Company against the Trustee, the Company
shall have the right to determine that such action shall be
brought in an appropriate state or federal forum either in
the Commonwealth of Massachusetts or in the State of
Illinois, subject to any right of the Trustee to remove such
action from state court to an appropriate federal court in
that state.
13.7 Successors, Etc. The provisions of this Trust
shall be binding on the Company, the Subsidiaries and the
Trustee and their successors and on all persons entitled to
benefits under the Plan and their respective heirs and legal
representatives. Neither the Company nor any Subsidiary
shall merge or consolidate with any other corporation or
liquidate or dissolve without making suitable arrangements
for the fulfillment of all of its obligations under this
Trust and the Plan.
13.8 Service of Legal Process. If the Trustee receives
service of summons, subpoena or other legal process of any
court with respect to any action relating to the Plan or
this Trust, it shall promptly inform the Company of such
service and, at the request of the Company, shall provide it
with a copy of the document served.
13.9 Severability. In case any provision of this Trust
is held invalid or illegal for any reason, such invalidity
or illegality shall not affect the remaining provisions of
this Trust and this Trust shall be construed and enforced as
if such invalid or illegal provision had never been
incorporated in this Trust.
13.10 Gender and Numbers. Where the context
admits, words in the masculine gender shall include the
feminine, the singular shall include the plural, and the
plural shall include the singular.
13.11 Headings. The headings of Sections of this
Trust are for convenience of reference only and shall have
no substantive effect on the provisions of this Trust.
13.12 Action by Company and Subsidiaries. Except
as otherwise
provided in this Trust, any action required or permitted to
be taken by the Company or any Subsidiary under the
provisions of this Trust shall be by resolution of its Board
of Directors, or by the person or persons authorized by
resolution of its Board of Directors or if the Company or
Subsidiary has no Board of Directors and is managed by its
shareholder or shareholders, then by such shareholder or
shareholders.
13.13 Nonalienation of Benefits. The interests
under this Trust of Participants and any other persons
entitled to benefits under the Plan are not subject to the
claims of their creditors and may not be voluntarily or
involuntarily assigned, alienated or encumbered.
IN WITNESS WHEREOF, the Company and the Trustee have
caused this Trust to be signed and their seals to be
hereunto affixed and attested by their duly authorized
representatives, as of the day and year first above written.
AMERITECH CORPORATION
By:______________________________
Title:____________________________
ATTEST:
By:____________________________ STATE STREET BANK AND TRUST
Title:__________________________ COMPANY
By:_______________________________
Title:_____________________________
ATTEST:
By:____________________________
Title:__________________________
AMERITECH KEY MANAGEMENT
LIFE INSURANCE PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH KEY MANAGEMENT
LIFE INSURANCE PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 General 1
History, Purpose and Effective Date 1
Governing Documents 1
Plan Administration 1
Non-Alienation 1
Source of Benefits 2
Plan Year 2
Policy Year 2
Notices 2
Applicable Laws 2
Gender and Number 2
2 Participation 2
Participation 2
Plan Not Contract of Employment 3
3 Benefits 3
Available Coverage 3
Automatic Increases in Policy Coverage 3
Elected Increases and Decreases in Coverage 4
Cost 4
Cash Value 4
Limitation on Benefits 4
4 Split-Dollar and Collateral Assignment Agreements 4
Introduction 4
Insurance Policy 4
Policy Ownership 5
Payment of Premiums 5
Collateral Assignment Agreement 7
Limitations on Participant's Rights under Policy 7
Collection and Payment of Death Benefit 8
Termination of Split-Dollar Agreement 9
Options on Termination of Split-Dollar Agreement10
Change in Control 11
AMERITECH KEY MANAGEMENT
LIFE INSURANCE PLAN
TABLE OF CONTENTS
SECTION PAGE
5 Plan Administration 13
Plan Administrator; Administration 13
Determination of Benefits 13
6 Miscellaneous 13
Amendment and Termination 13
Validity 14
Administrative Amendments 14
AMERITECH KEY MANAGEMENT
LIFE INSURANCE PLAN
(As Amended and Restated Effective as of February 1, 1998)
SECTION 1
General
1.1 History, Purpose and Effective Date. Effective July 1,
1990 (the "Effective Date"), Ameritech Corporation, a Delaware
corporation (the "Company"), established the Ameritech Key
Management Life Insurance Plan (the "Plan"), as a substitute for
the Ameritech Senior Management Life Insurance Plan and for the
regular death benefits provided under the Ameritech Group Life
Insurance Plan for electing, eligible employees. The purpose of
the Plan is to enable corporate resource managers of the Company
and of any Subsidiary or Affiliate of the Company which adopts
the Plan (an "Employer") to purchase whole life insurance
coverage (a "Policy") from one or more insurance companies (the
"Insurer") designated by the Company, pursuant to a collateral
assignment, split-dollar arrangement with the Company. The term
"Subsidiary" means any corporation of which the Company owns at
least 50% of the combined voting power of all classes of stock
entitled to vote. The term "Affiliate" means any corporation
other than a Subsidiary which would be a member of a controlled
group of corporations with the Company under section 1563(a) of
the Internal Revenue Code of 1986, as amended. The following
provisions constitute an amendment, restatement, and continuation
of the Plan, effective as of February 1, 1998.
1.2 Governing Documents. In the event of any inconsistency
between the terms of the Plan as described herein and the terms
of any Policy purchased by a Participant (defined in subsection
2.1), or any related Split-Dollar Agreement or Collateral
Assignment Agreement (as described in Section 4) executed by a
Participant, the terms of such policy or agreement shall be
controlling as to that Participant, his assignee (if any), his
successor-in-interest (if any) and his beneficiary or
beneficiaries.
1.3 Plan Administration. The authority to control and
manage the day-to-day operation and administration of the Plan is
vested in the Company's Senior Vice President-Human Resources
(the "Plan Administrator") or such other officer of the Company
as its Board of Directors shall designate; provided, however,
that any action required or permitted to be taken by the Plan
Administrator may be taken by the Compensation Committee of the
Company's Board of Directors (the "Committee").
1.4 Non-Alienation. Except to the extent provided under
subsection 4.5 and under the terms of a Policy and the related
Split-Dollar and Collateral Assignment Agreements, no
Participant's benefits under the Plan may be voluntarily or
involuntarily assigned or alienated.
1.5 Source of Benefits. Any benefit payable to or on
account of a Participant under this Plan shall be paid by the
Insurer.
1.6 Plan Year. The "Plan Year" shall be July 1, 1990 to
December 31, 1990 and each calendar year thereafter.
1.7 Policy Year. The "Policy Year" shall mean the 12-
consecutive month period designated as such in a Policy. For
Policies issued during the initial enrollment period coinciding
with the Effective Date, the Policy Year shall be July 1, 1990 to
June 30, 1991 and each subsequent 12-consecutive month period
beginning on July 1.
1.8 Notices. Any notice or document required to be given
to or filed with the Plan Administrator shall be considered to be
given or filed if delivered to the Administrator of the Plan or
mailed by registered mail, postage prepaid to the Administrator,
in care of the Company, at 30 South Wacker Drive, Chicago,
Illinois 60606.
1.9 Applicable Laws. The Plan shall be construed and
administered in accordance with the internal laws of the State of
Illinois, except to the extent preempted by Federal law.
1.10 Gender and Number. Where the context admits, words in
any gender shall include any other gender, words in the singular
shall include the plural and the plural shall include the
singular.
SECTION 2
Participation
2.1 Participation. The following individuals shall be
eligible to become Participants in the Plan:
(a) Any member of the Company's Management Committee;
and
(b) Any full time management employee on the active roll
of the Company or any Employer (i) who has attained
any of salary grades CR 1 through CR 9; (ii) who has
attained any of Investment Management salary grades
IM10 through IM12; or (iii) who is an attorney in
any of salary grades IV through VI.
Each eligible individual described in subparagraph (a)
or (b) above shall become a Participant in the Plan as
of the date on or after the Effective Date on which he
purchases a Policy pursuant to the terms of this Plan
and executes a related "Split-Dollar Agreement" and
"Collateral Assignment Agreement" as set forth in
Section 4 hereof. Notwithstanding the foregoing
provisions of this subsection 2.1, an individual who
would only qualify as a Participant because of a
temporary assignment to a position described in
subparagraph (a) or (b) above shall not be eligible to
participate in this Plan, unless the Plan
Administrator, in his sole discretion, determines that
participation in this Plan should be extended to such
individual as part of the benefit package offered to
him during his temporary assignment. The term
Participant shall also include individuals who would
have been described in subparagraph (a) or (b) of this
subsection 2.1 had they not retired from the Company
between March 1, 1990 and the Effective Date. Any
Participant who elects to participate in this Plan by
purchasing a Policy shall be deemed by such election to
have waived any rights such employee or his beneficiary
may have had to benefits under the Ameritech Senior
Management Life Insurance Plan and to regular death
benefits under the Ameritech Group Life Insurance Plan.
2.2 Plan Not Contract of Employment. The Plan does not
constitute a contract of employment, and nothing in the Plan will
give any employee or Participant the right to be retained in the
employ of the Company or an Employer, nor the right to any
incentive award, nor any right or claim to any benefit under the
Plan, except to the extent specifically provided under the terms
of the Plan.
SECTION 3
Benefits
3.1 Available Coverage. Subject to satisfying any
insurability requirements of the Insurer, each Participant may
purchase a Policy providing whole life insurance coverage that
will pay a death benefit equal to a multiple of, but not to
exceed five times, the sum of the Participant's then applicable
market rate and target bonus award, rounded to the next higher
$1,000, prior to adjustment under the terms of the Split-Dollar
Agreement and Collateral Assignment Agreement executed by such
Participant in accordance with section 4.
3.2 Automatic Increases in Policy Coverage. The total
amount described in subsection 3.1 payable as a death benefit
(based upon the Participant's market rate and target bonus award
at the time he purchases the Policy) under a Policy shall be
indexed at the rate of
a) seven percent (7%) for each Policy Year (following the
initial Policy Year) that begins while he remains employed by the
Company or an Employer, and rounded to the next higher $1,000,
for any Participant who has a Policy Effective Date of July 1,
1996 or earlier, and b) at a rate to be established from time to
time by the Plan Administrator for each Policy Year (following
the initial Policy Year) that begins while he remains employed by
the Company or an Employer, and rounded to the next higher
$1,000, for any Participant who has a Policy Effective Date of
January 1, 1997 or later; provided, that i) the rate established
by the Plan Administrator shall be no less than five percent (5%)
and no greater than seven percent (7%), and ii) the rate
established for any Policy purchased by the Plan Administrator
with a Policy Effective Date of January 1, 1997 or later shall be
subject to Committee approval.
3.3 Elected Increases and Decreases in Coverage. In
accordance with the terms of the Plan, and subject to satisfying
any insurability requirements of the Insurer, the Participant,
prior to his termination of employment with the Company and the
Employers, may elect to increase or decrease the amount payable
as a death benefit (within the limits set forth in subsection
3.1) in such form and at such time as the Company and the Insurer
may require.
3.4 Cost. The cost of providing the life insurance
coverage under any Policy purchased by a Participant shall be
shared between the Participant (or owner other than the
Participant, if applicable) and the Company in accordance with
the terms of such policy and the related Split-Dollar Agreement
and Collateral Assignment Agreement executed by the Participant,
as described in subsection 4.4.
3.5 Cash Value. Each Policy purchased by a Participant
shall be designed to have a cash value. In accordance with the
specific terms of the Policy purchased by a Participant and
subject to the related Split-Dollar Agreement and Collateral
Assignment Agreement executed by that Participant, the
Participant may be entitled to withdraw his interest in such cash
value, surrender it for a lump sum cash payment or convert it to
an annuity, with a corresponding reduction in the death benefit
payable under the Policy.
3.6 Limitation on Benefits. The amount of benefits payable
to or on account of a Participant pursuant to this Plan shall not
exceed the total amount of death proceeds and other benefits
payable by the Insurer under any Policy purchased by the
Participant, reduced by the amount of such death proceeds to
which the Company is entitled pursuant to the Split-Dollar
Agreement and Collateral Assignment Agreement executed by the
Participant.
SECTION 4
Split-Dollar and Collateral Assignment Agreements
4.1 Introduction. The Split-Dollar Agreement and
Collateral Assignment Agreement executed by the Participant in
conjunction with his purchase of a Policy shall establish the
rights of the Company to the proceeds of any such Policy acquired
by the Participant. The terms of the particular Split-Dollar
Agreement and Collateral Assignment Agreement executed by a
Participant shall apply solely to that Participant.
4.2 Insurance Policy. The Policy shall be purchased by the
Participant. The Company shall take all reasonable steps
necessary to enable the Insurer to issue the Policy, and to
comply with any reasonable request to take any further action
which may be necessary to cause the Policy to conform to the
provisions of this Plan. The Participant's rights under any
Policy purchased by such Participant shall be subject to the
terms and conditions of the related Split-Dollar Agreement and
Collateral Assignment Agreement executed by the Participant.
4.3 Policy Ownership. Unless the Participant assigns the
ownership of the Policy to another person in accordance with the
terms thereof and of the related Split-Dollar and Collateral
Assignment Agreements, the Participant shall be the sole and
absolute owner of any Policy purchased by him, and may exercise
all ownership rights granted to the owner thereof by the terms of
the Policy, except as may otherwise be provided in the related
Split-Dollar and Collateral Assignment Agreements executed by the
Participant.
4.4 Payment of Premiums. While the Split-Dollar Agreement
remains in effect:
(a) Except as otherwise provided in the Split-Dollar
Agreement, the premium to be paid to the Insurer for
the Policy in each Policy Year ("Total Policy Year
Premium") shall be set forth in an exhibit ("Exhibit")
attached to the Split-Dollar Agreement.
(b) Except as otherwise provided in the Split-Dollar
Agreement, on or before the date of such Split-Dollar
Agreement as to the first Policy Year and on or before
the first day of each next succeeding Policy Year, or
within the grace period provided in the Policy, the
Company shall pay to the Insurer the Total Policy Year
Premium set forth in the Exhibit for that Policy Year.
However, for purposes of determining the amount due the
Company as a result of its payments toward the premiums
on the Policy, in each Policy Year the Company shall be
deemed to have paid only that portion of the premium
(the "Company's Policy Year Net Premium Payment") for
which it has not received payment from the Participant
as the Participant's contribution to the premium as
provided for in paragraph (c) next below.
(c) Except as otherwise provided herein, as to each Plan
Year, a certain amount of contribution to the premium
shall be due from the Participant (the "Participant's
Plan Year Contribution to Premium") for such Plan Year,
provided, however, that if the ownership of the Policy
has been assigned to another person pursuant to the
terms of such Policy and of the related Split-Dollar
and Collateral Assignment Agreements such assignee
shall be responsible for meeting the premium
obligations set forth herein instead of the
Participant. This amount shall be based upon the annual
cost of the current life insurance coverage provided to
the Participant for such Plan Year and shall be equal
to the "Economic Benefit" of such current life
insurance coverage for Federal income tax purposes, as
provided in Revenue Ruling 64-328 (or the corresponding
applicable provisions of any future Revenue Ruling) or
as otherwise provided for Federal income tax purposes.
The Participant shall be required to pay the
Participant's Plan Year Contribution to Premium to the
Company for each such Plan Year, subject to any
assignment of the Policy in accordance with the terms
thereof and of the related Split-Dollar and Collateral
Assignment Agreements. So long as the Participant's
employment with the Company continues and unless the
Company and the Participant agree otherwise, the
Company shall deduct the Participant's Plan Year
Contribution to Premium from the Participant's normal
salary payments on a level basis during the Plan Year,
except as to the first Plan Year, during which the
Participant's Plan Year Contribution to Premium shall
be deducted on a level basis beginning as of the date
of enrollment, and except as to the last Plan Year,
during which the Participant's Plan Year Contribution
to Premium shall be deducted on a level basis ending as
of the date of the termination of the Split-Dollar
Agreement. Upon the termination of the Participant's
employment with the Company or an Employer in any Plan
Year and continuing until the termination of the Split-
Dollar Agreement, the Participant shall be required to
pay the balance of the Participant's Plan Year
Contribution to Premium for such Plan Year (which has
not theretofore been deducted from the Participant's
salary) generally within ninety (90) days of such
termination of the Participant's employment with the
Company, and the Participant shall be required to pay
the Participant's Plan Year Contribution to Premium for
each succeeding Plan Year generally within ninety (90)
days of the premium payment date for the Policy for
each such Plan Year. In all events, the Participant
shall pay the Participant's Plan Year Contribution to
Premium prior to the end of each such Plan Year. For
the Plan Year in which the Participant dies, the
Participant's employment with the Company or an
Employer is terminated, or the Split-Dollar Agreement
is otherwise terminated, an appropriate adjustment
shall be made to the Participant's Plan Year
Contribution to Premium for such Plan Year to reflect
such event.
(d) If the Participant's employment with the Company or an
Employer terminates before the Participant attains age
sixty-five (65) but the Split-Dollar Agreement remains
in effect (hereinafter referred to as "Early
Retirement"), then in the Policy Year in which the
Participant's employment with the Company or Employer
terminates and in each Policy Year thereafter until the
termination of the Split-Dollar Agreement, the Company
shall pay to the Insurer (in lieu of the amount set
forth in the Exhibit to the Agreement) only such
amount, if any, as shall be necessary to ensure
Adequate Policy Funding (as defined below), or shall
receive from the Insurer, out of partial surrenders of
Policy additions (or otherwise), any Policy cash values
in excess of that level of Policy cash value necessary
to ensure Adequate Policy Funding, but in no event
shall the Company receive more than the then cumulative
total amount of the Company's Policy Year Net Premium
Payment amounts. "Adequate Policy Funding" shall mean
that level of Policy cash value on termination of the
Split-Dollar Agreement, assuming such termination
occurs under paragraph 4.8(a)(v) hereof, which would be
sufficient to fund the reduced level of death benefit
provided hereunder in the event of such Participant's
Early Retirement (the "Participant's Death Benefit Upon
Termination", as hereinafter defined), after recovery
of the Company's Cumulative Net Premium Payment at
Termination (as defined in paragraph 4.9(a)), based on
the original policy configuration assumptions and the
fact of such Participant's Early Retirement. For
purposes of this paragraph (d), the Company may rely
conclusively upon, and shall be held harmless in
relying upon, the determination of the Insurer as to
any such further premium obligation or any recovery of
such excess Policy cash values.
4.5 Collateral Assignment Agreement. To secure the payment
to the Company of the amount due it hereunder as a result of its
payments toward the premiums on the Policy, the Participant shall
contemporaneously with its purchase and the execution of the
Split-Dollar Agreement assign the Policy in favor of the Company
as collateral pursuant to a written agreement, which collateral
assignment shall specifically provide that the sole right of the
Company thereunder is to be paid the amount due it under the
Split-Dollar Agreement as a result of its payments toward the
premiums on the Policy. Such payment shall be made from the cash
value of the Policy (as defined therein) if the Split-Dollar
Agreement is terminated or if the Participant surrenders or
cancels the Policy while the related Split-Dollar Agreement
remains in effect, or from the death benefit provided under the
Policy, if the Participant dies while the Policy and the related
Split-Dollar Agreement remain in effect. Except as provided in
paragraph 4.4(d), in no event shall the Company have any right to
borrow against or withdraw amounts from the Policy, to surrender
or cancel the Policy, or take any other action which would impair
or defeat the rights of the Participant as the owner of the
Policy. The collateral assignment of the Policy to the Company
shall not be terminated, altered or amended by the Participant
while the Split-Dollar Agreement is in effect. The Participant
and the Company shall take all action necessary to cause such
collateral assignment to conform to the provisions of the Split-
Dollar Agreement.
4.6 Limitations on Participant's Rights under Policy.
Unless he has assigned the ownership of the Policy pursuant to
the terms of such Policy and of the related Split-Dollar and
Collateral Assignment Agreements, as the sole and absolute owner
of the Policy the Participant may exercise all of the rights,
options, privileges and other incidents of ownership granted to
the owner thereof by the terms of the Policy (including, without
limitation, the unlimited ability to borrow against or withdraw
amounts from the cash value of the Policy and to surrender or
cancel the Policy). Notwithstanding the foregoing, so long as
the Split-Dollar Agreement remains in effect: (a) the Participant
shall not take any action with respect to the Policy which would
have a direct or indirect adverse effect on the Company's
interests under the Split-Dollar Agreement in the Policy without
the Company's prior written consent; and (b) except with respect
to the Participant's right to change the beneficiaries of the
Participant's Death Benefit, as defined in subparagraph (iii) of
paragraph 4.7(b), and to assign the Participant's interests in
the Policy and under the related Split-Dollar Agreement as may be
provided therein, the Participant shall not take any other action
with respect to the Policy (regardless of whether it would
directly or indirectly adversely affect the Company's interests
under the Split-Dollar Agreement in the Policy) without the
Company's prior written consent. For purposes of this subsection
4.6, the Participant may borrow against or withdraw from the cash
value of the Policy any amounts which may be required to be paid
to the Company and which are due the Company under paragraph
4.4(c), so long as the amount of any such loan or withdrawal is
chargeable solely against the Participant's Death Benefit and
that portion of the cash value of the Policy which is in excess
of the cash value of the Policy due the Company under the related
Split-Dollar Agreement as a result of its payments toward the
premiums on the Policy pursuant to the Collateral Assignment
Agreement.
4.7 Collection and Payment of Death Benefit.
(a) Upon the death of the Participant while the Split-
Dollar Agreement remains in effect, the Company and the
Participant's beneficiary shall promptly take all
action necessary to obtain the death benefit provided
under the Policy and payable as a result of the
maturity of the Policy (the "Death Benefit").
(b) The Death Benefit shall be paid as follows:
(i) The Company shall first be paid from the Death
Benefit any unpaid amount of the Participant's Plan
Year Contribution to Premium owed to it by the
Participant under paragraph 4.4(c).
(ii) The Company shall next be paid from the Death
Benefit the total net amount of the payments made by it
toward the premiums of the Policy. Such amount shall be
the sum of the Company's Policy Year Net Premium
Payment amounts under paragraph 4.4(b) (the "Company's
Cumulative Net Premium Payment"), less any amounts
received by the Company pursuant to paragraph 4.4(d).
(iii) The Participant's beneficiary under a Policy
shall next be paid, in the manner and in the amount or
amounts provided in the beneficiary designation
provision of the Policy, from the Death Benefit an
amount equal to the Participant's Death Benefit. For
purposes of this subparagraph (iii), the "Participant's
Death Benefit" shall be an amount equal to the least of
(A) the maximum death benefit set forth in the Exhibit
to the Agreement (the "Participant's Maximum Death
Benefit") for the Policy Year in which the Participant
shall have died, (B) the Participant's Death Benefit
Upon Termination, or (C) that portion of the Death
Benefit remaining after the payments provided for in
subparagraphs (i) and (ii) of this subparagraph 4.7(b),
and then reduced by any loan chargeable against the
Participant's Death Benefit. For purposes of this
subparagraph (iii), the "Participant's Death Benefit
Upon Termination" shall be the amount set forth in the
Exhibit for the Policy Year in which the Participant's
employment with the Company terminates.
(iv) The Company shall receive the balance, if any, of
the Death Benefit remaining after the payments provided
for in subparagraphs (i), (ii) and (iii) of this
paragraph 4.7(b).
(c) The beneficiary designation provision of the Policy
shall conform to the provisions hereof.
4.8 Termination of Split-Dollar Agreement.
(a) The Split-Dollar Agreement shall terminate, without
notice, on the first day of the month following the
month during which the first of the following events
occurs:
(i) the Participant (or the assignee of his Policy)
fails to make any premium payment required under
paragraph 4.4(c) for any Plan Year by the end of such
Plan Year or the Participant (or assignee) notifies the
Company that the Participant (or assignee) intends to
surrender or cancel the Policy;
(ii) the Participant's employment with the Company or
an Employer terminates before the date upon which the
Participant becomes retirement eligible, as defined in
paragraph (c) below;
(iii) the Participant is demoted by the Company or
an Employer to a position below that of a management
employee described in subparagraphs 2.1(a) and (b),
even if the demotion occurs on or after the date upon
which the Participant becomes retirement eligible;
(iv) the Participant establishes a relationship with a
competitor of the Company or an Employer or engages in
any activity which is in conflict with or adverse to
the interests of the Company or an Employer, as
determined by the Committee in its sole discretion,
whether before or after the Participant's employment
with the Company or an Employer has terminated and
whether before, on or after the date upon which the
Participant becomes retirement eligible; or
(v) the later of:
(A) the date the Participant's employment with the
Company or an Employer terminates on or after the
date upon which the Participant becomes retirement
eligible, or
(B) the date immediately before the date fifteen (15)
years after the policy date of the Policy (as
defined therein) (ten (10) years in the case of a
Senior Management Employee, as defined in the Plan
on the Effective Date, with respect to a Policy
purchased during the 60-day period following the
Effective Date).
For purposes of subparagraph (B) above, all years during
which any Policy is in effect with respect to a Participant,
whether or not consecutive, shall be aggregated.
(b) In addition, the Participant may terminate the Split-
Dollar Agreement at any time by written notice to the
Company.
(c) For purposes of the Plan, the Participant shall be
deemed to be "retirement eligible" as of the date upon
which (i) the Participant's combined age plus years of
service totals 75 or more, or (ii) the Participant is
eligible to receive a minimum retirement benefit or
disability pension allowance under the Ameritech
Corporate Resource Supplemental Pension Plan or (iii)
the Participant has been disabled for more than fifty-
two (52) weeks and had at least six (6) months credited
service, as long as the Participant continues to be
disabled, in each case as defined in the Ameritech
Corporate Resource Long Term Disability Plan or the
Ameritech Long Term Disability Plan for Salaried
Employees. Anything contained in this Plan to the
contrary notwithstanding, the Participant's employment
with the Company or an Employer shall be deemed to
continue for as long as the Participant is eligible to
receive sickness and accident disability benefits under
the Ameritech Sickness and Accident Disability Benefit
Plan. For purposes of this paragraph (c), each of the
Company's plans identified above shall also include any
successor plan.
4.9 Options on Termination of Split-Dollar Agreement.
(a) Upon termination of a Split-Dollar Agreement, the
Company shall be entitled to receive from the cash
value of the related Policy an amount equal to the sum
of (i) the Company's Cumulative Net Premium Payment
plus (ii) the amount owed to it by the Participant
under paragraph 4.4(c), if any. Such amount is
hereinafter referred to as the "Company's Cumulative
Net Premium Payment at Termination".
(b) For thirty (30) days after the date of the termination
of the Split-Dollar Agreement, the Participant shall
have the option of obtaining the release of the
collateral assignment of the Policy to the Company
. To obtain such release, the Participant shall pay to
the Company an amount equal to the Company's Cumulative
Net Premium Payment at Termination, and,
notwithstanding any other provision hereof, the
Participant shall specifically be allowed to borrow
against or withdraw from the cash value of the Policy
for this purpose. Upon receipt of such amount, the
Company shall release the collateral assignment of the
Policy by the execution and delivery of an appropriate
instrument of release.
(c) If the Participant fails to exercise such option within such
thirty (30) day period, then, at the request of the Company, the
Participant shall execute any document or documents required by
the Insurer to transfer the interest of the Participant in the
Policy to the Company. Alternatively, the Company may enforce its
right to be paid an amount equal to the Company's Cumulative Net
Premium Payment at Termination under the collateral assignment of
the Policy. Thereafter, neither the Participant, nor the
Participant's heirs, assigns or beneficiaries shall have any
further interest in and to the Policy, either under the terms
thereof or under this Plan. However, in no event shall the
Participant be liable to the Company in the event the cash value
of a Policy at the time of the termination of the related Split-
Dollar Agreement is insufficient to pay the Company an amount
equal to the Company's Cumulative Net Premium Payment at
Termination.
(d) Anything contained in this Plan to the contrary
notwithstanding, if the Split-Dollar Agreement
terminates (other than as a result of the death of the
Participant) for any reason other than pursuant to
subparagraph 4.8(a)(v) of this Plan, the Company shall
also be entitled to recover, in addition to the
Company's Cumulative Net Premium Payment at
Termination, an amount sufficient to pay all federal,
state and local income taxes, if any, imposed upon the
Company as a result of such early termination and
attributable to the Policy so that the Company will
receive the Company's Cumulative Net Premium Payment at
Termination on an after-tax basis. The amount, if any,
payable to the Company pursuant to this paragraph
4.9(d) shall be determined by the Company's independent
certified public accountant which is responsible for
preparing the income tax returns for the Company for
such Plan Year.
4.10 Change in Control. Notwithstanding any other
provisions of the Plan, if a Change in Control (as defined below)
occurs, and if a Participant is retirement eligible, he shall
receive the present value of the Company's portion of the life
insurance premiums for the remainder of the minimum term of the
Split Dollar agreement. Notwithstanding any other provisions of
the Plan, if a Change in Control (as defined below) occurs, and
if a Participant is non-retirement eligible, he shall receive the
present value of two years life insurance premiums. For
purposes of the Plan, as applied to any Participant, the term
"Change in Control" means a change in the beneficial ownership of
the Company's voting stock or a change in the composition of the
Company's Board of Directors which occurs as follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than:
(i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company; or
(ii) the Participant or any person acting in concert
with the Participant;
is or becomes a beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of stock of the Company
representing 20% or more of the total voting power
of the Company's then outstanding stock; provided,
however, that this paragraph (a) shall not apply to
any tender offer made pursuant to an agreement with
the Company approved by the Company's Board of
Directors and entered into before the offeror has
become a beneficial owner of stock of the Company
representing 5% or more of the combined voting power
of the Company's then outstanding stock;
(b) a tender offer is made for the stock of the Company,
and the person making the offer owns or has accepted
for payment stock of the Company representing 20% or
more of the total voting power of the Company's then
outstanding stock; provided, however, that this
paragraph (b) shall not apply to any tender offer made
pursuant to an agreement with the Company approved by
the Company's Board of Directors and entered into
before the offeror has become a beneficial owner of
stock of the Company representing 5% or more of the
combined voting power of the Company's then outstanding
stock;
(c) during any period of twelve consecutive months there
shall cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning
of such period constitute the Board of Directors and
any new director(s) whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least 80% of
the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with, or a sale of all or
substantially all of the Company's assets to, any other
company other than:
(i) a merger or consolidation which would result in
the Company's voting stock outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting stock of the surviving entity) more than 55%
of the combined voting power of the Company's or
such surviving entity's outstanding voting stock
immediately after such merger or consolidation; or
(ii) a merger or consolidation which would result in
the directors of the Company who were directors
immediately prior thereto continuing to constitute
at least a majority of the directors of the
surviving entity immediately after such merger or
consolidation.
For purposes of paragraph (d) above, the phrase "surviving
entity" shall mean only an entity in which all of the
Company's stockholders who are stockholders immediately
before the merger or consolidation (other than stockholders
exercising dissenter rights) become stockholders by the
terms of the merger or consolidation, and the phrase
"directors of the Company who were directors immediately
prior thereto" shall not include (A) any director of the
Company who was designated by a person who has entered into
an agreement with the Company to effect a transaction
described in paragraph (a) or paragraph (d) above, or (B)
any director who was not a director at the beginning of the
twelve-consecutive-month period preceding the date of such
merger or consolidation, unless his election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least 80% of the
directors who were directors before the beginning of such
period.
SECTION 5
Plan Administration
5.1 Plan Administrator; Administration. The Senior Vice
President-Human Resources of the Company or such other officer of
the Company as its Board of Directors shall designate shall be
the Plan Administrator under this Plan. Except as otherwise
specifically provided herein, the Plan Administrator shall have
discretionary authority to control and manage the operation and
administration of this Plan. The Plan Administrator shall also
have the power to establish, adopt, or revise such rules and
regulations as the Plan Administrator may deem advisable for the
administration of this Plan. The interpretation and construction
of this Plan by the Plan Administrator (or the Committee with
respect to subparagraph 4.8(a)(iv)) and any action taken
thereunder, shall be binding and conclusive upon all persons.
The Plan Administrator shall not, in any event, be liable to any
person for any action taken or omitted to be taken in connection
with the interpretation, construction or administration of the
Plan, so long as such action or omission to act is made in good
faith. The Plan Administrator shall be eligible to participate in
this Plan but shall not vote or act upon any matter that relates
solely to his interest in this Plan as a Participant.
5.2 Determination of Benefits. Except as otherwise
specifically provided herein, the Plan Administrator shall make
all determinations concerning rights to benefits under this Plan.
Any decision by the Plan Administrator denying a claim by a
Participant or his beneficiary for benefits under this Plan shall
be stated in writing and delivered or mailed to the Participant
or such beneficiary. Such decision shall set forth the specific
reasons for the denial, written to the best of the Plan
Administrator's ability in a manner that may be understood
without legal or actuarial counsel. In addition, the Plan
Administrator shall afford a reasonable opportunity to the
Participant or such beneficiary for a full and fair review of the
decision denying such claim.
SECTION 6
Miscellaneous
6.1 Amendment and Termination. This Plan may be amended or
terminated by the Company or its successor, in its discretion, at
any time and without the consent or approval of any other person.
6.2 Validity. In the event any provision of this Plan is
held invalid, void, or unenforceable, the same shall not affect,
in any respect whatsoever, the validity of any other provision of
this Plan.
6.3 Administrative Amendments. The Company's Senior Vice
President - Human Resources, or such other officer of the Company
as may from time to time be primarily responsible for human
resources matters, may, with the concurrence of the Company's
Executive Vice President and General Counsel, make minor or
administrative amendments to the Plan.
AMERITECH
ESTATE PRESERVATION PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH
ESTATE PRESERVATION PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 General 1
History, Purpose and Effective Date 1
Governing Documents 1
Plan Administration 1
Non-Alienation 1
Source of Benefits 1
Plan Year 2
Policy Year 2
Notices 2
Applicable Laws 2
Gender and Number 2
2 Participation 2
Participation 2
Plan Not Contract of Employment 3
3 Benefits 3
Available Coverage 3
Elected Increases and Decreases in Coverage 3
Cost 3
Cash Value 3
Limitation on Benefits 3
4 Split-Dollar and Collateral Assignment Agreements 4
Introduction 4
Insurance Policy 4
Policy Ownership 4
Payment of Premiums 4
Collateral Assignment Agreement 6
Limitations on ParticipantOs Rights under Policy 6
Collection and Payment of Death Benefit 7
Termination of Split-Dollar Agreement 8
Options on Termination of Split-Dollar Agreement 9
Change in Control 10
AMERITECH
ESTATE PRESERVATION PLAN
TABLE OF CONTENTS
SECTION PAGE
5 Plan Administration 12
Plan Administrator; Administration 12
Determination of Benefits 12
6 Miscellaneous 12
Amendment and Termination 12
Validity 12
Administrative Amendments 13
AMERITECH
ESTATE PRESERVATION PLAN
(As Amended and Restated Effective as of February 1, 1998)
SECTION 1
General
1.1 History, Purpose and Effective Date. Effective July 1,
1990 (the OEffective DateO), Ameritech Corporation, a Delaware
corporation (the OCompanyO), established the Ameritech Estate
Preservation Plan (the OPlanO). The purpose of the Plan is to
provide certain corporate resource managers of the Company and any
Subsidiary or Affiliate of the Company which adopts the Plan (an
OEmployerO) an opportunity to purchase a whole life insurance
policy insuring the lives of such employee and his spouse and
providing a death benefit upon the death of the later to die of
either the employee or his spouse (an OEstate Preservation
PolicyO). The term "Subsidiary" means any corporation of which the
Company owns at least 50% of the combined voting power of all
classes of stock entitled to vote. The term "Affiliate" means any
corporation other than a Subsidiary which would be a member of a
controlled group of corporations with the Company under section
1563(a) of the Internal Revenue Code of 1986, as amended. The
following provisions constitute an amendment, restatement and
continuation of the Plan, effective as of February 1, 1998.
1.2 Governing Documents. In the event of any inconsistency
between the terms of the Plan as described herein and the terms of
any Estate Preservation Policy purchased by a Participant (defined
in subsection 2.1), or any related Split-Dollar Agreement or
Collateral Assignment Agreement (as described in Section 4)
executed by a Participant, the terms of such policy or agreement
shall be controlling as to that Participant, his spouse, his
assignee (if any), his successor-in-interest (if any) and his
beneficiary or beneficiaries.
1.3 Plan Administration. The authority to control and
manage the day-to-day operation and administration of the Plan is
vested in the CompanyOs Senior Vice President-Human Resources (the
OPlan AdministratorO) or such other officer of the Company as its
Board of Directors shall designate; provided, however, that any
action required or permitted to be taken by the Plan Administrator
may be taken by the Compensation Committee of the CompanyOs Board
of Directors (the OCommitteeO).
1.4 Non-Alienation. Except to the extent provided under
subsection 4.5 and under the terms of an Estate Preservation Policy
and the related Split-Dollar and Collateral Assignment Agreements,
no ParticipantOs benefits under the Plan may be voluntarily or
involuntarily assigned or alienated.
1.5 Source of Benefits. Any benefit payable to or on
account of a Participant under this Plan shall be paid by the
Insurer.
1.6 Plan Year. The OPlan YearO shall be July 1, 1990 to
December 31, 1990 and each calendar year thereafter.
1.7 Policy Year. The OPolicy YearO shall mean the 12-
consecutive month period designated as such in an Estate
Preservation Policy. For Estate Preservation Policies issued
during the initial enrollment period coinciding with the Effective
Date, the Policy Year shall be July 1, 1990 to June 30, 1991 and
each subsequent 12-consecutive month period beginning on July 1.
1.8 Notices. Any notice or document required to be given to
or filed with the Plan Administrator shall be considered to be
given or filed if delivered to the Administrator of the Plan or
mailed by registered mail, postage prepaid to the Administrator, in
care of the Company, at 30 South Wacker Drive, Chicago, Illinois
60606.
1.9 Applicable Laws. The Plan shall be construed and
administered in accordance with the internal laws of the State of
Illinois, except to the extent preempted by Federal law.
1.10 Gender and Number. Where the context admits, words in
any gender shall include any other gender, words in the singular
shall include the plural and the plural shall include the singular.
SECTION 2
Participation
2.1 Participation. Each Eligible Employee (as defined
below) shall become a Participant in the Plan as of the date on or
after the Effective Date on which he purchases an Estate
Preservation Policy pursuant to the terms of this Plan and executes
a related OSplit-Dollar AgreementO and OCollateral Assignment
AgreementO as set forth in Section 4 hereof. The term OEligible
EmployeeO means a full-time employee who is on the active roll of
the Company or any Employer and who (i) on or before September 30,
1994 had attained a level higher than Department Level or
equivalent Fifth Level and held a postion that the Board of
Directors of the Company designated to be within its Senior
Management Group, (ii) is Chairman of the Board, Chief Executive
Officer, Vice Chairman or President of the Company, (iii) is a
member of the Company's Management Committee, or (iv) is an elected
Corporate Officer (as defined below) or President of a Business
Unit (as defined below) who had total annual cash compensation
(base salary plus the target award under the Short Term Incentive
Plan) of $300,000 or greater and whose participation in the Plan is
approved by the Chairman of the Board. The term "elected Corporate
Officer" means an officer elected by the Board of Directors of the
Company. or appointed by the Chairman of the Board under the policy
established by the Board of Directors of the Company. The term
"Business Unit" means the customer-specific business units (11 as
of September 30, 1994) as they exist from time to time, the Network
Services Unit and each of the five former Bell telephone companies
in the states of Illinois, Indiana, Michigan, Ohio, and Wisconsin.
2.2 Plan Not Contract of Employment. The Plan does not
constitute a contract of employment, and nothing in the Plan will
give any employee or Participant the right to be retained in the
employ of the Company or an Employer, nor the right to any
incentive award, nor any right or claim to any benefit under the
Plan, except to the extent specifically provided under the terms of
the Plan.
SECTION 3
Benefits
3.1 Available Coverage. Subject to satisfying any
insurability requirements of the Insurer, an Eligible Employee may
purchase an Estate Preservation Policy on the joint lives of
himself and his spouse. The death benefit coverage that may be
purchased under an Estate Preservation Policy may not exceed (A) in
the case of a Participant who was an Eligible Employee on or before
September 30, 1994, an amount, in $500,000 increments, up to ten
times the sum of the Participant's then applicable position rate
and his target short term award, rounded to the next higher
$500,000, and (B) in the case of a Participant who became an
Eligible Employee on or after October 1, 1994, (i) $4,000,000 for
the Chairman of the Board, the Chief Executive Officer and any
other Participant who is or would be among the five most highly
compensated employees of the Company (based on current base salary
plus the target award under the Short Term Incentive Plan) ("Top
5"), and (ii) $3,000,000 for each other Participant.
3.2 Elected Increases and Decreases in Coverage. In
accordance with the terms of the Plan, and subject to satisfying
any insurability requirements of the Insurer, the Participant,
prior to his termination of employment with the Company and the
Employers, may elect to decrease the amount payable as a death
benefit (within the limits set forth in subsection 3.1) in such
form and at such time as the Company and the Insurer may require.
No increases in coverage are permitted, except that a Participant
who becomes a member of the Top 5 may increase his coverage up to a
maximum of $4,000,000.
3.3 Cost. The cost of providing the life insurance coverage
under any Estate Preservation Policy purchased by a Participant
shall be shared between the Participant (or owner other than the
Participant, if applicable) and the Company in accordance with the
terms of such policy and the related Split-Dollar Agreement and
Collateral Assignment Agreement executed by the Participant, as
described in subsection 4.4.
3.4 Cash Value. Each Estate Preservation Policy purchased
by a Participant shall be designed to have a cash value. In
accordance with the specific terms of the Estate Preservation
Policy purchased by a Participant and subject to the related
Split-Dollar Agreement and Collateral Assignment Agreement executed
by that Participant, the Participant may be entitled to withdraw
his interest in such cash value, surrender it for a lump sum cash
payment or convert it to an annuity, with a corresponding reduction
in the death benefit payable under the Estate Preservation Policy.
3.5 Limitation on Benefits. The amount of benefits payable
to or on account of a Participant pursuant to this Plan shall not
exceed the total amount of death proceeds and other benefits
payable by the Insurer under any Estate Preservation Policy
purchased by the Participant, reduced by the amount of such death
proceeds to which the Company is entitled pursuant to the Split-
Dollar Agreement and Collateral Assignment Agreement executed by
the Participant.
SECTION 4
Split-Dollar and Collateral Assignment Agreements
4.1 Introduction. The Split-Dollar Agreement and Collateral
Assignment Agreement executed by the Participant in conjunction
with his purchase of an Estate Preservation Policy shall establish
the rights of the Company to the proceeds of any such Estate
Preservation Policy acquired by the Participant. The terms of the
particular Split-Dollar Agreement and Collateral Assignment
Agreement executed by a Participant shall apply solely to that
Participant.
4.2 Insurance Policy. The Estate Preservation Policy shall
be purchased by the Participant. The Company shall take all
reasonable steps necessary to enable the Insurer to issue the
Estate Preservation Policy, and to comply with any reasonable
request to take any further action which may be necessary to cause
the Estate Preservation Policy to conform to the provisions of this
Plan. The ParticipantOs rights under any Estate Preservation Policy
purchased by such Participant shall be subject to the terms and
conditions of the related Split-Dollar Agreement and Collateral
Assignment Agreement executed by the Participant.
4.3 Policy Ownership. Unless the Participant assigns the
ownership of his Estate Preservation Policy to another person in
accordance with the terms thereof and of the related Split-Dollar
and Collateral Assignment Agreement, the Participant shall be the
sole and absolute owner of any Estate Preservation Policy purchased
by him, and may exercise all ownership rights granted to the owner
thereof by the terms of the Estate Preservation Policy, except as
may otherwise be provided in the related Split-Dollar and
Collateral Assignment Agreement executed by the Participant. For
purposes of this subsection 4.3 the reference to OParticipantO
shall mean, to the extent applicable, the Participant and his
spouse.
4.4 Payment of Premiums. While the Split-Dollar Agreement
remains in effect:
(a) Except as otherwise provided in the Split-Dollar
Agreement, the premium to be paid to the Insurer for the
Estate Preservation Policy in each Policy Year (OTotal
Policy Year PremiumO) shall be set forth in an exhibit
(OExhibitO) attached to the Split-Dollar Agreement.
(b) Except as otherwise provided in the Split-Dollar
Agreement, on or before the date of such Split-Dollar
Agreement as to the first Policy Year and on or before
the first day of each next succeeding Policy Year, or
within the grace period provided in the Estate
Preservation Policy, the Company shall pay to the Insurer
the Total Policy Year Premium set forth in the Exhibit
for that Policy Year. However, for purposes of
determining the amount due the Company as a result of its
payments toward the premiums on the Estate Preservation
Policy, in each Policy Year the Company shall be deemed
to have paid only that portion of the premium (the
OCompanyOs Policy Year Net Premium PaymentO) for which it
has not received payment from the Participant as the
ParticipantOs contribution to the premium as provided for
in paragraph (c) next below.
(c) Except as otherwise provided herein, as to each Plan
Year, a certain amount of contribution to the premium
shall be due from the Participant (the OParticipantOs
Plan Year Contribution to PremiumO) for such Plan Year,
provided, however, that if the Estate Preservation Policy
has been assigned to another person pursuant to the terms
of such Policy and of the related Split-Dollar and
Collateral Assignment Agreements such assignee shall be
responsible for meeting the premium obligations set forth
herein instead of the Participant. This amount shall be
based upon the annual cost of the current life insurance
coverage provided to the Participant for such Plan Year
and shall be equal to the Oeconomic benefitO of such
current life insurance coverage for Federal income tax
purposes, as provided in Revenue Ruling 64-328 (or the
corresponding applicable provisions of any future Revenue
Ruling) or as otherwise provided for Federal income tax
purposes. The Participant shall be required to pay the
ParticipantOs Plan Year Contribution to Premium to the
Company for each such Plan Year, subject to any
assignment of the Estate Preservation Policy in
accordance with the terms thereof and of the related
Split-Dollar and Collateral Assignment Agreements. So
long as the ParticipantOs employment with the Company or
an Employer continues and unless the Company and the
Participant agree otherwise, the Company shall deduct the
ParticipantOs Plan Year Contribution to Premium from the
ParticipantOs normal salary payments on a level basis
during the Plan Year, except as to the first Plan Year,
during which the ParticipantOs Plan Year Contribution to
Premium shall be deducted on a level basis beginning as
of the date of enrollment, and except as to the last Plan
Year, during which the ParticipantOs Plan Year
Contribution to Premium shall be deducted on a level
basis ending as of the date of the termination of the
Split-Dollar Agreement. Upon the termination of the
ParticipantOs employment with the Company or an Employer
in any Plan Year and continuing until the termination of
the Split-Dollar Agreement, the Participant shall be
required to pay the balance of the ParticipantOs Plan
Year Contribution to Premium for such Plan Year (which
has not theretofore been deducted from the ParticipantOs
salary) generally within ninety (90) days of such
termination of the ParticipantOs employment with the
Company or the Employer, and the Participant shall be
required to pay the ParticipantOs Plan Year Contribution
to Premium for each succeeding Plan Year generally within
ninety (90) days of the premium payment date for the
Estate Preservation Policy for each such Plan Year. In
all events, the Participant shall pay the ParticipantOs
Plan Year Contribution to Premium prior to the end of
each such Plan Year. For the Plan Year in which either
the Participant or his spouse dies, the ParticipantOs
employment with the Company and Employer is terminated,
or the Split-Dollar Agreement is otherwise terminated, an
appropriate adjustment shall be made to the ParticipantOs
Plan Year Contribution to Premium for such Plan Year (and
any applicable Plan Year thereafter) to reflect such
event, including but not limited to adjustments based on
a change from the P.S. 38 (joint) tables to the P.S. 58
(single) tables used to calculate the economic benefit of
the life insurance coverage.
4.5 Collateral Assignment Agreement. To secure the payment
to the Company of the amount due it hereunder as a result of its
payments toward the premiums on the Estate Preservation Policy, the
Participant shall contemporaneously with its purchase and the
execution of the Split-Dollar Agreement assign the Estate
Preservation Policy in favor of the Company as collateral pursuant
to a written agreement, which collateral assignment shall
specifically provide that the sole right of the Company thereunder
is to be paid the amount due it under the Split-Dollar Agreement as
a result of its payments toward the premiums on the Estate
Preservation Policy. Such payment shall be made from the cash value
of the Estate Preservation Policy (as defined therein) if the Split-
Dollar Agreement is terminated or if the Participant surrenders or
cancels the Estate Preservation Policy while the related Split-
Dollar Agreement remains in effect, or from the death benefit
provided under the Estate Preservation Policy, if both the
Participant and his spouse die while the Estate Preservation Policy
and the related Split-Dollar Agreement remain in effect. In no
event shall the Company have any right to borrow against or
withdraw amounts from the Estate Preservation Policy, to surrender
or cancel the Estate Preservation Policy, or take any other action
which would impair or defeat the rights of the Participant as the
owner of the Estate Preservation Policy. The collateral assignment
of the Estate Preservation Policy to the Company shall not be
terminated, altered or amended by the Participant while the
Split-Dollar Agreement is in effect. The Participant and the
Company shall take all action necessary to cause such collateral
assignment to conform to the provisions of the Split-Dollar
Agreement.
4.6 Limitations on ParticipantOs Rights under Policy.
Unless he has assigned the ownership of the Estate Preservation
Policy pursuant to the terms of such Policy and of the related
Split-Dollar and Collateral Assignment Agreements, as the sole and
absolute owner of the Estate Preservation Policy the Participant
may exercise all of the rights, options, privileges and other
incidents of ownership granted to the owner thereof by the terms of
the Estate Preservation Policy (including, without limitation, the
unlimited ability to borrow against or withdraw amounts from the
cash value of the Estate Preservation Policy and to surrender or
cancel the Estate Preservation Policy). Notwithstanding the
foregoing, so long as the Split-Dollar Agreement remains in effect:
(a) the Participant shall not take any action with respect to the
Estate Preservation Policy which would have a direct or indirect
adverse effect on the CompanyOs interests under the Split-Dollar
Agreement in the Estate Preservation Policy without the CompanyOs
prior written consent; and (b) except with respect to the
ParticipantOs right to change the beneficiaries of the
ParticipantOs Death Benefit, as defined in subparagraph (iii) of
paragraph 4.7(b), and to assign the ParticipantOs interests in the
Estate Preservation Policy and under the related Split-Dollar
Agreement as may be provided therein, the Participant shall not
take any other action with respect to the Estate Preservation
Policy (regardless of whether it would directly or indirectly
adversely affect the CompanyOs interests under the Split-Dollar
Agreement in the Estate Preservation Policy) without the CompanyOs
prior written consent. For purposes of this subsection 4.6, the
Participant may borrow against or withdraw from the cash value of
the Estate Preservation Policy any amounts which may be required to
be paid to the Company and which are due the Company under
paragraph 4.4(c), so long as the amount of any such loan or
withdrawal is chargeable solely against the ParticipantOs Death
Benefit and that portion of the cash value of the Estate
Preservation Policy which is in excess of the cash value of the
Estate Preservation Policy due the Company under the related Split-
Dollar Agreement as a result of its payments toward the premiums on
the Estate Preservation Policy pursuant to the Collateral
Assignment Agreement.
4.7 Collection and Payment of Death Benefit.
(a) Upon the death of the survivor of the Participant and his
spouse while the related Split-Dollar Agreement remains
in effect, the Company and the ParticipantOs beneficiary
shall promptly take all action necessary to obtain the
death benefit provided under the Estate Preservation
Policy and payable as a result of the maturity of the
Estate Preservation Policy (the ODeath BenefitO).
(b) The Death Benefit shall be paid as follows:
(i) The Company shall first be paid from the Death
Benefit any unpaid amount of the ParticipantOs Plan Year
Contribution to Premium owed to it by the Participant
under paragraph 4.4(c).
(ii) The Company shall next be paid from the Death
Benefit the total net amount of the payments made by it
toward the premiums of the Estate Preservation Policy.
Such amount shall be the sum of the CompanyOs Policy Year
Net Premium Payment amounts under paragraph 4.4(b) (the
OCompanyOs Cumulative Net Premium PaymentO).
(iii) The ParticipantOs beneficiary under an Estate
Preservation Policy shall next be paid, in the manner and
in the amount or amounts provided in the beneficiary
designation provision of such Estate Preservation Policy,
from the Death Benefit an amount equal to the
ParticipantOs Death Benefit. For purposes of this
subparagraph (iii), the OParticipantOs Death BenefitO
shall be an amount equal to the lesser of (A) the maximum
death benefit set forth in the Exhibit (the
OParticipantOs Maximum Death BenefitO) for the Policy
Year in which the survivor of the Participant or his
spouse shall have died or (B) that portion of the Death
Benefit remaining after the payments provided for in
subparagraphs (i) and (ii) of this paragraph 4.7(b), and
then reduced by any loan chargeable against the
ParticipantOs Death Benefit.
(iv) The Company shall receive the balance, if any, of
the Death Benefit remaining after the payments provided
for in subparagraphs (i), (ii) and (iii) of this
paragraph 4.7(b).
(c) The beneficiary designation provision of the Estate
Preservation Policy shall conform to the provisions
hereof.
4.8 Termination of Split-Dollar Agreement.
(a) The Split-Dollar Agreement shall terminate, without
notice, on the first day of the month following the month
during which the first of the following events occurs:
(i) The Participant (or the assignee of his Estate
Preservation Policy) fails to make any premium payment
required under paragraph 4.4(c) for any Plan Year by the
end of such Plan Year or the Participant (or assignee)
notifies the Company that the Participant (or assignee)
intends to surrender or cancel the Estate Preservation
Policy;
(ii) The ParticipantOs employment with the Company or an
Employer terminates before the date upon which the
Participant becomes retirement eligible, as defined in
paragraph (c) below;
(iii) The Participant is demoted or moved by the
Company or an Employer to a position that is no longer
that of an Eligible Employee, even if the change occurs
on or after the date upon which the Participant becomes
retirement eligible, unless the Senior Vice President -
Human Resources makes a determination based on all
relevant facts and circumstances that the Split-Dollar
Agreement shall not terminate as a result of the
ParticipantOs demotion and so notifies the Participant;
(iv) The Participant establishes a relationship with a
competitor of the Company or the Employers or engages in
any activity which is in conflict with or adverse to the
interests of the Company or an Employer, as determined by
the Committee in its sole discretion, whether before or
after the ParticipantOs employment with the Company or an
Employer has terminated and whether before, on or after
the date upon which the Participant becomes retirement
eligible; or
v) the latest of:
(A) the date the ParticipantOs employment with the
Company or an Employer terminates after the
Participant has reached age 65 and on or after the
date upon which the Participant becomes retirement
eligible, or
(B) the date the Participant reaches age 65 for any Participant
whose employment with the Company or an Employer terminates on or
after the date upon which the Participant becomes retirement
eligible but before the Participant has reached age 65, or
(C) the date immediately before the date fifteen (15) years after
the policy date of the Estate Preservation Policy (as defined
therein).
For purposes of subparagraph (C) above, all years during
which any Estate Preservation Policy is in effect with
respect to a Participant, whether or not consecutive,
shall be aggregated.
(b) In addition, the Participant may terminate the Split-
Dollar Agreement at any time by written notice to the
Company.
(c) For purposes of the Plan, the Participant shall be deemed
to be Oretirement eligibleO as of the date upon which (i)
the Participant's combined age plus yeas of service
totals 75 or more, or (ii) the Participant is eligible
to receive a minimum retirement benefit or disability
pension allowance under the Ameritech Corporate Resource
Supplemental Pension Plan, or (iii) the Participant has
been disabled for more than fifty-two (52) weeks and had
at least six (6) months credited service, as long as the
Participant continues to be disabled, in each case as
defined in the Ameritech Corporate Resource Long Term
Disability Plan or the Ameritech Long Term Disability
Plan for Salaried Employees. Anything contained in this
Plan to the contrary notwithstanding, the ParticipantOs
employment with the Company or an Employer shall be
deemed to continue for as long as the Participant is
eligible to receive sickness and accident disability
benefits under the Ameritech Sickness and Accident
Disability Benefit Plan. For purposes of this paragraph
(c), each of the CompanyOs plans identified above shall
also include any successor plan.
4.9 Options on Termination of Split-Dollar Agreement.
(a) Upon termination of a Split-Dollar Agreement, the Company
shall be entitled to receive from the cash value of the
related Estate Preservation Policy an amount equal to the
sum of (i) the CompanyOs Cumulative Net Premium Payment
plus (ii) the amount owed to it by the Participant under
paragraph 4.4(c), if any. Such amount is hereinafter
referred to as the OCompanyOs Cumulative Net Premium
Payment at TerminationO.
(b) For thirty (30) days after the date of the termination of
the Split-Dollar Agreement, the Participant shall have
the option of obtaining the release of the collateral
assignment of the Estate Preservation Policy to the
Company. To obtain such release, the Participant shall
pay to the Company an amount equal to the CompanyOs
Cumulative Net Premium Payment at Termination, and,
notwithstanding any other provision hereof, the
Participant shall specifically be allowed to borrow
against or withdraw from the cash value of the Estate
Preservation Policy for this purpose. Upon receipt of
such amount, the Company shall release the collateral
assignment of the Estate Preservation Policy by the
execution and delivery of an appropriate instrument of
release.
(c) If the Participant fails to exercise such option within
such thirty (30) day period, then, at the request of the
Company, the Participant shall execute any document or
documents required by the Insurer to transfer the
interest of the Participant in the Estate Preservation
Policy to the Company. Alternatively, the Company may
enforce its right to be paid an amount equal to the
CompanyOs Cumulative Net Premium Payment at Termination
under the collateral assignment of the Estate
Preservation Policy. Thereafter, neither the Participant,
nor the ParticipantOs heirs, assigns or beneficiaries
shall have any further interest in and to the Estate
Preservation Policy, either under the terms thereof or
under this Plan. However, in no event shall the
Participant be liable to the Company in the event the
cash value of an Estate Preservation Policy at the time
of the termination of the related Split-Dollar Agreement
is insufficient to pay the Company an amount equal to the
CompanyOs Cumulative Net Premium Payment at Termination.
(d) Anything contained in this Plan to the contrary
notwithstanding, if the Split-Dollar Agreement terminates
(other than as a result of the death of the survivor of
the Participant and his spouse) for any reason other than
pursuant to subparagraph 4.8(a)(v) of this Plan, the
Company shall also be entitled to recover, in addition to
the CompanyOs Cumulative Net Premium Payment at
Termination, an amount sufficient to pay all federal,
state and local income taxes, if any, imposed upon the
Company as a result of such early termination and
attributable to the Estate Preservation Policy so that
the Company will receive the CompanyOs Cumulative Net
Premium Payment at Termination on an after-tax basis. The
amount, if any, payable to the Company pursuant to this
paragraph 4.9(d) shall be determined by the CompanyOs
independent certified public accountant which is
responsible for preparing the income tax returns for the
Company for such Plan Year.
4.10 Change in Control. Notwithstanding any other provisions
of the Plan, if a Change in Control (as defined below) occurs, and
if a Participant is retirement eligible, he shall receive the
present value of the Estate Preservation insurance premiums.
Notwithstanding any other provisions of the Plan, if a Change in
Control (as defined below) occurs, and if a Participant is non-
retirement eligible, he shall receive the present value of two
years Estate Preservation insurance premiums, or the remaining
premiums, if less. For purposes of the Plan, as applied to any
Participant, the term OChange in ControlO means a change in the
beneficial ownership of the CompanyOs voting stock or a change in
the composition of the CompanyOs Board of Directors which occurs as
follows:
(a) any OpersonO (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than:
(i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company; or
(ii) the Participant or any person acting in concert
with the Participant;
is or becomes a beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of stock of the Company
representing 20% or more of the total voting power of
the CompanyOs then outstanding stock; provided,
however, that this paragraph (a) shall not apply to
any tender offer made pursuant to an agreement with
the Company approved by the CompanyOs Board of
Directors and entered into before the offeror has
become a beneficial owner of stock of the Company
representing 5% or more of the combined voting power
of the CompanyOs then outstanding stock;
(b) a tender offer is made for the stock of the Company, and
the person making the offer owns or has accepted for
payment stock of the Company representing 20% or more of
the total voting power of the CompanyOs then outstanding
stock; provided, however, that this paragraph (b) shall
not apply to any tender offer made pursuant to an
agreement with the Company approved by the CompanyOs
Board of Directors and entered into before the offeror
has become a beneficial owner of stock of the Company
representing 5% or more of the combined voting power of
the CompanyOs then outstanding stock;
(c) during any period of twelve consecutive months there
shall cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning of
such period constitute the Board of Directors and any new
director(s) whose election by the Board of Directors or
nomination for election by the CompanyOs stockholders was
approved by a vote of at least 80% of the directors then
still in office who either were directors at the
beginning of the period or whose election or nomination
for election was previously so approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with, or a sale of all or
substantially all of the Company's assets to, any other
company other than:
(i) a merger or consolidation which would result in
the CompanyOs voting stock outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting stock of the surviving entity) more than 55% of
the combined voting power of the CompanyOs or such
surviving entityOs outstanding voting stock
immediately after such merger or consolidation; or
(ii) a merger or consolidation which would result in
the directors of the Company who were directors
immediately prior thereto continuing to constitute at
least a majority of the directors of the surviving
entity immediately after such merger or consolidation.
For purposes of paragraph (d) above, the phrase Osurviving
entityO shall mean only an entity in which all of the
CompanyOs stockholders who are stockholders immediately before
the merger or consolidation (other than stockholders
exercising dissenter rights) become stockholders by the terms
of the merger or consolidation, and the phrase Odirectors of
the Company who were directors immediately prior thereto"
shall not include (A) any director of the Company who was
designated by a person who has entered into an agreement with
the Company to effect a transaction described in paragraph (a)
or paragraph (d) above, or (B) any director who was not a
director at the beginning of the twelve-consecutive-month
period preceding the date of such merger or consolidation,
unless his election by the Board of Directors or nomination
for election by the CompanyOs stockholders was approved by a
vote of at least 80% of the directors who were directors
before the beginning of such period.
SECTION 5
Plan Administration
5.1 Plan Administrator; Administration. The Senior Vice
President - Human Resources of the Company or such other officer of
the Company as its Board of Directors shall designate shall be the
Plan Administrator under this Plan. Except as otherwise
specifically provided herein, the Plan Administrator shall have
discretionary authority to control and manage the operation and
administration of this Plan. The Plan Administrator shall also have
the power to establish, adopt, or revise such rules and regulations
as the Plan Administrator may deem advisable for the administration
of this Plan. The interpretation and construction of this Plan by
the Plan Administrator (or the Committee with respect to
subparagraph 4.8(a)(iv)) and any action taken thereunder, shall be
binding and conclusive upon all persons. The Plan Administrator
shall not, in any event, be liable to any person for any action
taken or omitted to be taken in connection with the interpretation,
construction or administration of the Plan, so long as such action
or omission to act is made in good faith. The Plan Administrator
shall be eligible to participate in this Plan but shall not vote or
act upon any matter that relates solely to his interest in this
Plan as a Participant.
5.2 Determination of Benefits. Except as otherwise
specifically provided herein, the Plan Administrator shall make all
determinations concerning rights to benefits under this Plan. Any
decision by the Plan Administrator denying a claim by a Participant
or his beneficiary for benefits under this Plan shall be stated in
writing and delivered or mailed to the Participant or such
beneficiary. Such decision shall set forth the specific reasons for
the denial, written to the best of the Plan AdministratorOs ability
in a manner that may be understood without legal or actuarial
counsel. In addition, the Plan Administrator shall afford a
reasonable opportunity to the Participant or such beneficiary for a
full and fair review of the decision denying such claim.
SECTION 6
Miscellaneous
6.1 Amendment and Termination. This Plan may be amended or
terminated by the Company or its successor, in its discretion, at
any time and without the consent or approval of any other person.
6.2 Validity. In the event any provision of this Plan is
held invalid, void, or unenforceable, the same shall not affect, in
any respect whatsoever, the validity of any other provision of this
Plan.
6.3 Administrative Amendments. The Company's Senior
Vice President - Human Resources, or such other officer of the
Company as may from time to time be primarily responsible for human
resouces matters, may, with the concurrence of the Company's
Executive Vice President and General Counsel, make minor or
administrative amendments to the Plan.
AMERITECH CORPORATE RESOURCE
LONG TERM DISABILITY PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH CORPORATE RESOURCE
LONG TERM DISABILITY PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 General 1
History and Purpose 1
Plan Administration 1
Non-Alienation 1
Source of Benefits 2
Notices 2
Applicable Laws 2
Gender and Number 2
2 Participation 2
Participation 2
Plan Not Contract of Employment 2
3 Disability 3
Disability During First Fifty-Two Weeks 3
Disability After Fifty-Two Weeks 3
Committee Determination 3
Measurement of Period of Disability 3
4 Disability Allowance 4
Disability Allowance For First Fifty-Two Weeks 4
Disability Allowance After Fifty-Two Weeks 4
Offsets 4
Medical Expense Benefits 4
5 Conditions of Payment 5
Distributions to Persons Under Legal Disability 5
Benefits May Not Be Assigned or Alienated 5
Forfeiture of Benefits 5
6 Amendment or Termination 5
Administrative Amendments 5
Amendments and Termination 6
Participant Rights 6
Successors 6
AMERITECH CORPORATE RESOURCE
LONG TERM DISABILITY PLAN
(As Amended and Restated Effective as of February 1, 1998)
SECTION 1
General
1.1. History and Purpose. Effective as of January 1, 1986
the Ameritech Senior Management Long Term Disability Plan, now re-
named the Ameritech Corporate Resource Long Term Disability Plan
(the "Plan") was established by Ameritech Corporation, a Delaware
corporation (the "Company"), as an amendment, restatement and
continuation of the long term disability provisions of Ameritech
Senior Management Long Term Disability and Survivor Protection
Plan (the "Predecessor Plan"), as applied to employees of the
Company and its subsidiaries and affiliates. The purpose of the
Plan is to provide long term disability protection for corporate
resource managers of the Company and of any Subsidiary or
Affiliate of the Company which adopts the Plan (an "Employer").
The term "Subsidiary" means any corporation of which the Company
owns at least 50% of the combined voting power of all classes of
stock entitled to vote. The term "Affiliate" means any
corporation other than a Subsidiary which would be a member of a
controlled group of corporations with the Company under section
1563(a) of the Internal Revenue Code of 1986, as amended. The
following provisions constitute an amendment, restatement and
continuation of the Plan, effective as of February 1, 1998.
1.2. Plan Administration. The authority to control and
manage the operation and administration of the Plan as applied to
the Company or any other Employer shall be vested in the Benefit
Plan Committee or its delegate which administers the Ameritech
Management Pension Plan (the "Pension Plan") with respect to the
Company or such Employer (the "Committee") and, in exercising
that authority, the Committee shall, to the extent necessary and
appropriate, have the same rights, powers and duties as those
delegated to it under the Pension Plan. The Committee has the
exclusive right and discretion to interpret the provisions of the
Plan and the entitlement to benefits under the Plan. Any
decision made by the Committee on any matter within its
discretion is conclusive, final and binding on all persons, and
not subject to further review. The Committee (or its delegate) of
the appropriate Employer shall grant or deny claims for benefits
under the Plan and authorize disbursements. Adequate notice,
pursuant to applicable law and prescribed Company practices,
shall be provided in writing to any Participant or beneficiary
whose claim has been denied, setting forth the specific reasons
for such denial. The review and appeal procedures for any
Participant or beneficiary whose claim has been denied shall be
the same as those procedures set forth in the Pension Plan.
1.3. Non-Alienation. Benefits payable to any person under
the Plan may not be voluntarily or involuntarily assigned or
alienated.
1.4. Source of Benefits. Subject to the terms and
conditions of the Plan, any amount payable to or on account of a
Participant shall be paid from the general assets of the Company
or the other Employer which last employed the Participant. The
obligations of the Company and the other Employers under the Plan
are solely contractual, and no trust or other separate fund shall
be established for purposes of paying any benefits under the
Plan.
1.5. Notices. Any notice or document required to be given
to or filed with the Committee shall be considered to be given or
filed if delivered to the Committee or mailed by registered mail,
postage prepaid, to the Committee, in care of the Company, at 30
South Wacker Drive, Chicago, Illinois 60606.
1.6. Applicable Laws. The Plan shall be construed and
administered in accordance with the laws of the State of
Illinois, to the extent that such laws are not preempted by the
laws of the United States of America.
1.7. Gender and Number. Where the context admits, words in
any gender shall include any other gender, words in the singular
shall include the plural and the plural shall include the
singular.
SECTION 2
Participation
2.1. Participation. Each employee of the Company and the
other Employers shall become a Participant in the Plan on the
first date after the Effective Date on which he is employed as:
(a) a member of the Company's Management Committee; or
(b) a full-time management employee on the active roll of
the Company or any other Employer (i) who has attained
any of salary grades CR1 through CR9; or (ii) has
attained any of Investment Management salary grades
IM10 through IM12; or (iii) who is an attorney in
salary grades IV through VI;
An employee shall cease to be a Participant as of the
date he ceases to meet the requirements of subparagraph
(a) or (b), even if he continues to be employed by the
Company or another Employer.
2.2. Plan Not Contract of Employment. The Plan does not
constitute a contract of employment, and nothing in the Plan will
give any employee or Participant the right to be retained in the
employ of the Company or any other Employer nor any right or
claim to any benefit under the Plan, except to the extent
specifically provided under the terms of the Plan.
SECTION 3
Disability
3.1. Disability During First Fifty-Two Weeks. A
Participant shall be considered to be "disabled" at any time
during the first fifty-two week period following the onset of a
physical or mental impairment, if such impairment prevents the
Participant from meeting the performance requirements of the
position held immediately preceding the onset of the physical or
mental impairment.
3.2. Disability After Fifty-Two Weeks. A Participant shall
be considered to be "disabled" after the first fifty-two week
period following the onset of a physical or mental impairment, if
such impairment prevents the Participant from meeting the
performance requirements of (1) the position held immediately
preceding the onset of the physical or mental impairment, (2) a
similar position, or (3) any appropriate position within the
Company or another Employer which the Participant would otherwise
be capable of performing by reason of the Participant's
background and experience.
3.3. Committee Determination. The Committee shall make the
determination of whether a Participant is disabled within the
meaning of subsections 3.1 and 3.2 when the onset of the physical
or mental impairment occurs. In making such determinations, the
Committee may rely on the opinion of a qualified physician
selected by the Committee to examine the Participant. The
Committee may at any reasonable time require reasonable proof of
the continuing nature of the Participant's disability.
3.4. Measurement of Period of Disability. For purposes of
subsections 3.1 and 3.2, the measurement of time following the
onset of a physical or mental impairment shall coincide with the
measurement of time used to calculate periods of sickness and
accident disability benefits under the provisions of the Sickness
and Accident Disability Benefit Plan maintained by the Company or
applicable Employer. Successive periods of physical or mental
impairment shall be counted together in computing the periods
during which the Participant shall be entitled to the benefits
provided under subsections 4.1 and 4.2, except that any
disability absence after the Participant has been continuously
engaged in the performance of duty for thirteen weeks shall be
considered to commence a new period of physical or mental
impairment under subsection 3.1, so that Participant shall be
entitled during such new period to the benefits provided under
subsection 4.1.
SECTION 4
Disability Allowance
4.1. Disability Allowance For First Fifty-Two Weeks. A
Participant who is disabled during a period described in
subsection 3.1 shall be eligible to receive a monthly Disability
Allowance for such period of disability equal to 100 percent of
the Participant's monthly base salary rate on the last day the
Participant was on the active payroll, reduced by any amounts
described in subsection 4.3 which are attributable to the period
for which benefits are provided under this subsection.
4.2. Disability Allowance After Fifty-Two Weeks. A
Participant who is disabled during a period described in
subsection 3.2 shall, prior to his sixty-fifth birthday, be
eligible to receive a monthly Disability Allowance for such
period of disability equal to 60 percent of the Participant's
monthly base salary rate on the last day the Participant was on
the active payroll, reduced by any amounts described in
subsection 4.3 which are attributable to the period for which
benefits are provided under this subsection.
4.3. Offsets. A Participant's Disability Allowance under
the Plan for any period shall be reduced by the sum of the
following benefits received (or which, at the election of the
Participant, could be received) by the Participant which are
attributable to such period: an accident disability benefit
(and, in the case of the Disability Allowance under subsection
4.1, a sickness disability benefit) under the Sickness and
Accident Disability Benefit Plan maintained by the Company or
applicable Employer; in the case of the Disability Allowance
under subsection 4.2, a long term disability benefit under the
Long Term Disability Plan maintained by the Company. Any other
retirement income payments, other than pension benefits received
under the Ameritech Management Pension Plan and/or the Ameritech
Corporate Resource Supplemental Pension Plan; any Worker's
Compensation Benefit; and, in the case of a Disability Allowance
under subsection 3.2, any Social Security Insurance Benefit.
However, no reduction shall be made on account of any Social
Security Benefit at a rate greater than the rate which the
Participant would have first been eligible to receive after his
disability and as if no other member of his family were eligible
for any Social Security Benefit. Furthermore, the Board of
Directors of the Company, in its discretion, may reduce the
Disability Allowance by all or any portion of the amount of
outside compensation or earnings of the Participant for work
performed by the Participant during the period for which such
Disability Allowance is provided.
4.4. Medical Expense Benefits. A Participant who is
entitled to a benefit under subsection 4.1 or 4.2 whose combined
age plus years of service at retirement is less than 75 shall be
entitled to the same rights and benefits under the Company's or
other Employer's Comprehensive Health Care Plan and Dental
Expense Plan as if he had retired with age plus service totalling
75.
SECTION 5
Conditions of Payment
5.1. Distributions to Persons Under Legal Disability. In
the event an individual is declared incompetent and a conservator
or other person legally charged with the care of the individual's
person or estate is appointed, any benefits to which such
individual is entitled under the Plan shall be paid to such
conservator or other person.
5.2. Benefits May Not Be Assigned or Alienated. Benefits
payable to, or on account of, any individual under the Plan may
not be voluntarily or involuntarily assigned or alienated.
5.3. Forfeiture of Benefits. All benefits under the Plan
shall be forfeited at the discretion of the Company's Board of
Directors under the following circumstances:
(a) The Participant is discharged by the Company or another
Employer for cause;
(b) The Board of Directors of the Company or another
Employer determines that the Participant engaged in
misconduct in connection with his employment with the
Company or Employer; or
(c) The Participant, without the consent of the Company or
his employing Employer or the Employer paying him a
benefit hereunder, at any time is employed by, becomes
associated with, renders service to, or owns an
interest in any business that is competitive with the
Company, any other Employer or with any business in
which the Company or any other Employer has a
substantial interest (other than as a shareholder with
a nonsubstantial interest in such business) as
determined by the Board of Directors of the Company or
such other Employer (or, if such other Employer does
not have a Board of Directors and is managed by its
shareholder or shareholders, by such shareholder or
shareholders).
SECTION 6
Amendment or Termination
6.1. Administrative Amendments. Subject to the provisions
of subsection 6.3, the Company's Senior Vice President - Human
Resources, or such other officer of the Company as may from time
to time be primarily responsible for human resource matters, may,
with the concurrence of the Company's Executive Vice President
and General Counsel, make minor or administrative amendments to
the Plan.
6.2. Amendments and Termination. Subject to the provisions
of subsection 6.3, the Company's Board of Directors may amend or
terminate the Plan at any time and any other Employer may, by
action of its Board of Directors, terminate its participation in
the Plan at any time.
6.3. Participant Rights. No action under this Section 6
shall, without the consent of the affected Participant, adversely
affect the rights of any Participant with respect to any amount
payable under the Plan to which the Participant previously became
eligible to receive by reason of a disability which occurred
prior to such action.
6.4. Successors. The obligations of the Company and each
other Employer under the Plan shall be binding upon any assignee
or successor in interest thereto. Neither the Company nor any
other Employer shall merge or consolidate with any other
corporation, or liquidate or dissolve, without making suitable
arrangement for the payment of any benefits payable under the
Plan.
AMERITECH CORPORATE RESOURCE
TRANSFER PROGRAM
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH CORPORATE RESOURCE
TRANSFER PROGRAM
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 Definitions 1
2 Residence Relocation Differential 1
3 Home Purchase Differential 3
4 General Provisions 4
Appendix 1
AMERITECH CORPORATE RESOURCE
TRANSFER PROGRAM
(As Amended and Restated Effective as of February 1, 1998)
Section 1. Definitions
1. The word "Program" shall mean the Ameritech Corporate
Resource Transfer Program.
2. The word "Company" shall mean Ameritech Corporation, or
its successors.
3. The word "Employer" shall mean the Company and each
Subsidiary or Affiliate of the Company which, with the
consent of the Company, adopts the Program. The word
"Subsididiary" means any corporation of which the
Company owns at least 50% of the combined voting power
of all classes of stock entitled to vote. The word
"Affiliate" means any corporation other than a
Subsidiary which would be a member of a controlled
group of corporations with the Company under Section
1563(a) of the Internal Revenue Code of 1986, as
amended.
4. The term "eligible employee" shall mean a management
employee on the active roll of the Company who (a) is a
member of the Company's Management Committee, (b) has
attained any of salary grades CR 5 through 9, or (c) is
an attorney in salary grade VI.
Section 2. Residence Relocation Differential
1. An eligible employee shall be entitled to receive a
Residence Relocation Differential if:
(a) the employee's primary work location within an
Employer has been changed at the direction of the
Employer or the employee's primary work location
has changed because of a transfer to one Employer
from another Employer.
(b) the employee is eligible for reimbursement for
moving expenses under the Ameritech Relocation
Plan for Management Employees, as applied at the
new work location (unless a waiver of this
condition because of unusual circumstances is
approved by the employee's supervisor and the
Company's Senior Vice President - Human
Resources), and
(c) the employee moves to a new residence, within a
12-month period of the employee's transfer to the
new work location.
For the purpose of Paragraph l(c), an employee is considered
to move to a new residence on the date of the closing in the
case of a residence which is purchased, or in the case of a
residence which is rented, on the earliest date in the
rental period for which no reimbursement with respect to
rent is made from an Employer to the employee. Also, in the
case of rented premises, the suitability of such premises
for use as a residence must be approved by the Company's
Senior Vice President - Human Resources.
2. (a) Except as provided in Paragraph 2(c) and (d)
of this Section 2, a Residence Relocation
Differential shall be paid with respect to the 36-
month period which begins with the first day of
the month which contains the effective date of the
employee's transfer to the new work location. The
Residence Relocation Differential with respect to
the first 12 months of the 36-month period shall
equal 10% of the employee's base salary on the
effective date of transfer to the new work
location, or 8% of the employee's position rate on
such effective date of transfer, whichever is
higher. The Residence Relocation Differential with
respect to the next 12-month period shall equal
80% of the Residence Relocation Differential
during the first 12-month period. The Residence
Relocation Differential with respect to the final
12-month period shall equal 60% of the Residence
Relocation Differential during the first 12-month
period.
(b) The amount of Residence Relocation Differential
payable with respect to each 12-month period shall
be paid to an employee in equal monthly
installments except that the amount payable with
respect to any month preceding the month in which
the employee moves to a new residence shall be
accumulated and paid to such employee only after
he has moved to a new residence. The Company's
Senior Vice President - Human Resources shall have
the authority to approve payment of any
accumulated amounts in a lump sum or in a series
of equal monthly installments not exceeding 12.
(c) If an employee becomes an eligible employee after
the employee has transferred to a new work
location, the payment of a Residence Relocation
Differential shall not be made with respect to any
month (in the 36-month period referred to in
Paragraph 2(a)) prior to the month in which the
employee becomes an eligible employee.
Furthermore, the Residence Relocation Differential
for any such employee may be determined by
substituting the words "the date the employee
became an eligible employee" for "the effective
date of transfer to the new work location" and for
"such effective date of transfer" in the second
sentence of Paragraph 2(a) of this Section 2.
(d) The payment of a Residence Relocation Differential
with respect to an employee's transfer to a new
work location shall not be made with respect to
any month after the month in which:
(i) the employee, who has rented a residence
near the new work location, ceases to occupy
such residence and returns to his former
residence, or
(ii) the employee becomes entitled to a
Residence Relocation Differential with
respect to a subsequent change to another new
work location, or
(iii) the employee retires, dies or
terminates employment with the Employers, or
(iv) the employee commences a leave of
absence, or
(v) the employee ceases to be an eligible
employee, and it shall be the responsibility
of the employee to repay the Residence
Relocation Differential paid in error with
respect to any such month.
Notwithstanding the provisions of this Paragraph
2(d)(iv) or (v), the Company's Senior Vice President -
Human Resources shall have the authority to approve the
continuation of payment of all or part of the Residence
Relocation Differential with respect to an employee, or
to approve the payment in a lump sum of all or part of
the Residence Relocation Differential which would
otherwise be payable on a monthly basis.
(e) If an eligible employee transfers from one
Employer to another Employer without changing his
primary work location while such employee is
receiving a Residence Relocation Differential
under the Program, then the Employer to which such
employee transfers shall continue to pay to such
employee the amount of Residence Relocation
Differential for the remainder of the 36-month
period which would have been payable under such
program had the employee not transferred to such
Employer.
Section 3. Home Purchase Differential
1. Effective as of January 1, 1987, an eligible employee
shall be entitled to receive a Home Purchase
Differential if:
(a) the employee's primary work location has been
changed at the direction of an Employer or the
employee's primary work location has changed
because of a transfer to one Employer from another
Employer,
(b) the employee purchases a residence within twelve
months from the date of transfer, and
(c) the new work location is in one of the Company's
regional headquarters cities.
2. The amount of an eligible employee's Home Purchase
Differential shall be determined in accordance with
Appendix I, attached hereto, as it may be amended from
time to time. An eligible employee's Home Purchase
Differential shall be paid in a lump sum as soon as
practicable following his purchase of a residence in
the new location. An employee is considered to have
purchased a new residence on the date of the closing
for such residence.
3. The Employer shall pay the Federal, state and local
income taxes associated with the Home Purchase
Differential. This payment shall be made at the same
time the Home Purchase Differential is made and shall
be calculated at the maximum tax rate, as of the
closing date for the residence.
Section 4. General Provisions
1. The Residence Relocation Differential component of the
Program became effective on January 1, 1984 and the
Home Purchase Differential component of the Program
became effective as of January 1, 1987.
2. The Company's Senior Vice President - Human Resources
shall have the exclusive right and discretion to
administer and interpret the Program and the
entitlement to benefits under the Program. Any
decision made by the Senior Vice President - Human
Resources on any matter within the Senior Vice
President - Human Resources' discretion is conclusive,
final and binding on all persons.
The Company's Senior Vice President - Human Resources
shall grant or deny claims for benefits under the Plan
and authorize disbursements. Adequate notice, pursuant
to applicable law and prescribed Company practices,
shall be provided in writing to any employee whose
claim has been denied, setting forth the specific
reasons for such denial. The review and appeal
procedures for an employee whose claim has been denied
shall be the responsibility of the Human Resources
Committee of the Company's Board of Directors.
3. The Company's Senior Vice President - Human Resources
or his delegate shall approve payments under the
Program to eligible employees.
4. The rights of an employee to benefits under the Program
shall not be subject to assignment or alienation.
5. Benefits under the Program shall be excluded in
determining benefits under any pension, retirement,
disability, death, savings or other benefit plans of
the Employers.
6. All costs of providing the benefits under the Program
shall be charged to the operating expense accounts of
the Employer when and as paid.
7. The Company may from time to time make changes in the
Program and the Company may terminate the Program, but
such changes or termination shall not adversely affect
the rights of any employee, without his consent, to any
benefit under the Program to which such employee may
have previously become entitled prior to the effective
date of such change or termination. The Company's
Senior Vice President - Human Resources with the
approval of the Company's Executive Vice President and
General Counsel shall be authorized to make minor or
administrative changes to the Program.
APPENDIX 1
CORPORATE RESOURCE
HOME PURCHASE DIFFERENTIAL AMOUNTS
Effective 1-1-91
CHICAGO TO: Amount
Detroit 0
Milwaukee 0
Cleveland 0
Indianapolis 0
DETROIT TO:
Chicago 48,000
Milwaukee 0
Cleveland 0
Indianapolis 0
MILWAUKEE TO:
Chicago 43,000
Detroit 0
Cleveland 0
Indianapolis 0
CLEVELAND TO:
Chicago 49,400
Detroit 10,000
Milwaukee 0
Indianapolis 0
INDIANAPOLIS TO:
Chicago 37,700
Detroit 23,500
Milwaukee 10,000
Cleveland 0
[AMERITECH SUBSIDIARY] SENIOR MANAGEMENT
TRANSFER PROGRAM
(As Amended and Restated Effective as of January 1, 1992
[AMERITECH SUBSIDIARY] SENIOR MANAGEMENT
TRANSFER PROGRAM
SECTION 1 Definitions 1
SECTION 2 Residence Relocation Differential 1
SECTION 3 Home Purchase Differential 4
SECTION 4 General Provisions 4
Appendix 1
[AMERITECH SUBSIDIARY]
SENIOR MANAGEMENT TRANSFER PROGRAM
(AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1992)
Section 1. Definitions
1. The word "Program" shall mean the [Ameritech
Subsidiary] Senior Management Transfer Program.
2. The word "Company" shall mean [Ameritech Subsidiary],
or its successors.
3. The term "eligible employee" shall mean an employee of
the Company who has attained a level higher than
Department level or equivalent Fifth Level, and who
holds a position which the Company's Board of Directors
(or, if the Company does not have a Board of Directors
and is managed by its shareholder or shareholders, then
such shareholder or shareholders) has determined to be
within the Company's Senior Management Group.
Section 2. Residence Relocation Differential
1. An eligible employee shall be entitled to receive a
Residence Relocation Differential if:
(a) the employee's primary work location within the
Company has been changed at the direction of the
Company or the employee's primary work location
has changed because of a transfer to the Company
from a subsidiary of Ameritech,
(b) the employee is eligible for reimbursement for
moving expenses under the [Ameritech Subsidiary]
Relocation Plan for Management Employees, as
applied at the new work location (unless a waiver
of this condition because of unusual circumstances
is approved by the employee's supervisor and the
Personnel Vice President), and
(c) the employee moves to a new residence, within a 12-
month period of the employee's transfer to the new
work location.
For the purpose of Paragraph l(c), an employee is
considered to move to a new residence on the date of
the closing in the case of a residence which is
purchased, or in the case of a residence which is
rented, on the earliest date in the rental period for
which no reimbursement with respect to rent is made
from the Company to the employee. Also, in the case of
rented premises, the suitability of such premises for
use as a residence must be approved by the Personnel
Vice President.
2. (a) Except as provided in Paragraph 2(C) and (d)
of this Section 2, a Residence Relocation
Differential shall be paid with respect to the 36-
month period which begins with the first day of
the month which contains the effective date of the
employee's transfer to the new work location. The
Residence Relocation Differential with respect to
the first 12 months of the 36month period shall
equal 10% of the employee's base salary on the
effective date of transfer to the new work
location, or 8% of the employee's position rate on
such effective date of transfer, whichever is
higher. The Residence Relocation Differential with
respect to the next 12-month period shall equal
80% of the Residential Relocation Differential
during the first 12-month period. The Residence
Relocation Differential with respect to the final
12-month period shall equal 60% of the Residence
Relocation Differential during the first 12-month
period.
(b) The amount of Residence Relocation Differential
payable with respect to each 12-month period shall
be paid to an employee in equal monthly
installments except that the amount payable with
respect to any month preceding the month in which
the employee moves to a new residence shall be
accumulated and paid to such employee only after
he has moved to a new residence. The Personnel
Vice President shall have the authority to approve
payment of any accumulated amounts in a lump sum
or in a series of equal monthly installments not
exceeding 12.
(c) If an employee becomes an eligible employee after
the employee has transferred to a new work
location, the payment of a Residence Relocation
Differential shall not be made with respect to any
month (in the 36-month period referred to in
Paragraph 2(a)) prior to the month in which the
employee becomes an eligible employee.
Furthermore, the Residence Relocation Differential
for any such employee may be determined by
substituting the words "the date the employee
became an eligible employee" for "the effective
date of transfer to the new work location" and for
"such effective date of transfer" in the second
sentence of Paragraph 2(a) of this Section 2.
(d) The payment of a Residence Relocation Differential
with respect to an employee's transfer to a new
work location shall not be made with respect to
any month after the month in which:
(i) the employee, who has rented a residence
near the new work location, ceases to occupy
such residence and returns to his former
residence, or
(ii) the employee becomes entitled to a
Residence Relocation Differential with
respect to a subsequent change to another new
work location, or
(iii) the employee retires, dies or
terminates employment with the Company, or
(iv) the employee commences a leave of
absence, or
(v) the employee ceases to be an eligible
employee,
and it shall be the responsibility of the employee
to repay the Residence Relocation Differential
paid in error with respect to any such month.
Notwithstanding the provisions of this Paragraph 2(d)(iv) or
(v), the Personnel Vice President with respect to Paragraph
2(d)(iv) and the Senior Vice President - Human Resources of
Ameritech with respect to Paragraph 2(d)(v) shall have the
authority to approve the continuation of payment of all or
part of the Residence Relocation Differential with respect
to an employee, or to approve the payment in a lump sum of
all or part of the Residence Relocation Differential which
would otherwise be payable on a monthly basis.
(e) If an eligible employee transfers to the Company
from Ameritech or another subsidiary of Ameritech
without changing his primary work location while
such employee is receiving a Residence Relocation
Differential under the Senior Management Transfer
Program of Ameritech or of such subsidiary, then
the Company shall continue to pay to such employee
the amount of Residence Relocation Differential
for the remainder of the 36-month period which
would have been payable under such program had the
employee not transferred to the Company.
Section 3. Home Purchase Differential
1. Effective as of January 1, 1987, an eligible employee
shall be entitled to receive a Home Purchase
Differential if:
(a) the employee's primary work location has been
changed at the direction of the Company or the
employee's primary work location has changed
because of a transfer to the Company from a
subsidiary of Ameritech,
(b) the employee purchases a residence within twelve
months from the date of transfer, and
(c) the new work location is one of Ameritech's
regional headquarters cities.
2. The amount of an eligible employee's Home Purchase
Differential shall be determined in accordance with
Appendix I, attached hereto, as it may be amended from
time to time. An eligible employee's Home Purchase
Differential shall be paid in a lump sum as soon as
practicable following his purchase of a residence in
the new location. An employee is considered to have
purchased a new residence on the date of the closing
for such residence.
3. The Company shall pay the Federal, state and local
income taxes associated with the Home Purchase
Differential. This payment shall be made at the same
time the Home Purchase Differential is made and shall
be calculated at the maximum tax rate, as of the
closing date for the residence.
Section 4. General Provisions
1. The Residence Relocation Differential component of the
Program shall be effective on January 1, 1984 and the
Home Purchase Differential component of the Program
shall be effective as of January 1, 1987.
2. The Personnel Vice President shall have the exclusive
right and discretion to administer and to interpret the
Program and the entitlement to benefits under the
Program. Any decision made by the Personnel Vice
President on any matter within the Personnel Vice
President's discretion is conclusive, final and binding
on all persons.
The Personnel Vice President shall grant or deny claims
for benefits under the Plan and authorize
disbursements. Adequate notice, pursuant to applicable
law and prescribed Company practices, shall be provided
in writing to any employee whose claim has been denied,
setting forth the specific reasons for such denial. The
review and appeal procedures for an employee whose
claim has been denied shall be the responsibility of
the Human Resources Committee of the Ameritech Board of
Directors.
3. The Personnel Vice President shall approve payments
under the Program to eligible employees.
4. The rights of an employee to benefits under the Program
shall not be subject to assignment or alienation.
5. Benefits under the Program shall be excluded in
determining benefits under any pension, retirement,
disability, death, savings or other benefit plans of
the Company.
6. All costs of providing the benefits under the Program
shall be charged to the operating expense accounts of
the Company when and as paid.
7. The Company may from time to time make changes in the
Program and the Company may terminate the Program, but
such changes or termination shall not adversely affect
the rights of any employee, without his consent, to any
benefit under the Program to which such employee may
have been previously become entitled prior to the
effective date of such change or termination. The
Personnel Vice President with the approval of the
[insert title of appropriate officer] or the Senior
Vice President - Human Resources of Ameritech with the
approval of the Executive Vice President and General
Counsel of Ameritech shall be authorized to make minor
or administrative changes to the Program.
SENIOR MANAGEMENT
HOME PURCHASE DIFFERENTIAL AMOUNTS
Effective 1-1-91
CHICAGO TO: Amount
Detroit 0
Milwaukee 0
Cleveland 0
Indianapolis 0
DETROIT TO:
Chicago 48,000
Milwaukee 0
Cleveland 0
Indianapolis 0
MILWAUKEE TO:
Chicago 43,000
Detroit 0
Cleveland 0
Indianapolis 0
CLEVELAND TO:
Chicago 49,400
Detroit 10,000
Milwaukee 0
Indianapolis 0
INDIANAPOLIS TO:
Chicago 37,700
Detroit 23,500
Milwaukee 10,000
Cleveland 0
AMERITECH (AMERITECH SUBSIDIARY) SENIOR MANAGEMENT
TRANSFER PROGRAM
PURPOSE
To mitigate the economic impact associated with a job transfer.
COST
Paid by the participant's company.
ELIGIBILITY
You are eligible to participate in this Plan if you are a
Corporate Resource Manager. For purposes of this Plan, Corporate
Resource Managers are defined as Management Committee members and
managers in market grades CR5 through CR9.
RESIDENCE RELOCATION DIFFERENTIAL
A residence relocation differential is available to participants
who:
1. Are transferred at the Company's direction;
2. Are eligible for reimbursement under the Company's
Relocation Plan; and
3. Move to a new residence within twelve months of the date of
transfer.
The residence relocation differential is payable over a 36-month
period which begins on the effective date of transfer. The amount
payable is calculated as follows:
First Twelve Months - The greater of 10% of base salary on the
effective date of transfer or 8% of market rate on the effective
date of transfer
Next Twelve Months - 80% of the residence relocation differential
payable during the first twelve months
Final Twelve Months - 60% of the residence relocation
differential payable during the first twelve months
Payments under this Plan shall be made only after the employee
has moved to a new residence. Any amounts withheld shall be paid
out in a lump sum or in a series of monthly installments not
exceeding twelve.
HOME PURCHASE DIFFERENTIAL
A home purchase differential may be available to participants
who:
1.Are transferred at the Company's direction from a Company
located in one of Ameritech's regional headquarters cities to
Chicago; and
2.Purchase a new residence within twelve months of the date of
transfer.
The amount of the home purchase differential is based upon the
individual's market grade and the regional city from which the
employee is relocating. (See Attachment A for current rates). The
differential, if any, for all other locations will be determined
on a case-by-case basis.
The home purchase differential is grossed up at the maximum tax
rates and is paid in a lump sum as soon as practicable after the
closing on the new residence.
Attachment A
CORPORATE RESOURCE
HOME PURCHASE DIFFERENTIAL AMOUNTS
EFFECTIVE 1-1-94
All amounts are paid for transfers to the Chicago metropolitan
area:
Corporate Resource
5 - 9 Managers and
City Management Committee
Members
Cleveland $ 19,400
Detroit $14,300
Indianapolis $21,600
Milwaukee $16,500
No differential payments between other cities.
FIRST ADMINISTRATIVE AMENDMENT
TO
AMERITECH SENIOR MANAGEMENT
TRANSFER PROGRAM
(As Amended and Restated Effective as of January 1, 1992)
Pursuant to authority reserved to Ameritech Corporation, the
Ameritech Senior Management Transfer Program (As Amended and
Restated Effective as of January 1, 1992) (the "Program") is
hereby amended effective as of January 1, 1995 as follows:
1. To delete Paragraph 3 of Section 1 in its entirety and
to substitute the following therefor:
"3. The term "eligible employee" shall mean a management
employee on the active roll of the Company who (a) is a member of
the Company's Management Committee or (b) has attained any of
salary grades CR 5 through 9."
Dated: April 3, 1995
AMERITECH CORPORATION
By:
Senior Vice President -
Human Resources
Concur:
Executive Vice President and
General Counsel
AMERITECH CORPORATE RESOURCE
DEFERRAL PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH CORPORATE RESOURCE
DEFERRAL PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 General 1
History, Purpose and Effective Date 1
Plan Administration 1
Non-Alienation 2
Source of Benefits 2
Notices 2
Applicable Laws 2
Gender and Number 2
2 Participation 2
Participation 2
Plan Not Contract of Employment 3
3 Deferral of Compensation and Excess Savings Plan Credit 3
Deferral Requests 3
Supplemental Deferrals and Excess Savings Plan Credit 3
Deferred Amounts - Interest 5
Deferred Amounts - Stock Units 5
Deferred Amount 6
4 Payment of Deferred Amounts 6
Distribution 6
Termination of Employment Prior to Retirement Age 6
Death 7
Committee Discretion 7
Form of Payment 9
Change in Control 9
5 Amendment or Termination 11
Administrative Amendments 11
Amendments and Termination 11
Participation Rights 12
Successors 12
AMERITECH CORPORATE RESOURCE
DEFERRAL PLAN
(As Amended and Restated Effective as of February 1, 1998)
SECTION 1
General
1.1. History, Purpose and Effective Date. Effective
January 1, 1984, Ameritech Corporation, a Delaware corporation
(the "Company"), established the Ameritech Corporate Resource
Deferral Plan (the "Plan), which was then known as the "Ameritech
Senior Management Incentive Award Deferral Plan", and later known
as the "Ameritech Senior Management Supplemental Savings and
Deferral Plan." The Plan has two primary purposes. The first is
to enable senior management and certain management employees of
the Company and of any Subsidiary or Affiliate of the Company
which adopts the Plan (an "Employer") to defer the receipt of
salary and incentive compensation awards. The second purpose is
to provide such senior management and certain management
employees an opportunity to receive the full Employer Matching
Contribution and make the full level of contributions permitted
under the Ameritech Savings Plan for Salaried Employees ("Savings
Plan"), both of which might otherwise be limited by certain
sections of the Internal Revenue Code of 1986, as amended (the
"Code"). The following provisions constitute an amendment,
restatement and continuation of the Plan, effective as of
February 1, 1998 (the "Effective Date"). For purposes of the
Plan, the term "Subsidiary" means any corporation of which the
Company owns at least 50% of the combined voting power of all
classes of stock entitled to vote. The term "Affiliate" means
any corporation other than a Subsidiary which would be a member
of a controlled group of corporations with the Company under
section 1563(a) of the Code.
1.2. Plan Administration. The authority to control and
manage the day-to-day operation and administration of the Plan is
vested in the Company's Senior Vice President - Human Resources
or such other officer of the Company as may from time to time be
primarily responsible for human resource matters (the "Plan
Administrator"), subject to the direction of the Compensation
Committee of the Company's Board of Directors (the "Committee").
The Plan Administrator and the Committee shall each have the
exclusive right and discretion to interpret the provisions of the
Plan and the entitlement to benefits under the Plan with respect
to the duties allocated to each of the Plan Administrator and the
Committee. Any decision made by the Plan Administrator or the
Committee on any matter within the Plan Administrator's or the
Committee's discretion is conclusive, final and binding on all
persons.
The Plan Administrator shall grant or deny claims for benefits
under the Plan and authorize disbursements. Adequate notice,
pursuant to applicable law and prescribed Company practices,
shall be provided in writing to any Participant or beneficiary
whose claim has been denied, setting forth the specific reasons
for such denial. The review and appeal procedures for a
Participant or beneficiary whose claim has been denied shall be
the responsibility of the Committee and shall be consistent with
review and appeal procedures set forth in the Savings Plan.
1.3. Non-Alienation. Benefits payable to any person under
the Plan may not be voluntarily or involuntarily assigned or
alienated.
1.4. Source of Benefits. Subject to the terms and
conditions of the Plan, any amount payable to or on account of a
Participant under this Plan shall be paid from the general assets
of the Company or applicable Employer or from one or more trusts,
the assets of which are subject to the claims of the Company's or
applicable Employer's general creditors.
1.5. Notices. Any notice or document required to be given
to or filed with the Plan Administrator shall be considered to be
given or filed if delivered to the Administrator of the Plan or
mailed by registered mail, postage prepaid to the Administrator,
in care of the Company, at 30 South Wacker Drive, Chicago,
Illinois 60606.
1.6 Applicable Laws. The Plan shall be construed and
administered in accordance with the laws of the State of
Illinois, to the extent that such laws are not preempted by the
laws of the United States of America.
1.7. Gender and Number. Where the context admits, words in
any gender shall include any other gender, words in the singular
shall include the plural and the plural shall include the
singular.
SECTION 2
Participation
2.1. Participation. Each Management Employee (as defined
below) and each Senior Management Employee (as defined below)
shall become a Participant in the Plan as of the earliest date on
which he requests a deferral under subsection 3.1 or 3.2 or is
entitled to an Excess Savings Plan Credit under subsection 3.2.
The term "Management Employee" means a full-time employee on the
active roll of the Company or any Employer who has attained any
of salary grades CR1 through CR4, Investment Management salary
grades IM10 through IM12, or, if an attorney, either of salary
grades, IV or V. The term "Senior Management Employee" means an
employee on the active roll of the Company or an Employer who has
attained any of salary grades CR5 through CR9, or who is a member
of the Company's Management Committee, or if an attorney, salary
grade VI. The terms "Management Employee" and "Senior Management
Employee" also include any individual who was a participant in
the Plan as of Decemer 31, 1994 as long as such individual
continues to meet the requirements to be a Management Employee or
a Senior Management Employee under the Plan as it existed as of
December 31, 1994 or meets such requirements under the Plan as it
exists from time to time after that date. The term "Senior
Management Employee" also includes a former Senior Management
Employee who no longer meets the requirements to be a Senior
Management Employee, but who has been authorized to retain part
or all of the rights of a Senior Management Employee under the
Plan pursuant to an agreement in writing executed by the Senior
Management Employee and the Senior Vice President - Human
Resources.
2.2. Plan Not Contract of Employment. The Plan does not
constitute a contract of employment, and nothing in the Plan will
give any employee or Participant the right to be retained in the
employ of the Company or an Employer, nor the right to any
incentive award, nor any right or claim to any benefit under the
Plan, except to the extent specifically provided under the terms
of the Plan.
SECTION 3
Deferral of Compensation and
Excess Savings Plan Credit
3.1. Deferral Requests. Any Management Employee of the
Company or any Employer may elect to defer all or any portion
(but not less than $1,000) of an award to which he may be
entitled under the Company's long-term incentive plans or under
an annual bonus plan of the Company or an Employer and shall
receive an Excess Savings Plan Credit in accordance with
subsection 3.2(c) with respect to such deferral. Any Senior
Management Employee of the Company or any Employer may elect to
defer:
(a) subject to applicable law, all or any portion (but not
less than $1,000) of an award to which he may be
entitled under the Ameritech Long Term Incentive Plan
or the Company's or Employer's Senior Management Short
Term Incentive Plan or the Company's Management
Committee Short Term Incentive Plan (collectively the
"Incentive Plans" and individually an "Incentive
Plan"); and
(b) for any payroll period ending on or after December 31,
1987, all or any portion, up to 25% of his Base Salary
for such period
by filing a written request with the Plan Administrator at such
time and in such form as the Plan Administrator may determine.
"Base Salary" shall have the meaning assigned to the term
"Salary" under the Savings Plan determined without regard to
salary deferrals under this Plan and without regard to the
limitations imposed by section 401(a)(17) of the Code. Any Senior
Management Employee who elects to make a deferral under
subsection 3.1(b) above shall receive an Excess Savings Plan
Credit in accordance with subsection 3.2(b) with respect to such
deferral.
3.2. Supplemental Deferrals and Excess Savings Plan Credit.
For any payroll period ending after January 1, 1988, each Senior
Management Employee, and, for any payroll period ending after
January 1, 1990, each Management Employee of the Company and the
Employers who is eligible to participate in the Savings Plan,
shall be entitled to make a Supplemental Deferral and receive
Excess Savings Plan Credit, in accordance with the following:
(a) Supplemental Deferrals. Each Senior Management
Employee who is prevented from making a salary
allotment under the Savings Plan due to the limitations
imposed by any of sections 401(k), 401(m), 402(g), or
415 of the Code, and each Management Employee who is
prevented from making a salary allotment under the
Savings Plan due to limitations of sections 401(m) and
415 of the Code, may elect, at such time and in such
manner as the Plan Administrator may determine, to make
a supplemental salary deferral in an amount equal to
the allotments which he is prevented from making under
the Savings Plan for such period; further, each Senior
Management Employee and each Management Employee may
also elect, prospectively, at such time and in such
manner as the Plan Administrator may determine, to make
a supplemental salary deferral of not less than 1% nor
more than 12% (in multiples of 1%) of his Base Salary
for any payroll period (or portion thereof) occuring
after his Base Salary for that calendar year has
reached the maximum limit under section 401(a)(17) of
the Code (if any such Senior Management Employee or
Management Employee has been making salary allotments
to the Savings Plan during such calendar year, then for
administrative convenience, the Plan Administrator may
determine that it is appropriate that any such
supplemental salary deferrals under the Plan by such
Senior Management Employee or Management Employee shall
be at the same percentage as the most recent salary
allotments made under the Savings Plan by such Senior
Management Employee or Management Employee unless such
Senior Management Employee or Management Employee
directs the Plan Administrator to use a different
percentage); provided that no Senior Management
Employee shall be permitted to make any supplemental
salary deferral in any payroll period which would cause
the aggregate of his supplemental salary deferrals and
Base Salary deferrals for such payroll period to exceed
the 25% limitation prescribed in subsection 3.1(b)
above.
(b) Senior Management Excess Savings Plan Credit.
Subject to subsection 3.1, for each payroll period,
each Senior Management Employee shall be credited with
an "Excess Savings Plan Credit" in an amount equal to
the lesser of:
(i) 4-1/2% of his Base Salary and, to the extent
such a Participant is in salary grade CR5 and
participates in the Management Team Incentive Plan, his
annual bonuses, for that period; or
(ii) 75% of (A) his aggregate salary allotments
under the Savings Plan during that period
(including his annual bonuses to the extent such a
Participant is in salary grade CR5 and
participates in the Management Team Incentive Plan)
and (B) base and supplemental salary deferrals under
the Plan during that period;
reduced by the amount of Employer Matching
Contributions that he actually receives under the
Savings Plan for that period.
(c) Management Excess Savings Plan Credit. Subject to
subsection 3.1, for each payroll period, each
Management Employee shall be credited with an "Excess
Savings Plan Credit" in an amount equal to the lesser
of:
(i) 4-1/2% of his Base Salary and, to the extent
such a Participant participates in the Management Team
Incentive Plan, his annual bonuses for that period; or
(ii) 75% of (A) his aggregate salary allotments
under the Savings Plan during that period (including
his annual bonuses to the extent such a Participant
participates in the Management Team Incentive Plan) and
(B) supplemental salary deferrals under the Plan during
that period;
reduced by the amount of Employer Matching
Contributions that he actually receives under the
Savings Plan for that period.
A Participant shall be fully vested in all Excess Savings Plan
Credits regardless of the extent to which he is vested under the
Savings Plan.
3.3. Deferred Amounts - Interest. Subject to the
provisions of the Plan, any amounts deferred under subsection 3.1
(other than amounts which would otherwise have been distributed
under an Incentive Plan in the form of the Company's common
shares) or deferred or credited under subsection 3.2 shall be
credited with interest from the date as of which the amount would
otherwise have been paid to the Participant or credited to his
account under the Savings Plan to the date as of which it is paid
under the Plan. Such interest shall be compounded as of the last
day of each calendar quarter and from the end of the preceding
calendar quarter to the distribution date and shall be credited
at such rate as the Committee may establish from time to time.
3.4. Deferred Amounts - Stock Units. Subject to the
provisions of the Plan, for that portion, if any, of any amount
deferred under subsection 3.1 which would otherwise have been
distributed under an Incentive Plan in the form of the Company's
common shares, or as common shares distributed to the Participant
as a Final Distribution with respect to stock options granted on
or after January 16, 1996, under the provisions of the Company's
long term incentive plans, or as a result of an exercise of a
stock option in which the Participant pays the option price by
tendering shares of the Company's common stock in accordance with
the provisions of the Company's long term incentive plans, the
Participant shall be credited with an equivalent number of "Stock
Units" under the Plan. As of each dividend payment date for the
Company's common shares, each Participant shall be credited with
an additional number of Stock Units which is equal to: (i) the
dividend which would have been paid on such date on that number
of Ameritech common shares which is equal to the number of Stock
Units credited to the Participant under the Plan on the record
date for such dividend, divided by (ii) the Fair Market Value (as
defined below) of an Ameritech common share on such dividend
payment date. For purposes of the Plan, the Fair Market Value of
Ameritech common shares on any dividend payment date shall be the
average of the average daily high and low sale prices of
Ameritech common shares as quoted on the New York Stock Exchange
- - Composite Transactions or other principal market quotation
selected by the Committee for the calendar month next preceding
the dividend payment date. In the event of any changes in
outstanding Ameritech common shares by reason of any stock
dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate
change, the Company's Board of Directors shall make such
adjustments, if any, that it deems appropriate in the number of
Stock Units then credited to Participant accounts. Any and all
such adjustments shall be conclusive and binding upon all parties
concerned.
3.5 Deferred Amount. A Participant's "Deferred Amount"
under the Plan as of any date shall mean the amount deferred by
him under subsection 3.1 or deferred or credited to him under
subsection 3.2, each adjusted in accordance with subsections 3.3
and 3.4.
SECTION 4
Payment of Deferred Amounts
4.1. Distribution. Any deferral made in accordance with
subsections 3.1 or 3.2 shall include an election of a
distribution commencement date and an election of a payment form
either in a lump sum or in annual installments over a period of
2, 3, 4, 5, 10, 15 or 20 years; provided, however, that a)
incentive awards payable pursuant to the Ameritech Management
Committee Short Term Incentive Plan that are deferred by members
of the Company's Management Committee may not be distributed to
any such Participant until such Participant `s normal retirement
or approved early retirement as defined in subsection 4.2 or
termination of employment, and b) any Deferred Amount which, at
the time of distribution, is less than or equal to $5,000.00
shall be paid in a lump sum, regardless of the Participant's
election. Subject to the above conditions and the following
provisions of the Plan, the distribution commencement date and
form of payment of any Deferred Amount shall be as designated by
the Participant in his deferral request, or in any comparable
election under the Plan as in effect from time to time prior to
the Effective Date. A Participant may, with the consent of the
Committee, defer the commencement date or extend the distribution
period for any Deferred Amount, within the guidelines set forth
above, by filing a written request with the Plan Administrator,
in such form as the Administrator may require; provided that any
such request must be filed no later than one year prior to the
earlier of the date distribution would otherwise commence or the
date of the Participant's termination of employment. Any
election under the preceding sentence shall be irrevocable by the
Participant. Excess Savings Plan Credits associated with amounts
deferred for any period will be paid at the same time and in the
same form as provided in the deferral request for such deferred
amount; provided, however, that if no deferral election is in
place for such period, the deferral account including the Excess
Savings Plan Credits for such period shall be paid in a lump sum
on the Participant's termination of employment.
4.2. Termination of Employment Prior to Retirement Age.
If a Participant's employment with the Company, its Subsidiaries
and Affiliates terminates prior to the Participant's attaining
eligibility for normal or approved early retirement as defined
below, then, unless such termination is by reason of disability
entitling the Participant to benefit under the Company's or an
Employer's long-term disability plan or unless a different form
or time of distribution is authorized by the Plan Administrator
pursuant to Committee direction, his entire benefit under the
Plan shall be distributed to him in a lump sum as soon as
practicable after such termination of employment. For all
purposes under the Plan, the term "normal retirement" shall mean
retirement on or after the date on which the Participant reaches
age 65 (or, if later, the fourth anniversary of the date the
Participant commenced participation in the Ameritech Management
Pension Plan), and the term "approved early retirement" shall
mean retirement on or after the date on which the Participant's
combined age and years of service equals 75, subject to Committee
authorization. Anything in the Plan to the contrary
notwithstanding and regardless of the Participant's election of a
particular form of distribution, if, before a Participant
receives full payment of all amounts credited to him under the
Plan, the Participant without the consent of the Company, at any
time is employed by, becomes associated with, renders service to,
or owns an interest in any business that is competitive with the
Company, with any Employer or with any business in which the
Company or any Employer has a substantial interest (other than as
a shareholder with a nonsubstanital interest in such business) or
engages in any activity which is in conflict with or adverse to
the interests of the Company or any Employer, then the Committee
in its discretion may authorize the accelerated distribution of
the balance of the Participant's Deferred Amount and may requre
that such Deferred Amount be paid to the Participant in a lump
sum as soon as practicable after such authorization.
4.3. Death. A Participant may elect one of the
following payment options to be effective in the event the
Participant should die before full payment of all amounts
credited to him under this Plan:
(a) If the Deferred Amount, or any portion thereof, has
begun to be distributed in accordance with
subsection 4.1 as of the Participant's date of
death, the balance of the Deferred Amount shall
continue to be distributed to the beneficiary or
beneficiaries designated in writing by the
Participant, or if no designation has been made, to
the estate of the Participant, with no change in the
scheduled number of installments. The first
installment (or single payment if the Participant
has one installment remaining as of the date of the
Participant's death) to be paid to the beneficiary
(or the estate) shall be paid according to the
payment schedule in effect as of the date of the
Participant's death, so that no more than one annual
payment will be made in any one calendar year; or
(b) The balance of the Deferred Amount shall be paid in
one payment or in some other number of approximately
equal annual installments (not exceeding 10) to the
beneficiary or beneficiaries designated in writing
by the Participant, or if no designation has been
made, to the estate of the Participant. The first
installment (or the single payment if the
Participant has so elected) shall be paid as soon as
practicable after the last day of the calendar
quarter during which the Participant's death occurs.
The Participant may change the beneficiary designation and the
form of distribution of deferred funds to the beneficiary at
any time.
4.4. Committee Discretion. The Committee, in its sole
discretion, may alter the commencement date and period of
distribution of any Deferred Amount as follows:
(a) Hardship. At the request of a Participant or a
Participant's beneficiary, the Committee may accelerate
distribution to the extent necessary to meet any
unanticipated financial need that is caused by an event
beyond the control of the Participant or beneficiary
and that would result in severe financial hardship to
the individual if early withdrawal were not permitted.
(b) Changed Circumstances. The Committee may accelerate
distribution of any Deferred Amount to the extent that
it determines such acceleration to be in the best
interests of the Company or Employer because of changes
in tax or accounting principles or any other reason
which negates or diminishes the continued value of the
Deferred Amount to the Company, Employer or
Participant.
(c) Involuntary or Force Reduction Termination. At the
request of a Participant, the Committee may extend the
period of distribution for any Deferred Amount as the
Committee determines to be necessary or appropriate if
a Participant terminates employment (i) involuntarily,
(ii) voluntarily or involuntarily under a limited
program of terminations of employment initiated by the
Company or an Employer to achieve a specific force
reduction or (iii) by mutual agreement under an
individual separation arrangement; provided, that such
an extension may be authorized only if the
Participant's request and the Committee's approval of
that request occur prior to the earlier of (A) the
Participant's termination of employment or (B) the date
of distribution would otherwise have commenced.
(d) Accelerated Distribution. Anything in the Plan to the
contrary notwithstanding, at the request of a
Participant, the Committee may accelerate distribution
of:
(i) the entire Deferred Amount of any Participant on
the active roll of the Company or an Employer whose
Deferred Amount has not yet begun to be distributed in
accordance with subsection 4.1; provided, that (a) the
Deferred Amount to be distributed shall be paid in a
lump sum and reduced by six percent (6%), as an early
withdrawal penalty, (b) the valuation date used to
determine such early withdrawal penalty shall be the
most recent valuation date preceding the Committee's
approval of the accelerated distribution, (c) such
early withdrawal penalty shall be retained by the
Company and never distributed to the Participant, and
(d) the Participant shall be prohibited from
participating in the Plan for a period of twelve (12)
consecutive months following the date of the
Participant's accelerated distribution;
(ii) the entire Deferred Amount of any Participant on
the active roll of the Company or an Employer whose
Deferred Amount, or any portion thereof, is currently
being distributed to the Participant in accordance with
subsection 4.1; provided, that (a) the Deferred Amount
to be distributed shall be paid in a lump sum and
reduced by six percent (6%), as an early withdrawal
penalty, (b) such early withdrawal penalty shall be
determined based upon the Deferred Amount immediately
prior to the distribution commencement date for the
first installment payment as elected by Participant in
accordance with subsection 4.1, valued as of such
distribution commencement date, (c) such early
withdrawal penalty shall be retained by the Company and
never distributed to the Participant, and (d) the
Participant shall be prohibited from participating in
the Plan for a period of twelve (12) consecutive months
following the date of the Participant's accelerated
distribution; and
(iii) the entire Deferred Amount of any Participant
who has retired from employment with the Company, its
Subsidiaries and Affiliates after attaining eligibility
for normal or approved early retirement as defined in
subsection 4.2 and whose Deferred Amount is currently
being distributed to the Participant in accordance with
subsection 4.1; provided, that (a) the Deferred Amount
to be distributed shall be paid in a lump sum and
reduced by eight percent (8%), as an early withdrawal
penalty, (b) such early withdrawal penalty shall be
determined based upon the Deferred Amount immediately
prior to the distribution commencement date for the
first installment payment as elected by Participant in
accordance with subsection 4.1, valued as of such
distribution commencement date, and (c) such early
withdrawal penalty shall be retained by the Company and
never distributed to the Participant.
In no event shall the Committee approve any such request after
having been notified of the Company's insolvency or bankruptcy.
4.5. Form of Payment. Deferred Amounts credited to a
Participant in the form of Stock Units shall be distributed to
the Participant or his beneficiary in shares of Ameritech common
stock except as otherwise determined by the Committee. All other
Deferred Amounts credited to a Participant shall be paid to him
or his beneficiary in the form of cash. Any amount to be
distributed in accordance with the foregoing provisions of this
Section 4 shall be calculated as of the last day of a calendar
quarter in the case of distributions pursuant to Sections 4.2,
4.3, or 4.4(d) and as of the distribution date for all other
distributions and shall be distributed as soon as practicable
thereafter.
4.6. Change in Control. Notwithstanding any other
provisions of the Plan, if a Change in Control (as defined below)
occurs, then the entire amount credited to each Participant under
the Plan, including any benefit in pay status, shall be
distributed to him in a lump sum cash payment as soon as
practicable. At any time prior to a Change in Control, a
Participant may irrevocably waive such lump sum payment by filing
a written waiver with the Plan Administrator in a form acceptable
to the Plan Administrator, in which case the Participant's
benefit under the Plan shall be determined without regard to this
subsection 4.6. If a Participant waives payment, the amount
credited to the Participant shall be determined as of the date of
the Change in Control with Stock Units being converted to cash
amounts based on the highest fair market value of Common Stock on
any date occurring during the period beginning thirty days prior
to the Change in Control and ending thirty days after the Change
in Control, and such amount shall be credited with interest which
shall accrue for a period of five years from the date of a Change
in Control, or until the distribution date designated by the
participant, if earlier, at a rate no less than the rate in
effect under the Plan on the date of a Change in Control. For
purposes of the Plan, the term "Change in Control" means a change
in the beneficial ownership of the Company's voting stock or a
change in the composition of the Company's Board of Directors
which occurs as follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than:
(i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company; or
(ii) the Participant or any person acting in concert
with the Participant;
is or becomes a beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of stock of the Company
representing 20% or more of the total voting power of
the Company's then outstanding stock; provided,
however, that this paragraph (a) shall not apply to any
tender offer made pursuant to an agreement with the
Company approved by the Company's Board of Directors
and entered into before the offeror has become a
beneficial owner of stock of the Company representing
5% or more of the combined voting power of the
Company's then outstanding stock;
(b) a tender offer is made for the stock of the Company,
and the person making the offer owns or has accepted
for payment stock of the Company representing 20% or
more of the total voting power of the Company's then
outstanding stock; provided, however, that this
paragraph (b) shall not apply to any tender offer made
pursuant to an agreement with the Company approved by
the Company's Board of Directors and entered into
before the offeror has become a beneficial owner of
stock of the Company representing 5% or more of the
combined voting power of the Company's then outstanding
stock;
(c) during any period of 12 consecutive months there shall
cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning
of such period constitute the Board of Directors and
any new director(s) whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least 80% of
the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with, or a sale of all or
substantially all of the Company's assets to, any other
company other than:
(i) a merger or consolidation which would result in
the Company's voting stock outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
stock of the surviving entity) more than 55% of the
combined voting power of the Company's or such
surviving entity's outstanding voting stock immediately
after such merger or consolidation; or
(ii) a merger or consolidation which would result in
the directors of the Company who were directors
immediately prior thereto continuing to constitute at
least a majority of the directors of the surviving
entity immediately after such merger or consolidation.
For purposes of paragraph (d) above, the phrase "surviving
entity" shall mean only an entity in which all of the Company's
stockholders who are stockholders immediately before the merger
or consolidation (other than stockholders exercising dissenter
rights) become stockholders by the terms of the merger or
consolidation, and the phrase "directors of the Company who were
directors immediately prior thereto" shall not include (A) any
director of the Company who was designated by a person who has
entered into an agreement with the Company to effect a
transaction described in paragraph (a) or paragraph (d) above, or
(B) any director who was not a director at the beginning of the
12-consecutive-month period preceding the date of such merger or
consolidation, unless his election by the Board of Directors or
nomination for election by the Company's stockholders was
approved by a vote of at least 80% of the directors who were
directors before the beginning of such period.
SECTION 5
Amendment or Termination
5.1. Administrative Amendments. Subject to the provisions
of subsection 5.3, the Company's Senior Vice President-Human
Resources, or such other officer of the Company as may from time
to time be primarily responsible for human resource matters, may,
with the concurrence of the Company's Executive Vice President
and General Counsel, make minor or administrative amendments to
the Plan.
5.2. Amendments and Termination. Subject to the provisions
of subsection 5.3, the Company's Board of Directors may amend or
terminate the Plan at any time and any Employer may, by action of
its Board of Directors (or, if such Employer does not have a
Board of Directors and is managed by its shareholder or
shareholders, by action of such shareholder or shareholders),
terminate its participation in the Plan at any time.
5.3. Participation Rights. No action under this Section 5
shall, without consent of the affected Participant or, in the
event of his death, his beneficiary, adversely affect the rights
of any Participant with respect to any Deferred Amount which was
credited to him under the Plan prior to the date of such action.
5.4. Successors. The obligations of the Company and each
Employer under the Plan shall be binding upon any assignee or
successor in interest thereto. Neither the Company nor any
Employer shall merge or consolidate with any other corporation,
or liquidate or dissolve, without making suitable arrangement for
the payment of any benefits payable under the Plan.
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 General
History and Purpose 1
Subsidiaries, Affiliates and Employers 1
Plan Administration 1
Source of Payments 1
Notices 2
Gender and Number 2
Action by Employers 2
2 Participation 2
Participation 2
Cessation of Participation 2
3 Employment After a Change in Control 3
Change in Control 3
Employment After Change in Control 4
4 Severance Benefits 5
Entitlement to Severance Benefits 5
Cause 5
Disability 5
Termination for Good Reason 6
Severance Benefits 6
Reduction for Other Severance Payments 7
Tax Limitations 7
Mitigation and Set-Off 7
Non-Alienation 8
Withholding 8
5 Enforcement 8
Governing Laws 8
Arbitration of All Disputes 8
Reimbursement of Costs and Expenses 8
6 Amendment or Termination 9
Amendments and Terminations 9
Participant Rights 9
Successors 9
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY PLAN
(As Amended and Restated Effective as of February 1, 1998)
SECTION 1
General
1.1. History and Purpose. The Ameritech Corporate
Resource Severance Pay Plan (the "Plan"), formerly known as the
Ameritech Senior Management Severance Pay Plan, was established
by Ameritech Corporation, a Delaware corporation (the "Company"),
effective as of January 1, 1989 to promote the long-term
financial interests of the Company and its shareholders by (i)
providing the executives of the Company and its Subsidiaries and
Affiliates with assurances of fair and equitable treatment as
well as severance benefits consistent with competitive practices
in the event of a Change in Control of the Company and (ii)
reducing the risk of departures and distractions of key
executives in a Change in Control situation which would be
detrimental to the Company and its shareholders. The following
provisions constitute an amendment, restatement and continuation
of the Plan, effective as of February 1, 1998.
1.2. Subsidiaries, Affiliates, and Employers. The term
"Subsidiary" means any corporation of which the Company directly
or indirectly owns at least 50% of the combined voting power of
all classes of stock entitled to vote. The term "Affiliate" means
any corporation other than a Subsidiary, which would be a member
of a controlled group of corporations with the Company under
Section 1563(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). The Company and each Subsidiary and Affiliate
which, with the consent of the Company, adopts the Plan, are
referred to below, collectively, as the "Employers" and
individually as an "Employer."
1.3. Plan Administration. The authority to control and
manage the operation and administration of the Plan shall be
vested in the Ameritech Severance Pay Plan Committee, the members
of which shall be appointed by, and may be removed by, the
Chairman of the Company (the "Committee"). The Committee shall
have the power to adopt rules and regulations and prescribe forms
for carrying out the purposes and provisions of the Plan. The
Committee has the exclusive right and discretion to interpret the
provisions of the Plan and the entitlement to benefits under the
Plan. Any decision made by the Committee on any matter within its
discretion is conclusive, final and binding on all persons, and
not subject to further review. The Committee shall grant or deny
claims for benefits under the Plan and authorize disbursements.
Adequate notice, pursuant to applicable law and prescribed
Company practices, shall be provided in writing to any
Participant whose claim has been denied, setting forth the
specific reasons for such denial. The review and appeal
procedures for any Participant whose claim has been denied shall
also be the responsibility of the Committee.
1.4. Source of Payments. The obligations of the Employers
under the Plan are solely contractual, and any amount payable
under the terms of the Plan shall be paid from the general assets
of the Employers or from one or more trusts, the assets of which
are subject to the claims of the Employers' general creditors.
1.5. Notices. Any notice or document required to be given
under the Plan shall be considered to be given if delivered or
mailed by registered mail, postage prepaid, if to an Employer, to
the Secretary of such Employer at the Employer's principal
business address or, if to a Participant, at the last address of
such Participant filed with the Employer.
1.6. Gender and Number. Where the context admits, words
in any gender shall include any other gender, words in the
singular shall include the plural and the plural shall include
the singular.
1.7. Action by Employers. Any action required or
permitted to be taken by any Employer under the Plan shall be by
resolution of its Board of Directors (or, if such Employer does
not have a Board of Directors and is managed by its shareholder
or shareholders, of such shareholder or shareholders) or by
writing of a duly authorized officer of the Employer.
SECTION 2
Participation
2.1. Participation. The following individuals shall be
Participants in the Plan:
(a) Any management employee on the active roll of an
Employer who has attained any of salary grades CR 1
through 9; and
(b) Any management employee on the active roll of an
Employer who has attained any of Investment Management
salary grades IM10 through IM12; and
(b) Any management employee on the active roll of an Employer
who is an attorney who has attained any of salary grades IV
through VI.
2.2. Cessation of Participation. An employee shall cease
to be a Participant in, or have any rights under, the Plan as of
the date, if any, prior to a Change in Control on which he ceases
to be a member of a class of employees designated as Participants
in accordance with subsection 2.1. All employees of an Employer
other than the Company shall cease to be Participants in, or have
any rights under, the Plan as of the date, if any, on which the
Employer ceases to be a Subsidiary or Affiliate prior to a Change
in Control.
SECTION 3
Employment After a Change in Control
3.1. Change in Control. For purposes of determining the
rights of any Participant under the Plan, the term "Change in
Control" means a change in the beneficial ownership of the
Company's voting stock or a change in the composition of the
Company's Board of Directors which occurs as follows:
(a) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other
than:
(i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company; or
(ii) the Participant or any person acting in concert
with the Participant;
is or becomes a beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of stock of the Company
representing 20% or more of the total voting power of
the Company's then outstanding stock; provided,
however, that this paragraph (a) shall not apply to any
tender offer made pursuant to an agreement with the
Company approved by the Company's Board of Directors
and entered into before the offeror has become a
beneficial owner of stock of the Company representing
5% or more of the combined voting power of the
Company's then outstanding stock;
(b) a tender offer is made for the stock of the Company,
and the person making the offer owns or has accepted
for payment stock of the Company representing 20% or
more of the total voting power of the Company's then
outstanding stock; provided, however, that this
paragraph (b) shall not apply to any tender offer made
pursuant to an agreement with the Company approved by
the Company's Board of Directors and entered into
before the offeror has become a beneficial owner of
stock of the Company representing 5% or more of the
combined voting power of the Company's then outstanding
stock;
(c) during any period of twelve consecutive months there
shall cease to be a majority of the Board of Directors
comprised as follows: individuals who at the beginning
of such period constitute the Board of Directors and
any new director(s) whose election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at 80% of the
directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with, or a sale of all or
substantially all of the Company's assets to, any other
company other than:
(i) a merger or consolidation which would result in
the Company's voting stock outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting stock of the surviving entity) more than 55%
of the combined voting power of the Company's or
such surviving entity's outstanding voting stock
immediately after such merger or consolidation; or
(ii) a merger or consolidation which would result in
the directors of the Company who were directors
immediately prior thereto continuing to constitute
at least a majority of the directors of the
surviving entity immediately after such merger or
consolidation.
For purposes of paragraph (d) above, the phrase "surviving
entity" shall mean only an entity in which all of the Company's
stockholders who are stockholders immediately before the merger
or consolidation (other than stockholders exercising dissenter
rights) become stockholders by the terms of the merger or
consolidation, and the phrase "directors of the Company who were
directors immediately prior thereto" shall not include (A) any
director of the Company who was designated by a person who has
entered into an agreement with the Company to effect a
transaction described in paragraph (a) or paragraph (d) above, or
(B) any director who was not a director at the beginning of the
twelve-consecutive-month period preceding the date of such merger
or consolidation, unless his election by the Board of Directors
or nomination for election by the Company's stockholders was
approved by a vote of at least 80% of the directors who were
directors before the beginning of such period.
3.2. Employment After Change in Control. During such
period of time as a Participant is actually employed by a
Employer during the 24-consecutive-month period immediately
following a Change in Control, the Participant's duties,
responsibilities and authorities shall not be materially
diminished by the Employer and the Participant shall be
compensated by such Employer as follows:
(a) he shall receive a base annual salary at a rate which
is not less than his base annual salary rate in effect
immediately prior to the Change in Control;
(b) he shall be entitled to participate in short-term and
long-term cash-based incentive compensation plans
which, in the aggregate, provide bonus opportunities
which are not materially less favorable than the
opportunities provided to the Participant under all
such plans in which he was participating prior to the
Change in Control;
(c) he shall be eligible to participate in stock option,
stock appreciation rights, performance awards,
restricted stock and other equity-based incentive
compensation plans on a basis not materially less
favorable than that applicable to him immediately prior
to the Change in Control; and
(d) he shall be entitled to receive employee benefits
(including, but not limited to, tax-qualified and non-
qualified pension and savings plan benefits, medical
insurance, disability income protection, life insurance
coverage and death benefits) and perquisites which are
not materially less favorable than the employee
benefits and perquisites to which the Participant would
be entitled under the Employer's employee benefit plans
and perquisites as in effect immediately prior to the
Change in Control.
SECTION 4
Severance Benefits
4.1. Entitlement to Severance Benefits. Subject to
the following provisions of this Section 4, a Participant shall
be entitled to receive severance benefits determined in
accordance with subsection 4.5 if the Participant's employment
with an Employer is terminated:
(a) during the 24-consecutive-month period immediately
following a Change in Control either by his Employer
for reasons other than Cause (as defined in subsection
4.2) or Disability (as defined in subsection 4.3) or by
the Participant because of Good Reason (as defined in
subsection 4.4); or
(b) by the Participant for any reason during the thirty-day
period beginning on the first anniversary of a Change
in Control.
4.2. Cause. For purposes of this Plan, the term "Cause"
means a Participant willfully engaging in conduct materially
injurious to an Employer or the willful and continual failure by
a Participant to substantially perform the duties assigned to him
in accordance with subsection 3.2 (other than any failure
resulting from the Participant's incapacity due to physical
injury or illness or mental illness), which failure has not been
corrected by the Participant within 30 days after receipt of a
written notice from the Chief Executive Officer or Board of
Directors of the Employer (or, if the Employer does not have a
Board of Directors and is managed by its shareholder or
shareholders, then from such shareholder or shareholders owning a
majority of the voting stock of the Employer) specifying the
manner in which the Participant has failed to perform such
duties. No act, or failure to act, by a Participant shall be
deemed "willful" unless done, or omitted to be done, not in good
faith and without reasonable belief that such action or omission
was in the best interest of the Employer.
4.3. Disability. For Purposes of the Plan, the term
"Disability" means an incapacity, due to physical injury or
illness or mental illness, causing a Participant to be unable to
perform his duties for an Employer on a full-time basis for a
period of at least six consecutive months.
4.4. Termination for Good Reason. For purposes of this
Plan, a termination because of "Good Reason" means a resignation
by a Participant following the occurrence of:
(a) a material diminishment in the duties, responsibilities
or authorities of the Participant;
(b) a failure by the Participant's Employer to compensate
the Participant in accordance with the provisions of
subsection 3.2;
(c) the relocation of the Participant's office to a
location more than fifty miles from the location of his
office immediately prior to the Change in Control;
(d) a reasonable determination by the Participant that, as
a result of a Change in Control and a change in
circumstances thereafter significantly affecting his
position, he is unable to exercise the authorities,
powers, functions or duties attached to his position
and contemplated by subsection 3.2; or
(e) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Plan as contemplated by subsection 6.3.
4.5. Severance Benefits. If a Participant becomes
entitled to severance benefits in accordance with the provisions
of subsection 4.1 he shall continue to receive medical insurance,
disability income protection, life insurance protection and death
benefits, and perquisites (all as described in paragraph 3.2(d))
for a period of not less than the 24 consecutive months
immediately following the date of his termination of employment.
If at the time of such a Participant's termination of employment,
he is a Participant in the Ameritech Key Management Life
Insurance Plan ("KMLIP") and/or the Ameritech Estate Preservation
Plan ("EPP") and is not then "retirement eligible" as defined in
the KMLIP and the EPP, the Company shall contribute on the
Participant's behalf, for a period of not less than the 24
consecutive months immediately following the date of his
termination of employment, such amount as the Company in its sole
discretion shall determine to be needed to maintain the
Participant's death benefit under the KMLIP and/or the EPP for
that period. Any Participant described in the first sentence of
this subsection 4.5 shall be further entitled to a lump sum
payment in cash no later than ten business days after the date of
termination equal to the sum of:
(a) an amount equal to two times the Participant's base
annual rate of salary as of the date of the Change in
Control;
(b) an amount equal to two times the Participant's target
short-term incentive amount and other bonuses payable
for the calendar year immediately preceding the date of
the Change in Control;
(c) the actuarial equivalent of the additional pension
benefits which the Participant would have accrued under
the terms of the Ameritech Management Pension Plan, the
Ameritech Corporate Resource Supplemental Pension Plan
and each other tax-qualified or non-qualified defined
benefit pension plan maintained by the Employer
(determined without regard to any termination or any
amendment adversely affecting the Participant which is
adopted on or after a Change in Control or in
contemplation of a Change in Control) if, on the date
of termination, the Participant (i) was credited for
benefit accrual purposes with two additional years of
service and two additional years of compensation at his
annual base salary rate and target short-term incentive
award in effect on the date of the Change in Control
and (ii) was two years older than his actual age on
such date; provided, however, that the additional
service, compensation and age credits under this
paragraph (c) shall, to the extent permitted by law, be
proportionately reduced for any Participant who, on the
date of termination, is at least age 63 and eliminated
for any Participant who, on the date of termination, is
at least age 65. For purposes of this subparagraph (c),
actuarial equivalence shall be determined in accordance
with the terms of the Ameritech Corporate Resource
Supplemental Pension Plan for purposes of lump sum
payments under that plan, but without regard to any
amendment of that plan, adopted on or after a Change in
Control or in contemplation of a Change in Control
which would reduce the amount of such lump sum payment.
4.6. Reduction for Other Severance Payments. The amount
of Severance Benefits to which a Participant is otherwise
entitled upon a termination of employment under the foregoing
provisions of this Section 4 shall be reduced by the amount, if
any, of any other severance payments actually paid by reason of
such termination to the Participant by an Employer under a plan
which provides severance benefits only.
4.7. Tax Limitations. If any payments under this Plan,
after taking into account all other payments to which a
Participant is entitled from any Employer or Affiliate thereof,
are more likely than not to result in a loss of a deduction to
the Employer by reason of section 280G of the Code or any
successor provision to that section, such payments shall be
reduced by the least amount required to avoid such loss of
deduction. If the Participant and the Employer shall disagree as
to whether a payment under this Section 4 is more likely than not
to result in the loss of a deduction, the matter shall be
resolved by an opinion of tax counsel chosen by the Company's
independent auditors. The Employer shall pay the fees and
expenses of such counsel, and shall make available such
information as may be reasonably requested by such counsel to
prepare the opinion. If, by reason of limitations of this
subsection 4.7, the maximum amount payable to the Participant
under this Section 4 cannot be determined prior to the due date
for such payment, the Employer shall pay on the due date the
minimum amount which it in good faith determines to be payable
and shall pay the remaining amount, with interest calculated at
the rate prescribed by section 1274 (b) (2) (B) of the Code, as
soon as such remaining amount is determined in accordance with
this subsection 4.7. Tax counsel selected in accordance with this
subsection shall have no liability to the Employers, or
Participants or any other person for any action taken in good
faith.
4.8. Mitigation and Set-Off. No Participant shall be
required to mitigate the amount of any payment provided for in
this Plan by seeking other employment or otherwise. The Employers
shall not be entitled to set off against the amounts payable to
any Participant under this Plan any amounts owed to the Employers
by the Participant, any amounts earned by the Participant in
other employment after termination of his employment with the
Employer, or any amount which might have been earned by the
Participant in other employment had he sought such other
employment.
4.9. Non-Alienation. Participants shall not have any right
to pledge, hypothecate, anticipate or in any way create a lien
upon any amounts provided under this plan; and no benefits
payable hereunder shall be assignable in anticipation of payment
either by voluntary or involuntary acts or by operation of law.
Nothing in this subsection shall limit a Participant's rights or
powers to dispose of his property by will or limit any rights or
powers which his executor or administrator would otherwise have.
4.10. Withholding. All payments to a Participant
under this Plan will be subject to all applicable withholding of
state and federal taxes.
SECTION 5
Enforcement
5.1. Governing Laws. The Plan shall be construed and
administered in accordance with the internal laws of the State of
Illinois to the extent that such laws are not preempted by the
laws of the United States.
5.2. Arbitration of All Disputes. Any controversy or
claim arising out of or relating to this Plan shall be settled by
arbitration in the city in which the principal executive offices
of his Employer are located (disregarding any transfer of such
offices after a Change in Control), by three arbitrators, one of
whom shall be appointed by the Company, one by the Participant
and the third of whom shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator
shall be appointed by the Chief Judge of the United States Court
of Appeals for such location. The arbitration shall be conducted
in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators
which shall be as provided in this subsection 5.2. Judgment upon
the awarded rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
5.3. Reimbursement of Costs and Expenses. In the event that
it shall be necessary or desirable for a Participant to retain
legal counsel or incur other costs and expenses in connection
with enforcement of his rights under the Plan, his Employer shall
pay (or the Participant shall be entitled to recover from the
Employer, as the case may be) his reasonable attorneys' fees and
costs and expenses in connection with enforcement of his rights
(including the enforcement of any arbitration award in court).
Payments shall be made to the Participant at the time such fees,
costs and expenses are incurred. If, however, the arbitrators
shall determine that, under the circumstances, payment by the
Employer of all or a part of any such fees, costs and expenses
would be unjust, the Participant shall repay such amounts to the
Employer in accordance with the order of the arbitrators.
SECTION 6
Amendment or Termination
6.1. Amendments and Terminations. Subject to the
provisions of subsection 6.2:
(a) the Company's Senior Vice President - Human Resources,
or such other officer of the Company as may from time
to time be primarily responsible for human resource
matters, may, with the concurrence of the Company's
Executive Vice President and General Counsel, make
minor or administrative amendments to the Plan;
(b) the Board of Directors of any Employer (or, if such
Employer does not have a Board of Directors and is
managed by its shareholder or shareholders, then such
shareholder or shareholders) may terminate or, with the
consent of the Company's Board of Directors, amend the
Plan as applied to it at any time; and
(c) the Company's Board of Directors may terminate the Plan
as applied to it or as applied to each Employer at any
time.
6.2. Participant Rights. No amendment or termination of
the Plan which would directly or indirectly adversely affect any
Participant shall be effective if adopted after a Change in
Control or during the one-year period immediately preceding a
Change in Control.
6.3. Successors. The obligations of each Employer under
the Plan shall be binding upon any assignee or successor in
interest thereto. No Employer shall merge or consolidate with any
other corporation, or liquidate or dissolve, without making
suitable arrangements for the payment of any benefits which are
or may become payable under the Plan.
Ameritech Corporate Resource Managers Severance Pay Plan
Summary Plan Description
TABLE OF CONTENTS
Introduction 1
Plan at a Glance 1
Your Corporate Resource Managers Severance Pay Plan 2
Eligibility and Enrollment 3
Eligibility for Benefits 3
Calculating Your Benefit 4
How Your Benefits Are Paid 5
Filing a Claim For Benefits 5
If Your Claim Is Denied 5
Termination of the Plan 6
Administration 6
Your ERISA Rights 7
INTRODUCTION
The Ameritech Corporate Resource Managers Severance Pay Plan (the
"Plan") provides you with severance pay benefits in the event of
a change in control of American Information Technologies
Corporation (the "Company"). The Plan is designed to:
Promote the long-term financial interests of the Company and
its shareholders by providing key executives assurances of
fair and equitable treatment in the event of a change in
control of the Company; and
Reduce the risk of departures and distractions of key
executives which would be detrimental to the Company and its
shareholders.
This is your summary plan description (SPD) for the Ameritech
Corporate Resource Managers Severance Pay Plan effective January
1, 1989. Please read this description carefully and make sure you
understand your benefits and rights under this plan.
This material only summarizes the basic benefits and rights
associated with the Ameritech Corporate Resource Managers
Severance Pay Plan. If there are any discrepancies between this
description and the plan documents, the plan documents will be
the final authority.
If you have any questions about the Plan after reading this
material, please contact your employing company's Vice President
with Human Resources responsibilities.
PLAN AT A GLANCE
Your Severance Pay Plan
The Ameritech Corporate Resource Managers Severance Pay Plan
provides you with
severance benefits in the event of a change in control of the
Company.
Eligibility and Enrollment
If you are a Corporate Resource Managers employee, generally at a
level higher than Department Level or equivalent Fifth Level
within the Corporate Resource Managers Group, or an officer of a
subsidiary of the Company, you are eligible to participate in
this plan. You do not have to enroll in order to participate in
the Plan.
Eligibility for Benefits
If there is a change in control of the Company, you will receive
your severance benefits if:
The Company terminates your employment without cause during
the three years following the change in control;
You leave the Company within the three years following the
change in control for an approved reason; or
You leave the Company for any reason during the 30-day period
beginning on the first anniversary of the change in control.
Your Severance Benefits
As part of your severance benefits, you will receive severance
pay equal to two times your annual base salary plus two times
your target short-term incentive amount plus the equivalent of
the additional pension benefits you would have accrued in any
company-sponsored defined benefit pension plan if your employment
had continued for two years beyond your termination date.
In addition, you will continue to receive your medical insurance,
disability income, life insurance, death benefits, and
perquisites for at least two years following your termination of
employment.
How Benefits are Paid
If you become entitled to severance benefits according to the
Plan, generally,
you will automatically receive a lump sum payment in cash no
later than 10 business
days after your termination of employment.
YOUR CORPORATE RESOURCE MANAGERS SEVERANCE PAY PLAN
The Ameritech Corporate Resource Managers Severance Pay Plan is
designed to provide you with severance benefits in the event of a
"change in control" of the Company.
Generally, a change in control means a change in the beneficial
ownership of the Company's voting stock or a change in the
composition of the Company's Board of Directors that occurs in
any of the following ways:
Someone acquires 20 percent or more of the Company's stock;
A tender offer is made for Company stock by someone who owns
or acquires 20 percent or more of the Company stock;
During any period of 24 consecutive months, there ceases to be
a majority of the Board of Directors who were on the Board at
the beginning of the period or whose election or nomination
for election to the Board was approved by at least 2/3 of the
Directors who meet the requirements described in the Plan; or
The Company's stockholders approve a merger or consolidation
with another company other than a merger or consolidation
which results in either (1) the Company's existing voting
stock continuing to represent more than 70% of the combined
voting power of the Company's or surviving entity's
outstanding voting stock after the merger or consolidation, or
(2) the Company's existing directors continuing to constitute
at least 50% of the directors of the surviving entity after
the merger or consolidation.
A "surviving entity" means an entity in which all of the
Company's stockholders, immediately before the merger or
consolidation, become stockholders by the terms of the merger or
consolidation.
"Company directors" shall not include any director who was
designated by a person who entered into an agreement with the
Company to cause the transaction described above, or any director
who was not a director at the beginning of the 12-
consecutive-month period preceding the date of the merger or
consolidation and whose election or nomination for election to
the Board was not approved by at least 80% of the directors who
were directors before the beginning of such period.
ELIGIBILITY AND ENROLLMENT
You are eligible to participate in this plan if you are a
"Corporate Resource Managers employee" or a "designated officer."
A Corporate Resource Managers employee is defined as an active
employee who:
Has attained a level higher than Department Level or
equivalent Fifth Level; and
Holds a position that the Board of Directors of the Company
has designated to be within its Corporate Resource Managers
Group.
A designated officer is defined as an active employee who is an
officer of a subsidiary of the Company and who has been
designated as a participant in the Plan by the Board of Directors
of the Subsidiary.
Your participation in the Plan is automatic. Your coverage under
the Plan will end if you should stop being an eligible Corporate
Resource Managers employee or designated officer prior to the
change in control. Your coverage will also end and you will not
receive benefits under the Plan if the Company sells or divests
your employing company prior to the change in control.
ELIGIBILITY FOR BENEFITS
You are eligible to receive severance benefits if:
Your employing company terminates your employment during the
three-year period immediately following change in control for
reasons other than cause or disability;
or
You leave your employing company during the three-year period
immediately following the change in control because of an
approved reason; or
You terminate your employment with your employing company for
any reason during the 30-day period beginning on the first
anniversary of the change in control.
Approved reasons for leaving during the three-year period
following the change
in control include the following:
A material reduction in, or your reasonable determination that
you are unable to exercise your duties, responsibilities, or
authorities;
Your employing company fails to provide you with "reasonable
compensation";
A relocation of your office to a location more than fifty
miles away; or
The Company fails to cause any successor to comply with the
terms of the Plan.
You are entitled to receive reasonable compensation if your
employment continues
after a change in control. Reasonable compensation includes the
following:
A base annual salary equal to or greater than your annual base
salary at the time of the change in control;
Participation in short-term and long-term cash-based incentive
compensation plans that provide opportunities equal to or
greater than those provided to you at the time of the change
in control;
Participation in stock option, stock appreciation rights,
performance awards, restricted stock, and other equity-based
incentive compensation plans equal to or greater than those
available to you at the time of the change in control; and
Employee benefits equal to or greater than those provided to
you at the time of a change in control.
CALCULATING YOUR BENEFIT
If you should become eligible for severance benefits, you will
continue to receive the following employee benefits for at least
the two-year period immediately following your termination of
employment:
Medical insurance;
Disability income protection;
Life insurance protection;
Death benefits; and
Perquisites.
In addition, you will receive severance pay. The amount of your
severance pay is calculated as follows:
Two Times Your Annual Base Salary As of the Change of Control
+
Two Times Your Target Short-Term Incentive and Other Bonuses
Payable for the First Calendar Year Prior to the Change in
Control
+
The Equivalent of the Additional Pension Benefits Which Would
Have Been Accrued Under Any Company-Sponsored Defined Benefit
Pension Plan If Your Employment Had Continued For Two Years
Beyond Your Termination Date or, If Earlier,
Your Normal Retirement Age
Note that if you receive severance payments from your employing
company under another severance plan, the benefits from this plan
will be offset and reduced by those benefits. Benefits are also
limited to an amount that does not exceed any statutory limit as
defined by the Internal Revenue Code.
Let's look at an example of how severance pay benefits are
calculated.
EXAMPLE: Our example employee has worked for the Company for 20
years and has a base salary of $165,000 at the time of the change
in control. The employee has a target annual award of $55,000
payable for the first calendar year prior to the change in
control and would have accrued an additional pension benefit with
a present value of approximately $14,000 if employment had
continued for two years beyond the termination date. The
employee's benefit is calculated as follows:
Severance Pay = (2 x $165,000) + (2 x $55,000) +
$14,000
= $330,000 + $110,000 + $14,000
= $454,000 Total
HOW YOUR BENEFITS ARE PAID
Your benefits will be paid to you in the form of a lump sum
payment in cash. This cash payment is to be made no later than 10
business days after your termination of employment.
IMPORTANT: Please note that your severance benefits will be
considered taxable income for the year in which you receive them.
Payment of your benefits will be subject to all tax limitations
and applicable withholding of state and federal taxes. If you
have questions about the taxation of your benefits, consult your
personal tax adviser.
FILING A CLAIM FOR BENEFITS
If you believe you are entitled to severance pay and have not
been notified, you may file a claim for benefits. Also, if you
have received severance pay and you believe that you are entitled
to an amount different from the amount you received, you may also
file a claim for benefits.
Your claim should be in writing and sent to the plan
administrator listed in the Administration section of this
summary.
If Your Claim is Denied
If your claim for benefits is denied, in whole or in part, you
will receive a written explanation within 30 days after the
receipt of your claim. The explanation will tell you:
The specific reasons for denial;
The specific references to the provisions of plan documents
that support those reasons;
The information needed to complete the claim; and
The claim review procedure.
Your denied claim or controversy concerning your claim will be
settled by three arbitrators. You will appoint one arbitrator,
the Company will appoint the second arbitrator, and the first and
second arbitrators will appoint the third arbitrator.
The final decision about your claim will be communicated to you
in plain language in writing. It will include the reasons for the
decision and the provisions on which the decision was based.
If you need to hire an attorney or incur other costs and expenses
to exercise your rights under the Plan, the Company will pay
reasonable attorney fees, costs and expenses. However, if the
arbitrators determine that payment of these costs by the Company
is unjust, they may require you to pay all or part of the costs.
TERMINATION OF THE PLAN
The Company expects to continue the Corporate Resource Managers
Severance Pay Plan indefinitely. However, it reserves the right
to amend or terminate the Plan at any time.
No amendment or termination of the Plan that would adversely
affect your interest may be adopted after a change in control, or
during the one-year period immediately before a change in
control.
ADMINISTRATION
This section of the summary plan description provides you with
information on the administration of the Ameritech Corporate
Resource Managers Severance Pay Plan.
Plan name:
Ameritech Corporate Resource Managers Severance Pay Plan
Employer identification number:
36-3251481
Plan number:
535
Plan administrator and trustee:
American Information Technologies Corporation
Attention: Secretary- Severance Pay Plan Committee
30 South Wacker Drive
Chicago, Illinois 60606
(312) 750-5000
Plan sponsor and agent for legal service:
American Information Technologies Corporation
Attention: Secretary-Severance Pay Plan Committee
30 South Wacker Drive
Chicago, Illinois 60606
(312) 750-5000
Type of plan:
This plan is a special severance pay welfare plan. As such, the
benefits it provides are not insured by the Pension Benefit
Guaranty Corporation (PBGC). This is because certain benefits
provided under defined benefit plans (pension plans) are the only
benefits guaranteed by law.
Plan year:
January 1 to December 31.
Plan costs:
The employing companies pay all benefits provided by this plan
from general assets or from one or more trusts, the assets of
which are subject to the employing companies' general creditors.
The cost of administering the Plan is paid directly by employing
companies.
YOUR ERISA RIGHTS
As a participant in the Ameritech Corporate Resource Managers
Severance Pay Plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of
1974 (ERISA). ERISA provides that all participants shall be
entitled to:
1. Examine without charge, at the plan administrator's office
and at other specified locations such as worksites and union
halls, all plan documents and copies of all documents filed
by the Plan with the U.S. Department of Labor, such as
detailed annual reports and plan descriptions.
2. Obtain copies of all plan documents and other plan
information upon written request to the plan administrator.
The administrator may make a reasonable charge for copies.
3. Receive a summary of the Plan's annual financial report. The
plan administrator is required by law to furnish each
participant with a copy of this summary annual report.
A complete list of the employers sponsoring the Plan may be
obtained upon written notice to the plan administrator and is
available for examination at the plan administrator's office and
at other specified locations. You may receive from the plan
administrator, upon written request, information as to whether a
particular employer is a sponsor of the Plan, and if it is a
sponsor, its address.
In addition to creating rights for the plan participants, ERISA
imposes duties on the people who are responsible for the
operation of the Plan. The people who operate your plan, called
"fiduciaries" of the Plan, have a duty to act prudently and in
the interest of you and the other plan participants and
beneficiaries.
No one, including your employer or any other person, may fire you
or otherwise discriminate against you in any way for the sole
purpose of preventing you from obtaining benefits under this plan
or from exercising your rights under ERISA.
If your claim for benefits is denied in whole or in part, you
must receive a written explanation of the reasons for this
denial. You have the right to have the Plan review and reconsider
your claim.
Under ERISA, there are steps you can take to enforce the above
rights. For example, if you request materials from the Plan and
do not receive them within 30 days, you may file suit in federal
court. In such a case, the court may require the plan
administrator to provide the materials and pay you up to $100 a
day until you receive them, unless the materials were not sent
because of reasons beyond the control of the administrator.
If you have a claim for benefits that is denied or ignored in
whole or in part, you may file suit in a state or federal court.
If you are discriminated against for asserting your rights, or if
it should happen that plan fiduciaries misuse plan money, you may
seek assistance from the U.S. Department of Labor, or you may
file suit in a federal court. The courts will decide who should
pay court costs and legal fees. If you are successful, the court
may order the person you sued to pay these costs and fees. If you
lose, the court may order you to pay these costs and fees, for
example, if it finds your claim frivolous.
If you have any questions about the Ameritech Corporate Resource
Managers Severance Pay Plan, you should contact your local
Personnel Vice President. If you have any questions about this
statement or your rights under ERISA, you should contact the
nearest area office of the U.S. Labor-Management Services
Administration, Department of Labor.
AMERITECH MANAGEMENT COMMITTEE
SHORT TERM INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH MANAGEMENT COMMITTEE
SHORT TERM INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 Purpose 1
2 Eligibility 1
3 Performance Periods 1
4 Administration 1
5 Performance Goals 1
6 Target Incentives and Payout Schedule1
7 Incentive Payout Calculation 2
8 Reduction of Calculated Payouts 2
9 Payouts 2
10 Change in Control 2
11 Miscellaneous Provisions 4
12 Adoption and Duration 4
AMERITECH MANAGEMENT COMMITTEE
SHORT TERM INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
1. Purpose. The purpose of the Ameritech Corporation
Management Committee Short Term Incentive Plan (the "Plan") is to
provide key executives of Ameritech Corporation (the "Company")
with incentive compensation based upon the achievement of
established annual performance goals.
2. Eligibility. The individuals eligible to participate
in the Plan (the "Participants") are the Chief Executive Officer
of the Company and each other executive officer who is for all or
any part of a Performance Period (as hereinafter defined) a
member of the Management Committee of the Company. If a
Participant is a member of the Management Committee for less than
a full Performance Period, his or her payout under the Plan for
such Performance Period shall be prorated based on the portion of
the Performance Period he or she served as a member of the
Management Committee.
3. Performance Periods. Each performance period for
purposes of the Plan shall have a duration of one calendar year,
commencing January 1 and ending December 31.
4. Administration. The Compensation Committee of the
Board of Directors of the Company (the "Committee") shall have
the full power and authority to administer and interpret the Plan
and to establish rules for its administration. Such power and
authority shall include proration or adjustment of awards in the
case of retirement, termination, changes in base salary,
dismissal, death and other conditions as appropriate.
5. Performance Goals. On or before the 90th day of each
Performance Period, the Committee shall establish in writing one
or more performance criteria for the Performance Period, the
weighting of the performance criteria if more than one. The
performance criteria shall be quantifiable financial measures for
the Company as a whole and may include net income, earnings per
share, cash flow, revenues, or total shareowner return. To the
extent net income is used alone or as a component of another
performance criteria, it shall mean net income as reported to
shareowners, but before losses resulting from discontinued
operations, extraordinary losses (in accordance with generally
accepted accounting principles, as currently in effect), the
cumulative effect of changes in accounting principles and other
unusual, non-recurring items of loss that are separately
identified and quantified in the Company's audited financial
statements.
6. Target Incentives and Payout Schedule. On or before
the 90th day of each Performance Period, the Committee shall
establish in writing a target incentive award for each
Participant and a payout schedule specifying the percentages,
ranging from 0% to 150%, of the target awards to be paid for
varying levels of attainment of the financial performance
criteria established pursuant to Section 5.
7. Incentive Payout Calculation. As soon as practicable
after release of the Company's financial results for the
Performance Period, the Committee will certify the Company's
attainment of the financial performance criteria established for
such Performance Period pursuant to Section 5 and will calculate
the possible payout of incentive awards for each Participant
under the payout schedule established pursuant to Section 6.
8. Reduction of Calculated Payouts. The Committee shall
have the power and authority to reduce or eliminate for any
reason the payout calculated pursuant to Section 7 that would
otherwise be payable to a Participant based on the established
target award and payout schedule.
9. Payouts. After calculation of incentive payouts
pursuant to Section 7 and any reduction or elimination thereof
pursuant to Section 8, the Committee shall certify the amount of
the payout to each Participant under the Plan for the Performance
Period. In no event shall the payout under the Plan to any
Participant for any Performance Period exceed $4.5 million.
Payment of the incentive award determined in accordance with the
Plan for each Performance Period shall be made to a Participant
in cash. Awards payable pursuant to the Plan may be deferred by
a Participant under the terms of the Ameritech Senior Management
Supplemental Savings and Deferral Plan in effect from time to
time, provided that awards under the Plan so deferred may not be
distributed to the Participant until the Participant's retirement
with a service pension under the Company's Management Pension
Plan or termination of employment.
10. Change in Control. If a Change in Control (as defined
below) occurs, then each Participant who is actively employed by
the Company on the date of the Change in Control shall receive,
as soon as practicable following the earlier of his termination
of employment or the end of the calendar year in which such
Change in Control occurs, not less than 100% of the target award
established for the Participant pursuant to Section 6 for the
Performance Period in which the Change in Control occurs, subject
to upward adjustment based on the criteria established by the
Committee prior to the Change in Control. For purposes of the
Plan, the term "Change in Control" means a change in the
beneficial ownership of the Company's voting stock or a change in
the composition of the Company's Board of Directors which as
follows:
(i) any "person" (as such terms is used in Section
13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) other than:
(A) a trustee or other fiduciary holding
securities under an employee benefit plan of
the Company; or
(B) the Participant or any other person acting in
concert with the Participant;
is or becomes a beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of stock of the
Company representing 20% or more of the total
voting power of the Company's then outstanding
stock; provided, however, that this paragraph (i)
shall not apply to any tender offer made pursuant
to an agreement with the Company approved by the
Company's Board of Directors and entered into
before the offeror has become a beneficial owner
of stock of the Company representing 5% or more of
the combined voting power of the Company's then
outstanding stock;
(ii) a tender offer is made for the stock of the
Company, and the person making the offer owns or
has accepted for payment stock of the Company
representing 20% or more of the total voting power
of the Company's then outstanding stock;
provided, however, that this paragraph (ii) shall
not apply to any tender offer made pursuant to an
agreement with the Company approved by the
Company's Board of Directors and entered into
before the offeror has become a beneficial owner
of stock of the Company representing 5% or more of
the combined voting power of the Company's then
outstanding stock;
(iii) during any period of twelve consecutive
months there shall cease to be a majority of the
Board of Directors comprised as follows:
individuals who at the beginning of such period
constitute the Board of Directors and any new
director(s) whose election by the Board of
Directors or nomination for election by the
Company's stockholders was approved by a vote of
at least 80% of the directors then still in office
who either were directors at the beginning of the
period or whose election or nomination for
election was previously so approved; or
(iv) the stockholders of the Company approve a merger
or consolidation of the Company with, or a sale of
all or substantially all of the Company's assets
to, any other company other than:
(A) a merger or consolidation which would result
in the Company's voting stock outstanding
immediately prior thereto continuing to
represent (either by remaining outstanding or
by being converted into voting stock of the
surviving entity) more than 55% of the
combined voting power of the Company's or
such surviving entity's outstanding voting
stock immediately after such merger or
consolidation; or
(B) a merger or consolidation which would result
in the directors of the Company who were
directors of the Company who were directors
immediately prior thereto continuing to
constitute at least a majority of the
directors of the surviving entity immediately
after such merger or consolidation.
For purposes of paragraph (iv) above, the phrase "surviving
entity" shall mean only an entity in which all of the Company's
stockholders who are stockholders immediately before the merger
or consolidation (other than stockholders exercising dissenter
rights) become stockholders by the terms of the merger or
consolidation, and the phrase "directors of the Company who were
directors immediately prior thereto" shall not include (1) any
director of the Company who was designated by a person who has
entered into an agreement with the Company to effect a
transaction described in paragraph (i) or paragraph (iv) above,
or (2) any director who was not a director at the beginning of
the twelve-consecutive-month period preceding the date of such
merger or consolidation, unless his election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least 80% of the
directors who were directors before the beginning of such period.
11. Miscellaneous Provisions.
(a) The Board of Directors shall have the right
to suspend or terminate this Plan at any time and may
amend or modify the Plan with respect to future
Performance Periods prior to the beginning of any
Performance Period, provided that no such amendment or
modification shall materially increase benefits payable
to Participants under the Plan unless such amendment or
modification shall have been approved by the
shareowners of the Company.
(b) Nothing contained in the Plan or any
agreement related hereto shall affect or be construed
as affecting the terms of employment of any Participant
except as specifically provided herein or therein.
Nothing contained in the Plan or any agreement related
hereto shall impose or be construed as imposing any
obligation on (i) the Company to continue the
employment of any Participant or (ii) any Participant
to remain in the employ of the Company.
12. Adoption and Duration. The Plan shall become effective
as of the first day of the year in which it is approved by the
shareowners of the Company and the Plan shall remain in effect
for a period of five (5) calendar years.
AMERITECH CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
AMERITECH CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
SECTION PAGE
1 The Plan 1
Purpose 1
Effective Date 1
2 Administration 1
Committee 1
Powers and Authority 1
Award Prices 1
Change in Control 2
3 Shares Subject to the Plan 3
Maximum Shares Available for Delivery 3
Other Share Limits 4
Adjustments for Corporate Transactions 4
4 Types of Awards 5
General 5
Stock Option 5
Stock Appreciation Rights 5
Stock Award 5
Dividends and Dividend Equivalents 5
5 Award Settlements and Payments 6
6 Plan Amendment and Termination 6
Amendments 6
Plan Suspensions and Termination 6
7 Miscellaneous 6
No Individual Rights 6
Binding Arbitration 6
Unfunded Plan 6
Other Benefit and Compensation Programs 7
No Fractional Shares 7
AMERITECH CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As Amended and Restated Effective as of February 1, 1998)
1. The Plan
a) Purpose. The purpose of this Long-Term Stock Incentive
Plan (the "Plan") is to promote the longer-term financial
success of Ameritech Corporation (the "Company") by
providing a means to attract, retain and reward individuals
who can and do contribute to such success. By using stock-
based compensation, the recipients of awards under the Plan
will further identify their interests with those of the
Company's shareowners.
b) Effective Date. To serve this purpose, the Plan will
become effective upon its approval by the affirmative vote
of a majority of the shares present or represented by proxy
at the Company's 1997 Annual Meeting of Shareowners.
2. Administration
a) Committee. The Plan shall be administered by a
Committee, appointed by the Board of Directors of the
Company, which shall consist of no less than three of its
members, all of whom shall not be employees of the Company
(the "Committee"); provided, however, that the Board of
Directors of the Company may assume, at its sole discretion,
administration of the Plan.
b) Powers and Authority. The Committee's powers and
authority include, but are not limited to, selecting
individuals from among employees of the Company and any
subsidiary of the Company or other entity in which the
Company has a significant equity or other interest as
determined by the Committee, and from among the members of
the Board of Directors of the Company, to receive awards
under the Plan; determining the types and terms and
conditions of all awards granted, including performance and
other earnout and/or vesting contingencies; permitting
transferability of awards to third parties; interpreting the
Plan's provisions; and administering the Plan in a manner
that is consistent with its purpose.
c) Award Prices. For Plan purposes, all stock options and
stock appreciation rights shall have an exercise price which
shall reflect the average traded price of a share of the
common stock of the Company, par value $1.00 ("Share") on
the applicable date as determined by the Committee, or if
Shares are not traded on such date, the average price on the
next preceding day on which such stock is traded. The
applicable date shall be the date on which the award is
granted, except that the Committee may provide that the
applicable date may be: (i) the day on which an award
recipient was hired, promoted or such similar singular event
occurred, provided that the grant of such award occurs
within 90 days following such applicable date; or (ii) in
the case of a stock option or stock appreciation right
granted retroactively in tandem with or as a substitution
for another previously granted stock option or stock
appreciation right, the applicable date for such prior
award. The above notwithstanding, the per Share exercise
price of any stock option or stock appreciation right may
not be decreased after the grant of the award, and a stock
option or stock appreciation right may not be surrendered as
consideration in exchange for the grant of a new award with
a lower per Share exercise price.
d) Change in Control. The Committee may provide that any
or all awards contain provisions which contemplate a "Change
in Control" due to either a change in the beneficial
ownership of the Company's voting stock or in the
composition of the Company's Board of Directors. For all
Plan purposes, a Change in Control shall be deemed to occur,
unless the Board of Directors determines otherwise prior to
such Change in Control occurring, when:
(i) any "person" (as such term is used in Section
13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) other than:
(A) a trustee or other fiduciary holding
securities under an employee benefit plan of
the Company; or
(B) the Participant or any other person acting in
concert with the Participant;
is or becomes a beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of stock of the
Company representing 20% or more of the total
voting power of the Company's then outstanding
stock; provided, however, that this paragraph (i)
shall not apply to any tender offer made pursuant
to an agreement with the Company approved by the
Company's Board of Directors and entered into
before the offeror has become a beneficial owner
of stock of the Company representing 5% or more of
the combined voting power of the Company's then
outstanding stock;
(ii) a tender offer is made for the stock of the
Company, and the person making the offer owns or
has accepted for payment stock of the Company
representing 20% or more of the total voting power
of the Company's then outstanding stock; provided,
however, that this paragraph (ii) shall not apply
to any tender offer made pursuant to an agreement
with the Company approved by the Company's Board
of Directors and entered into before the offeror
has become a beneficial owner of stock of the
Company representing 5% or more of the combined
voting power of the Company's then outstanding
stock;
(iii) during any period of 12 consecutive months
there shall cease to be a majority of the Board of
Directors comprised as follows: individuals who
at the beginning of such period constitute the
Board of Directors and any new director(s) whose
election by the Board of Directors or nomination
for election by the Company's stockholders was
approved by a vote of at least 80% of the
directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously
so approved; or
(iv) the stockholders of the Company approve a merger
or consolidation of the Company with, or a sale of
all or substantially all of the Company's assets
to, any other company other than:
(A) a merger or consolidation which would result
in the Company's voting stock outstanding
immediately prior thereto continuing to
represent (either by remaining outstanding or
by being converted into voting stock of the
surviving entity) more than 55% of the
combined voting power of the Company's or
such surviving entity's outstanding voting
stock immediately after such merger or
consolidation; or
(B) a merger or consolidation which would result
in the directors of the Company who were
directors immediately prior thereto
continuing to constitute at least a majority
of the directors of the surviving entity
immediately after such merger or
consolidation.
For purposes of paragraph (iv) above, the phrase "surviving
entity" shall mean only an entity in which all of the
Company's stockholders who are stockholders immediately
before the merger or consolidation (other than stockholders
exercising dissenter rights) become stockholders by the
terms of the merger or consolidation, and the phrase
"directors of the Company who were directors immediately
prior thereto" shall not include (1) any director of the
Company who was designated by a person who has entered into
an agreement with the Company to effect a transaction
described in paragraph (i) or paragraph (iv) above, or (2)
any director who was not a director at the beginning of the
12-consecutive-month period preceding the date of such
merger or consolidation, unless his election by the Board of
Directors or nomination for election by the Company's
stockholders was approved by a vote of at least 80% of the
directors who were directors before the beginning of such
period.
3. Shares Subject to the Plan
a) Maximum Shares Available for Delivery. Subject to
Section 3(c), the maximum number of Shares that may be
delivered to participants and their beneficiaries under the
Plan shall be equal to the sum of:
(i) 20,000,000;
(ii) any Shares available for future awards under the
Company's 1989
Long-Term Incentive Plan as of the effective date
of this Plan; and
(iii) any Shares that represent awards granted
under any prior plan of the Company which are
forfeited, expire or are canceled without the
delivery of Shares or which result in the
forfeiture of Shares back to the Company.
In addition, any Shares granted under the Plan which are
forfeited back to the Company because of the failure to meet
an award contingency or condition shall again be available
for delivery pursuant to new awards granted under the Plan.
Any Shares covered by an award (or portion of an award)
granted under the Plan, which are forfeited or canceled,
expires or is settled in cash, shall be deemed not to have
been delivered for purposes of determining the maximum
number of Shares available for delivery under the Plan.
Likewise, if any stock option is exercised by tendering
Shares, either actually or by attestation, to the Company as
full or partial payment in connection with the exercise of a
stock option under this Plan or any stock plan of the
Company, only the number of Shares issued net of the Shares
tendered shall be deemed delivered for purposes of
determining the maximum number of Shares available for
delivery under the Plan. Further, any Shares delivered
under the Plan through the settlement, assumption or
substitution of outstanding awards or obligations to grant
future awards as a condition of the Company acquiring
another entity shall not reduce the maximum number of Shares
available pursuant to this Section 3(a).
b) Other Share Limits. Subject to Section 3(c), the
following additional Share maximums are imposed under the
Plan. The maximum number of Shares that may be covered by
stock options intended to comply with Section 422 of the
Internal Revenue Code ("incentive stock options:) shall be
20,000,000. The maximum number of Shares that may be issued
in conjunction with awards granted pursuant to Section 4(d)
shall be 7,000,000. The maximum number of Shares that may
be covered by awards granted to any one individual shall be
2,500,000 over any consecutive five-year period.
c) Adjustments for Corporate Transactions. The Committee
may determine that a corporate transaction has affected the
price per Share such that an adjustment or adjustments to
outstanding awards are required to preserve (or prevent
enlargement of) the benefits or potential benefits intended
at time of grant. For this purpose a corporate transaction
will include, but is not limited to, any stock split, stock
dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares, or other similar
occurrence. In the event of such a corporate transaction,
the Committee may, in such manner as the Committee deems
equitable, adjust (i) the number and kind of shares which
may be awarded under the Plan pursuant to Sections 3(a) and
3(b); (ii) the number and kind of share subject to
outstanding awards; and (iii) the exercise price of
outstanding stock options and stock appreciation rights.
4. Types of Awards
a) General. An award may be granted singularly, in
combination with another award(s) or in tandem whereby
exercise or vesting of one award held by a participant
cancels another award held by the participant. Subject to
Section 2(c), an award may be granted as an alternative to
or replacement of an existing award or as the form of
payment for grants or rights earned or due under other
compensation plans or arrangements of the Company, including
the plan of any entity acquired by the Company. The types
of awards that may be granted under the plan include:
b) Stock Option. A stock option represents a right to
purchase a specified number of Shares during a specified
period at a price per Share which is no less than that
required by Section 2(c). A stock option may be in the form
of an incentive stock option or in a form which does not
qualify for federal tax treatment as an incentive stock
option. The Shares covered by a stock option may be
purchased by means of a cash payment or such other means as
the Committee may from time-to-time permit, including (i)
tendering (either actually or by attestation) Shares valued
using the market price at the time of exercise, (ii)
authorizing a third party to sell Shares (or a sufficient
portion thereof) acquired upon exercise of a stock option
and to remit to the Company a sufficient portion of the sale
proceeds to pay for all the Shares acquired through such
exercise and any tax withholding obligations resulting from
such exercise; or (iii) any combination of the above.
c) Stock Appreciation Rights. A stock appreciation right
is a right to receive a payment in cash, Shares or a
combination, equal to the excess of the aggregate market
price at time of exercise of a specified number of Shares
over the aggregate exercise price of the stock appreciation
rights being exercised.
d) Stock Award. A stock award is a grant of Shares or of
a right to receive Shares (or their cash equivalent or a
combination of both) in the future. Each stock award shall
be subject to such conditions, restrictions and
contingencies as the Committee shall determine. These may
include continuous service and/or the achievement of
performance goals. The performance goals that may be used
by the Committee for such awards shall consist of cash
generation targets, profit and revenue targets,
profitability targets as measured by return ratios, and/or
shareholder returns. The Committee may designate a single
criterion or multiple criteria for performance measurement
purposes with the measurement based on absolute Company or
business unit performance and/or on performance as compared
with that of other publicly-traded companies.
e) Dividends and Dividend Equivalents. An award may
contain the right to receive dividends or dividend
equivalent payments which may be either paid currently or
credited to a participant's account. Any such crediting of
dividends or dividend equivalents or reinvestment in Shares
may be subject to such conditions, restrictions and
contingencies as the Committee shall establish, including
the reinvestment of such credited amounts in Share
equivalents. The performance goals that may be used by the
Committee for such dividends or dividend equivalent award
payments shall consist of cash generation targets, profit
and revenue targets, profitability targets as measured by
return ratios, shareholder returns and/or an increase in the
Company stock value after the date of the related grant.
5. Award Settlements and Payments
Awards may be settled through cash payments, the delivery of
Shares, the granting of awards or any combination thereof as
the Committee shall determine. Any award settlement,
including payment deferrals, may be subject to such
conditions, restrictions and contingencies as the Committee
shall determine. The Committee may permit or require the
deferral of any award payment, subject to such rules and
procedures as it may establish, which may include provisions
for the payment or crediting of interest, or dividend
equivalents, including converting such credits into deferred
Share equivalents.
6. Plan Amendment and Termination
a) Amendments. The Company's Board of Directors may amend
this Plan as it deems necessary and appropriate to better
achieve the Plan's purpose provided, however, that (i) the
Share limitations set forth in Sections 3(a) and 3(b) cannot
be increased and (ii) the minimum stock option and stock
appreciation right exercise prices set forth in Section 2(c)
cannot be changed, unless such a change is properly approved
by the Company's shareowners.
b) Plan Suspensions and Termination. The Board of
Directors of the Company may suspend or terminate this Plan
at any time. Any such suspension or termination shall not
of itself impair any outstanding award granted under the
Plan or the applicable participant's rights regarding such
award.
7. Miscellaneous
a) No Individual Rights. No person shall have any claim
or right to be granted an award under the Plan. Neither the
Plan nor any action taken hereunder shall be construed as
giving any employee or other person any right to continue to
be employed by or to perform services for the Company, any
subsidiary or related entity. The right to terminate the
employment of or performance of services by any Plan
participant at any time and for any reason is specifically
reserved to the employing entity.
b) Binding Arbitration. Any dispute or disagreement
regarding participation and/or an award recipient's rights
under the Plan shall be settled solely by binding
arbitration in accordance with the applicable rules of the
American Arbitration Association.
c) Unfunded Plan. The Plan shall be unfunded and shall
not create (or be construed to create) a trust or a separate
fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any participant or
beneficiary of a participant. To the extent any person
holds any obligation of the Company by virtue of an award
granted under the Plan, such obligation shall merely
constitute a general unsecured liability of the Company and
accordingly shall not confer upon such person any right,
title or interest in any assets of the Company.
d) Other Benefit and Compensation Programs. Unless
otherwise specifically determined by the Committee,
settlements of awards received by participants under the
Plan shall not be deemed a part of a participant's regular,
recurring compensation for purposes of calculating payments
or benefits from any Company benefit plan or severance
program. Further, the Company may adopt other compensation
programs, plans or arrangements as it deems appropriate.
e) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any award, and
the Committee shall determine whether cash shall be paid or
transferred in lieu of any fractional Shares, or whether
such fractional Shares or any rights thereto shall be
canceled.
Exhibit 12
AMERITECH CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE YEARS ENDED DECEMBER 31, 1997
(Dollars in Millions)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
EARNINGS
Income before interest
income taxes, extraordinary
item and undistributed
equity earnings........ $ 4,116 $ 3,726 $ 3,537 $ 2,162 $ 2,707
Preferred dividends
of subsidiaries (3).... 29 13 9 2 --
Portion of rent expense
representing interest.. 73 73 67 64 65
Michigan
Single Business Tax.... 43 43 34 33 28
-------- -------- -------- -------- --------
Total earnings
(1) (2).............. $ 4,261 $ 3,855 $ 3,647 $ 2,261 $ 2,800
======== ======== ======== ======== ========
FIXED CHARGES
Interest expense........ $ 505 $ 514 $ 469 $ 435 $ 453
Preferred dividends
of subsidiaries (3).... 29 13 9 2 --
Capitalized interest.... 25 28 20 13 11
Portion of rent expense
representing interest.. 73 73 67 64 65
-------- -------- -------- -------- --------
Total fixed charges... $ 632 $ 628 $ 565 $ 514 $ 529
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES.................. 6.74 6.14 6.45 4.40 5.29
======== ======== ======== ======== ========
(1) The results for 1995 reflect a $134 million pretax credit primarily
from settlement gains resulting from lump sum pension payments from
the pension plan to former employees who left the business in the
nonmanagement work force restructuring. Results for 1994 reflect a
$728 million pretax charge associated with the nonmanagement work
force restructuring. Costs of the work force restructuring program
were largely funded from the Ameritech Pension Plan.
(2) Earnings are income before income taxes and fixed charges. Since the
Michigan Single Business Tax ("the Tax") and rental expense have been
deducted, the Tax and the one-third portion of rental expense
considered to be fixed charges are added back.
(3) For purposes of above computation, the preferred stock dividend
requirement of subsidiaries have been increased to an amount
representing the pretax earnings which would be required to cover the
dividend requirements.
<PAGE>
Selected Financial and Operating Data
Ameritech Corporation and Subsidiaries
As of December 31 or for the year ended
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $15,998 $14,917 $13,428 $12,569 $11,865 $11,285 $10,983 $10,773 $10,316 $10,014 $ 9,623
=================================================================================================
Operating expenses/1/ 12,199 11,412 10,125 10,540 9,307 8,941 9,001 8,584 8,161 7,882 7,358
-------------------------------------------------------------------------------------------------
Operating income 3,799 3,505 3,303 2,029 2,558 2,344 1,982 2,189 2,155 2,132 2,265
Interest expense 505 514 469 435 453 495 545 454 384 366 351
Other income (expense), net 390 326 260 147 117 125 219 76 14 52 (8)
Income taxes 1,388 1,183 1,086 571 709 628 491 557 547 581 718
-------------------------------------------------------------------------------------------------
Income before special accounting
items/2/ 2,296 2,134 2,008 1,170 1,513 1,346 1,165 1,254 1,238 1,237 1,188
Special accounting items/2/ -- -- -- (2,234) -- (1,746) -- -- -- -- --
-------------------------------------------------------------------------------------------------
Net income (loss) $ 2,296 $ 2,134 $ 2,008 $(1,064) $ 1,513 $ (400) $ 1,165 $ 1,254 $ 1,238 $ 1,237 $ 1,188
=================================================================================================
Earnings (loss) per share/3/
Income before special
accounting items/2/
Basic $ 2.09 $ 1.93 $ 1.81 $ 1.06 $ 1.39 $ 1.25 $ 1.10 $ 1.18 $ 1.15 $ 1.14 $ 1.06
Diluted 2.08 1.92 1.81 1.06 1.39 1.25 1.10 1.18 1.15 1.14 1.06
Special accounting items/2/
Basic -- -- -- (2.03) -- (1.62) -- -- -- -- --
Diluted -- -- -- (2.03) -- (1.62) -- -- -- -- --
-------------------------------------------------------------------------------------------------
Net income (loss)
Basic $ 2.09 $ 1.93 $ 1.81 $ (0.97) $ 1.39 $ (0.37) $ 1.10 $ 1.18 $ 1.15 $ 1.14 $ 1.06
Diluted 2.08 1.92 1.81 (0.97) 1.39 (0.37) 1.10 1.18 1.15 1.14 1.06
=================================================================================================
Dividends declared per share/3/ $ 1.148 $ 1.078 $ 1.015 $ 0.97 $ 0.93 $ 0.89 $ 0.86 $ 0.81 $ 0.75 $ 0.69 $ 0.64
=================================================================================================
Average common shares
outstanding (millions)/3/ 1,098.7 1,103.8 1,107.2 1,098.5 1,088.2 1,073.1 1,062.1 1,061.2 1,078.9 1,088.8 1,122.2
Total assets/4/ $25,339 $23,707 $21,942 $19,947 $23,428 $22,818 $22,290 $21,715 $19,833 $19,163 $18,780
Property, plant and equipment,
net/4/ $13,873 $13,507 $13,457 $13,455 $17,366 $17,335 $16,986 $16,652 $16,296 $16,078 $15,962
Capital expenditures $ 2,651 $ 2,476 $ 2,176 $ 1,955 $ 2,108 $ 2,267 $ 2,200 $ 2,154 $ 2,015 $ 1,895 $ 1,956
Long-term debt $ 4,610 $ 4,437 $ 4,513 $ 4,448 $ 4,090 $ 4,586 $ 4,964 $ 5,074 $ 5,069 $ 4,487 $ 4,388
Total debt/6/ $ 7,646 $ 7,592 $ 6,651 $ 6,346 $ 6,692 $ 6,704 $ 6,938 $ 6,769 $ 5,582 $ 4,942 $ 4,843
Debt ratio 47.9% 49.7% 48.7% 51.2% 46.0% 48.9% 46.1% 46.7% 42.1% 38.7% 38.9%
Return on average equity/5/ 28.5% 28.7% 29.5% (13.6)% 20.1% (5.9)% 14.5% 16.3% 15.8% 15.8% 15.5%
Return on average total
capital/5/ 18.1% 17.1% 18.2% (4.6)% 13.1% 0.2% 10.6% 11.8% 11.9% 12.0% 11.7%
Market price per common share/3/ $ 40.25 $ 30.31 $ 29.44 $ 20.19 $ 19.19 $ 17.81 $ 15.88 $ 16.69 $ 17.00 $ 11.94 $ 10.56
Access lines (000s) 20,544 19,704 19,057 18,239 17,560 17,001 16,584 16,278 15,899 15,469 15,094
Cellular subscribers (000s) 3,177 2,512 1,891 1,299 860 586 483 326 242 146 87
Employees 74,359 66,128 65,345 63,594 67,192 71,300 73,967 75,780 77,326 77,334 78,510
===================================================================================================================================
</TABLE>
/1/ Increase in operating expenses in 1994 was due to nonmanagement work force
restructuring charges of $728 million, while operating expenses in 1995
decreased due to a restructuring credit of $134 million.
/2/ Special accounting items represent an extraordinary item for the
discontinuation of FAS 71 (accounting in a regulatory environment) in 1994
and the cumulative effect of changes in accounting principles in 1992 for
FAS 106 ($1,644 million) and FAS 112 ($102 million).
/3/ Gives retroactive effect to all stock splits.
/4/ Substantial reduction in total assets and property, plant and equipment,
net in 1994 was due principally to the discontinuance of FAS 71.
/5/ Return on average equity and return on average total capital are calculated
using weighted average monthly amounts.
/6/ Total debt excludes preferred stock issued by subsidiaries of $250 million
in 1997, $60 million in 1995 and $85 million in 1994. The 1997 and 1994
issues are subject to mandatory redemption.
22
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
(Discussion that follows gives retroactive effect to the two-for-one stock split
effective December 31, 1997; dollars in millions, except per share amounts)
Ameritech is a global, diversified, full-service communications company
providing wireline and cellular telephone service, paging, cable TV and security
services, directory publishing and online services. Our five domestic landline
communications subsidiaries provide local telephone service, network access and
public telephone service to more than 12 million customers in Illinois, Indiana,
Michigan, Ohio and Wisconsin. These subsidiaries are subject to regulation by
the respective state utility commissions and the Federal Communications
Commission (FCC).
In addition, we provide cellular service primarily in our five-state region
and Missouri; paging services in our five-state region, Missouri and Minnesota;
and security and related services throughout North America. In 1996, we began
offering cable TV service to customers in Illinois, Michigan and Ohio. These and
other services are offered through nonregulated subsidiaries of Ameritech.
The telecommunications industry continued to experience unprecedented change
in 1997. As the impacts of the Telecommunications Act of 1996 (the 1996 Act)
became more clear, firms in the industry continued to refine their strategies in
order to compete effectively in new and existing markets. As a result, we have
experienced greater levels of competition in our markets, while at the same time
we have expanded the array of products and services that we offer to our
customers. Although regulatory reform has brought increased competition, it also
has brought a tremendous opportunity for growth in a market that is rapidly
expanding. We are capitalizing on this growth by adhering to our three basic
strategies: speed growth in our core business, introduce new services for
customers and connect customers around the world.
In the international arena, we continued to follow our strategy of expansion
in developed, economically stable foreign markets. In January 1998, we invested
$3.1 billion for a 34% stake in Tele Danmark A/S, the national
telecommunications provider in Denmark. In conjunction with our investment, Tele
Danmark will repurchase and retire all remaining shares held by the Danish
government, which will ultimately increase our stake to approximately 42%. Tele
Danmark is scheduled to complete this repurchase by April 1998. The Danish
market fits our criteria of solid growth, a well-educated population and stable
political and economic conditions, and we expect this venture to provide a
platform for further expansion in northern Europe.
The European communications industry is poised for a period of strong growth
as markets deregulate and governments continue to privatize their communications
sectors. Our investment in Tele Danmark has made Ameritech the largest American
investor in the European communications industry, complementing our existing
investments in Belgacom S.A., the national communications provider in Belgium;
MATAV, the Hungarian telecommunications company; NetCom, a cellular venture in
Norway; and WLW, our wholly owned subsidiary and a provider of business
directories throughout central Europe.
Prior to our investment in Tele Danmark, we had followed a strategy
internationally of teaming with partners and forming alliances to develop
synergies, share expertise and mitigate risk. When we own less than a
controlling interest, we record our allocable share of the operating results
from international investments. Such results are included in other income, net
in the consolidated statements of income on page 36. International investments
had a significant impact on earnings growth in 1997, and we estimate that our
pro rata share of revenues from international investments was approximately $1.8
billion in 1997. Our international equity-method investments represented 6.6% of
our assets as of December 31, 1997.
In addition to our international growth, we continued to build on expanded
service offerings in our home market, such as security services and cable TV. In
1997 our wholly owned subsidiary, SecurityLink from Ameritech, acquired assets
from several security companies, including Republic Security Company Holdings
and Rollins Protective Services. Through these acquisitions, we solidified our
position as the second-largest provider of security services in North America
and expanded our customer base to more than 1 million homes and businesses. A
clear benefit of our expansion in this industry is economies of scale, enabling
us to increase our customer base while at the same time decreasing the number of
monitoring centers that we operate. In 1997 we began consolidating the number of
our monitoring centers. We anticipate going from 24 centers in 1997 to four
centers by 1999.
We offer cable TV services through our wholly owned subsidiary, Ameritech New
Media, Inc. In 1997 New Media added franchise agreements in 34 communities in
Illinois, Michigan and Ohio, bringing the total to 65. Negotiations continue in
numerous other municipalities, including the city of Chicago, to obtain
additional franchise agreements. We continued our construction of a modern,
cost-efficient cable network, and now offer cable TV service in a total of 40
communities. Using a combination of effective marketing, a wide selection of
channels and quality customer service, we have achieved solid customer take
rates in these communities. Our introduction of a competing cable TV service has
clearly increased customer demand.
One area of potential future growth is interLATA long distance service. As
part of our plan to realize the full potential of the communications industry
and following the supporting provisions of the 1996 Act, we have taken the steps
set out in the Act to create a fully competitive market. We have made our
unbundled network available for use by Ameritech's competitors at cost-based
prices and at prices representing discounts from established retail levels.
Additionally, we have entered into more than 150 interconnection agreements with
other communications carriers, reflecting a growing wholesale business. These
efforts and the presence of facilities-based competitors in our region provided
the basis for
23
<PAGE>
Management's Discussion and Analysis
(dollars in millions, except per share amounts)
our request for authority to enter the interLATA long distance market in
Michigan.
In August 1997, the FCC denied our application to provide long distance
service in Michigan. We are working with the courts, the FCC and state
commissions toward full long distance entry consistent with the 1996 Act and
under terms and conditions that make economic sense for the company.
In addition, several industry participants, including Ameritech, have
challenged the FCC's orders implementing portions of the 1996 Act. In two
separate rulings the Federal Circuit Court of Appeals in St. Louis struck down
several provisions of an August 1996 FCC order designed to implement the
interconnection provisions of the 1996 Act and an FCC order that required
Ameritech and other incumbent local exchange carriers to resell bundled network
services at unbundled discounted rates. These rulings, along with other related
rulings, are scheduled to be reviewed by the United States Supreme Court in
October 1998, with a decision expected late this year or the beginning of next
year.
Results of operations
Several one-time items impacted reported income in 1997 and in 1996. Results of
operations for 1997 compared with the prior year were as follows:
<TABLE>
<CAPTION>
Increase Percent
1997 1996 (Decrease) Change
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before
one-time items $ 2,346 $ 2,116 $ 230 10.9
One-time items (50) 18 (68) n/a
Net income 2,296 2,134 162 7.6
EPS before one-time items
Basic $ 2.14 $ 1.91 $0.23 12.0
Diluted 2.12 1.91 0.21 11.0
Earnings per share
Basic $ 2.09 $ 1.93 $0.16 8.3
Diluted 2.08 1.92 0.16 8.3
Average common shares
(millions) 1,098.7 1,103.8 (5.1) (0.5)
- ---------------------------------------------------------------------
</TABLE>
One-time items and basic per-share amounts in 1997 included:
. an after-tax charge of $87 million, or $0.08 a share, related to our share
of the costs of a work force restructuring at Belgacom, the
telecommunications provider in Belgium;
. a pretax gain of $52 million ($37 million after-tax, or $0.03 a share)
resulting from the sale of our 12.5% interest in Sky Network Television of
New Zealand Limited;
. a pretax charge of $69 million ($42 million after-tax, or $0.04 a share)
resulting from our agreement to settle lawsuits related to our inside wire
maintenance services;
. a pretax gain of $42 million ($25 million after-tax, or $0.02 a share)
resulting from the sale of our 14.3% share of Bell Communications Research
(Bellcore);
. a pretax gain of $43 million ($27 million after-tax, or $0.03 a share)
resulting from the sale in an initial public offering of a portion of our
stake in MATAV, the telecommunications provider in Hungary; and
. a pretax charge of $16 million ($10 million after-tax or $0.01 a share)
resulting from a currency-related fair-value adjustment in connection with
our investment in Tele Danmark.
Results in 1996 included an after-tax gain of $18 million, or $0.02 a share,
resulting from the sale of our interest in Centertel, a cellular telephone
company in Poland.
Excluding the effects of these one-time items, 1997 net income increased $230
million, or 10.9%, and basic earnings per share increased $0.23, or 12.0% over
the comparable prior year period.
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
92 $11.3
93 $11.9
94 $12.6
95 $13.4
96 $14.9
97 $16.0
</TABLE>
Revenues
(in billions)
Revenues grew to a record $16 billion in
1997, up from $14.9 billion in 1996.
Reported income for 1996 was $2,134 million, or $1.93 per share. Excluding the
effects of the gain on the sale of our interest in Centertel, income was $2,116
million or $1.91 per share. Normalized income for 1996 represents an increase of
$228 million, or 12.1%, over normalized 1995 earnings and an increase in basic
earnings per share of $0.21, or 12.3%.
The following sections provide a more detailed discussion of our results of
operations and financial condition over the past three years.
Revenues Total revenues increased by 7.2% to $16.0 billion in 1997. Overall
growth in the communications market continued, driven by increased demand for a
wide array of voice and data transmission services. Cellular, paging and
security services revenues continued to grow at a solid pace, fueled by
increases in the number of subscribers to these services. Telephone network
revenues also increased, due to increases in network access lines and network
usage volumes, as well as higher sales of call management features and increased
usage of pay-per-use services. Rate reductions resulting from various federal
and state regulatory agreements for landline communications services partially
offset these increases.
Total revenues increased by 11.1% to $14.9 billion in 1996. This increase was
primarily attributable to increases
24
<PAGE>
in the number of cellular and paging subscribers, growth in access lines and
call management services, higher network usage volumes and increased security
services revenues. Rate reductions partially offset these increases.
<TABLE>
Increase Percent
1997 1996 (Decrease) Change
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Local service $6,413 $6,068 $345 5.7
==================================================================
</TABLE>
Local service Local service revenues include basic monthly service fees and
usage charges, fees for call management services, public phone revenues and
installation and connection charges. Local service rates generally have been
regulated by the state public service commissions. In each state of our five-
state region, we entered into price cap plans, beginning in 1994 and fully
reflected in revenues for the three-year period.
Local service revenues increased in 1997 due largely to increased sales of
call management services. These increases resulted from growth in the number of
features in service, which users subscribe to on a monthly basis, as well as
higher usage of pay-per-use services, under which users pay a fee for each
activation of a call management feature. Higher network usage volumes, resulting
primarily from access line growth, also contributed to the increase. Second line
additions by residential and small business customers contributed to access line
growth, due to continuing demand for Internet access and data transport
capabilities.
We had 20,544,000 access lines in service as of December 31, 1997, compared
with 19,704,000 as of December 31, 1996. Our 4.3% access line growth was
enhanced by 133,000 lines added on November 1, 1997, from the acquisition of
certain assets from Sprint (discussed on page 29). Excluding the assets acquired
from Sprint, access line growth was 3.6%.
In 1996, local service revenues increased $482 million, or 8.6%, due to
increased calling volumes, which resulted primarily from 3.4% growth in the
number of access lines in service, attributable to residential second line
additions as well as increased business usage. Greater demand for call
management services also contributed to the increase. These increases were
partially offset by rate reductions agreed to under price regulation, as
discussed above.
<TABLE>
<CAPTION>
Increase Percent
1997 1996 (Decrease) Change
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Network access
Interstate access $2,485 $2,365 $120 5.1
Intrastate access 619 573 46 8.0
==================================================================
</TABLE>
Network access Network access revenues are fees charged to interexchange
carriers, such as AT&T and MCI, that use our local landline communications
network to connect customers to their long distance networks. In addition, end
users pay flat rate access fees to connect to the long distance networks. These
revenues are generated from both interstate and intrastate services.
Interstate network access revenues increased in 1997 due primarily to higher
network usage volumes. The volume of calls that we handled for interexchange
carriers increased, and demand for dedicated services grew as Internet service
providers and other high-capacity users increased their utilization of our
network. Rate reductions partially offset these revenue increases. Minutes of
use related to interstate calls increased by 6.1% in 1997.
Interstate network access revenues increased $111 million, or 4.9%, in 1996,
due primarily to increases in network minutes of use. This increase was
partially offset by rate reductions resulting primarily from the FCC's approval
in 1995 of our request for price regulation without sharing of earnings. Minutes
of use related to interstate calls increased by 7.1% in 1996.
Intrastate network access revenues increased in 1997 reflecting greater use of
our network by alternative providers of intraLATA toll service in Illinois,
Michigan and Wisconsin. Rate reductions partially offset these volume increases.
Minutes of use related to intrastate calls increased by 15.4%.
+12%
Increase in Earnings
Per Share
- -------------------------------------------------------------------------------
Basic earnings per share before
one-time items rose 12% to $2.14.
Intrastate network access revenues increased $11 million, or 2.0%, in 1996 due
primarily to volume increases resulting from overall growth in call volume. This
increase was partially offset by rate reductions, largely resulting from
regulatory proceedings as discussed above. In addition, revenues were reduced by
a refund to interexchange carriers in Illinois related to certain pay phone use
fees and a reclassification in Michigan of certain revenues from the intrastate
access category to the long distance service category. Minutes of use related to
intrastate access increased by 15.0% in 1996.
<TABLE>
<CAPTION>
Increase Percent
1997 1996 (Decrease) Change
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long distance $ 1,384 $ 1,491 $(107) (7.2)
==================================================================
</TABLE>
Long distance Our current long distance service revenues are derived from
customer calls to locations outside of the customer's local calling areas but
within the same local access and transport area (LATA).
25
<PAGE>
Management's Discussion and Analysis
(dollars in millions, except per share amounts)
Long distance service revenues decreased in 1997 because of a decrease in
the volume of intraLATA toll calls completed. Implementation of Dial-1-plus
capability in Illinois, Michigan and Wisconsin, which introduced competition to
these markets, was the primary reason for the volume decrease. In these markets,
customers may now use an alternative provider of their choice for intraLATA
calls without dialing a special access code when placing the call. In addition,
other carriers began to record revenue from their customers' use of intraLATA
toll calling services, where previously they had allowed us to provide these
services and record these revenues in exchange for access charge payments.
Although we are no longer recording these revenues, we are no longer incurring
the corresponding access charge expenses.
586 860 1,299 1,891 2,512 3,177
92 93 94 95 96 97
Cellular Customers
(in thousands)
We added a record 665,000 cellular subscribers in
1997, raising our total to almost 3.2 million.
In 1996, long distance service revenues increased $34 million, or 2.3%, due
primarily to increased surcharges collected for third-party credit card calls,
as well as a reclassification of certain revenues in Michigan from the
intrastate access category to the long distance service category, as discussed
above. Higher calling volumes also contributed to the revenue increase, as did
rate increases.
Increase Percent
1997 1996 (Decrease) Change
- ------------------------------------------------------------------------------
Cellular, directory
and other $ 5,097 $ 4,420 $ 677 15.3
==============================================================================
Cellular, directory and other Cellular, directory and other revenues
include revenues derived from cellular communications, paging services,
telephone directory publishing, lease financing, billing and collection
services, telephone equipment sales and security installations and services.
Cellular, directory and other revenues increased in 1997 primarily because
of strong growth in the number of cellular, security and paging subscribers.
Cellular subscribers increased by 26.5% over the prior year period to 3,177,000
subscribers as of December 31, 1997. Strong demand, driven by price competition
and expanded service offerings, contributed to the increase. We introduced our
ClearPath/TM/ digital cellular service in the Chicago and Detroit markets in
1997, offering customers enhanced call clarity, longer battery life and better
call security. Our consistently high customer retention rate also contributed to
the growth in the subscriber base. Pagers in service increased by 31.1% over the
prior year period to 1,495,000 subscribers as of December 31, 1997, due to
increased marketing efforts and customer demand for added convenience.
Revenues from security services also increased, due primarily to our
acquisitions in 1997 of assets of several companies engaged in security
services. These acquisitions and internal growth increased our security services
customer base to more than 1 million. Higher revenues from directory
advertising, lease financing services, cable TV and other nonregulated services,
such as equipment sales and inside wire installation and maintenance, also
contributed to the increase.
Cellular, directory and other revenues increased $851 million, or 23.8%, in
1996, due primarily to increases in cellular and paging subscribers. Higher
revenues from security services, lease financing services, equipment sales and
other nonregulated services, such as inside wire installation and maintenance
and advanced data services, also contributed to the increase. Security revenues
increased primarily from the acquisition of The National Guardian Corporation.
Operating expenses Total operating expenses in 1997 increased $787
million or 6.9%. Overall business growth resulted in increases in employee-
related and other operating expenses. Depreciation and amortization expenses
also increased, due primarily to network expansion and asset acquisitions,
primarily in security services.
Total operating expenses in 1996 increased $1,287 million or 12.7%. The
increase was largely attributable to increased cost of sales in growth-related
businesses, such as cellular and security monitoring services, and to increases
in other operating expenses related to emerging businesses, such as long
distance, personal communications services (PCS) and cable TV. Operating
expenses also increased in 1996 due to the effects of pretax credits in 1995 of
$134 million ($79 million after-tax) primarily related to settlement gains
associated with lump-sum pension payments to former employees.
Increase Percent
1997 1996 (Decrease) Change
- --------------------------------------------------------------------------------
Employee-related
expenses $ 3,959 $ 3,711 $ 248 6.7
================================================================================
Employee-related expenses Employee-related expenses increased in 1997
because of growth in several sectors of our business, including cellular,
security services and cable TV, resulting in increased employee levels. Higher
wages at the landline communications subsidiaries also contributed
26
<PAGE>
to the increase. Lower force levels and overtime expenses at these companies,
resulting from productivity improvements, partially offset the wage increases.
Employee-related expenses increased $88 million, or 2.4%, in 1996, primarily
due to increased employee levels at the cellular, security monitoring, long
distance and cable TV businesses that resulted in increased salaries and wages.
Also contributing to the increase were higher wages and salaries at the landline
communications subsidiaries, partially offset by productivity improvements.
+20%
Growth in Call
Management Revenues
........................................
Revenues from call management services
increased 20% in 1997.
Approximately 42,500 of our employees are represented by either the
International Brotherhood of Electrical Workers (IBEW) or the Communications
Workers of America (CWA). In September 1995, memberships of the two unions
ratified three-year contracts with Ameritech, expiring on June 28, 1998 for the
IBEW and August 8, 1998 for the CWA. The contracts include basic wage increases
and signing bonuses, and address issues such as wages, benefits, employment
security, training and retraining and other conditions of employment. In
addition, under the contracts, union employees receive their annual bonuses in
the form of Ameritech stock instead of cash.
There were 74,359 employees as of December 31, 1997 compared with 66,128 as of
December 31, 1996. Approximately 70% of the increase is attributable to
expansion of our security services subsidiary.
Increase Percent
1997 1996 (Decrease) Change
- --------------------------------------------------------
Depreciation and
amortization $ 2,521 $ 2,365 $ 156 6.6
========================================================
Depreciation and amortization Depreciation and amortization expenses increased
in 1997 due primarily to higher overall plant balances, resulting from greater
demand for network services, and an increase in intangible assets, resulting
from several asset acquisitions in the security services industry. Depreciation
rates are increasing due to the shorter lives adopted in the landline business
in 1994.
Depreciation and amortization expense increased $188 million, or 8.6%, in
1996, due primarily to higher plant balances, as well as higher depreciation
rates on certain asset categories resulting from shorter depreciable lives.
Greater amortization of intangibles, resulting from acquisitions, also
contributed to the increase.
Increase Percent
1997 1996 (Decrease) Change
- --------------------------------------------------------
Other operating
expenses $ 5,140 $ 4,743 $ 397 8.4
========================================================
Other operating expenses Other operating expenses increased in 1997 due to the
following factors:
. higher costs in the emerging cable TV and long distance businesses;
. growth-related cost of sales and customer increases at the cellular and
security operations;
. increased costs for systems development and data center management;
. higher advertising expenses related to increased marketing and sales
efforts;
. cost of sales increases due to higher sales of customer premises
equipment; and
. a one-time pretax charge of $69 million resulting from our agreement to
settle lawsuits related to our inside wire maintenance and Linebacker
services.
Other operating expenses increased $832 million, or 21.3%, in 1996, due
primarily to growth-related cost of sales and other expense increases at the
cellular and security operations, as well as higher costs in the emerging long
distance and PCS businesses. Contract services costs for systems development and
data center management also increased, as did uncollectibles and advertising
expenses due to increased revenues and sales efforts, respectively.
In May 1996, we commenced a ten-year agreement with IBM Global Services (IBM)
to perform certain information technology services previously performed by
Ameritech and to assume responsibility for the consolidation of the company's
data centers. This agreement is resulting in increased contract services costs
as services are provided by IBM. However, employee-related costs are decreasing
from what otherwise would have been incurred and depreciation expense associated
with computer assets is moderating as IBM replaces hardware, at its cost,
required to manage our extensive data processing needs.
Restructuring credits As announced in March 1994, we significantly reduced our
nonmanagement work force in 1994 and 1995. We recorded noncash settlement gains
of $302 million in 1995, associated primarily with lump-sum pension payments to
former employees. These gains were partially offset by $110 million in increased
force costs related to the restructuring started in 1994 and estimated work
force reductions due to information technology restructuring. In connection with
this restructuring, we recorded a charge of $58 million in 1995 to write down
certain data processing equipment to net realizable value.
27
<PAGE>
Increase Percent
1997 1996 (Decrease) Change
- ------------------------------------------------------------
Taxes other than
income taxes $ 579 $ 593 $ (14) (2.4)
============================================================
Taxes other than income taxes Taxes other than income taxes consist of property
taxes, gross receipts taxes and other taxes not directly related to earnings.
Taxes other than income taxes decreased in 1997 primarily because of lower
property taxes in Illinois and Ohio, as well as lower capital stock taxes in
Illinois resulting from tax reforms. Higher gross receipts taxes resulting from
business growth partially offset these decreases.
+27%
Increase in Cellular
Customers
-----------------------------------
Ameritech's cellular customers grew
27% in 1997 to 3.2 million.
Taxes other than income taxes increased $45 million or 8.2% in 1996,
largely due to increases in gross receipts and capital stock taxes, resulting
primarily from business growth and the acquisition of National Guardian. These
increases were partially offset by a decrease in property taxes, largely
resulting from favorable tax legislation, primarily in Ohio.
Other income and expense
Increase Percent
1997 1996 (Decrease) Change
- ----------------------------------------------------------------
Interest expense $505 $514 $ (9) (1.8)
================================================================
Interest expense Interest expense decreased due primarily to increased cash
flow from operations, resulting in lower average debt balances. This decrease
was partially offset by higher short-term interest rates. Increased interest on
long-term debt, due to higher average long-term debt balances, also partially
offset this decrease.
Interest expense increased $45 million or 9.6% in 1996, due primarily to
funding of our investment in Belgacom, partially offset by the effect of lower
average short-term interest rates. Short-term debt also increased in order to
meet working capital needs resulting from revenue growth, increased capital
expenditures and higher costs related to new and emerging businesses and to fund
the company's stock buyback program.
Increase Percent
1997 1996 (Decrease) Change
- -------------------------------------------------------------
Other income, net $390 $326 $ 64 19.6
=============================================================
Other income, net Other income, net includes earnings related to Ameritech's
investments (when the equity method of accounting is followed), interest income
and other nonoperating items.
Other income, net increased primarily because of several one-time gains
resulting from the sale of our investments in:
. Sky Network Television of New Zealand ($52 million pretax gain);
. Bellcore ($42 million pretax gain); and
. the sale of a portion of our stake in MATAV ($43 million pretax
gain).
These gains were partially offset by a $16 million pretax charge resulting from
a currency fair-value adjustment related to our investment in Tele Danmark.
Earnings from investments, accounted for using the equity method, also
increased, due primarily to stronger results at Belgacom and MATAV. We acquired
our 17.5% interest in Belgacom in March 1996. The increase was offset by the
effects of a one-time after-tax charge of $87 million related to our share of
the costs of a restructuring at Belgacom. In May 1997, Belgacom offered certain
of its 27,000 employees financial incentives to voluntarily leave the work force
by the end of 1998. Approximately 6,300 employees accepted the offer.
We derive a large portion of our equity earnings from overseas investments.
Although these investments continue to generate strong earnings, the effects of
a stronger U.S. dollar in relation to foreign currencies moderated their impact
on earnings in 1997.
Other income, net increased 25.4% to $326 million in 1996, due primarily to
strong growth in equity earnings from international investments, including
Belgacom, Telecom Corporation of New Zealand Limited (New Zealand Telecom) and
MATAV in Hungary, as well as a gain from the sale of the company's interest in
Centertel in December 1996. These increases were partially offset by the effects
of a gain of $66 million ($41 million after-tax) recorded in 1995 from the
exchange of minority interests in certain cellular partnerships.
Increase Percent
1997 1996 (Decrease) Change
- -----------------------------------------------------
Income taxes $1,388 $1,183 $ 205 17.3
=====================================================
Income taxes Income taxes increased in 1997 primarily because of an increase
in pretax earnings, as discussed above. Our effective tax rate increased over
the same period last year, largely due to the Belgacom restructuring discussed
above, as well as a decrease in the amortization of investment tax credits
relative to pretax income and a change in tax law in New Zealand that subjects
us to a withholding tax on distributions.
The increase in income taxes in 1996 was impacted by
28
<PAGE>
the tax effects associated with the work force restructuring credits and the
gain on the exchange of minority interests in certain cellular partnerships in
1995. These items increased 1995 income tax expense by $81 million. Excluding
the effects of these items, income taxes increased in line with the earnings of
the business.
Liquidity and capital resources
Cash flows from operating activities Cash flow from operations was $4,510
million in 1997, an increase of $767 million from 1996, primarily reflecting
stronger earnings, as well as improved working capital levels.
Cash flows from investing activities Capital expenditures continue to represent
the single largest use of company funds. We believe that investment in the core
communications business will facilitate introduction of new products and
services, enhance responsiveness to ever-increasing competitive challenges and
increase the operating efficiency and productivity of our network.
$3,288 $3,189 $3,430 $3,556 $3,743 $4,510
92 93 94 95 96 97
Cash Flow from Operations
(in millions)
Cash flow from operations increased 20% in
1997 to more than $4.5 billion.
We are deploying capital based on customer demands, our business plans and
regulatory commitments. We place a high priority on technologies that will
enable us to provide customers with new products and services. Capital spending
increased in 1997 primarily because of expansion and enhancement of the cellular
network, including the continuing development of digital ClearPath and PCS
networks and continued buildout of the cable TV network.
Capital spending increased by $300 million in 1996 due primarily to
increased spending at the landline communications subsidiaries resulting from
access line growth and strong demand for custom calling and private line
services.
Modernization of the landline communications network continued throughout
1997, as demonstrated by the following year-end information.
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------
<S> <C> <C>
Lines served by digital switching 86% 83%
Lines with ISDN accessibility 76% 72%
Fiber-optic strand miles (000s) 1,556 1,289
======================================================
</TABLE>
In addition to our increased capital spending, investments in new businesses
also increased in 1997, with acquisitions totaling over $1 billion for the year.
Much of our investing activity was in the security services industry, where we
reached critical scale to facilitate significant efficiencies. In April and June
1997, we acquired assets of three companies engaged in security services.
Consideration for these assets consisted of approximately $82 million in cash
and the issuance of a total of 3,009,602 common shares with a dollar value of
approximately $100 million. In October 1997, we acquired security assets of
Rollins Protective Services, a division of Rollins, Inc., and security assets of
Republic Security Company Holdings, a subsidiary of Republic Industries, Inc. We
used approximately $800 million in cash to make these purchases.
Investing activities in 1997 also included an expansion of our core
telephone network through acquisition. In November 1997, we acquired from Sprint
Corporation (Sprint) the assets of Sprint's local exchange business in suburban
Chicago, formerly known as Central Telephone Company of Illinois, or Centel. We
paid $160 million in cash.
Other investing activities in 1997 included proceeds from our sales of
investments, including our stake in Bellcore, our investment in Sky Network
Television of New Zealand Limited and a portion of our stake in MATAV through
an initial public offering. In addition to these sales, we also received
proceeds from a stock repurchase program at New Zealand Telecom. We received
proceeds of approximately $152 million in 1997 as a result of this repurchase
program, without materially changing our percentage ownership in New Zealand
Telecom.
Investing activities in 1996 consisted primarily of our investment with
several partners in Belgacom, the national telecommunications provider in
Belgium. In March 1996, a consortium led by Ameritech purchased a 49.9% stake in
Belgacom from the Belgian government, with Ameritech acquiring a 35% consortium
share. The purchase price was approximately $2.5 billion, with Ameritech
investing approximately $865 million for its 35% share, or approximately 17.5%
of Belgacom. Investing activities in 1996 also included additional investments
in security services assets.
Investing activities in 1995 included investments of $895 million to
acquire additional MATAV shares ($405 million), newly issued licenses,
principally for PCS ($161 million) and all other investments ($329 million),
including National Guardian. Proceeds of $61 million were received in
connection with the exchange of certain cellular minority interests.
Cash flows from financing and other activities
Financing activities consist primarily of debt issuances and retirements,
issuance and repurchase of common stock, and dividend payments to shareowners.
In 1997 we issued long-term debt to fund the investing activities
previously discussed. We also put in place additional financing alternatives
to fund our investments in
29
<PAGE>
Management's Discussion and Analysis
(dollars in millions, except per share amounts)
Tele Danmark and other acquisition opportunities, as well as an anticipated
repurchase of our own stock during 1998. We issued $650 million of long-term
debt through our financing subsidiary, primarily to fund our acquisitions of
security assets from Rollins and Republic, and one of our subsidiaries issued
$250 million of preferred stock in June 1997 in a private placement.
Financing activities in 1996 consisted primarily of debt issuances by two
landline telephone subsidiaries (Indiana Bell Telephone Company, Incorporated
and Wisconsin Bell, Inc.) aggregating $275 million.
Financing activities in 1995 included issuance of $192 million of long-term
debentures through our financing subsidiary.
Stock repurchase program Our board of directors has periodically authorized
management to repurchase shares of Ameritech common stock in the open market or
through private transactions. During 1997, we repurchased, in the open market,
19.0 million shares of common stock for an aggregate purchase price of $602
million. During 1996, we repurchased in the open market 17.4 million shares of
common stock for an aggregate price of $492 million. In December 1997, our board
authorized further repurchases up to $2.0 billion.
+6.2%
Increase
in Dividends
- ------------
Our quarterly dividend increase was the largest in our industry for the third
straight year.
Dividends The company paid dividends of $1.24 billion in 1997. This was an
increase of $71 million or 6.1% over 1996. In December 1997, Ameritech's board
of directors approved a 6.2% increase in the quarterly dividend payable February
2, 1998. The dividend policy is consistent with the need to balance returns to
shareowners and investments of capital necessary in a competitive environment.
Financing options As of December 31, 1997, we maintained available lines of
credit totaling $1.67 billion, a committed credit facility of $2.0 billion and
shelf registrations for issuance of up to $2.95 billion in unsecured debt
securities.
In January 1998, we sold $1.75 billion of long-term unsecured debt
securities to help fund our acquisition of Tele Danmark. The debt has coupon
rates ranging from 5.65% to 6.55%. Following these issuances, we had $1.2
billion remaining available for issuance under shelf registration statements. We
have also arranged our first debt financing outside the U.S. with a $750 million
Eurodollar offering scheduled to close in February 1998.
In October 1997, two rating agencies initiated reviews of our financial
results and credit position to determine the appropriateness of our current
credit ratings. Such reviews resulted from the announcement of our agreement to
invest $3.1 billion in Tele Danmark. One agency adjusted its ratings of our
long-term debt and preferred stock to Aa3 from Aa2, while the other reaffirmed
its rating at AA+. We do not believe that these reviews will have a material
impact on our future borrowing costs or our ability to meet our financing needs.
In 1997, we registered 14,279,340 shares of our common stock with the SEC
for future issuance. We may issue these shares from time to time for the
completion of acquisitions or for other corporate purposes.
Management believes that we have adequate internal and external resources
available to finance our business development, network expansion, dividends,
acquisitions and investments.
Other matters
Competitive and regulatory environment We face competition in every aspect of
our business. In pursuing business opportunities both inside and outside of the
United States, we compete against other large local service providers, long
distance service providers, cable TV companies, wireless service providers and
other entrants from closely related industries. The 1996 Act establishes a
national policy that calls for competition and open markets, not regulatory
management, as the basic business environment. This public policy change opens a
wealth of business opportunities for providers of all forms of communications,
enabling them to become full-service providers of voice, video, data, local and
long distance services for their customers. As a result of the new law,
consumers can expect to see more choices and receive greater value for these and
other services.
Building on our strengths, we will continue to branch into new services
that are logical extensions of our business and to export our expertise to
customers around the world. Our competitive strategy includes positioning
ourselves to take advantage of future opportunities by refining our processes to
continue to be the most efficient communications provider in the market.
With the passage of the 1996 Act and earlier regulatory initiatives, our
local service markets have been opened to competition from interexchange
carriers, cable TV providers and other local service providers. Interconnection
agreements with these providers require us to allow access to unbundled network
elements at cost-based rates or services at discounted, wholesale rates. These
agreements may result in some downward pressure on local service revenues, as a
portion of the company's revenue shifts from local service at retail prices to
network access at lower rates.
30
<PAGE>
It is impossible to predict the specific impact of the 1996 Act on our
business or financial condition. Notwithstanding the potential for an adverse
effect on certain of our revenue streams, we expect to acquire a significant
portion of the expected growth in the communications marketplace, including
interLATA long distance.
In 1996, we were required to implement Dial-1-plus capability in our local
toll markets in Illinois and Wisconsin and in portions of our local toll market
in Michigan. Dial-1-plus gives customers the ability to choose an alternate long
distance carrier for intraLATA toll calls by dialing 1 before the phone number.
Competition for toll service revenues has intensified in these areas. The
increased competition, however, should stimulate growth in overall demand for
toll calls and corresponding network access services.
Until 1996, the U.S. cellular market was largely a series of duopolies: the
local telephone company and one other provider for each cellular market. With
PCS, each market will add at least two new wireless service providers. Each PCS
provider will offer digital cellular service with features such as longer
battery life, increased account security and enhanced services such as voice
mail, Caller ID and paging capabilities. We introduced digital cellular service
in our Chicago and Detroit markets in mid-1997, and we will introduce this
service in several other markets in 1998. Paging, invigorated by the popularity
of cellular service, is a highly competitive business with at least five to
seven providers in each market.
Competitors of our telephone directory publishing business are traditional
advertising media, including television, radio, direct mail, magazines and
newspapers, as well as providers of new technologies such as online services,
including the Internet.
We believe competition in all segments of our business, within each unique
industry segment, will accelerate growth. As we expand and diversify, the
number, variety and size of competitors will shift to challenge our evolving
business interests. Much of the competition will be from companies with
substantial capital, technological and marketing resources and wide-ranging
service offerings.
Regulatory developments In July 1997, the Eighth Circuit Court of Appeals in
St. Louis struck down several provisions of an August 1996 FCC order regarding
the interconnection provisions of the 1996 Act. The Court ruled, among other
things, that the FCC's pricing guidelines intrude upon the rights of state
commissions to implement key elements of the 1996 Act and that the FCC lacks
jurisdiction to review state commission decisions regarding interconnection
agreements between incumbent local exchange carriers (LECs) and their
competitors. The Court also ruled that the FCC's requirement allowing requesting
carriers to pick and choose among individual provisions of other interconnection
agreements does not promote negotiated agreements and is unreasonable.
The Court also ruled, and clarified in a subsequent October rehearing
order, that if new entrants to the local exchange market wish to purchase
network elements at cost-based prices, they must combine the elements
themselves. The United States Supreme Court is scheduled to review these and
related rulings in October 1998, with a decision expected late this year or the
beginning of next year.
On May 7, 1997, the FCC issued three closely-related orders addressing
revisions to the price cap plan for LECs, interstate access charge reform and
funding for universal service. In its access charge reform order, the FCC
adopted changes to its tariff structure requiring LECs to use rates that reflect
the type of costs incurred.
$6 billion
In European Investments
- -----------------------
Ameritech's investments in Europe grew in value to $6 billion following our
January 1998 investment in Tele Danmark.
The new price cap rules are reducing access charges by increasing the price
cap productivity offset factor to 6.5% from the current 5.3% and by applying
this factor uniformly to all access providers. The new rates were effective July
1, 1997, and LECs were required to compute the new rates as if the 6.5%
productivity factor had been in effect since July 1, 1996.
The new rules also create a multi-billion-dollar interstate universal
service fund for linking schools and libraries to the Internet and subsidizing
low-income consumers and rural health care providers. Telecommunications service
providers began paying into the universal service fund starting January 1, 1998.
Subsidies to low-income and rural customers became available January 1, 1998,
and funds for linking schools and libraries to the Internet will be available as
needed.
We do not expect these reforms to have a material impact on our revenue
streams. However, the nature and timing of these reforms may evolve as the FCC
considers input from state commissions, potential legal challenges and the
ongoing implementation of other provisions of the 1996 Act.
On December 30, 1997, the United States Court of Appeals for the District
of Columbia Circuit (the D.C. Circuit Court) remanded to the FCC a case
involving a claim that the purchase of security services assets of another
company by SecurityLink, our security services subsidiary, violated a
31
<PAGE>
Management's Discussion and Analysis
(dollars in millions, except per share amounts)
provision of the 1996 Act. The FCC had previously ruled that the transaction was
permissible under the 1996 Act. On remand, the D.C. Circuit Court directed the
FCC to resolve an ambiguity in the statute. In addition to this case, three
similar challenges to transactions involving subsequent purchases of security
monitoring assets by SecurityLink are pending before the FCC.
Disclosures about market risk We are exposed to market risks primarily from
changes in interest rates and foreign currency exchange rates. To manage our
exposure to these fluctuations, we occasionally enter into various hedging
transactions that have been authorized according to documented policies and
procedures. We do not use derivatives for trading purposes, or to generate
income or to engage in speculative activity, and we never use leveraged
derivatives.
$153 $172 $190 $215 $227 $235
92 93 94 95 96 97
Revenues per Employee
(in thousands)
Employee productivity continued to rise, with revenues per employee reaching
$235,000 in 1997.
Our exposure to interest rate fluctuations results primarily from floating-
rate short-term debt in the form of commercial paper, as well as floating-rate
long-term notes tied to the London Interbank Offer Rate (LIBOR). In addition, we
have issued through two of our wholly owned subsidiaries preferred stock that
pays dividends at fixed rates or at LIBOR-based rates. With respect to short-
term and long-term debt, we measure the duration of the overall debt portfolio
to determine its exposure to interest rate fluctuations. We then use
derivatives, including interest rate swaps and swaptions, to manage the duration
of the portfolio.
In December 1997, our board of directors authorized the issuance of long-
term debt to fund our investment in Tele Danmark. Following this authorization,
we entered into several derivative contracts in 1998, consisting primarily of
treasury locks, to protect against a rise in interest rates prior to our
issuance of the debt.
Our exposure to foreign exchange rate fluctuations results from our net
investments in foreign ventures in Belgium, Hungary, New Zealand and Norway, and
from our share of the earnings of these operations, which are denominated in the
respective local currency. We are exposed to fluctuations in several other
European currencies and the Canadian dollar related to the operations of wholly
owned subsidiaries doing business throughout central Europe and in Canada.
We typically do not use derivatives to hedge the value of our net
investments in these foreign operations. We use foreign currency forward
contracts on a discretionary basis to manage the risk associated with dividend
payments from these foreign affiliates. We also use forward contracts from time
to time to hedge anticipated transactions with our investments in foreign
entities. In December 1997 we entered into several forward contracts and a
foreign currency collar to manage the foreign currency risk associated with our
anticipated investment in Tele Danmark. We used these contracts to hedge most of
the $3.1 billion purchase price, which was denominated in German marks. Because
current accounting rules do not permit "hedge accounting" for pending
acquisitions, we recorded pretax losses of $16 million in 1997 and $54 million
in 1998 resulting primarily from the forward contracts.
The amounts shown below represent the estimated potential loss that we
could incur from adverse changes in either interest rates or foreign exchange
rates using the value-at-risk estimation model. The value-at-risk model uses
historical foreign exchange rates and interest rates to estimate the volatility
and correlation of these rates in future periods. It estimates a loss in fair
market value using statistical modeling techniques and including substantially
all market risk exposures, specifically excluding equity-method investments. The
fair value losses shown in the table below have no impact on our results of
operations or financial condition.
<TABLE>
<CAPTION>
Time Confidence
Risk Category Amount Period Level
- ----------------------------------------------
<S> <C> <C> <C>
Interest rates $25 1 day 95%
Foreign exchange -- 1 day 95%
==============================================
</TABLE>
The 95% confidence interval signifies our degree of confidence that actual
losses would not exceed the estimated losses shown above. The amounts shown here
disregard the possibility that interest rates and foreign currency exchange
rates could move in our favor. The value-at-risk model assumes that all
movements in these rates will be adverse. Actual experience has shown that gains
and losses tend to offset each other over time, and it is highly unlikely that
we could experience losses such as these over an extended period of time. These
amounts should not be considered projections of future losses, since actual
results may differ significantly depending upon activity in the global financial
markets.
New accounting pronouncements In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (FAS) 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and requires that all components
of comprehensive
32
<PAGE>
income be reported in a financial statement having the same prominence as other
financial statements. For us, FAS 130 is effective in 1998, and it requires
reclassification of prior period financial statements for comparative purposes.
Adoption of this standard should have little effect on our financial statements,
since the new requirements primarily involve modifications to the way that
existing information is displayed.
+31%
Growth in
Pagers
----------------------------------------------
Pagers in service increased 31%
in 1997 to 1.5 million.
Also in June 1997, the FASB issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes FAS 14,
"Financial Reporting of Segments of a Business Enterprise," by establishing new
standards for the way that a public business enterprise reports operating
segment information in its annual and interim financial statements. In general,
FAS 131 requires reporting of financial information as it is used by senior
company management for evaluating performance and deciding how to allocate
resources. The statement is effective for 1998, but need not be applied to
interim financial statements in that year. Comparative information for earlier
years must be restated.
Effects of foreign currency fluctuations Our foreign operations and investments
in international ventures are subject to certain risks related to fluctuation in
foreign currency exchange rates. In 1997, due to a strengthening U.S. dollar, we
recognized some foreign exchange transaction losses and currency translation
adjustments related to these investments. Foreign exchange transaction losses
incurred by wholly owned subsidiaries adversely impacted operating income.
Transaction losses incurred by other international ventures (primarily equity
method investments) had a negative impact on other income, net. Translation
adjustments resulted in a decrease in the investment balance and a corresponding
reduction in shareowners' equity in the consolidated balance sheet. While future
fluctuations in currency exchange rates could impact results of operations or
financial position, foreign operations continue to provide strong financial
results and earnings growth.
Year 2000 costs We currently operate numerous date-sensitive computer
applications and network systems throughout our business. As the century change
approaches, it is essential for us to ensure that these systems properly
recognize the year 2000 and continue to process operational and financial
information. In May 1996, we began our internal assessment of our requirements
and made appropriate inquiries of vendors and consultants. We believe that we
have identified most application software and systems issues and we are making
changes to allow for almost a full year of additional testing in 1999. During
the next two years we anticipate incurring additional costs in this effort of
approximately $200 million, and we expect to incur these costs ratably during
this time frame. Management believes we can incur these costs without adversely
affecting future operating results. However, because of the complexity of the
issue and possible unidentified risks, actual costs may vary from our estimate.
Management has discussed its assessment and plans with the board of directors.
Business units We have organized our business into separate units, and each
customer is assigned to a business unit that is best positioned to serve that
customer's specific needs. Revenues by business unit are as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Consumer 31% 32%
Custom, enhanced and small business 27 27
Long distance 13 13
Cellular, including paging 11 9
Advertising 7 7
All other 11 12
---------------
Total 100% 100%
================================================================================
</TABLE>
Adoption of FAS 131 in 1998 may result in disclosure of operating segments that
differ from those listed above.
Private securities litigation reform act safe harbor statement The above
discussion contains certain forward-looking statements that involve potential
risks and uncertainties. Ameritech's future results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include:
. changes in economic and market conditions;
. effects of state and federal regulation;
. risks inherent in international operations; and
. the impact of new technologies.
You should not place undue reliance on these forward-looking statements, which
are applicable only as of the date hereof. We have no obligation to revise or
update these forward-looking statements to reflect events or circumstances that
arise after the date hereof or to reflect the occurrence of unanticipated
events.
33
<PAGE>
Report of Management
Shareowners, Ameritech Corporation
The consolidated financial statements were prepared in accordance with generally
accepted accounting principles, which required the use of estimates and
judgment. Management prepared these statements and other information in the
annual report and is responsible for their integrity and objectivity.
Our consolidated financial statements have been audited by Arthur Andersen
LLP. Management has made available to Arthur Andersen LLP all of our financial
records and related data, as well as the minutes of meetings of shareowners and
directors. We believe that all representations made to Arthur Andersen LLP were
valid and appropriate.
Management maintains a system of internal control over the preparation of our
published financial statements that provides reasonable assurance as to the
integrity and reliability of the consolidated financial statements, the
protection of assets from unauthorized use or disposition, and the prevention
and detection of fraudulent financial reporting. The internal control system
provides appropriate division of responsibility, and written policies and
procedures are communicated to employees and updated as necessary. Management is
responsible for proactively fostering a strong ethical climate so that the
company's affairs are conducted according to the highest standards of personal
and corporate conduct.
The company maintains a strong internal auditing program to assess the
effectiveness of internal controls and recommend possible improvements. As part
of their audit of the consolidated financial statements, Arthur Andersen LLP
considered the internal control system to determine the nature, timing and
extent of necessary audit tests. Management has considered the recommendations
of our internal auditors and Arthur Andersen LLP concerning the company's system
of internal control, and has responded appropriately.
Management assessed the company's internal control system in relation to
criteria for effective internal control. These criteria consist of five
interrelated components, which are: control environment, risk assessment,
control activities, information and communication and monitoring. Based on its
assessment, management believes that, as of December 31, 1997, our system of
internal control has met these criteria.
The board of directors, through its audit committee which consists solely of
outside directors, serves in an oversight capacity to assure the integrity and
objectivity of the financial reporting process. The role of the committee
includes monitoring accounting and financial controls and assuring the
independence of Arthur Andersen LLP. Both the internal auditors and the
independent public accountants have complete access to the committee and
periodically meet with the committee, with and without management present.
Sincerely,
/s/ Richard C. Notebaert /s/ Oren G. Shaffer
- ------------------------ -------------------
Richard C. Notebaert Oren G. Shaffer
Chairman and Chief Executive Officer Executive Vice President and Chief
Financial Officer
January 13, 1998
34
<PAGE>
Report of Independent Public Accountants
Board of Directors, Ameritech Corporation
We have audited the accompanying consolidated balance sheets of Ameritech
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, shareowners' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ameritech
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Chicago, Illinois
January 13, 1998
35
<PAGE>
Consolidated Statements of Income
Ameritech Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------
(dollars in millions, except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Local service $ 6,413 $ 6,068 $ 5,586
Interstate network access 2,485 2,365 2,254
Intrastate network access 619 573 562
Long distance service 1,384 1,491 1,457
Cellular, directory and other 5,097 4,420 3,569
-----------------------------
15,998 14,917 13,428
-----------------------------
Operating expenses
Employee-related expenses 3,959 3,711 3,623
Depreciation and amortization 2,521 2,365 2,177
Other operating expenses 5,140 4,743 3,911
Restructuring credits -- -- (134)
Taxes other than income taxes 579 593 548
-----------------------------
12,199 11,412 10,125
-----------------------------
Operating income 3,799 3,505 3,303
Interest expense 505 514 469
Other income, net 390 326 260
-----------------------------
Income before income taxes 3,684 3,317 3,094
Income taxes 1,388 1,183 1,086
-----------------------------
Net income $ 2,296 $ 2,134 $ 2,008
-----------------------------
Earnings per common share*
Basic $ 2.09 $ 1.93 $ 1.81
-----------------------------
Diluted $ 2.08 $ 1.92 $ 1.81
-----------------------------
Average common shares outstanding (millions)* 1,098.7 1,103.8 1,107.2
================================================================================
</TABLE>
*Gives retroactive effect for the two-for-one stock split effective December 31,
1997.
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Ameritech Corporation and Subsidiaries
As of December 31
-----------------
(dollars in millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $ 239 $ 145
Receivables, less allowance for uncollectibles of $308 and $320, respectively 3,078 3,070
Material and supplies 290 231
Prepaid and other 942 353
------------------
4,549 3,799
------------------
Property, plant and equipment
In service 34,020 31,951
Under construction 371 341
------------------
34,391 32,292
Less, accumulated depreciation 20,518 18,785
------------------
13,873 13,507
------------------
Investments, primarily international 1,751 2,323
------------------
Other assets and deferred charges 5,166 4,078
------------------
Total assets $25,339 $23,707
==================
Liabilities and shareowners' equity
Current liabilities
Debt maturing within one year $ 3,036 $ 3,155
Accounts payable 1,955 1,836
Other 2,250 1,841
------------------
7,241 6,832
------------------
Long-term debt 4,610 4,437
------------------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes 1,150 900
Unamortized investment tax credits 140 172
Postretirement benefits other than pensions 2,965 2,984
Other 925 695
------------------
5,180 4,751
------------------
Shareowners' equity
Common stock, par value $1; 2.4 billion shares authorized;
1,177 million issued in 1997, 1,176 million issued in 1996 1,177 1,176
Proceeds in excess of par value 5,313 5,144
Reinvested earnings 4,190 3,154
Treasury stock, at cost (79 million shares in 1997 and 76 million shares in 1996) (1,645) (1,344)
Deferred compensation (190) (259)
Currency translation adjustments (538) (188)
Other, net 1 4
------------------
8,308 7,687
------------------
Total liabilities and shareowners' equity $25,339 $23,707
=========================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
37
<PAGE>
Consolidated Statements of Shareowners' Equity
Ameritech Corporation and Subsidiaries
<TABLE>
<CAPTION>
Shareowners' Equity
---------------------------------------------------------------------------------- Common Treasury
Proceeds in Currency Shares Common
(dollars in millions, Common Excess of Reinvested Treasury Deferred Translation Other, Issued Shares
except per share amounts) Total Stock Par Value Earnings Stock Compensation Adjustments net (millions)(millions)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 $6,055 $1,175 $4,934 $1,325 $(977) $(396) $(16) $10 1,175 72
Net income 2,008 2,008
Dividends declared
($1.015 per share) (1,124) (1,124)
Treasury stock activity
Purchases (162) (162) 6
Issuances
Employee benefit plans 82 13 69 (5)
Dividend reinvestment and
optional stock purchases 145 61 84 (6)
Reduction of LESOP debt 67 67
Other 13 18 (5)
Translation adjustments (69) (69)
-------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 7,015 1,175 5,026 2,209 (986) (329) (85) 5 1,175 67
Net income 2,134 2,134
Dividends declared
($1.078 per share) (1,189) (1,189)
Stock issued to
nonmanagement employees 29 1 28 1
Treasury stock activity
Purchases (492) (492) 17
Issuances
Employee benefit plans 85 15 70 (4)
Dividend reinvestment and
optional stock purchases 115 51 64 (4)
Reduction of LESOP debt 70 70
Other 23 24 (1)
Translation adjustments (103) (103)
-------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 7,687 1,176 5,144 3,154 (1,344) (259) (188) 4 1,176 76
Net income 2,296 2,296
Dividends declared
($1.148 per share) (1,260) (1,260)
Stock issued to
nonmanagement employees 12 1 11 1
Treasury stock activity
Purchases (602) (602) 19
Issuances
Employee benefit plans 163 10 153 (8)
Dividend reinvestment and
optional stock purchases 155 62 93 (5)
Acquisitions of businesses 98 43 55 (3)
Reduction of LESOP debt 69 69
Other 40 43 (3)
Translation adjustments (350) (350)
-------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 $8,308 $1,177 $5,313 $ 4,190 $(1,645) $(190) $(538) $ 1 1,177 79
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
Consolidated Statements of Cash Flows
Ameritech Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------------
(dollars in millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,296 $ 2,134 $ 2,008
Adjustments to net income
Restructuring credits, net of tax - - (79)
Depreciation and amortization 2,521 2,365 2,177
Deferred income taxes, net 235 122 149
Investment tax credits, net (32) (36) (48)
Capitalized interest (25) (28) (20)
Change in accounts receivable, net (8) (296) (474)
Change in material and supplies (97) (61) (15)
Change in other current assets (116) (11) (8)
Change in accounts payable 119 44 246
Change in certain other current liabilities 391 86 (119)
Change in certain noncurrent assets and liabilities (622) (482) (154)
Gain on exchange of cellular minority interests - - (66)
Gain on sale of shares in MATAV (43) - -
Gain on sale of Bellcore (42) - -
Gain on sale of Sky Network Television of New Zealand (52) - -
Other operating activities, net (15) (94) (41)
------------------------------------------
Net cash from operating activities 4,510 3,743 3,556
------------------------------------------
Cash flows from investing activities
Capital expenditures, net (2,641) (2,440) (2,120)
Additional investments, including acquisition of new companies (1,074) (922) (895)
Net proceeds from exchange of cellular minority interests - - 61
Proceeds from New Zealand Telecom Share repurchase 152 - -
Proceeds from sale of shares in MATAV 146 - -
Proceeds from sale of Bellcore 64 - -
Proceeds from sale of Sky Network Television of New Zealand 52 - -
Other investing activities, net (14) 51 72
------------------------------------------
Net cash from investing activities (3,315) (3,311) (2,882)
------------------------------------------
Cash flows from financing activities
Net change in short-term debt (195) 815 217
Issuance of long-term debt 650 273 195
Retirement of long-term debt (320) (92) (84)
Dividend payments (1,242) (1,171) (1,107)
Repurchase of common stock (602) (492) (162)
Proceeds from reissuance of treasury stock 330 196 226
Issuance of preferred stock in subsidiaries 250 - 60
Other financing activities, net 28 53 38
------------------------------------------
Net cash from financing activities (1,101) (418) (617)
------------------------------------------
Net increase in cash and temporary cash investments 94 14 57
Cash and temporary cash investments, beginning of year 145 131 74
------------------------------------------
Cash and temporary cash investments, end of year $ 239 $ 145 $ 131
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
1. Significant accounting policies
Nature of operations Ameritech Corporation is one of the world's largest
communications companies, providing a wide array of local phone, data, directory
and other services to more than 12 million customers (primarily in Illinois,
Indiana, Michigan, Ohio and Wisconsin).
We serve more than 3 million cellular customers, more than 1.5 million
paging customers and more than 1 million security services customers. The
security services business is conducted throughout the United States and Canada.
We have cellular interests in Norway as well as interests in communications
companies in Belgium, New Zealand and Hungary. We also publish business
directories in Germany and other European countries. In January 1998, we
acquired a 34% interest as a strategic partner in Tele Danmark A/S, the Danish
telecommunications company.
See discussion of competition and regulatory matters in Other Matters in
Management's Discussion and Analysis of Results of Operations and Financial
Condition on pages 30 to 32.
Consolidation The consolidated financial statements include all of our
majority-owned subsidiaries. We have eliminated all significant intercompany
transactions.
Basis of accounting We have prepared the consolidated financial statements in
accordance with U.S. generally accepted accounting principles (GAAP).
Use of estimates The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material and supplies We have stated inventories of new and reusable material
and supplies at the lower of cost or market, with cost generally determined on
an average-cost basis.
Income taxes We file a consolidated federal income tax return. At the end of
each period, we determine deferred tax assets and liabilities based on
differences between the financial statement bases of assets and liabilities and
the tax bases of those same assets and liabilities, using the currently enacted
statutory tax rates. We measure deferred income tax expense as the change in the
net deferred income tax asset or liability during the year. We also recognize
deferred income taxes on undistributed equity earnings from foreign investments
when we do not control the dividend flow back to the United States.
Property, plant and equipment We have stated property, plant and equipment
primarily at original cost. The provision for depreciation is based principally
on straight-line remaining life and straight-line equal life group methods of
depreciation applied to individual categories of plant with like
characteristics.
The following is a summary of average lives used to determine the provision
for depreciation.
<TABLE>
<CAPTION>
Asset category Years
--------------------------------------------------------
<S> <C>
Central office equipment
Digital switching 7
Circuit accounts 7
Copper and fiber cable and wire facilities 15
All other various
========================================================
</TABLE>
Generally, when depreciable assets are retired, the amount at which such assets
are carried in property, plant and equipment is charged to accumulated
depreciation. The cost of maintenance and repair of assets are charged to
expense.
Most of our property, plant and equipment is located in Illinois, Indiana,
Michigan, Ohio and Wisconsin.
Temporary cash investments We have stated temporary cash investments at cost,
which approximates market value. We consider all highly liquid, short-term
investments with an original maturity of three months or less to be cash
equivalents.
Derivative financial instruments We occasionally enter into forward contracts
and swap agreements to hedge exposures to foreign currency exchange and interest
rate risks. We include gains and losses on foreign currency forward contracts
used for hedging purposes in net income in the period in which the gain or loss
arises. We record gains and losses that hedge an investment in a foreign company
as a component of shareowners' equity until such time as we reduce our interest
in the company. Gains and losses on interest rate swaps or interest rate "locks"
are recorded as adjustments to interest expense.
We use derivatives in a limited way for the following purposes:
. to manage financial risk;
. to hedge assets and obligations that we already hold; and
. to protect our cash flows.
We do not use derivatives to generate income or engage in speculative
activity and we never use leveraged derivatives.
Advertising costs We charge advertising costs to expense as incurred.
Earnings per share We compute basic earnings per common share by dividing net
income by the weighted average number of common shares outstanding during the
period.
Diluted earnings per share is calculated by including all dilutive
potential common shares such as stock options. Dilutive potential common shares
were 5,375,302 in 1997, 4,448,568 in 1996 and 3,433,501 in 1995. No adjustment
to reported net income is required when computing diluted earnings per share.
40
<PAGE>
Stock options We account for our stock option plans in accordance with
Accounting Principles Board (APB) Opinion 25, under which no compensation
expense is recognized in the financial statements except where the plan is
determined to be variable in nature.
Revenue recognition We generally recognize revenues as we provide services or
deliver products to customers. We bill certain local telephone and wireless and
security service revenues in advance, resulting in deferred revenues. We account
for our directory advertising revenues generally as billed over the term of the
related directory (usually one year) and amortize production costs, which are
deferred when incurred, to match the related revenues.
Intangibles We amortize intangibles, including goodwill arising from business
combinations, on a straight-line basis over the anticipated period of benefit,
not to exceed 40 years. We review amounts recorded as intangible assets for
impairment periodically using expected undiscounted future cash flows.
Translation adjustments We translate the assets and liabilities relating to our
share of significant foreign operations to U.S. dollars at year-end exchange
rates. We translate revenues and expenses to U.S. dollars using average exchange
rates for the year. Translation adjustments are accumulated and recorded as a
separate component of shareowners' equity.
2. Investments
Belgacom In March 1996, a consortium led by Ameritech finalized its agreement
to acquire an interest in Belgacom S.A., the national telecommunications
operator of Belgium. The consortium purchased from the Belgian government a
49.9% stake in Belgacom. The consortium's purchase price was approximately 74
billion Belgian francs, or approximately $2.5 billion. We have invested
approximately $865 million for our 35% allocable consortium share, which results
in about a 17.5% investment in Belgacom.
We account for our Belgacom investment using the equity method of
accounting because we exercise significant operating influence. After giving
effect to Belgacom's unfunded pension obligation and other adjustments to
conform to U.S. GAAP, our share of goodwill from this transaction is
approximately $845 million, which we are amortizing on a straight-line basis
over 40 years.
MATAV As of December 31, 1996, a holding company (MagyarCom), owned equally by
Ameritech and Deutsche Telekom AG, held a 67% share in the Hungarian
telecommunications company, MATAV. We paid $843 million for our 33.5% share of
MATAV. We account for our stake in MATAV using the equity method of
accounting.
On November 14, 1997, MATAV sold approximately 27% of its shares,
including 11.5% of our share holdings, in an initial public offering (IPO) on
both the New York and Budapest stock exchanges. We realized cash proceeds of
$146 million and recorded a pretax gain of $43 million related to the sale of
our shares. Following this sale, we hold 309,029,700 shares, or approximately
30% of MATAV. Based on the year-end closing price of individual MATAV shares,
which are thinly traded, the aggregate value of our remaining shares is $1.6
billion. We are amortizing goodwill of approximately $385 million, adjusted
for the share sale, over a period of 40 years.
Telecom Corporation of New Zealand Limited
In September 1990, Ameritech and Bell Atlantic Corporation purchased all of the
shares of Telecom Corporation of New Zealand Limited (New Zealand Telecom), the
state-owned telephone company in New Zealand. Our share of the purchase price
was approximately $1.2 billion.
1 million
Security Service
Customers
--------------------------------------------
Security service customers more
than doubled in 1997 to more than 1 million.
After stock sales required by the New Zealand government in the purchase
agreement, which were completed in 1993, our share of ownership was 24.8%. Such
sales resulted in gains with cash proceeds to the company of $676 million.
In November 1996, New Zealand Telecom announced plans to repurchase a
portion of its stock during 1997. The New Zealand government prohibits foreign
companies from owning more than 49.9% of New Zealand Telecom's stock. As a
result, Ameritech and Bell Atlantic Corporation (which owns an equal interest),
were required to sell a pro rata portion of their shares to New Zealand Telecom
in the open market. In 1997, we received proceeds of approximately $152 million
as a result of this repurchase program. This repurchase program increased our
percentage ownership in New Zealand Telecom to 24.95%.
We account for our investment in New Zealand Telecom using the equity
method of accounting. Goodwill from this investment is approximately $290
million, which we are amortizing on a straight-line basis over 40 years.
We owned 437,080,670 shares of New Zealand Telecom as of December 31, 1997
and 469,060,000 shares as of December 31, 1996. Shares of New Zealand Telecom
are publicly traded. Based on the year-end closing price of individual New
Zealand Telecom shares, the aggregate value of the company's shares was about
$2.1 billion in 1997 and $2.4 billion in 1996. However, New Zealand Telecom
shares are thinly traded with
41
<PAGE>
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
approximately 50% of the shares of that company owned by Ameritech and Bell
Atlantic Corporation.
In December 1997, we announced our intention to sell our stake in New
Zealand Telecom in a public sale of shares during the first half of 1998.
+20%
Increase in Cash
From Operations
------------------------------------------
Total cash flows from operations increased
20% in 1997 to $4.5 billion.
Summary of nonconsolidated investments A summary of the company's investments,
which have not been consolidated, follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------
<S> <C> <C>
Belgacom $ 742 $ 890
MATAV 506 655
New Zealand Telecom 417 670
Other international investments 4 5
------ ------
Total international investments 1,669 2,220
Domestic investments 82 103
------ ------
Total investments $1,751 $2,323
====================================================
</TABLE>
In accordance with the equity method of accounting, we increase our recorded
investment for our allocable share of earnings (adhering to purchase accounting
and U.S. GAAP), reduce the investment for distributions (dividends) received and
give effect to any currency translation adjustments. We received dividends on
such investments of $164 million in 1997, $152 million in 1996 and $110 million
in 1995.
The following unaudited summary presents our proportional (pro rata)
interest in the summarized financial information of investments accounted for
using the equity method of accounting:
<TABLE>
<CAPTION>
Year ended December 31 1997 1996 1995
- -----------------------------------------------------
<S> <C> <C> <C>
Revenues $1,818 $1,726 $ 745
Costs and expenses 1,612 1,490 651
------ ------ -----
Net income+ $ 206 $ 236 $ 94
------ ------ -----
As of December 31 1997 1996
------ ------
Assets* $3,911 $4,634
Liabilities 2,226 2,398
====== ======
Net equity $1,685 $2,236
=====================================================
</TABLE>
+ Includes $87 million charge for restructuring at Belgacom in 1997.
* Includes goodwill associated with Ameritech's investments.
Other investments In 1997 we acquired assets of several companies engaged in
security services through our wholly owned subsidiary, SecurityLink from
Ameritech. In April and June we purchased assets of three companies for $82
million cash and 3,009,602 common shares with a dollar value of approximately
$100 million.
In October 1997, we acquired the security services assets of Rollins
Protective Services, a division of Rollins, Inc., and the security services
assets of Republic Security Company Holdings, a subsidiary of Republic
Industries, Inc. The total purchase price for these two transactions was
approximately $800 million.
We have accounted for these transactions using the purchase method of
accounting. We have allocated our purchase price to individual assets and
liabilities based on preliminary estimates of fair value. Revenues of all of the
above-mentioned security businesses in 1996 were approximately $195 million.
Other transactions In 1995, in a Federal Communications Commission auction, we
purchased broadband personal communications services (PCS) licenses in the
Indianapolis and Cleveland markets for $158 million. This is in addition to the
narrowband licenses we obtained in 1994 to offer two-way paging in the Midwest.
We have classified these licenses in other assets and deferred charges in the
accompanying consolidated balance sheets. We will begin to amortize these
licenses when we begin operations in these areas.
In May 1994, we invested $473 million in a subsidiary of General Electric
Company (GE). The subsidiary, GE Information Services, Inc. (GEIS), provides
electronic data interchange and electronic commerce. Our investment is in the
form of a four-year interest bearing convertible debenture, which was to convert
to equity upon the lifting of legal restrictions. In early 1998, because of
ongoing restrictions, this agreement was suspended and GE repaid the note.
Accordingly, the note was reclassified in 1997 from other noncurrent assets to
other current assets in the consolidated balance sheet.
In January 1998, we purchased a 34% interest in Tele Danmark, the national
communications provider in Denmark, from the Kingdom of Denmark for
approximately $3.1 billion. As part of our investment agreement, Tele Danmark is
in the process of buying back and retiring the remaining shares owned by the
Danish government. When this repurchase is completed in April 1998, we will hold
approximately 42% of Tele Danmark's outstanding capital stock. We funded this
investment in part by issuing $1.75 billion of long-term debt issued in the
United States and $750 million of additional, unsecured Eurodollar notes
(scheduled to close in February 1998), as described in Note 6. The audited 1996
financial statements of Tele Danmark reflect, on a U.S. GAAP basis, total assets
of $6.8 billion and revenues of $3.4 billion. We will account for this
investment using the equity method of accounting.
42
<PAGE>
3. Property, plant and equipment
The components of property, plant and equipment were as follows as of
December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 152 $ 150
Buildings 3,123 3,115
Central office equipment 13,335 12,345
Cable, wiring and conduit 13,960 13,061
Other 3,450 3,280
----------------
34,020 31,951
Under construction 371 341
----------------
34,391 32,292
Less, accumulated depreciation 20,518 18,785
----------------
Total property, net $13,873 $13,507
==============================================================================
</TABLE>
Depreciation expense on property, plant and equipment was $2,313 million, $2,216
million and $2,090 million in 1997, 1996 and 1995, respectively.
4. Income taxes
The components of income tax expense follow:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $ 994 $ 959 $ 821
Deferred, net 217 115 181
Investment tax credits, net (32) (36) (48)
----------------------
Total 1,179 1,038 954
----------------------
State, local and foreign
Current 191 138 109
Deferred, net 18 7 23
----------------------
Total 209 145 132
----------------------
Total income tax expense $1,388 $1,183 $1,086
==============================================================================
</TABLE>
Total income taxes paid were $1,151 million, $1,075 million and $890 million in
1997, 1996 and 1995, respectively.
The following is a reconciliation of the statutory federal income tax rate for
each of the past three years to our effective tax rate (computed by dividing
total income tax expense by income before income taxes):
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 2.9 2.8 2.8
Foreign withholding taxes 1.1 -- --
Amortization of investment tax credits (0.6) (0.7) (1.0)
Other (0.7) (1.4) (1.7)
--------------------
Effective tax rate 37.7% 35.7% 35.1%
==============================================================================
</TABLE>
Income tax expense was reduced by $12 million and $16 million in 1996 and 1995,
respectively, as a result of a portion of the beginning of year valuation
allowances no longer being required.
As of December 31, 1997 and 1996, the components of long-term accumulated
deferred income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------
Deferred tax assets
<S> <C> <C>
Postretirement and postemployment benefits $1,127 $1,151
Other 291 353
--------------
1,418 1,504
--------------
Deferred tax liabilities
Accelerated depreciation 1,729 1,656
Prepaid pension cost 530 451
Other 309 297
--------------
2,568 2,404
--------------
Net deferred tax liability $1,150 $ 900
==============================================================================
</TABLE>
We had valuation allowances against certain deferred tax assets aggregating $72
million and $55 million as of December 31, 1997 and 1996, respectively. We do
not separately disclose deferred income taxes in current assets and liabilities
as they are not significant.
5. Debt maturing within one year
We include debt maturing within one year as debt in the computation of debt
ratios. Debt maturing within one year consisted of the following as of
December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Notes payable
Commercial paper $2,584 $2,777
Bank loans 9 11
Other 38 11
Long-term debt maturing within one year 405 356
---------------
Total $3,036 $3,155
===============
Weighted average interest rate on notes payable, year-end 5.8% 5.4%
==============================================================================
</TABLE>
We have a committed revolving credit facility of $2.0 billion. The fee for this
facility is 0.035% per annum. We did not use this facility during the three
years ended December 31, 1997. In addition, we have entered into uncommitted
agreements with a number of banks for lines of credit totaling $1.72 billion.
The interest rates on these lines are negotiable at the time of borrowing. No
amounts were outstanding under these agreements as of December 31, 1997. There
are no significant commitment fees or material compensating balance requirements
associated with any of these lines of credit. These lines, as well as the
revolving credit facility, are available for support of commercial paper
borrowing and to meet short-term cash needs.
6. Long-term financing
Long-term debt consists principally of debentures issued by our landline
communications subsidiaries and our financing subsidiary, Ameritech Capital
Funding Corporation (ACF).
43
<PAGE>
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
The following table sets forth interest rates and other information on long-term
debt outstanding as of December 31:
<TABLE>
<CAPTION>
Interest Rates Maturities 1997 1996
- ----------------------------------------------
<S> <C> <C> <C>
4.375%-6.0% 1999-2007 $ 640 $ 865
6.125%-8.0% 2001-2027 3,462 2,812
8.125%-9.0% 1999-2026 326 330
9.1%-10.0% 2006-2016 96 196
----------------
4,524 4,203
LESOP (Note 8) 114 190
Capital lease obligations 9 77
Other 1 5
Unamortized discount, net (38) (38)
----------------
Total $4,610 $4,437
</TABLE>
Scheduled maturities of long-term debt, including principal payments on LESOP
debt (see Note 8), are $405 million due in 1998, $232 million due in 1999, $147
million due in 2000, $206 million due in 2001 and $127 million due in 2002.
Approximately $9,586 million of total gross property, plant and equipment
are subject to liens under mortgage bonds with outstanding balances of $250
million.
As of December 31, 1997, we had available for issuance through our
financing subsidiary, ACF, $2 billion in unsecured debt securities through shelf
registration statements with the Securities and Exchange Commission (SEC).
Through our landline communications subsidiaries, we had $950 million in
unsecured debt securities available for issuance through shelf registration
statements as of December 31, 1997.
In January 1998, we issued $1.75 billion of long-term debt in five separate
tranches through ACF. Details of the issuances are as follows:
. $400 million of 5.65% notes due January 15, 2001;
. $400 million of 6.15% notes due January 15, 2008;
. $300 million of 6.45% debentures due January 15, 2018;
. $400 million of 6.55% debentures due January 15, 2028; and
. $250 million of 5.95%, debentures due January 15, 2038
(includes a put option by holder in 2005).
Interest on the above notes and debentures is due semiannually on January
15 and July 15, and payment of interest and principal is unconditionally
guaranteed by Ameritech Corporation. Proceeds from the issuances were used for
the acquisition of Tele Danmark discussed in Note 2 and other corporate
purposes.
Following these issuances, we had $250 million remaining available for
issuance of unsecured debt securities under shelf registration statements filed
with the SEC by ACF.
We are also arranging additional unsecured Eurodollar debt financing of
$750 million scheduled to close in February 1998. This financing will bear
interest at 5.88% and will be due in 2003.
Preferred stock issuances by subsidiaries In June 1997, one of our subsidiaries
issued $250 million of preferred stock in a private placement. This subsidiary
may redeem the stock at any time, but we will have to pay certain call premiums
if we redeem the preferred stock before December 31, 2002. The holders of the
preferred stock may require our subsidiary to redeem the shares at any time
after May 20, 2004. Holders of the preferred shares receive quarterly dividends
based on a rolling three-month London Interbank Offer Rate (LIBOR). The dividend
rate for the December 31, 1997 payment was 6.85%.
As of December 31, 1997, Ameritech New Zealand Funding Corporation, another
wholly owned subsidiary, has outstanding $85 million of Series A Preferred Stock
(7.04%, subject to mandatory redemption in 2001) and $60 million of Series B
Preferred Stock (variable rate, 4.31% as of December 31, 1997, not subject to
mandatory redemption).
All preferred stock issued by subsidiaries is included in other long-term
liabilities.
7. Other assets and deferred charges
The components of other assets and deferred charges are as follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------
<S> <C> <C>
Goodwill $ 980 $ 347
Acquired security services
subscribers 555 179
Other intangibles 347 346
---------------
Total intangibles, net 1,882 872
Prepaid pension asset 1,394 1,187
GEIS investment (Note 2) - 473
Other 1,890 1,546
---------------
$5,166 $4,078
=============================================
</TABLE>
Costs of acquiring security services subscribers are generally being amortized
over 10 years, the expected life of a subscriber when acquired from a third
party. Reported goodwill is generally amortized over 40 years. Accumulated
amortization of intangibles was $328 million in 1997 and $269 million in 1996.
8. Employee benefit plans
Pension and retiree health and life plans We maintain noncontributory defined
benefit pension plans for substantially all employees, as well as postretirement
health care and life insurance plans to substantially all retirees and their
dependents. We accrue the cost of postretirement benefits granted to employees
as expense over the period in which the employee renders services and becomes
eligible to receive benefits. The costs of these plans for current and future
retirees is determined using the projected unit credit actuarial method.
The pension plans were amended in 1996 to provide a 4.5% pension increase,
effective February 1, 1997, to retirees who retired prior to April 1, 1994 and
are receiving annuity pension benefits. More recent retirees receive lower rates
of increase. Our funding policy is to contribute an amount up to the maximum
that can be deducted for federal income tax purposes. Due to the funded status
of the plans, we have made contributions only to the nonqualified plan for the
years shown.
44
<PAGE>
We have provided for part of the cost of the postretirement plans by making
contributions for health care benefits to voluntary employee benefit association
trust funds (VEBAs) and maintaining retirement funding accounts (RFAs) to
provide life insurance benefits. We intend to continue to fund the nonmanagement
VEBA. The nonmanagement VEBA and the RFAs earn income without tax. Plan assets
consist principally of corporate securities and bonds.
The Financial Accounting Standards Board (FASB) issued FAS 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," in February 1998.
The new standard does not change the measurement or recognition of costs for
pension or other postretirement plans. It standardizes disclosures and
eliminates those that are no longer useful. The following tables, prepared in
accordance with the new standard, set forth pension and postretirement
obligations and plan assets as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Retiree Health and Life
------------------ -----------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation
as of January 1 $ 7,622 $ 7,620 $ 5,057 $ 5,150
Service cost 183 167 80 88
Interest cost 556 493 360 345
Plan amendment -- 162 -- --
Effect of settlements (35) (95) -- --
Actuarial loss (gain) 416 (45) 228 (260)
Benefits paid (748) (680) (271) (266)
------------------ -----------------------
Benefit obligation
as of December 31 $ 7,994 $ 7,622 $ 5,454 $ 5,057
=========================================================================
Change in plan assets:
Fair value as
of January 1 $12,121 $10,974 $ 1,491 $ 1,368
Actual return 2,268 1,921 205 72
Company contribution 9 9 83 77
Effect of settlements (39) (103) -- --
Benefits paid (748) (680) (24) (26)
------------------ -----------------------
Fair value
as of December 31 $13,611 $12,121 $ 1,755 $ 1,491
=========================================================================
Funded status:
As of December 31 $ 5,617 $ 4,499 $(3,699) $(3,566)
Unrecognized cost:
Actuarial and
investment (gains)
losses, net (3,996) (3,008) 732 580
Prior service cost 431 468 2 2
Transition obligation (658) (772) -- --
------------------ -----------------------
Prepaid (accrued)
benefit cost $ 1,394 $ 1,187 $(2,965) $(2,984)
=========================================================================
</TABLE>
The components of pension cost (credits) are as follows:
<TABLE>
<CAPTION>
Pension Benefits
----------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year $ 183 $ 167 $ 139
Interest cost on projected
benefit obligation 556 493 494
Expected return on plan assets (822) (765) (667)
Net amortization and deferral
Transition obligation (110) (112) (117)
Other 19 22 10
----------------------------------
Net pension credits $ (174) $ (195) $ (141)
=============================================================================
</TABLE>
The components of postretirement benefit costs follow:
<TABLE>
<CAPTION>
Retiree Health and Life Benefits
---------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year $ 80 $ 88 $ 54
Interest cost on accumulated
benefit obligation 360 345 340
Expected return on plan assets (127) (110) (91)
Net (gain) or loss -- 16 --
---------------------------------
Total postretirement
benefit cost $ 313 $ 339 $ 303
============================================================================
</TABLE>
Assumptions as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Retiree Health and Life
---------------- -----------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 7.0% 7.5%
Expected return
Pension plans 8.4% 8.0% -- --
VEBAs -- -- 8.4% 8.0%
RFAs -- -- 8.4% 8.0%
Compensation
increase rate 4.1% 4.2% 4.1% 4.2%
=============================================================================
</TABLE>
The assumed health care cost trend rate for 1997 was 8.0% and 8.4% in 1996 and
is assumed to decrease by 0.4% per year to 4.0% in 2007 and remain at that
level. A one percentage-point change in the assumed health care cost trend rate
would have the following effects:
<TABLE>
<CAPTION>
One Percentage One Percentage
Point Increase Point Decrease
- -----------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 67 $ (54)
Effect on postretirement
benefit obligation $643 $(530)
=============================================================================
</TABLE>
Leveraged employee stock ownership plans In 1989, we created leveraged employee
stock ownership plans (LESOPs) within our existing employee savings plans. To
fund the LESOPs, the Trustee for the savings plans issued $665 million of debt,
at 8.03% interest, payable in semiannual installments
45
<PAGE>
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
through 2001, which we guaranteed. The Trustee used the proceeds to purchase at
fair market value 45,132,552 shares of Ameritech common stock from our treasury.
These shares are considered to be outstanding for earnings per share purposes.
The Trustee repays the notes, including interest, with funds from our
contributions to the savings plans, from dividends paid on the shares of our
common stock held by the Trustee and with new loans from Ameritech.
As a result of our unconditional guarantee, we have recorded the notes of the
Trusts as long-term debt and as deferred compensation in the accompanying
consolidated balance sheets. Deferred compensation represents a reduction of
shareowners' equity. Debt and deferred compensation decrease as the Trustee
makes principal payments. As of December 31, 1997, we had $114 million included
in long-term debt and $76 million included in long-term debt maturing within one
year with respect to the LESOP.
We maintain savings plans that cover substantially all of our employees. Under
these plans, we match a certain percentage of eligible contributions made by the
employees. The LESOP provisions of the savings plans became effective January 1,
1990. Under these provisions, our matching contributions are allocated to
employees in company stock from the LESOP Trusts. We release Ameritech stock for
allocation to employees in the proportion that principal and interest paid in a
year bears to the total principal and interest due over the life of debt
outstanding in the Trusts.
We record our matching contributions to the plans as compensation expense. Any
change in the required contribution as a result of leveraging this obligation is
recorded as a gain or loss in other income. The amount expensed and contributed
to the LESOPs for 1997, 1996 and 1995 totaled $29 million, $34 million and $38
million, respectively. Interest expense incurred by the savings plans for 1997,
1996 and 1995 was $13 million, $21 million and $28 million, respectively.
Dividends paid on shares of stock held by the Trustee used to partially satisfy
debt repayment requirements were $41 million, $41 million and $42 million for
1997, 1996 and 1995, respectively. As of December 31, 1997, we had allocated or
committed 32,154,838 shares to employee accounts, leaving 12,977,714 shares
unallocated. As of December 31, 1996, we had allocated or committed 29,186,014
shares to employee accounts, leaving 15,946,538 shares unallocated.
We have entered into agreements to lend up to $123 million to one of the
Trusts through December 1, 2004. As of December 31, 1997, the Trustee has
borrowed $73 million from the company at rates ranging from 6.1% to 8.4%. An
additional $21 million was borrowed in January 1998 at 6.3%.
Work force and other restructuring In March 1994, we announced a plan to reduce
our existing nonmanagement work force. As of December 31, 1995, 11,500 employees
had left the company as a result of this restructuring.
The cumulative gross program cost through December 31, 1995 totaled $1,238
million, partially offset by settlement gains of $644 million, for an aggregate
pretax net program cost of $594 million, or $377 million after-tax. We recorded
a pretax charge of $728 million, or $456 million after-tax, in 1994 and a credit
of $134 million, or $79 million after-tax in 1995 as a result of this
restructuring.
Management work force reductions Effective January 1, 1995, management
employees who are asked to leave the company under certain conditions will
receive a severance payment under the Management Separation Benefit Program
(MSBP). We account for this benefit in accordance with FAS 112, "Employers,
Accounting for Postemployment Benefits," accruing the separation cost when
incurred. The number of employees leaving Ameritech under the MSBP was 273 in
1997, 618 in 1996 and 460 in 1995.
Settlement gains result from the payment of lump-sum distributions from the
pension plan to former employees and are recorded as a credit to other operating
expense. Settlement gains, net of termination costs, under the plans were $20
million, $33 million and $27 million in 1997, 1996 and 1995, respectively. We
fund the involuntary plans from our operations and made cash payments of $5
million, $17 million and $10 million in 1997, 1996 and 1995, respectively.
9. Commitments
We lease certain facilities and equipment used in our operations under both
operating and capital leases. Rental expense under operating leases was $220
million, $219 million and $200 million in 1997, 1996 and 1995, respectively. As
of December 31, 1997, the aggregate minimum rental commitments under
noncancelable leases were as follows:
<TABLE>
<CAPTION>
Years Operating Capital
- -------------------------------------------------------------
<S> <C> <C>
1998 $ 115 $ 27
1999 103 4
2000 89 2
2001 73 3
2002 55 1
Thereafter 212 2
---------------
Total minimum rental commitments $ 647 39
=====
Less: executory costs 1
interest costs 4
-----
Present value of minimum lease payments 34
============================================================
</TABLE>
Effective May 1, 1996, we commenced a ten-year agreement with IBM Global
Services (IBM), to perform certain information technology services previously
performed by Ameritech. IBM is also responsible for the consolidation of our
data centers.
Initially, IBM is using existing computers owned or leased by us to perform
these services, but over time IBM may utilize any data processing equipment it
acquires or leases, as long as they meet the criteria specified in the
agreement. The terms of the agreement and subsequent amendments specify payments
to IBM that do not exceed about $200 million in any year. Actual charges from
IBM may increase or decrease
46
<PAGE>
based in part on usage, growth and other data processing requirements. During
the initial years, scheduled payments to IBM include reimbursement of lease
payments on existing computers that we lease.
We may terminate the entire agreement upon payment of a predetermined fee,
which varies based on the reason for termination and the year terminated.
In November 1997, we reached an agreement in principle to settle class action
lawsuits regarding our inside wire maintenance and Linebacker services, subject
to court approval. Those customers who subscribe to these services pay a monthly
fee to cover repairs to inside telephone wiring and jacks. They thereby avoid
charges for labor and material at the time of repair.
The lawsuits charged unfair sales practices and violations of the antitrust
laws allegedly arising from our sales and marketing practices. The settlement
consists of, among other things, free calling card and pay-per-use services over
specified time periods, as well as billing credits. Although the value to class
members is much greater, we recorded a pretax charge of $69 million ($42 million
after-tax) in 1997 based on the cost of the negotiated settlement terms.
10. Financial instruments and derivatives
The following table presents the estimated fair value of our financial
instruments as of December 31:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------
Cash and temporary
cash investments $ 239 $ 239 $ 145 $ 145
Debt 7,749 8,037 7,604 7,572
Other assets 907 888 798 765
Other liabilities 476 509 183 196
=============================================================
</TABLE>
We used the following methods and assumptions to estimate the fair value of
financial instruments:
Cash and temporary cash investments The carrying value approximates fair value
because of the short-term maturity of these instruments.
Debt The carrying amount (including accrued interest) of our debt maturing
within one year approximates fair value because of the short-term maturities
involved. We estimated the fair value of our long-term debt based on the year-
end quoted market price for the same or similar issues.
Other assets and liabilities These financial instruments consist primarily of
long-term receivables, other investments, financial contracts, customer deposits
and preferred stock of subsidiaries. We based the fair values of these items on
expected cash flows, available market prices or market comparables. Fair value
of other liabilities includes the effect of interest rate swaps and forwards
discussed below.
Financial contracts, including derivatives We occasionally enter into foreign
currency forward contracts to hedge exposure to adverse exchange risk. Also, we
use interest rate swaps to manage interest rate exposure. Related gains and
losses are reflected in net income. As of December 31, 1997, we had contracts
giving us the right to deliver foreign currency valued at $3.0 billion (none in
1996). As of December 31, 1997 and 1996, we had also entered into interest rate
swap agreements to change the interest rate on notional amounts of $674 million
and $582 million, respectively. We adjust interest expense to give effect to
obligations under the swaps. We are exposed to credit risk in the unlikely event
of nonperformance by counterparties and the fair value of the swaps exceeds
their carrying value. As of December 31, 1997, the fair value of these interest
rate swaps was $15 million less than carrying value. As of December 31, 1996,
the fair value of the interest rate swaps was $9 million less than carrying
value.
11. Other income, net
The components of other income, net are as follows:
<TABLE>
<CAPTION>
Income (expense) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity earnings of affiliates,
primarily New Zealand
Telecom and Belgacom* $ 206 $ 236 $ 94
Interest on company-owned
life insurance and
related programs 46 55 52
Gain on LESOP 44 35 27
Gain on sale of Sky Network
Television of New Zealand 52 -- --
Gain on sale of shares in MATAV 43 -- --
Gain on sale of Bellcore 42 -- --
Gain on exchange of
cellular minority interests -- -- 66
Gain on sale of investment
in Polish venture, Centertel -- 11 --
Loss on forward contract related
to Tele Danmark acquisition (16) -- --
Other, net (27) (11) 21
---------------------
Total $ 390 $ 326 $ 260
=========================================================================================
</TABLE>
* Includes 1997 restructuring charge at Belgacom of $87 million.
12. Shareowners' equity
Stock split On December 17, 1997, our board of directors approved a two-for-one
stock split, by declaring a 100% stock dividend, effective December 31, 1997.
The split shares were distributed in January 1998. All share and per share data
in the consolidated financial statements and notes have been restated for all
periods presented to reflect this stock split.
Other stock information We amended our certificate of incorporation in 1996 to
increase the number of authorized common shares from 1.2 billion to 2.4 billion.
The certificate also allows 30 million shares of preferred stock (par value $1
47
<PAGE>
Notes to Consolidated Financial Statements
(dollars in millions, except per share amounts)
per share) and 30 million shares of preference stock (par value $1 per share).
In October 1997, we registered 14,279,340 shares of our common stock with the
SEC for future issuance. We may issue these shares from time to time for the
completion of acquisitions, for the payment of dividends or for other corporate
purposes.
Shareowners' rights One preference stock purchase right is attached to each
share of the company's common stock. Under certain circumstances shareowners may
exercise each right to purchase one one-hundredth of a share of Series A Junior
Participating Preference Stock, $1 par value, at a price of $62.50. If a person
acquires, or announces a tender offer for, 20% or more of our common stock,
shareowners may exercise the rights to purchase Ameritech common stock having a
market value of two times the exercise price. If Ameritech is acquired in a
merger or similar transaction that is not approved by our board of directors,
shareowners may exercise the rights to purchase common stock of the surviving
company having a market value of two times the exercise price. The rights, which
are nonvoting, are redeemable by Ameritech for $0.01 per right and expire on
December 31, 1998, or upon consummation of certain merger transactions. Until
the occurrence of certain events, the rights are attached to and trade with
shares of our common stock. As of December 31, 1997, 1,097,188,276 rights were
outstanding, after adjusting for the stock split.
Stock plans In April 1997, shareowners approved a long term stock incentive
plan. Through our 1989 and 1997 plans, we grant incentive compensation to our
officers and other employees in the form of stock options, stock appreciation
rights, restricted stock and performance awards. The incentives granted are
based upon terms and conditions, and are subject to certain limitations,
determined by a committee of the board of directors, which administers the plan.
The plans authorize the issuance of up to 120,000,000 shares of common stock
over a 10-year period. All future grants will be made under the 1997 plan.
We may grant stock options under the plan as either incentive stock options or
nonqualified stock options. We have not granted any options at less than fair
market value as of the date of grant. Under the 1997 plan, stock option and
stock appreciation rights may not be granted at less than the fair market value
on the date of grant except in the case of awards to newly hired or promoted
employees when the fair market value on the date of hire or promotion may be
used. Additionally, under the 1997 plan, the per share exercise price may not be
repriced or surrendered as consideration in exchange for a new award with a
lower per share exercise price. The options have a maximum life of 10 years and
one day from the date of grant. We may grant stock appreciation rights
independently or together with stock options. Stock appreciation rights permit
the optionee to receive stock, cash or a combination thereof equal to the amount
by which the fair market value on the exercise date exceeds the option price.
Substantially all stock options granted on or following December 16, 1987, are
exercisable after one year in equal increments over the following three years.
Beginning in 1994, we awarded grants of nonqualified stock options with dividend
equivalents to certain employees.
Information regarding options granted under a long term incentive plan which
expired in 1994 and under the 1989 and 1997 plans are as follows:
<TABLE>
<CAPTION>
Incentive Nonqualified
Stock Options Stock Options
--------------------- ----------------------
Shares Price* Shares Price*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1994 22,136 $10.29 22,437,010 $ 17.32
Granted -- -- 13,001,960 $ 20.99
Exercised (10,800) $10.29 (5,107,184) $ 16.04
Canceled or expired -- -- (2,380,352) $ 19.98
- ---------------------------------------------------------------------------------------------------------------
December 31, 1995 11,336 $10.29 27,951,434 $ 19.03
Granted -- -- 13,760,832 $ 29.15
Exercised (11,336) $10.29 (4,393,874) $ 18.08
Canceled or expired -- -- (1,666,368) $ 24.99
- ---------------------------------------------------------------------------------------------------------------
December 31, 1996 -- -- 35,652,024 $ 22.78
Granted -- -- 17,226,368 $ 30.15
Exercised -- -- (7,859,530) $ 19.83
Canceled or expired -- -- (4,369,148) $ 27.53
- ---------------------------------------------------------------------------------------------------------------
December 31, 1997 -- -- 40,649,714 $ 25.96
===============================================================================================================
</TABLE>
*weighted average
The above stock options have the following characteristics
as of December 31, 1997:
<TABLE>
<CAPTION>
Shares Remaining Life Shares
Grant Year Outstanding Price* (in years)* Exercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1988-90 67,484 $15.25 1.6 67,484
1991-93 3,335,426 16.22 3.4 3,335,426
1994 4,328,334 19.27 6.1 4,328,334
1995 7,164,110 20.84 7.1 4,326,504
1996 10,190,874 29.14 8.1 3,028,950
1997 15,563,486 30.22 9.1 --
---------- ----------
40,649,714 15,086,698
========== ==========
</TABLE>
*weighted average
As of December 31, 1997, 1996 and 1995, 1,006,992, 713,820 and 349,592
additional shares, respectively, were available as dividend equivalents.
All stock appreciation rights granted under the plans have been issued in
tandem with nonqualified stock options. Stock appreciation rights granted prior
to 1987 have been capped at $14.969. The exercise of a nonqualified option or a
stock appreciation right cancels the related right or option. We have not issued
any stock appreciation rights after December 31, 1990.
Under the long term incentive plan, which expired in 1994, 13,332 shares of
nonperformance based restricted stock remained outstanding as of December 31,
1997, and 26,000 shares of nonperformance based restricted stock are outstanding
under the plans. Shareowners' equity reflects deferred compensation for the
unvested stock awarded. This amount is reduced and charged against operations
(together with any change in market
48
<PAGE>
price) as the employees vest in the stock.
In 1995, the FASB issued FAS 123, "Accounting for Stock-Based Compensation."
This pronouncement requires us to calculate the value of stock options at the
date of grant using an option pricing model. We have elected the "pro forma,
disclosure only" option permitted under FAS 123, instead of recording a charge
to operations, as shown below:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $2,296 $2,134 $2,008
Pro forma 2,262 2,107 1,992
Earnings per share As reported basic 2.09 1.93 1.81
As reported diluted 2.08 1.92 1.81
Pro forma basic 2.06 1.91 1.80
Pro forma diluted 2.05 1.91 1.79
==================================================================
</TABLE>
Because the FAS 123 method of accounting has not been applied to options granted
prior to January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. We adjusted pro forma net
income for dividend equivalents expensed as a variable plan.
Our weighted-average assumptions used in the pricing model and resulting fair
values were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Risk free rate 6.22% 5.37% 7.55%
Expected dividend yield* 3.74% 3.50% 4.17%
Expected option life (in years)
(without dividend equivalents) 3.25 3.25 3.25
Expected option life (in years)
(with dividend equivalents) 5.00 5.00 5.00
Expected stock price volatility 23.67% 20.74% 19.42%
Grant date value
(without dividend equivalents) $10.98 $ 8.95 $ 6.44
Grant date value
(with dividend equivalents) $20.61 $17.99 $14.94
===============================================================
</TABLE>
*The options granted with dividend equivalents (about 24% of total options
granted in 1997, 28% in 1996 and 34% in 1995) were priced assuming the
dividends would accrue to the optionee over the expected life of the option.
13. Additional financial information
<TABLE>
<CAPTION>
December 31
---------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Other current liabilities
Accrued payroll $ 284 $ 216
Accrued taxes 478 454
Advance billings and customer deposits 378 366
Dividends payable 330 313
Accrued interest 127 131
Other 653 361
---------------------
Total $2,250 $1,841
==============================================================================
</TABLE>
Interest paid was $534 million, $544 million and $465 million in 1997, 1996 and
1995, respectively. Advertising expense was $354 million, $270 million and $236
million in 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
14. Quarterly financial information (unaudited)
Basic
Operating Net Earnings
Revenues Income Income Per Share
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
1st Quarter $ 3,859 $ 912 $ 536 $ 0.49
2nd Quarter 3,986 1,041 537 $0.49
3rd Quarter 4,006 962 613 0.56
4th Quarter 4,147 884 610 0.56
----------------------------------------
Total $15,998 $3,799 $2,296 $2.09
============================================================
1996
1st Quarter $ 3,567 $ 822 $ 478 $0.43
2nd Quarter 3,744 946 567 0.51
3rd Quarter 3,722 873 519 0.47
4th Quarter 3,884 864 570 0.52
----------------------------------------
Total $14,917 $3,505 $2,134 $1.93
============================================================
</TABLE>
The second quarter of 1997 includes a one-time after-tax charge of $87 million
related to our share of the costs of a work force restructuring at Belgacom. The
third quarter of 1997 includes a one-time pretax gain of $52 million ($37
million after-tax) resulting from the sale of our interest in Sky Network
Television of New Zealand. The fourth quarter of 1997 includes a one-time pretax
charge of $69 million ($42 million after-tax) related to the previously
discussed Linebacker settlement, and one-time gains of $43 million ($27 million
after-tax) and $42 million ($25 million after-tax) related to a sale of shares
in MATAV and the sale of our interest in Bellcore, respectively.
One-time charges in the fourth quarter of 1997 also include a pretax charge of
$16 million ($10 million after-tax) resulting from a mark-to-market adjustment
for forward contracts to help fund the Tele Danmark acquisition. Current SEC
accounting interpretations do not permit hedge accounting for planned
acquisitions.
The fourth quarter of 1996 includes an after-tax gain of $18 million from the
sale of an interest in Centertel, a Polish cellular telephone company.
Several other significant income and expense items were reported in the fourth
quarter of both years. However, the net result was not material to the
respective quarters or years.
We calculated earnings per share on a quarter-by-quarter basis in accordance
with GAAP. Quarterly EPS figures may not total EPS for the year due to the
fluctuation of shares outstanding.
We have included all adjustments necessary for a fair statement of results for
each period.
49
<PAGE>
Information for Our Investors
Trading and dividend information
(restated to reflect stock split)
Dividends
High Low Close Declared
- --------------------------------------------------------------
1997
1st Quarter $ 32.50 $ 28.31 $ 30.63 $ .2825
2nd Quarter 35.88 27.63 33.97 .2825
3rd Quarter 35.31 30.66 33.25 .2825
4th Quarter 43.13 30.13 40.25 .30
-------------------------------------------
1996
1st Quarter $ 33.44 $ 26.13 $ 27.25 $ .265
2nd Quarter 30.00 26.31 29.69 .265
3rd Quarter 29.81 24.81 26.31 .265
4th Quarter 31.69 26.00 30.31 .2825
- --------------------------------------------------------------
53
2
Exhibit 21
AMERITECH CORPORATION
SUBSIDIARIES
as of March 6, 1998
AMERITECH CORPORATION Delaware
Illinois Bell Telephone Company (d/b/a Ameritech Illinois) Illinois
Ameritech Illinois Metro, Inc. Delaware
Indiana Bell Telephone Company, Incorporated (d/b/a Ameritech Indiana)
Indiana
Michigan Bell Telephone Company (d/b/a Ameritech Michigan) Michigan
The Ohio Bell Telephone Company (d/b/a Ameritech Ohio) Ohio
Wisconsin Bell, Inc. (d/b/a Ameritech Wisconsin) Wisconsin
Ameritech Services, Inc. (Jointly owned by the Bell companies)
Delaware
Ameritech Center Phase I, Inc. (Jointly owned by AIT and ASI)
Delaware
Ameritech Intellectual Properties, Inc. Delaware
Ameritech Advanced Data Services of Illinois, Inc. Delaware
Ameritech Advanced Data Services of Indiana, Inc. Delaware
Ameritech Advanced Data Services of Michigan, Inc. Delaware
Ameritech Advanced Data Services of Ohio, Inc. Delaware
Ameritech Advanced Data Services of Wisconsin, Inc. Delaware
Ameritech Capital Funding Corporation Delaware
Ameritech Communications, Inc. Delaware
Ameritech Cayman Islands Investments, Inc. Delaware
Ameritech Communications of Illinois, Inc. Delaware
Ameritech Communications of Wisconsin, Inc. Delaware
Ameritech Communications International, Inc. Delaware
Ameritech Global Gateway Services, Inc. Delaware
Ameritech Credit Corporation (d/b/a Ameritech Capital Services)
Delaware
Ameritech Belgium Leasing, Inc. Delaware
Ameritech Belgium Assets, L.L.C. Delaware
Ameritech Development Corporation Delaware
Ameritech Information Industries Services, Inc. Delaware
Quantum Control Systems, LLC Delaware
CIRCAD Holdings, Inc. Delaware
Ameritech Information Systems, Inc. Delaware
Ameritech EGA, Inc. Delaware
Ameritech Information Access LLC Delaware
Ameritech Health Connections, Inc. Delaware
Ameritech Kidsoft Holdings, Inc. Delaware
Ameritech Knowledge Data, Inc. Delaware
Ameritech Health Information Management Corporation of Tennessee
Delaware
Ameritech Health Information Management Corporation of Ohio Delaware
Ameritech Management Corporation Delaware
Ameritech Management Services Company LLC Delaware
Dynix Corporation Delaware
Ameritech Library Services, Inc. Delaware
DMI Promark, Inc. Delaware
Dynix Library Systems, Inc. (Canada) Canada
Dynix Library Systems (UK), Ltd. U.K.
Dynix Library Systems (Ireland), Ltd. Ireland
Dynix (France), S.A. France
Dynix (Nederland), B.V. Netherlands
Dynix Chrysalis, Ltd. (Canada) Canada
Ameritech Mobile Communications, Inc. Delaware
Ameritech Mobile Communications of Wisconsin, Inc. Wisconsin
Ameritech Mobile Phone Service of Chicago, Inc. Illinois
Ameritech Mobile Phone Service of Cincinnati, Inc. Delaware
Ameritech Mobile Phone Service of Detroit, Inc. Delaware
Ameritech Mobile Phone Service of Illinois, Inc. Illinois
Ameritech Mobile Services, Inc. Delaware
Ameritech Mobile Services of Wisconsin, Inc. Delaware
Metrocom Communications, Inc. Delaware
AMCI Partnership Holdings, Inc. Delaware
Ameritech Mobile Data, Inc. Delaware
CyberTel Financial Corporation Delaware
CyberTel Cellular Telephone Company Delaware
CyberTel Corporation Delaware
CyberTel Minneapolis Paging Corporation Delaware
CyberTel Cellular Management Corporation Delaware
CyberTel St. Louis Paging Corporation Delaware
GSAA, Inc. Delaware
Gensub, Inc. Delaware
Hawaiian Cellular Properties, Inc. Delaware
Ohio Paging Units, Inc. Delaware
SecurityLink from Ameritech, Inc. Delaware
National Guardian Electronic Services S.A. de C.V. Mexico
National Guardian Security Services Corp. of Puerto Rico Puerto Rico
Ameritech New Media, Inc. Delaware
Ameritech Media Ventures, Inc. Delaware
Ameritech New Zealand Funding Corporation Delaware
Ameritech New Zealand Investments, Inc. Delaware
Ameritech International Belgium, LLC Delaware
Ameritech International Belgium, LLC Delaware
Ameritech Holdings, Ltd. New Zealand
Ameritech Publishing, Inc. Delaware
DonTech Publishing Company, LLC Delaware
Ameritech Interactive Media Services, Inc. Delaware
Ameritech Publishing of Illinois, Inc. Illinois
Ameritech International, Inc. Delaware
Wer Liefert Was? BV Netherlands
Wer Liefert Was? SA Belgium
Wer Liefert Was? Ges.m.b.H. Germany
Ameritech Denmark, Inc. Delaware
Ameritech International Denmark Corporation Delaware
Ameritech International Holdings Company Delaware
Ameritech International China, LLC Delaware
Ameritech International Business Development Corporation Delaware
Starline Insurance Company Vermont
Ameritech Wireless Communications, Inc. Delaware
Ameritech Telecommunications Services Company Delaware
Ameritech Payphone Services, Inc. Delaware
Ameritech Payphone Services of Illinois, Inc. Illinois
Ameritech Payphone Services of Indiana, Inc. Indiana
Ameritech Payphone Services Ohio, Inc. Ohio
Ameritech Payphone Services of Michigan, Inc. Michigan
Ameritech Payphone Services of Wisconsin, Inc. Wisconsin
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated January 13, 1998,
included or incorporated by reference in this Form 10-K for the year
ended December 31, 1997, into Ameritech Corporation's previously filed
Registration Statement File Nos. 33-26366, 2-97037, 33-30593, 33-32705,
33-34006, 33-49036, 33-51771, 33-51773, 33-00897, 33-02591, 33-43179
and 33-29569.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 12, 1998
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is an Officer and Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.
G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE and each of them, as
attorneys for the undersigned and in the undersigned's name, place and
stead as an Officer and a Director of the Company, to execute and file
the Annual Report, and thereafter to execute and file any amendment or
amendments thereto on Form 10-K/A, 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 the undersigned
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
3td day of March, 1998.
/s/ Richard C, Notebaert
Richard C. Notebaert
Chairman and Chief Executive Officer
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 3rd day of March, 1998, personally appeared before me Richard
C Notebaert to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 3rd day of March, 1998.
/s/ Judi L. Anker
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is an Officer of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS R.C.
NOTEBAERT, B. A. KLEIN AND R. W. PEHLKE, and each of them, as
attorneys for the undersigned and in the undersigned's name, place and
stead as an Officer of the Company, to execute and file the Annual
Report, and thereafter to execute and file any amendment or amendments
thereto on Form 10-K/A, 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 the undersigned
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
3rd day of March, 1998.
/s/ Oren G. Shaffer
Oren G. Shaffer
Executive Vice President and
Chief Financial Officer
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 3rd day of March, 1998, personally appeared before me Oren G.
Shaffer to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 3rd day of March, 1998.
/s/ Judi L. Anker
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
2nd day of March, 1998.
/s/ Donald C. Clark
Donald C. Clark
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 2nd day of March, 1998, personally appeared before me Donald
C. Clark to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 2nd day of March, 1998.
/s/ Judi L. Anker
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
27th day of February, 1998.
/s/ Melvin R. Goodes
Melvin R. Goodes
STATE OF NEW JERSEY )
COUNTY OF MORRIS )
On the 27th day of February, 1998, personally appeared before me
Melvin R. Goodes to me known and known to be the person described in
and who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 27th day of February, 1998.
/s/ Athena E. Leonard
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned might or could do if
personally present at the doing thereof, hereby ratifying and
confirming all that said attorneys may or shall lawfully do, or cause
to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this
2nd day of March, 1998.
/s/ Hanna Holborn Gray
Hanna Holborn Gray
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 2nd day of March, 1998, personally appeared before me Hanna
Holborn Gray to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 2nd day of March, 1998.
/s/ Judi L. Anker
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
2nd day of March, 1998.
/s/ James A. Henderson
James A. Henderson
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 2nd day of March, 1998, personally appeared before me James
A. Henderson to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 2nd day of March, 1998.
/s/ Judi L. Anker
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys
for the undersigned and in the undersigned's name, place and stead as
a Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
2nd day of March, 1998.
/s/ Sheldon B. Lubar
Sheldon B. Lubar
STATE OF WISCONSIN )
COUNTY OF MILWAUKEE )
On the 2nd day of March, 1998, personally appeared before me
Sheldon B. Lubar to me known and known to be the person described in
and who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 2nd day of March, 1998.
/s/ Mary Beth Wisniewski
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
2nd day of March, 1998.
/s/ Arthur C. Martinez
Arthur C. Martinez
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 2nd day of March, 1998, personally appeared before me Arthur
C. Martinez to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 2nd day of March, 1998.
/s/ Judi L. Anker
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
25th day of February, 1998.
/s/ John B. McCoy
John B. McCoy
STATE OF OHIO )
COUNTY OF FRANKLIN )
On the 25th day of February, 1998, personally appeared before me
John B. McCoy to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 25th day of February, 1998.
/s/ Carolyn J. Rich
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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.
N WITNESS WHEREOF, the undersigned has hereunto set his hand this
27th of February, 1998.
/s/ John D. Ong
John D. Ong
STATE OF OHIO )
COUNTY OF SUMMIT )
On the 27th of February, 1998, personally appeared before me John D.
Ong to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 27th of February, 1998.
/s/ Virginia M. Huggins
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
2nd day of March, 1998.
/s/ A. Barry Rand
A. Barry Rand
STATE OF ILLINOIS )
COUNTY OF COOK )
On the 2nd day of March, 1998, personally appeared before me A.
Barry Rand to me known and known to be the person described in and who
executed the foregoing instrument and such person duly acknowledged
that such person executed and delivered the same for the purpose
therein expressed.
WITNESS my hand and official seal this 2nd day of March, 1998.
/s/ Judi L. Anker
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G.
SHAFFER,
B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead as a
Director of the Company, to execute and file the Annual Report, and
thereafter to execute and file any amendment or amendments thereto on
Form 10-K/A, 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 the undersigned 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
25th day of February, 1998.
/s/ James A. Unruh
James A. Unruh
STATE OF PENNSYLVANIA )
COUNTY OF MONTGOMERY )
On the 25th day of February, 1998, personally appeared before me
James A. Unruh to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 25th day of February, 1998.
/s/ Linda M. Fantini
Notary Public
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), proposes to file shortly with the
Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"); and
WHEREAS, the undersigned is a Director of the Company;
NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS R.C.
NOTEBAERT, O.G. SHAFFER and R.W. PEHLKE, and each of them, as
attorneys for the undersigned and in the undersigned's name, place and
stead as an Officer of the Company, to execute and file the Annual
Report, and thereafter to execute and file any amendment or amendments
thereto on Form 10-K/A, 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 the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully
do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this
3rd day of March, 1998.
/s/ Laura D'Andrea Tyson
Laura D'Andrea Tyson
STATE OF CALIFORNIA )
COUNTY OF ALAMEDA )
On the 3rd day of March, 1998, personally appeared before me Laura
D'Andrea Tyson to me known and known to be the person described in and
who executed the foregoing instrument and such person duly
acknowledged that such person executed and delivered the same for the
purpose therein expressed.
WITNESS my hand and official seal this 3rd day of March, 1998.
/s/ Carlos M. Trillo
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S DECEMBER 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 239,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,386,000
<ALLOWANCES> 308,000
<INVENTORY> 290,000
<CURRENT-ASSETS> 4,549,000
<PP&E> 34,391,000
<DEPRECIATION> 20,518,000
<TOTAL-ASSETS> 25,339,000
<CURRENT-LIABILITIES> 7,241,000
<BONDS> 4,610,000
0
0
<COMMON> 1,177,000
<OTHER-SE> 7,131,000
<TOTAL-LIABILITY-AND-EQUITY> 25,339,000
<SALES> 0<F2>
<TOTAL-REVENUES> 15,998,000
<CGS> 0<F3>
<TOTAL-COSTS> 12,199,000
<OTHER-EXPENSES> (390,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 505,000
<INCOME-PRETAX> 3,684,000
<INCOME-TAX> 1,388,000
<INCOME-CONTINUING> 2,296,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,296,000
<EPS-PRIMARY> 2.09<F4>
<EPS-DILUTED> 2.08<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S DECEMBER 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 145,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,390,000
<ALLOWANCES> (320,000)
<INVENTORY> 231,000
<CURRENT-ASSETS> 3,799,000
<PP&E> 32,292,000
<DEPRECIATION> 18,785,000
<TOTAL-ASSETS> 23,707,000
<CURRENT-LIABILITIES> 6,832,000
<BONDS> 4,437,000
0
0
<COMMON> 588,000
<OTHER-SE> 7,099,000
<TOTAL-LIABILITY-AND-EQUITY> 23,707,000
<SALES> 0<F2>
<TOTAL-REVENUES> 14,917,000
<CGS> 0<F3>
<TOTAL-COSTS> 11,412,000
<OTHER-EXPENSES> (326,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 514,000
<INCOME-PRETAX> 3,317,000
<INCOME-TAX> 1,388,000
<INCOME-CONTINUING> 2,134,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134,000
<EPS-PRIMARY> 1.93<F4>
<EPS-DILUTED> 1.92<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S DECEMBER 31, 1995 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 131,000
<SECURITIES> 0<F1>
<RECEIVABLES> 2,940,500
<ALLOWANCES> 166,200
<INVENTORY> 204,900
<CURRENT-ASSETS> 3,452,400
<PP&E> 30,873,700
<DEPRECIATION> 17,416,900
<TOTAL-ASSETS> 21,942,600
<CURRENT-LIABILITIES> 5,761,900
<BONDS> 4,513,200
0
0
<COMMON> 587,600
<OTHER-SE> 6,426,900
<TOTAL-LIABILITY-AND-EQUITY> 21,942,600
<SALES> 0<F2>
<TOTAL-REVENUES> 13,427,800
<CGS> 0<F3>
<TOTAL-COSTS> 10,124,800
<OTHER-EXPENSES> (260,000)
<LOSS-PROVISION> 209,500
<INTEREST-EXPENSE> 468,900
<INCOME-PRETAX> 3,094,100
<INCOME-TAX> 1,086,500
<INCOME-CONTINUING> 2,007,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,007,600
<EPS-PRIMARY> 1.81<F4>
<EPS-DILUTED> 1.81<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL SCHEDULE ***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S MARCH 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 175,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,290,000
<ALLOWANCES> (314,000)
<INVENTORY> 200,000
<CURRENT-ASSETS> 3,680,000
<PP&E> 32,589,000
<DEPRECIATION> 19,145,000
<TOTAL-ASSETS> 23,435,000
<CURRENT-LIABILITIES> 6,527,000
<BONDS> 4,296,000
0
0
<COMMON> 588,000
<OTHER-SE> 7,282,000
<TOTAL-LIABILITY-AND-EQUITY> 23,435,000
<SALES> 0<F2>
<TOTAL-REVENUES> 3,859,000
<CGS> 0<F3>
<TOTAL-COSTS> 2,947,000
<OTHER-EXPENSES> (65,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,000
<INCOME-PRETAX> 852,000
<INCOME-TAX> 316,000
<INCOME-CONTINUING> 536,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 536,000
<EPS-PRIMARY> 0.49<F4>
<EPS-DILUTED> 0.48<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULES ***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S JUNE 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 308,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,334,000
<ALLOWANCES> (302,000)
<INVENTORY> 220,000
<CURRENT-ASSETS> 3,887,000
<PP&E> 33,100,000
<DEPRECIATION> 19,598,000
<TOTAL-ASSETS> 23,761,000
<CURRENT-LIABILITIES> 6,624,000
<BONDS> 4,065,000
0
0
<COMMON> 588,000
<OTHER-SE> 7,437,000
<TOTAL-LIABILITY-AND-EQUITY> 23,761,000
<SALES> 0<F2>
<TOTAL-REVENUES> 7,845,000
<CGS> 0<F3>
<TOTAL-COSTS> 5,892,000
<OTHER-EXPENSES> (51,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248,000
<INCOME-PRETAX> 1,756,000
<INCOME-TAX> 683,000
<INCOME-CONTINUING> 1,073,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,073,000
<EPS-PRIMARY> 0.98<F4>
<EPS-DILUTED> 0.97<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 848,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,295,000
<ALLOWANCES> (320,000)
<INVENTORY> 266,000
<CURRENT-ASSETS> 4,525,000
<PP&E> 33,578,000
<DEPRECIATION> 19,992,000
<TOTAL-ASSETS> 24,566,000
<CURRENT-LIABILITIES> 7,436,000
<BONDS> 4,065,000
0
0
<COMMON> 588,000
<OTHER-SE> 7,410,000
<TOTAL-LIABILITY-AND-EQUITY> 24,566,000
<SALES> 0<F2>
<TOTAL-REVENUES> 11,851,000
<CGS> 0<F3>
<TOTAL-COSTS> 8,936,000
<OTHER-EXPENSES> (178,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 371,000
<INCOME-PRETAX> 2,722,000
<INCOME-TAX> 1,036,000
<INCOME-CONTINUING> 1,686,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,686,000
<EPS-PRIMARY> 1.53<F4>
<EPS-DILUTED> 1.53<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S MARCH 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 164,000
<SECURITIES> 0<F1>
<RECEIVABLES> 2,992,200
<ALLOWANCES> 210,300
<INVENTORY> 207,400
<CURRENT-ASSETS> 3,481,200
<PP&E> 30,948,500
<DEPRECIATION> 17,770,300
<TOTAL-ASSETS> 22,782,900
<CURRENT-LIABILITIES> 6,419,300
<BONDS> 4,439,100
0
0
<COMMON> 588,100
<OTHER-SE> 6,694,100
<TOTAL-LIABILITY-AND-EQUITY> 22,782,900
<SALES> 0<F2>
<TOTAL-REVENUES> 3,567,400
<CGS> 0<F3>
<TOTAL-COSTS> 2,745,300
<OTHER-EXPENSES> (50,500)
<LOSS-PROVISION> 80,100
<INTEREST-EXPENSE> 123,700
<INCOME-PRETAX> 748,900
<INCOME-TAX> 270,600
<INCOME-CONTINUING> 478,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478,300
<EPS-PRIMARY> 0.43<F4>
<EPS-DILUTED> 0.43<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S JUNE 30, 1996 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 248,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,056,000
<ALLOWANCES> 0
<INVENTORY> 208,000
<CURRENT-ASSETS> 3,836,000
<PP&E> 31,357,000
<DEPRECIATION> 18,132,000
<TOTAL-ASSETS> 23,167,000
<CURRENT-LIABILITIES> 6,950,000
<BONDS> 4,216,000
0
0
<COMMON> 588,000
<OTHER-SE> 6,808,000
<TOTAL-LIABILITY-AND-EQUITY> 23,167,000
<SALES> 0<F2>
<TOTAL-REVENUES> 7,311,000
<CGS> 0<F3>
<TOTAL-COSTS> 5,543,000
<OTHER-EXPENSES> (124,000)
<LOSS-PROVISION> 167,000
<INTEREST-EXPENSE> 252,000
<INCOME-PRETAX> 1,640,000
<INCOME-TAX> 595,000
<INCOME-CONTINUING> 1,045,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045,000
<EPS-PRIMARY> 0.94<F4>
<EPS-DILUTED> 0.94<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
*** RESTATED FINANCIAL DATA SCHEDULE ***
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AMERITECH CORPORATION'S SEPTEMBER 30, 1996 CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 214,000
<SECURITIES> 0<F1>
<RECEIVABLES> 3,366,000
<ALLOWANCES> (239,000)
<INVENTORY> 217,000
<CURRENT-ASSETS> 3,903,000
<PP&E> 31,767,000
<DEPRECIATION> 18,494,000
<TOTAL-ASSETS> 23,434,000
<CURRENT-LIABILITIES> 7,045,000
<BONDS> 4,309,000
0
0
<COMMON> 588,000
<OTHER-SE> 6,834,000
<TOTAL-LIABILITY-AND-EQUITY> 23,434,000
<SALES> 0<F2>
<TOTAL-REVENUES> 11,033,000
<CGS> 0<F3>
<TOTAL-COSTS> 8,392,000
<OTHER-EXPENSES> (198,000)
<LOSS-PROVISION> 250,000
<INTEREST-EXPENSE> 382,000
<INCOME-PRETAX> 2,457,000
<INCOME-TAX> 893,000
<INCOME-CONTINUING> 1,564,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,564,000
<EPS-PRIMARY> 1.41<F4>
<EPS-DILUTED> 1.41<F4>
<FN>
<F1>WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS
BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG.
<F2>NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE
FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED
THESE SALES IN THE "TOTAL REVENUE" TAG.
<F3>WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES
IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION
S-X, RULE 5-03(B).
<F4>WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS
128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE
OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE
STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
</FN>
</TABLE>
