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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, 1998
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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)
Ameritech's Common Stock is listed on the
New York, Chicago, Boston, Pacific and
Philadelphia Stock Exchanges. It is also
listed on the London, Tokyo and Amsterdam
Stock Exchanges and on the Swiss stock
exchanges of Basel, Geneva and Zurich.
We have no securities registered under Section 12(g) of the Act. We are
and for the past 90 days have been subject to certain filing requirements
under Sections 13 and 15(d) of the Securities Exchange Act of 1934 and have
filed all required reports during the preceding 12 months.
Disclosure of delinquent filers under Item 405 of Regulation S-K is
contained in Ameritech's 1999 Annual Meeting definitive Proxy Statement,
which is incorporated by reference in Part III of this report.
Based on the composite closing sales price of $66.25 per share on February
22, 1999, the aggregate market value of the voting stock held by
nonaffiliates of Ameritech Corporation, was approximately $72,821,461,900.
As of that date, 1,099,191,878 shares of Ameritech Common Stock were issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Ameritech's Annual Report to shareowners for the year ended
December 31, 1998 (Parts I, II and IV)
Portions of Ameritech's definitive Proxy Statement dated March 3, 1999
relating to its 1999 Annual Meeting of shareowners (Part III)
These documents are available on Ameritech's Web site at
www.ameritech.com/investor
TABLE OF CONTENTS
PART I
Item Page
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1. Business......................................... 1
2. Properties....................................... 14
3. Legal Proceedings................................ 15
4. Submission of Matters to a Vote of Security
Holders......................................... 16
Executive Officers of the Company................ 16
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters............................. 18
6. Selected Financial Data.......................... 18
7. Management's Discussion and Analysis of
Financial Condition and
Results of Operations.......................... 18
7A. Quantitative and Qualitative Disclosures about
Market Risk..................................... 18
8. Financial Statements and Supplementary Data...... 18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 18
PART III
10. Directors and Executive Officers
of the Registrant................................ 19
11. Executive Compensation........................... 19
12. Security Ownership of Certain Beneficial Owners
and Management.................................. 19
13. Certain Relationships and Related Transactions... 19
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K......................... 20
Glossary......................................... 22
Report of Independent Public Accountants......... F-1
Schedule II - Valuation and Qualifying Accounts.. F-2
Exhibit Index.................................... I-1
i
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 beginning 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 focused business units (15 at December
31, 1998) centered around specific business segments. Our business
units provide a complete menu of communication options to consumers
and businesses as well as other companies in the communications
industry. In the last five years, we have expanded our
communications service offerings to include new services, including
cable TV and security services, and, through our European
investments, extended our reach to new markets. The products and
services of all of our companies are marketed under the Ameritechr
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 additional information
about our company and industry.
Proposed Merger with SBC Communications Inc.
On May 11, 1998, Ameritech and SBC Communications Inc. (SBC)
jointly announced their signing of a definitive merger agreement
(Merger Agreement). The Merger Agreement provides that a wholly
owned subsidiary of SBC will be merged into Ameritech (the Merger)
and Ameritech will become a wholly owned subsidiary of SBC. The
Merger is intended to be accounted for as a pooling of interests
and to be a tax-free reorganization. In the Merger, each share of
Ameritech common stock (other than shares owned by Ameritech, SBC
or their respective subsidiaries) will be converted into and
exchanged for 1.316 shares of SBC common stock.
The Merger has been approved by the Board of Directors and the
shareowners of each company, but remains subject to various
regulatory approvals, principally by the Federal Communications
Commission (FCC), the Illinois Commerce Commission (ICC) and the
Public Utility Commission of Ohio (PUCO).
On March 23, 1999, the Department of Justice entered into a
consent decree with Ameritech and SBC that would provide a basis
for Department of Justice clearance of both the SBC-Ameritech
merger and SBC's proposed acquisition of Comcast Cellular
Corporation. The consent decree requires the parties to divest
certain "overlapping" cellular properties in 17 markets in
Illinois, Indiana and Missouri, including, as previously undertaken
by Ameritech and SBC, those in Chicago and St. Louis. Under the
proposed consent decree, Ameritech is obligated to divest its
cellular telephone interests in St. Louis and other markets in
Missouri, as well as its interests in three other markets in
Illinois where there is an overlap with Comcast. In the remaining
markets in Illinois (including Chicago) and Indiana where SBC and
Ameritech have overlapping cellular properties, the proposed
consent decree allows Ameritech and SBC to choose which of their
two cellular properties to divest. If Ameritech and SBC consummate
their merger before they have completed these divestitures, the
remaining properties to be divested will be transferred to and
controlled by a trustee appointed by the Department of Justice.
The divestitures, whether made by SBC, Ameritech or the trustee,
must be completed within 180 days from the earlier of the time of
consummation of the merger or the time the parties receive the
final approvals needed for the merger from the FCC. After a
required 60-day comment period on the proposed consent decree
(which is expected to begin shortly), the Department of Justice is
expected to reply to any public comments and seek final approval
and entry of the decree by the U.S. District Court in Washington,
D.C.
On March 29, 1999, the hearing examiners of the ICC issued their
proposed order approving the Merger subject to certain conditions.
The more significant conditions are to return to customers 100% of
the net Merger-related savings, which may be reduced to 50% if
certain performance requirements are met. Further, SBC must ensure
certain employment levels will not be reduced due to
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the Merger, and that capital investments and charitable
contributions in Illinois are continued generally at historical
levels. The proposed order is subject to normal due process
proceedings before it goes to the commissioners of the ICC for a
vote. Under Illinois law, such vote must occur on or before June
24, 1999.
In February 1999, the PUCO staff, Ameritech, SBC, the Ohio
Consumers' Counsel and certain consumer groups and new competitors
of Ameritech in Ohio signed a proposed merger settlement agreement.
The proposed settlement, which requires formal PUCO approval, among
other things would guarantee Ameritech Ohio workforce levels for
two years, extend the Advantage Ohio price cap plan for basic
residential phone rates, provide for certain discounts for resold
local residential service and residential unbundled local loops to
foster facilities-based residential competition, set various
competitive and service quality benchmarks and establish monetary
penalties if those benchmarks are not met, and provide financing
for consumer education and community technology funds.
More detailed information relating to the terms and conditions
of the Merger is contained in the Joint Proxy Statement/Prospectus
of Ameritech and SBC dated October 15, 1998.
Pending Investment in Bell Canada
On March 24, 1999, Ameritech and BCE Inc., a publicly traded
Canadian communications company, announced their binding agreement
to enter into a strategic partnership arrangement providing for a
number of joint development and operational cooperation projects.
Under the terms of this arrangement, Ameritech will invest
approximately Cdn $5.1 billion (US $3.4 billion) for a 20% minority
interest in Bell Canada, a wholly owned subsidiary of BCE.
Following the investment, BCE will retain 80% and we will own the
remaining 20% of Bell Canada through a holding company. The
agreement has been approved by the Boards of Directors of both
companies and is expected to close by the end of May 1999, pending
regulatory approvals.
As part of the agreement, Bell Canada will be reorganized to
hold certain telecommunications assets previously held by BCE.
Bell Canada will acquire from BCE all of its interests in BCE
Mobile Communications (65%), a wireless company; Teleglobe Inc.
(21.5%), a provider of international telecommunications services;
and BCE's equity investments in six regional Canadian
telecommunications companies. Bell Canada will continue to hold
its investments in BCE Nexxia Inc., an IP-based broadband service
provider; Bell ActiMedia Inc., a yellow pages directory company;
and Manitoba Telecom Services Inc., a regional telecom company.
After giving effect to these transactions, Bell Canada's pro forma
1998 revenues would have been Cdn $12.7 billion (US $8.3 billion),
its asset base would have been Cdn $20.0 billion (US $13.2 billion)
and debt would have been Cdn $11.1 billion (US $7.3 billion).
We and BCE have entered into a shareholders agreement that
provides us with the right to nominate two of ten Directors to the
Board of Directors of Bell Canada, nominate one Director to the BCE
Mobile Board of Directors, appoint the CFO of Bell Canada and
participate in an exchange of approximately 15 other professionals.
This agreement also provides for other minority or protective
rights between the parties. The shareholders agreement with BCE
also provides that at any time during the periods July 1, 2002
through December 31, 2002, and July 1, 2004 through December 31,
2004, we have the option to sell all of our shares acquired in this
transaction to BCE. The selling price would be fair market value
plus 25%. Similarly, BCE has the right to purchase our Bell Canada
shares during the same time frames and at the same price.
The shareholders agreement also provides that Ameritech has the
right to sell its shares acquired in this transaction to BCE upon a
change in control of BCE. During the first five years we own our
shares, the price would be the highest of the following:
(a) our original purchase price plus 15%, compounded annually,
adjusted downward for any returns of capital or cash dividends
already received by Ameritech; (b) fair market value plus 25%; or
(c) the implied value in the transaction that gave rise to the
change in control at BCE. After the fifth year, the price would be
the higher of fair market value or the implied value in the
transaction that gave rise to the change in control at BCE.
Similarly, BCE may call our Bell Canada shares at any time, if
there is a change in control of Ameritech (specifically excluding
the pending SBC merger). BCE's price would be fair market value.
The shareholders agreement also provides for rights of first
refusal and rights of first offer.
We will account for this investment using the equity method of
accounting. We intend to fund our investment with available cash
and additional debt borrowings, either through existing lending
arrangements, new debt financing or a combination.
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As a result of this pending transaction with BCE, Moody's
Investor Services advised us that they had placed us on "credit
watch with negative implications." We anticipate meeting with
Moody's to discuss their preliminary view, and believe a downgrade
is unwarranted. Standard & Poor's has reaffirmed our prior credit
rating. S&P previously had advised us that our credit rating may
be downgraded in the event our merger with SBC is completed.
Ameritech's Full-Service Businesses
Ameritech has 15 business units which have been classified into
three reportable segments: communications; information and
entertainment; and international. The largest segment,
communications, encompasses the array of communications services
provided to business and residential customers, primarily in our
Midwest region, including landline and cellular telephone and
paging services, data services, call management services, payphone
services and network access and interconnection services. The
information and entertainment segment provides printed and online
directories for business and residential users, security and alarm
monitoring services for homes and businesses and cable TV service.
The international segment manages our investments in foreign
communications ventures, primarily in Belgium, Denmark, Hungary and
Norway. In addition to these three reportable segments, Ameritech
engages in other business activities, including lease financing
services. In the next three sections of this report, we will
provide information about the businesses included within these
segments.
Our Communications Segment
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 "landline communications subsidiaries" and individually as
Ameritech Illinois, Ameritech Indiana, etc. Their businesses are
managed exclusively as part of our communications segment.
The Ameritech landline communications subsidiaries furnish a
wide variety of advanced communications services, including local
exchange, 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 landline
communications subsidiaries provide two basic types of
communications services:
- - Transport of communications traffic between a customer's
equipment and the telephone exchange offices located within the
same LATA (intraLATA service), through local exchange, private
line and intraLATA toll services (including 800 and special
services for data, radio and video transport).
- - Provision of exchange access service, linking a subscriber's
telephone or other equipment to the transmission facilities of
long-distance carriers, and in turn providing communications
service between LATAs (interLATA, or long-distance, service).
The Ameritech landline communications subsidiaries also provide
public telephone and local and toll operator services (including
collect calls, third number billing, person-to-person and calling
card calls). They 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). They provide billing and collection services
for several companies, including billing for long-distance services
offered by certain long-distance carriers. They market local phone
services on a wholesale basis to certain other companies that
resell their network services. At year end, they served more than
5,000 network and information providers, including cellular,
personal communications services (PCS) and competing local service
companies, who buy services to use in their product offerings. A
national directory assistance service is offered in Chicago,
Detroit and Grand Rapids, with plans to expand across the region.
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Demand for additional lines and call management services
remained strong in 1998 as customers continued to seek ways to
simplify their communications and increase efficiency. The
Ameritech landline communications subsidiaries now serve more than
21 million customer access lines in their upper Midwest market
region, a 2.3% increase over lines served in 1997 (2.7% including
access lines sold in November 1998, described in the following
paragraph). Revenues from call management services increased by
20%, while pay-per-use revenues, from services such as automatic
call back and three-way calling, grew at a 61% annual rate. Demand
for speed and access drove record growth in 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 58% and sales of high capacity circuits increased 33%. The
proliferation of fax machines, Internet usage and computer
communications resulted in data traffic exceeding voice traffic for
the first time in our history.
In November 1998, we completed the sale to Century Telephone
Enterprises, Inc. (Century Telephone) of Ameritech telephone
operations and related directory publishing business in 19
telephone exchanges covering 21 communities in northern and central
Wisconsin. The operations acquired by Century Telephone include
the telephone property and equipment that serves nearly 89,000
customer access lines, as well as directory publishing operations
for nine telephone directories. The properties sold were remote
from Ameritech's other properties in Wisconsin and generally
adjacent to areas where Century Telephone already provided service.
Cellular and Other Wireless Services
Ameritech provides wireless transport of voice, data and video,
plus certain call management services, to about 3.6 million
cellular customers in Illinois, Indiana, Hawaii, Kentucky,
Michigan, Missouri, Ohio and Wisconsin. In 1998, we added
approximately 400,000 cellular customers to our base, a 12.6%
increase over the prior year. We offer long-distance service to
our cellular customers in Illinois, Indiana, Michigan, Ohio,
Wisconsin and Missouri and are currently serving more than 2.4
million customers with cellular long-distance service.
ClearPathSM, our digital cellular service, was expanded to the
largest markets across our region in 1998 and early 1999, offering
customers enhanced call clarity, longer battery life and improved
call security.
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 3%
increase over 1997. Ameritech paging offers features such as fax
notification, voice mail and numeric and alphanumeric paging. In
1995, we acquired broadband PCS licenses in the Cleveland and
Indianapolis major trading areas. These licenses cover almost 8
million potential customers and provide an effective complement to
our existing cellular and landline networks. We began to provide
ClearPathSM digital PCS service in these markets beginning in mid-
1998.
Long-Distance Services
Under the Telecommunications Act of 1996 (the 1996 Act), the
regional holding companies (RHCs) or their affiliates must open
their respective local markets to competition by implementing a 14-
point "competitive checklist" before they can offer long-distance
service to their local landline customers. In considering an
application to offer long-distance services, the FCC must determine
whether or not an RHC has satisfied the statutory criteria,
including the competitive checklist and various structural and
accounting rules, and whether its entry into long-distance is
consistent with the public interest. An RHC is restricted from
providing long-distance service until the FCC determines that these
criteria have been met. The FCC gives substantial weight to
Department of Justice recommendations in reviewing RHC applications
to enter the market. To date, the FCC has not approved any RHC
application filed for this purpose.
Ameritech Communications, Inc., a subsidiary of Ameritech, is
certified to provide long-distance service in 44 states outside our
five-state region. With passage of the 1996 Act, Ameritech's
cellular services unit and other cellular service providers were
allowed to provide long-distance service to their cellular
customers, regardless of location. More than 2.4 million of our
cellular customers use Ameritech's cellular long-distance service.
Ameritech Global Gateway Services, Inc., an Ameritech
subsidiary, began offering wholesale international switching and
transport capabilities in 1997 in more than 200 countries to the
hundreds of long-distance companies, wireless communications
companies, independent phone companies and emerging local and
Internet service providers that either do not have their own
international facilities or may require more capacity. Ameritech
Global Gateway Services also would be able to carry international
calls from our landline communications subsidiaries if and when we
receive FCC approval to offer domestic long-distance services in
our region.
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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
desktop managed 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 GlobalDeskr targets major corporate clients
interested in 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 as part of these services. Through
GlobalDeskr, we now support more than 700,000 users serving major
customers nationwide including United Airlines and ComEd.
Our Information and Entertainment Segment
Directories and Electronic Advertising Services
Ameritech provides directories and electronic advertising
services to local, regional and national businesses throughout our
five-state region. In 1998, we printed approximately 40 million
directories and created several specialty directories including
golf, Internet and dining and entertainment guides. Ameritech also
publishes commercial products including the Ameritech Industrial
Purchasing GuideT, the Ameritech Business Searchr and Ameritech
Business SolutionsT directories.
In order to complement our other 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 other World Wide Web information and shopping
sources. The Ameritechr Internet Yellow Pages, located at
yp.ameritech.net, provides comprehensive coverage of over 10
million U.S. businesses and includes theme-oriented specialty
guides such as Auto (with information from Kelly Blue Book) and
Home (including real estate listings from Cyberhomes and useful
home repairs and decorating information). In addition to offering
simple listings in the familiar white and yellow pages directory
format, we offer advertising opportunities ranging from links to
custom designed Web sites.
We own Wer Liefert Was (WLW), a leading Germany-based publisher
of business-to-business directories for Germany, Austria,
Switzerland, Belgium, Luxembourg, the Netherlands, Croatia,
Slovenia, 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 ten countries using the Internet.
Internet Access
Ameritech.netr provides easy-to-use Internet access service
designed for consumers and businesses. In addition to affordable
pricing plans, users have access to Internet Web sites worldwide,
personal Web pages, free parental control software and up to five e-
mail addresses at no additional charge. We offer Ameritech.netr in
various cities in our five-state region including the Chicago,
Cleveland, Detroit, Indianapolis, and Milwaukee metropolitan areas,
making Internet access available to nearly eight out of ten
Ameritech customers.
Cable TV
We currently offer enhanced cable TV service in the Chicago,
Cleveland, Columbus and Detroit metropolitan areas. As of the date
of this report, we have signed approximately 100 cable TV franchise
agreements. We now serve over 200,000 customers in more than 80
Midwestern communities. Ameritech, several other
telecommunications companies and The Walt Disney Company are
partners in a venture called americastr, designed to develop,
acquire, package and market traditional and interactive video
programming to millions of consumers nationwide. Customers who
choose americastr service receive up to 90 channels of video
programming and an on-screen programming guide featuring simplified
VCR programming, a favorite channel guide, parental control and
access to an in-home movie service called express cinemaT, offering
pay-per-view movies.
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Security Services
SecurityLinkr 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. SecurityLinkr is North
America's second largest security monitoring provider in an
estimated $15 billion market, currently serving more than 1.2
million residential, commercial and government customers. We now
have a presence in 92 of the 100 largest metropolitan areas of the
United States, covering 72% of the country's population, as well as
in Puerto Rico, Mexico and Canada. Ameritech began its security
services business in December 1994 with the acquisition of
SecurityLinkr, which had 44,000 customers at that time. Since that
acquisition, we have invested over $1.3 billion in that business
primarily through asset acquisitions.
Our International Segment
Ameritech's has direct or indirect interests in 15 countries and
is the largest U.S. investor in European communications. Our
existing international investments are currently focused in Europe.
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. Including our January 1998
investment in Tele Danmark A/S, Ameritech's investments had an
estimated market value of more than $10 billion at December 31,
1998. Such estimated value was based on the per share market price
of publicly traded shares of Tele Danmark, MATAV and Netcom and,
for Belgacom (which has no publicly traded shares), comparable
European valuation multiples.
Belgium
Ameritech and our consortium partners, Tele Danmark A/S,
Singapore Telecommunications Limited and several Belgian investors,
have a 49.9% stake in Belgacom S.A., the national communications
provider in Belgium. As a result of our 35% interest in the
consortium, we hold an approximate 17.5% interest in Belgacom.
With approximately 5.1 million telephone lines and more than 1.2
million cellular customers, Belgacom provides local, long-distance,
cellular and other communications services and offers directories
and security services. Belgacom's operating results and asset base
have been strengthened through the introduction of new services,
such as 800 service and call management features.
Denmark
In January 1998, we purchased a 34% interest in Tele Danmark
A/S, the national communications provider in Denmark, from the
Kingdom of Denmark. As part of our investment agreement, Tele
Danmark agreed to repurchase and retire the remaining shares owned
by the Danish government. When this repurchase was completed in
April 1998, our equity ownership of Tele Danmark increased to
41.6%. Tele Danmark serves approximately 3.5 million phone lines,
995,000 cellular customers and 812,000 cable TV customers. In
addition to its 16.5% effective investment in Belgacom, Tele
Danmark has investments in wireless services in Poland, the
Ukraine, Lithuania and Austria; in competitive communications
providers in Sweden, Germany, Switzerland, and the Czech Republic;
and in local telephone operations in Hungary. In 1998, Belgacom
and Tele Danmark partnered to launch a nationwide cellular network
in the Netherlands.
Hungary
Since 1993, Ameritech and our partner, Deutsche Telekom AG, have
had an interest in MATAV, the national communications provider in
Hungary. MATAV provides local, long-distance and international
telephone service and is the controlling shareowner in cellular
ventures using both analog and GSM digital technology. MATAV has
approximately 2.7 million access lines in a country of 10.5 million
people and serves approximately 640,000 cellular subscribers.
After MATAV's initial public offering in November 1997, MagyarCom,
the alliance formed by Ameritech and Deutsche Telekom, owns 59.6%
of MATAV, with each of the partners holding an equal 29.8% interest
in the company. The Hungarian government currently owns
approximately 6% of MATAV.
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New Zealand
Beginning in 1990, Ameritech had an investment in Telecom
Corporation of New Zealand Limited (TCNZ), New Zealand's principal
supplier of domestic and international communications services. In
April 1998, we sold substantially all of our remaining 24.95% stake
in TCNZ in a global stock offering. We received the first of two
installment payments for such shares in April 1998, with the final
installment due by March 31, 1999. With proceeds of $2.1 billion,
the sale of this investment enabled us to focus our resources on
European expansion and new investment opportunities in our home
region.
Norway
In 1993 Ameritech invested in NetCom GSM, Norway's first
privately held cellular services operator. Netcom began providing
GSM digital cellular service to Norway in September 1993. With
approximately 530,000 customers, NetCom has constructed a mobile
infrastructure network covering over 92% of the population of
Norway. We have a 19.7% interest in NetCom.
Our Other Activities
Capital Services
Ameritech provides a comprehensive and competitive set of
leasing and financing options for communications, data and other
capital equipment. Customers are businesses ranging from sole
proprietorships to multi-million dollar corporations and government
units. Serving approximately 7,000 communications and information
systems customers nationwide, we have financed almost $4 billion
worth of customer and Ameritech owned equipment since 1984.
Additional Information
For the most part, demand for our services is not seasonal.
Further, no single customer accounts for a significant portion of
consolidated or reportable segment revenues.
For additional information about our segments, geographic areas
and significant products and services, you should refer to
"Management's Discussion and Analysis of Results of Operations and
Financial Condition - Results of Operations," and "- Financial
Condition, Liquidity and Capital Resources" on pages 23 through 30
and the portions of "Management's Discussion and Analysis of
Results of Operations and Financial Condition - Other Matters" on
pages 33 through 36, as well as Notes 2 and 14 to the Notes to
Consolidated Financial Statements on Pages 42 through 44 and 51
through 53, of Ameritech's 1998 Annual Report to shareowners, all
of which are incorporated herein by reference.
Regulatory Environment
The Telecommunications Act of 1996
The 1996 Act 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. In general, it includes provisions
designed to open local exchange markets to competition and afford
the RHCs and their affiliates the competitive opportunity to
provide interLATA (long-distance) services. Under the 1996 Act,
the RHCs' ability to provide in-region long-distance services is
dependent upon their satisfaction of, among other conditions, a 14-
point "competitive checklist" of specific requirements for opening
the local market to competition.
FCC Oversight
The FCC develops and implements policies concerning interstate
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.
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Local Interconnection and Unbundled Access
In January 1999, the U.S. Supreme Court issued its opinion on
various cross-appeals of the 1997 decision of the U.S. Court of
Appeals for the Eighth Circuit (the Eighth Circuit Court) relating
to the FCC's 1996 order on the local interconnection provisions of
the 1996 Act (the Interconnection Order).
The Supreme Court reversed portions of the Eighth Circuit
Court's earlier decision that had vacated several provisions of the
Interconnection Order. The Supreme Court decided that the FCC has
rulemaking authority to implement the local competition provisions
of the 1996 Act, including pricing methodology. This overturned
the Eighth Circuit Court's ruling that the states were vested with
exclusive jurisdiction over the pricing for local interconnection,
unbundled network elements and local service resale provided by
incumbent local exchange carriers (ILECs) to competitive local
exchange carriers (CLECs). The Supreme Court also reinstated the
FCC's "pick and choose" rules allowing CLECs to select among
individual provisions from other existing interconnection
agreements.
The Supreme Court upheld the FCC's determination that the
definition of a network element could include items beyond physical
facilities and equipment, such as operational support systems,
operator services, directory assistance and vertical services such
as call forwarding and caller notification. It further ruled that
the FCC could bar ILECs from separating already combined unbundled
network elements. However, the Supreme Court overturned the FCC's
rule identifying and requiring ILECs to offer specific network
elements, finding that the FCC had not adequately considered, as
required by the 1996 Act, whether those specific unbundled network
elements were "necessary" or whether the failure to provide access
to them might "impair" the ability of CLECs to provide competitive
services. We believe that this ruling supports our view that the
objectives of the 1996 Act, including development and deployment of
advanced technologies desired by customers, will best be served by
encouraging infrastructure investments, rather than through
unlimited blanket access to all ILEC network elements.
Since the Eighth Circuit Court's 1997 opinion, local
interconnection matters and unbundled network element pricing have
been resolved primarily through negotiated interconnection
agreements or state commission arbitration proceedings. The
substantive validity of the FCC's pricing rules, including its
total element long-run incremental cost (TELRIC) pricing
methodology, was not before the Supreme Court, and will be
addressed by the Eighth Circuit Court on remand. Pending judicial
resolution of the appropriate pricing methodologies and a
determination by the FCC of which unbundled network elements must
be made available, our landline communications subsidiaries expect
to continue to negotiate and enter into interconnection agreements
and pursue, through appropriate state or federal proceedings,
timely recovery of their costs.
In February 1999, we sought review by the U.S. Supreme Court of
the separate Eighth Circuit Court decision last year regarding
shared transport. In 1998, the Eighth Circuit Court upheld the
FCC's determination that "shared transport," which would include
access to all of an ILEC's transport facilities, is a network
element that should be made available to competitors on an
unbundled basis.
The outcome of future regulatory and judicial developments in
this area is subject to continuing uncertainty. We believe that
the pricing rules and methodologies generally adopted by our in-
region state commissions with respect to our existing
interconnection agreements should not differ materially from those
that may be applied under proposed FCC pricing methodologies. We
further expect that future judicial or regulatory decisions will
define reasonable limiting standards, consistent with the purposes
of the 1996 Act, as to which of our existing network elements must
be made available to competitors. We can give no assurance,
however, that future regulatory and judicial determinations may not
have a material adverse effect on future revenues and margins in
our communications segment.
Reciprocal Compensation
A number of CLECs are engaged in regulatory and judicial
proceedings with various ILECs, including our landline
communications subsidiaries, with respect to the payment of
reciprocal compensation to the CLECs for calls originating on the
ILECs' networks for dial-up connections to access the Internet via
Internet service providers (ISPs) served by the CLECs' networks.
The CLECs have asserted that reciprocal compensation for such calls
is provided for by interconnection agreements between the CLECs and
the ILECs. Together with other ILECs, we have maintained that we
are not required to make such reciprocal compensation payments
pursuant to those agreements because such traffic is interstate
access service, not local.
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On February 26, 1999, the FCC ruled that a substantial portion
of Internet traffic is interstate and therefore under federal law
it is not subject to reciprocal compensation obligations. As a
result, the FCC issued a notice of proposed rulemaking to develop a
federal inter-carrier compensation rule for Internet traffic.
During the interim, the FCC concluded that state commissions may
determine in arbitrations whether reciprocal compensation should be
paid for this traffic. In finding that dial-up calls to ISPs are
largely interstate, the FCC concluded that dial-up traffic to the
Internet does not terminate at the ISP's local server, but
continues to the ultimate Internet Web site, which is often in
another state. This echoed an earlier FCC opinion and order in
response to a federal tariff application for a high-speed dedicated
Internet connection. The FCC noted, however, that carriers remain
bound by their existing interconnection agreements, and thus may be
subject to reciprocal compensation obligations to the extent
provided by such interconnection agreements. A number of CLECs
have filed petitions seeking federal appellate court review of the
FCC's ruling on the interstate nature of dial-up calls to ISPs.
Various ILECs have challenged the FCC's order with respect to the
ability of state commissions to impose reciprocal compensation on
Internet traffic.
We believe that this FCC ruling confirms our view that Internet
traffic is appropriately classified as interstate and that
reciprocal compensation is not payable in connection with dial-up
access to the Internet via ISPs. We therefore intend to continue
to pursue judicial appeals of the contrary state commission
determinations that preceded this FCC ruling. Cases that involve
appeals by our landline communications subsidiaries of adverse
decisions are currently pending before the U.S. Court of Appeals
for the Seventh Circuit and U.S. District Courts in Michigan and
Wisconsin. In Ohio, the PUCO has ruled that our Ohio landline
communications subsidiary is required to make reciprocal
compensation payments, but has stayed its order pending rehearing.
We have filed a petition for rehearing of a similar adverse
determination by the Indiana Utilities Regulatory Commission
(IURC).
We believe that our view, that reciprocal compensation is not
payable in these circumstances, ultimately should be upheld.
However, there can be no assurance as to that outcome or that our
landline communications subsidiaries will not be required to begin
or continue to make such reciprocal compensation payments under
existing interconnection agreements. Pending the outcome of our
current judicial appeals, our Illinois, Michigan and Wisconsin
landline communications subsidiaries are making reciprocal
compensation payments, under protest, pursuant to existing
interconnection agreements with CLECs providing services to ISPs.
In addition to such payments, we are making periodic accruals of
amounts which may become payable in Indiana and Ohio in the event
our view is not ultimately upheld.
Universal Service, Access Charge Reform and Price Caps
In May 1997, the FCC issued three closely related orders that
established rules to implement the universal service provisions of
the 1996 Act (the Universal Service Order) and to revise both
interstate access charge pricing (the Access Reform Order) and the
price cap plan for ILECs (the Price Cap Order).
The FCC's Universal Service Order provides that all interstate
telecommunications providers will be required to contribute to
universal service funding, based on retail telecommunications
revenues. The Universal Service Order establishes a multi-billion
dollar interstate universal service fund to help link eligible
schools and libraries and low-income consumers and rural health
care providers to the global telecommunications network (including
the Internet). The FCC directed the phase-in of these funds through
1999.
In its Access Reform Order, the FCC restructured interstate
access pricing and adopted changes to its tariff structure that
require ILECs to use rates that reflect the type of costs incurred.
In addition to the changes introduced in connection with the Access
Reform Order, we have implemented state changes that mirror the
federal access reform structure. Various interexchange carriers
opposing such changes have filed complaints before the Illinois,
Michigan and Wisconsin state commissions seeking lower access
charges. The state commissions in Illinois (the ICC) and Michigan
(the Michigan Public Service Commission or MPSC), in response to
such a complaint have ordered us to split the intrastate primary
interexchange carrier charge into two separate per-line components,
with one-half of the total charge payable by the intraLATA toll
carrier and the other half by the interLATA toll carrier. A
similar split of the intrastate PICC was ordered by the IURC in its
ongoing investigation of universal service and access reform.
Accordingly, the revenues we receive from this charge will decrease
to the extent that we are the intraLATA toll carrier. In addition,
the MPSC required that these changes be made retroactive to January
1, 1998, when the initial tariffs for this charge were filed. We
have appealed the MPSC's order.
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Ameritech's interstate access revenues are subject to price cap
regulation, which limits prices rather than profits. The Price Cap
Order effectively reduced access charges by increasing the price
cap productivity offset factor to 6.5% from the previous 5.3% and
by applying this factor uniformly to all access providers. The
order also required ILECs subject to price cap regulation to set
their 1997 price cap index assuming that the 6.5% factor had been
in effect since July 1996. Certain parties have sought judicial
review of the Price Cap Order, and a decision by the U.S. Court of
Appeals for the District of Columbia Circuit (the D.C. Circuit
Court) with respect to these matters currently is pending.
We cannot predict the precise impact of these regulatory changes
on our business, especially as their nature and timing may evolve
in connection with judicial and FCC consideration of other
provisions of the 1996 Act.
Number portability
On May 5, 1998, the FCC entered an order to allow
telecommunications carriers, such as our landline communications
subsidiaries, to recover over a five-year period their carrier-
specific costs of implementing long-term number portability. Long-
term number portability allows customers to retain their local
telephone numbers in the event they change local exchange carriers.
We are completing implementation of long-term number portability in
compliance with an FCC-mandated schedule. Our number portability
surcharge became effective February 1, 1999, subject to a
designation order, which could result in a reduced surcharge and a
partial refund.
Acquisitions of Security Services Assets
On September 25, 1998, the FCC issued a Memorandum Opinion and
Order on Remand and Order to Show Cause relating to an asset
acquisition by our security services subsidiary, SecurityLink from
Ameritech, Inc. (SecurityLink) in 1996. The FCC found that we had
gained "financial control" over the entity from which SecurityLink
acquired the security services assets, in violation of the 1996
Act, and required that, within 30 days after issuance of the Order,
we show cause why the FCC should not require SecurityLink to divest
the assets acquired in this transaction. Previously, the FCC had
ruled that the same transaction was permissible under the 1996 Act,
and the D.C. Circuit Court had vacated and remanded such decision
to the FCC. On October 26, 1998, we filed our response with the
FCC, contending that divestiture would not be an appropriate
remedy.
Previously, on July 8, 1998, the FCC issued a Memorandum Opinion
and Order to Show Cause, finding that three separate asset
acquisitions by SecurityLink in 1997 (made after the first FCC
ruling on security services described above and before the D.C.
Circuit Court decision) violated the same provision of the 1996
Act, and ordering SecurityLink to show cause why the FCC should not
require divestiture of the assets acquired in such transactions.
We filed our response with the FCC on August 7, 1998, contending
that divestiture would not be an appropriate remedy. The FCC's
decision on these Orders to Show Cause is pending.
Pay Phone Per Call Compensation
In February 1999, the FCC ruled on remand from the D.C. Circuit
Court that the rate interexchange carriers are to pay us for their
customers' "dial-around" access or toll-free calls originating on
our pay phones be decreased from $0.284 per call to $0.24 per call
commencing upon the April 1999 effective date of the order. The
FCC also directed that a reduced rate of $0.238 per call be applied
retroactively for the period from October 7, 1997 through the
effective date of the FCC order. Based on the February 1999 FCC
ruling, which we may appeal, our previously reported pay phone
revenues will be reduced by approximately $28 million, with such
reduction to be reflected in the first quarter of 1999.
Audit Report on Continuing Property Records
On March 12, 1999, the FCC released the result of a staff-level
audit of the property records of certain central office equipment
maintained by the RHCs, including our landline communications
subsidiaries. Based solely on a physical verification audit, this
report alleged an overstatement, and consequently recommended a
write-off, of approximately $567 million of our central office
equipment. In releasing this audit report, the FCC stated that it
did not pass judgment on its accuracy or the reasonableness of the
audit's conclusions or recommendations.
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We have issued a response to the audit that, among other things,
disputes the validity of its auditing and statistical sampling
methods. We also dispute the practical consequences of the FCC's
property audit while under a price cap regulatory plan. Further,
in the event the FCC required us to write central office equipment
off our books, we believe there would be no accounting impact on
net plant because we follow the group method of depreciation.
Under this method, plant retirements are charged against the
accumulated depreciation balance.
The FCC has announced plans to seek public comment on issues
raised by the audit results.
State Regulatory Commissions
Illinois
In 1994, the 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. Lower prices are reflected in several product and
service areas, but the largest portion of the reductions comes from
lower usage rates in certain parts of the Chicago area. These rate
reductions primarily impact local service revenues. 1998 marked
the fifth consecutive year of price reductions, now totaling $687
million, under the Advantage Illinois price cap plan.
The ICC approved an Interim Order in December 1998 in Phase I of
a proceeding investigating access charges and universal service.
Phase I dealt with tariff compliance issues. Phase II hearings,
which dealt with policy issues for non-rural local exchange
carriers, concluded on March 26.
Ameritech Illinois has offered dialing parity in local toll
markets since 1996 by giving customers the ability to choose an
alternate carrier for intraLATA toll calls by dialing 1 before the
phone number (Dial 1 +).
Indiana
In 1994, the IURC approved the Opportunity Indiana plan. Under
the plan, we instituted market-based pricing and flexibility 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.
In December 1997, the IURC issued a final order on interim
relief 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 most of the alternative regulation
plan that had been in place since 1994. However, Ameritech Indiana
was ordered 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. 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.
In January 1999, we filed Opportunity Indiana II with the IURC.
Plan approval is expected late in 1999.
Michigan
The Michigan Telecommunications Act (MTA), which is in effect
until January 2001, regulates certain telecommunications services
provided by Ameritech Michigan. In 1996, the MPSC issued two
orders requiring Ameritech Michigan to provide statewide dialing
parity on intraLATA toll calls or to discount intraLATA toll access
rates by 55% where dialing parity was not implemented. In
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January 1997, the Michigan Court of Appeals issued a stay of the
MPSC orders pending a determination of Ameritech Michigan's appeal
on the merits. In May 1998, the Court of Appeals issued a decision
which reversed the 1996 MPSC orders. The Court concluded that,
under the plain language of the MTA, Ameritech was required to
provide intraLATA toll dialing parity to no more than 10 percent of
its customers on January 1, 1996, until Ameritech obtained
interLATA relief. The Court of Appeals also reversed the
imposition of a 55% discount on access charges. The Michigan
Supreme Court granted applications for leave to appeal filed by
AT&T, MCI WorldCom, the MPSC and the Michigan Attorney General.
The Michigan Supreme Court heard oral argument on March 11, 1999,
and a decision on the merits of the appeal is expected later this
year.
While its application for leave to appeal was pending, MCI filed
another MPSC complaint asking the MPSC to reinstate the 55%
discount on access charges and to issue a new mandate for dialing
parity. The MPSC granted MCI's complaint and required immediate
implementation for the remaining 30% of our access lines in its
January 19, 1999 order. Ameritech filed a motion for stay of the
MPSC's order on January 22, 1999. The Michigan Court of Appeals
granted that stay on February 5, 1999. MCI and AT&T have applied
to the Michigan Supreme Court to vacate the stay and to bypass the
Michigan Court of Appeals.
Ameritech Michigan is continuing to provide Dial 1 + capability
in Michigan to over 70% of our access lines on a voluntary basis.
Ohio
In January 1995, Ameritech Ohio implemented the Advantage Ohio
price regulation plan following approval by the PUCO. 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. Since the inception of the plan, Ameritech
Ohio has reduced rates in excess of $110 million. At the same
time, Ameritech Ohio has invested $1.5 billion over four years
improving the telecommunications network. 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.
Wisconsin
Under telecommunications legislation passed in 1994, the Public
Service Commission of Wisconsin (PSCW) regulates Ameritech
Wisconsin's prices rather than earnings. Ameritech Wisconsin has
reduced basic local service rates twice since the switch to price
regulation reducing basic rates by 10%, or $14 million on an
annualized basis, beginning in 1994, and again by $2.5 million in
October 1998. By year-end 1998, Ameritech Wisconsin had exceeded
its infrastructure commitment, which was to spend at least $700
million by the year 2000 on new equipment and technology, deploying
fiber optics to hundreds of secondary schools, technical colleges,
universities, hospitals and libraries in the state.
Intrastate access rates have also declined along with interstate
access rates. Since September 1996, all of Ameritech Wisconsin's
service area has had Dial 1 + capability.
Competitive Environment
Technological developments, marketplace demand and legislative,
regulatory and judicial actions have expanded the types of services
and products available from an increasing number of companies,
creating growth opportunities within the global communications
industry. Our competitive strategy, which includes our proposed
merger with SBC, is to position ourselves to take advantage of such
growth opportunities by continuing to branch into new services that
are logical extensions of our business and by exporting our
expertise to customers around the world.
These same factors also have resulted in increasing competition
in all areas of our business. In pursuing business opportunities
both inside and outside the United States, we compete against other
local service providers, long-distance service providers, cable TV
companies, wireless and Internet service providers (including
companies that provide all or some combination of these services)
and other entrants from a range of industries. As we have expanded
our paging and cellular services, the number and type of
competitors have grown. Our telephone directory publishing
business faces competition from not only other directory publishing
businesses and traditional advertising media, such as television,
radio, direct mail, magazines and newspapers, but also
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providers of new technologies, such as Internet and other online
services. Many of our competitors have substantial scale and
geographic scope, significant capital, technological and marketing
resources and wide-ranging service offerings.
With the passage of the 1996 Act and other regulatory
initiatives, our local service markets have been more extensively
opened to new competitors, many of which are believed to have
initially targeted high-volume business customers in densely
populated areas. Interconnection agreements with competitive
service providers require our landline communications subsidiaries
to provide interconnection or access to unbundled network elements
at cost-based rates and telecommunications services at discounted,
wholesale rates. These agreements and applicable tariffs may
result in some downward pressure on local service revenues, as a
portion of our revenue shifts from local service at retail prices
to network access and wholesale services at lower rates and as some
competitors provide services using their own networks, in whole or
in part. We cannot predict with certainty the impact that these
and other developments ultimately may have on our future business,
results of operations or financial condition.
Ameritech's Human Resources
We employed 70,525 people as of December 31, 1998, compared with
74,359 as of December 31, 1997.
During 1998, we entered into new collective bargaining
agreements with the International Brotherhood of Electrical Workers
(IBEW) and the Communication Workers of America (CWA). In June,
the IBEW ratified a new five-year contract, effective June 28,
1998. The contract will be re-opened in 2001 to address certain
economic wage issues for the final two years of its duration. The
CWA contract was effective August 9, 1998 and expires on March 31,
2001. Both agreements provide for basic wage increases of 11.2%
over the contract period (until 2001 for the IBEW) and also address
benefits, pensions, work rules and other wage-related items. The
IBEW represents approximately 12,000 employees in Illinois and
northwest Indiana, while the CWA represents approximately 28,000
employees in all five states of our region. A current three-year
contract between Ameritech's advertising services unit and the CWA
is in effect until August 11, 1999.
In March 1998, Ameritech announced plans to significantly reduce
future operating costs by the end of 2002. This will be
accomplished in part by the consolidation of our security
monitoring centers and closing 53 company-owned cellular retail
stores. Approximately 3,200 of the 5,000 employees whose
employment relationship is to be severed under the plan work for
our security services subsidiary and are being displaced due
primarily to the consolidation. Staffing requirements at new
locations will require us to hire a significant number of new
employees. In 1998, 1,478 employees left Ameritech as part of this
restructuring program.
Patents, Trademarks Licenses and Franchises
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 intellectual 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.
Our domestic cellular, paging and PCS services are provided
under various licenses granted by the FCC in each geographic market
we serve. Cellular and paging licenses are issued for a standard
duration of ten years. PCS licenses are issued for five years.
Licenses are renewed upon demonstration of compliance with the
FCC's regulations and continued service to the public.
Ameritech has entered into approximately 100 cable TV franchise
agreements with local government authorities, without which we
cannot offer cable TV service. In exchange for these permits to
provide nonexclusive cable service, we have agreed to pay the local
government authorities generally 5% of the total gross cable
service revenues plus an additional percentage to support public,
education and governmental access channels. Generally, these
franchise agreements are in effect for a period of 15 years.
Environmental Matters
Certain of our subsidiaries are subject to a number of
environmental matters, primarily as a result of contractual sharing
arrangements among the RHCs that continue in effect and relate to
predivestiture contingent liabilities of AT&T Corp. Our financial
statements reflect a recorded liability for our estimated share of
such contingent liabilities in accordance with generally accepted
accounting principles.
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Private Securities Litigation Reform Act Safe Harbor Statement
Some of the information presented in, or in connection with,
this Report may constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995
that involve potential risks and uncertainties. Our future results
could differ materially from those discussed here. Some of the
factors that could cause or contribute to such differences include:
- - Changes in economic and market conditions that impact the demand
for our products and services, or for products and services by
companies in which we have substantial investments;
- - the effects of vigorous competition in the local exchange,
intraLATA toll, cellular, data, cable TV, directory advertising
or security services markets;
- - federal regulatory developments that impact the
telecommunications, security services and cable TV industries
and pending regulatory issues in state jurisdictions, as well as
the outcome of any related judicial reviews;
- - the timing of and costs associated with entry into the interLATA
long-distance market;
- - the timing of, and potential regulatory or other considerations
relating to, the consummation of our proposed merger with SBC;
- - the potential impact of issues related to Year 2000 software
compliance,
- - risks inherent in international operations, including possible
economic, political or monetary instability, as well as the
potential impact of Year 2000 compliance and euro currency
conversion issues; and,
- - the impact of new technologies and the potential effect of
delays in development or deployment of such technologies.
The words "expect," "believe," "anticipate," "estimate,"
"project," and "intend" and similar expressions are intended to
identify forward-looking statements. These forward-looking
statements are found at various places throughout the Management's
Discussion and Analysis incorporated by reference in Part II and
elsewhere in this report.
You should not place undue reliance on these forward-looking
statements, which are applicable only as of the date hereof. We
have no general 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.
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 1998 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 40%;
- - "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 9%, and
- - "Plant under construction" represents 1%.
Approximately 96% of our investment in property, plant and
equipment is attributable to the communications segment.
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Capital Expenditures
Two-thirds of our 1998 capital expenditures were made to expand
and upgrade our local landline network to meet the demand for data,
custom calling and private line services and to comply with
regulatory requirements. Growth in capital spending also was
driven by our deployment of digital cellular network and by
continued construction of our cable TV network. Capital
expenditures were $3.0 billion in 1998, $ 2.7 billion in 1997, $2.5
billion in 1996, $2.2 billion in 1995 and $2.0 billion in 1994.
Our capital spending is based on customer demands, our business
plans and regulatory commitments. 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 1998. By year end, we served 89%
of our customer access lines with digital switching and fiber
optics now reach within two miles of 95% of the customers in our
region. 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 anticipate
capital spending to be about $3.0 billion for 1999.
The FCC recently issued a staff-level audit report concerning
certain of our property records. Refer to Item 1 for a discussion
of this audit report.
Item 3. Legal Proceedings.
We are a party to various legal and regulatory proceedings
arising in the ordinary course of our business. While there can be
no assurance as to the ultimate outcome of any pending proceedings,
as of the date of this report, we do not believe that any pending
legal proceedings to which Ameritech or its properties are subject
are required to be disclosed as material legal proceedings pursuant
to this item.
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Item 4. Submission of Matters to a Vote of Security Holders.
We held a Special Meeting of Ameritech's shareowners on December
11, 1998 for the sole purpose of considering and voting on a
proposal to adopt and approve our Merger Agreement with SBC. Of
the 1,103,394,689 shares of Ameritech Common Stock outstanding and
entitled to vote as of the record date, October 13, 1998,
797,296,792 shares were present in person or by proxy, with each
share entitled to one vote. Ameritech shareowners approved
adoption of the Merger Agreement by more than the required
affirmative vote of a majority of the shares of Ameritech Common
Stock issued and outstanding on the record date. The voting
results were as follows: 755,553,270 shares voted for adoption of
the Merger Agreement; 31,188,240 shares voting against it; and
10,555,282 shares abstained from voting. Brokers and other nominee
record holders did not have discretionary authority to vote on the
proposal.
Executive Officers of the Company
The following table includes the name, age, office and term of
office of each of Ameritech's executive officers, as of March 29,
1999.
Held
Name Age Officer Since
- ---- --- ------ -----
Management Committee
Richard C. Notebaert* 51 Chairman, President and Chief 1994
Executive Officer
Barry K. Allen 50 Executive Vice President - Regulatory 1997
and Wholesale Operations
W. Patrick Campbell 52 Executive Vice President - Corporate 1994
Strategy and Business Development
Walter M. Oliver 53 Senior Vice President - Human 1994
Resources
Thomas E. Richards 44 Executive Vice President - 1997
Communications and Information
Products
Oren G. Shaffer 56 Executive Vice President and Chief 1994
Financial Officer
Joan H. Walker 51 Senior Vice President - Corporate 1996
Communications
Kelly R. Welsh 46 Executive Vice President and General 1996
Counsel
Other Corporate
Officers
Deidra D. Gold 44 Secretary 1998
Barbara A. Klein 44 Vice President and Comptroller 1996
Gary R. Lytle 54 Vice President - Federal Relations 1994
Sari L. Macrie 41 Vice President - Investor Relations 1994
Richard W. Pehlke 44 Vice President and Treasurer 1994
* Member of the Board of Directors and Chairman of the Executive
Committee of the Board
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For at least the past five years, Mr. Notebaert, Mr. Lytle, Mr.
Pehlke and Mr. Welsh have held high level management or executive
positions with Ameritech or its subsidiaries. The principal business
experience of the other executive officers prior to assuming their
present positions with Ameritech (for at least the last five years)
is as follows:
Mr. Executive Vice Communication and 1995 to 1997
Allen President Information Product August 1995
President Sector 1993 to 1995
President and Chief Ameritech enhanced business
Operating Officer services* 1993
Marquette Electronics, Inc. 1989 to 1993
President and Chief (medical electronic
Executive Officer equipment and software)
President Illinois Bell Telephone
Company*
Wisconsin Bell, Inc.*
Mr. President and Chief Columbia TriStar Home Video 1989 to 1994
Campbell Executive Officer (home entertainment)
Ms. Gold Partner Goldberg, Kohn, et al (law 1997 to 1998
Vice President and firm) 1991 to 1997
General Counsel Premier Industrial (Premier
Farnell) Corporation 1988 to 1991
Partner (electronics/industrial
distribution)
Jones, Day, Reavis & Pogue
(law firm)
Mr. Vice President - Human Johnson Controls (control 1989 to 1994
Oliver Resources systems automotive
systems)
Mr. President Ameritech network services* 1995 to 1997
Richards Vice President - Bell Atlantic Corporation 1991 to 1995
Network Operations (communications)
Mr. President Virgo Cap Inc. (investment 1992 to 1994
Shaffer firm)
Ms. Partner Bozell Sawyer Miller Group 1996
Walker President and Chief (strategic communications) 1993 to 1996
Executive Officer Bozell Public Relations
(public relations)
Ms. Vice President and The Pillsbury Company (food 1996
Klein Controller products/services) 1993 to 1996
Vice President - Pillsbury Bakeries &
Finance Foodservice (food
products/services)
Ms. Vice President and Christensen & Associates 1990 to 1994
Macrie Director of Research (investor relations
consulting firm)
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.
* a wholly owned subsidiary or business unit of Ameritech
PAGE 17
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
There were 726,666 owners of record of Ameritech Common Stock as
of February 22, 1999. The principal market for trading in
Ameritech Common Stock in the U.S. is the New York Stock Exchange.
In addition, our Common Stock is listed for trading on the Boston,
Chicago, Pacific, Philadelphia, London, Tokyo, Amsterdam, Basel,
Geneva and Zurich Stock Exchanges.
High and low stock prices, as reported on the New York Stock
Exchange composite transactions reporting system, and dividends for
each quarter during the last two fiscal years are as follows (with
all information restated to reflect the stock split to shareowners
of record on December 31, 1997):
High Low Dividends Declared
1998 1st quarter $49.88 $38.75 $.30
2nd quarter 50.25 41.50 .30
3rd quarter 52.13 43.38 .30
4th quarter 64.25 47.38 .3175
High Low Dividends Declared
1997 1st quarter $32.50 $28.31 $.2825
2nd quarter 35.88 27.63 .2825
3rd quarter 35.31 30.66 .2825
4th quarter 43.13 30.13 .30
Item 6. Selected Financial Data.
The information in "Selected Financial and Operating Data" on
page 22 of Ameritech's 1998 Annual Report to shareowners is
incorporated herein by reference in response to this item.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages 23 through 36 of
Ameritech's 1998 Annual Report to shareowners is incorporated
herein by reference in response to this item. Reference is hereby
made to the discussion of our pending $3.4 billion investment to
acquire a 20% interest in Bell Canada and more current information
on the pending merger with SBC in Item 1 (Business) on Pages 1 and
2 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
Information relating to market risk is included in the
Management's Discussion and Analysis of Results of Operations and
Financial Condition under the captions "Effects of Foreign Currency
Fluctuations" and "Disclosures about Market Risk" on pages 35 and
36 of Ameritech's 1998 Annual Report to shareowners and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Public Accountants, Consolidated
Statements of Income, Consolidated Balance Sheets, Consolidated
Statements of Shareowners' Equity, Consolidated Statements of Cash
Flows and Notes to Consolidated Financial Statements on pages 37
through 53 of Ameritech's 1998 Annual Report to shareowners are
incorporated herein by reference in response to this item.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not applicable.
PAGE 18
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant.
For information about our executive officers, see "Executive
Officers of the Company" at the end of Part I of this report.
"Election of Directors - Nominees for Election at the Annual
Meeting" on pages 2 through 6 and "Section 16(a) Beneficial
Ownership Reporting Compliance" on pages 8 and 9 of the Proxy
Statement for our 1999 Annual Meeting of shareowners are
incorporated herein by reference in response to this item.
Item 11. Executive Compensation.
"Election of Directors - Compensation of Directors" and
"Executive Compensation - Summary Compensation Table," "- Option
Grants in 1998," "- Option Exercises in 1998 and Option Values at
December 31, 1998," "- Pension Plans," "- Employment Contracts" and
"- Certain Compensatory Arrangements Upon a Change in Control" on
page 7 and pages 15 through 21 of the Proxy Statement for our 1999
Annual Meeting of shareowners are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information in "Proposed Merger with SBC Communications
Inc." and in "Election of Directors - Officer and Director Stock
Ownership" and "- Beneficial Owners of More than Five Percent" on
pages 2, 8 and 9, respectively, of the Proxy Statement for our 1999
Annual Meeting of shareowners, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
PAGE 19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements. You will find these
financial statements as indicated below:
Page
----
Report of Independent Public Accountants................. *
Consolidated Statements of Income........................ *
Consolidated Balance Sheets.............................. *
Consolidated Statements of Shareowners' Equity........... *
Consolidated Statements of Cash Flows.................... *
Notes to Consolidated Financial Statements............... *
* Located in our 1998 Annual Report to shareowners at
pages 37 through 53 and incorporated herein by reference.
(2)Financial Statement Schedules. We have omitted financial
statement schedules other than that listed below because
such schedules are not required or applicable.
Report of Independent Public Accountants................. F-1
II - Valuation and Qualifying Accounts.................... F-2
(3)The list of exhibits filed with or incorporated by
reference into this report is contained in the Exhibit
Index to this report on Page I-1, which is incorporated
herein by reference.
We will furnish to a shareowner, on request, without
charge, a copy of this report (including the financial
statements and financial statement schedule), as well as
our 1998 Annual Report to shareowners and the Notice of
1999 Annual Meeting and Proxy Statement, portions of which
are referred to in and considered part of this report.
Copies of the Annual Report to shareowners and Proxy
Statement also are available on Ameritech's Web site at
www. ameritech.com/investor. We will furnish any other
exhibit to this report at cost.
(b) Reports on Form 8-K:
We filed a Current Report on Form 8-K, dated October 15, 1998,
with the SEC to report Ameritech's earnings for the third quarter
ended September 30, 1998, under Item 5, Other Events.
PAGE 20
<PAGE>
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 29, 1999
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:
Richard C. Notebaert*
Chairman, President and
Chief Executive Officer
Principal Financial Officer:
Oren G. Shaffer*
Executive Vice President
and Chief Financial Officer
Principal Accounting Officer:
Barbara A. Klein /s/ Barbara A. Klein
-----------------------------
Vice President and Comptroller (*Barbara A. Klein,
for herself and as
Attorney-in-Fact)
March 29, 1999
Directors:
Donald C. Clark*
Melvin. R. Goodes*
Hanna H. Gray*
James A. Henderson*
Sheldon B. Lubar*
Lynn M. Martin*
Arthur C. Martinez*
John B. McCoy*
Richard C. Notebaert*
John D. Ong*
A. Barry Rand*
Laura D'Andrea Tyson*
James A. Unruh*
PAGE 21
<PAGE>
GLOSSARY
Access charge -
- --------------
a fee that local phone companies charge long-distance carriers for
connecting long-distance calls to customers on the local network.
Access line -
- -------------
a 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 customers network
access to the Internet and other popular multimedia and data
services at speeds 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 operating companies -
- -------------------------
the former Bell telephone subsidiaries of AT&T, including
Ameritech's five landline communications subsidiaries in Illinois,
Indiana, Michigan, Ohio and Wisconsin.
Broadband -
- -----------
a transmission facility that has a capacity or "bandwidth" greater
than a voice-grade phone line. Broadband facilities - fiber optics
and coaxial cable, for example- may carry numerous voice, data and
video channels at the same time.
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.
Customer premises equipment (CPE) -
- -----------------------------------
communications equipment owned by customers, including telephones,
faxes and switches.
Data communications -
- ---------------------
digital transmissions through wired or wireless networks, usually
linking computers.
Dial 1 + (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 1s and 0s 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. 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 U.S. business
enterprises.
High-capacity lines -
- ---------------------
lines sold to customers that have large-volume data communications
needs such as long-distance carriers, Internet service providers
and large companies.
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.
Interexchange carriers (IXCs) -
- -------------------------------
those companies primarily involved in providing long-distance voice
and data transmission services - such as AT&T, MCI WorldCom and
Sprint.
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.
Intrastate revenues -
- ---------------------
the portion of revenues regulated by state rather than federal
authorities.
PAGE 22
<PAGE>
ISDN (Integrated Services Digital Network) -
- --------------------------------------------
a service that carries voice, data and video at the same time and
offers several times the capacity of a conventional phone line.
Landline -
- ----------
referring to conventional wired phone service.
Local access -
- --------------
the local completion of long-distance calls.
Local access and transport area (LATA) -
- ----------------------------------------
the boundary within which a local company may provide phone
service. A LATA usually is centered around a city or other
identifiable community of interest.
Local exchange carrier (LEC) -
- ------------------------------
those companies primarily involved in providing local phone service
and access to the local phone network, including Ameritech's
landline communications subsidiaries in Illinois, Indiana,
Michigan, Ohio and Wisconsin.
Long-distance -
- ---------------
voice, data and video communications to locations beyond local
service areas.
Managed services -
- ------------------
services that give business customers one point of contact for all
communications and computing needs. For example, desktop managed
services provide business customers one place to call for anything
involving personal computers, phones, videoconferencing, local area
networks, PBXs and more.
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.
Regional holding companies (RHCs) -
- -----------------------------------
the seven regional holding companies formed in connection with the
court-approved divestiture, effective January 1, 1984, of certain
assets of AT&T Corp. With the 1997 mergers of Pacific Telesis
Group into SBC Communications Inc. and NYNEX Corporation into Bell
Atlantic Corporation, five regional holding companies, including
Ameritech, 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 at home and at work
such as burglar and fire alarm systems, closed circuit cameras and
electronic card access.
Switched minutes of use -
- -------------------------
the measure of time used to bill long-distance companies for access
to the local phone network.
Total return -
- --------------
stock price appreciation plus reinvested dividends.
Unbundled network elements -
- --------------------------
separate components of a regulated service for which separate rates
are charged.
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.
Voice grade equivalent -
- ------------------------
a channel or other portion of a high-capacity access line that can
be used to transmit voice or data traffic.
Voice mail -
- ------------
a service that automatically answers calls and distributes
messages.
Wireless -
- ----------
voice, data and video communications that use radio frequencies
rather than wires for transmission. Includes cellular, paging and
personal communications services.
PAGE 23
<PAGE>
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, 1998, incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 21, 1999, which also
is incorporated by reference herein. 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 21, 1999
PAGE 24
<PAGE>
AMERITECH CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(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 Accounts Deductions Period
--------- ---------- ----------- ------------- ------
Allowance for
Uncollectibles
Year 1998........ $ 308 $ 385(a) $384(b) $739(c) $ 338
Year 1997........ 320 355(a) 493(b) 860(c) 308
Year 1996........ 166 421(a) 368(b) 635(c) 320
Restructuring
Accruals
Year 1998........ $ 79 $ 104 $ - $60(d) $ 123
Year 1997........ 84 - - 5 79
Year 1996........ 88 - - 4 84
----------------------
(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.
(d)Includes $30 million reversed to other operating expenses
(classification of original accrual) for amounts no longer required.
F-1
<PAGE>
EXHIBIT INDEX
We are including as exhibits to this report certain documents that
we have previously filed with the SEC as exhibits, as identified in
parentheses below. The management contracts and compensatory plans
or arrangements required to be filed as exhibits to this report
pursuant to Item 14(c) are filed as Exhibits 10c through 10w-1,
inclusive.
Exhibit
Number
- ------
2 - Agreement and Plan of Merger, among Ameritech
Corporation, SBC Communications Inc. and SBC
Delaware, Inc., (Exhibit 2 to Form 8-K, dated May
11, 1998, File No. 1-8612).
3a - Ameritech's Certificate of Incorporation, as
amended on April 30, 1996 (Exhibit 3i 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 Stock Retirement Plan for Non-Employee
Directors, effective as of December 17, 1986
(Exhibit 10ll to Form 10-K for 1986, File No. 1-
8612).
10c-1 - First Amendment of Ameritech Stock Retirement Plan
for Non-Employee Directors, effective as of January
1, 1989 (Exhibit 10ll-1 to Form 10-K for 1988, File
No. 1-8612).
10c-2 - Second Amendment of Ameritech Stock Retirement Plan
for Non-Employee Directors, effective January 17,
1990 (Exhibit 10ll-2 to Form 10-K for 1989, File
No. 1-8612).
10d - American Information Technologies Corporation
Deferred Compensation Plan for Non-Employee
Directors (Exhibit 10gg to Form 10-K for 1985, File
No. 1-8612).
10d-1 - First Amendment of Deferred Compensation Plan for
Non-Employee Directors, effective as of January 1,
1987 (Exhibit 10gg-1 to Form 10-K for 1986, File
No. 1-8612).
10d-2 - First Amendment of American Information
Technologies Corporation Deferred Compensation Plan
for Non-Employee Directors, effective as of January
1, 1989, superseding the prior 1987 First Amendment
(Exhibit 10gg-2 to Form 10-K for 1988, File No. 1-
8612).
10d-3 - Second Amendment of American Information
Technologies Corporation Deferred Compensation Plan
for Non-Employee Directors, approved by the Board
of Directors on January 17, 1990.
10d-4 - Third Amendment to American Information
Technologies Corporation Deferred Compensation Plan
for Non-Employee Directors (Exhibit 10gg-4 to Form
10-K for 1990, File No. 1-8612).
10d-5 - Fourth Amendment of American Information
Technologies Corporation Deferred Compensation Plan
for Non-Employee Directors (Exhibit 10gg-5 to Form
10-K for 1992, File No. 1-8612).
10e - Ameritech Plan for Non-Employee Directors' Travel
Accident Insurance.
10f - Employment Agreement, dated July 1995, between
Ameritech and Barry K. Allen.
10g - Employment Agreement, dated December 1993, between
Ameritech and Patrick Campbell.
PAGE I-1
<PAGE>
10h - Agreement Regarding Change in Control, dated as of
January 19, 1994, between Ameritech and Richard C.
Notebaert, together with a schedule identifying
another agreement in the same form (Exhibit 10mm to
Form 10-K for 1993, File No. 1-8612).
10h-1 - 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).
10h-2 - Agreement Regarding Change in Control, dated as of
January 1, 1995, between Ameritech and Oren G.
Shaffer (Exhibit 10bb to Amendment No. 1 to 1994
Form 10-K on Form 10-K/A, dated May 14, 1995, File
No. 1-8612).
10h-3 - 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).
10h-4 - 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 1996, File
No. 1-8612).
10i - Form of 1997 Stock Option Agreement and Agreement
Not to Compete, dated June 18, 1997, between
Ameritech and certain executive officers, together
with a supplemental identifying schedule.
10j - Ameritech Corporation Long-Term Stock Incentive
Plan, as amended and restated effective as of
February 1, 1998.
10j-1 - Forms of Option Agreement under the Ameritech Long
Term Stock Incentive Plan.
10k - 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).
10k-1 - First Amendment to 1989 Long Term Incentive Plan,
adopted on August 20, 1993 (Exhibit 10oo-1 to Form
10-K for 1993, File No. 1-8612).
10k-2 - Resolution concerning the exercisability of stock
options granted under the 1989 Long Term Incentive
Plan, adopted on January 17, 1995 (Exhibit 10k-2 to
Form 10-K for 1995, File No. 1-8612).
10k-3 - Resolution adopted by the Company's Board of
Directors on May 10, 1998, amending the Ameritech
1989 Long Term Incentive Plan.
10k-4 - Forms of option agreements under the Ameritech 1989
Long Term Incentive Plan.
10l - Ameritech Long Term Incentive Plan, as amended and
restated effective as of January 1, 1992 (Exhibit
10bb to Form 10-K for 1991 File No. 1-8612).
10l-1 - First Amendment to Long Term Incentive Plan,
adopted on August 20, 1993 (Exhibit 10bb-1 to Form
10-K for 1993, File No. 1-8612).
10l-2 - Resolutions concerning the exercisability of stock
options granted under the Ameritech Long Term
Incentive Plan, adopted on January 17, 1995
(Exhibit 10d-2 to Form 10-K for 1995, File No. 1-
8612).
10l-3 - Resolution adopted by the Company's Board of
Directors on May 10, 1998, amending the Ameritech
Long Term Incentive Plan.
10m - Ameritech Senior Management Short Term Incentive
Plan, as amended and restated effective as of
February 1, 1998 (Exhibit 10c to Form 10-K for
1997, File No. 1-8612).
10n - Ameritech Management Committee Short Term Incentive
Plan, as amended and restated effective February 1,
1998 (Exhibit 10ee to Form 10-K for 1997, File No.
1-8612).
10o - Ameritech Estate Preservation Plan, as amended and
restated effective as of December 1, 1995
(corrected copy).
10p - Ameritech Key Management Life Insurance Plan, as
amended and restated effective as of
February 1, 1998 (corrected copy).
10q - Form of Ameritech Split-Dollar and Collateral-
Assignment Agreements pursuant to the Ameritech Key
Management Life Insurance Plan and/or Estate
Preservation Plan (Exhibit 10cc to Form 10-K for
1990, File No. 1-8612).
PAGE I-2
<PAGE>
10r - Ameritech Corporate Resource Deferral Plan, as
amended and restated effective as of May 10, 1998.
10r-1 - First Amendment of Ameritech Corporate Resource
Deferral Plan, effective January 1, 1999.
10s - Ameritech Corporate Resource Long Term Disability
Plan, as amended and restated effective as of
February 1, 1998 (Exhibit 10y to Form 10-K for
1997, File No. 1-8612).
10t - Ameritech Corporate Resource Transfer Program, as
amended and restated effective as of February 1,
1998 (Exhibit 10z to Form 10-K for 1997, File No. 1-
8612).
10u - Ameritech Corporate Resource Severance Pay Plan, as
amended and restated effective as of
May 10, 1998.
10v - Ameritech Corporate Resource Supplemental Pension
Plan, as amended and restated effective as of
February 1, 1998.
10v-1 - Supplement A, adopted November 10, 1998, amending
the Ameritech Corporate Resource Supplemental
Pension Plan, as amended and restated effective as
of February 1, 1998.
10w - Ameritech Corporate Resource Supplemental Pension
Trust, as amended and restated effective as of May
1, 1996 (Exhibit 10cc to Form 10-K for 1996, File
No. 1-8612).
10w-1 - First Amendment of Ameritech Corporate Resource
Supplemental Pension Trust, effective as of
September 15, 1997.
12 - Computation of ratio of earnings to fixed charges
for the five years ended December 31, 1998 (Exhibit
12 to Form 8-K, dated February 18, 1999, File No. 1-
8612).
13 - Portions of Ameritech's 1998 annual report to
shareowners.
21 - Ameritech's subsidiaries.
23 - Consent of Arthur Andersen LLP.
24 - Powers of Attorney.
27 - Financial Data Schedule (Exhibit 27 to Form 8-K,
dated February 18, 1999, File No. 1-8612).
99a - Annual Report on Form 11-K of the Ameritech Savings
Plan for Salaried Employees for the fiscal year
ended December 31, 1998, to be filed by amendment.
99b - Annual Report on Form 11-K of the Ameritech Savings
and Security Plan for Non-Salaried Employees for
the fiscal year ended December 31, 1998, to be
filed by amendment.
99c - Annual Report on Form 11-K of the DonTech Profit
Participation Plan for the fiscal year ended
December 31, 1998, to be filed by amendment.
PAGE I-3
<PAGE>
<PAGE>
Exhibit 10d-3
1/11/90
SECOND AMENDMENT
TO
AMERICAN INFORMATION TECHNOLOGIES CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
RESOLVED, that the American Information Technologies Corporation
Deferred Compensation Plan for Non-Employee Directors is hereby amended
effective ____________________, 1990 by substituting the following for
paragraphs (a), (b) and (c) of Section 7:
"(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 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 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 24 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 two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved; or
(d) the stockholders of the Company approve a merger or
consolidation of the Company with any other company other
than:
<PAGE>
(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 70% 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 50% 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 24-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 two-thirds (2/3) of the
directors who were directors before the beginning of such period."
<PAGE>
Exhibit 10e
AMERITECH CORPORATION
NON-EMPLOYEE DIRECTORS' TRAVEL ACCIDENT INSURANCE
-------------------------------------------------
Limit of Coverage: $1,000,000 ($10,500,000 aggregate per occurrence)
Premium: $53,000 (Three year)
Term: Three years
Renewal Date: June 9, 1999
Policyholder: Ameritech Corporation
Provided by: Hartford Life Insurance Company
Policy No.: ETB-107130
Coverage is of the broadest, all-risk Business Travel Insurance type -- 24 hours
a day while on a covered trip. Coverage starts when the Directors leave their
home or place of employment and continues until their return. It covers almost
all forms of air travel plus travel on railroads, ships, buses, subways, taxis,
private and rented cars. It is not restricted to conveyance accidents but
includes a wide variety of accidents that may occur -- even accidents resulting
from personal or recreational activities engaged in during a covered trip.
The policy provides for payment of up to $1,000,000 per Director for accidental
death and dismemberment. An aggregate limit of $10,500,000 applies per any one
accident. Coverage includes travel while the insured is on a trip, which
includes the purpose of furthering the business of the policyholder except in an
aircraft owned or leased by Ameritech Corporation. Coverage is not provided when
the Director operates, is learning to operate, or is serving as a crewmember of
a conveyance at the time of accident.
Directors may designate a beneficiary, or benefits may be assigned in accordance
with the Payment of Claims provision. Otherwise, insurance under this policy is
not assignable.
Premium is charged as a corporate expense.
<PAGE>
Exhibit 10f
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made July __, 1995 between Ameritech
Corporation ("Company"), a Delaware corporation, and Barry K. Allen
("Employee").
In consideration of the mutual promises contained herein the Parties agree as
follows:
1. Employment of Employee. Company hereby employs Employee, and
Employee hereby accepts employment with Company, as President of Ameritech
Enhanced Business Services, commencing on August 1, 1995 ("Hire Date"). Employee
agrees to devote his full business attention and time to the business affairs of
the Company and its affiliates and to faithfully and efficiently perform his
duties.
2. Compensation of Employee. Employee shall be compensated for his
services as follows:
(a) Company will pay Employee an annual base salary of
$275,000, payable in 12 monthly installments. This base salary shall be subject
to review and adjustment in accordance with the Company's customary practice
with respect to its Corporate Resources.
(b) Employee is eligible for a short term (annual) incentive
bonus of $175,000, at target. Employee acknowledges, understands and agrees that
the actual payout of this bonus can range from 0% to 150% depending upon the
Company's performance against established objectives. Employee further
acknowledges, understands
<PAGE>
and agrees that this award shall be prorated to reflect actual number of months
worked in 1995. This short term incentive bonus shall be subject to review and
adjustment in accordance with the Company's customary practice with respect to
its Corporate Resources.
(c) Employee is eligible to participate in Company's long term
incentive plans, subject to approval by the Board of Directors of Company.
Although Company has not finalized the specifics of the long term incentive plan
for Employee, Company anticipates that the next grant under the long term
incentive plans will be made in January 1996 and will be in the form of stock
options with dividend equivalents. Employee acknowledges, understands and agrees
that any grant to Employee under Company's long term incentive plan for 1996 and
subsequent years is subject to the sole and complete discretion of Company's
Board of Directors.
3. Additional Benefits. During his employment, Employee will be
entitled to participate in the pension, welfare benefit and fringe benefit plans
and programs then maintained by the Company for its management employees, all in
accordance with their terms.
4. Special Bonus Payment. Employer shall pay Employee a special bonus
in an amount equal to fifty percent (50%) of the gross amount Employee is
required to pay to Marquette Electronics ("Marquette") for partial repayment of
the sign-on bonus paid to Employee by Marquette when Employee joined Marquette.
Employee shall provide Company with such written evidence of such repayment as
Company shall reasonably request. Such special bonus shall be paid by Company
within 20 days after its receipt of such evidence. The full amount of such
special bonus shall be repaid to Company by Employee in the event that Employee
voluntarily terminates his employment with
2
<PAGE>
Company, or if Company terminates Employee for cause or unsatisfactory
performance, prior to the fifth anniversary of the Hire Date.
5. Life Insurance. Company will assume the obligations of the employer
under the Split-Dollar Life Insurance and Collateral Assignment Agreements for
life insurance policies for Employee originally purchased under Company's Key
Management Life Insurance and Estate Preservation Plans and subsequently
transferred to and assumed by Marquette in connection with Employee's employment
by Marquette. Company will make a supplemental premium payment in respect of
such policies in an amount equal to the amount which is recoverable by Marquette
in respect of such policies as a result of termination of Employee's employment
with Marquette. Employee shall use his best efforts to provide Company with such
written evidence of the amount so recoverable by Marquette as Company shall
reasonably request.
6. Supplemental Pension Benefit. If Employee retires from employment
with Company at a time when he would have been eligible for a "service pension"
under Company's pension plans as they existed immediately prior to May 1, 1995,
Company shall pay to Employee a supplemental pension benefit in an amount equal
to the difference between (A) the pension benefit to which Employee would have
been entitled at the time of his retirement, calculated under the pension
formula in Company's pension plans immediately prior to May 1, 1995 and adjusted
for amounts previously paid to Employee under Company's pension plans, and (B)
the amount actually payable to Employee under the Company's pension plan at the
time of his retirement. Employee acknowledges, understands and agrees that for
purposes of Company's pension plans and the supplemental pension benefit
provided for herein, Employee's prior service with the
3
<PAGE>
Company will not be credited or "bridged" unless and until Employee has five (5)
years of service subsequent to the Hire Date.
7. Termination of Employee. Employee acknowledges, understands and
agrees that he is an at will employee and the Company may terminate his
employment with or without cause. If Company terminates Employee other than for
cause or unsatisfactory performance prior to the time when he would have been
eligible for a "service pension" under Company's pension plans as they existed
immediately prior to May 1, 1995, Company shall pay Employee a severance payment
equal to the difference between (A) the pension benefit to which Employee would
have been entitled if he had remained employed by Company to the date on which
he would have become eligible for such a "service pension", calculated under the
pension formula in the Company's pension plans immediately prior to May 1, 1995
and adjusted for amounts previously paid to Employee under Company's pension
plans and (B) the amount actually payable to Employee under the Company's
pension plans at the time of his termination. If Employee voluntarily terminates
his Employment, or if Company terminates Employee for cause or unsatisfactory
performance, then Company shall have no further obligations to Employee under
this Agreement.
8. For Cause Defined. For purposes of this Agreement, termination for
cause shall mean termination of Employee's employment for misconduct, acts
involving theft or dishonesty, criminal acts, acts involving moral turpitude,
insubordination, absenteeism, or violation of Company's Code of Conduct.
9. Confidentiality. During his employment, Employee agrees not to
divulge or appropriate to his own use or the use of others any secret,
proprietary or confidential information or knowledge pertaining to the business
of Company, or any of its subsidiaries
4
<PAGE>
or affiliates, obtained by Employee while he was employed by the Company or its
subsidiaries or affiliates. Upon termination of his employment, Employee agrees
to immediately deliver to the General Counsel of the Company all papers,
documents and other materials containing such information and all other
corporate papers, documents and other materials wherever retained.
10. Remedies. Employee acknowledges that the Company would be
irreparably harmed by a violation of the preceding paragraph and agrees, that in
addition to any other remedy the Company may have, that the Company will be
entitled to an injunction restraining Employee from any actual or threatened
breach of that paragraph, an accounting of all profits or benefits arising from
such breach and any other appropriate remedy without any bond or other security
being required.
11. Waivers. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is consented to in
writing by the Parties. The waiver of either Party of a breach of any term of
this Agreement shall not operate or be construed as a waiver of any other breach
of this Agreement.
12. Amendment and Termination. This Agreement may be amended or
terminated by the mutual consent of the Parties.
13. Death of Employee. If Employee dies during his Employment with
Company, then Company shall have no further obligations to Employee under the
terms of this Agreement.
14. Notice. Any notice required to be given by Company under this
Agreement will be sufficient if it is in writing and is sent by registered mail
to Employee at his principal office or residence.
5
<PAGE>
15. Successors and Assigns. This Agreement will be binding upon, and
insure to the benefit of, the Company, its successors and assigns.
16. Counterparts. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed the original without reference to
the others.
17. Choice of Law. The provisions of the Agreement shall be construed
in accordance with the internal laws (and not the law of conflicts) of the state
of Illinois.
/s/ Barry K. Allen AMERITECH CORPORATION
- ------------------------
Barry K. Allen
BY: /s/ Richard C. Notebaert
-----------------------------
Richard C. Notebaert
ITS: Chairman and
Chief Executive Officer
6
<PAGE>
Exhibit 10g
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made December ___, 1993 between
Ameritech Corporation ("Company"), a Delaware corporation, and Patrick Campbell
("Employee").
In consideration of the mutual promises contained herein the Parties agree as
follows:
1. Employment of Employee. Company hereby employs Employee, and Employee
hereby accepts employment with Company, as Executive Vice President--Corporate
Strategy and Business Development, commencing on January 31, 1994 ("Hire Date").
Employee agrees to devote his full business attention and time to the business
affairs of the Company and its affiliates and to faithfully and efficiently
perform his duties.
2. Compensation of Employee. Employee shall be compensated for his services
as follows:
(a) Company will pay Employee an annual base salary of $460,000.00, payable
in 12 monthly installments. This base salary shall be subject to review and
adjustment in accordance with the Company's customary practice with respect to
its Senior Managers.
(b) Employee is eligible for a short term incentive bonus of $250,000.00,
at target. Employee acknowledges, understands and agrees that the actual payout
of this bonus can range from 0% to 150% depending upon Company's performance
against established objectives. Employee further acknowledges, understands and
agrees that this
<PAGE>
award shall be prorated to reflect actual number of months worked in 1994. This
short term incentive bonus shall be subject to review and adjustment in
accordance with the Company's customary practice with respect to its Senior
Managers.
(c) Employee is eligible to participate in Company's long term incentive
plans. Although Company has not finalized the specifics of the long term
incentive plan for Employee, Company expects that the long term incentive plan
will produce compensation for Employee of approximately $548,000.00 at target
over the long term compensation period. Employee acknowledges, understands and
agrees that the actual compensation under the Company's long term incentive plan
for the 1994 grant will be based upon the Company's stock performance and
accumulated dividends.
3. Additional Benefits. During his employment, Employee will be entitled to
participate in the pension, welfare benefit and fringe benefit plans and
programs then maintained by the Company for its management employees, all in
accordance with their terms. A current list of such plans and programs is set
forth in Exhibit A to this Agreement.
4. Special Bonus Payments. Within 30 days following the Hire Date, Employer
shall pay Employee the sum of $820,000.00. Within 90 days following the Hire
Date, Employer shall pay Employee the sum of Fifty Percent (50%) of the loss on
the sale of your home. On the anniversary of the Hire Date, Employer shall pay
Employee the sum of $275,000.00.
5. Termination of Employee. Employee acknowledges, understands and agrees
that he is an at will employee and the Company may terminate his employment with
or without cause. If Company terminates Employee without cause prior to the
fifth
2
<PAGE>
anniversary of the Hire Date, then Company shall pay Employee a lump sum equal
to Eighteen (18) Months of his annual salary as of the date of termination. If
Employee voluntarily terminates his Employment, or if Company terminates
Employee for cause, then Company shall have no further obligations to Employee
under this Agreement.
6. For Cause Defined. For purposes of this Agreement, termination for cause
shall mean termination of Employee's employment for misconduct, acts involving
theft or dishonesty, criminal acts, acts involving moral turpitude,
insubordination, absenteeism, or violation of Employer's Code of Conduct.
7. Confidentiality. During his employment, Employee agrees not to divulge
or appropriate to his own use or the use of others any secret, proprietary or
confidential information or knowledge pertaining to the business of Company, or
any of its subsidiaries or affiliates, obtained by Employee while he was
employed by the Company or its subsidiaries or affiliates. Upon termination of
his employment, Employee agrees to immediately deliver to the General Counsel of
the Company, all papers, documents and other materials containing such
information and all other corporate papers, documents and materials wherever
retained.
8. Remedies. Employee acknowledges that the Company would be irreparably
harmed by a violation of the preceding paragraph and agrees, that in addition to
any other remedy the Company may have, that the Company will be entitled to an
injunction restraining Employee from any actual or threatened breach of this
paragraph, an accounting of all profits or benefits arising from such breach and
any other appropriate remedy without any bond or other security being required.
<PAGE>
9. Waivers. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is consented to in
writing by the Parties. The waiver of either Party of a breach of any term of
this Agreement shall not operate or be construed as a waiver of any other breach
of this Agreement.
10. Amendment and Termination. This Agreement may be amended or terminated
by the mutual consent of the Parties.
11. Death of Employee. If Employee dies during his Employment with Company,
then Company shall have no further obligations to Employee under the terms of
this Agreement.
12. Notice. Any notice required to be given by Company under this Agreement
will be sufficient if it is in writing and is sent by registered mail to
Employee at his principal office or residence.
13. Successors and Assigns. This Agreement will be binding upon, and inure
to the benefit of, the Company, its successors and assigns.
14. Counterparts. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed the original without reference to
the others.
15. Choice of Law. The provisions of the Agreement shall be construed in
accordance with the internal laws (and not the law of conflicts) of the state of
Illinois.
/s/ W. Patrick Campbell AMERITECH CORPORATION
- ----------------------------
PATRICK CAMPBELL
BY: /s/ Richard C. Notebaert
-------------------------
ITS: President and COO
-----------------------
<PAGE>
Exhibit 10i
AMERITECH CORPORATION
1997 STOCK OPTION AGREEMENT
AND AGREEMENT NOT TO COMPETE
Date of Agreement: June 18, 1997
1. In accordance with, and subject to, the provisions of the Ameritech
Long Term Stock Incentive Plan ("the Plan"), Ameritech Corporation, a Delaware
corporation (the "Company"), hereby grants to _______________ (the
"Participant") a Non-Qualified Stock Option to purchase _______ shares of Common
Stock of the Company.
2. The option price of each share of Common Stock subject to this
Agreement shall be $70.56 (the "Option Price").
3. The Non-Qualified Stock Option granted by this Agreement shall
become exercisable as follows:
(i) on and after June 18, 2002 as to ______ shares;
(ii) on and after June 18, 2003 as to ______ shares; and
(iii) on and after June 18, 2004 as to ______ shares.
Such Non-Qualified Stock Option shall become exercisable as to all of such
shares if a Change in Control (as defined in the Plan) occurs. Notwithstanding
the foregoing, the Committee (as defined in the Plan) shall have the right, but
no obligation, from time to time to cause such Non-Qualified Stock Option to
become exercisable as to all such shares if the Participant's employment is
terminated by reason of retirement at age 65 (or retirement prior to age 65 with
the Company's approval) under a Company or subsidiary retirement plan
("Retirement"). Such Non-Qualified Stock Option shall expire ten years and one
day after the date of this Agreement, or, subject to the provisions of the
following sentence, if earlier, on the date that is 30 days after the date the
Participant's employment by the Company and its subsidiaries is terminated for
any reason other than cause or on the date the Participant's employment by the
Company and its subsidiaries is terminated for cause. The portion of such
Non-Qualified Stock Option which is exercisable as of the date on which the
Participant's employment is terminated by reason of the Participant's death,
disability, or retirement at age 65 (or retirement prior to age 65 with the
Company's approval) under a Company or subsidiary retirement plan shall
terminate on the earlier of ten years and one day from the date of this
Agreement or one year after the date of termination by death or disability or
five years after the Participant's retirement date if the Participant is not in
the Corporate Resource grade 5 (CR5) or higher at such retirement date.
<PAGE>
The Non-Qualified Stock Option may be exercised, in whole or in part, by filing
a written notice (in the form attached hereto) with the Secretary of the Company
at its corporate headquarters prior to the date the Non-Qualified Stock Option
expires. Such notice shall specify the number of shares of Common Stock with
respect to which the option to purchase is being exercised. Unless shares are
retained for the purpose of tax withholding pursuant to paragraph 1-10 of the
Plan, the Participant will, upon request of the Company, submit a check for an
amount equal to the amount required to be withheld by the Company on account of
federal, state, and local taxes. Payment of the Option Price shall be by cash,
by certified or cashier's check payable to the Company, by delivery of shares of
Common Stock having an aggregate fair market value which is equal to the amount
of cash which would be required (unless otherwise provided by rules established
by the Committee from time to time) or by compliance with the "cashless
exercise" procedures established by the Committee.
4. The Non-Qualified Stock Option granted by this Agreement is not
transferable, except by will or the laws of descent and distribution, and may be
exercised during the lifetime of the Participant only by the Participant and
after the death of the Participant by the person or persons designated by the
Participant to be his or her beneficiary in accordance with the provisions of
the Plan.
5. In consideration of the Non-Qualified Stock Option granted by this
Agreement, the Participant agrees that, in the event the Participant's
employment is terminated voluntarily or involuntarily prior to the occurrence of
a Change in Control (as defined in the Plan), the Participant will not compete
with the Company for a period of two years from the date of termination of the
Participant's employment. This Agreement not to compete means that the
Participant will not, directly or indirectly, own, manage, control, participate
in, invest in, permit Participant's name to be used by, act as consultant or
advisor to, render services for, either alone or in association with any other
person, firm, corporation or other entity, or otherwise assist in any manner,
any person or entity that engages in or owns any business that is competitive
with the Company's businesses and the businesses of its subsidiaries or
affiliates. The participant understands and agrees that the Company's
businesses, with which the Participant will not compete as provided in this
Agreement, include all forms of local exchange, wireless, cellular, cable
television, interexchange and international communications, together with
associated or related activities such as classified directory publishing,
information services creation or provision, data service, voice messaging,
security monitoring, and telecommunications equipment or customer premise
equipment sales procurement. The Participant acknowledges that, as a member of
the Company's Management Committee, the Participant works or has contact with
all of the foregoing businesses on a regular basis during Participant's
employment with the Company. Nothing herein shall prohibit the Participant from
becoming a passive owner of not more than 2% of the outstanding stock of any
class of publicly traded securities of a corporation engaged in the businesses
described above, so long as the Participant has no active participation in the
business of such corporation. If a court of competent jurisdiction or other
adjudicating body finds that the
- 2 -
<PAGE>
duration, scope, area, or other restrictions of this paragraph are unreasonable
and unenforceable, and such determination becomes final, the parties agree that
the maximum duration, scope, area and/or other restrictions reasonable under the
circumstances shall be substituted for the stated duration, scope, area or other
restrictions, and the parties hereby empower such court or other body to modify
this paragraph to the extent necessary to comply with existing law and to
enforce this paragraph as so modified. The Participant also agrees that, so long
as a Change in Control (as defined in the Plan) has not occurred, for a period
of two years immediately following termination of the Participant's employment
with the Company, the Participant will not directly or indirectly solicit,
induce, recruit or encourage any of the Company's employees to leave their
employment, or take away such employees, or attempt to solicit, induce recruit,
encourage or take away employees of the Company, either for the Participant's
own account or for any other person or entity. All duties and obligations set
forth herein shall be in addition to and coexistent with the obligations arising
under any agreement executed by the Participant during or prior to the
Participant's employment with the Company or any of its subsidiaries or
affiliates.
6. Nothing herein contained shall confer on the Participant any right
with respect to continuation of employment by the Company or its subsidiaries,
or interfere with the right of the Company or its subsidiaries to terminate at
any time the employment of the Participant or, except as to shares of Common
Stock actually delivered, confer any rights as a stockholder upon the holder
thereof.
AMERITECH CORPORATION
By: /s/ Bruce B. Howat
- ------------------------- -----------------------
Participant Its Corporate Secretary
<PAGE>
Supplement to Exhibit 10i
A 1997 Stock Option Agreement and Agreement Not to Compete in the preceding form
was executed by each of the following persons, in consideration of an option to
purchase the number of shares of Common Stock of Ameritech Corporation set forth
opposite his name below (each option exercisable as to one-third of the shares
covered by it on the dates specified in the preceding form):
Barry K. Allen 100,000 shares
W. Patrick Campbell 65,000 shares
Oren G. Shaffer 130,000 shares
Thomas Richards 100,000 shares
<PAGE>
Exhibit 10j
AMERITECH CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
------------------------------
(As Amended and Restated Effective as of February 1, 1998)
<PAGE>
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
<PAGE>
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, and
was so approved at such meeting.
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
1
<PAGE>
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
2
<PAGE>
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) 40,000,000(1);
(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
- --------
(1) Share amount has been adjusted to reflect the two-for-one stock split which
occurred on December 31, 1997.
3
<PAGE>
(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 40,000,000. The maximum number
of Shares that may be issued in conjunction with awards granted pursuant to
Section 4(d) shall be 14,000,000. The maximum number of Shares that may be
covered by awards granted to any one individual shall be 5,000,000 over any
consecutive five-year period.(2)
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
- ---------
(2) Share amounts have been adjusted to reflect the two-for-one stock split
which occurred on December 31, 1997.
4
<PAGE>
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
<PAGE>
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.
6
<PAGE>
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.
7
<PAGE>
Exhibit 10j-1
===========================================================
AMERITECH CORPORATION
1999
STOCK OPTION AGREEMENT
===========================================================
Participant:
-----------------------------------------------
Number of Shares of Common Stock:
--------------------------
Option Price:
----------------------------------------------
Date of Agreement:
-----------------------------------------
Option Becomes Exercisable:
---------------------------------
No. of Shares
Date Exercisable
---- -------------
Prior to None
--------------
On
-------------- -----------
On
-------------- -----------
On
-------------- -----------
Option Term Expiration Date:
1. Grant. In accordance with, and subject to, the provisions of the
Ameritech Corporation Long-Term Stock Incentive Plan (the "Plan"), Ameritech
Corporation, a Delaware corporation (the "Company"), hereby grants to the
above-named participant (the "Participant") a Non-Qualified Stock Option to
purchase the number of shares of Common Stock of the Company set forth above
(the "Option Shares") at a price per share equal to the option price set forth
above (the "Option Price").
2. Exercisability. (a) General. Except as otherwise provided in this
paragraph 2, the Non-Qualified Stock Option granted by this Agreement (this
"Option") shall first become exercisable on the date or dates set forth above as
to the respective number of Option Shares set forth opposite each such date.
(b) Acceleration upon Change in Control. This Option shall become
exercisable as to all of the Option Shares upon the occurrence of a Change in
Control (as defined in the Plan), other than a Change in Control which occurs
pursuant to the Agreement and Plan of Merger, dated as of May 10, 1998, among
the Company, SBC Communications Inc. and SBC Delaware, Inc. (as such agreement
may be amended from time to time, the "SBC Merger Agreement").
-1-
<PAGE>
3. Term and Termination of Option. (a) Normal Option Expiration. Unless
terminated earlier pursuant to any of the following provisions of this paragraph
3 or paragraph 6 of this Agreement, this Option shall expire on the date shown
above as the Option Term Expiration Date (the "Option Term Expiration Date").
(b) Retirement. If the Participant's employment terminates by reason of
any Retirement (as defined below) which constitutes a Qualifying Retirement (as
defined below), then (i) any portion of this Option which is either exercisable
as of the date of the Participant's Qualifying Retirement, or which will become
exercisable, pursuant to the regular exercisability schedule for this Option set
forth above, within 120 days following the date of the Participant's Qualifying
Retirement shall terminate on the earlier of (A) the Option Term Expiration
Date, or (B) if the Participant is not in Corporate Resource grade 5 (CR5) or
equivalent or higher at such date of Qualifying Retirement, five years after the
date of the Participant's Qualifying Retirement, and (ii) the balance of this
Option as to all remaining Option Shares shall terminate as of the date of the
Participant's Qualifying Retirement. For purposes of this paragraph 3(b),
"Retirement" shall mean any employment termination by reason of retirement which
occurs either (I) 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 ("Normal Retirement") or
(II) under the Ameritech Management Pension Plan, with the Company's approval,
on or after the date on which the Participant's combined age and service (in
years and months) while participating in the Ameritech Management Pension Plan
(or the Ameritech Pension Plan if the Participant previously accrued a benefit
under the Ameritech Pension Plan for which eligibility was transferred to the
Ameritech Management Pension Plan) equals 75 ("Approved Early Retirement" and,
together with Normal Retirement, "Retirement"). For purposes of this paragraph
3(b), "Qualifying Retirement" means any Retirement which occurs on or after
________________________. Any portion of this Option which is not exercisable as
of the date of the Participant's Qualifying Retirement, but would become so
within 120 days following such date, will first become exercisable on the normal
exercisability date therefor set forth above, in accordance with paragraph 2(a)
hereof.
(c) Resignation or Certain Other Non-Cause Terminations of Employment.
If the Participant's employment by the Company and its subsidiaries terminates
voluntarily (for example, upon the Participant's resignation) or involuntarily
for any reason or under any circumstances other than those covered by paragraphs
3(b), 3(d), 3(e) or 3(f) hereof, this Option shall terminate (i) on the date
which is 30 days after the date of such employment termination, but in no event
after the Option Term Expiration Date, as to the portion of this Option which is
exercisable as of the date of such employment termination, and (ii) upon such
employment termination, as to any and all remaining Option Shares for which this
Option is not exercisable as of such time.
(d) Employment Termination Without Cause Following Change in Control.
If the Participant's employment by the Company and subsidiaries is involuntarily
terminated without Cause (as defined below) during the portion of the calendar
year which remains following a Change in Control (other than a Change in Control
which occurs pursuant to the SBC Merger Agreement) or the two immediately
subsequent calendar years, the Participant may exercise this Option at any time
during the five years commencing on the date of Participant's termination of
employment (or, if less, the period remaining on the original term of this
Option). Solely for purposes of the preceding sentence, the term "Cause" means
-2-
<PAGE>
the Participant's willfully engaging in conduct materially injurious to the
Company or any subsidiary or the willful and continual failure by the
Participant to substantially perform the duties assigned to the Participant
(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 Participant's
employer (or, if the Participant's 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 Participant's
employer) specifying the manner in which the Participant has failed to perform
such duties. No act, or failure to act, by the 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
Company and its subsidiaries.
(e) Termination of Employment for Cause. If the Participant's
employment by the Company and its subsidiaries is terminated for cause (as
determined by the Company, in its sole judgment) prior to the Option Term
Expiration Date, this Option shall terminate upon such employment termination as
to any and all Option Shares then remaining subject to this Option.
(f) Employment Termination due to Participant's Death or Long-Term
Disability. The portion of this Option which is exercisable as of the date on
which the Participant's employment is terminated by reason of the Participant's
death or disability shall terminate on the earlier of (i) the Option Term
Expiration Date or (ii) one year after the date of such employment termination
by death or disability.
4. Manner of Exercise. This Option may be exercised, in whole or in
part, (a) in the case of "cashless exercises" (including so-called "sell enough
to cover" transactions), by providing such notice as may be required by the
"cashless exercise" procedures established by the Committee (as defined in the
Plan) from time to time and then in effect, and (b) as to all other forms of
option exercise, by filing a written notice (in the form attached hereto) with
the person then designated by the Company as the appropriate Stock Option
Administrator with respect to the Participant, in either case prior to the date
this Option expires or earlier terminates. Such notice shall specify the number
of shares of Common Stock with respect to which this Option is being exercised.
Unless shares (or a portion of the proceeds, in the case of a cashless exercise)
are retained in satisfaction of such tax withholding, the Participant will, upon
request of the Company, submit a check for an amount equal to the amount
required to be withheld by the Company on account of federal, state, and local
taxes. Payment of the Option Price shall be by cash, by certified or cashier's
check payable to the Company, by delivery or attestation of ownership of shares
of Common Stock having an aggregate fair market value which is equal to the
amount of cash which would be required (unless otherwise provided by rules
established by the Committee from time to time) or by compliance with the
cashless exercise procedures established by the Committee.
5. Non-Transferability. This Option is not transferable except, upon
the Participant's death, either to a beneficiary or beneficiaries previously
designated by the Participant in accordance with procedures established from
time to time by the Committee (a "Designated Beneficiary") or, if there is no
such Designated Beneficiary, by will or the laws of descent and distribution.
This Option may be exercised during the lifetime of the Participant only by the
Participant and after the death of the Participant by a Designated Beneficiary
or, if there is no such Designated Beneficiary, by the legal representative of
the estate of the Participant.
-3-
<PAGE>
6. Forfeiture for Certain Participant Actions. Notwithstanding any
other provision of this Agreement, this Option shall terminate immediately and
the Participant shall forfeit all rights hereunder if the Participant, without
the consent of the Company, either (i) becomes associated with, is employed by,
renders services to or owns more than two percent (2%) of the stock of any
business that competes with the Company or any of its subsidiaries or affiliates
in any market in which the Company or any such subsidiary or affiliate then does
business, or (ii) divulges or appropriates to the Participant's own use or to
the use of any other person any secret or confidential information or knowledge
pertaining to the business of the Company or any of its subsidiaries or
affiliates obtained by the Participant while employed by any of them.
7. No Collateral Rights. Nothing herein contained shall confer on the
Participant any right with respect to continuation of employment by the Company
or its subsidiaries, or interfere with the right of the Company or its
subsidiaries to terminate at any time the employment of the Participant or,
except as to shares of Company Common Stock actually delivered upon any exercise
of this Option, confer any rights as a stockholder upon the holder hereof or any
other person.
8. Administration. The authority to manage and control the operation
and administration of this Agreement shall be vested in the Committee or its
delegates (subject to the discretionary assumption of such authority by the
Company's Board of Directors, as provided in the Plan), and the Committee shall
have the same powers and authority with respect to this Agreement as it has with
respect to the Plan. Any interpretation of this Agreement by the Committee and
any decision made by it with respect to this Agreement shall be final and
binding with respect to the Participant and all other persons.
9. Relationship to the Plan. This Agreement may contain terms which are
in addition to or supplement the terms of the Plan, but the terms of this
Agreement shall be subject to the terms of the Plan. This Agreement also is
subject to all interpretations, amendments, rules and regulations adopted by the
Committee from time to time pursuant to the Plan.
10. Miscellaneous. The headings of this Agreement are included for
convenience of reference only, and shall not be used in interpreting this
Agreement. Any notices provided for in this Agreement or in the Plan shall be in
writing and shall be given by hand delivery, facsimile, overnight courier or
postage paid, first class mail. Any notices shall be directed (a) if to the
Participant, to the Participant's address as then reflected on the Company's
records, and (b) if to the Company, to the person then designated by the Company
as the appropriate Stock Option Administrator with respect to the Participant or
to such other persons and in accordance with such other procedures as the
Committee from time to time may establish.
AMERITECH CORPORATION
By: /s/ Deidra D. Gold
--------------------------
Its Corporate Secretary
-4-
<PAGE>
---------------------------------
AMERITECH CORPORATION
1999 STOCK OPTION AGREEMENT
WITH DIVIDEND EQUIVALENTS
---------------------------------
Participant: __________________________________________
Number of Shares of Common Stock: ________________________
Option Price: __________________________________________
Date of Agreement: __________________________________________
Option Becomes Exercisable:
No. of Shares
Date Exercisable
---- -----------
Prior to ______________________ None
On ______________________ _______________
On ______________________ _______________
On ______________________ _______________
Option Term Expiration Date: _______________________
1. Grant. In accordance with, and subject to, the provisions of the
Ameritech Corporation Long-Term Stock Incentive Plan (the "Plan"), Ameritech
Corporation, a Delaware corporation (the "Company"), hereby grants to the above-
named participant (the "Participant") a Non-Qualified Stock Option to purchase
the number of shares of Common Stock of the Company set forth above (the "Option
Shares") at a price per share equal to the option price set forth above (the
"Option Price").
2. Exercisability. (a) General. Except as otherwise provided in this
paragraph 2, the Non-Qualified Stock Option granted by this Agreement (this
"Option") shall first become exercisable on the date or dates set forth above as
to the respective number of Option Shares set forth opposite each such date.
(b) Acceleration upon Change in Control. This Option shall become
exercisable as to all of the Option Shares upon the occurrence of a Change in
Control (as defined in the Plan), other than a Change in Control which occurs
pursuant to the Agreement and Plan of Merger, dated as of May 10, 1998, among
the Company, SBC Communications Inc. and SBC Delaware, Inc. (as such agreement
may be amended from time to time, the "SBC Merger Agreement").
3. Term and Termination of Option. (a) Normal Option Expiration. Unless
terminated earlier pursuant to any of the following provisions of this paragraph
3 or paragraph 6 of this Agreement, this Option shall expire on the date shown
above as the Option Term Expiration Date (the "Option Term Expiration Date").
(b) Retirement. If the Participant's employment terminates by reason of
any Retirement (as defined below) which constitutes a Qualifying Retirement (as
defined below), then (i) any portion of this Option which is either exercisable
as of the date of the Participant's Qualifying Retirement, or which will become
exercisable, pursuant to the regular exercisability schedule for this Option set
forth above, within 120 days following the date of
<PAGE>
the Participant's Qualifying Retirement shall terminate on the earlier of (A)
the Option Term Expiration Date, or (B) if the Participant is not in Corporate
Resource grade 5 (CR5) or equivalent or higher at such date of Qualifying
Retirement, five years after the date of the Participant's Qualifying
Retirement, and (ii) the balance of this Option as to all remaining Option
Shares shall terminate as of the date of the Participant's Qualifying
Retirement. For purposes of this paragraph 3(b), "Retirement" shall mean any
employment termination by reason of retirement which occurs either (I) 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 Ameritech
Management Pension Plan ("Normal Retirement") or (II) under the Ameritech
Management Pension Plan, with the Company's approval, on or after the date on
which the Participant's combined age and service (in years and months) while
participating in the Ameritech Management Pension Plan (or the Ameritech Pension
Plan if the Participant previously accrued a benefit under the Ameritech Pension
Plan for which eligibility was transferred to the Ameritech Management Pension
Plan) equals 75 ("Approved Early Retirement" and, together with Normal
Retirement, "Retirement"). For purposes of this paragraph 3(b), "Qualifying
Retirement" means any Retirement which occurs on or after __________________.
Any portion of this Option which is not exercisable as of the date of the
Participant's Qualifying Retirement, but would become so within 120 days
following such date, will first become exercisable on the normal exercisability
date therefor set forth above, in accordance with paragraph 2(a) hereof.
(c) Resignation or Certain Other Non-Cause Terminations of Employment. If
the Participant's employment by the Company and its subsidiaries terminates
voluntarily (for example, upon the Participant's resignation) or involuntarily
for any reason or under any circumstances other than those covered by paragraphs
3(b), 3(d), 3(e) or 3(f) hereof, this Option shall terminate (i) on the date
which is 30 days after the date of such employment termination, but in no event
after the Option Term Expiration Date, as to the portion of this Option which is
exercisable as of the date of such employment termination, and (ii) upon such
employment termination, as to any and all remaining Option Shares for which this
Option is not exercisable as of such time.
(d) Employment Termination Without Cause Following Change in Control. If
the Participant's employment by the Company and subsidiaries is involuntarily
terminated without Cause (as defined below) during the portion of the calendar
year which remains following a Change in Control (other than a Change in Control
which occurs pursuant to the SBC Merger Agreement) or the two immediately
subsequent calendar years, the Participant may exercise this Option at any time
during the five years commencing on the date of Participant's termination of
employment (or, if less, the period remaining on the original term of this
Option). Solely for purposes of the preceding sentence, the term "Cause" means
the Participant's willfully engaging in conduct materially injurious to the
Company or any subsidiary or the willful and continual failure by the
Participant to substantially perform the duties assigned to the Participant
(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 Participant's
employer (or, if the Participant's 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 Participant's
employer) specifying the manner in which the Participant has failed to perform
such duties. No act, or failure to act, by the 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
Company and its subsidiaries.
(e) Termination of Employment for Cause. If the Participant's employment
by the Company and its subsidiaries is terminated for Cause (as determined by
the Company, in its sole judgment) prior to the Option Term Expiration Date,
this Option shall terminate upon such employment termination as to any and all
Option Shares then remaining subject to this Option.
-2-
<PAGE>
(f) Employment Termination due to Participant's Death or Long-Term
Disability. The portion of this Option which is exercisable as of the date on
which the Participant's employment is terminated by reason of the Participant's
death or disability shall terminate on the earlier of (i) the Option Term
Expiration Date or (ii) one year after the date of such employment termination
by death or disability.
4. Manner of Exercise. This Option may be exercised, in whole or in part,
(a) in the case of "cashless exercises" (including so-called "sell enough to
cover" transactions), by providing such notice as may be required by the
"cashless exercise" procedures established by the Committee (as defined in the
Plan) from time to time and then in effect, and (b) as to all other forms of
option exercise, by filing a written notice (in the form attached hereto) with
the person then designated by the Company as the appropriate Stock Option
Administrator with respect to the Participant, in either case prior to the date
this Option expires or earlier terminates. Such notice shall specify the number
of shares of Common Stock with respect to which this Option is being exercised.
Unless shares (or a portion of the proceeds, in the case of a cashless exercise)
are retained in satisfaction of applicable income and employment tax
withholding, the Participant will, upon request of the Company, submit a check
for an amount equal to the amount required to be withheld by the Company on
account of FICA taxes and federal, state, and local income taxes. Payment of
the Option Price shall be by cash, by certified or cashier's check payable to
the Company, by delivery or attestation of ownership of shares of Common Stock
having an aggregate fair market value which is equal to the amount of cash which
would be required (unless otherwise provided by rules established by the
Committee from time to time) or by compliance with the cashless exercise
procedures established by the Committee.
5. Non-Transferability. This Option is not transferable except, upon the
Participant's death, either to a beneficiary or beneficiaries previously
designated by the Participant in accordance with procedures established from
time to time by the Committee (a "Designated Beneficiary") or, if there is no
such Designated Beneficiary, by will or the laws of descent and distribution.
This Option may be exercised during the lifetime of the Participant only by the
Participant and after the death of the Participant by a Designated Beneficiary
or, if there is no such Designated Beneficiary, by the legal representative of
the estate of the Participant.
6. Forfeiture for Certain Participant Actions. Notwithstanding any other
provision of this Agreement, this Option shall terminate immediately and the
Participant shall forfeit all rights hereunder if the Participant, without the
consent of the Company, either (i) becomes associated with, is employed by,
renders services to or owns more than two percent (2%) of the stock of any
business that competes with the Company or any of its subsidiaries or affiliates
in any market in which the Company or any such subsidiary or affiliate then
does business, or (ii) divulges or appropriates to the Participant's own use or
to the use of any other person any secret or confidential information or
knowledge pertaining to the business of the Company or any of its subsidiaries
or affiliates obtained by the Participant while employed by any of them.
7. Dividend Equivalents. The Participant will be entitled to Dividend
Equivalents to the extent provided by this paragraph 7:
(a) Book Account. The Company shall establish a book account for the
benefit of the Participant (the Participant's "Account"). As of each Record
Date during the Dividend Crediting Period, Stock Units shall be credited to the
Participant's Account to reflect the dividends payable for that Record Date with
respect to Covered Shares (as those terms are defined below). The number of
Stock Units to be credited to the Participant's Account as of a Record Date
shall be determined by dividing the aggregate amount of the cash dividend that
would have been paid on the number of Covered Shares (as of such Record Date) by
the Average Value of a share of the Company's Common Stock (as of such Record
Date). To the extent that stock options under the Plan are adjusted in
accordance with the Plan to reflect a corporate transaction (e.g., a stock
split) with respect to the Company, a corresponding adjustment shall be made
with respect to the Participant's Account.
(b) Interim Distributions. If, during the Dividend Crediting Period, the
Participant has exercised all or any portion of the Option, then, as of the
Interim Distribution Date next following the end of the calendar quarter in
which such exercise occurs, the Participant shall receive an "Interim
Distribution" of shares of the Company's Common Stock equal to the number of
Stock Units credited to the Participant's Account as of the Interim Distribution
Date, multiplied by a fraction, (A) the numerator of which shall be the total
number of shares of Company Stock as to which the Option was exercised during
the calendar quarter; and (B) the denominator of which shall be equal to the sum
of: (i) the number of shares of Company Stock subject to the Option at the
beginning of the calendar quarter in which such exercise occurs; plus (ii) the
number of shares, if any, of the Company's Common Stock covered by any other
prior exercise(s) of the Option as to which Interim
-2-
<PAGE>
Distributions or Deferred Interim Distributions have not been made. As of the
date of such distribution, the Participant's Account shall be reduced by the
number of Stock Units equal to the number of shares distributed.
(c) Deferred Distribution. If, as of the Interim Distribution Date with
respect to the exercise of the Option in accordance with paragraph (b) above,
the Fair Market Value of the Company's Common Stock is equal to or less than the
Option Price, distribution with respect to that exercise shall be deferred until
the earlier of the next Interim Distribution Date on which the Fair Market Value
of the Company's Common Stock exceeds the Option Price or the Final Distribution
Date (as defined in paragraph 7(d)). If, by reason of the limitations of this
paragraph (c), distribution with respect to any Option exercise is deferred, (i)
the number of Stock Units as to which distribution would otherwise have occurred
will remain credited to the Participant's Account, and will, while remaining
credited to the Participant's Account, be included in the determination of
Covered Shares during the Dividend Crediting Period, and (ii) the number of
Stock Units to be distributed on a subsequent Interim Distribution Date shall be
determined by multiplying the number of Stock Units credited to the
Participant's Account as of the Interim Distribution Date by the fraction
determined in accordance with paragraph 7(b).
(d) Final Distribution. As of the Final Distribution Date, the
Participant shall receive a "Final Distribution" of shares of the Company's
Common Stock equal to the number of Stock Units then credited to the
Participant's Account. The "Final Distribution Date" shall be the date that is
five years from the date of this Agreement; provided that if the Fair Market
Value of the Company's Common Stock is equal to or less than the Option Price on
that date, the "Final Distribution Date" shall be deferred until the first day
of the next calendar quarter (i.e., July 1, October 1, January 1 and April 1)
during the Option Term (as set forth in paragraph 3(a)) on which the Fair Market
Value on such date exceeds the Option Price. Upon the Final Distribution with
respect to the Participant's Account, the Stock Units credited to that Account
shall be reduced to zero.
(e) Distribution following Termination of Employment. If the
Participant's employment terminates for any reason other than Cause (as
determined in accordance with paragraph 3(e)), the number of Stock Units in the
Participant's Account as of the date of termination shall be multiplied by a
fraction, the numerator of which shall be the number of Option Shares canceled
immediately upon the Participant's termination of employment pursuant to
paragraph 3(b), 3(c), 3(d), and 3(f) and the denominator of which shall be the
sum of (i) total number of shares then subject to the Option (whether or not
then exercisable) plus (ii) the number of shares, if any, of the Company's
Common Stock covered by any other prior exercise(s) of the Option as to which
Interim Distributions or Deferred Interim Distributions have not been made. The
number of Stock Units in the Participant's Account equal to the number resulting
from such multiplication (if any) shall be canceled. The number of Stock Units
remaining in the Participant's Account after such cancellation (if any) shall
remain subject to this Agreement and be available for Interim Distributions and
the Final Distribution for 120 days beyond the period determined in accordance
with paragraphs 3(b), 3(c), 3(d), and 3(f) during which the Option remains
exercisable following termination of employment in accordance with this
Agreement (or the period during which the Option would remain exercisable in
accordance with paragraph 3(b), 3(c), 3(d), and 3(f), even if, following
termination of employment, there is no unexercised portion of the Option that
has become exercisable on or before termination of employment). Notwithstanding
the above, on the ten-year anniversary of this Agreement, all Stock Units
remaining in the Participant's Account, if any, shall be canceled. If the
Participant's employment is terminated for Cause, all Stock Units credited to
the Participant's Account shall immediately be canceled.
(f) Withholding. If tax withholding is required with respect to the
Participant's Account, and unless shares are retained in satisfaction of
applicable income and employment tax withholding, the Participant will, upon
request of the Company, submit a check for an amount equal to the amount
required to be withheld by the Company on account of FICA taxes and federal,
state, and local income taxes.
(g) Definitions. For purposes of this paragraph 7, the terms listed below
shall have the definitions indicated:
(i) The "Average Value" of a share of the Company's Common Stock as of any
Record Date shall be the average of the Fair Market Values on the first and last
trading days of the calendar quarter immediately preceding the payment date of
the dividends for such Record Date.
(ii) The number of "Covered Shares" as of any Record Date shall equal the sum
of the number of shares then subject to the Option (the "Shares") and the number
of Stock Units then credited to the Participant's Account.
-3-
<PAGE>
(iii) The "Dividend Crediting Period" shall be the period beginning with the
first day after the date of this Agreement, and ending with the earlier of the
date which is five years from the date of this Agreement or the date the
Participant's employment by the Company and its subsidiaries is terminated for
any reason other than Retirement.
(iv) The "Fair Market Value" of a share of the Company's Common Stock means the
average of the highest and lowest prices at which a share of the Company's
Common Stock is traded on the date as of which the determination is made, or, if
the Company's Common Stock is not traded on that date, the average of the
highest and lowest prices on the next preceding day on which the Company's
Common Stock was traded, as quoted on the New York Stock Exchange - Composite
Transactions or, if the Company's Common Stock is not so quoted, on another
principal market quotation system selected by the Company.
(v) The "Interim Distribution Date" shall be the first day of the second month
of each calendar quarter occurring after the date of this Agreement, and prior
to the Final Distribution Date.
(vi) The "Record Date" shall be any date on which a record of the Company's
stockholders is taken for the purpose of payment of a cash dividend on the
Company's Common Stock.
8. Deferral of Distributions. Notwithstanding the foregoing provisions of
this Agreement to the contrary, the Participant may elect to defer receipt of
Option gains, and defer the Interim Distributions and Final Distribution
otherwise provided in paragraph 7, as provided for and in accordance with the
provisions of the Corporate Resource Deferral Plan.
9. No Collateral Rights. Nothing herein contained shall confer on the
Participant any right with respect to continuation of employment by the Company
or its subsidiaries, or interfere with the right of the Company or its
subsidiaries to terminate at any time the employment of the Participant or,
except as to shares of Company Common Stock actually delivered upon any exercise
of this Option, confer any rights as a stockholder upon the holder hereof or any
other person.
10. Administration. The authority to manage and control the operation and
administration of this Agreement shall be vested in the Committee or its
delegates (subject to the discretionary assumption of such authority by the
Company's Board of Directors, as provided in the Plan), and the Committee shall
have the same powers and authority with respect to this Agreement as it has with
respect to the Plan. Any interpretation of this Agreement by the Committee and
any decision made by it with respect to this Agreement shall be final and
binding with respect to the Participant and all other persons.
11. Relationship to the Plan. This Agreement may contain terms which are
in additions to or supplement the terms of the Plan, but the terms of this
Agreement shall be subject to the terms of the Plan. This Agreement also is
subject to all interpretations, amendments, rules and regulations adopted by the
Committee from time to time pursuant to the Plan.
12. Miscellaneous. The headings of this Agreement are included for
convenience of reference only, and shall not be used in interpreting this
Agreement. Any notice provided for in this Agreement or in the Plan shall be in
writing and shall be given by hand delivery, facsimile, overnight courier or
postage paid, first class mail. Any notice shall be directed (a) if to the
Participant, to the Participant's address as then reflected on the Company's
records, and (b) if to the Company, to the person then designated by the Company
as the appropriate Stock Option Administrator with respect to the Participant or
to such other persons and in accordance with such other procedures as the
Committee from time to time may establish.
AMERITECH CORPORATION
By:
--------------------------------
Its Corporate Secretary
-4-
<PAGE>
Exhibit 10k-3
Resolution adopted by the Board of Directors of Ameritech Corporation
on May 10, 1998 amending the Ameritech 1989 Long Term Incentive Plan
FURTHER RESOLVED, that the Company's 1989 Long Term Incentive
Plan be, and it hereby is, amended by (i) deleting clause (iii) of the third
subparagraph of paragraph I-9 in its entirety and replacing it with the
following: "(iii) Reserved"; (ii) deleting the last sentence of paragraph III-3
in its entirety and replacing it with the following: "Payment of the Company's
obligations arising out of the exercise of a Stock Appreciation Right shall be
made in shares of Common Stock (valued at its Fair Market Value at the date of
exercise)"; and (iii) deleting the last sentence of the first paragraph of
subparagraph I-9(v) in its entirety and replacing it with the following: "In the
event that a Participant's employment is involuntarily terminated without cause
during any Performance Period in effect on the date of the Change in Control, an
immediate distribution of the Participant's Performance Award (as determined in
this paragraph I-9) shall be made to the Participant in the form of shares of
Common Stock."
<PAGE>
Exhibit 10k-4
AMERITECH CORPORATION
1997 STOCK OPTION AGREEMENT
Date of Agreement: January 14, 1997
1. In accordance with, and subject to, the provisions of the Ameritech 1989
Long Term Incentive Plan (the "Plan"), Ameritech Corporation, a Delaware
corporation (the "Company"), hereby grants to_________________ (the
"Participant") a Non-Qualified Stock Option to purchase ___________ shares of
Common Stock of the Company.
2. The option price of each share of Common Stock subject to this
Agreement shall be $58.94 (the "Option Price").
3. The Non-Qualified Stock Option granted by this Agreement shall
become exercisable as follows:
(i) on and after January 14, 1998 as to______________ shares;
(ii) on and after January 14, 1999 as to______________ shares; and
(iii) on and after January 14, 2000 as to______________ shares.
Such Non-Qualified Stock Option shall become exercisable as to all of such
shares if the Participant's employment is terminated by reason of retirement at
age 65 (or retirement prior to age 65 with the Company's approval) under a
Company or subsidiary retirement plan after December 31, 1997. Such Non-
Qualified Stock Option shall expire ten years and one day after the date of this
Agreement, or, subject to the provisions of the following sentence, if earlier,
on the date that is 30 days after the date the Participant's employment by the
Company and its subsidiaries is terminated for any reason other than cause. The
portion of such Non-Qualified Stock Option which is exercisable as of the date
on which the Participant's employment is terminated by reason of the
Participant's death, disability, or retirement at age 65 (or retirement prior to
age 65 with the Company's approval) under a Company or subsidiary retirement
plan shall terminate on the earlier of ten years and one day from the date of
this Agreement or one year after the date of termination by death or disability
or five years after the Participant's retirement date if the Participant is not
in Corporate Resource grade 5 (CR5) or higher at such retirement date.
4. The Non-Qualified Stock Option may be exercised, in whole or in part,
by filing a written notice (in the form attached hereto) with the Secretary of
the Company at its corporate headquarters prior to the date the Non-Qualified
Stock Option expires. Such notice shall specify the number of shares of Common
Stock with respect to which the option to purchase is being exercised. Unless
shares are retained for the purpose of tax withholding pursuant to paragraph
I-10 of the Plan, the Participant will, upon request of the Company, submit a
check for an amount equal to the amount required to be withheld
<PAGE>
by the Company on account of federal, state, and local taxes. Payment of the
Option Price shall be by cash, by certified or cashier's check payable to the
Company, by delivery of shares of Common Stock having an aggregate fair market
value which is equal to the amount of cash which would be required (unless
otherwise provided by rules established by the Committee from time to time) or
by compliance with the "cashless exercise" procedures established by the
Committee.
5. The Non-Qualified Stock Option granted by this Agreement is not
transferable, except by will or the laws of descent and distribution, and may be
exercised during the lifetime of the Participant only by the Participant and
after the death of the Participant by the person or persons designated by the
Participant to be his beneficiary in accordance with the provisions of the Plan.
6. Nothing herein contained shall confer on the Participant any right with
respect to continuation of employment by the Company or its subsidiaries, or
interfere with the right of the Company or its subsidiaries to terminate at any
time the employment of the Participant or, except as to shares of Common Stock
actually delivered, confer any rights as a stockholder upon the holder thereof.
AMERITECH CORPORATION
By: /s/ Bruce B. Howat
-----------------------
Its Corporate Secretary
2
<PAGE>
AMERITECH CORPORATION
1997 STOCK OPTION WITH DIVIDEND EQUIVALENTS AGREEMENT
Date of Agreement: January 14, 1997
1. Ameritech Corporation, a Delaware corporation (the "Company"), hereby
grants to__________________________( the "Participant") a Non-Qualified Stock
Option in accordance with, and subject to the provisions of, the 1989 Long
Term Incentive Plan (the "Plan") to purchase____shares of the Company's Common
Stock at the price per share of $58.94 (the average of the high and low trading
prices for the Company's Common Stock in the New York Stock Exchange-Composite
Transactions on January 14, 1997)(the "Option Price").
2. Such Non-Qualified Stock Option shall become exercisable in three
installments as follows:
(i) on and after January 14, 1998 as to______________ shares;
(ii) on and after January 14, 1999 as to______________ shares; and
(iii) on and after January 14, 2000 as to______________ shares.
Such Non-Qualified Stock Option shall become exercisable as to all of such
shares if the Participant's employment is terminated by reason of retirement at
age 65 (or retirement prior to age 65 with the Company's approval) under a
Company or subsidiary retirement plan ("Retirement") on or after December 31,
1997. Notwithstanding the foregoing, such Non-Qualified Stock Option shall be
exercisable only at such time or times as the Fair Market Value (as defined in
the Plan) exceeds the Option Price. Such Non-Qualified Stock Option shall
expire ten years and one day after the date of this Agreement, or, subject to
the provisions of the following sentence, if earlier, (i) on the date the
Participant's employment by the Company and its subsidiaries is terminated as to
all shares then subject to such Non-Qualified Stock Option if such termination
is for cause and in any event as to the portion of such Non-Qualified Stock
Option which is not exercisable as of such date of termination and (ii) on the
date that is 30 days after the date the Participant's employment by the Company
and its subsidiaries is terminated for any reason other than cause as to the
portion of such Non-Qualified Stock Option which is exercisable as of such date
of termination. The portion of such Non-Qualified Stock Option which is
exercisable as of the date on which the Participant's employment is terminated
by reason of the Participant's death, disability or Retirement shall terminate
on the earlier of ten years and one day from the date of this Agreement or one
year after the date of termination by death or disability or five years after
the Participant's retirement date if the Participant is not in Corporate
Resource 5 (CR5) or equivalent or higher at such retirement date.
<PAGE>
3. As of each date (a "Record Date") on which a record of the Company's
shareowners is taken, on or before the earlier of January 14, 2002 or the date
the Participant's employment by the Company and its subsidiaries is terminated
for any reason other than Retirement, for the purpose of payment of a cash
dividend on the Company's Common Stock, there shall be credited to an account
maintained for the Participant a number of stock units ("Stock Units")
determined by dividing the aggregate amount of the cash dividend that would have
been paid on the shares then subject to the option ("Shares") and the Stock
Units then in the Participant's account if such shares and Stock Units had been
issued and outstanding on the Record Date by the average of the Fair Market
Values (as defined in the Plan) on the first and last trading days of the
calendar quarter immediately preceding the payment date of the dividends for
such Record Date, such Stock Units to be distributed to the Participant in the
form of shares of the Company's Common Stock as follows: on the first day of
the second month of each calendar quarter (the "Interim Distribution Date"),
there shall be distributed to the Participant (each an "Interim Distribution") a
number of Stock Units equal to the number of Stock Units then credited to the
Participant's account multiplied by the result obtained by subtracting from one
(1) a fraction, the numerator of which shall be the number of Shares as to which
Stock Units were credited to the Participant's account on the immediately
preceding Record Date and the denominator of which shall be the number of Shares
as to which Stock Units were credited to the Participant's account on the Record
Date immediately preceding the Record Date used to determine the numerator of
such fraction, provided that if the Fair Market Value of the Company's Common
Stock is equal to or less than the Option Price on such Interim Distribution
Date, such distribution shall not be made until the next Interim Distribution
Date (if any) on which the Fair Market Value of the Company's Common Stock
exceeds the Option Price. To the extent not theretofore distributed, all Stock
Units credited to the Participant's account as of January 14, 2002 shall be
distributed to the Participant (the "Final Distribution") as soon as practicable
after January 14, 2002 if the Fair Market Value of the Company's Common Stock
exceeds the Option Price on such date, and if not then on the first day of each
succeeding calendar quarter (i.e., April 1, July 1, October 1 and January 1) or
on January 15, 2007 if the Fair Market Value on such date exceeds the Option
Price, and provided further that the Participant may elect to defer the Final
Distribution of Stock Units under the Corporate Resource Deferral Plan (the
"Deferral Plan") by filing an election therefor in the manner and within the
time prescribed by rules established from time to time by the administrator of
the Deferral Plan. In the event the Participant's employment by the Company and
its subsidiaries is terminated, all accrued Stock Units shall immediately be
cancelled if such termination is for cause. If such termination is not for
cause, the number of Stock Units in the Participant's account as of the date of
termination shall be multiplied by a fraction, the numerator of which shall be
the number of shares as to which the Non-Qualified Stock Option is exercisable
as of the date of such termination and the denominator of which shall be the
total number of shares then subject to such Non-Qualified Stock Option (whether
or not then exercisable). The number of Stock Units in the Participant's
account in excess of the number resulting from such multiplication (if any)
shall be cancelled. The number of Stock Units remaining in the Participant's
account after such cancellation (if any) shall remain subject to this Agreement
and be available for Interim Distributions and the Final Distribution in
<PAGE>
accordance with and subject to the terms hereof for (i) 120 days after the date
of termination of Participant's employment if such termination is for any reason
other than Retirement, death, or disability, (ii) one year and 120 days after
the date of a termination by death or disability and (iii) ten years and one day
from the date of this Agreement if such termination is by reason of Retirement
or (if earlier) five years after Participant's retirement date if the
Participant is not in Corporate Resource grade 5 (CR5) or equivalent or higher
at such retirement date.
4. The Non-Qualified Stock Option may be exercised, in whole or in part,
by filing a written notice (in the form attached hereto) with the Secretary of
the Company at its corporate headquarters prior to the date the Non-Qualified
Stock Option expires. Such notice shall specify the number of shares of Common
Stock with respect to which the option to purchase is being exercised. Unless
shares are retained for the purpose of tax withholding pursuant to paragraph
I-10 of the Plan, the Participant will, upon request of the Company, submit a
check for an amount equal to the amount required to be withheld by the Company
on account of federal, state and local taxes. Subject to the provisions of the
following sentence, payment shall be by cash, certified or cashier's check
payable to the Company or by compliance with the "cashless exercise" procedures
established by the Committee. To the extent permitted by rules established by
the Committee and in effect at the time of notice of exercise is given, all or a
portion of such required amount may be paid by delivery of shares of Common
Stock having an aggregate fair market value which is equal to the amount of cash
which would otherwise be required.
5. The Non-Qualified Stock Option granted by this Agreement is not
transferable, except by will or the laws of descent and distribution, and may be
exercised during the lifetime of the Participant only by the Participant and
after the death of the Participant by the person or persons designated by the
Participant to be his beneficiary in accordance with the provisions of the Plan.
6. Nothing herein contained shall confer on the Participant any right with
respect to continuation of employment by the Company or its subsidiaries, or
interfere with the right of the Company or its subsidiaries to terminate at any
time the employment of the Participant or, except as to shares of Common Stock
actually delivered, confer any rights as a stockholder upon the holder thereof.
AMERITECH CORPORATION
By: /s/ Bruce B. Howat
------------------------
Its Corporate Secretary
<PAGE>
Exhibit 10l-3
Resolution adopted by the Board of Directors of Ameritech Corporation
on May 10, 1998 amending the Ameritech Long Term Incentive Plan
FURTHER RESOLVED, that the Company's Long Term Incentive Plan
be, and it hereby is, amended by (i) deleting subparagraph I-6(iii) in its
entirety and replacing it with the following: "(iii) Reserved"; (ii) deleting
the last sentence of paragraph IV-4 in its entirety and replacing it with the
following: "Payment of the Company's obligations arising out of the exercise of
a Stock Appreciation Right shall be made in shares of Common Stock (valued at
its fair market value at the date of exercise)"; and (iii) deleting the last
sentence of the first paragraph of subparagraph I-6(v) in its entirety and
replacing it with the following: "In the event that a Participant's employment
is involuntarily terminated without cause during any Performance Period in
effect on the date of the Change in Control, an immediate distribution of the
Participant's Performance Award (as determined in this paragraph I-6) shall be
made to the Participant in the form of shares of Common Stock."
<PAGE>
Exhibit 10o
AMERITECH
ESTATE PRESERVATION PLAN
------------------------
(As Amended and Restated Effective as of December 1, 1995)
<PAGE>
AMERITECH
ESTATE PRESERVATION PLAN
------------------------
(As Amended and Restated Effective as of December 1, 1995)
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 Participant's 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
i
<PAGE>
AMERITECH
ESTATE PRESERVATION PLAN
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
5 Plan Administration 10
Plan Administrator; Administration 10
Determination of Benefits 10
6 Miscellaneous 11
Amendment and Termination 11
Validity 11
Administrative Amendments 11
ii
<PAGE>
AMERITECH
ESTATE PRESERVATION PLAN
------------------------
(As Amended and Restated Effective as of December 1, 1995)
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 Estate Preservation Plan (the "Plan"). 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
"Employer") 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 "Estate
Preservation Policy"). 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 December 1, 1995.
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 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 an Estate Preservation 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.
<PAGE>
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 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 "Split-Dollar Agreement" and "Collateral
Assignment Agreement" as set forth in Section 4 hereof. The term "Eligible
Employee" 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
<PAGE>
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
3
<PAGE>
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 Participant's 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 "Participant" 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 ("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 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
4
<PAGE>
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 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
"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 Estate Preservation 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 or an Employer 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 or the Employer, 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 Estate Preservation 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 either
the Participant or his spouse dies, the Participant's
employment with the Company and 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 (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.
5
<PAGE>
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 Participant's 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
Company's interests under the Split-Dollar Agreement in the Estate Preservation
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 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
Company's interests under the Split-Dollar Agreement in the Estate Preservation
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 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 Participant's Death Benefit and that portion of the cash value of the Estate
Preservation Policy which is in excess of the cash value of the
6
<PAGE>
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 Participant's 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 "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 Estate Preservation 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").
(iii) The Participant's 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 Participant's Death Benefit. For purposes
of this subparagraph (iii), the "Participant's Death Benefit"
shall be an amount equal to the lesser of (A) the maximum
death benefit set forth in the Exhibit (the "Participant's
Maximum Death Benefit") 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 Participant's 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.
7
<PAGE>
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 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 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
Participant's 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 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 latest of:
(A) the date the Participant's 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.
8
<PAGE>
(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 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 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 Estate Preservation 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 Estate Preservation 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 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
Company's Cumulative Net Premium Payment at Termination
under the collateral assignment of the Estate
Preservation Policy. Thereafter, neither the
Participant, nor the Participant's 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 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
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 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 Estate Preservation
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.
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 resouces matters, may, with the concurrence of the
Company's Executive Vice President and General Counsel, make
minor or administrative amendments to the Plan.
<PAGE>
Exhibit 10p
AMERITECH KEY MANAGEMENT
LIFE INSURANCE PLAN
-------------------
(As Amended and Restated Effective as of February 1, 1998)
<PAGE>
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 3
Cost 4
Cash Value 4
Limitation on Benefits 4
4 Split-Dollar and Collateral Assignment Agreements 4
Introduction 4
Insurance Policy 4
Policy Ownership 4
Payment of Premiums 5
Collateral Assignment Agreement 6
Limitations on Participant's Rights under Policy 7
Collection and Payment of Death Benefit 7
Termination of Split-Dollar Agreement 8
Options on Termination of Split-Dollar Agreement 10
i
<PAGE>
AMERITECH KEY MANAGEMENT
LIFE INSURANCE PLAN
-------------------
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
5 Plan Administration 11
Plan Administrator; Administration 11
Determination of Benefits 11
6 Miscellaneous 11
Amendment and Termination 11
Validity 11
Administrative Amendments 12
ii
<PAGE>
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
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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
6
<PAGE>
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:
7
<PAGE>
(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;
8
<PAGE>
(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.
9
<PAGE>
(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.
SECTION 5
---------
Plan Administration
-------------------
10
<PAGE>
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.
11
<PAGE>
12
<PAGE>
Exhibit 10r
AMERITECH CORPORATE RESOURCE
DEFERRAL PLAN
-------------
(As Amended and Restated Effective as of May 10, 1998)
<PAGE>
AMERITECH CORPORATE RESOURCE
DEFERRAL PLAN
-------------
(As Amended and Restated Effective as of May 10, 1998)
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
1 General 1
1.1 History, Purpose and Effective Date 1
1.2 Plan Administration 1
1.3 Non-Alienation 2
1.4 Source of Benefits 2
1.5 Notices 2
1.6 Applicable Laws 2
1.7 Gender and Number 2
1.8 Delegations of Authority 2
2 Participation 2
2.1 Participation 2
2.2 Plan Not Contract of Employment 3
3 Deferral of Compensation and Excess Savings Plan Credit 3
3.1 Deferral Requests 3
3.2 Supplemental Deferrals and Excess Savings Plan Credit 4
3.3 Deferred Amounts - Interest 5
3.4 Deferred Amounts - Stock Units 5
3.5 Deferred Amount 6
4 Payment of Deferred Amounts 6
4.1 Distribution 6
4.2 Termination of Employment Prior to Retirement Age 7
4.3 Death 7
4.4 Committee Discretion 8
4.5 Form of Payment 10
Change in Control 10
5 Amendment or Termination 12
5.1 Administrative Amendments 12
5.2 Amendments and Termination 12
5.3 Participation Rights 12
5.4 Successors 12
<PAGE>
AMERITECH CORPORATE RESOURCE
DEFERRAL PLAN
-------------
(As Amended and Restated Effective as of May 10, 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 May 10, 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.
<PAGE>
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.
1.8. Delegations of Authority. As used in the Plan, the terms "Board of
Directors", "Company", "Employer" or "Committee" shall include, where
appropriate, any applicable subcommittee or any duly authorized delegate of the
Board of Directors, the Company, an Employer or the Committee, as the case may
be. Such duly authorized delegate may be an individual or an organization within
the Board of Directors, the Company, an Employer or the Committee or may be an
unrelated third party individual or organization.
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 (a "Participant") 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
2
<PAGE>
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 any of the Company's long-term incentive
plans (which currently include the Ameritech Long Term Incentive Plan, the
Ameritech 1989 Long Term Incentive Plan and the Ameritech Corporation Long-Term
Stock Incentive Plan) 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 any
of the Company's long term incentive plans 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
<PAGE>
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. Notwithstanding any other provision
of the Plan, 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
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<PAGE>
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
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<PAGE>
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
6
<PAGE>
attaining eligibility for normal or approved early retirement as defined below,
then, unless such termination is by reason of disability entitling the
Participant to benefits 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 service (in years and months)
equals 75, subject to Committee authorization. For purposes of this subsection,
the term "service" means service while participating in, (that is, accruing a
benefit under), the Ameritech Management Pension Plan (or the Ameritech Pension
Plan if the Participant previously accrued a benefit under the Ameritech Pension
Plan for which eligibility was transferred to the Ameritech Management Pension
Plan, or vice versa) and the Participant retired under the Ameritech Management
Pension Plan. 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 nonsubstantial 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 require 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
7
<PAGE>
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 his beneficiary designation and the form of
distribution of the Deferred Amount to his 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
8
<PAGE>
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; or
(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.
9
<PAGE>
4.6. Change in Control. Notwithstanding any other provision 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 distribution as soon as
practicable (i) in the form of Common Stock of Ameritech (or, in the case of a
merger or consolidation with another company, in the form of common stock of the
surviving entity (as defined below) in accordance with the terms of such merger
or consolidation) in the case of amounts credited to the Participant in the form
of Stock Units, and (ii) in the form of cash, in the case of all Deferred
Amounts other than Stock Units. At any time prior to the end of the calendar
year preceding the calendar year in which a Change in Control occurs, a
Participant may irrevocably waive such lump sum distribution 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 and, if the Participant waives
payment, the amount credited to the Participant (other than with respect to
Stock Units) shall be determined as of the date of 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, and in case the Change
in Control involves a merger or consolidation of the Company with another
company, the Participant's Stock Units (if any) shall be converted into stock
units of the surviving entity (as defined below) in accordance with the terms of
such merger or consolidation. 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 Sections 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
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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
------------------------
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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. Participant 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.
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Exhibit 10r-1
FIRST AMENDMENT
OF
AMERITECH CORPORATE RESOURCE DEFERRAL PLAN
(As Amended and Restated Effective as of May 10, 1998)
Pursuant to the authority delegated to the undersigned by the
Compensation Committee of the Board of Directors of Ameritech Corporation, the
Ameritech Corporate Resource Deferral Plan (As Amended and Restated Effective as
of May 10, 1998) (the "Plan") is hereby amended, effective January 1, 1999, as
follows:
1. By deleting the term "12%" from the last clause of the first
sentence of subsection 3.2(a) of the Plan and substituting the term "18%"
therefor.
2. By deleting the term "41/2%" in paragraphs 3.2 (b)(i) and 3.2 (c)(i)
and substituting therefor the term "4.8%".
3. By deleting paragraph 3.2 (b)(ii) in its entirety and substituting
the following therefor:
"the applicable percentage (set forth below) 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:
Contribution Rate Match Rate
First 1% of Salary 100%
Second 1% of Salary 100%
Third 1% of Salary 100%
Fourth 1% of Salary 60%
Fifth 1% of Salary 60%
Sixth 1% of Salary 60%
reduced by the amount of Employer Matching Contributions that
he actually receives under the Savings Plan for that period."
4. By deleting paragraph 3.2 (c)(ii) in its entirety and substituting
the following therefor:
<PAGE>
" the applicable percentage (set forth below) 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:
Contribution Rate Match Rate
First 1% of Salary 100%
Second 1% of Salary 100%
Third 1% of Salary 100%
Fourth 1% of Salary 60%
Fifth 1% of Salary 60%
Sixth 1% of Salary 60%
reduced by the amount of Employer Matching Contributions that
he actually receives under the Savings Plan for that period."
Executed this 30th day of December, 1998 to be effective as indicated
herein.
By: /s/ Walter M. Oliver
---------------------------
Walter M. Oliver,
Senior Vice President-Human
Resources
<PAGE>
Exhibit 10u
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY PLAN
(As Amended and Restated Effective as of May 10, 1998)
<PAGE>
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY PLAN
(As Amended and Restated Effective as of May 10, 1998)
TABLE OF CONTENTS
SECTION PAGE
------- ----
1 General
1.1 History and Purpose 1
1.2 Subsidiaries, Affiliates and Employers 1
1.3 Plan Administration 1
1.4 Source of Payments 2
1.5 Notices 2
1.6 Gender and Number 2
1.7 Action by Employers 2
1.8 Delegations of Authority 2
2 Participation 2
2.1 Participation 2
2.2 Cessation of Participation 3
3 Employment After a Change in Control 3
3.1 Change in Control 3
3.2 Employment After Change in Control 4
4 Severance Benefits 5
4.1 Entitlement to Severance Benefits 5
4.2 Cause 5
4.3 Disability 6
4.4 Termination for Good Reason 6
4.5 Severance Benefits 6
4.6 Reduction for Other Severance Payments 7
4.7 Tax Limitations 8
4.8 Mitigation and Set-Off 8
4.9 Non-Alienation 8
4.10 Withholding 8
5 Enforcement 8
5.1 Governing Laws 8
5.2 Arbitration of All Disputes 9
5.3 Reimbursement of Costs and Expenses 9
6 Amendment or Termination 9
6.1 Amendments and Terminations 9
6.2 Participant Rights 10
6.3 Successors 10
<PAGE>
AMERITECH CORPORATE RESOURCE
SEVERANCE PAY PLAN
(As Amended and Restated Effective as of May 10, 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 (as
defined in subsection 1.2) 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 (as defined in subsection 3.1) 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 May 10, 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-
<PAGE>
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 the Committee in care of
the Company at the Company'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.
1.8. Delegations of Authority. As used in the Plan, the terms "Board of
Directors", "Company", "Employer" or "Committee" shall include, where
appropriate, any applicable subcommittee or any duly authorized delegate of the
Board of Directors, the Company, an Employer or the Committee, as the case may
be. Such duly authorized delegate may be an individual or an organization within
the Board of Directors, the Company, an Employer or the Committee or may be an
unrelated third party individual or organization.
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.
Anything in the Plan to the contrary notwithstanding, any individual hired on or
after May 11, 1998 either into a position, or who later becomes employed in a
position, which would otherwise
-2-
<PAGE>
qualify him to be a Participant pursuant to this subsection (excluding
individuals hired prior to May 11, 1998 and transferred or promoted in the
normal course of business into such a position from any position with another
Employer, Subsidiary or Affiliate) shall not be entitled to receive any benefits
under, nor any of the protections provided in accordance with, the Plan as a
result of a Change in Control which occurs pursuant to the Agreement and Plan of
Merger among Ameritech Corporation, SBC Communications Inc. and SBC Delaware,
Inc., dated as of May 10, 1998.
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 Sections 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;
-3-
<PAGE>
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.
3.2. Employment After Change in Control. During such period of time as
a Participant is actually employed by an Employer during the
24-consecutive-month period immediately following a Change in Control, the
Participant's duties, responsibilities and
-4-
<PAGE>
authorities shall not be materially diminished (as defined in
subsection 4.4(a) ) 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
-5-
<PAGE>
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 this 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.
For purposes of paragraph (a) of this subsection, and without affecting
the terms of any of the other paragraphs hereof, "a material diminishment in the
duties, responsibilities or authorities" of a Participant means a change in
employment which results in a reduction of 15% or more in the Participant's
market rate of pay under the Company's job evaluation model for the compensation
program applicable to the Participant.
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
-6-
<PAGE>
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.
-7-
<PAGE>
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 the laws of descent and distribution 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 applicable withholding of all applicable federal, state and local
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.
-8-
<PAGE>
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 award 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.
-9-
<PAGE>
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.
-10-
<PAGE>
Exhibit 10v
AMERITECH CORPORATE RESOURCE
SUPPLEMENTAL PENSION PLAN
-------------------------
(As Amended and Restated Effective as of February 1, 1998)
<PAGE>
AMERITECH CORPORATE RESOURCE
SUPPLEMENTAL PENSION PLAN
-------------------------
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
-----------------
SECTION PAGE
------- ----
1 General 1
History and Purpose 1
Subsidiaries 1
Definitions 1
Plan Administration 1
Source of Benefits 2
Notices 2
Applicable Laws 2
Gender and Number 2
Benefits Under Predecessor Plan 2
2 Participation and Retirement 2
Participation 2
Participation in Predecessor Plans 3
Plan Not Contract of Employment 3
Mandatory Retirement 4
3 Amount and Payment of Supplemental
Pension and Death Benefits 4
Amount of Supplemental Pension and Death Benefits 4
Payment of Supplemental Pension and Death Benefits 4
Lump Sum Distributions 4
Lump Sum Death Benefit 5
4 Minimum Benefits - Disability Survivor and Retirement 5
Disability 5
Disability Pension Allowance 6
Reduction of Disability Pension Allowance 6
Minimum Retirement Benefit 6
Surviving Spouse Benefit 6
Medical Expense Benefits 7
Annual Basic Pay 7
Pre-1987 Benefit Formula 7
2
<PAGE>
AMERITECH CORPORATE RESOURCE
SUPPLEMENTAL PENSION PLAN
-------------------------
(As Amended and Restated Effective as of February 1, 1998)
TABLE OF CONTENTS
-----------------
SECTION PAGE
------- ----
5 Conditions of Payment 8
Distributions to Persons Under Legal Disability 8
Benefits May Not Be Assigned or Alienated 8
Forfeiture of Benefits 8
Suspension on Re-employment 9
Lump Sum Settlement 9
Change in Control 10
6 Amendment or Termination 12
Administrative Amendments 12
Amendments and Termination 12
Participation Rights 12
Successor 12
3
<PAGE>
AMERITECH CORPORATE RESOURCE
SUPPLEMENTAL PENSION PLAN
-------------------------
(As Amended and Restated Effective as of February 1, 1998)
SECTION 1
---------
General
-------
1.1. History and Purpose. Ameritech Senior Management Retirement and
Survivor Protection Plan , now renamed the Ameritech Corporate Resource
Supplemental Pension Plan (the "Plan") was established by Ameritech Corporation,
a Delaware corporation (the "Company"), effective as of January 1, 1986 (the
"Effective Date"), as an amendment, restatement and continuation of the
following Predecessor Plans as they applied to employees eligible to participate
under subsection 2.1. Ameritech Management Supplemental Pension Plan (the
"Supplemental Plan"), Ameritech Senior Management Non-Qualified Pension Plan
(the "Non-Qualified Plan"), Ameritech Mid-Career Pension Plan (the "Mid-Career
Plan"), and the retirement and survivor benefit provisions of Ameritech Senior
Management Long Term Disability and Survivor Protection Plan (the "Survivor
Protection Plan"). The primary purpose of the Plan is to provide deferred
compensation for a select group of management and highly compensated employees
in the form of retirement and survivor benefits which are in addition to those
provided under the Ameritech Management Pension Plan (the "Pension Plan"). The
following provisions constitute an amendment, restatement and continuation of
the Plan, effective as of February 1, 1998.
1.2. Subsidiaries and Affiliates. 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 and which has previously adopted any
one or more of the Predecessor Plans or which previously adopted or hereafter
adopts the Plan. 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") which previously adopted any one or more of the Predecessor
Plans or which previously adopted or hereafter adopts the Plan. Subsidiaries and
Affiliates may also be referred to individually as an "Employer" and
collectively as "Employers".
1.3. Definitions. Unless the context clearly requires otherwise, any
word, term or phrase used in the Plan shall have the same meaning as is assigned
to it under the terms of the Pension Plan.
1.4. Plan Administration. The authority to control and manage the
operation and administration of the Plan as applied to the Company or any
Employer shall be vested in the Benefit Plan Committee which administers 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
1
<PAGE>
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 of the Company
or 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.
1.5. Source of Benefits. The obligations of the Company and the
Employers under the Plan are solely contractual. Any amount payable under the
terms of the Plan shall be paid from the general assets of the Company and the
Employers or from one or more trusts, the assets of which will be subject to the
claims of the general creditors of the Company and the Employers. If a
Participant's term of employment includes service by two Employers or by the
Company and one or more Employers, the Company or Employer which last employed
the Participant shall be solely responsible for the entire benefit payable under
Sections 3 and 5 of the Plan.
1.6. 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, Compensation Group at 30
South Wacker Drive, 35th Floor, Chicago, Illinois 60606.
1.7. 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.
1.8. 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.
1.9. Benefits Under Predecessor Plans. Except as otherwise specifically
provided in the Plan, the right to benefits under the Plan and the amount of
benefits of a Participant who has terminated or terminates employment with the
Company and the Employers shall be determined in accordance with the provisions
of the Plan as in effect immediately prior to that termination.
SECTION 2
---------
Participation and Retirement
----------------------------
2.1. Participation. Each Senior Management Employee (as defined below)
of the Company and the Employers who was a participant in any of the Predecessor
Plans on December 31, 1985 became a Participant in the Plan on January 1, 1986.
Any employee who was a Participant as of June 30, 1995 shall remain a
Participant as long as he remains a Senior Management Employee or meets the
requirements to be an Eligible Employee (as defined below).
2
<PAGE>
Each other Eligible Employee shall become a Participant in the Plan as of the
earliest date after June 30, 1995 on which:
(a) such employee's accrued benefit under the Pension Plan is
limited by reason of the application of either section
401(a)(17) or 415 of the Internal Revenue Code of 1986, as
amended (the "Code");
(b) such employee is entitled to an award under 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"); or
(c) such employee has made a salary deferral under the Company's
Corporate Resource Deferral Plan.
In addition, solely with respect to the Surviving Spouse Benefit described in
subsection 4.5, a Participant shall include an individual who is entitled to a
Disability Pension under the Pension Plan, and who prior to commencement of such
Disability Pension was a Senior Management Employee or an Eligible Employee. The
term "Senior Management Employee" means an employee on the active payroll of the
Company or any Employer who has attained a level higher than Department Level or
equivalent Fifth Level, and who holds a position that the Board of Directors of
the Company has designated to be within its Senior Management Group.
The term "Eligible Employee" means (a) a member of the Company's Management
Committee or (b) a full-time management employee on the active payroll of the
Company or any Employer (i) who has attained any of salary grades CR1 through 9,
or (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. An
individual who on or after April 1, 1993 ceases to be a Senior Management
Employee or an Eligible Employee shall cease to be a Plan Participant for all
purposes under the Plan effective as of the date such individual ceases to be a
Senior Management Employee or an Eligible Employee.
2.2. Participation in Predecessor Plans. If a Participant participated
in one or more Predecessor Plans prior to his becoming a Participant under this
Plan, his applicable benefits under this Plan shall be no less than the benefits
accrued by him under the Predecessor Plans and the benefits under this Plan
shall be in lieu of all benefits otherwise payable to him under the Predecessor
Plans.
2.3. 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 award or other benefit pursuant to an Incentive
Plan or the Pension Plan, nor any right or claim to any benefit under the Plan,
except to the extent specifically provided under the terms of the Plan.
3
<PAGE>
2.4. Mandatory Retirement. Each Participant who is within the category
of employees referred to in (a) Section 12(c)(1) of The Age Discrimination in
Employment Act of 1967, as amended ("ADEA"), shall retire no later than the
first day of the month after attainment of age 65, or at such later age, only as
otherwise agreed to by the Company or applicable Employer, or (b) Section
4(f)(1) of ADEA, shall retire at such age as may be applicable under ADEA, with
respect to those employees for whom age is a bona fide occupational
qualification within the meaning of such section.
SECTION 3
---------
Amount and Payment of Supplemental
Pension and Death Benefits
--------------------------
3.1. Amount of Supplemental Pension and Death Benefits. Subject to the
terms and conditions of the Plan, the supplemental pension and death benefits
payable to, or on account of, a Participant under the Plan as of any date shall
be an amount equal to:
(a) the amount of the benefit payment (expressed in the form of
the benefit payable to or on account of the Participant under
the Pension Plan) that would have been payable to or on
account of the Participant under the Pension Plan as of that
date, determined without regard to the limitations imposed by
either section 401(a)(17) or 415 of the Code, and determined
as if his compensation under the Pension Plan were equal to
his Modified Compensation (as defined below);
REDUCED BY
----------
(b) the amount of the actual benefit payment under the Pension
Plan as of that date to or on account of the Participant.
A Participant's Modified Compensation as of any date shall be equal to the
amount that would be his compensation as of the date under the Pension Plan if
it included the amount of any salary deferrals, the amount of any awards
deferred under the annual bonus plans of the Company or an Employer and the
amount of his actual awards under the Incentive Plans (without regard to any
deferral of such salary or awards under the Ameritech Corporate Resource
Deferral Plan and without regard to the limitations imposed by section
401(a)(17) of the Code).
3.2. Payment of Supplemental Pension and Death Benefits. Subject to the
provisions of subsections 3.3, 3.4, 5.5 and 5.6, the supplemental pension and
death benefits payable to or on account of a Participant under subsection 3.1
shall be paid to him, or on his account, at the times and for the periods that
benefits are payable to the Participant, or on his account, under the Pension
Plan and such supplemental pension benefits shall be subject to any
post-retirement increase pursuant to the same terms and conditions as benefits
payable under the Pension Plan.
3.3. Lump Sum Distributions. Regardless of the form of payment under
the Pension Plan, a Participant may elect to have his supplemental pension
benefits under this Plan paid in a
4
<PAGE>
lump sum in accordance with the provisions of subsection 5.5. If a Participant's
pension is paid in a lump sum under the Pension Plan and he does not elect a
lump sum under subsection 5.5 of this Plan, his supplemental pension benefits
under this Plan shall be paid in a single life annuity form with no survivor
benefits or in a survivor annuity form, whichever he shall elect, in an amount
determined as if the amount paid to him in a lump sum under the Pension Plan had
been paid in a single life annuity or survivor annuity form, as the case may be.
3.4. Lump Sum Death Benefit. If a Participant dies on or after May 1,
1995 and prior to the date as of which his supplemental pension benefits
commence under the Plan, in lieu of the death benefit which would otherwise be
payable under the Plan on account of the Participant in accordance with the
provisions of subsections 3.1 and 3.2, the Participant's Beneficiary (as defined
in the Pension Plan, and which may be, if applicable, a Qualified Spouse, as
provided under the Pension Plan) shall be entitled to receive a lump sum death
benefit, subject to the following:
(a) Such lump sum payment shall be paid as soon as possible after
the Participant's death and shall be in an amount equal to the
present value of the vested supplemental pension benefits
accrued by the Participant under the Plan as of the date of
his death determined on the basis of the actuarial rates,
tables and factors then in effect under the Pension Plan. This
provision is intended to provide the Beneficiary with a lump
sum payment equal to the amount the Participant would have
received under the plan had he retired as of the date of his
death (or termination of employment if earlier) and elected to
receive benefits in the form of a lump sum from both the
Pension Plan and the Plan. Accordingly, such lump sum payment
from the Plan shall be calculated without regard to the amount
of any survivor benefit which any Qualified Spouse actually
receives from the Pension Plan on account of the Participant's
death.
(b) If the Participant does not have a Qualified Spouse and fails
to designate a Beneficiary under the Pension Plan, the lump
sum payment described in subsection 3.4(a) above shall be paid
to the Participant's estate.
SECTION 4
---------
Minimum Benefits - Disability
Survivor and Retirement
-----------------------
4.1. Disability. 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 applicable Employer which the
Participant would otherwise be capable of performing by reason of the
Participant's background and experience.
5
<PAGE>
4.2. Disability Pension Allowance. Subject to the provisions of
subsection 5.6, a Participant who is disabled during a period described in
subsection 4.1 and continuously thereafter through age 65 shall, commencing with
his sixty-fifth birthday or the start of the period described in subsection 4.1,
if later, be eligible to receive a monthly Disability Pension Allowance equal to
the greater of:
(a) one and one-quarter percent of the Participant's Annual Basic
Pay (as defined in subsection 4.7) on the last day the
Participant was on the active payroll; or
(b) if the Participant's term of employment has been five years or
more, ninety percent of the monthly pension the Participant
would have been entitled to receive commencing at age
sixty-five under the Pension Plan and Section 3 of this Plan
as in effect on the last day the Participant was on the active
payroll, but ignoring any minimum service requirements for
eligibility to a pension, if the period after the last day the
Participant was on the active payroll and prior to the
Participant's sixty-fifth birthday had been included in the
Participant's term of employment.
4.3. Reduction of Disability Pension Allowance. The Disability Pension
Allowance determined for any period under subsection 4.2 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 the
period for which such Disability Pension Allowance is provided: a pension under
the Pension Plan or Section 3 of this Plan; any other retirement income payments
from the Company or any Employer; and any Worker's Compensation Benefit.
However, no reduction shall be made on account of any pension under the Pension
Plan or Section 3 of this Plan at a rate greater than the rate of such pension
on the date the Participant first received such pension after his disability.
4.4. Minimum Retirement Benefit. Subject to the provisions of
subsection 5.5, a monthly Minimum Retirement Benefit shall be payable to any
Participant who was a Participant in the Plan as of June 30, 1995 and (i) whose
combined age and service upon leaving the Company and the Employers equals 75 or
more ("Rule of 75") or (ii) whose term of employment is at least five years and
whose employment terminates on or after his sixty-second birthday for reasons
other than diability. The amount of the monthly Minimum Retirement Benefit shall
be equal to one and one-quarter percent of the Participant's Annual Basic Pay on
the last day the Participant was on the active payroll, reduced by the sum of
the following benefits received by the Participant which are attributable to the
period for which benefits are provided under this subsection: a pension under
the Pension Plan and Section 3 of this Plan (or the monthly amount of any such
pension which was paid to the Participant in a lump sum), and any other
retirement income payments received by the Participant from the Company and the
Employers. However, no reduction shall be made on account of any pension under
the Pension Plan or Section 3 of this Plan at a rate greater than the rate of
such pension on the date the Participant first received such pension after his
retirement or other termination of employment.
4.5. Surviving Spouse Benefit. Subject to the provisions of subsection
5.6, in the event of the death of a Participant who was a Participant in the
Plan as of June 30, 1995, including such a
6
<PAGE>
Participant who is entitled to a benefit under subsection 4.2 or 4.4, the
surviving spouse ("Surviving Spouse") of such Participant shall be eligible to
receive a monthly benefit equal to one and one-quarter percent of the
Participant's Annual Basic Pay, on the last day the Participant was on the
active payroll prior to his death, reduced by the sum of the following benefits
received by the Participant's Surviving Spouse on account of the death of the
Participant and which are attributable to the period for which benefits are
provided under this Section: an annuitant's pension under the Pension Plan and
Section 3 of this Plan (or the monthly equivalent of any amount which is paid to
the Surviving Spouse under subsection 3.4); and any other lifetime payments to
such Surviving Spouse from the Company or any Employer. However, no reduction
shall be made on account of an annuitant's pension benefit under the Pension
Plan or Section 3 of this Plan at a rate greater than (i) the rate such pension
or annuity was first payable, and in the case of the death of a Participant who
is on the active payroll, or (ii) the rate such pension or annuity first would
have been payable had the Participant died on the day after the last day the
Participant was on the active payroll, in the case of the death of a Participant
who is not on the active payroll. Notwithstanding the foregoing provisions of
this subsection, the Surviving Spouse of a Participant shall not be eligible to
receive benefits under this Section if, prior to the Participant's death, he
could have elected under the Pension Plan to receive a reduced pension for his
life in order to provide thereafter an annuity for the life of his spouse, but
he did not make such election.
4.6. Medical Expense Benefits. A Participant who is entitled to a
benefit under subsection 4.2 or 4.4 whose combined age plus years of service
upon retirement is less than 75 shall be entitled to the same rights and
benefits under the Company's or Employer's Comprehensive Health Care Plan and
Dental Expense Plan (as those Plans have been combined to create the Management
Umbrella Welfare Benefit Plan) as if he had retired with age plus years of
service totalling 75.
4.7. Annual Basic Pay. A Participant's "Annual Basic Pay" means his
annual base salary rate on the last day on which he is on the active payroll of
the Company or Employer plus the applicable standard short-term award in effect
on such date.
4.8. Pre-1987 Benefit Formula. Subject to the provisions of Section 5,
if a Participant's employment terminates on or after December 31, 1986 his
benefits under the Plan shall not be less than the benefits to which he would
have been entitled if the terms of the Plan and the terms of the Pension Plan as
in effect on December 30, 1986 had continued in effect through December 31,
1988.
7
<PAGE>
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. Prior to the death of any Participant, no
other person shall have any rights under the Plan with respect to that
Participant.
5.3. Forfeiture of Benefits.
(a) All or a portion of the benefits under Sections 3 and 4 of the
Plan other than benefits which would have been payable under
the Pension Plan but for the limitations imposed by sections
401(a)(17) and 415 of the Code may be forfeited at the
discretion of the Compensation Committee of the Company's
Board of Directors under the following circumstances:
(i) The Participant is discharged by the Company or an
Employer for cause;
(ii) The Compensation Committee of the Board of Directors of
the Company determines that the Participant engaged in
misconduct in connection with his employment with the
Company or Employer; or
(iii) 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 Employer or with any business in which the
Company or any Employer has a substantial interest
(other than as a shareholder with a nonsubstantial
interest in such business) as determined by the
Compensation Committee of the Board of the Company.
(b) The portion of the benefit subject to forfeiture under the
conditions described in this subsection 5.3(a) above, is as
follows:
(i) The total benefit is subject to forfeiture if the
Participant's retirement or termination of employment,
or employment or association with a competing business
as specified in subsection 5.3(a) occurred before age
65.
8
<PAGE>
(ii) If an individual terminates employment on or after
attainment of age 65, the total benefit is subject to
forfeiture if the Participant's pension under the
Pension Plan exceeds $44,000.
(iii) If an individual terminates employment on or after
attainment of age 65, and the annual pension benefit
under the Pension Plan is less than $44,000 but the
combined pension thereunder and the benefits under this
Plan attributable to the minimum retirement benefit and
the portion of the supplemental pension benefit which
results from the limitations imposed by either section
401(a)(17) or 415 of the Code exceeds $44,000, the
benefit hereunder above the $44,000 combination is
subject to forfeiture.
5.4. Suspension on Re-employment. Employment with the Company, any
Employer or any Interchange Company subsequent to retirement or termination of
employment with entitlement to any benefits under the Plan shall result in the
permanent suspension of the benefit for the period of such employment or
re-employment.
5.5. Lump Sum Settlement. In lieu of the supplemental pension benefit,
and minimum retirement benefit, if any, payable under Section 3 and subsection
4.4, respectively, a Participant whose employment with the Company and the
Employers terminates on or after October 1, 1986, for reasons other than death,
or transfer to an Interchange Company, may elect to receive a lump sum payment
of the present value of the aggregate amount of all such benefits to which he
would otherwise be entitled, subject to the following:
(a) An election of a lump sum payment must be filed with the
Committee by the later of (i) sixty (60) days after the date
on which the Participant terminates employment with the
Company and the Employers or (ii) sixty (60) days after the
date on which the Participant is notified of his right to
elect a lump sum under the Plan. A lump sum payment timely
elected by a Participant shall be paid to him no earlier than
ninety (90) days after the date on which the Participant
terminates employment with the Company and the Employers.
If a Participant fails to make a timely election of a lump sum
payment, his benefits shall be paid to him, in a single life
annuity form with no survivor benefits if he is not then
married, or in a survivor annuity form if he is then married,
beginning no earlier than ninety (90) days after the later of
(i) the date on which the Participant terminates employment
with the Company and the Employers, or (ii) the date on which
the Participant is notified of his right to elect a lump sum
under the Plan.
(b) The amount of a Participant's lump sum payment under the Plan
shall be determined on the basis of the rates, tables, and
factors which would be utilized to determined the
Participant's lump sum payments under the Pension Plan as of
the date of the Participant's termination of employment.
9
<PAGE>
(c) A Participant may rescind the election of a lump sum
distribution at any time up to and including the date as of
which the Participant could have elected a lump sum payment
under paragraph (a) of this subsection 5.5.
(d) If a Participant who has filed a lump sum election dies prior
to his retirement or other termination of employment, such
election shall be void. If a Participant who has filed a lump
sum election dies after his retirement or other termination of
employment but prior to receipt of such payment, the lump sum
shall be paid to his estate as soon as practicable thereafter.
(e) A lump sum payment under this subsection 5.5 shall be in lieu
of all other benefits (including postretirement ad hoc pension
increases) otherwise payable to or on account of the
Participant under the Plan, other than the medical expense
benefits set forth in subsection 4.6.
(f) Any election under this subsection 5.5 shall be in such form
as the Committee may require from time to time.
5.6. Change in Control. Notwithstanding any other provisions of the
Plan, if a Change in Control (as defined below) occurs, then each Participant's
benefits hereunder shall be fully vested. 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,
10
<PAGE>
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.
11
<PAGE>
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 resources 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 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.
6.3. Participation Rights. No action under this Section 6 shall reduce
or impair the interests of individuals in benefits being paid under the Plan or,
without the consent of the affected Participant, adversely affect the rights of
any Participant with respect to any benefits accrued under the Plan prior to the
date of the amendment or termination, as the case may be.
6.4. Successor. 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 arrangements or
the payment of any benefits payable under the Plan.
12
<PAGE>
Exhibit 10v-1
SUPPLEMENT A
TO
AMERITECH CORPORATE RESOURCE
SUPPLEMENTAL PENSION PLAN
(As Amended and Restated Effective as of February 1, 1998)
(December 31, 1998 Lump Sum Payments)
Application A-1. This Supplement A to the Ameritech
Corporate Resource Supplemental Pension
Plan (the "Plan") is applicable to each
Participant in the Plan who on the date
of distribution set forth in section A-3
of this Supplement A is employed by the
Company as a member of the Management
Committee of the Company or as a
corporate resource manager in salary
grade CR6 or higher who holds the title
of President (an "Affected
Participant").
Definitions A-2. Unless the context clearly implies
or indicates to the contrary, a word, a
term or phrase used or defined in the
Plan or the Pension Plan is similarly
used or defined for purposes of this
Supplement A.
December 31, 1998 A-3. Subject to the following provisions
Lump Sum Payments of this Supplement A, each Affected
Participant shall receive a lump sum
payment of his interest under the Plan
on or before December 31, 1998. Such
lump sum payment shall be determined
under subsection 3.1 of the Plan as
though the Affected Participant had
terminated employment on December 31,
1998; provided, however, that solely for
the purpose of determining the lump sum
payment under this section A-3, the
determination of final average
compensation shall not include any bonus
award paid or payable for the 1998 year
under the Management Committee Short
Term Incentive Plan or the Senior
Mangement Short Term Incentive Plan.
<PAGE>
Election to A-4. By writing filed with the Company
Reject Receipt prior to September 15, 1998, an Affected
Participant may irrevocably elect to
reject receipt of the payment described
in section A-3 of this Supplement, in
which case, his benefits under the Plan
will be determined and paid under the
terms of the Plan without regard to the
provisions of this Supplement A.
Source of Payment A-5. The payment to which an Affected
and Tax Withholding Participant is entitled under section
A-3 of this Supplement A shall be paid
by the Company, Subsidiary or Affiliate
employing the Affected Participant on or
before December 31, 1998, and shall be
subject to all applicable withholding of
taxes.
Calculation of Residual A-6. The residual benefit to which an
Benefit at Termination of Affected Participant or his surviving
Employment spouse is entitled under the Plan when
he actually terminates employment will
be determined in accordance with this
section A-6.
If the benefit paid as a lump sum under
section A-3 of this Supplement A was
derived from the defined lump sum
formula ("DLS") under subsection 5.1 of
the Pension Plan, the amount paid under
section A-3 will be adjusted to its then
present value using an interest rate of
4.25% and then will be subtracted from
the amount of the lump sum determined at
termination of employment under
whichever of the formulas under the
Pension Plan produces the larger lump
sum. If the Affected Participant or his
surviving spouse elects payment of the
residual benefit in a form other than a
lump sum, the lump sum amount produced
under the foregoing calculation will be
converted to such other form of payment
using the rates, factors and tables
applicable to the formula from which the
lump sum under this section A-6 was
derived.
If the benefit payable under section A-3
was instead determined under the final
average pay formula of Supplement B to
the Pension Plan, the residual benefit
shall be determined by reducing the
amount
2
<PAGE>
of the Supplement B benefit determined
at termination of employment and
expressed as an immediate single life
annuity by the amount of the Affected
Participant's Supplement B benefit under
section A-3 expressed as a single life
annuity payable as of the distribution
date set forth in section A-3. If the
Affected Participant or his surviving
spouse elects payment of the residual
benefit in a form other than an
immediate single life annuity, the
immediate single life annuity amount
produced under the foregoing calculation
will be converted to such other form of
payment using the rates, factors and
tables applicable under Supplement B of
the Pension Plan.
For purposes of the foregoing, the
residual benefit so calculated shall
reflect the terms of any agreement for
services with SBC Communications Inc.
("SBC") pursuant to which an Affected
Participant has agreed to the "freezing"
of his benefit accruals under this Plan,
in which case the starting point for
determining the residual benefit payable
under this section A-6 will be the
accrued benefit (payable as a single
life annuity at age 65 under Supplement
B or the DLS amount under section 5.1 of
the Pension Plan, whichever is
applicable) earned under this Plan as of
the effective date of the freeze, but
using the early retirement and other
actuarial factors applicable to his
actual termination date. If the
Agreement and Plan of Merger between SBC
and the Company dated May 10, 1998 is
terminated, this last paragraph of
section A-6 shall be void.
3
<PAGE>
Exhibit 10w-1
FIRST AMENDMENT
OF
AMERITECH CORPORATE RESOURCE SUPPLEMENTAL PENSION TRUST
(As Amended and Restated Effective as of May 1, 1996)
Pursuant to the authority delegated to the undersigned by the Board of
Directors of Ameritech Corporation, the Ameritech Corporate Resource
Supplemental Pension Trust (As Amended and Restated Effective as of May 1, 1996)
(the "Trust") is hereby amended effective as of September 15, 1997 to delete
subsection 5.4 of the Trust in its entirety and to substitute the following
therefor:
"5.4 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) 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; or
(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 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 ; or
(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
<PAGE>
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 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
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. The Secretary of the
Company shall promptly notify the Trustee of the occurrence of a Change in
Control."
Dated: July 13, 1998 By: /s/ Walter M. Oliver
--------------------
Walter M. Oliver
Senior Vice President
Human Resources
2
<PAGE>
Exhibit 13
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>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $17,154 $15,998 $14,917 $13,428 $12,569 $11,865 $11,285 $10,983 $10,773 $10,316 $10,014
------------------------------------------------------------------------------------------------
Operating expenses(1) 12,961 12,199 11,412 10,125 10,540 9,307 8,941 9,001 8,584 8,161 7,882
------------------------------------------------------------------------------------------------
Operating income 4,193 3,799 3,505 3,303 2,029 2,558 2,344 1,982 2,189 2,155 2,132
Interest expense 611 505 514 469 435 453 495 545 454 384 366
Other income, net 2,055 390 326 260 147 117 125 219 76 14 52
Income taxes 2,031 1,388 1,183 1,086 571 709 628 491 557 547 581
------------------------------------------------------------------------------------------------
Income before special
accounting items(2) 3,606 2,296 2,134 2,008 1,170 1,513 1,346 1,165 1,254 1,238 1,237
Special accounting items(2) -- -- -- -- (2,234) -- (1,746) -- -- -- --
------------------------------------------------------------------------------------------------
Net income (loss) $3,606 $2,296 $2,134 $2,008 $(1,064) $1,513 $(400) $1,165 $1,254 $1,238 $1,237
------------------------------------------------------------------------------------------------
Earnings (loss) per share(3)
Income before special
accounting items(2)
Basic $3.27 $2.09 $1.93 $1.81 $1.06 $1.39 $1.25 $1.10 $1.18 $1.15 $1.14
Diluted 3.25 2.08 1.92 1.81 1.06 1.39 1.25 1.10 1.18 1.15 1.14
Special accounting items(2)
Basic -- -- -- -- (2.03) -- (1.62) -- -- -- --
Diluted -- -- -- -- (2.03) -- (1.62) -- -- -- --
------------------------------------------------------------------------------------------------
Net income (loss)
Basic $3.27 $2.09 $1.93 $1.81 $(0.97) $1.39 $(0.37) $1.10 $1.18 $1.15 $1.14
Diluted 3.25 2.08 1.92 1.81 (0.97) 1.39 (0.37) 1.10 1.18 1.15 1.14
------------------------------------------------------------------------------------------------
Dividends declared
per share(3) $1.218 $1.148 $1.078 $1.015 $0.97 $0.93 $0.89 $0.86 $0.81 $0.75 $0.69
------------------------------------------------------------------------------------------------
Average common shares
outstanding (millions)(3) 1,101.6 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
Total assets(4) $30,299 $25,339 $23,707 $21,942 $19,947 $23,428 $22,818 $22,290 $21,715 $19,833 $19,163
Property, plant and
equipment, net(4) $14,305 $13,873 $13,507 $13,457 $13,455 $17,366 $17,335 $16,986 $16,652 $16,296 $16,078
Capital expenditures $2,982 $2,651 $2,476 $2,176 $1,955 $2,108 $2,267 $2,200 $2,154 $2,015 $1,895
Long-term debt $5,557 $4,610 $4,437 $4,513 $4,448 $4,090 $4,586 $4,964 $5,074 $5,069 $4,487
Total debt(6) $8,176 $7,646 $7,592 $6,651 $6,346 $6,692 $6,704 $6,938 $6,769 $5,582 $4,942
Debt ratio 42.9% 47.9% 49.7% 48.7% 51.2% 46.0% 48.9% 46.1% 46.7% 42.1% 38.7%
Return on average equity(5) 36.2% 28.5% 28.7% 29.5% (13.6)% 20.1% (5.9)% 14.5% 16.3% 15.8% 15.8%
Return on average total
capital(5) 22.1% 18.1% 17.1% 18.2% (4.6)% 13.1% 0.2% 10.6% 11.8% 11.9% 12.0%
Market price per common share(3) $63.38 $40.25 $30.31 $29.44 $20.19 $19.19 $17.81 $15.88 $16.69 $17.00 $11.94
Access lines (000s) 20,968 20,502 19,694 19,057 18,239 17,560 17,001 16,584 16,278 15,899 15,469
Cellular subscribers (000s) 3,577 3,177 2,512 1,891 1,299 860 586 483 326 242 146
Employees 70,525 74,359 66,128 65,345 63,594 67,192 71,300 73,967 75,780 77,326 77,334
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Increase in operating expenses in 1994 and 1998 was due to work force
restructuring charges of $728 million and $104 million, respectively, while
operating expenses in 1995 decreased due to a restructuring credit of $134
million.
(2) Special accounting items represent an extraordinary item for the
discontinuance of FAS 71 (accounting in a regulatory environment) in 1994
and the cumulative effect of changes in accounting principles in 1992 for
FAS106 ($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 $325 million
in 1998, $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 (dollars in millions, except per share amounts)
OVERVIEW
- -------------------------------------------------------------------------------
Ameritech is a diversified, full-service communications company providing
wireline and wireless telephone service, paging, cable TV, security services,
directory advertising 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 by 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; cable TV service in Illinois, Michigan and Ohio; and
security services throughout North America.
The communications industry continued to adapt to sweeping regulatory
changes, increased competition and significant new strategic initiatives in
1998. The Telecommunications Act of 1996 established a national policy that
calls for competition and open markets, rather than regulatory management, as
the basic industry business environment. As a result, it opened the nation's
communications markets to competition from new players both within and outside
the industry, potentially enabling them to become either niche or full-service
providers of voice, video, data, local and long-distance services for their
customers. At the same time, many communications markets in other parts of the
world are in the midst of reform, resulting in privatization and deregulation of
many previously nationalized communications companies.
These forces acting together create an environment for tremendous potential
growth in the global communications industry. Ameritech recognized these growth
opportunities several years ago, and we implemented three basic strategies to
compete effectively in this new environment: speed growth in our core business,
introduce new services for customers and connect customers around the world. By
adhering to these strategies, we have positioned ourselves to take advantage of
future market expansion and strategic growth opportunities.
On May 11, 1998, we accelerated the execution of Ameritech's strategy with
the announcement of our agreement to merge with SBC Communications Inc. In the
merger transaction, each share of Ameritech common stock will be converted into
and exchanged for 1.316 shares of SBC common stock. After the merger, Ameritech
will be a wholly owned subsidiary of SBC. The transaction was approved by the
board of directors and shareowners of each company in 1998, but remains subject
to various federal and state regulatory approvals. Ameritech and SBC own
competing cellular licenses in several markets, including Chicago and St. Louis.
Because FCC rules limit cross-ownership of cellular licenses, we expect that the
FCC will require divestiture of one overlapping license in each market before
granting approval of the merger.
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Ameritech's record of strong financial results continued in 1998. We achieved
double-digit earnings growth before one-time items in each quarter of 1998 and
for the year. Results were driven by solid revenue growth and by operating cost
controls initiated in the first quarter of 1998. Income from international
ventures in Belgium, Denmark and Hungary also contributed to earnings growth.
Consolidated results of operations for 1998 compared with the prior year were
as follows:
Results of Operations
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before
one-time items $2,614 $2,346 $268 11.4
One-time items 992 (50) 1,042 n/m
Net income 3,606 2,296 1,310 57.1
EPS before one-time items
Basic $2.37 $2.14 $0.23 10.7
Diluted 2.35 2.12 0.23 10.8
Earnings per share
Basic $3.27 $2.09 $1.18 56.5
Diluted 3.25 2.08 1.17 56.3
Average common shares
(millions) 1,101.6 1,098.7 2.9 0.3
- -------------------------------------------------------------------------------
</TABLE>
One-time items in 1998 consisted of:
o a pretax charge of $104 million ($64 million after-tax, or $0.05 per share)
for restructuring related to a cost containment program announced in March
1998;
o a pretax gain of $1,543 million ($1,012 million after-tax, or $0.91 per
share) from the sale of substantially all of our shares in Telecom
Corporation of New Zealand Limited (TCNZ);
o a pretax charge of $54 million ($34 million after-tax, or $0.03 per share),
for a currency-related fair-value adjustment related to our Tele Danmark
investment;
o a pretax gain of $170 million ($102 million after-tax, or $0.09 per share)
from the sale of certain Wisconsin telephone and directory assets to Century
Telephone Enterprises, Inc. (Century Telephone); and,
o a pretax charge of $38 million ($24 million after-tax, or $0.02 per share)
for the costs of redeeming $1.3 billion of long-term debt.
One-time items in 1997 included:
o an after-tax charge of $87 million, or $0.08 per share, related to our share
of the costs of a work force restructuring at Belgacom, the national
telecommunications provider in Belgium;
o a pretax gain of $52 million ($37 million after-tax, or $0.03 per share)
resulting from the sale of our 12.5% interest in Sky Network Television
Limited of New Zealand (Sky TV);
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
o a pretax charge of $69 million ($42 million after-tax, or $0.04 per share)
resulting from our agreement to settle lawsuits related to our inside wire
maintenance services;
o a pretax gain of $42 million ($25 million after-tax, or $0.03 per share)
resulting from the sale of our 14.3% share of Bell Communications Research
(Bellcore);
o a pretax gain of $43 million ($27 million after-tax, or $0.03 per share)
resulting from the sale in an initial public offering of a portion of our
stake in MATAV, the telecommunications provider in Hungary; and,
o a pretax charge of $16 million ($10 million after-tax, or $0.01 per share)
resulting from a currency-related fair-value adjustment related to our Tele
Danmark investment.
Including the effects of these one-time items, 1998 net income increased
$1,310 million, or 57.1%, and diluted earnings per share increased $1.17, or
56.3%, over the comparable prior year period. Net income before one-time items
increased $230 million, or 10.9%, in 1997, and diluted earnings per share
increased $0.21, or 11.0%, over 1996 results. Results in 1996 included an
after-tax gain of $18 million, or $0.02 per share, resulting from the sale of
our interest in Centertel, a cellular telephone company in Poland.
SEGMENTS The following discussion makes reference to a new segment reporting
concept adopted in 1998. As discussed more fully in Note 14 to the consolidated
financial statements on pages 51 to 53, based on how we manage our business, we
have three reportable segments. Our largest segment is communications, which
provides landline telephone service, cellular telephone and paging services, as
well as call management and data services to business and residential customers.
Our second segment is information and entertainment, which provides printed and
online directories for business and residential users, security and alarm
monitoring services for homes and businesses, and cable TV services. Our third
reportable segment is international, which manages our investments in foreign
ventures. The international segment has no revenues, as all accounting activity
is recorded using the one-line equity method of accounting. We evaluate the
performance of our two revenue-producing segments on a direct margin basis,
which represents total revenues of that segment less direct expenses attributed
to it (excluding corporate allocations, information technology costs, interest
income or expense, income taxes and certain other costs).
Our communications segment is characterized by stable revenue growth and
solid earnings. Revenue growth in the information and entertainment segment is
somewhat higher, in part due to acquisitions, but earnings growth is more modest
due to the start-up nature of our cable TV operation and normal integration
costs being incurred in our security services business. The international
segment continues to contribute to earnings growth.
Total direct margin for reportable segments was $6,593 million in 1998,
$6,049 million in 1997 and $5,332 million in 1996. Direct margin for the
communications segment represented approximately 92% in 1998, 92% in 1997 and
90% in 1996, and margin from the information and entertainment segment
represented the remaining 8%, 8% and 10% for those years.
Direct margin in the communications segment increased in both 1998 and 1997
due to increased profitability in the cellular business, increased revenues from
high-margin call management services and steady growth in the landline
communications business.
Our margins in the information and entertainment segment have been slowed by
acquisitions we have made in our security services business. While these
acquisitions have added to revenues, integration and consolidation of monitoring
centers have impacted our margins. Further, the start-up nature of our cable TV
business, which did not have any revenues until mid-1996 and now has more than
200,000 customers, has affected margins in this segment as well.
REVENUES We derive most of our revenues from the provisioning of landline
telephone service and supporting products, which represents approximately 75% of
total revenues from operating segments. Other significant sources of revenue in
1998 included
[CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
---------------------------------------------
$11.9 $12.6 $13.4 $14.9 $16.0 $17.2
Revenue Growth
(in billions)
Ameritech's total revenues increased 7.2% in 1998 to
$17.2 billion, fueled by strong customer demand and
new product launches.
cellular and paging, which contributed approximately 11% of total revenues, and
directory advertising, which represents approximately 8% of total revenues.
Revenues increased by 7.2% to $17.2 billion in 1998. Revenue growth resulted
from strong gains in local service and data services revenues, combined with
continued growth in cellular, paging and security services. Rate reductions,
resulting primarily from access charge reform for landline communications
services, and lower revenues from long-distance services in our communications
segment, partially offset the increase. Revenue growth in 1998 was 6.4% in our
communications segment and 26.1% in our information and entertainment segment,
due in part to asset acquisitions in the security services business.
Total revenues increased by 7.2% to $16.0 billion in 1997, driven by
increased demand for a wide array of voice and data
24
<PAGE>
transmission services. Rate reductions partially offset these increases. Revenue
growth in 1997 was 7.6% in our communications segment and was 11.7% in our
information and entertainment segment.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Local service $7,020 $6,572 $448 6.8
- -------------------------------------------------------------------------------
</TABLE>
LOCAL SERVICE Local service revenues include basic monthly service fees and
usage charges, fees for call management services, public phone revenues, and
certain installation and connection charges. Local service rates generally have
been regulated by the state public service commissions. These revenues are
included in the results of our communications segment.
In the local service arena, demand for data services grew strongly in 1998,
as evidenced by a 58% increase in the number of ISDN lines in service and 33%
annual growth in high-capacity circuits. The proliferation of fax machines,
Internet usage and computer communications resulted in data traffic exceeding
voice traffic for the first time in our history. Demand for additional lines and
call management services remained strong as revenues from call management
services subscribed to on a monthly basis, such as Call Waiting and Caller ID,
increased by 17% in 1998. Pay-per-use revenues for such services as automatic
call back and three-way calling grew at a 61% annual rate. Access lines in
service increased by 2.3% to 20,968,000 as of December 31, 1998, or 2.7%
normalized for approximately 89,000 lines sold in November 1998 to Century
Telephone.
Local service revenues increased by $397 million, or 6.4%, in 1997 due
largely to increased sales of call management services. These increases resulted
from growth in both the number of features in service and the number of
pay-per-use activations of call management services. Access line growth, driven
in part by increased demand for second lines by residential and small business
customers, also contributed to the revenue increase. Access line growth in 1997
was 4.1%, including approximately 133,000 lines added on November 1, 1997, from
the acquisition of certain assets from Sprint Corporation (Sprint) in the
Chicago area.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Network access
Interstate access $2,481 $2,485 $(4) (0.2)
Intrastate access 551 619 (68) (11.0)
- -------------------------------------------------------------------------------
</TABLE>
NETWORK ACCESS Network access revenues are fees charged to interexchange
carriers, such as AT&T and MCI WorldCom, 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 and are included in the results of our communications segment.
Total network access revenues decreased in 1998, due primarily to rate
reductions resulting from access charge reform effective July 1, 1997, and
additional reductions that took effect July 1, 1998. In addition, access charge
revenues decreased due to a change in reporting classification of certain pay
phone revenues from interexchange carriers for their customers' use of our pay
phones. This change in classification decreased network access revenues and
increased miscellaneous revenues by approximately $106 million in 1998 compared
with 1997. Approximately $87 million of this decrease related to interstate
network access revenues. Minutes of use increased in 1998 for both interstate
and intrastate access, due primarily to growth in the number of calls handled
for interexchange carriers. Growth in network usage by alternative providers of
intraLATA toll service in Illinois, Michigan and Wisconsin also contributed to
the intrastate access volume increase. Minutes of use increased, over the
comparable prior year period, by 6.0% for interstate and 10.5% for intrastate.
Interstate network access revenues increased by $120 million, or 5.1%, in
1997 due primarily to volume increases. 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. Intrastate network access revenues increased by $46
million, or 8.0%, due to greater use of our network by alternative providers of
intraLATA toll services in Illinois, Michigan and Wisconsin. Rate reductions for
both interstate and intrastate network access, resulting primarily from access
charge reforms that took effect on July 1, 1997, partially offset these
increases. Minutes of use increased, over the comparable period in 1996, by 6.1%
for interstate and 15.4% for intrastate.
[GRAPHIC APPEARS HERE]
Total cellular customers at Belgacom,
one of our major European partnerships,
grew 84% in 1998 to 1.2 million.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-distance $1,408 $1,384 $24 1.7
- -------------------------------------------------------------------------------
</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). These revenues also are
included in the results of our communications segment.
Long-distance revenues increased in 1998, reflecting growth in dedicated
services and price increases. Volume decreases, resulting from increased
competition in Illinois, Michigan and Wisconsin, partially offset the increase.
Customers now may use an alternative provider of their choice for intraLATA toll
calls in these markets, without dialing a special access code when placing the
call.
Long-distance revenues decreased by $107 million, or 7.2%, in 1997, due to a
decrease in the volume of intraLATA toll calls completed. Implementation of Dial
1 + capability in the Illinois, Michigan and Wisconsin markets was substantially
complete in 1997, resulting in increased competition for these toll calls.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cellular, directory
and other $5,694 $4,938 $756 15.3
- -------------------------------------------------------------------------------
</TABLE>
CELLULAR, DIRECTORY AND OTHER Cellular, directory and other revenues include
revenues derived from cellular communications, paging services, telephone
directory publishing, cable TV, lease financing, billing and collection
services, telephone equipment sales, and security installations and services.
These revenues result from both our communications and information and
entertainment segments, as well as from other business activities, such as lease
financing, not included in the results of reportable segments.
Revenues from cellular, directory and other services increased in 1998,
resulting primarily from solid growth in the number of cellular subscribers and
pagers in service, as well as continued growth in our security and cable TV
businesses. Revenues from Voice Mail and other nonregulated services, as well as
a change in reporting classification of certain pay phone revenues, as
previously discussed, also contributed to the increase. Also in 1998, we revised
a partnership agreement covering the publication of directories in Illinois and
northwest Indiana, resulting in increased directory advertising revenues.
Competition from other cellular providers has intensified in our region,
particularly in the Chicago market. However, the increased price competition and
expanded service offerings have stimulated demand, driving additional subscriber
growth. We continued to introduce our ClearPathSM digital wireless service in
cities throughout our region during 1998, offering customers enhanced call
clarity, longer battery life and better call security.
Revenues from cellular, directory and other services increased by $625
million, or 14.5%, in 1997 due to strong growth in the number of cellular and
paging subscribers. Introduction of ClearPath service in the Chicago and Detroit
markets and successful retention of a high percentage of subscribers contributed
to the revenue increase. Paging services grew at a strong rate due to increased
marketing efforts and continued customer demand for added convenience. Increased
revenues from equipment sales and inside wire installation and maintenance
services also contributed to the increase, as did higher directory revenues,
resulting primarily from volume growth and price increases.
OPERATING EXPENSES Following is a discussion of operating expenses for Ameritech
on a consolidated basis. Total operating expenses increased by 6.2% to $13.0
billion in 1998. Overall business growth and network expansion drove much of the
increase. Higher access charge expenses and a restructuring charge also
contributed to the increase. Total operating expenses increased by 6.9% to $12.2
billion in 1997, due primarily to increased employee-related and other operating
expenses resulting from overall business growth.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee-related
expenses $4,169 $3,959 $210 5.3
- -------------------------------------------------------------------------------
</TABLE>
EMPLOYEE-RELATED EXPENSES Employee-related expenses increased in 1998 due
primarily to higher employee levels in the information and entertainment
segment, combined with higher wage rates and overtime expenses in the
communications segment. During 1998, we entered into new collective bargaining
agreements with the International Brotherhood of Electrical Workers (IBEW) and
the Communications Workers of America (CWA). The IBEW contract took effect on
June 28, 1998, for a period of five years. The contract will be re-opened in
2001 to address certain economic wage issues for the final two years of the
agreement. The CWA contract was effective August 9, 1998, and
[GRAPHIC APPEARS HERE]
Our total voice channel equivalents,
which include both switched phone lines and
high-capacity connections, grew 13% in 1998.
26
<PAGE>
expires on March 31, 2001. Both agreements provide for basic wage increases of
11.2% over the contract period (until 2001 for the IBEW) and also address
benefits, pensions, work rules and other wage-related items. The IBEW represents
approximately 12,000 employees in Illinois and northwest Indiana, while the CWA
represents approximately 28,000 employees in all five states of our region.
Employee-related expenses increased by $248 million, or 6.7%, in 1997 due
primarily to growth-related employee increases in the security services,
cellular and cable TV businesses. Higher wage levels at the landline
communications subsidiaries, partially offset by lower work force levels, also
contributed to the overall increase.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation and
amortization $2,717 $2,521 $196 7.8
- -------------------------------------------------------------------------------
</TABLE>
DEPRECIATION AND AMORTIZATION Continued network expansion for both wireline and
wireless services in the communications segment, combined with increasing
investments in newer technologies that have shorter depreciable lives,
contributed to an increase in depreciation and amortization expense in 1998.
Higher rates resulted from the use of shorter depreciable lives for newer
technologies. Higher asset balances at our security services subsidiary,
combined with higher amortization of intangibles from acquisitions, also
contributed to the increase.
Depreciation and amortization expense increased by $156 million, or 6.6%, in
1997 due to continued network expansion, resulting from greater demand for
network services and an increase in the cellular subscriber base, and to
increased intangible asset amortization.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other operating
expenses $5,370 $5,140 $230 4.5
- -------------------------------------------------------------------------------
</TABLE>
OTHER OPERATING EXPENSES Other operating expenses increased in 1998 due
primarily to higher access charge expenses resulting from state commission
rulings (which we are contesting) that require local exchange carriers to pay
reciprocal compensation for calls by their customers to the Internet via
Internet service providers (ISPs) who, in turn, are customers of competing local
exchange carriers. Higher cost of sales resulting from growth-related customer
increases at the cellular operation, combined with increased sales of customer
premises equipment, also contributed to the increase. Decreased advertising
expenses, reflecting the timing of promotions and other marketing campaigns,
combined with lower right-to-use fees for switching system software, partially
offset the increase.
Other operating expenses increased by $397 million, or 8.4%, in 1997 due to
customer increases and higher cost of sales resulting from growth in sales of
customer premises equipment. A one-time charge of $69 million resulting from a
litigation settlement also contributed to the increase.
In May 1996, we commenced a 10-year agreement with IBM Global Services (IBM)
to perform certain information technology services previously performed by
Ameritech. As a result of this agreement, contract services expenses have
increased from their 1996 level, while employee-related costs and depreciation
expenses related to computer assets have moderated somewhat.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restructuring $104 $-- $104 n/m
- -------------------------------------------------------------------------------
</TABLE>
RESTRUCTURING In March 1998, we announced plans to significantly reduce future
operating expenses by the end of 2002. As part of this cost containment program,
we recorded a pretax restructuring charge of $104 million ($64 million
after-tax) to cover the costs of consolidating security monitoring centers and
closing 53 company-owned cellular retail stores. The charge covers
employee-related costs of approximately $54 million for termination of the
employment of approximately 5,000 employees, as well as other costs of
approximately $50 million related to lease terminations and asset write-downs.
Approximately 10% of the charge relates to our information and entertainment
segment, and the balance relates to our communications segment.
Approximately 3,200 employees whose employment relationship is to be severed
work at our security services subsidiary. These employees are being displaced
due primarily to the consolidation of our monitoring centers. Staffing
requirements at new locations will require us to hire a significant number of
new employees.
In 1998, 1,478 employees left Ameritech as part of this restructuring
program.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Taxes other than
income taxes $601 $579 $22 3.8
- -------------------------------------------------------------------------------
</TABLE>
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 increased in 1998 primarily as a result of
higher property taxes, principally in Illinois and Michigan, combined with
higher gross receipts taxes, principally in Ohio and Wisconsin. Lower capital
stock taxes in Illinois, as well as lower property taxes in Ohio, resulting
primarily from tax reforms, partially offset the increase.
Taxes other than income taxes decreased by $14 million, or 2.4%, in 1997
primarily due to property tax decreases in Ohio and Illinois, as well as lower
capital stock taxes in Illinois resulting from tax reforms. Higher gross
receipts taxes resulting from overall business growth partially offset these
decreases.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
OTHER INCOME AND EXPENSE
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $611 $505 $106 21.0
- -------------------------------------------------------------------------------
</TABLE>
INTEREST EXPENSE Interest expense increased in 1998 due primarily to higher
overall debt balances associated with our $3.1 billion investment in Tele
Danmark. We funded this investment in part by issuing $2.5 billion in long-term
debt. Lower interest on short-term debt, resulting primarily from a reduction in
short-term debt balances following the sale of substantially all of our TCNZ
shares, partially offset these increases.
Interest expense decreased by $9 million, or 1.8%, in 1997 due primarily to
increased cash flow from operations, resulting in lower average short-term debt
balances. This decrease was partially offset by the effect of higher short-term
interest rates. Increased interest on long-term debt, resulting from higher
average long-term debt balances, also partially offset the decrease.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other income, net $2,055 $390 $1,665 426.9
- -------------------------------------------------------------------------------
</TABLE>
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 increased in 1998 due primarily to the effects of a one-time
pretax gain of $1,543 million ($1,012 million after-tax) resulting from the
public sale of substantially all of our stake in TCNZ, partially offset by a
one-time pretax charge of $54 million ($34 million after-tax) for a
currency-related fair-value adjustment related to our investment in Tele Danmark
A/S, the national communications provider in Denmark. A one-time pretax gain of
$170 million ($102 million after-tax) from the sale of certain telephone and
directory assets to Century Telephone also contributed to the increase. Earnings
from our new investment in Tele Danmark, combined with stronger earnings from
our investments in Belgium and Hungary, contributed to the increase as well.
Partially offsetting these increases were lower equity earnings from TCNZ,
resulting from the sale of substantially all of our stake in this company in
April 1998, as well as a one-time pretax charge of $38 million ($24 million
after-tax) for the costs of redeeming $1.3 billion of long-term debt.
Other income increased by $64 million, or 19.6%, in 1997 primarily as the
result of three one-time gains. We sold our stake in Sky TV, resulting in a
pretax gain of $52 million ($37 million after-tax). We also realized a one-time
pretax gain of $43 million ($27 million after-tax) related to the sale of a
portion of our MATAV shares in an initial public offering, and a one-time pretax
gain of $42 million ($25 million after-tax) related to the sale of our
investment in Bellcore. A one-time after-tax charge of $87 million for our share
of the costs of a work force restructuring at Belgacom partially offset the
increase.
Our investments in international ventures are subject to certain risks
related to fluctuations in foreign currency exchange rates. In 1998 and 1997, we
recognized some foreign exchange transaction gains and losses and currency
translation adjustments related to these investments, due to fluctuations in the
value of the U.S. dollar against the respective local currencies. While future
fluctuations in currency exchange rates could impact future results of
operations, we expect foreign operations to continue to provide strong financial
results and earnings growth.
As previously noted, our international investments represent one of our three
reportable segments. Equity income from these investments after one-time items
described above, was $378 million in 1998, $289 million in 1997 and $233 million
in 1996. This equity income does not require a full provision for additional
U.S. income taxes due to substantial available foreign income tax credits
arising from these same foreign tax jurisdictions. The increase in equity income
in 1998 results primarily from the addition of Tele Danmark to our portfolio,
which more than offset the equity income lost from TCNZ sold in April 1998.
Enhanced profitability at Belgacom and MATAV also contributed to the increase,
as well as the effects of stronger local currencies. The increase in 1997 equity
earnings when compared with 1996 was due to higher equity income from all of our
foreign investments, but moderated due to the strength of the U.S. dollar
against the local currencies.
<TABLE>
<CAPTION>
Increase Percent
1998 1997 (Decrease) Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income taxes $2,031 $1,388 $643 46.3
- -------------------------------------------------------------------------------
</TABLE>
INCOME TAXES Income tax expense increased in 1998 due primarily to the tax
impacts of gains resulting from sales of investments, including our TCNZ shares.
Our effective tax rate was 36.0% in 1998 compared with 37.7% in 1997. The lower
effective rate in 1998 resulted primarily from the tax basis exceeding the book
basis in our TCNZ shares sold.
Income taxes increased by $205 million, or 17.3%, in 1997 due to an increase
in pretax earnings, as well as the effects of a one-time after-tax charge of $87
million related to our share of the costs of a work force restructuring at
Belgacom. A decrease in the amortization of investment tax credits relative to
pretax income and a change in tax law in New Zealand that subjected us to a
withholding tax on dividend distributions also contributed to the increase.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------------------------------
Ameritech continued to generate strong cash flows from operations during 1998.
These cash flows, combined with capital derived from external sources, enabled
us not only to fund increased capital expenditures, but also to pursue
significant new investment opportunities and to increase dividends paid per
share by 6.2% over the prior year period.
28
<PAGE>
CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operations increased by
$300 million to $4.8 billion in 1998, due primarily to overall business growth,
combined with working capital improvements. These factors also led to an
increase in cash flows from operations of $767 million to $4.5 billion in 1997.
CASH USED IN INVESTING ACTIVITIES Although capital expenditures increased by
more than $300 million in 1998, reflecting continued investment in the core
communications segment and the infrastructure for new businesses, investments in
other communications ventures represented the single largest use of company
funds in 1998. The largest of these was our $3.1 billion investment in Tele
Danmark. Following our investment and a repurchase of shares by Tele Danmark
from the Kingdom of Denmark, we hold a 41.6% stake in the company. This increase
in cash outflows was partially offset by the proceeds from our sale of
substantially all of our TCNZ shares. This transaction was structured as an
installment sale, with approximately half of the proceeds due at the time of
sale in April 1998 and the other half due by March 31, 1999. The initial
installment resulted in proceeds of approximately $1.1 billion, and the second
installment will result in additional proceeds in 1999 of approximately $1.0
billion. Also in 1998, we received proceeds of approximately $473 million from
the repayment by General Electric Company of the note related to our GEIS
investment and proceeds of approximately $221 million from the sale of assets to
Century Telephone.
Investments in new businesses also increased in 1997, with acquisitions
totaling more than $1 billion for the year. 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.
In November 1997, we acquired from Sprint the assets of its local exchange
business in suburban Chicago, formerly known as Central Telephone Company of
Illinois. 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 TV and a
portion of our stake in MATAV through an initial public offering. In addition to
these sales, we also received proceeds of approximately $152 million from a
stock repurchase program at TCNZ.
Investing activities in 1996 consisted primarily of our investment with
several partners in Belgacom. A consortium led by Ameritech purchased a 49.9%
stake in Belgacom from the Belgian government for a purchase price of
approximately $2.5 billion. Ameritech invested approximately $865 million for
its 35% consortium share, representing approximately 17.5% of Belgacom.
Investing activities in 1996 also included additional investments in security
services assets.
Capital expenditures increased in all three years due primarily to increased
spending at the landline communications subsidiaries to meet increased demand
for data, custom calling and private line services and to comply with regulatory
requirements. Capital spending also increased due to continued enhancement and
expansion of the cellular network.
We believe that investment in the core communications segment 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. 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.
[CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
---------------------------------------------
$1.49 $1.69 $1.89 $2.12 $2.35 $2.61
Earnings Growth
(in billions, before one-time items)
Ameritech's earnings climbed 11.4% in 1998 to $2.61
billion. This marked our sixth straight year of
double-digit earnings growth.
CASH FLOWS FROM FINANCING ACTIVITIES Financing activities in 1998 included
issuance of $2.5 billion of long-term debt and $325 million of preferred stock
by a wholly owned subsidiary, primarily to finance our investment in Tele
Danmark. In January 1998, we issued $1.75 billion of long-term debt in five
separate tranches through our financing subsidiary, Ameritech Capital Funding
(ACF). In addition, we issued $750 million of Eurodollar notes in February 1998,
due in 2003. Short-term debt decreased by $417 million, primarily reflecting the
application of proceeds from our sale of TCNZ shares. In December 1998, we
redeemed approximately $1.3 billion of long-term debt issued by our landline
communications subsidiaries in Illinois, Michigan, Ohio and Wisconsin to take
advantage of favorable market conditions. We funded these redemptions using
short-term debt. Financing activities also included dividend payments and stock
repurchases, as discussed below.
In 1997, 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 wholly owned
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
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 of
our landline communications subsidiaries in Indiana and Wisconsin aggregating
$275 million.
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 1998, we repurchased in the open market 9.6
million shares of stock for approximately $500 million. During 1997, we
repurchased 19.0 million shares of common stock for an aggregate purchase price
of $602 million, and during 1996, we repurchased in the open market 17.4 million
shares of common stock for an aggregate price of $492 million. As of December
31, 1998, management is authorized to make further repurchases of up to $1.5
billion; however, we have agreed with SBC in conjunction with our merger
agreement to repurchase shares only in connection with share issuance
requirements under certain benefit plans.
DIVIDENDS Ameritech paid dividends of $1,323 million in 1998. This was an
increase of $81 million, or 6.5%, over 1997. In December 1998, Ameritech's board
of directors approved a 5.8% increase in the quarterly dividend payable February
1, 1999. We paid dividends of $1,242 million in 1997, an increase of $71
million, or 6.1%, over 1996. Our 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, 1998, we maintained available lines of
credit totaling $1.8 billion, a committed credit facility of $2.0 billion and
shelf registrations for issuance of up to $1.2 billion in unsecured debt
securities.
In October 1998, Moody's Investor Service advised us that it had lowered the
debt ratings of three of our landline communications subsidiaries from Aaa to
Aa1. The change resulted not from any action taken by Ameritech or its
subsidiaries, but from Moody's efforts to bring the ratings of wholly owned
subsidiaries more in line with the parent holding company ratings in the
telecommunications industry. The ratings of our other two landline
communications subsidiaries remained at Aa1. We believe the impact of these
adjustments will not be significant.
Standard & Poor's has advised us that our credit ratings may be downgraded in
the event our merger with SBC is completed. Moody's has, however, reaffirmed our
strong credit ratings irrespective of the merger.
Management believes that we have adequate internal and external resources
available to finance our business development, network expansion, dividends,
acquisitions and investments.
OTHER MATTERS
- ------------------------------------------------------------------------------
REGULATORY CONSIDERATIONS
The Telecommunications Act of 1996 In general, the Telecommunications Act of
1996 (the 1996 Act) includes provisions designed to open local exchange markets
to competition and to afford the Bell operating companies (BOCs) and their
affiliates the competitive opportunity to provide interLATA (long-distance)
services. Under the 1996 Act, the BOCs' ability to provide in-region
long-distance services is dependent upon their satisfaction of, among other
conditions, a 14-point "competitive checklist" of specific requirements for
opening the local market to competition.
In late 1997, a U.S. District Court in Texas ruled that certain
line-of-business restrictions in the 1996 Act, including the requirement in
Section 271 that the BOCs must comply with the competitive checklist before
being permitted to provide long-distance services to local phone customers,
constituted an unconstitutional bill of attainder by virtue of their exclusive
applicability to the BOCs. The U.S. Court of Appeals for the Fifth Circuit
reversed that decision in September 1998, and in January 1999 the U.S. Supreme
Court declined to hear an appeal of the appellate court decision.
In two other cases, similar constitutional challenges were rejected by the
U.S. Court of Appeals for the District of Columbia Circuit (the D.C. Circuit
Court). In May 1998, the D.C. Circuit Court found that Section 274 of the 1996
Act, which covers electronic publishing activities, did not constitute an
unconstitutional bill of attainder. A petition for certiorari, seeking review of
that decision, is pending before the U.S. Supreme Court. In December 1998, the
D.C. Circuit Court ruled against another bill of attainder constitutional
challenge to the long-distance provisions of Section 271 of the 1996 Act.
Local interconnection and unbundled access In January 1999, the U.S. Supreme
Court issued its opinion on various cross-appeals of the 1997 decision of the
U.S. Circuit Court of Appeals for the Eighth Circuit (the Eighth Circuit Court)
relating to the FCC's 1996 order on the local interconnection provisions of the
1996 Act (the Interconnection Order).
The Supreme Court reversed portions of the Eighth Circuit Court's earlier
decision that had vacated several provisions of the Interconnection Order. The
Court decided that the FCC has rulemaking authority to implement the local
competition provisions of the 1996 Act, including pricing methodology. This
overturned the Eighth Circuit Court's ruling that the states were vested with
exclusive jurisdiction over the pricing for local interconnection, unbundled
network elements and local service resale provided by incumbent local exchange
carriers (ILECs) to competitive local exchange carriers (CLECs). The Supreme
Court also reinstated the FCC's "pick and choose" rules allowing CLECs to select
among individual provisions from other existing interconnection agreements.
30
<PAGE>
The Supreme Court upheld the FCC's determination that the definition of a
network element could include items beyond physical facilities and equipment,
such as operational support systems, operator services, directory assistance and
vertical services such as call forwarding and caller identification. It further
ruled that the FCC could bar ILECs from separating already combined network
elements. However, the Supreme Court overturned the FCC's rule identifying and
requiring ILECs to offer specific network elements, finding that the FCC had not
adequately considered, as required by the 1996 Act, whether those specific
unbundled network elements were "necessary" or whether the failure to provide
access to them might "impair" the ability of CLECs to provide competitive
services. We believe that this ruling supports our view that the objectives of
the 1996 Act, including development and deployment of advanced technologies
desired by customers, will best be served by encouraging infrastructure
investments, rather than through unlimited blanket access to all existing ILEC
network elements.
Since the Eighth Circuit Court's 1997 opinion, local interconnection matters
and unbundled network element pricing have been resolved primarily through
negotiated interconnection agreements or state commission arbitration
proceedings. The substantive validity of the FCC's pricing rules, including its
total element long-run incremental cost (TELRIC) pricing methodology, was not
before the Supreme Court, and will be addressed by the Eighth Circuit Court on
remand. Pending judicial resolution of the appropriate pricing methodologies and
a determination by the FCC of which unbundled network elements are "necessary,"
our landline communications subsidiaries expect to continue to negotiate and
enter into interconnection agreements and pursue, through appropriate state or
federal proceedings, timely recovery of their costs.
We also may seek review by the U.S. Supreme Court of the separate Eighth
Circuit Court decision last year regarding shared transport. In 1998, the Eighth
Circuit Court upheld the FCC's determination that "shared transport," which
would include access to all of an ILEC's transport facilities, is a network
[GRAPHIC APPEARS HERE]
Ameritech added 400,000 wireless
customers in 1998 for a growth
rate of 13%.
element that should be made available to competitors on an unbundled basis.
The outcome of future regulatory and judicial developments in this area is
subject to continuing uncertainty. We believe that the pricing rules and
methodologies generally adopted by our in-region state commissions with respect
to our existing interconnection agreements should not differ materially from
those that may be applied under proposed FCC pricing methodologies. We further
expect that future judicial or regulatory decisions will define reasonable
limiting standards, consistent with the purposes of the 1996 Act, as to which of
our existing network elements must be made available to competitors. We can give
no assurance, however, that future regulatory and judicial determinations may
not have a material adverse effect on future revenues and margins in our
communications segment.
Reciprocal compensation A number of CLECs are engaged in regulatory and judicial
proceedings with various ILECs, including our landline communications
subsidiaries, with respect to the payment of reciprocal compensation to the
CLECs for calls originating on the ILECs' networks for dial-up connections to
access the Internet via ISPs served by the CLECs' networks. The CLECs have
asserted that such reciprocal compensation is provided for by interconnection
agreements between the CLECs and the ILECs. Together with other ILECs, we have
maintained that we are not required to make such reciprocal compensation
payments pursuant to those agreements because such traffic is interstate access
service, not local.
A U.S. District Court in Illinois has ruled that our Illinois landline
communications subsidiary is required to make reciprocal compensation payments
in these circumstances under its applicable interconnection agreements. This
order is on appeal to the U.S. Court of Appeals for the Seventh Circuit. Cases
that involve appeals by other subsidiaries of adverse regulatory determinations
are pending in U.S. District Courts in Michigan and Wisconsin. Pending the
outcome of such appeals, our Illinois, Michigan and Wisconsin landline
communications subsidiaries currently are making reciprocal compensation
payments, under protest, to CLECs pursuant to existing interconnection
agreements. The Public Utilities Commission of Ohio also ruled that our Ohio
landline communications subsidiary is required to make reciprocal compensation
payment, but has stayed its order pending rehearing.
On October 30, 1998, the FCC issued a Memorandum Opinion and Order in which
it found that a service offering by another ILEC, permitting ISPs to furnish
their customers with high-speed access to the Internet through a dedicated
connection, is an interstate service that is properly tariffed at the federal
level. In so ruling, the FCC considered the totality of the communication as an
end-to-end transmission between an end user and the Internet Web site accessed
by the end user, and rejected the argument that such a communication should be
separated into two components (consisting of an ILEC-provided intrastate
telecommunications service that terminated at the ISP's local server, and an
interstate
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
information service provided by the ISP). The FCC expressly limited its decision
only to the high-speed, dedicated access connection between an end user
subscriber and an ISP as described in the proposed tariff, and made no
determination whether ILECs generally should be required to pay reciprocal
compensation for Internet calls via ISPs. The FCC has indicated its intention to
provide separate guidance in the near future on the jurisdictional nature of
dial-up access via a LEC's local switch.
We believe that this recent FCC Order is consistent with our view that
Internet traffic is appropriately classified as interstate and that reciprocal
compensation is not required for dial-up access in the circumstances described
above. We also believe that our view ultimately should be upheld in pending or
future appellate judicial proceedings or through FCC determination. However,
there can be no assurance as to that outcome or that our landline communications
subsidiaries will not be required to begin or continue to make such reciprocal
compensation payments under existing interconnection agreements. In addition to
reciprocal compensation now being paid by our Illinois, Michigan and Wisconsin
landline communications subsidiaries, we are making periodic accruals of amounts
that may become payable in Ohio and Indiana in the event our view is not
ultimately upheld.
Universal service, access charge reform and price caps In May 1997, the FCC
issued three closely related orders that established rules to implement the
universal service provisions of the 1996 Act (the Universal Service Order) and
to revise both interstate access charge pricing (the Access Reform Order) and
the price cap plan for ILECs (the Price Cap Order).
Universal service The FCC's Universal Service Order provides that all
interstate telecommunications providers will be required to contribute to
universal service funding, based on retail telecommunications revenues. The
Universal Service Order establishes a multi-billion dollar interstate universal
service fund to help link eligible schools and libraries and low-income
consumers and rural health care providers to the global telecommunications
network (including the Internet). The FCC directed the phase-in of these funds
through 1999.
Access charge reform In its Access Reform Order, the FCC restructured
interstate access pricing and adopted changes to its tariff structure that
require ILECs to use rates that reflect the type of costs incurred.
In addition to the changes introduced in connection with the Access Reform
Order, we have implemented state changes that mirror the federal access reform
structure. Various interexchange carriers opposing such changes have filed
complaints before the Illinois, Michigan and Wisconsin state commissions seeking
lower access charges. The state commissions in Illinois (the Illinois Commerce
Commission) and Michigan (the Michigan Public Service Commission or MPSC), in
response to such a complaint, have ordered us to split the intrastate primary
interexchange carrier charge (PICC) into two separate per-line components, with
one-half of the total charge payable by the intraLATA toll carrier and the other
half by the interLATA toll carrier. Accordingly, the revenues we receive from
this charge will decrease to the extent that we are the intraLATA toll carrier.
In addition, the MPSC required that these changes be made retroactive to January
1, 1998, when the initial tariffs for this charge were filed. We have appealed
the MPSC's order.
Price caps Our interstate access services are subject to price cap
regulation, which limits prices rather than profits. The Price Cap Order
effectively reduced access charges by increasing the price cap productivity
offset factor to 6.5% from the previous 5.3% and by applying this factor
uniformly to all access providers. The order also required ILECs subject to
price cap regulation to set their 1997 price cap index assuming that the 6.5%
factor had been in effect since July 1996. Certain parties have sought judicial
review of the Price Cap Order, and a decision by the D.C. Circuit Court with
respect to these matters currently is pending.
We currently cannot predict the precise impact of these regulatory changes on
our business, especially as their nature and timing may evolve in connection
with judicial and FCC consideration of other provisions of the 1996 Act.
Number portability On May 5, 1998, the FCC entered an order to allow
telecommunications carriers, such as our landline communications subsidiaries,
to recover over a five-year period their carrier-specific costs of implementing
long-term number portability. Long-term number portability allows customers to
retain their local telephone numbers in the event they change local exchange
carriers. We are completing implementation of long-term number portability in
compliance with an FCC-mandated schedule. Our number portability surcharge
became effective on February 1, 1999.
Acquisitions of Security Services Assets by SecurityLink
On September 25, 1998, the FCC issued a Memorandum Opinion and Order on Remand
and Order to Show Cause relating to an asset acquisition by our security
services subsidiary (SecurityLink) in 1996. The FCC found that we had gained
"financial control" over the entity from which SecurityLink acquired the
security services assets, in violation of the 1996 Act, and required that,
within 30 days after issuance of the Order, we show cause why the FCC should not
require SecurityLink to divest the assets acquired in this transaction.
Previously, the FCC had ruled that the same transaction was permissible under
the 1996 Act, and the D.C. Circuit Court had vacated and remanded that decision
to the FCC. On October 26, 1998, we filed our response with the FCC, contending
that divestiture would not be an appropriate remedy.
Previously, on July 8, 1998, the FCC issued a Memorandum Opinion and Order
and Order to Show Cause, finding that three separate asset acquisitions by
SecurityLink in 1997 (made after the first FCC ruling on security services
described above and before
32
<PAGE>
the D.C. Circuit Court decision) violated the same provision of the 1996 Act,
and ordering SecurityLink to show cause why the FCC should not require
divestiture of the assets acquired in such transactions. We filed our response
with the FCC on August 7, 1998, contending that divestiture would not be an
appropriate remedy.
The FCC's decision on these Orders to Show Cause is pending.
COMPETITIVE ENVIRONMENT Technological developments, marketplace demand and
legislative, regulatory and judicial actions have expanded the types of services
and products available from an increasing number of companies, creating growth
opportunities in the global communications industry. Our competitive strategy,
including our proposed merger with SBC, is to position ourselves to take
advantage of such growth opportunities by continuing to branch into new services
that are logical extensions of our business and by exporting our expertise to
customers around the world.
These same factors also have resulted in increasing competition in all areas
of our business. In pursuing business opportunities both inside and outside the
United States, we compete against other local service providers, long-distance
service providers, cable TV companies, wireless and Internet service providers
(including companies that provide all or some combination of these services),
and other entrants from a range of industries. As we have expanded our paging
and cellular services, the number and type of competitors have grown. Our
telephone directory publishing business faces competition from not only other
directory publishing businesses and traditional advertising media, such as
television, radio, direct mail, magazines and newspapers, but also providers of
new technologies, such as Internet and other online services. Many of our
competitors have substantial scale and geographic scope, significant capital,
technological and marketing resources, and wide-ranging service offerings.
With the passage of the 1996 Act and other regulatory initiatives, our local
service markets have been more extensively opened to new competitors, many of
which are believed to have initially targeted high-volume business customers in
densely populated areas. Interconnection agreements with competitive service
providers require our landline communications subsidiaries to provide
interconnection or access to unbundled network elements at cost-based rates and
telecommunications services at discounted, wholesale rates. These agreements and
applicable tariffs may result in some downward pressure on local service
revenues, as a portion of our revenue shifts from local service at retail prices
to network access and wholesale services at lower rates and as some competitors
provide services using their own networks, in whole or in part. We cannot
predict with certainty the impact that these and other developments ultimately
may have on our future business, results of operations or financial condition.
YEAR 2000 READINESS The Year 2000 issue exists because many computer systems
and applications, including those embedded in equipment and facilities, use
two-digit rather than four-digit date fields to designate an applicable year. As
a result, the systems and applications may not properly recognize the year 2000
or process data that includes it, potentially causing data miscalculations or
inaccuracies or operational malfunctions or failures.
We have established a centrally managed, companywide initiative to identify,
evaluate and address Year 2000 issues. Begun in May 1996, our Year 2000 effort
covers our network and supporting infrastructure for our provision of local
switched and data telecommunications services, cellular and paging services,
cable
[CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
--------------------------------------------
$172 $190 $215 $227 $235 $238
Productivity Gains
(revenues per employee in thousands)
Revenues per employee increased to $238,000 in
1998, representing a 38% improvement over the past
five years.
TV service and security services. Also within the scope of this initiative are
our operational and financial information technology (IT) systems and
applications, end-user computing resources and building systems, such as
security, elevator, and heating and cooling systems. In addition, the project
includes a review of the Year 2000 compliance efforts of our key suppliers and
other principal business partners and, as appropriate, the development of joint
business support and continuity plans for Year 2000 issues. While this
initiative is broad in scope, it is structured to identify and prioritize our
efforts for mission-critical systems, network elements and products and key
business partners.
Work is progressing in the following phases: inventory, assessment,
remediation, testing, deployment and monitoring. Although the pace of the work
varies among our business units and the phases often are conducted in parallel,
as of December 31, 1998, the inventory and assessment phases have been
substantially completed, the remediation phase is nearing completion, and the
testing and deployment phases are well under way.
As of December 31, 1998, the majority of our network elements requiring
corrective activity, including substantially all of our core network switches
and other network components that we regard as mission-critical, have been made
Year 2000 ready and deployed back into production. As of December 31, 1998, more
than 90% of our total identified IT applications, including substantially all
that we have determined to be mission-critical, have been remediated, and a
majority of all corrected applications have completed certification testing and
been deployed back into production. We have
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
also made substantial progress in Year 2000 readiness preparations for our
remaining infrastructure components (buildings and physical facilities, internal
voice telephone systems, and desktop PCs), and these efforts are scheduled to be
completed in mid-1999. Final integration testing for certain critical systems
and processes is scheduled to be completed by the end of the third quarter of
1999.
With the majority of our various systems remediated and a substantial portion
of those already tested and deployed back into production, we believe we are
well positioned to complete the remediation and deployment of our remaining
systems, any additional testing that may be necessary, and the development of
our business contingency and continuity plans in advance of the Year 2000
transition. However, our ability to meet that goal remains dependent upon a
variety of factors, including the timely provision of necessary upgrades and
modifications by our suppliers and contractors. In some instances, upgrades or
modifications are not expected to be available until mid- or late-1999.
We have sought Year 2000 readiness information from various third-party
suppliers on whom we depend for certain products or essential services (such as
electric utilities, interexchange carriers, etc.), but we have no method of
ensuring that these suppliers will convert their critical systems and processes
in a timely manner. We are developing business contingency and continuity plans
(see discussion below), and are continuing to work with our key suppliers as
part of a supplier compliance program to seek to minimize such risks.
As is the case for other communications services providers, there exists a
worst case scenario possibility that a failure to correct a Year 2000 program in
one or more of our mission-critical network elements or IT applications could
cause a significant disruption of or interruption in certain of our normal
business functions. Based on our assessments and work to date, we believe that
any such material disruption to our operations due to failure of an internal
system is unlikely. However, due to the uncertainty inherent in Year 2000 issues
generally and those that are beyond our control in particular (e.g., the final
Year 2000 readiness of our suppliers, customers, utilities, interconnecting
carriers, and joint venture and investment interests), there can be no assurance
that one or more such failures would not have a material impact on our results
of operations, liquidity or financial condition.
There also may be Year 2000 issues in customer premises equipment (CPE),
including CPE that we have sold or maintained and CPE that is used in connection
with 911 services. Although the customer generally is responsible for CPE,
customers could attribute a Year 2000 disruption in their CPE to a malfunction
of our network service. We have taken steps to encourage many of our customers
potentially at risk to undertake the necessary assessment and remedial
activities to avoid a Year 2000 problem with their equipment and systems.
We currently estimate that we will incur expenses of approximately $250
million through 2001 in connection with our anticipated Year 2000 efforts, of
which approximately $108 million had been incurred through December 31, 1998.
The timing of our expenses may vary and is not necessarily indicative of
readiness efforts or progress to date. We anticipate that a portion of our Year
2000 expenses will not be incremental costs, but rather will represent the
redeployment of existing IT resources. We also expect to incur certain capital
improvement costs (totaling approximately $30 million) to support this project.
Such capital costs ($12 million as of December 31, 1998) are being incurred
sooner than originally planned but, for the most part, would have been required
in the normal course of business.
[CHART APPEARS HERE]
1993 1994 1995 1996 1997 1998
--------------------------------------------
512 632 745 1,140 1,495 1,542
Paging Growth
(pagers in service in thousands)
Ameritech's total number of pagers in service doubled
over the past three years and tripled over the
past five years.
We have significant minority investments in large telecommunications
providers in Belgium, Denmark and Hungary. Each of those companies has plans in
place and activities under way to address Year 2000 issues, and we are offering
advice in these efforts as practical. Based on information reported to us, the
estimated proportionate share of these companies' Year 2000 conversion costs
that will flow through to our earnings is not expected to be material. As is the
case for many companies outside the United States, we believe that the Year 2000
readiness efforts of these carriers has not progressed as far as our own, and we
expect that the Year 2000 readiness conversion and testing activities at some of
these companies will continue into late 1999.
As part of our Year 2000 initiative, we are evaluating scenarios that may
occur as a result of the century change and are in the process of developing
contingency and business continuity plans tailored for Year 2000-related
occurrences. Contingency planning to maintain and restore service in the event
of natural disasters, power failures and software-related problems has been part
of our standard operation for many years, and we are working to leverage this
experience in the development of contingency and continuity plans tailored to
meet Year 2000-related challenges. This work is being performed through
centrally managed, companywide teams organized by critical business functions
(including ordering, provisioning, maintenance, billing and power). Our
contingency and business continuity plans are expected to assess the potential
for business disruption in various scenarios, and to provide for key operational
back-up, recovery and restoration alternatives.
34
<PAGE>
The above information is based on our current best estimates, which were
derived using numerous assumptions of future events, including the availability
and future costs of certain technological and other resources, third-party
modification actions and other factors. Given the complexity of these issues and
possible unidentified risks, actual results may vary materially from those
anticipated and discussed above. Specific factors that might cause such
differences include, among others, the availability and cost of personnel
trained in this area, the ability to locate and correct all affected computer
code, the timing and success of Year 2000 remedial efforts of our customers and
suppliers, and similar uncertainties.
EURO CONVERSION On January 1, 1999, 11 of the 15 member countries of the
European Union formed the Economic and Monetary Union (EMU) and established
fixed conversion rates between their sovereign currencies and the future
European currency unit, the euro. The participating countries agreed to adopt
the euro as their common legal currency on that date. The sovereign "legacy"
currencies of these countries will continue in circulation within the respective
countries until at least January 1, 2002, but not later than July 1, 2002. At
the time of final conversion, new euro-denominated bills and coins will be used
exclusively.
Our international business segment consists of several significant minority
investments in Europe, including Belgacom in Belgium, Tele Danmark in Denmark
and MATAV in Hungary. Of these, only Belgium is among the countries that will
convert to the euro; Tele Danmark, however, has operating affiliates in several
participating countries. Management at these companies must address several
issues related to the conversion, including increased price transparency, the
tax treatment of conversion gain or loss, changes to business processes and
modification of information systems to process euro-denominated transactions
during the transition period.
Management at our European affiliates has informed us that efforts to convert
computer systems and business processes are well under way and are scheduled to
be complete by the time the conversion takes place. Based on information
reported to us, the estimated proportionate share of euro-related costs that
will flow through to our earnings is not expected to be material.
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. For the three years ended December 31, 1998,
due to fluctuations in the U.S. dollar, we recognized some foreign exchange
transaction gains and losses and currency translation adjustments related to
these investments. Foreign exchange transaction gains and losses incurred by
wholly owned subsidiaries affected operating income. Transaction gains and
losses incurred by other international ventures (primarily equity-method
investments) affected other income, net. Translation adjustments resulted in a
change in the investment balance and a corresponding change in accumulated other
comprehensive income on the consolidated balance sheet. While future
fluctuations in currency exchange rates could impact results of operations or
financial position, we expect foreign investments to continue to provide strong
financial results and earnings growth.
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, to generate income
or to engage in speculative activity, and we never use leveraged derivatives.
The amounts shown below represent an estimated potential loss that we could
incur from adverse changes in either interest rates or foreign exchange rates,
based upon 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 the variance/co-variance statistical modeling technique. The
model addresses numerous market risk exposures, but specifically excludes
equity-method investments, which in our case are significant. The fair value
losses shown in the table below are for a one-day time period with a confidence
level of 95% (signifying our degree of confidence that actual one-day losses
would not exceed such estimated losses, in each case, based on the model). Such
estimated losses have no impact on our results of operations or financial
condition.
<TABLE>
<CAPTION>
December 31
---------------
1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Risk category
Interest rates $39 $25
Foreign exchange -- --
- ----------------------------------------------------------
</TABLE>
The value-at-risk model assumes that all movements in these rates will be
adverse and disregards the possibility that interest rates and foreign currency
exchange rates could move in our favor. Actual experience has shown that gains
and losses tend to offset each other over time, and we believe it is 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.
The fair value at risk increased in 1998 due primarily to a net increase in
fixed-rate debt, and to an increase in the volatility of interest rates, mostly
resulting from market activity in the third and fourth quarters of 1998. We
issued $2.5 billion of fixed-rate debt in the first quarter of 1998, principally
to fund our investment in Tele Danmark, and in December 1998 we redeemed $1.3
billion of fixed-rate debt issued by four of our landline communications
subsidiaries. Value at risk related to foreign exchange has not changed
significantly since December 31, 1997, but as previously
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(dollars in millions, except per share amounts)
noted, the value-at-risk model does not consider our significant foreign
equity-method investments.
NEW ACCOUNTING PRONOUNCEMENTS
AICPA SOP 98-1 In March 1998, the American Institute of Certified Public
Accountants (AICPA) 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 costs related
to computer software developed or obtained for our internal applications, such
as:
o external direct costs of materials and services, such as programming costs;
o payroll costs for employees devoting time to the software project; and,
o interest costs to be capitalized.
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. We will adopt SOP 98-1 in the
first quarter of 1999 and estimate that the impact of adoption will be to
decrease software-related expenses for Ameritech and all of its subsidiaries by
$200 million to $250 million in the year of adoption. We have historically
expensed most computer software costs as incurred and will be required to
continue to expense all Year 2000 modification costs as incurred.
FAS 133 In June 1998, the Financial Accounting Standards Board (FASB) issued FAS
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement provides standardized accounting and disclosure guidance for
derivative instruments and the derivative portion of certain similar contracts.
It amends FAS 52, "Foreign Currency Translation," and FAS 107, "Disclosures
about Fair Values of Financial Instruments," and it supersedes a number of other
financial accounting standards.
The statement requires entities that use derivative instruments to measure
these instruments at fair value and record them as assets or liabilities on the
balance sheet. It also requires entities to reflect the gains or losses
associated with changes in the fair value of these derivatives, either in
earnings or as a separate component of comprehensive income, depending on the
nature of the underlying contract or transaction.
FAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999, and is to be adopted as of the beginning of the fiscal year. At
the time of adoption, all derivative instruments are to be measured at fair
value and recorded on the balance sheet. Any differences between fair value and
carrying amount at that time will be recorded as a cumulative effect of a change
in accounting principle, in either net income or other comprehensive income, as
appropriate. Adoption of this statement may or may not have a material impact on
our results of operations or financial position, depending on the nature and
magnitude of derivative activity in which we engage and the changes in market
conditions with respect to foreign currencies, interest rates or other
underlying values. We have not yet quantified the impacts of the initial
adoption of FAS 133 on our results of operations or financial condition, nor
have we determined when we will implement the new standard.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT Some of the
information presented in, or in connection with, this report may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve potential risks and uncertainties.
Our future results could differ materially from those discussed here. Some of
the factors that could cause or contribute to such differences include:
o changes in economic and market conditions that impact the demand for our
products and services, or for products and services by companies in which we
have substantial investments;
o the effects of vigorous competition in the local exchange, intraLATA toll,
cellular, data, cable TV, directory advertising or security services markets;
o federal regulatory developments that impact the telecommunications, security
services and cable TV industries, and pending regulatory issues in state
jurisdictions, as well as the outcome of any related judicial reviews;
o the timing of and costs associated with entry into the interLATA
long-distance market;
o the timing of, and potential regulatory or other considerations relating to,
the consummation of our proposed merger with SBC;
o the potential impact of issues related to Year 2000 software compliance;
o risks inherent in international operations, including possible economic,
political or monetary instability, as well as the potential impact of Year
2000 compliance and euro currency conversion issues; and,
o the impact of new technologies and the potential effect of delays in
development or deployment of such technologies.
The words "expect," "believe," "anticipate," "estimate," "project," and
"intend" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout the Management's Discussion and Analysis and elsewhere in this
report.
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.
36
<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, 1998, 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
January 21, 1999 Chief Financial Officer
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, 1998
and 1997, and the related consolidated statements of income, shareowners' equity
and cash flows for each of the three years in the period ended December 31,
1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
January 21, 1999
37
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Ameritech Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended December 31
------------------------------------
(dollars in millions, except per share amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Local service $7,020 $6,572 $6,175
Interstate network access 2,481 2,485 2,365
Intrastate network access 551 619 573
Long-distance service 1,408 1,384 1,491
Cellular, directory and other 5,694 4,938 4,313
-----------------------------------
17,154 15,998 14,917
-----------------------------------
Operating expenses
Employee-related expenses 4,169 3,959 3,711
Depreciation and amortization 2,717 2,521 2,365
Other operating expenses 5,370 5,140 4,743
Restructuring 104 -- --
Taxes other than income taxes 601 579 593
-----------------------------------
12,961 12,199 11,412
-----------------------------------
Operating income 4,193 3,799 3,505
Interest expense 611 505 514
Other income, net 2,055 390 326
-----------------------------------
Income before income taxes 5,637 3,684 3,317
Income taxes 2,031 1,388 1,183
-----------------------------------
Net income $3,606 $2,296 $2,134
-----------------------------------
Earnings per common share
Basic $3.27 $2.09 $1.93
-----------------------------------
Diluted $3.25 $2.08 $1.92
-----------------------------------
Average common shares outstanding (millions) 1,101.6 1,098.7 1,103.8
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
CONSOLIDATED BALANCE SHEETS
Ameritech Corporation and Subsidiaries
<TABLE>
<CAPTION>
As of December 31
-------------------------
(dollars in millions)
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and temporary cash investments $139 $239
Receivables, less allowance for uncollectibles of $338 and $308, respectively 3,052 3,078
Installment receivable from TCNZ share sale 940 --
Material and supplies 345 290
Prepaid and other 654 942
----------------------
5,130 4,549
----------------------
Property, plant and equipment
In service 35,859 34,020
Under construction 485 371
----------------------
36,344 34,391
Less, accumulated depreciation 22,039 20,518
----------------------
14,305 13,873
----------------------
Investments, primarily international 4,938 1,751
----------------------
Other assets and deferred charges 5,926 5,166
----------------------
Total assets $30,299 $25,339
----------------------
Liabilities and shareowners' equity
Current liabilities
Debt maturing within one year $2,619 $3,036
Accounts payable 1,905 1,955
Other 3,476 2,250
----------------------
8,000 7,241
----------------------
Long-term debt 5,557 4,610
----------------------
Deferred credits and other long-term liabilities
Accumulated deferred income taxes 1,502 1,150
Unamortized investment tax credits 115 140
Postretirement benefits other than pensions 2,918 2,965
Other 1,310 925
----------------------
5,845 5,180
----------------------
Shareowners' equity
Common stock, par value $1; 2.4 billion shares authorized;
1,177 million issued in 1998 and 1997 1,177 1,177
Proceeds in excess of par value 5,493 5,313
Reinvested earnings 6,455 4,190
Treasury stock, at cost (78 million shares in 1998 and 79 million shares in 1997) (1,923) (1,645)
Deferred compensation (114) (190)
Accumulated other comprehensive income (191) (537)
----------------------
10,897 8,308
----------------------
Total liabilities and shareowners' equity $30,299 $25,339
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
Ameritech Corporation and Subsidiaries
<TABLE>
<CAPTION>
Shareowners' Equity
------------------------------------------------------------------------------
Accumulated Common Treasury
Proceeds in Other Shares Common
Dollars in millions, Common Excess of Reinvested Treasury Deferred Comprehensive Issued Shares
except per share amounts) Total Stock Par Value Earnings Stock Compensation Income (millions) (millions)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 $7,015 $1,175 $5,026 $2,209 $(986) $(329) $(80) 1,175 67
Comprehensive income
Net income 2,134 2,134
Unrealized gain (loss)
on securities, net of
reclassifications (1) (1)
Foreign currency
translation adjustments (103) (103)
-------
Comprehensive income 2,030
Dividends ($1.078 per share) (1,189) (1,189)
Stock issued to employees 29 1 28 1
Treasury stock activity
Purchases (492) (492) 17
Issuances 200 66 134 (8)
Reduction of LESOP debt 70 70
Other 24 24
---------------------------------------------------------------------------------------------------
Balances, December 31, 1996 7,687 1,176 5,144 3,154 (1,344) (259) (184) 1,176 76
Comprehensive income
Net income 2,296 2,296
Unrealized gain (loss)
on securities, net of
reclassifications (3) (3)
Foreign currency
translation adjustments (350) (350)
-------
Comprehensive income 1,943
Dividends ($1.148 per share) (1,260) (1,260)
Stock issued to employees 12 1 11 1
Treasury stock activity
Purchases (602) (602) 19
Issuances 318 72 246 (13)
Acquisitions of businesses 98 43 55 (3)
Reduction of LESOP debt 69 69
Other 43 43
---------------------------------------------------------------------------------------------------
Balances, December 31, 1997 8,308 1,177 5,313 4,190 (1,645) (190) (537) 1,177 79
Comprehensive income
Net income 3,606 3,606
Unrealized gain (loss)
on securities, net of
reclassifications 9 9
Foreign currency
translation adjustments 337 337
-------
Comprehensive income 3,952
Dividends ($1.218 per share) (1,341) (1,341)
Treasury stock activity
Purchases (500) (500) 10
Issuances 345 123 222 (11)
Reduction of LESOP debt 76 76
Other 57 57
---------------------------------------------------------------------------------------------------
Balances, December 31, 1998 $10,897 $1,177 $5,493 $6,455 $(1,923) $(114) $(191) 1,177 78
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ameritech Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the year ended December 31
---------------------------------------
(dollars in millions) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $3,606 $2,296 $2,134
Adjustments to net income
Restructuring, net of tax 64 -- --
Depreciation and amortization 2,717 2,521 2,365
Deferred income taxes, net 305 235 122
Investment tax credits, net (25) (32) (36)
Capitalized interest (27) (25) (28)
Change in accounts receivable, net 26 (8) (296)
Change in material and supplies (95) (97) (61)
Change in other current assets (213) (116) (11)
Change in accounts payable (50) 119 44
Change in certain other current liabilities 1,322 391 86
Change in certain noncurrent assets and liabilities (959) (622) (482)
Gain on sale of TCNZ shares (1,543) -- --
Gain on sale of assets to Century Telephone Enterprises, Inc. (170) -- --
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 (148) (15) (94)
----------------------------------
Net cash from operating activities 4,810 4,510 3,743
----------------------------------
Cash flows from investing activities
Capital expenditures, net (2,954) (2,641) (2,440)
Additional investments, including acquisition of new companies (3,261) (1,074) (922)
Proceeds from sale of TCNZ shares 1,078 -- --
Proceeds from sale of assets to Century Telephone Enterprises, Inc. 221 -- --
Proceeds from repayment of GEIS note 473 -- --
Proceeds from TCNZ 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 3 (14) 51
----------------------------------
Net cash from investing activities (4,440) (3,315) (3,311)
----------------------------------
Cash flows from financing activities
Net change in short-term debt (221) (195) 815
Issuance of long-term debt 2,500 650 273
Retirement of long-term debt (1,672) (320) (92)
Dividend payments (1,323) (1,242) (1,171)
Repurchase of common stock (500) (602) (492)
Proceeds from reissuance of treasury stock 401 330 196
Issuance of preferred stock in subsidiaries 322 250 --
Other financing activities, net 23 28 53
----------------------------------
Net cash from financing activities (470) (1,101) (418)
----------------------------------
Net increase (decrease) in cash and temporary cash investments (100) 94 14
Cash and temporary cash investments, beginning of year 239 145 131
----------------------------------
Cash and temporary cash investments, end of year $139 $239 $145
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<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 3.5 million cellular customers, more than 1.5 million
paging customers and approximately 1.2 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, Denmark and Hungary. We also publish business directories
in Germany and other European countries.
See our discussion of regulatory matters and competitive environment in Other
Matters in Management's Discussion and Analysis of Results of Operations and
Financial Condition (MD&A) on pages 30 to 36. See also the discussion of our
pending merger in Note 16 on page 53.
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). We have
made certain reclassifications to the 1997 and 1996 balances to correspond to
the 1998 presentation.
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.
We use average plant lives, generally ranging from three to 30 years
depending upon the type of asset. In general, the lives used for certain
communications assets and office equipment have shortened due to the use of
newer technologies.
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 is 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 accumulated other comprehensive income 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:
o to manage financial risk;
o to hedge assets and obligations that we already hold; and,
o 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.
SOFTWARE COSTS We have historically expensed most software and related license
fees as incurred. Beginning in 1999, we are required, because of a change in
GAAP, to capitalize a significant portion of software developed or obtained for
our internal use. See our discussion of new accounting pronouncements in Other
Matters in MD&A on page 36.
COMPREHENSIVE INCOME In 1998, we adopted Statement of Financial Accounting
Standards (FAS) 130, "Reporting Comprehensive Income," issued by the Financial
Accounting Standards Board (FASB). We report accumulated other comprehensive
income as a separate component of shareowners' equity. The deferred tax effects
of the unrealized gain or loss on available-for-sale securities were a $5
million benefit in 1998 and expense
42
<PAGE>
of $2 million in 1997 and $1 million in 1996. We do not recognize deferred
income taxes on foreign currency translation adjustments.
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 are calculated by including all dilutive potential
common shares such as stock options. Dilutive potential common shares were
9,319,370 in 1998, 5,375,302 in 1997 and 4,448,568 in 1996. No adjustment to
reported net income is required when computing diluted earnings per share.
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 unless 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 periodically review amounts recorded as intangible
assets for impairment 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 accumulated other comprehensive income.
2. INVESTMENTS
- ------------------------------------------------------------------------------
We account for our investments in Tele Danmark, Belgacom and MATAV using the
equity method of accounting.
TELE DANMARK In January 1998, we purchased a 34% interest in Tele Danmark A/S,
the national communications provider in Denmark, from the Kingdom of Denmark for
approximately $3.1 billion. As part of our investment agreement, Tele Danmark
repurchased and retired all remaining shares owned by the Danish government,
effectively increasing our equity ownership to 41.6% of Tele Danmark.
Based on the year-end closing price of individual Tele Danmark shares, the
aggregate market value of our investment was $6.1 billion as of December 31,
1998. We are amortizing goodwill of approximately $1,453 million from this
investment over a period of 40 years.
BELGACOM In March 1996, a consortium led by Ameritech finalized its agreement to
acquire an interest in Belgacom S.A., the national communications provider in
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 $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.
After giving effect to Belgacom's unfunded pension obligation and other
adjustments to conform to U.S. GAAP, our share of goodwill from this investment
is approximately $845 million, which we are amortizing on a straight-line basis
over a period of 40 years.
[GRAPH APPEARS HERE]
1993 1994 1995 1996 1997 1998
----------------------------------------------
860 1,299 1,891 2,512 3,177 3,577
Wireless Growth
(wireless customers in thousands)
Ameritech has a strong growth record in wireless. In
1998, we added 400,000 cellular customers, an
increase of 13%.
MATAV We invested a total of $843 million in MATAV, the national communications
provider in Hungary. On November 14, 1997, MATAV completed an initial public
offering (IPO) of its shares. We sold 11.5% of our shares in the IPO and
realized cash proceeds of $146 million. We recorded a pretax gain of $43 million
on the share sale and currently hold 309,029,700 shares, or approximately 30% of
MATAV. Based on the year-end closing price of individual MATAV shares, the
aggregate value of our remaining shares is approximately $1.8 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 April 1998, we sold substantially
all of our remaining 24.95% interest in Telecom Corporation of New Zealand
Limited (New Zealand Telecom or TCNZ) in a global stock offering. The first of
two installment payments was received in April 1998 with the second
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
payment due by March 31, 1999. At the time of the first installment payment, we
irrevocably transferred our shares to a trustee, which is holding the shares in
trust for the purchasers until the final installment is paid. We retained a
security interest in the shares, and each purchaser remains personally liable
until the final installment payment is received. The purchasers will receive all
ordinary dividends in the interim period. The trustee will have one vote for
each share and will vote the shares based on instructions from the purchasers.
[GRAPH APPEARS HERE]
1993 1994 1995 1996 1997 1998
----------------------------------------------
$3,189 $3,430 $3,556 $3,743 $4,510 $4,810
Cash Flow Growth
(cash flow from operations in millions)
Cash flow from operations increased to $4.8
billion in 1998, up 51% over the past
five years.
In accordance with FAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," we accounted for this
transaction as a sale and recorded an after-tax gain of approximately $1.0
billion. Because the receivable from the second installment payment does not
have a stated interest rate, we are imputing interest at 9%. Net proceeds from
the initial installment were approximately $1.1 billion, and we expect to
receive total net proceeds of approximately $2.1 billion from this transaction.
We have hedged substantially all foreign exchange risk associated with the final
installment. Until April 1998, we used the equity method of accounting for this
investment.
SUMMARY OF NONCONSOLIDATED INVESTMENTS A summary of our investments, which have
not been consolidated, follows:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Tele Danmark $3,401 $ --
Belgacom 892 742
MATAV 534 506
New Zealand Telecom -- 417
Other international investments 4 4
-----------------
Total international investments 4,831 1,669
Domestic investments 107 82
-----------------
Total investments $4,938 $1,751
- -----------------------------------------------------------------------------
</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 $171 million in 1998, $164 million in 1997 and $152 million
in 1996.
The following tables present summarized financial information of significant
investments accounted for using the equity method of accounting after taking
into account all adjustments necessary to conform to U.S. GAAP, but excluding
Ameritech's purchase adjustments including goodwill:
<TABLE>
<CAPTION>
Year ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $11,344 $8,199 $7,400
Operating income 2,803 1,918 1,918
Net income 1,751 723 1,002
-----------------------------
Weighted average
owned by Ameritech* 27.8% 22.2% 23.3%
- -----------------------------------------------------------------------------
</TABLE>
* Represents Ameritech's weighted average share of revenues.
<TABLE>
<CAPTION>
As of December 31 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Current assets $4,145 $2,421
Noncurrent assets 13,826 10,851
Current liabilities 5,165 4,565
Noncurrent liabilities 6,864 6,500
Minority interest 69 91
- -----------------------------------------------------------------------------
</TABLE>
OTHER INVESTMENTS In addition to acquiring our Tele Danmark investment in 1998,
we made several smaller investments for approximately $100 million in cash and
assumed debt of approximately $40 million. At various times in 1997, we acquired
assets of several companies engaged in security services through our wholly
owned subsidiary, SecurityLink from Ameritech, Inc., for approximately $1
billion in cash and stock.
We accounted for these transactions using the purchase method of accounting.
We allocated our purchase price to individual assets and liabilities based on
estimates of fair value. Revenues of all of the above-mentioned security
businesses in 1996, prior to our asset acquisitions, were approximately $195
million.
44
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
- ------------------------------------------------------------------------------
The components of property, plant and equipment were as follows as of December
31:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Land $ 148 $ 152
Buildings 3,308 3,123
Central office equipment 14,658 13,335
Cable, wiring and conduit 14,605 13,960
Other 3,140 3,450
-------------------
35,859 34,020
Under construction 485 371
-------------------
36,344 34,391
Less, accumulated depreciation 22,039 20,518
-------------------
Total property, net $14,305 $13,873
- -----------------------------------------------------------------------------
</TABLE>
Depreciation expense on property, plant and equipment was $2,475 million in
1998, $2,317 million in 1997 and $2,216 million in 1996.
4. INCOME TAXES
- ------------------------------------------------------------------------------
The components of income tax expense follow:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $1,568 $ 994 $ 959
Deferred, net 213 217 115
Investment tax credits, net (25) (32) (36)
-----------------------------
Total 1,756 1,179 1,038
-----------------------------
State, local and foreign
Current 223 191 138
Deferred, net 52 18 7
-----------------------------
Total 275 209 145
-----------------------------
Total income tax expense $2,031 $1,388 $1,183
- ------------------------------------------------------------------------------
</TABLE>
Total income taxes paid were $956 million in 1998, $1,151 million in 1997 and
$1,075 million in 1996.
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>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 3.1 2.9 2.8
Amortization of
investment tax credits (0.3) (0.6) (0.7)
Other, net (1.8) 0.4 (1.4)
----------------------------
Effective tax rate 36.0% 37.7% 35.7%
- ------------------------------------------------------------------------------
</TABLE>
Income tax expense was reduced by $12 million in 1996 as a result of a portion
of the beginning-of-year valuation allowances no longer being required.
As of December 31, 1998 and 1997, the components of long-term accumulated
deferred income taxes were as follows:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Postretirement and
postemployment benefits $1,110 $1,127
Other 330 291
------------------
1,440 1,418
------------------
Deferred tax liabilities
Accelerated depreciation
and amortization 1,903 1,737
Prepaid pension cost 627 530
Undistributed equity
earnings from foreign
investments 80 44
Other 332 257
------------------
2,942 2,568
------------------
Net deferred tax liability $1,502 $1,150
- -----------------------------------------------------------------------------
</TABLE>
As of December 31, we had valuation allowances against certain deferred tax
assets aggregating $107 million in 1998 and $72 million in 1997. We do not
separately report 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>
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Notes payable
Commercial paper $2,368 $2,584
Bank loans 4 9
Other 12 38
Long-term debt maturing
within one year 235 405
------------------
Total $2,619 $3,036
------------------
Weighted average interest rate
on notes payable, year-end 5.4% 5.8%
- -----------------------------------------------------------------------------
</TABLE>
We have a committed revolving credit facility of $2.0 billion. The fee for this
facility is 0.035% per annum. No amounts were outstanding under this facility as
of December 31, 1998. In addition, we have entered into uncommitted agreements
with a number of banks for lines of credit totaling $1.8 billion. We had $1
million outstanding under these agreements as of December 31, 1998, and did not
use the agreements during 1997 or 1996. The interest rates on these lines are
negotiable at the time of borrowing. 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.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
6. LONG-TERM FINANCING
- -----------------------------------------------------------------------------
Long-term debt consists principally of debt issued by our landline
communications subsidiaries and our financing subsidiary, Ameritech Capital
Funding Corporation (ACF). The following table sets forth interest rates and
other information on long-term debt outstanding as of December 31:
<TABLE>
<CAPTION>
Interest Rates Maturities 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
4.375%-6.0% 2000-2007* $1,890 $640
6.125%-8.0% 2001-2028 3,517 3,462
8.125%-9.0% 2000-2005 45 326
9.1%-10.0% 2006-2016 96 96
------------------
5,548 4,524
LESOP (Note 8) 37 114
Capital lease obligations 6 9
Other 2 1
Unamortized discount, net (36) (38)
------------------
Total $5,557 $4,610
- -----------------------------------------------------------------------------
</TABLE>
* Includes $250 million ACF 5.9% debentures maturing in 2038 with a put option
by holder in 2005.
Scheduled maturities of long-term debt, including principal payments on LESOP
debt (see Note 8), are $235 million due in 1999, $147 million due in 2000, $606
million due in 2001, $127 million due in 2002 and $977 million due in 2003.
In December 1998, we redeemed approximately $1.3 billion of long-term debt,
including mortgage bonds, issued by our landline communications subsidiaries. We
called this debt in anticipation of refinancing at more favorable interest rates
in 1999. Interest rates on the extinguished debt ranged from 6.25% to 8.5% and
maturities ranged from 2004 to 2026.
In January 1998, we issued $1.75 billion of long-term debt in five separate
tranches through ACF. The notes and debentures bear interest at annual rates
ranging from 5.65% to 6.55% and mature between 2001 and 2038. In February 1998
we issued $750 million of 5.88% unsecured Eurodollar notes, due February 19,
2003, through ACF. We used proceeds from these borrowings primarily to fund our
investment in Tele Danmark.
As of December 31, 1998, we had available for issuance through our landline
communications subsidiaries and ACF $1.2 billion in unsecured debt securities
through shelf registration statements with the Securities and Exchange
Commission (SEC).
PREFERRED STOCK ISSUANCES BY SUBSIDIARIES In April 1998, an Ameritech subsidiary
issued through a private placement 3,250 shares of stated rate auction preferred
stock (STRAPS) in four separate series. Net proceeds from these issuances
totaled $322 million. Dividends accrue on the STRAPS at varying rates, which are
adjusted periodically through separate auctions on each series. Dividends are
cumulative from the date of issuance. The dividend rates for each series ranged
from 4.15% to 4.35% as of December 31, 1998.
In June 1997, one of our wholly owned subsidiaries issued $250 million of
preferred stock in a private placement. The holders of the preferred stock may
require our subsidiary to redeem the shares at any time after May 20, 2004.
Holders receive quarterly dividends based on a rolling three-month London
Interbank Offer Rate (LIBOR). The dividend rate for the December 31, 1998,
payment was 6.05%.
As of December 31, 1998, 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, 4.4% as of
December 31, 1998, not subject to mandatory redemption).
All preferred stock issued by subsidiaries is included in Other long-term
liabilities on the consolidated balance sheet.
7. Other assets and deferred charges
- -----------------------------------------------------------------------------
The components of other assets and deferred charges are as follows:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Goodwill $1,077 $980
Acquired security services
customers 453 512
Other intangibles 544 538
------------------
Total intangibles, net 2,074 2,030
Prepaid pension asset 1,651 1,394
Other 2,201 1,742
------------------
$5,926 $5,166
- -----------------------------------------------------------------------------
</TABLE>
Costs of acquiring security services customers generally are being amortized
over 10 years, the expected life when acquired from a third party. Our goodwill
generally is amortized over 40 years. Accumulated amortization of intangibles
was $366 million in 1998 and $273 million in 1997.
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 for substantially all retirees and their
dependents.
The components of pension cost (credits) are as follows:
<TABLE>
<CAPTION>
Pension Benefits
--------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year $210 $183 $167
Interest cost on projected
benefit obligation 551 556 493
Expected return on plan assets (886) (822) (765)
Net amortization and deferral
Transition obligation (110) (110) (112)
Other 10 19 22
-------------------------------
Net pension credits $(225) $(174) $(195)
- ------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
The components of postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Retiree Health and Life Benefits
---------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year $84 $80 $88
Interest cost on accumulated
benefit obligation 367 360 345
Expected return on plan assets (150) (127) (110)
Net (gain) or loss amortization 10 -- 16
---------------------------
Total postretirement
benefit cost $311 $313 $339
- ------------------------------------------------------------------------------
</TABLE>
The following tables set forth pension and postretirement obligations and plan
assets as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Retiree Health and Life
---------------- -----------------------
1998 1997 1998 1997
- ------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C>
Change in benefit
obligation:
Benefit obligation
as of January 1 $7,994 $7,622 $5,454 $5,057
Service cost 210 183 84 80
Interest cost 551 556 367 360
Plan amendment (30) -- -- --
Effect of settlements (34) (35) -- --
Actuarial loss (gain) 760 416 190 228
Benefits paid (766) (748) (293) (271)
---------------- ------------------
Benefit obligation
as of December 31 $8,685 $7,994 $5,802 $5,454
- ------------------------------------------------------------------------------
Change in plan
assets:
Fair value as
of January 1 $13,611 $12,121 $1,755 $1,491
Actual return 1,946 2,268 247 205
Company
contribution -- -- 89 83
Effect of settlements (37) (39) -- --
Benefits paid (758) (739) (23) (24)
---------------- ------------------
Fair value as
of December 31 $14,762 $13,611 $2,068 $1,755
- ------------------------------------------------------------------------------
Funded status:
As of December 31 $6,077 $5,617 $(3,734) $(3,699)
Unrecognized cost:
Actuarial
and investment
(gains)
losses, net (4,246) (3,996) 814 732
Prior service cost 366 431 2 2
Transition
obligation (546) (658) -- --
---------------- ------------------
Prepaid (accrued)
benefit cost $1,651 $1,394 $(2,918) $(2,965)
- ------------------------------------------------------------------------------
</TABLE>
Assumptions as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Retiree Health and Life
---------------- -----------------------
1998 1997 1998 1997
- ----------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.0% 6.75% 7.0%
Expected return 8.4% 8.4% 8.4% 8.4%
Compensation
increase rate 4.1% 4.1% 4.1% 4.1%
- -----------------------------------------------------------------------------
</TABLE>
Effective December 31, 1996, we gave effect to increases in future benefits
under the nonmanagement pension plan. The assumed health care cost trend rate
was 7.6% for 1998 and 8.0% for 1997 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 $ 65 $ (52)
Effect on postretirement
benefit obligation $706 $(580)
- ------------------------------------------------------------------------------
</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 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.
[GRAPHIC APPEARS HERE]
Revenues from data communications
grew 32% in 1998 to $1.7 billion.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
Debt and deferred compensation decrease as the trustee makes principal payments.
As of December 31, 1998, we had $37 million included in long-term debt and $77
million included in long-term debt maturing within one year with respect to the
LESOPs.
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 to the plans. 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 totaled $31 million in 1998, $29 million in 1997
and $34 million in 1996. Interest expense incurred by the savings plans was $9
million in 1998, $15 million in 1997 and $21 million in 1996. Dividends paid on
shares of stock held by the trustee used to partially satisfy debt repayment
requirements were $42 million for 1998 and $41 million for both 1997 and 1996.
As of December 31, 1998, we had allocated or committed 35,256,838 shares to
employee accounts, leaving 9,875,714 shares unallocated. As of December 31,
1997, we had allocated or committed 32,154,838 shares to employee accounts,
leaving 12,977,714 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, 1998, the trustee borrowed
$94 million from Ameritech at rates ranging from 6.1% to 8.4%. The trustee
borrowed an additional $20 million in January 1999 at 5.6%.
RESTRUCTURING In March 1998, we announced plans to significantly reduce future
operating expenses by the end of 2002. As part of this cost containment program,
we recorded a pretax restructuring charge of $104 million ($64 million
after-tax, or $0.06 per share) in March 1998 principally to cover the costs of
consolidating security monitoring centers and closing 53 company-owned cellular
retail stores. The charge includes employee-related costs (principally
severance) of approximately $54 million for the termination of the employment of
approximately 5,000 employees, as well as other costs of approximately $50
million related to lease terminations and asset write-downs. We accounted for
the employee costs of the restructuring charge in accordance with our existing
severance plans and following FAS 112, "Employers' Accounting for Postemployment
Benefits." We accounted for the other restructuring costs in accordance with
existing accounting literature for restructurings. The charge does not include
approximately 550 employees identified for employment termination when we
acquired certain security services assets in 1997. We included the cost of
terminating the employment of these employees in our purchase price.
Employee reductions under the March 1998 restructuring program were 1,478 in
1998. Termination costs related to these employees were approximately $15
million. We also incurred nonemployee costs of approximately $13 million in 1998
related to this restructuring, resulting in an accrual balance of approximately
$76 million as of December 31, 1998. Settlement gains of approximately $3
million associated with this restructuring were recorded in 1998.
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 Plan (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, other than those leaving as part
of the March 1998 restructuring discussed above, was 249 in 1998, 273 in 1997
and 618 in 1996.
Settlement gains result from the payment of lump-sum distributions from the
pension plans to former employees and are recorded as a credit to other
operating expense. Settlement gains, net of termination costs, under the plans
were $18 million in 1998, $20 million in 1997 and $33 million in 1996. We fund
the involuntary plans from our operations and made cash payments of $4 million
in 1998, $5 million in 1997 and $17 million in 1996.
9. COMMITMENTS
- -----------------------------------------------------------------------------
We lease certain facilities and equipment used in our operations under both
operating and capital leases. Rental expense under operating leases was $243
million in 1998, $220 million in 1997 and $219 million in 1996. As of December
31, 1998, the aggregate minimum rental commitments under noncancelable leases
were as follows:
<TABLE>
<CAPTION>
Years Operating Capital
- ------------------------------------------------------------------------------
<S> <C> <C>
1999 $94 $3
2000 82 2
2001 70 3
2002 56 1
2003 51 1
Thereafter 201 1
---------------
Total minimum rental commitments $554 11
----
Less: executory costs 1
interest costs 2
---
Present value of minimum lease payments $8
- ------------------------------------------------------------------------------
</TABLE>
We commenced a 10-year agreement in 1996 with IBM Global Services (IBM), to
perform certain information technology services we previously performed. IBM
also is responsible for the consolidation of our data centers. 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
48
<PAGE>
may increase or decrease based in part on usage, growth or other data processing
requirements. We may terminate the entire agreement upon payment of a
predetermined fee, which varies based on the reason for termination and the year
terminated.
10. FINANCIAL INSTRUMENTS AND DERIVATIVES
- -----------------------------------------------------------------------------
The following table presents the estimated fair value of our financial
instruments as of December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and temporary
cash investments $139 $139 $239 $239
Debt 8,327 8,644 7,749 8,037
Other assets 1,434 1,421 907 888
Other liabilities 760 789 476 509
- -----------------------------------------------------------------------------
</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, 1998, we had contracts
giving us the right to deliver foreign currency valued at approximately $1.0
billion ($3.0 billion in 1997). As of December 31, we also had entered into
interest rate swap agreements to change the interest rate on notional amounts of
$395 million in 1998 and $527 million in 1997. 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, 1998, the fair value of
these interest rate swaps was $25 million less than carrying value. As of
December 31, 1997, the fair value of the interest rate swaps was $15 million
less than carrying value.
11. OTHER INCOME, NET
- -----------------------------------------------------------------------------
The components of other income, net are as follows:
<TABLE>
<CAPTION>
Income (expense) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity earnings of affiliates* $382 $206 $236
Interest on company-owned
life insurance and
related programs 40 46 55
Gain on LESOP 52 44 35
Gain on sale of TCNZ shares 1,543 -- --
Charge for early redemption
of long-term debt (38) -- --
Gain on sale of assets to
Century Telephone 170 -- --
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 --
Loss on forward contracts related
to Tele Danmark acquisition (54) (16) --
Other, net (40) (27) --
-----------------------------
Total $2,055 $390 $326
- ------------------------------------------------------------------------------
</TABLE>
* Primarily Tele Danmark, Belgacom and MATAV in 1998 and TCNZ, Belgacom and
MATAV in 1997 and 1996. Results in 1997 include an $87 million restructuring
charge at Belgacom.
12. SHAREOWNERS' EQUITY
- -----------------------------------------------------------------------------
STOCK INFORMATION Our certificate of incorporation authorizes 2.4 billion common
shares. The certificate also allows 30 million shares of preferred stock (par
value $1 per share) and 30 million shares of preference stock (par value $1 per
share).
As of December 31, 1998, we have 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.
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
plans. 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 1997 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
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
of grant. Under the 1997 plan, stock options 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, is as follows:
<TABLE>
<CAPTION>
Incentive Nonqualified
Stock Options Stock Options
------------- ---------------------
Shares Price* Shares Price*
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Granted -- -- 9,697,193 $45.09
Exercised -- -- (6,773,262) $23.36
Canceled or expired -- -- (1,638,244) $35.78
- -----------------------------------------------------------------------------
December 31, 1998 -- -- 41,935,401 $30.42
- -----------------------------------------------------------------------------
</TABLE>
* Weighted average
The above stock options have the following characteristics as of December 31,
1998:
<TABLE>
<CAPTION>
Remaining
Shares Life Shares
Grant Year Outstanding Price* (in years)* Exercisable
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1989-93 2,150,083 $16.28 2.4 2,150,083
1994 3,307,615 19.28 5.1 3,307,615
1995 5,576,324 20.84 6.1 5,576,324
1996 8,361,187 29.13 7.1 4,816,787
1997 13,477,031 30.30 8.1 3,671,271
1998 9,063,161 45.09 9.3 2,111
---------- ----------
41,935,401 19,524,191
- ------------------------------------------------------------------------------
</TABLE>
* Weighted average
As of December 31, additional shares available under stock options with dividend
equivalents were 1,144,092 in 1998, 1,006,992 in 1997 and 713,820 in 1996.
All stock appreciation rights granted under the plans have been issued in
tandem with nonqualified stock options. 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.
As of December 31, 1998, 22,333 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 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>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $ 3,606 $ 2,296 $ 2,134
Pro forma 3,581 2,262 2,107
Earnings per share As reported basic 3.27 2.09 1.93
As reported diluted 3.25 2.08 1.92
Pro forma basic 3.25 2.06 1.91
Pro forma diluted 3.21 2.05 1.91
- ------------------------------------------------------------------------------
</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>
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free rate 5.63% 6.22% 5.37%
Expected dividend yield* 2.67% 3.74% 3.50%
Expected option life (in years)
(without dividend equivalents) 4.20 3.25 3.25
Expected option life (in years)
(with dividend equivalents) 5.40 5.00 5.00
Expected stock price volatility 24.43% 23.67% 20.74%
Grant date value
(without dividend equivalents) $10.07 $5.49 $4.48
Grant date value
(with dividend equivalents) $15.95 $10.31 $8.99
- ------------------------------------------------------------------------------
</TABLE>
* The options granted with dividend equivalents (about 27% of total options
granted in 1998, 24% in 1997 and 28% in 1996) were priced assuming the
dividends would accrue to the optionee over the expected life of the option.
50
<PAGE>
13. ADDITIONAL FINANCIAL INFORMATION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
--------------------
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Other current liabilities
Accrued payroll $165 $284
Accrued taxes 1,405 478
Advance billings and customer deposits 370 378
Dividends payable 351 330
Accrued interest 183 127
Other 1,002 653
-----------------
Total $3,476 $2,250
- ------------------------------------------------------------------------------
</TABLE>
Interest paid was $555 million in 1998, $534 million in 1997 and $544 million in
1996. Advertising expense was $283 million in 1998, $354 million in 1997 and
$270 million in 1996.
Net income was reduced by $56 million in 1998 and $24 million in 1997 as a
result of reclassification of currency translation adjustments from other
comprehensive income. This resulted from the sale of our TCNZ and MATAV shares
previously discussed. Reclassifications from other comprehensive income as a
result of sales of securities did not exceed $10 million in any year.
14. SEGMENT INFORMATION
- -----------------------------------------------------------------------------
We have three reportable segments as defined by FAS 131, "Disclosures About
Segments of an Enterprise and Related Information." They are communications,
information and entertainment, and international. The communications segment
provides telecommunications services such as landline telephone service,
cellular telephone and paging services, and call management and data services to
business and residential customers primarily in the states of Illinois, Indiana,
Michigan, Ohio and Wisconsin. Communications services also include network
access and interconnection services for interexchange carriers and competitive
providers of local telephone service. The information and entertainment segment
provides printed and online directories for business and residential users,
security and alarm monitoring services for homes and businesses, and cable TV
services. The international segment manages our investments in foreign ventures,
which we account for using the equity method of accounting. In addition to these
reportable segments, we derive revenues from other nonreportable segments,
including lease financing services.
Our reportable segments are strategic business units or aggregations of
strategic business units that offer different products or services. They are
managed separately based on differences in customer base, strategic objectives
or regulatory environment. With the exception of the international segment,
management evaluates segment performance based upon direct margin, which
represents total revenues less direct expenses attributable to that segment.
Results are normalized for one-time items. Management does not allocate
corporate overhead, centralized information technology (IT) costs, interest
income, interest expense, other nonoperating items or income taxes when
measuring segment results. Corporate overhead and IT costs are shown as a
reconciling item in the reconciliation of segment profit to consolidated
operating income below. The international segment is evaluated based on income
from equity-method investees before one-time items. The accounting policies of
the segments are generally the same as those described in Note 1. Following is a
summary of information about segment profits, assets and capital expenditures
(including business acquisitions).
<TABLE>
<CAPTION>
Communications
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from
external customers $15,121 $14,208 $13,207
Intersegment revenues 148 154 183
Depreciation and amortization 2,398 2,276 2,207
Net income in
equity-method investees 4 4 3
Segment profit 6,066 5,561 4,811
Segment assets 19,899 19,053 18,014
Expenditures for
segment assets 2,702 2,795 2,181
- ------------------------------------------------------------------------------
</TABLE>
[GRAPHIC APPEARS HERE]
Our total number of high-capacity
circuits grew 33% in 1998, reflecting
surging demand for data communications.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Information and entertainment
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from
external customers $1,993 $1,581 $1,415
Intersegment revenues 9 2 2
Depreciation and amortization 177 124 74
Segment profit 527 488 521
Segment assets 2,868 2,472 1,168
Expenditures for
segment assets 186 1,086 149
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
International
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from equity-
method investees $378 $289 $233
Segment assets 7,438 2,328 2,562
Expenditures for
segment assets 3,143 -- 898
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Other business activities
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from
external customers $156 $134 $109
Revenues from operating
segments 92 72 36
Depreciation and amortization 130 109 69
Profit 90 77 64
Assets 1,479 1,192 953
Expenditures for
long-lived assets 139 103 87
- ------------------------------------------------------------------------------
</TABLE>
Following are reconciliations of reportable segment information to financial
statement amounts:
<TABLE>
<CAPTION>
Revenues
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues from
reportable segments $17,271 $15,945 $14,807
Other operating revenues 248 206 145
Corporate revenues
and eliminations (365) (153) (35)
-----------------------------
Total consolidated
revenues $17,154 $15,998 $14,917
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Profit
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Communications and
information and
entertainment margins $6,593 $6,049 $5,332
Margin from other
business activities 90 77 64
Corporate and eliminations (2,386) (2,258) (1,891)
-----------------------------
Operating income before
one-time items 4,297 3,868 3,505
One-time items
in operating income (104) (69) --
-----------------------------
Operating income 4,193 3,799 3,505
Interest expense 611 505 514
Income from international
equity-method investees 378 289 233
Other income (expense) 56 67 75
Other one-time items 1,621 34 18
-----------------------------
Pretax income $5,637 $3,684 $3,317
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Assets
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets for
reportable segments $30,205 $23,853 $21,744
Other assets 1,479 1,192 953
Corporate assets and
eliminations (1,385) 294 1,010
-----------------------------
Total consolidated
assets $30,299 $25,339 $23,707
- ------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC INFORMATION We hold investments in entities or conduct operations in
a number of countries outside the United States. Substantially all of our
overseas ventures are accounted for using the equity method of accounting, under
which we do not record the revenues and expenses of the ventures in our
operating results (see Note 2). Specifically, less than 1% of consolidated
revenues for all years presented are from outside the United States. A summary
of our long-lived assets by country is as follows:
<TABLE>
<CAPTION>
Long-lived assets
1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $20,309 $19,093 $17,658
Belgium 892 742 890
Denmark 3,401 -- --
Hungary 534 506 655
New Zealand -- 417 670
Other countries 33 32 35
-----------------------------
Total $25,169 $20,790 $19,908
- ------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
PRODUCT INFORMATION Most of our revenues are derived from the provisioning of
landline telephone service and supporting products. Products or services that
contributed more than 5% of our consolidated revenues other than those of our
landline telephone business are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cellular and paging 11% 11% 9%
Directory advertising 8% 8% 8%
- -----------------------------------------------------------------------------
</TABLE>
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Diluted
Operating Net Earnings
Revenues Income Income per Share
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
1st Quarter $4,133 $905 $492 $0.44
2nd Quarter 4,289 1,164 1,707 1.54
3rd Quarter 4,290 1,063 645 0.58
4th Quarter 4,442 1,061 762 0.68
------------------------------
Total $17,154 $4,193 $3,606 $3.25
- -----------------------------------------------------------------------------
1997
1st Quarter $3,859 $912 $536 $0.48
2nd Quarter 3,986 1,041 537 0.49
3rd Quarter 4,006 962 613 0.56
4th Quarter 4,147 884 610 0.55
------------------------------
Total $15,998 $3,799 $2,296 $2.08
- -----------------------------------------------------------------------------
</TABLE>
The first quarter of 1998 includes a one-time pretax charge of $104 million ($64
million after-tax) for restructuring related to a cost containment program, as
well as a one-time pretax charge of $54 million ($34 million after-tax) for a
currency-related fair value adjustment in conjunction with our Tele Danmark
investment. The second quarter of 1998 includes a one-time pretax gain of $1.5
billion ($1.0 billion after-tax) related to the sale of substantially all of our
TCNZ shares. The fourth quarter of 1998 includes a one-time pretax charge of $38
million ($24 million after-tax) for the costs of early redemption of long-term
debt, as well as a pretax gain of $170 million ($102 million after-tax) from the
sale of certain telephone and directory assets to Century Telephone Enterprises,
Inc.
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. Several other significant income and expense
items were reported in the fourth quarter of 1997. However, the net result was
not material to results for the quarter or year.
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
fluctuations in the number of shares outstanding.
We have included all adjustments necessary for a fair statement of results
for each period.
16. MERGER AGREEMENT
- -----------------------------------------------------------------------------
On May 11, 1998, we jointly announced with SBC Communications Inc. (SBC) a
definitive agreement to merge an SBC subsidiary with Ameritech in a transaction
in which each outstanding share of Ameritech common stock (other than shares
owned by Ameritech, SBC or their respective subsidiaries) will be converted into
and exchanged for 1.316 shares of SBC common stock. After the merger, Ameritech
will be a wholly owned subsidiary of SBC. The transaction has been approved by
the board of directors and shareowners of each company. It is intended to be
accounted for as a pooling of interests and will qualify for federal income tax
purposes as a tax-free reorganization. The merger is subject to the satisfaction
of certain conditions and regulatory approvals.
The transaction, if approved by regulators and completed, will constitute a
change in control of the company. Stock options granted to employees prior to
initiation of the merger vest fully upon the change in control, and certain
change in control agreements and employee severance plans become operative.
These agreements and plans have been described in our most recent proxy
statement.
We have capitalized direct merger-related costs aggregating approximately $22
million as of December 31, 1998, pending completion of the merger.
53
<PAGE>
Exhibit 21
AMERITECH SUBSIDIARIES
as of March 22, 1999
AMCI Partnership Holdings, 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 Belgium Assets, LLC Delaware
Ameritech Belgium Leasing, Inc. Delaware
Ameritech Canada, Inc. Delaware
Ameritech C777, Inc. Delaware
Ameritech Capital Funding Corporation Delaware
Ameritech Cayman Islands Investments, Inc. Delaware
Ameritech Center Phase I, Inc. (Jointly owned by AIT and ASI) Delaware
Ameritech Communications International, Inc. Delaware
Ameritech Communications of Illinois, Inc. Delaware
Ameritech Communications of Wisconsin, Inc. Delaware
Ameritech Communications, Inc. Delaware
AMERITECH CORPORATION Delaware
Ameritech Credit Corporation (d/b/a Ameritech Capital Services) Delaware
Ameritech CT Acquisition Corporation Delaware
Ameritech Denmark, Inc. Delaware
Ameritech Denmark Funding Corporation Delaware
Ameritech Denmark Holdings, LLC Delaware
Ameritech Development Corporation Delaware
Ameritech Global Gateway Services, Inc. Delaware
Ameritech Health Connections, Inc. Delaware
Ameritech Information Access, LLC Delaware
Ameritech Information Industry Services, Inc. Delaware
Ameritech Information Systems, Inc. Delaware
Ameritech Intellectual Properties, Inc. Delaware
Ameritech Interactive Media, Inc. Delaware
Ameritech Interactive Media Services, Inc. Delaware
Ameritech International Belgium, LLC Illinois
Ameritech International Business Development Corporation Illinois
Ameritech International China, LLC Delaware
Ameritech International Denmark Corporation Delaware
Ameritech International Holdings Company Delaware
Ameritech International, Inc. Delaware
Ameritech International Spain, SL Delaware
Ameritech France S.A. Progiciels de Bibliotheques France
Ameritech Library Services, Inc. Delaware
Ameritech Library Services (Canada), Inc. Canada
Ameritech Library Services Limited (U.K.) U.K.
Ameritech Library Services Limited (Ireland) Ireland
Ameritech Library Services PTY Ltd. (Australia) Australia
Ameritech Luxembourg, S.a.r.l. Luxembourg
<PAGE>
Ameritech Managed Services, Inc. Delaware
Ameritech Management Corporation Delaware
Ameritech Management Services Company, LLC Delaware
Ameritech Media Ventures, Inc. Delaware
Ameritech Mobile Communications of Wisconsin, Inc. Wisconsin
Ameritech Mobile Communications, Inc. Delaware
Ameritech Mobile Data, Inc. Delaware
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. Wisconsin
Ameritech New Media, Inc. Delaware
Ameritech New Zealand Funding Corporation Delaware
Ameritech New Zealand Investments, Inc. Delaware
Ameritech Payphone Services of Indiana, Inc. Indiana
Ameritech Payphone Services of Michigan, Inc. Michigan
Ameritech Payphone Services of Wisconsin, Inc. Wisconsin
Ameritech Payphone Services of Ohio, Inc. Ohio
Ameritech Payphone Services, Inc. Delaware
Ameritech Publishing of Illinois, Inc. Illinois
Ameritech Publishing, Inc. Delaware
Ameritech Services, Inc. (Jointly owned by the Bell companies) Delaware
Ameritech Telecommunications Services Company Delaware
Ameritech Wireless Communications, Inc. Delaware
Ameritech XV, Inc. Delaware
Ameritech XX, Inc. Delaware
Clover Communications, Inc. Maryland
Clover Communications South, Inc. Maryland
Clover Technologies, Inc. Maryland
CyberTel Cellular Management Corporation Delaware
CyberTel Corporation Illinois
CyberTel Financial Corporation Delaware
CyberTel Minneapolis Paging Corporation Delaware
CyberTel St. Louis Paging Corporation Delaware
DonTech Publishing Company, LLC Illinois
Dynix Corporation Delaware
Gensub, Inc. Missouri
GSAA, Inc. Delaware
Illinois Bell Telephone Company (d/b/a Ameritech Illinois) Illinois
Indiana Bell Telephone Company, Incorporated
(d/b/a Ameritech Indiana) Indiana
Joseph International Sales, Inc. Virgin Islands
Metrocom Communications, Inc. Delaware
Michigan Bell Telephone Company (d/b/a Ameritech Michigan) Michigan
ORC Acquisition Corporation Delaware
Quentin International Sales, Inc. Virgin Islands
SecurityLink from Ameritech Holdings, Inc. Delaware
SecurityLink from Ameritech, Inc. Delaware
SecurityLink from Ameritech, Ltd. (Canada) Canada
SecurityLink from Ameritech of Puerto Rico Puerto Rico
SecurityLink from Ameritech S.A. de C.V. Mexico
Starline Insurance Company Vermont
The Ohio Bell Telephone Company (d/b/a Ameritech Ohio) Ohio
2
<PAGE>
Wer Liefert Was? Germany
Wer Liefert Was? AG Switzerland
Wer Liefert Was? Ges.m.b.H. Austria
Wisconsin Bell, Inc. (d/b/a Ameritech Wisconsin) Wisconsin
3026186 Nova Scotia Company Canada
3
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated January 21, 1999, included (or incorporated by
reference) in this Annual Report on Form 10-K for the year ended December 31,
1998, into Ameritech Corporation's previously filed Registration Statement File
Nos. 33-34006,33-49036, 33-51771, 33-51773, 33-00897, 33-02591, 333-29569,
333-29591, 333-37407 and 333-43179.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 29, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
and/or officers of Ameritech Corporation, a Delaware corporation (the
"Company"), hereby constitutes and appoints Oren G. Shaffer, Barbara A. Klein
and Richard W. Pehlke, and each of them singly, his or her true and lawful
attorney or attorneys-in-fact, with full power of substitution, resubstitution
and revocation, for him or her and in his or her name, place and stead, (a) to
sign, on his or her behalf in the respective capacity or capacities for the
Company set forth below, the Company's Annual Report on 10-K for the fiscal year
ended December 31, 1998 (the "10-K") pursuant to the Securities Act of 1934, as
amended (the "Exchange Act"), together with any and all amendments thereto on
Form 10-K/A, (b) to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
the stock exchanges on which the Company's Common Stock is listed for trading
and any other governmental or regulatory authority, and otherwise to act for him
or her and on his or her behalf in connection therewith, and (c) to do or
perform each and every act and thing necessary, appropriate or desirable to be
done in the premises, or in his or her name, place and stead, in connection with
such report as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney or
attorneys-in-fact or any of them or their substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the 29th day of March, 1999.
Signature Title
--------- -----
/s/ Donald C. Clark Director
- -------------------------------
Donald C. Clark
/s/ Melvin R. Goodes Director
- -------------------------------
Melvin R. Goodes
/s/ Hanna Holborn Gray Director
- -------------------------------
Hanna Holborn Gray
/s/ James A. Henderson Director
- -------------------------------
James A. Henderson
/s/ Sheldon B. Lubar Director
- -------------------------------
Sheldon B. Lubar
<PAGE>
Signature Title
--------- -----
/s/ Lynn M. Martin Director
- -------------------------------
Lynn M. Martin
/s/ Arthur C. Martinez Director
- -------------------------------
Arthur C. Martinez
/s/ John B. McCoy Director
- -------------------------------
John B. McCoy
/s/ Richard c. Notebaert Director; Chairman of
- ------------------------------- the Board, President and
Richard C. Notebaert Chief Executive Officer
(principal executive officer)
/s/ John D. Ong Director
- -------------------------------
John D. Ong
/s/ A. Barry Rand Director
- -------------------------------
A. Barry Rand
/s/ Oren G. Shaffer Executive Vice President
- ------------------------------- and Chief Financial Officer
Oren G. Shaffer
/s/ Laura D'Andrea Tyson Director
- -------------------------------
Laura D'Andrea Tyson
/s/ James A. Unruh Director
- -------------------------------
James A. Unruh
-2-
