-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QslYBrZckHFK00ro1XIdSiHYKfucdkM4LZP3qTwtNaXg5NH4pFz9rd9pX+Q45GzR 1jQGSJ2lncfsrYu8b/F2yQ== 0001047469-99-012306.txt : 19990331 0001047469-99-012306.hdr.sgml : 19990331 ACCESSION NUMBER: 0001047469-99-012306 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIAONE GROUP INC CENTRAL INDEX KEY: 0000732718 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 840926774 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08611 FILM NUMBER: 99577930 BUSINESS ADDRESS: STREET 1: 188 INVERNESS DRIVE WEST CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037936500 MAIL ADDRESS: STREET 1: 188 INVERNESS DRIVE WEST STREET 2: 6TH FLOOR CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: MEDIA ONE GROUP INC DATE OF NAME CHANGE: 19980616 FORMER COMPANY: FORMER CONFORMED NAME: US WEST INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR / / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 1-8611
MEDIAONE GROUP, INC. A DELAWARE I.R.S. EMPLOYER IDENTIFICATION CORPORATION NO. 84-0926774 188 INVERNESS DRIVE WEST, COLORADO 80112 TELEPHONE NUMBER (303) 858-3000
-------------------------- Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - --------------------------------------------------------------------------------- ----------------------------- MediaOne Group, Inc. Common Stock New York Stock Exchange ($0.01 per share, par value) Pacific Stock Exchange 7.96% Trust Originated Preferred Securities New York Stock Exchange (Liquidation Amount $25 per Preferred Security) 8.25% Trust Originated Preferred Securities New York Stock Exchange (Liquidation Amount $25 per Preferred Security) 9.30% Trust Originated Preferred Securities New York Stock Exchange (Liquidation Amount $25 per Preferred Security) 9.50% Trust Originated Preferred Securities New York Stock Exchange (Liquidation Amount $25 per Preferred Security) 9.04% Trust Originated Preferred Securities New York Stock Exchange (Liquidation Amount $25 per Preferred Security) 6-1/4% Exchangeable Notes due August 15, 2001 New York Stock Exchange MediaOne Group, Inc. Series D Convertible Preferred Stock New York Stock Exchange ($1.00 per share, par value)
-------------------------- Securities registered pursuant to Section 12(g) of the Act: None At February 26, 1999 603,632,468 shares of MediaOne Group, Inc. common stock were outstanding. At February 26, 1999 the aggregate market value of MediaOne Group, Inc. voting stock held by non-affiliates was approximately $32,897,769,506. INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ____ DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registrant's definitive Proxy Statement to be issued in connection with the 1999 Annual Meeting of Shareholders are incorporated by reference into Parts II and III. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I
ITEM PAGE ---- ---- 1. Business.................................................................. 1 2. Properties................................................................ 5 3. Legal Proceedings......................................................... 5 4. Submission of Matters to a Vote of Security Holders....................... 5 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................................................. 6 6. Selected Financial Data................................................... 6 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 6 7A. Quantitative and Qualitative Disclosure About Market Risk................. 6 8. Consolidated Financial Statements and Supplementary Data.................. 6 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................................................. 7 PART III 10. Directors and Executive Officers of the Registrant........................ 7 11. Executive Compensation.................................................... 7 12. Security Ownership of Certain Beneficial Owners and Management............ 7 13. Certain Relationships and Related Transactions............................ 7 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 7 Independent Accountants' Report........................................... 7
i PART I ITEM 1. BUSINESS GENERAL MediaOne Group, Inc. ("MediaOne Group" or the "Company") is incorporated under the laws of the State of Delaware and has its principal executive offices at 188 Inverness Drive West, Englewood, Colorado 80112, telephone number (303) 858-3000. MediaOne Group (NYSE: UMG) is one of the world's largest broadband communications companies, bringing the power of broadband and the Internet to more than seven million customers in the United States, Europe and Asia. The Company also has interests in some of the world's fastest-growing wireless communications businesses, serving more than four million customers outside the United States. For 1998, the businesses now part of MediaOne Group produced $7.1 billion in proportionate revenue. (Financial information concerning MediaOne Group's operations is set forth in the Consolidated Financial Statements and Notes thereto, which begin on page 46.) At December 31, 1998, MediaOne Group and its subsidiaries employed a total of 16,847 people. Prior to June 12, 1998, MediaOne Group was known as "U S WEST, Inc." On June 12, 1998, U S WEST, Inc. (the "Old U S WEST") separated its businesses into two independent public companies (the "Separation"). Until the Separation, Old U S WEST conducted its businesses through two groups: U S WEST Media Group and U S WEST Communications Group. Upon the Separation, Old U S WEST was renamed "MediaOne Group, Inc." and retained the multimedia businesses of U S WEST Media Group, except for U S WEST Dex, Inc., the domestic directory business, which became aligned with U S WEST Communications Group. The telecommunications businesses of U S WEST Communications Group, along with the domestic directory business of U S WEST Dex, Inc., became an independent public company and retained the "U S WEST, Inc." name. MediaOne Group bases its strategy on the belief that advanced networks will continue to grow in importance to how we live, work and play. Over time, this global phenomenon will result in networks being increasingly critical and delivering ever-increasing value to consumers and, consequently, to our shareholders. RECENT DEVELOPMENT On March 22, 1999, MediaOne Group announced that it had entered into a merger agreement with Comcast Corporation ("Comcast") whereby MediaOne Group would be merged into Comcast. The merger agreement calls for MediaOne Group common shareholders to receive 1.1 shares of Comcast Class A Special Common Stock for each share of MediaOne Group common stock held. The transaction will be tax-free to MediaOne Group shareholders. Subject to the approval of both shareholder groups and various federal, state and local regulatory bodies, the merger could be completed as early as year-end 1999. While the merger agreement prohibits MediaOne Group from soliciting competing acquisition proposals, MediaOne Group may, subject to compliance with the terms of the merger agreement and payment of a $1.5 billion fee to Comcast, accept a superior proposal that is submitted within 45 days of the date of the merger agreement. OPERATIONS MediaOne Group is the third largest cable television system operator in the United States. MediaOne Group has operations and investments in two principal areas: (i) domestic broadband communications, and (ii) international broadband and wireless communications. Among its investments, MediaOne Group holds a 25.51% interest in Time Warner Entertainment Company, L.P. ("TWE"), a provider of cable programming, filmed entertainment and broadband communications services that is the second largest cable television system operator in the United States. DOMESTIC BROADBAND COMMUNICATIONS--MEDIAONE NETWORKS. As of December 31, 1998, MediaOne Group's domestic cable television systems passed approximately 8.5 million homes and provided service to 1 approximately 5.0 million basic cable subscribers. MediaOne Group's systems include large clusters in Atlanta, Massachusetts, California, Florida, Detroit and Minneapolis/St. Paul. As of December 31, 1998, approximately 97% of MediaOne Group's total basic subscribers were located in clusters with a population greater than 100,000 (after giving effect to announced swaps). MediaOne Group believes that its operating scale in key markets generates significant benefits, including operating efficiencies, and enhances its ability to develop and deploy new broadband technologies and services. MediaOne Group's domestic cable services are marketed under the "MediaOne" brand and are operated by its wholly owned subsidiary, MediaOne of Delaware, Inc. ("MediaOne"). MediaOne Group's cable systems offer customers various levels (or "tiers") of cable programming services consisting of broadcast television signals available off-the-air in any locality, televisions signals from so-called "super stations" originating in distant cities (such as WGN), various satellite-delivered non-broadcast channels (such as CNN, MTV, USA Network, ESPN, the Discovery Channel and Nickelodeon), displays of information featuring news, weather, stock and financial market reports and programming originated locally by the systems (such as public, governmental and educational access channels). MediaOne Group's systems also provide premium programming service to their customers for an extra monthly charge. These premium programming services include HBO, Cinemax, Showtime, The Movie Channel, Encore and regional sports networks. Customers generally pay initial connection charges and fixed monthly fees for a tier of programming services and additional fixed monthly fees for premium programming services. MediaOne Group also offers pay-per-view programming of movies and special events for an additional per-program charge. MediaOne Group's systems have channel capacity and addressability that are among the highest in the cable industry. MediaOne Group's systems are located primarily in suburban communities adjacent to major metropolitan markets and in mid-sized cities that generally are densely populated and geographically diverse. MediaOne Group believes that the geographic diversity of its system clusters reduces its exposure to economic, competitive or regulatory factors of any particular region. MediaOne Group is upgrading its cable systems to create broadband hybrid fiber-coax ("HFC") networks. These HFC networks will provide increased channel capacity for the delivery of additional cable programming and facilitate the delivery of additional services, such as telephony services, enhanced video services, Internet access services and high-speed data services. MediaOne Group is selectively upgrading its systems and expects that it will have approximately 70% of its systems upgraded to 750 MHz by the end of 1999. MediaOne Group has already begun to offer additional services over upgraded HFC networks in certain markets. On June 15, 1998, MediaOne Group entered into a joint venture with Time Warner, Inc. ("TWX"), TWE and Time Warner Entertainment-Advance/Newhouse Partnership ("TWE/AN") to provide high speed data ("HSD") services. The parties to the joint venture contributed certain of their respective HSD assets to the joint venture in exchange for common equity interests. In addition, Microsoft Corporation and Compaq Computer Corporation each contributed approximately $212 million for respective 10% preferred equity interests in the joint venture, which are convertible into common equity interests. Assuming the conversion of the preferred shares and taking into account MediaOne Group's ownership in TWE, MediaOne Group would hold a proportionate diluted common equity interest in the joint venture of 34.6%. MediaOne Group will provide the HSD services under the "Road Runner" brand name. DOMESTIC BROADBAND COMMUNICATIONS--TIME WARNER CABLE. MediaOne Group owns a 25.51% priority capital and residual equity interest in TWE. The remaining interests in TWE are owned by TWX. TWE is engaged in the cable programming, filmed entertainment and broadband communications businesses. TWE, through Time Warner Cable, its cable division, is the second-largest cable television system operator in the United States. Time Warner Cable owns or manages cable systems in 34 states. These systems include 33 clusters of more than 100,000 subscribers, including Time Warner Cable of New York City, the largest cluster in the United States. More than 62% of Time Warner Cable's subscribers are located in Florida, New York, North Carolina, Ohio and Texas. As of December 31, 1998, Time Warner Cable owned 2 cable television systems that passed approximately 17.5 million homes and provided service to approximately 10.8 million basic cable subscribers. Of these systems, systems passing approximately 10.1 million homes and providing service to approximately 6.3 million subscribers are owned by Time Warner Entertainment-Advance/Newhouse Partnership ("TWE-A/N"), a partnership in which TWE owns a 64.8% interest, the Advance/Newhouse Partnership ("A/N") owns a 33.3% interest and TWX owns a 1.9% interest. In addition, Time Warner Cable manages cable television systems owned by TWX which, as of December 31, 1998, passed approximately 3.1 million homes and provided service to approximately 1.8 million cable television subscribers. Time Warner Cable's cable services are marketed under the "Time Warner Cable" brand. Time Warner Cable offers cable programming services over its networks similar to those offered by MediaOne Group under the MediaOne brand. Like MediaOne Group, Time Warner Cable is upgrading its cable systems to provide increased channel capacity and to facilitate the delivery of additional services. INTERNATIONAL BROADBAND COMMUNICATIONS. MediaOne Group owns interests in various providers of broadband communications services in international markets in continental Europe, the United Kingdom and Asia. As of December 31, 1998, these interests represented approximately 2.6 million proportionate homes passed and 993,000 proportionate subscribers. Among its international broadband interests, MediaOne Group holds a 29.9% interest in Telewest Communications plc ("Telewest"), the largest provider of combined cable and telecommunications services in the United Kingdom. Telewest is constructing broadband networks capable of providing a broad range of video, telephony and data services. As of December 31, 1998, Telewest had approximately 999,000 cable subscribers and 1,565,000 telephone lines. MediaOne Group also holds interests in other providers of cable and broadband communications services in international markets, including a 97.1% interest in Cable Plus a.s., a provider of cable and telephony services in the Czech Republic; a 50% interest in A2000 (KTA), a provider of cable and telephony services in the Netherlands; a 25% interest in Telenet, a provider of cable and telephony services over an HFC network in portions of Belgium; a 25% interest in Singapore Cablevision Pte Ltd, a joint venture that is constructing a broadband network in Singapore; and a 25% interest in Titus Communications Corp. ("Titus") and a 19% interest in Chofu Cable Television ("Chofu"), each of which is constructing cable television systems in Japan. TWX also holds a 25% interest in Titus and a 19% interest in Chofu. INTERNATIONAL WIRELESS COMMUNICATIONS. MediaOne Group owns interests in various providers of wireless communications services in international markets in continental Europe, the United Kingdom and Asia. As of December 31, 1998, these interests represented 72.8 million proportionate potential customers and approximately 1,734,000 proportionate customers. Among its international wireless interests, MediaOne owns a 50% interest in Mercury Personal Communications ("One 2 One"), which provides personal communications services ("PCS") in the United Kingdom under the brand "One 2 One." The remaining 50% of One 2 One is owned by Cable & Wireless plc. One 2 One was the first PCS service in the world to commence operations in 1993. As of December 31, 1998, One 2 One's networks served approximately 1,921,000 customers and provided coverage to approximately 96% of Great Britain's population. MediaOne Group also holds interests in various other providers of wireless communications services in international markets, including a 49% interest in Westel 900 and a 49% interest in Westel Radiotelefon, providers of cellular service in Hungary; 24.5% interests in Eurotel Praha and Eurotel Bratislava, providers of wireless services in portions of the Czech and Slovak Republics; a 22.5% interest in Polska Telefonia Cyfrowa, a provider of Global Systems for Mobile Communications ("GSM") cellular services in Poland; a 49% interest in BPL Cellular Telecommunications, a provider of GSM cellular services in certain regions of India; and a 66.5% interest in the Russian Telecommunications Development Corp., a provider of cellular services in certain cities in Russia. REGULATION. The products and services of MediaOne Group are subject to varying degrees of regulation. Under the Telecommunications Act of 1996 (the "Telecommunications Act"), it is anticipated 3 that the regulation of all but basic tier cable and equipment rates will be discontinued effective March 31, 1999. However, as described below, the Company must seek the permission of the Federal Communications Commission ("FCC") to end rate regulation for cable systems covered by MediaOne's social contract. The Telecommunications Act also eliminated certain cross-ownership restrictions among cable operations, broadcasters and multipoint multichannel distribution services ("MMDS") operations and removed barriers to competition with local exchange carriers ("LECs"). The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") provided for the regulation of rates for certain cable television services and for equipment and installation charges. The FCC was charged with setting the standards for rate regulation, but also approved "social contracts" as an alternative form of regulation. MediaOne's Social Contract was the first approved by the FCC. The Social Contract is a six-year agreement covering most of MediaOne's franchises and settled all of MediaOne's outstanding rate complaints. As part of the Social Contract, MediaOne agreed to, among other things, invest at least $1.7 billion in domestic system rebuilds and upgrades through the year 2000 to expand channel capacity and improve system reliability and picture quality. As of December 31, 1998, the investment commitment had been met; however, the Company must still upgrade all systems covered by the Social Contract to a minimum of 550MHz, with at least half being upgraded to 750 MHz. The Social Contract also provides that, if the laws and regulations applicable to services offered in any MediaOne franchise change in a manner that would have a material favorable financial impact on MediaOne, the Company may petition the FCC to terminate the Social Contract. The sunset of rate regulation for the upper tiers of cable service represents such a change and the FCC may not unreasonably refuse to terminate the rate regulation provision of the Social Contract. Cable television systems are also subject to local regulation, typically imposed through the franchising process. Local officials may be involved in the initial franchise selection, franchise service area, construction standards, safety, rate regulation of the lowest tier of service and equipment and installation rates, customer service standards, billing practices, community-related programming and services, franchise renewal and imposition of franchise fees. MediaOne Group is also subject to various regulations in the foreign countries in which it has operations. In the United Kingdom, the licensing, construction, operation, sale and acquisition of cable and wireline and wireless communications systems are regulated by various government entities, including the Department of Trade and Industry and the Department of National Heritage. In June, 1998, the FCC issued formal rules providing for the retail sale of set-top television boxes which integrate security and non-security functions. On January 1, 2005, cable companies will no longer be permitted to sell or lease new integrated boxes to their subscribers. In addition, cable companies must provide subscribers with related security modules that plug into set-top boxes that are purchased from consumer electronics retailers by July 1, 2000. In February 1999, MediaOne Group partnered with various manufacturers of digital set-top boxes in order to provide an open conditional access system, which would be compliant with domestic OpenCable-TM- specifications. COMPETITION. MediaOne Group's cable television systems generally compete for viewer attention and advertising dollars with other providers of video programming, including direct broadcast satellite ("DBS") systems, MMDS systems, local multipoint distribution services systems, satellite master antenna television ("SMATV") systems and other cable companies providing services in areas where MediaOne Group operates. In addition, certain LECs, including RBOCs, are beginning to offer video programming in competition with MediaOne Group's cable services. In the past, federal cross-ownership restrictions have limited entry by LECs into the cable television business. The Telecommunications Act has eliminated many of these barriers, thereby enhancing the ability of LECs to provide video programming in competition with MediaOne Group. The extent of such competition in any franchise area is dependent, in part, upon the quality, variety and price of the programming provided by these services. Many of these competitive services are generally not subject to the same local government regulation that affects cable television. The cable television services offered by MediaOne Group also face competition for viewers and advertising 4 from other communications and entertainment media, including off-air television broadcasting services, movie theaters, video tape rentals and live sporting events. The competition faced by MediaOne Group's cable systems may increase in the future with the development and growth of new technologies. As MediaOne Group continues to offer additional services over its HFC networks, MediaOne Group will face additional competition. The high-speed data and telephony services offered by MediaOne Group face competition from other providers, including regional bell operating companies, LECs, inter-exchange carriers ("IXCs"), Internet service providers and other providers of local exchange and on-line services. The degree of competition will be dependent upon the state and federal regulations concerning entry, interconnection requirements and the degree of unbundling of the LECs' networks. Competition will be based upon product, service quality, breadth of services offered and, to a lesser extent, on price. MediaOne Group's international broadband and wireless communications businesses also face competition in their respective markets. Telewest's cable television services compete with broadcast television stations, DBS services, SMATV systems and certain narrowband operators in the United Kingdom. Telewest's communications services compete with domestic telephone companies in the United Kingdom, such as British Telecommunications plc. One 2 One competes with three cellular operators in the United Kingdom. Competition is based upon price, geographic coverage and quality of the services offered. ITEM 2. PROPERTIES. MediaOne Group's principal physical assets consist of cable television operating plant and equipment, including signal receiving, encoding and decoding devices, headends and distribution systems and customer house drop equipment for each of its cable television systems. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of related electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. The physical components of cable television systems require maintenance and periodic upgrading to keep pace with technological changes. MediaOne Group owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave facilities and business offices in each of its market areas and owns most of its service vehicles. MediaOne Group believes that its properties, both owned and leased and taken as a whole, are in good operating condition and are suitable and adequate for MediaOne group's business operations. ITEM 3. LEGAL PROCEEDINGS. MediaOne Group, Inc. and its subsidiaries are subject to claims and proceedings arising in the ordinary course of business. While complete assurance cannot be given as to the outcome of any contingent liabilities, in the opinion of MediaOne Group, any financial impact to which MediaOne Group and its subsidiaries are subject is not expected to be material in amount to MediaOne Group's operating results or its financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 5 EXECUTIVE OFFICERS OF MEDIAONE GROUP, INC. Pursuant to General Instructions G(3), the following information is included as an additional item in Part I:
NAME POSITION AGE PRESENT POSITION - ------------------------ ---------------------------------------------------------------- --------- ----------------- A. Gary Ames Executive Vice President 54 1998(1) Roger A. Christensen Executive Vice President and Chief Administrative Officer 50 1998 Frank M. Eichler Executive Vice President--Law & Public Policy, General Counsel and Secretary 42 1998 Douglas D. Holmes Executive Vice President--Strategy and Business Development 38 1998 Charles M. Lillis President, Chief Executive Officer and Chairman of the Board 57 1998(2) Janice C. Peters Executive Vice President 47 1998(3) Richard A. Post Executive Vice President and Chief Financial Officer 40 1998
- ------------------------ (1) Mr. Ames is also President and Chief Executive Officer of MediaOne International, Inc. (2) In connection with the Separation, Mr. Lillis became the President, Chief Executive Officer and Chairman of MediaOne Group, Inc. Mr. Lillis was previously President and Chief Executive Officer of the U S WEST Media Group. (3) Ms. Peters is also President and Chief Executive Officer of MediaOne. Executive Officers are not elected for a fixed term of office, but serve at the discretion of the Board of Directors. With the exception of Ms. Peters, who joined One 2 One in 1996, each of the above executive officers has held a managerial position with Old U S WEST or an affiliate of Old U S WEST since at least 1988. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required by this item is included in Note 25, Quarterly Financial Data, on page 99. The US markets for trading in MediaOne Group common stock are the New York Stock Exchange and the Pacific Stock Exchange. As of February 26, 1999, MediaOne Group common stock was held by approximately 543,084 registered shareholders. ITEM 6. SELECTED FINANCIAL DATA. Reference is made to the information set forth on pages 11 through 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Reference is made to the information set forth on pages 14 through 43. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Reference is made to the information set forth on pages 31 and 33. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to the information set forth on pages 46 through 99. 6 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item with respect to executive officers is set forth in Part I, page 6, under the caption "Executive Officers of MediaOne Group, Inc." The information required by this item with respect to Directors is included in the MediaOne Group definitive Proxy Statement ("Proxy Statement") under "Election of Directors" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is included in the Proxy Statement under "Election of Directors" and "Executive Compensation" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is included in the Proxy Statement under "Stock Ownership" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not applicable. PART IV ITEM 14. FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS. (a) Documents filed as part of this report:
NUMBER PAGE - --------- ------------------ (1) Report of Independent Accountants......................................... 44 (2) Consolidated Financial Statements: Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996..................................................... 46 through 47 Consolidated Balance Sheets as of December 31, 1998 and 1997.............. 48 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996..................................................... 49 Consolidated Statements of Shareowners' Equity for the years ended December 31, 1998, 1997 and 1996........................................ 50 Notes to Consolidated Financial Statements................................ 51 through 99 (3) Unaudited Pro Forma Condensed Combined Statement of Operations and Notes for the year ended December 31, 1998.................................... 100 through 102 (4) Consolidated Financial Statement Schedule II--Valuation and Qualifying Accounts................................................................ S-1
Financial statement schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable. (b) Reports on Form 8-K: 7 MediaOne Group filed the following reports on Form 8-K during the fourth quarter of 1998: (i) Current Report dated October 28, 1998 and filed on November 3, 1998, providing notification of a filing with the Securities & Exchange Commission by MediaOne Finance Trust III (the "Trust"), a wholly-owned subsidiary of MediaOne Group, of $500,000,000 aggregate liquidation amount of its 9.04% Trust Originated Preferred Securities at a public offering price of $25 per preferred security. Proceeds from the sale were invested into $500,000,000 aggregate principal amount of 9.04% Subordinated Deferred Interest Notes due 2038 of MediaOne Group Funding, Inc., the payment of which are guaranteed by MediaOne Group. (ii) Current Report dated November 3, 1998 and filed on November 4, 1998, providing notification of a Press Release by MediaOne Group announcing its third quarter earnings results. (iii) Current Report dated December 17, 1998 and filed December 17, 1998, providing notification of a conference call scheduled for December 17, 1998 between MediaOne Group and various analysts to discuss the operations and strategy of certain of MediaOne Group's business units as well as certain details regarding its expected performance in 1999. (c) Exhibits: Exhibits identified in parentheses below are on file with the Securities and Exchange Commission ("SEC") and are incorporated herein by reference. All other exhibits are provided as part of this electronic submission.
EXHIBIT NUMBER - --------- (2-A) -- Form of Separation Agreement between MediaOne Group, Inc. and U S WEST, Inc. (Exhibit 2-A to Form 10-K, for the fiscal year ended December 31, 1997, File No. 1-8611). (2-B) -- Form of Employee Matters Agreement between MediaOne Group, Inc. and U S WEST, Inc. (Exhibit 2-B to Form 10-K, for the fiscal year ended December 31, 1997, File No. 1-8611). (2-C) -- Form of Tax Sharing Agreement between MediaOne Group, Inc. and U S WEST, Inc. (Exhibit 2-C to Form 10-K, for the fiscal year ended December 31, 1997, File No. 1-8611). (3-A) -- Form of Restated Certificate of Incorporation of MediaOne Group, Inc. (Annex A-2 to definitive proxy statement on Schedule 14A dated April 20, 1998, File No. 1-8611). (3-B) -- Form of Amended and Restated Bylaws of MediaOne Group, Inc. (Exhibit 3(ii) to Current Report on Form 8-K dated June 24, 1998, File No. 1-8611). (4-A) -- Form of Amended and Restated Rights Agreement between MediaOne Group, Inc. and its Rights Agent (Exhibit 1 to Form 8-A filed on February 11, 1999 and Exhibit 4 to Current Report filed on Form 8-K dated February 9, 1999 and filed on February 11, 1999, File No. 1-8611). (4-B) -- No instrument which defines the rights of holders of long and intermediate term debt of MediaOne Group, Inc. and all of its subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the Registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. 10-A -- MediaOne Group, Inc. Executive Short-Term Incentive Plan. 10-B -- Amended MediaOne Group 1994 Stock Plan. 10-C -- MediaOne Group Executive Life Insurance Plan. 10-D -- MediaOne Group Executive Disability Plan. 10-E -- MediaOne Group Non-Qualified Pension Plan. 10-F -- MediaOne Group Mid-Career Pension Plan. 10-G -- MediaOne Group Deferred Compensation Plan. 10-H -- MediaOne Group Executive Financial Counseling Plan.
8
EXHIBIT NUMBER - --------- 10-I -- Form of Executive Non-Qualified Stock Option Agreement. 10-J -- Form of LTIP Option Agreement. 10-K -- Form of Executive Restricted Stock Agreement. 10-L -- Form of Executive Retention Agreement (Restricted Stock Only). 10-M -- Form of Executive Retention Agreement (Restricted Stock and Options). (10-N) -- Admission Agreement dated as of May 16, 1993 between Time Warner Entertainment Company, L.P. and U S WEST, Inc. (Exhibit 10 to Current Report on Form 8-K dated May 24, 1993 (File No. 1-8611). (10-O) -- Form of Executive Change of Control Agreement (Exhibit 10g to Form 10-Q for fiscal quarter ended June 30, 1998, File No. 1-8611). (10-P) -- Form of Change of Control Agreement for Chief Executive Officer (Exhibit 10e to Form 10-Q for fiscal quarter ended June 30, 1998, File No. 1-8611). (10-Q) -- Form of Business Unit Change of Control Agreement (Exhibit 10f to Form 10-Q for fiscal quarter ended June 30, 1998, File No. 1-8611). (10-R) -- Form of Executive Severance Agreement (Exhibit 10ab to Form 10-K for fiscal year ended December 31, 1995, File No. 1-8611). 12 -- Computation of Ratio of Earnings to Fixed Charges of MediaOne Group, Inc. 21 -- Subsidiaries of MediaOne Group, Inc. 23 -- Consent of Independent Accountants. 24 -- Powers of Attorney. 27 -- Financial Data Schedule. 99 -- Annual Report on Form 11-K for the MediaOne Savings Plan/ESOP for the year ended December 31, 1998, to be filed by amendment.
9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Englewood, State of Colorado, on March 30, 1999. MediaOne Group, Inc. By: /s/ RICHARD A. POST ----------------------------------------- Richard A. Post EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. PRINCIPAL EXECUTIVE OFFICER /s/ Charles M. Lillis* Chairman of the Board, President and Chief Executive Officer PRINCIPAL FINANCIAL OFFICER: /s/ Richard A. Post Executive Vice President and Chief Financial Officer DIRECTORS: /s/ Kathleen A. Cote* /s/ Robert L. Crandall* /s/ Grant A. Dove* /s/ Allan D. Gilmour* /s/ Pierson M. Grieve* /s/ Charles M. Lillis* /s/ Charles P. Russ, III* /s/ Louis A. Simpson* /s/ John "Jack" Slevin* /s/ Daniel W. Yohannes*
*By: /s/ RICHARD A. POST ------------------------- Richard A. Post (FOR HIMSELF AND AS ATTORNEY-IN-FACT) Dated March 30, 1999 10 MEDIAONE GROUP, INC. FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- DOLLARS IN MILLIONS (EXCEPT PER SHARE AMOUNTS) FINANCIAL DATA:(1) Sales and other revenues(2)............................ $ 2,882 $ 3,847 $ 1,837 $ 1,330 $ 925 Income (loss) from continuing operations(3)............ 1,430 (827) (357) (102) 23 Income from discontinued operations(1)................. 25,208 1,524 1,535 1,423 1,403 Net income(4).......................................... 26,305 697 1,178 1,317 1,426 Total assets........................................... $ 28,192 $ 26,783 $ 27,727 $ 11,847 $ 10,331 Total debt(5).......................................... 5,422 8,963 8,806 2,073 1,791 Preferred stock subject to mandatory redemption, Preferred Securities and other(6).................... 2,260 1,180 1,131 651 51 Shareowners' equity.................................... 12,789 11,324 11,549 7,948 7,382 OTHER DATA: EBITDA(7).............................................. $ 943 $ 1,287 $ 430 $ 294 $ 115 Domestic statistics (in thousands): Cable subscribers.................................... 4,965 4,910 4,866 490 459 Homes passed......................................... 8,512 8,373 8,294 848 814 High speed data subscribers.......................... 84 21 -- -- -- Residential telephone lines.......................... 13 -- -- -- -- Percentage of debt to total capital(5, 6).............. 26.5% 41.8% 41.0% 19.4% 19.4% Capital expenditures(5)................................ $ 1,726 $ 1,502 $ 643 $ 370 $ 308 Employees.............................................. 16,847 16,351 17,809 6,495 6,259 PROPORTIONATE OTHER DATA:(8) Proportionate EBITDA(7, 8)............................. $ 1,878 $ 1,620 $ 659 $ 497 $ 328 Domestic statistics (in thousands): Cable subscribers.................................... 7,719 7,524 7,562 2,908 2,372 Homes passed......................................... 12,964 12,313 12,191 4,551 3,952 High speed data subscribers.......................... 110 28 -- -- -- Residential telephone lines.......................... 13 -- -- -- -- International statistics (in thousands): Cable subscribers.................................... 993 899 1,151 617 226 Homes passed......................................... 2,581 2,030 2,450 1,172 576 Telephone lines...................................... 487 403 303 141 69 Wireless customers................................... 1,734 1,018 509 308 169 POP's................................................ 72,754 76,927 77,320 44,300 38,300 MEDIAONE GROUP STOCK INFORMATION:(1, 3, 9) Basic earnings (loss) per common share from: Continuing operations................................ $ 2.18 $ (1.45) $ (0.74) $ (0.22) Discontinued operations.............................. 40.51 0.57 0.58 0.52 Diluted earnings (loss) per common share from: Continuing operations................................ 2.10 (1.45) (0.74) (0.22) Discontinued operations.............................. 37.70 0.57 0.58 0.52 Average common shares outstanding (thousands): Basic common shares.................................. 607,648 606,749 491,924 470,549 Diluted common shares................................ 652,955 606,749 491,924 470,549 Number of common shareowners of record................. 551,991 648,077 705,341 770,346
11 - ------------------------ (1) On June 12, 1998, U S WEST, Inc. ("Old U S WEST") separated its businesses into two independent public companies (the "Separation"). Prior to the Separation, Old U S WEST conducted its businesses through two groups: U S WEST Media Group ("Media Group") and U S WEST Communications Group ("Communications Group"). Upon Separation, Old U S WEST was renamed MediaOne Group, Inc. ("MediaOne Group" or the "Company") and retained the businesses of Media Group, except for U S WEST Dex, Inc. ("Dex"), the domestic directory business. The telecommunications businesses of Communications Group became an independent public company and retained the "U S WEST, Inc." name ("New U S WEST"). In addition, Dex was aligned with New U S WEST. MediaOne Group has accounted for the distribution to shareowners of New U S WEST as a discontinuance of the businesses comprising New U S WEST. 1998 income from discontinued operations includes a gain on Separation of $24,461 ($40.25 per share of MediaOne Group Stock). See Note 24--Discontinued Operations--to the Consolidated Financial Statements. (2) 1998, 1997 and 1996 sales and other revenues include $2,191, $2,070 and $252, respectively, related to Continental Cablevision, Inc. ("Continental") which was acquired by MediaOne Group on November 15, 1996 (the "Continental Acquisition"). In addition, 1998, 1997, 1996, 1995 and 1994 sales and other revenues include $361, $1,428, $1,183, $941 and $781, respectively, related to the domestic wireless operations which were sold on April 6, 1998. (3) 1998 income from continuing operations includes a net gain of $2,257 ($3.71 per share of MediaOne Group Stock) on the sale of the domestic wireless businesses, net gains of $44 ($0.08 per share of MediaOne Group Stock) on the sales of various domestic investments, net income of $20 ($0.04 per share of MediaOne Group Stock) related to the domestic wireless businesses, net loss from operations of $384 ($0.63 per share of MediaOne Group Stock) related to Continental, and a net loss of $100 ($0.16 per share of MediaOne Group Stock) related to the PrimeStar investment. 1997 income from continuing operations includes net gains of $249 ($0.41 per share of MediaOne Group Stock) on the sales of various domestic and international investments, net income of $83 ($0.13 per share of MediaOne Group Stock) related to the domestic wireless businesses and net loss from operations of $356 ($0.59 per share of MediaOne Group Stock) related to Continental. 1996 income from continuing operations includes net income of $96 ($0.19 per share of MediaOne Group Stock) related to the domestic wireless businesses, net loss from operations of $71 ($0.15 per share of MediaOne Group Stock) related to Continental and a charge of $19 ($0.04 per share of MediaOne Group Stock) related to the sale of MediaOne Group's cable television interests in Norway, Sweden and Hungary. 1995 income from continuing operations includes a gain of $95 ($0.20 per share of MediaOne Group Stock) from the merger of Telewest Communications plc ("Telewest") with SBC CableComms (UK), net income of $58 ($0.12 per share of MediaOne Group Stock) related to the domestic wireless businesses and costs of $9 ($0.02 per share of MediaOne Group Stock) associated with the Recapitalization Plan discussed in footnote 9 below. 1994 income from continuing operations includes a gain of $105 ($0.23 per share) on the partial sale of MediaOne Group's joint venture interest in Telewest, a gain of $41 ($0.09 per share) on the sale of MediaOne Group's paging operations and net income of $33 ($0.07 per share) related to the domestic wireless businesses. (4) 1998 net income was reduced by an extraordinary item of $333 ($0.55 per share of MediaOne Group Stock) for the early extinguishment of debt in conjunction with the Separation. 1995 net income was reduced by an extraordinary item of $4 ($0.01 per share of MediaOne Group Stock) for the early extinguishment of debt. (5) Debt at December 31, 1998, 1997 and 1996 includes debt related to the Continental Acquisition. Debt and the percentage of debt to total capital for years prior to 1998 exclude the capital assets segment which had been discontinued and held for sale, and the discontinued operations of New U S WEST which were distributed to shareowners effective June 12, 1998. Percentage of debt to total capital includes Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding 12 solely Company-guaranteed debentures ("Preferred Securities"), preferred stock subject to mandatory redemption and the minority interest in Centaur Funding Corporation ("Centaur"), as a component of total capital. Including Preferred Securities, preferred stock subject to mandatory redemption, the minority interest in Centaur and debt related to the capital assets segment as components of debt, MediaOne Group's percentage of debt to total capital would have been 37.5%, 48.1%, 47.4%, 30.7% and 29.7% at December 31, 1998, 1997, 1996, 1995 and 1994, respectively. Capital expenditures exclude the capital assets segment and the discontinued operations of New U S WEST. (6) Includes Preferred Securities of $1,061 at December 31, 1998, and $1,080 at December 31, 1997 and 1996, and $600 at December 31, 1995; preferred stock subject to mandatory redemption of $100 at December 31, 1998 and 1997, and $51 at December 31, 1996, 1995 and 1994; and minority interest in Centaur of $1,099 at December 31, 1998. (7) MediaOne Group considers earnings before interest, taxes, depreciation, amortization and other ("EBITDA") an important indicator of the operational strength and performance of its businesses. EBITDA, however, should not be considered an alternative to operating or net income as an indicator of the performance of MediaOne Group's businesses, or as an alternative to cash flows from operating activities as a measure of liquidity, in each case determined in accordance with generally accepted accounting principles ("GAAP"). (8) Proportionate results represent the relative weight of the Company's ownership in each of its respective domestic and international equity ventures, combined with its consolidated results. Proportionate information is not intended to replace financial and operating data prepared in accordance with GAAP since proportionate results depart materially from GAAP. However, MediaOne Group believes that proportionate financial and operating data facilitate the understanding and assessment of its results. Proportionate EBITDA excludes domestic wireless EBITDA of $114, $398, $307, $226 and $161 for 1998, 1997, 1996, 1995 and 1994, respectively. (9) Effective with the Separation on June 12, 1998, each outstanding common share of Media Group stock remains outstanding and represents one share of MediaOne Group common stock ("MediaOne Group Stock"). In addition, all shares of Communications Group stock were canceled. See Note 17-- Earnings Per Share--to the Consolidated Financial Statements--for a discussion of Communications Group stock earnings per share. The average common shares of MediaOne Group Stock outstanding for the year ended December 31, 1996 include 150,615,000 shares issued in connection with the Continental Acquisition. Effective November 1, 1995, each share of common stock of Old U S WEST was converted into one share each of Communications Group stock and Media Group stock (the "Recapitalization Plan"). Earnings per common share and dividends per common share for 1995 have been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. 13 MEDIAONE GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Some of the information presented in or in connection with this report constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include: (i) greater than anticipated competition from new entrants into the cable and wireless communications markets, (ii) changes in demand for the Company's products and services, (iii) regulatory changes affecting the cable and telecommunications industries, (iv) a change in economic conditions in the various markets served by MediaOne Group's operations, including international markets, that could adversely affect the level of demand for cable, wireless or other services offered by the Company, (v) greater than anticipated competitive activity requiring new pricing for services, (vi) higher than anticipated start-up costs associated with new business opportunities, (vii) higher than anticipated employee levels, capital expenditures, and operating expenses (such as costs associated with Year 2000 remediation), (viii) consumer acceptance of broadband services, including telephony and data services, and wireless services, (ix) increases in fraudulent activity with respect to broadband and wireless services, or (x) delays in the development of anticipated technologies, or the failure of such technologies to perform according to expectations. On March 22, 1999, MediaOne Group announced that it had entered into a merger agreement with Comcast Corporation ("Comcast") whereby MediaOne Group would be merged into Comcast. The merger agreement calls for MediaOne Group common shareowners to receive 1.1 shares of Comcast Class A Special Common Stock for each share of MediaOne Group common stock held. The transaction will be tax-free to MediaOne Group shareowners. Subject to the approval of both shareowner groups, and various federal, state and local regulatory bodies, the merger could be completed as early as year-end 1999. While the merger agreement prohibits MediaOne Group from soliciting competing acquisition proposals, MediaOne Group may, subject to compliance with the terms of the merger agreement and payment of a $1.5 billion fee to Comcast, accept a superior proposal that is submitted within 45 days of the date of the merger agreement. THE SEPARATION Prior to June 12, 1998, MediaOne Group, Inc. ("MediaOne Group" or the "Company") was known as "U S WEST, Inc." ("Old U S WEST"). On June 12, 1998, Old U S WEST separated its businesses into two independent public companies (the "Separation"). Until the Separation, Old U S WEST conducted its businesses through two groups: U S WEST Media Group (the "Media Group") and U S WEST Communications Group (the "Communications Group"). The performance of Media Group was reflected by the U S WEST Media Group Common Stock (the "Media Stock") and the performance of the Communications Group was reflected by the U S WEST Communications Group Common Stock (the "Communications Stock"). Upon Separation, Old U S WEST was renamed "MediaOne Group, Inc." and retained the multimedia businesses of Media Group, except for U S WEST Dex, Inc. ("Dex"), the domestic directory business. The telecommunications businesses of the Communications Group became an independent public company and retained the "U S WEST, Inc." name ("New U S WEST"). In addition, Dex was aligned with New U S WEST (the "Dex Alignment"). Each outstanding share of Media Stock remains outstanding and represents one share of MediaOne Group Common Stock ("MediaOne Group Stock"). All issued and outstanding shares of Communications Stock were redeemed for shares of New U S WEST, and all Communications Stock held as treasury stock by Old U S WEST was canceled. The Company accounted for the distribution of New U S WEST stock to the Communications Group stockholders, and to the Media Group stockholders for the Dex Alignment, as a discontinuance of the 14 businesses comprising New U S WEST. Because the distribution was non pro-rata, as compared with the businesses previously attributed to Old U S WEST's two classes of stock, the distribution was accounted for at fair value and resulted in a gain of $24,461, or $40.25 basic earnings per MediaOne Group share, net of $114 of Separation costs (net of tax benefits of $37). In connection with the Dex Alignment, (i) each holder of Media Stock received as a dividend .02731 shares of New U S WEST common stock for each share of Media Stock held (the "Dex Dividend"), and (ii) $3.9 billion of Old U S WEST debt was refinanced by New U S WEST. In conjunction with the Separation, MediaOne Group refinanced substantially all of the indebtedness issued or guaranteed by Old U S WEST through a combination of tender offers, prepayments and consent solicitations (the "Refinancing"). Long-term debt outstanding of $4.9 billion was redeemed, resulting in an extraordinary loss of $333, net of tax benefits of $209, or $0.55 basic loss per MediaOne Group share. The loss was the result of refinancing costs, including the difference between the market and face value of the debt redeemed and a charge for unamortized debt issuance costs. MediaOne Group financed the redemption with short-term commercial paper at a weighted average interest rate of 5.85 percent. In addition, in accordance with the terms of a separation agreement between MediaOne Group and New U S WEST (the "Separation Agreement"), New U S WEST funded to MediaOne Group $3.9 billion related to the Dex Alignment. Such funds were used to repay a portion of the commercial paper issued in connection with the Refinancing. BUSINESS DESCRIPTION MediaOne Group has operations and investments in two principal areas: (i) domestic broadband communications, and (ii) international broadband and wireless communications. On April 6, 1998, MediaOne Group sold its domestic wireless businesses to AirTouch Communications, Inc. ("AirTouch") in a tax-efficient transaction (the "AirTouch Transaction"). This included MediaOne Group's 2.6 million domestic cellular communication customers, as well as its 25 percent interest in PrimeCo Personal Communications, L.P. ("PrimeCo"). See Note 4--Domestic Acquisitions and Dispositions--to the Consolidated Financial Statements. DOMESTIC BROADBAND COMMUNICATIONS. The Company is the third largest cable operator in the United States serving approximately 5.0 million cable customers and passing 8.5 million homes. MediaOne Group's cable systems include large clusters in Atlanta, Massachusetts, California, Florida, Detroit and Minneapolis/St. Paul. The cable systems offer customers various levels of cable programming services, including premium programming services such as HBO, Cinemax, Showtime, The Movie Channel and Encore, as well as pay-per-view movies and special events. The domestic cable and broadband operations of the Company are managed by MediaOne of Delaware, Inc. ("MediaOne"), a subsidiary of MediaOne Group. In addition to its cable operations, the Company also holds significant domestic cable and broadband investments including an investment in Time Warner Entertainment Company L.P. ("TWE" or "Time Warner Entertainment"), the second largest provider of cable television services in the United States, and interests in programming that include E! Entertainment Television and New England Cable News. MediaOne Group also holds an equity investment in a joint venture called "ServiceCo, LLC" (the "HSD Joint Venture"). Such venture was formed on June 15, 1998, with Time Warner, Inc., ("Time Warner"), TWE and Time Warner Entertainment-Advance/Newhouse Partnership ("TWE/AN") to provide high speed data ("HSD") services. The parties to the joint venture contributed certain of their respective HSD assets into the HSD Joint Venture in exchange for common equity interests. In addition, Microsoft Corporation and Compaq Computer Corporation each contributed $212.5 for a respective 10 percent preferred equity investment in the HSD Joint Venture, convertible into a combined 20 percent common equity interest in the HSD Joint Venture. Assuming the conversion of the preferred shares and taking into account MediaOne Group's ownership in TWE, MediaOne Group would hold a proportionate diluted common equity interest in the HSD Joint Venture of approximately 34.6 percent. MediaOne Group will 15 provide HSD services under the "Road Runner" brand name. See Note 4--Domestic Acquisitions and Dispositions--to the Consolidated Financial Statements. INTERNATIONAL BROADBAND COMMUNICATIONS. Internationally, the Company holds an investment in Telewest Communications plc ("Telewest"), a provider of cable television, telecommunications and Internet services to business and residential customers in the United Kingdom. As a result of a rights offering to its existing shareholders, including MediaOne Group, and the Company's partial acquisition of a third party's ownership in Telewest, MediaOne Group now holds a 29.9 percent interest in Telewest. See Note 7--Net Investment in International Ventures--to the Consolidated Financial Statements. The Company also holds interests in cable and broadband properties in the Netherlands, Belgium, the Czech Republic, Japan and Singapore. INTERNATIONAL WIRELESS COMMUNICATIONS. MediaOne Group holds a 50 percent joint venture interest in Mercury Personal Communications ("One 2 One"), a provider of personal communications services ("PCS") in the United Kingdom, in addition to interests in various wireless properties in Hungary, the Czech and Slovak Republics, Poland, Russia and India. The following discussion is based on MediaOne Group's Consolidated Financial Statements prepared in accordance with generally accepted accounting principles ("GAAP"). RESULTS OF OPERATIONS--CONTINUING OPERATIONS--1998 COMPARED WITH 1997
CHANGE -------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS: 1998 1997 $ % --------- --------- --------- --------- Income (loss) from continuing operations................... $ 1,430 $ (827) $ 2,257 -- Adjustments to reported income (loss) from continuing operations: Domestic wireless operations............................. (20) (83) 63 (75.9) Gain on sale of domestic wireless investment............. (2,257) -- (2,257) -- Gains on sales of investments............................ (44) (249) 205 (82.3) Loss on PrimeStar investment............................. 100 -- 100 -- --------- --------- --------- --------- Normalized loss from continuing operations................. $ (791) $ (1,159) $ 368 (31.8) --------- --------- --------- --------- --------- --------- --------- ---------
CHANGE BASIC EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS -------------------- AVAILABLE FOR MEDIAONE GROUP COMMON STOCK: 1998 1997 $ % --------- --------- --------- --------- Earnings (loss) from continuing operations available for common stock................................................ $ 2.18 $ (1.45) $ 3.63 -- Adjustments to reported earnings (loss) from continuing operations: Domestic wireless operations................................ (0.04) (0.13) 0.09 (69.2) Gain on sale of domestic wireless investment................ (3.71) -- (3.71) -- Gains on sales of investments............................... (0.08) (0.41) 0.33 (80.5) Loss on PrimeStar investment................................ 0.16 -- 0.16 -- Loss on redemption of Preferred Securities.................. 0.09 -- 0.09 -- --------- --------- --------- --------- Normalized loss from continuing operations available for common stock................................................ $ (1.40) $ (1.99) $ 0.59 (29.6) --------- --------- --------- --------- --------- --------- --------- ---------
The decrease in normalized loss from continuing operations was primarily a result of decreased equity losses generated by unconsolidated international ventures and decreased interest expense due to lower debt levels at MediaOne Group. The table above normalizes for significant one-time items that aid in the comparability of the Company's performance year over year. Routine acquisitions and dispositions are normalized within the discussions of revenues and operating income which follow. 16 SALES AND OTHER REVENUES
CHANGE -------------------- 1998 1997 $ % --------- --------- --------- --------- Cable and broadband: Domestic.................................................................. $ 2,467 $ 2,323 $ 144 6.2 International............................................................. 24 18 6 33.3 --------- --------- --------- --------- 2,491 2,341 150 6.4 Corporate................................................................... 28 29 (1) (3.4) Other(1).................................................................... 2 49 (47) (95.9) --------- --------- --------- --------- Current operations........................................................ 2,521 2,419 102 4.2 Domestic wireless(2)........................................................ 361 1,428 (1,067) (74.7) --------- --------- --------- --------- Total....................................................................... $ 2,882 $ 3,847 $ (965) (25.1) --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ (1) Primarily includes wholly-owned international directories which were sold in the latter part of 1997. (2) The domestic wireless businesses were sold to AirTouch effective 4/6/98. MediaOne Group sales and other revenues decreased during 1998 primarily as a result of the sales of the domestic wireless businesses in April, 1998, and the wholly-owned international directories businesses during the latter part of 1997. Normalized for acquisitions and dispositions, total revenues increased 10.7 percent during 1998, due primarily to increases from the domestic cable and broadband operations. CABLE AND BROADBAND--DOMESTIC
CHANGE -------------------- REVENUES 1998 1997 $ % --------- --------- --------- --------- Basic Cable................................................................. $ 1,704 $ 1,531 $ 173 11.3 Premium..................................................................... 322 326 (4) (1.2) Pay-per-view................................................................ 52 55 (3) (5.5) Advertising................................................................. 157 129 28 21.7 Equipment & Installation.................................................... 176 153 23 15.0 Other....................................................................... (28) -- (28) -- --------- --------- --------- --------- Video......................................................................... 2,383 2,194 189 8.6 New Products.................................................................. 50 20 30 -- PrimeStar..................................................................... 34 109 (75) (68.8) --------- --------- --------- --------- Total revenues.............................................................. $ 2,467 $ 2,323 $ 144 6.2 --------- --------- --------- --------- --------- --------- --------- ---------
Domestic cable and broadband revenues increased during 1998 due primarily to increased video revenues, partially offset by the lack of PrimeStar direct broadcast services ("DBS") revenues in the last three quarters of 1998. Normalized for the one-time effects of cable system acquisitions and dispositions, a change in classification of late fee revenues, and the discontinuance of PrimeStar DBS revenues, total domestic cable and broadband revenues increased 10.6 percent during 1998. BASIC CABLE. Basic cable services revenues increased during 1998 due primarily to a 9.5 percent increase in revenue per average cable subscriber and increased basic subscribers. At December 31, 1998, basic cable subscribers were 4,965,000, an increase of 1.0 percent compared with the same period in 1997, normalized for the effects of cable system acquisitions and dispositions. The increase in revenue per subscriber is the result of expanded channel offerings, repackaging of services and increased rates. 17 PREMIUM. Premium service revenues decreased during 1998 due primarily to discounting of premium service packages, movements of certain premium service packages to basic, and a migration of customers to lower priced premium service packages. In an effort to improve premium service revenues, the Company repackaged its premium services and launched "NexTV" in September 1998, a packaging program which clusters related premium channels. At December 31, 1998, premium units were 4,176,000, an increase of 3.6 percent compared with the same period in 1997, normalized for the effects of cable system acquisitions and dispositions. PAY-PER-VIEW. Pay-per-view revenues decreased during 1998 due to a lack of major sporting events in 1998 as compared with 1997. The decline was slightly offset by increased revenues on movies. ADVERTISING. Advertising revenues increased during 1998 as a result of expanded channel capacity, growth in local and national advertising sales, and increased rates. EQUIPMENT AND INSTALLATION. Equipment and installation revenues increased in 1998 due primarily to subscribers upgrading converter boxes. OTHER. Other revenues include franchise fee payments, revenues received for guides and miscellaneous revenues. The decrease in other revenues during 1998 is due primarily to the classification of late fee revenues in 1998; late fee revenues were reflected in "other revenues" during 1997, whereas in 1998 these revenues are classified as an offset to "selling, general and administrative expenses." VIDEO. Video revenue per average cable subscriber was $40.33 per month for the year-ended December 31, 1998, an increase of 6.8 percent, compared with $37.76 for the same period in 1997. Adjusted for the one-time effects of cable system acquisitions and dispositions and a change in classification of late fee revenues, video revenue per average cable subscriber increased 7.8 percent during 1998. Video revenue per average cable subscriber has increased as a result of expanded channel offerings, repackaging of services and increased rates. Video revenues increased 9.4 percent during 1998, normalized for the one-time effects of cable system acquisitions and dispositions, and for the change in classification of late fee revenues. NEW PRODUCTS. New products revenues increased during 1998 due primarily to the launch and customer growth of HSD Internet access services in new markets, and growth in business dedicated telephony services. At December 31, 1998, MediaOne Group had approximately 84,000 HSD customers compared with 21,000 HSD customers for the same period in 1997, and was available to over 3 million market-ready HSD homes. Market-ready homes are those potential customers which are connected to the broadband network and which could be provided and billed for service. HSD Internet access services are available in 11 metro areas in the following states: California, Florida, Georgia, Illinois, Massachusetts, Michigan, Minnesota, New Hampshire and Ohio. On June 15, 1998, MediaOne Group formed the HSD Joint Venture with Time Warner, TWE and TWE/AN to deliver HSD services. The HSD Joint Venture is responsible for maintaining connections to the Internet, providing technical customer support and developing national content. The parties to the joint venture operate their respective HSD businesses and are responsible for their respective customers' billing and customer service issues. Accordingly, MediaOne Group continues to reflect HSD services revenues in its consolidated results, as well as a service fee payable to the HSD Joint Venture for services provided. MediaOne Group will provide HSD services under the "Road Runner" brand name. 18 During 1998 MediaOne Group began offering residential telephony services to six metro areas within the states of California, Florida, Georgia, Massachusetts, and Virginia. As of December 31, 1998, residential telephony services were available to approximately 530,000 market-ready homes. During November 1998, MediaOne Group entered into a definitive agreement with Hyperion Communications to sell the Company's investments in Continental Fiber Technologies, Inc. and Alternet of Virginia, Inc., providers of business telephony services in Jacksonville, Florida and Richmond, Virginia, respectively, for approximately $80, (the "CLEC Businesses"). The sale is expected to close in the first half of 1999. The CLEC Businesses contributed business telephony revenues of $14 and operating losses of $3 during 1998. These results have been included as part of New Products revenues and domestic cable and broadband revenues and operating income. PRIMESTAR. Prior to April 1, 1998, MediaOne Group distributed PrimeStar DBS services to subscribers in its service areas, and as a result, reflected consolidated operating results with respect to such subscribers. On April 1, 1998, MediaOne Group contributed its interest in PrimeStar Partners, L.P. ("Old PrimeStar"), as well as its PrimeStar subscribers and certain related assets to PrimeStar, Inc. ("PrimeStar") (the "PrimeStar Contribution"). Consequently, subsequent to April 1, 1998, MediaOne Group no longer reflects consolidated operating results for PrimeStar DBS services. In fourth-quarter 1998, MediaOne Group wrote-off its investment in PrimeStar received as part of the PrimeStar Contribution. See Note 4-- Domestic Acquisitions and Dispositions-- and Note 22--Subsequent Events--to the Consolidated Financial Statements. CABLE AND BROADBAND--INTERNATIONAL. International cable and broadband revenues represent the consolidated operations of Cable Plus a.s., a cable operator in the Czech Republic. OTHER. Other revenues in 1997 primarily included the Company's wholly-owned international directory operations in the United Kingdom and Poland. Such operations were sold in June and October 1997, respectively. DOMESTIC WIRELESS. On April 6, 1998, MediaOne Group sold its domestic wireless businesses to AirTouch pursuant to the AirTouch Transaction. See Note 4--Domestic Acquisitions and Dispositions--to the Consolidated Financial Statements. OPERATING INCOME (LOSS)
CHANGE -------------------- 1998 1997 $ % --------- --------- --------- --------- Cable and broadband: Domestic..................................................................... $ (159) $ (111) $ (48) 43.2 International................................................................ (7) (15) 8 (53.3) --------- --------- --------- --------- (166) (126) (40) 31.7 International wireless......................................................... (10) (13) 3 (23.1) Corporate...................................................................... (148) (155) 7 (4.5) Other(1)....................................................................... (8) (29) 21 (72.4) --------- --------- --------- --------- Current operations........................................................... (332) (323) (9) 2.8 Domestic wireless(2)........................................................... 93 353 (260) (73.7) --------- --------- --------- --------- Total.......................................................................... $ (239) $ 30 $ (269) -- --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ (1) Primarily includes wholly-owned international directories which were sold in the latter part of 1997. (2) The domestic wireless businesses were sold to AirTouch effective 4/6/98. 19 During 1998, MediaOne Group's operating income decreased $269 to a loss of $239, primarily a result of selling the domestic wireless businesses in April, 1998. Excluding the effects of the domestic wireless businesses, operating income has decreased primarily as a result of greater depreciation and amortization expenses from the domestic cable and broadband operations, partially offset by decreased operating losses from the wholly-owned international directories operations which were sold in 1997. MediaOne Group's earnings before income taxes, depreciation, amortization and other ("EBITDA") for 1998 were $943, compared with $1,287 during the same period in 1997. Excluding the effect of the domestic wireless operations, EBITDA would have been $795 in 1998, compared with $754 in the same period of 1997. MediaOne Group considers EBITDA an important indicator of the operational strength and performance of its businesses. EBITDA, however, should not be considered an alternative to operating or net income as an indicator of the performance of MediaOne Group's businesses, or as an alternative to cash flows from operating activities as a measure of liquidity, in each case determined in accordance with GAAP. CABLE AND BROADBAND--DOMESTIC. Domestic cable and broadband operating losses increased during 1998 due primarily to increased depreciation and amortization expense. As MediaOne Group continues to upgrade its cable networks, depreciation expense will continue to increase. During the first quarter of 1998, there was a one-time increase to depreciation and amortization expense of $28 related to the termination of the sale of cable systems in Minnesota. Depreciation and amortization expense had been suspended on these systems in 1997 while they were held for sale. This increase was offset by a reduction to depreciation and amortization expense of $29 for systems held for sale during 1998. During 1998, EBITDA for domestic cable and broadband operations was $941, an increase of $11, or 1.2 percent, compared with $930 in 1997. Revenue increases of $144, or 6.2 percent, exceeded increased programming costs of $50, or 9.5 percent, and increased operating, general and administrative costs of $83, or 9.6 percent. Of those amounts, the PrimeStar Contribution provided revenue decreases of $75 and cost decreases of $63, including $25 of programming costs, to total domestic cable and broadband EBITDA for the period. Normalized for the one-time effects of cable system acquisitions and dispositions, domestic cable and broadband EBITDA increased 2.2 percent. Video EBITDA was $995 for 1998, an increase of $47, or 5.0 percent, compared with $948 during 1997. Normalizing for acquisitions and dispositions, and excluding Year 2000 implementation costs of $13 during 1998, video EBITDA was $1,008 for 1998, an increase of $57, or 6.0 percent, compared with 1997. New Products EBITDA was $(58), an increase in losses of $(24), or 70.6 percent, compared with EBITDA of $(34) in 1997. New Products revenue increases of $30 were offset by New Products costs increases of $54 during the period. Programming costs were $575 for 1998, an increase of $50, or 9.5 percent, over 1997. Excluding programming costs related to PrimeStar DBS services, programming costs increased 15.7 percent. The normalized increase was primarily a result of greater programming costs per subscriber as a result of rate increases, expanded channel offerings and growth in subscribers. Operating, general and administrative costs were $951 during 1998, an increase of $83, or 9.6 percent, over 1997. Increases in operating, general and administrative costs were primarily a function of increases in employee costs due to improvements in customer service, marketing and advertising costs associated with the deployment of new products, such as HSD services and residential telephony, as well as NexTV, and spending on initiatives to improve the operations of the Company. These cost increases were partially offset by decreased costs related to the PrimeStar Contribution. During 1998, MediaOne Group incurred costs of $15 to improve reporting and billing systems, and to create customer databases to serve customers more effectively, and costs of $13 for incremental Year 2000 implementation costs, for a total of $28. 20 CABLE AND BROADBAND--INTERNATIONAL. The decrease in international cable and broadband operating losses is the result of increased revenues and decreased operating expenses, due primarily to efficiency gains and reduced headcount. INTERNATIONAL WIRELESS. International wireless operating losses represent the consolidated operations of Russian Telecommunications Development Corporation ("RTDC"), a Russian venture, which holds various wireless investments. CORPORATE. The decrease in corporate operating losses during 1998 is due primarily to a $30 charge in 1997 for management changes and moving costs related to relocating MediaOne's operations from Boston to Denver. The decrease was partially offset by increased overhead costs during 1998. OTHER. Operating losses decreased $11 during 1998 due to the sales in 1997 of the wholly-owned international directories operations. In addition, costs incurred for the development of domestic Internet content services have decreased during 1998 primarily as a result of aligning certain of these operations within the domestic cable and broadband operations. INTEREST EXPENSE AND OTHER
CHANGE -------------------- 1998 1997 $ % --------- --------- --------- --------- Interest expense............................................................. $ (491) $ (678) $ 187 (27.6) Equity losses in unconsolidated ventures..................................... (417) (909) 492 (54.1) Gain on sale of domestic wireless investment................................. 3,869 -- 3,869 -- Gains on sales of investments................................................ 70 421 (351) (83.4) Loss on PrimeStar investment................................................. (163) -- (163) -- Guaranteed minority interest expense......................................... (74) (87) 13 (14.9) Other income (expense)--net.................................................. 83 16 67 --
INTEREST EXPENSE. Interest expense decreased during 1998 due primarily to the June 12, 1998 assumption by New U S WEST of $3.9 billion of debt related to the Dex Alignment, the Refinancing which resulted in lower interest rate commercial paper outstanding, and the assumption of $1,350 in debt by AirTouch in the AirTouch Transaction. The reduction in interest expense was partially offset by the third-quarter 1998 issuance of $1,686 of debt exchangeable into AirTouch common stock and a charge of $16 related to the termination of various interest rate swap agreements. The swap agreements were terminated since the long term debt underlying the instruments was refinanced at the time of the Separation. MediaOne Group's weighted average borrowing cost was 7.28 percent in 1998, compared with 6.95 percent in 1997. EQUITY LOSSES IN UNCONSOLIDATED VENTURES. Equity losses decreased during 1998 due predominantly to a $200 charge in 1997 to write down the carrying value of the investment in Malaysia to its fair value of zero and to recognize probable funding commitments in connection with a shareholder support agreement related to the investment in Indonesia. In addition, during 1998, the Company suspended equity method accounting for the Company's investments in Malaysia and Indonesia, compared with equity losses recognized in 1997 of $71 and $46, respectively. The Company continues to monitor its investments in Indonesia and Malaysia. See Note 7--Net Investment in International Ventures--to the Consolidated Financial Statements. Also contributing to the decrease in equity losses during 1998 were overall improvements from the international wireless investments and the absence of losses from the investment in PrimeCo, which was sold to AirTouch on April 6, 1998 pursuant to the AirTouch Transaction. 21 GAIN ON SALE OF DOMESTIC WIRELESS INVESTMENT. On April 6, 1998, MediaOne Group sold its domestic wireless businesses to AirTouch. Consideration under the AirTouch Transaction consisted of (i) debt reduction of $1,350, (ii) the issuance to MediaOne Group of $1,650 in liquidation preference of dividend bearing AirTouch preferred stock (fair value of $1,493), and (iii) the issuance to MediaOne Group of 59,314,000 shares of AirTouch common stock. The transaction resulted in a pretax gain of $3,869, ($2,257 net of deferred taxes). MediaOne Group is accounting for its investment in AirTouch under the cost method of accounting, as available for sale securities. See Note 4--Domestic Acquisitions and Dispositions--to the Consolidated Financial Statements. GAINS ON SALES OF INVESTMENTS. During 1998, MediaOne Group sold: (a) shares of Sportsline USA, Inc. and shares of Cable & Wireless Optus Limited resulting in pretax gains of $12 ($8 after tax) and $9 ($6 after tax), respectively, (b) a cable programming investment resulting in a pretax gain of $17 ($10 after tax), (c) various domestic cable investments resulting in a pretax gain of $16 ($10 after tax) and (d) miscellaneous items resulting in a pretax gain of $16 ($10 after tax). LOSS ON PRIMESTAR INVESTMENT. During the fourth quarter of 1998, MediaOne Group recorded a charge of $163 ($100 after tax) to reduce the carrying amount of its investment in PrimeStar. In December 1998, PrimeStar management provided a business plan to its board of directors, of which MediaOne Group is a part. Additionally, in early 1999, PrimeStar announced that it was selling its DBS medium-power business and assets to Hughes Electronics Corporation ("Hughes"). Based on the review of PrimeStar's business plan and on the anticipated sale to Hughes, MediaOne Group believes that it will not receive proceeds on the sale of its investment in PrimeStar, and therefore, reduced the carrying amount of its investment to zero. See Note 22--Subsequent Events--to the Consolidated Financial Statements. GUARANTEED MINORITY INTEREST EXPENSE. Guaranteed minority interest expense has decreased $21 during 1998 due primarily to the cash redemption on June 12, 1998, of $301 face value of 7.96 percent Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company-guaranteed debentures ("Preferred Securities") and $237 face value of 8.25 percent Preferred Securities. The decrease was partially offset by the issuance in October 1998 of $500 face value of 9.04 percent Preferred Securities. OTHER INCOME (EXPENSE)--NET. Other income during 1998 was favorably impacted by decreased foreign exchange transaction losses of $51, dividend income earned on the AirTouch preferred stock received in connection with the AirTouch Transaction of $66, and the lack of minority interest expense of $37 from the domestic wireless operations due to the sale of these operations in connection with the AirTouch Transaction. Such improvements were partially offset by a $50 loss related to an interest rate swap agreement associated with the AirTouch preferred stock and a related $20 loss for the purchase of a new interest rate option. See Note 4--Domestic Acquisitions and Dispositions--to the Consolidated Financial Statements. (PROVISION) BENEFIT FROM INCOME TAXES FOR CONTINUING OPERATIONS
CHANGE -------------------- 1998 1997 $ % --------- --------- --------- --------- (Provision) benefit for income taxes........................................ $ (1,208) $ 380 $ (1,588) -- Effective tax rate.......................................................... 45.8% 31.5%
The increase in the effective tax rate is primarily a result of the gain on the sale of the domestic wireless businesses. Excluding the gain on the sale of the domestic wireless businesses, the effective tax rate would have been 32.8 percent. 22 RESULTS OF OPERATIONS--CONTINUING OPERATIONS--1997 COMPARED WITH 1996 The following pro forma discussion gives effect to the acquisition by MediaOne Group of Continental Cablevision, Inc. ("Continental") as though it had occurred as of January 1, 1996 (the "Continental Acquisition").
CHANGE -------------------- LOSS FROM CONTINUING OPERATIONS: 1997 1996 $ % --------- --------- --------- --------- Loss from continuing operations............................... $ (827) $ (357) $ (470) -- Adjustments to reported loss from continuing operations: Domestic wireless operations................................ (83) (96) 13 (13.5) Gains on sales of investments............................... (249) -- (249) -- --------- --------- --------- --------- Normalized loss from continuing operations.................... $ (1,159) $ (453) $ (706) -- --------- --------- --------- --------- --------- --------- --------- ---------
CHANGE BASIC LOSS PER SHARE FROM CONTINUING OPERATIONS -------------------- AVAILABLE FOR MEDIAONE GROUP COMMON STOCK: 1997 1996 $ % --------- --------- --------- --------- Loss from continuing operations available for common stock.... $ (1.45) $ (0.74) $ (0.71) 95.9 Adjustments to reported loss from continuing operations: Domestic wireless operations................................ (0.13) (0.19) 0.06 (31.6) Gains on sales of investments............................... (0.41) -- (0.41) -- --------- --------- --------- --------- Normalized loss from continuing operations available for common stock................................................ $ (1.99) $ (0.93) $ (1.06) -- --------- --------- --------- --------- --------- --------- --------- ---------
During 1997, the Continental Acquisition contributed approximately $356, or $0.59 per share, of the increase in normalized loss from continuing operations. The Continental Acquisition resulted in significant increases in interest, depreciation and amortization charges. The remaining increase in loss from continuing operations is primarily due to greater losses from unconsolidated ventures. SALES AND OTHER REVENUES
CHANGE PRO CHANGE -------------------- FORMA(1) -------------------- 1997 1996 $ % 1996 $ % --------- --------- --------- --------- ----------- --------- --------- Cable and broadband: Domestic........................................ $ 2,323 $ 488 $ 1,835 -- $ 2,125 $ 198 9.3 International................................... 18 6 12 -- 6 12 -- --------- --------- --------- --------- ----------- --------- --------- 2,341 494 1,847 -- 2,131 210 9.9 Corporate......................................... 29 21 8 38.1 21 8 38.1 Other(2).......................................... 49 139 (90) (64.7) 139 (90) (64.7) --------- --------- --------- --------- ----------- --------- --------- Current operations.............................. 2,419 654 1,765 -- 2,291 128 5.6 Domestic wireless................................. 1,428 1,183 245 20.7 1,183 245 20.7 --------- --------- --------- --------- ----------- --------- --------- Total............................................. $ 3,847 $ 1,837 $ 2,010 -- $ 3,474 $ 373 10.7 --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- ----------- --------- ---------
- ------------------------ (1) Gives effect to the Continental Acquisition as though it had occurred on January 1, 1996. (2) Primarily includes wholly-owned international directories which were sold in the latter part of 1997. The pro forma increase in MediaOne Group sales and other revenues was due primarily to growth in domestic cable and broadband, and wireless service revenues, partially offset by the sale in the latter part of 1997 of the wholly-owned international directories businesses. 23 CABLE AND BROADBAND--DOMESTIC. On a pro forma basis, domestic cable and broadband revenues increased due primarily to growth in basic cable services revenues and PrimeStar DBS services revenues. BASIC CABLE. Basic cable services revenues increased $146, or 10.6 percent, to $1,518 on a pro forma basis, primarily a result of rate increases. Rate increases averaged approximately 6 to 8 percent and were primarily related to an increase in programming costs and the addition of channels. Basic subscriber growth of 1.6 percent, adjusted for dispositions and an acquisition, also contributed to the increase in revenues. PREMIUM. Premium service revenues decreased $20, or 5.8 percent, to $326 on a pro forma basis, as a result of moving the Disney Channel to the basic service tier in several markets and discounting of premium service packages. EQUIPMENT AND INSTALLATION. Equipment and installation revenues increased $19, or 14.3 percent, to $152 on a pro forma basis, as a result of rate increases and subscriber growth. VIDEO. Video revenue per average cable subscriber increased 4.7 percent to $37.76 in 1997, from $36.06 in 1996. Basic subscriber growth of 1.6 percent, adjusted for dispositions and an acquisition, also contributed to the increase in revenues along with growth in equipment rental and installation revenues. PRIMESTAR. PrimeStar DBS services contributed $40 to the increase in domestic cable and broadband revenues principally as a result of a 31 percent increase in DBS customers to 181,000 at December 31, 1997. CABLE AND BROADBAND--INTERNATIONAL. International cable and broadband revenues reflect the consolidation of Cable Plus associated with a restructuring in 1996 whereby the Company's ownership interest increased to 94 percent. OTHER. The decrease in other revenues is due primarily to the sale of the Company's wholly- owned international directories operations during the latter part of 1997. DOMESTIC WIRELESS. Domestic wireless revenues increased during 1997 due primarily to increased cellular service revenues of $198, or 18.4 percent, to $1,276, and increased cellular equipment revenues of $47, or 44.8 percent, to $152. Cellular service revenues increased due to a 27 percent increase in subscribers during the year, partially offset by a 12 percent drop in average revenue per subscriber to $46.42 per month. Cellular equipment revenues increased as a result of a 14 percent increase in gross customer additions and the introduction of digital handsets. On April 6, 1998, the Company sold its domestic wireless businesses to AirTouch pursuant to the AirTouch Transaction. 24 OPERATING INCOME (LOSS)
CHANGE PRO CHANGE -------------------- FORMA(1) --------- 1997 1996 $ % 1996 $ --------- --------- --------- --------- ----------- --------- Cable and broadband: Domestic............................................. $ (111) $ (13) $ (98) -- $ (73) $ (38) International........................................ (15) (7) (8) -- (7) (8) --------- --------- --------- --------- ----- --------- (126) (20) (106) -- (80) (46) International wireless................................. (13) (3) (10) -- (3) (10) Corporate.............................................. (155) (158) 3 (1.9) (158) 3 Other(2)............................................... (29) (18) (11) 61.1 (18) (11) --------- --------- --------- --------- ----- --------- Current operations................................... (323) (199) (124) 62.3 (259) (64) Domestic wireless.................................... 353 243 110 45.3 243 110 --------- --------- --------- --------- ----- --------- Operating income....................................... $ 30 $ 44 $ (14) (31.8) $ (16) $ 46 --------- --------- --------- --------- ----- --------- --------- --------- --------- --------- ----- --------- % --------- Cable and broadband: Domestic............................................. 52.1 International........................................ -- --- 57.5 International wireless................................. -- Corporate.............................................. (1.9) Other(2)............................................... 61.1 --- Current operations................................... 24.7 Domestic wireless.................................... 45.3 --- Operating income....................................... -- --- ---
- ------------------------ (1) Gives effect to the Continental Acquisition as though it had occurred on January 1, 1996. (2) Primarily includes wholly-owned international directories which were sold in the latter part of 1997. MediaOne Group pro forma operating income increases were due primarily to growth in domestic wireless, partially offset by higher domestic cable and broadband operating losses. CABLE AND BROADBAND--DOMESTIC. Pro forma domestic cable and broadband revenue growth of $198, or 9.3 percent, to $2,323, was more than offset by increases in programming costs, including programming for PrimeStar DBS services, of $71, or 15.6 percent, to $525, increases in operating, marketing and advertising, and general and administrative costs of $89, or 11.4 percent, to $868, and increases in depreciation and amortization expense of $76, or 7.9 percent, to $1,041. Programming cost increases are primarily a result of rate increases and subscriber growth. Increases in operating, marketing and advertising, and general and administrative costs are primarily a function of customer service initiatives, costs associated with deployment of new services such as high-speed data, advertising costs to implement the "MediaOne" brand and increased professional fees. A reduction in the estimated remaining useful lives of certain assets in accordance with planned re-build activities resulted in a depreciation adjustment of $61 which accounts for the majority of the increase in depreciation and amortization expense during 1997. CORPORATE. Corporate operating losses include costs related to managing the various MediaOne Group operations, predominantly the international operations, and costs related to general and administrative services provided by the Company to its subsidiaries, including executive management, legal, accounting and auditing, tax, treasury, strategic planning, and public policy. The 1997 results include a $30 charge for management changes and moving costs related to relocating MediaOne's operations from Boston to Denver. This charge was partially offset by savings associated with lower international staff levels in 1997, combined with a 1996 charge of $10 related to the staff reductions at international headquarters. OTHER. Other operating losses include the Company's wholly-owned international directories operations which were sold during 1997 DOMESTIC WIRELESS. The increase in domestic wireless operating income is a result of revenue increases associated with the expanding subscriber base combined with efficiency gains. Domestic cellular depreciation and amortization increased 22.4 percent, to $180, largely as a result of network upgrades. 25 INTEREST EXPENSE AND OTHER
CHANGE -------------------- 1997 1996 $ % --------- --------- --------- --------- Interest expense................................................................ $ (678) $ (164) $ (514) -- Equity losses in unconsolidated ventures........................................ (909) (346) (563) -- Gains on sales of investments................................................... 421 -- 421 -- Guaranteed minority interest expense............................................ (87) (55) (32) 58.2 Other income (expense)-net...................................................... 16 (16) 32 --
INTEREST EXPENSE. Interest expense increased in 1997 primarily as a result of assuming, at market value, $6.5 billion of debt related to the Continental Acquisition. MediaOne Group's weighted average borrowing cost was 6.95 percent in 1997, compared with 6.80 percent in 1996. EQUITY LOSSES IN UNCONSOLIDATED VENTURES. Equity losses increased $563 in 1997, predominantly a result of greater losses generated from international ventures and the domestic investment in PrimeCo. PrimeCo launched service in November 1996, and losses associated with this venture have increased $68 as a result of start-up and other costs. International equity losses increased $455 in 1997, due primarily to ventures located in Asia, which included Indonesia, India, Malaysia, Japan and Singapore. The ventures in Asia contributed $397 to the increase in international equity losses due primarily to a $200 impairment charge recorded in the period. During 1997 the Company determined that its investments in Malaysia and Indonesia were impaired and in each case the fair value of the investment was zero as of December 31, 1997. The Company recorded pretax charges of $145 and $55 related to the ventures in Malaysia and Indonesia, respectively. See Note 7--Net Investment in International Ventures--to the Consolidated Financial Statements. GAINS ON SALES OF INVESTMENTS. During 1997, the Company sold: (i) its 90 percent interest in Fintelco, for a pretax gain of $135 ($80 after tax), (ii) its shares of Teleport Communications Group, Inc. ("TCG"), acquired in the Continental Acquisition, for a pretax gain of $162 ($96 after tax), (iii) its shares of Time Warner, acquired in the Continental Acquisition, for a pretax gain of $44 ($25 after tax), (iv) its five percent interest in a French wireless venture, for a pretax gain of $51 ($31 after tax), and (v) U S WEST Polska, its wholly owned directory operation in Poland, for a pretax gain of $29 ($17 after tax). GUARANTEED MINORITY INTEREST EXPENSE. Guaranteed minority interest expense reflects an increase of $32 related to the October 29, 1996 issuance of Preferred Securities totaling $480. OTHER INCOME--NET. Other income increased $32, to other income of $16, in 1997, due primarily to a 1996 pretax charge of $31 associated with the sale of the Company's cable television interests in Norway, Sweden and Hungary. Partially offsetting this increase were greater foreign exchange transaction losses associated with loans to international ventures. BENEFIT FROM INCOME TAXES FOR CONTINUING OPERATIONS
CHANGE -------------------- 1997 1996 $ % --------- --------- --------- --------- Benefit for income taxes........................................................... $ 380 $ 180 $ 200 -- Effective tax rate................................................................. 31.5% 33.5%
The decrease in the effective tax rate is primarily a result of the effects of goodwill amortization associated with the Continental Acquisition. 26 LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Cash provided by operating activities.................................................. $ 564 $ 995 $ 431
The decrease in the Company's cash provided by operating activities during 1998 is due primarily to the sale of the domestic wireless operations on April 6, 1998, as well as from interest payments and Separation costs paid. Partially offsetting the decrease in cash provided by operating activities were increased tax receipts of $85 from the Communications Group, the receipt in 1998 of $51 in international dividends, primarily from Westel 450 and Westel 900, the Company's European wireless investments in Hungary, and the receipt of $40 in dividends from the AirTouch preferred stock. During 1997, the Company's operating cash flow increased primarily due to the effects of the Continental Acquisition. Partially offsetting the increase were higher financing costs resulting from greater debt levels associated with the Continental Acquisition. Effective June 12, 1998, New U S WEST is no longer part of the consolidated tax return of MediaOne Group. As of December 31, 1998, MediaOne Group had a $375 income tax receivable recorded for the estimated amount due from the carryback of the 1998 taxable loss to the 1996 consolidated tax return. MediaOne Group received $359 in the first quarter of 1999. MediaOne Group will receive a cash benefit from any 1999 taxable loss in the year 2000 by the carryback of the loss to the 1997 consolidated tax return. A cash benefit for any ordinary tax loss incurred in the year 2000 may be recovered through the carryforward of the loss against future taxable income. MediaOne Group expects that cash from operations will not be adequate to fund expected cash requirements in 1999. Additional funding will come from cash on hand, 1999 asset sales and new debt financing, including the monetization of AirTouch common stock. INVESTING ACTIVITIES
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Cash used for investing activities............................................... $ (2,401) $ (1,222) $ (807)
Total capital expenditures at MediaOne Group, on a cash basis, were $1,726, $1,522 and $627 during 1998, 1997 and 1996, respectively. The majority of the capital expenditures in 1998 were devoted to upgrading the domestic cable network and preparing for the provision of new and enhanced services. In 1999, capital expenditures are expected to approximate $1.8 billion, primarily for the domestic cable and broadband business. 27 Investing activities of the Company include equity investments in international ventures. The Company invested $583, $334 and $257 in international ventures during 1998, 1997 and 1996, respectively. Investments during 1998 were net of a $45 return of capital from a wireless investment in the United Kingdom. During 1998, MediaOne Group invested $131 as a result of the Company's participation in a rights offering by Telewest in connection with that company's acquisition of General Cable, and $394 by purchasing an additional 175 million Telewest shares from another Telewest shareholder, for a total investment in Telewest of $525. The remaining international investments made during 1998 were capital contributions to its cable investments in Belgium, the Netherlands, Japan and Singapore. The Company also made capital contributions to ventures in the Slovak Republic, India and Indonesia. During 1997 MediaOne Group made capital contributions to ventures in Belgium, India, Indonesia and Japan, and purchased an additional 40 percent interest in Fintelco. The total investment in Fintelco was subsequently sold in October 1997. Investments in 1996 included loans provided to One 2 One, the purchase of a 23 percent interest in Polska Telefonia Cyfrowa, a venture to provide wireless service in Poland, and the purchase of a 28 percent interest in Telenet, a venture in Belgium to provide telephony services on the cable network. The Company anticipates that investments in international ventures will approximate $160 in 1999 to fund continued expansion in Belgium, the Netherlands, India, Japan and Singapore. The Company also invested $108, $249 and $164 in 1998, 1997 and 1996, respectively, in domestic ventures. Of such investments, $64, $213 and $132 related to contributions to PrimeCo during 1998, 1997 and 1996, respectively, for network build activity. On April 6, 1998, the Company sold its investment in PrimeCo in conjunction with the AirTouch Transaction. The remaining $44 of investments in domestic ventures for 1998 related to investments in various Internet content service providers. MediaOne Group also purchased various domestic cable systems and investments in 1998 totaling $92. Such purchases included a cable system in Michigan for $57 which serves approximately 31,000 cable subscribers. During the first quarter of 1997, the Company paid the cash portion of the Continental Acquisition consideration of $1,150 to the Continental shareowners. During 1998, MediaOne Group sold various investments resulting in net proceeds of $241, comprised of the following: (a) net proceeds of $77 related to the PrimeStar Contribution, (b) various cable systems for net proceeds of $50, (c) residual shares in Enhance Financial Services Group, Inc., and shares of SportsLine USA, Inc. and Cable & Wireless Optus Limited for total net proceeds of $46, (d) a cable programming investment for net proceeds of $38, and (e) miscellaneous investments for net proceeds of $30. In addition, MediaOne Group paid a net amount of $164 related to other activities as follows: (a) paid $215 related to the settlement of an interest rate swap agreement and the purchase of a related put option, (b) received proceeds of $71 on the sale of a note receivable, (c) restricted $26 of cash related to Centaur Funding Corporation ("Centaur"), a special purpose entity consolidated by the Company, and (d) received $6 for miscellaneous asset sales. Throughout 1997, the Company monetized nonstrategic assets, including various domestic and international investments. Such asset sales generated total proceeds of $2,058. Proceeds from sales of international investments totaled $887, domestic investments totaled $931, assets held for sale totaled $231, and disposals of property, plant and equipment totaled $9. International sales consisted of: (a) a five percent interest in a French wireless venture for proceeds of $81, (b) a 90 percent interest in Fintelco for proceeds of $641, (c) Thomson Directories, the directory operation in the United Kingdom, and U S WEST Polska, the directory operation in Poland, for net proceeds of $121 and $27, respectively, and (d) other miscellaneous international investment sales for proceeds of $17. Domestic sales were comprised of the sale of shares of TCG, for net proceeds of $678, shares of Time Warner, for net proceeds of $220, and miscellaneous asset sales, for proceeds of $33. 28 FINANCING ACTIVITIES
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Cash used for financing activities.................................................... $ (2,885) $ (801) $ (672)
DEBT ACTIVITY Total debt at December 31, 1998 was $5,422, a decrease of $3,541 compared with December 31, 1997. Debt at December 31, 1998 includes debt related to the capital assets segment which is now shown in the Consolidated Balance Sheet of the Company. Prior to this time, the accounts of the capital assets segment had been accounted for as discontinued operations and netted on the Consolidated Balance Sheet into one line labeled "net investment in assets held for sale." See Note 23--Net Investment in Assets Held For Sale--to the Consolidated Financial Statements. MediaOne Group's percentage of debt to total capital at December 31, 1998 was 26.5 percent compared with 41.8 percent at December 31, 1997. Including debt associated with the capital assets segment for both 1998 and 1997, Preferred Securities, the minority interest in Centaur and preferred stock subject to mandatory redemption as components of debt, MediaOne Group's percentage of debt to total capital at December 31, 1998, was 37.5 percent compared with 48.1 percent at December 31, 1997. On December 15, 1998, Centaur issued three series of preferred shares for total net proceeds of $1,099, net of issuance costs of $31. Dividend and redemption payments on certain of the preferred shares may only be made to the extent AirTouch pays dividends or redeems its outstanding preferred shares held by the Company. See Note 13--Minority Interest in Centaur Funding--to the Consolidated Financial Statements. Proceeds from the issuance of the preferred shares were loaned to a subsidiary of the Company and used for general corporate purposes. In October 1998, MediaOne Group issued $500 of 9.04 percent Preferred Securities for net proceeds of $484. The proceeds from the issuance were used to redeem outstanding commercial paper and for general corporate purposes. MediaOne Group guarantees the payment of interest and redemption amounts to holders of the Preferred Securities. During August and September, 1998, MediaOne Group issued approximately $1,686 of 6.25 percent exchangeable notes for net proceeds of $1,642. The notes mature on August 15, 2001 and are mandatorily redeemable at MediaOne Group's option into (i) shares of AirTouch common stock held by MediaOne Group, (ii) the cash equivalent, or (iii) a combination of cash and AirTouch common stock. The number of shares of AirTouch common stock to be exchanged for each exchangeable note, and/or the cash equivalent, varies based upon the fair value of the AirTouch common stock. In December 1998, MediaOne Group also redeemed debt exchangeable into common stock ("DECS") originally issued in 1995. Such DECS were redeemed with shares of Enhance Financial Services Group, Inc., held by the Company. See Note 10--Debt--to the Consolidated Financial Statements. On June 12, 1998, MediaOne Group tendered $4.9 billion notional amount of long term debt. Also on June 12, 1998, MediaOne Group tendered for cash $301 face value of the 7.96 percent Preferred Securities and $237 face value of the 8.25 percent Preferred Securities originally issued in 1995 and 1996, respectively. The cash redemption amount of $5.5 billion for the long term debt and $582 for the Preferred Securities was financed with floating-rate commercial paper with a weighted average interest rate of 5.85 percent. In addition, in accordance with the terms of the Separation Agreement, New U S WEST funded to MediaOne Group $3.9 billion related to the Dex Alignment. Such funds were used to repay a portion of the commercial paper issued in connection with the Refinancing. During 1997, the Company redeemed its zero coupon subordinated notes, which had a recorded value of $268. In addition, MediaOne redeemed a 10.625 percent senior subordinated note with a recorded value 29 of $110, including a premium of $10. The Company financed both redemptions with floating-rate commercial paper. In June 1997, the Company acquired cable systems serving approximately 40,000 subscribers in Michigan for cash of $25 and the issuance of approximately $50 in liquidation value of Old U S WEST Series E Preferred Stock (the "Series E Preferred Stock"). Effective with the Separation, the Series E Preferred Stock remains outstanding and represents shares of Series E Preferred Stock of MediaOne Group. The Series E Preferred Stock is redeemable at the Company's option beginning five years from the date of issuance. The stockholders have the right to elect cash upon redemption, or to convert their shares into MediaOne Group Stock based on a predetermined formula. In 1996, Old U S WEST issued $254 of exchangeable notes, or DECS, due May 15, 1999. Effective with the Separation, the DECS became the obligation of MediaOne Group. Upon maturity, each such DECS will be exchanged by MediaOne Group for shares of common stock of Financial Security Assurance Holdings Ltd. ("FSA") held by the Company or, at the Company's option, redeemed at the cash equivalent. On October 29, 1996, Old U S WEST refinanced commercial paper through the issuance of 8.25 percent Preferred Securities totaling $480. In connection with the Separation, the Company redeemed for cash and exchanged $450 face value of such Preferred Securities. See Note 14--Preferred Securities--to the Consolidated Financial Statements. MEDIAONE GROUP CREDIT RATINGS The following table provides credit ratings for MediaOne Group, primarily debt issued by MediaOne Group Funding, Inc., the newly created financing subsidiary of MediaOne Group, and MediaOne. The credit ratings are all investment grade. MediaOne Group does not guarantee the outstanding senior and subordinated debt of MediaOne.
DUFF & STANDARD & PHELPS POOR'S MOODY'S ------------ ------------ --------- MEDIAONE GROUP Senior Unsecured Debt...................................................... BBB BBB Baa2 Commercial Paper........................................................... D-2 A-2 P-2 Preferred Securities....................................................... BBB- BB+(1) ba3 Centaur Preferred Shares--Series A......................................... Not Rated Not Rated aa1 Centaur Preferred Shares--Series B & C..................................... Not Rated BBB-(1) baa3 MEDIAONE Senior Debt................................................................ BBB BBB Baa3 Subordinated Debt.......................................................... Not Rated BBB- Ba2
- ------------------------ (1) In February 1999, Standard & Poor's announced a methodology change for the rating of Preferred Securities and other similar instruments which is reflected above. This change is not a credit event. As a result of the announcement on March 22, 1999 of the proposed merger of MediaOne Group with Comcast Corporation, the Company's debt and Preferred Securities were placed on credit watch by Standard & Poor's with negative implications, and by Moody's with direction uncertain. See Note 22-- Subsequent Events--to the Consolidated Financial Statements. The Centaur preferred shares Series B and C were placed under review for a possible upgrade by Moody's as a result of actions on AirTouch credit. 30 DIVIDENDS The Company paid dividends on the Communications Stock totaling $519, $992 and $939 in 1998, 1997 and 1996, respectively. MediaOne Group no longer pays dividends on the Communications Stock as it has been canceled effective June 12, 1998, as a result of the Separation. CASH FROM DISCONTINUED OPERATIONS Cash from discontinued operations was $4,953 through the date of the Separation, and $1,091 and $1,149 in 1997 and 1996, respectively. Such amounts consisted primarily of fundings to MediaOne Group for common dividends paid to Communications Stock shareowners, dividends paid by Dex to MediaOne Group, proceeds from the issuance of Communications Stock, and debt fundings and repayments between MediaOne Group and New U S WEST. Also included in the 1998 amounts were the $3.9 billion of debt assumed by New U S WEST in connection with the Dex Alignment, as well as $152 of net costs reimbursed to MediaOne Group as a result of the Separation and the Refinancing. The $3.9 billion payment by New U S WEST was used by MediaOne Group to repay commercial paper issued in the Refinancing. OTHER FINANCING ACTIVITIES COMMITMENTS AND DEBT GUARANTEES. At December 31, 1998, MediaOne Group's commitments and debt guarantees associated with its international and domestic investments totaled approximately $310 and $240, respectively. In addition, a MediaOne Group subsidiary guarantees debt, nonrecourse to the Company, associated with its international investment in the principal amount of approximately $880. DEBT FACILITIES. In May 1998, MediaOne Group entered into 365-day and 5-year revolving bank credit facilities totaling $4.0 billion to support its commercial paper program and to provide financing in conjunction with the refinancing of substantially all of the indebtedness issued or guaranteed by Old U S WEST. The facilities were reduced in December 1998 to a total capacity of $3.0 billion. As of December 31, 1998, $2.8 billion was available on the facilities. SHELF REGISTRATIONS. Under registration statements filed with the Securities and Exchange Commission as of November 4, 1998, the Company was permitted to issue up to approximately $400 of new debt securities. SHARE REPURCHASE. On August 7, 1998, the Board of Directors of MediaOne Group authorized the repurchase of up to 25 million shares of the Company's common stock. The shares may be repurchased over the next three years, dependent on market and financial conditions. During 1998, MediaOne Group purchased and placed into treasury approximately 8,682,000 shares of MediaOne Group Stock for a total costs basis of $352. Prior to the Separation, Old U S WEST purchased and placed into treasury $31 of Communications Stock. All outstanding shares of Communications Stock held as treasury stock by Old U S WEST were canceled as of the Separation date. RISK MANAGEMENT MediaOne Group is exposed to market risks arising from changes in interest rates, foreign exchange rates and equity prices. Derivative financial instruments are used to selectively manage these risks. MediaOne Group does not use derivative financial instruments for trading purposes. The following discussion does not include any impact from the Company's investment in Cable & Wireless Optus Limited and options related to the sale of this investment since it was sold during the first quarter of 1999. See Note 22--Subsequent Events--to the Consolidated Financial Statements. INTEREST RATE RISK MANAGEMENT. MediaOne Group is exposed to interest rate risk from the investment in AirTouch preferred stock and other debt securities, and debt issued by the Company. MediaOne Group historically entered into interest rate swaps to minimize interest rate variability on floating rate debt, and 31 interest rate swaps and options to protect the value of the AirTouch preferred stock. As of December 31, 1998, the Company had no outstanding interest rate contracts. Approximately $280 of MediaOne Group's debt is subject to changes in interest rates. A hypothetical 10 percent increase in interest rates would decrease the annual earnings of MediaOne Group by $1. FOREIGN EXCHANGE RISK MANAGEMENT. MediaOne Group selectively enters into forward and option contracts to manage the market risks associated with fluctuation in foreign exchange rates after considering offsetting foreign exposures among international operations. The use of forward and option contracts allows MediaOne Group to fix or cap the cost of firm foreign investment commitments, the amount of foreign currency proceeds from sales of foreign investments, the repayment of foreign currency denominated receivables and the repatriation of dividends. The market values of foreign exchange positions, including the hedging instruments, are continuously monitored and compared with predetermined levels of acceptable risk. All foreign exchange contracts have maturities of one year or less. As of December 31, 1998, the market value of foreign exchange contracts outstanding was not material. MediaOne Group is exposed to foreign exchange risk associated with its cash deposits, notes receivable and payable, and a cost method investment denominated in a foreign currency. As of December 31, 1998, MediaOne Group had British pound-denominated notes receivable and cash deposits in the translated amount of $186, a British pound-denominated investment in marketable equity securities in the translated amount of $106, a Czech Koruna-denominated note receivable and cash deposits in the translated amount of $33, and a Czech Koruna-denominated note payable in the translated amount of $30. A hypothetical 10 percent adverse change in the British Pound and Czech Koruna exchange rates as compared with the U.S. dollar would reduce the market value of the cash deposits, investment and notes payable and receivable by $30 as of December 31, 1998. EQUITY-PRICE RISK MANAGEMENT. MediaOne Group is exposed to market risks associated with equity security prices related to its investments in marketable equity securities. On a selective basis, MediaOne Group enters into option contracts and exchangeable debt instruments to manage risks associated with fluctuations in equity security prices. The table below presents the impact of hypothetical movements in the equity security prices related to MediaOne Group's combined position in marketable equity securities and derivative contracts. The hypothetical change in stock price movements for AirTouch and Internet related investments are based upon stock price movements since December 31, 1998 and historical stock prices, respectively.
HYPOTHETICAL CHANGE IN 12/31/98 STOCK PRICE ------------------------ INCREASE IN FAIR DECREASE IN FAIR INVESTMENT INCREASE DECREASE MARKET VALUE MARKET VALUE - ------------------------------------------------------- ----------- ----------- ------------------- ----------------- AirTouch common stock including Exchangeable Notes(1)...................... 30% 30% $ 780 $ 1,060 Internet related investments........................... 50% 50% 20 20 All other investments.................................. 10% 10% 20 20 ----- ------ Total.................................................. $ 820 $ 1,100 ----- ------ ----- ------
- ------------------------ (1) See Note 10--Debt--to the Consolidated Financial Statements. The increase in the Company's exposure to equity price risk in 1998 is primarily due to the receipt of AirTouch common shares in the AirTouch Transaction, partially offset by the issuance of the Exchangeable Notes. 32 The changes in interest rates, foreign exchange rates and equity security prices are based on hypothetical movements in future market rates and are not necessarily indicative of actual results that may occur. Future gains and losses will be affected by actual changes in interest rates, foreign exchange rates, equity security prices, and changes in derivative financial instruments employed during the year. COMPETITIVE AND REGULATORY ENVIRONMENT CABLE AND BROADBAND--DOMESTIC. MediaOne Group's cable television systems generally compete with other providers of video programming for viewer attention and advertising dollars. Competitors include service providers such as television broadcasters, DBS, multipoint multichannel distributions services ("MMDS"), local multipoint distribution services ("LMDS"), satellite master antenna service ("SMATV"), video tape rentals stores, movie theaters and live sporting events. In addition, as a result of the Telecommunications Act of 1996 (the "Telecommunications Act") certain local exchange carriers ("LECs"), including Regional Bell Operating Companies ("RBOCs"), are beginning to offer video programming in competition with the Company's cable services. The competition faced by the Company's cable systems is likely to increase in the future with the development and growth of new technologies. As MediaOne Group continues to offer additional services over its hybrid fiber-coax ("HFC") networks, MediaOne Group will face additional competition. Both the HSD and telephone services offered by MediaOne Group will face competition from other providers, including RBOCs and other incumbent LECs, interexchange carriers ("IXCs"), Internet service providers ("ISPs") and other providers of local exchange and on-line services. The degree of competition will be dependent upon the state and federal regulations concerning entry, interconnection requirements and the degree of unbundling of the incumbent LECs' networks. Competition will be based upon product, service quality, breadth of services offered, and to a lesser extent on price. The products and services of the Company are subject to varying degrees of regulation. Under the Telecommunications Act, it is anticipated that the regulation of all but basic tier cable and equipment rates will be discontinued effective March 31, 1999. However, as described below, the Company must seek the Federal Communications Commission's ("FCC") permission to end rate regulation for cable systems covered by Continental's Social Contract. The Telecommunications Act also eliminated certain cross-ownership restrictions among cable operations, broadcasters and MMDS operations and removed barriers to competition with LECs. The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") provided for the regulation of rates for certain cable television services and for equipment and installation charges. The FCC was charged with setting the standards for rate regulation, but also approved "social contracts" as an alternative form of regulation. Continental's Social Contract was the first approved by the FCC. The Social Contract is a six-year agreement covering most of Continental's franchises and settled all of Continental's outstanding rate complaints. As part of the Social Contract, Continental agreed to, among other things, invest at least $1.7 billion in domestic system rebuilds and upgrades through the year 2000 to expand channel capacity and improve system reliability and picture quality. As of December 31, 1998, the investment commitment had been met; however, the Company must still upgrade all systems covered by the Social Contract to a minimum of 550MHz, with at least half being upgraded to 750 MHz. The Social Contract also provides that, if the laws and regulations applicable to services offered in any MediaOne franchise change in a manner that would have a material favorable financial impact on MediaOne, the Company may petition the FCC to terminate the Social Contract. The sunset of rate regulation for the upper tiers of cable service represents such a change and the FCC may not unreasonably refuse to terminate the rate regulation provision of the Social Contract. Cable television systems are also subject to local regulation, typically imposed through the franchising process. Local officials may be involved in the initial franchise selection, franchise service area, construction standards, safety, rate regulation of the lowest tier of service and equipment and installation rates, 33 customer service standards, billing practices, community-related programming and services, franchise renewal and imposition of franchise fees. In June, 1998, the FCC issued formal rules providing for the retail sale of set-top television boxes which integrate security and non-security functions. On January 1, 2005, cable companies will no longer be permitted to sell or lease new integrated boxes to their subscribers. In addition, cable companies must provide subscribers with related security modules that plug into set-top boxes that are purchased from consumer electronics retailers by July 1, 2000. In February 1999, MediaOne Group partnered with various manufacturers of digital set-top boxes in order to provide an open conditional access system, which would be compliant with domestic OpenCable-TM- specifications. INTERNATIONAL. The Company's international broadband and wireless communications businesses also face significant competition in their respective markets. Telewest's cable television services compete with broadcast television stations, DBS services, satellite master antenna service systems and certain narrowband operators in the United Kingdom. Telewest's telecommunications services compete with domestic telephone companies in the United Kingdom, such as British Telecommunications plc. One 2 One competes with three cellular operators in the United Kingdom. Competition is based upon price, geographic coverage and the quality of the services offered. The wireless businesses in Central Europe face similar competition. CONTINGENCIES Certain cable subsidiaries of the Company in Florida, Michigan, Minnesota and Ohio have been named as defendants in various class action lawsuits challenging such subsidiaries' policies for charging late payment fees when customers fail to pay for subscriber services in a timely manner. MediaOne Group is currently reviewing the lawsuits to determine what impact, if any, such lawsuits may have on the operations of the Company. YEAR 2000 READINESS The statements made herein relating to the Year 2000 are designated as Year 2000 Readiness Disclosures for purposes of the Year 2000 Information and Readiness Disclosure Act. MediaOne Group uses software and related technologies throughout its business that may be affected by the date change in the year 2000. MediaOne Group established a corporate-wide Year 2000 program in 1997, which in relation to other business projects and objectives has been assigned a high priority. The inability of systems to appropriately recognize the year 2000 could result in a disruption of Company operations. More specifically, such a failure could result in material operational impacts on various of the Company's business operations, as identified in more detail in the chart below. MediaOne Group is progressing through a comprehensive program to evaluate and address the impact of the Year 2000 on its operations. MediaOne Group is utilizing both internal and external resources in implementing the program. The program consists of the following phases: Phase (I) Assessment--Structured evaluation, including a detailed inventory outlining the impact that the Year 2000 may have on current operations. (II) Detailed Plan--Establishment of priorities, development of specific action steps and allocation of resources to address the issues as outlined in Phase I. (III) Conversion--Implementation of the necessary changes, (i.e., repair, replacement or retirement) as outlined in Phase II. (IV) Testing--Verification that the conversions implemented in Phase III will be successful in resolving the Year 2000 problem so that all inventory items will function properly, both as individual units and on an integrated basis. (V) Implementation--The final roll-out of fully tested components into an operational unit.
34 MediaOne Group currently has activities underway in each of the five phases. The current stage of activities varies based upon the type of component, system, and/or service at issue. MediaOne Group has identified three primary risk assessment levels for various inventory items relative to the Year 2000 program. These levels are high, medium and low, with high risk items being those that may have such an impact on the business, that if the risk is not appropriately managed and/or mitigated, the occurrence of the risk could have an adverse impact on the operations of the business, its customers and its employees. Medium risks are those that if they are not appropriately managed and/or mitigated, the occurrence of the risk may cause major difficulties in managing the day-to-day operations of the business, and/or have a significant impact on the ability to deliver acceptable service to customers. Low risks are those that if they are not appropriately managed and/or mitigated, the occurrence of the risk may cause difficulties in managing the business, however should not severely impact service delivery, cash flow, or critical management activities. MediaOne Group has identified and prioritized four critical business functions across its business operations in order to manage its Year 2000 program. The critical business functions are (i) customer service, which includes service delivery, service disruption, network management and workforce management; (ii) customer care and billing, which includes bill issuance and access to functioning call centers; (iii) cash flow, which includes payment processing, general ledger, accounts payable and accounts receivable; and (iv) employees, health and safety, which includes payroll processing, pension fund issues, and building operations and security. MediaOne Group has identified two business areas that are subject to Year 2000 disclosures. These are Domestic Cable and Broadband, and Investments in Unconsolidated Subsidiaries. 35 DOMESTIC CABLE AND BROADBAND The following chart describes the status of the Company's Year 2000 program with respect to Domestic Cable and Broadband operations in the four critical business functions identified above.
ESTIMATED DATE OF BUSINESS FUNCTIONS CURRENT AREAS OF FOCUS OPERATIONAL IMPACT CURRENT STATUS COMPLETION - -------------------- ---------------------------- ---------------------------- ----------------- ----------- Customer Service Head End Controller Inability to provide video, Early Phase IV Q2 1999 Digital Transmission telephony & data service to Equipment customers Switches Ad Insertion Network Surveillance Customer Care & Subscriber Billings Loss of revenues Early Phase IV Q3 1999 Billing Ad Sales Billings Loss of customer Call Center Operations provisioning and repair Data Communications support Desktop Computing Cash Flow Financial Systems Interruption to cash Early Phase IV Q2 1999 receipts & disbursements cycle Employees, Health & Payroll & Benefit Systems Loss of support systems and Early Phase IV Q3 1999 Safety Facilities Functions employee disruption
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES MediaOne Group has significant investments in both domestic and international cable and broadband operations as well as wireless operations. Within this area MediaOne Group has separated the Year 2000 program between domestic and international investments for improved analysis and program management. (I) DOMESTIC INVESTMENTS The domestic investments include an investment in TWE, the second-largest provider of cable television services in the United States. MediaOne Group also holds a significant cost basis investment in AirTouch as a result of selling its domestic wireless businesses to AirTouch on April 6, 1998. MediaOne Group continues to monitor Year 2000 efforts at TWE. TWE has represented to MediaOne Group that they continue to be in the conversion phase of their Year 2000 program as of December 31, 1998. MediaOne Group is planning to continue the audit of TWE and its progress relative to its Year 2000 program during 1999, as deemed necessary. MediaOne Group will continue to monitor information provided to the investor community by AirTouch to evaluate the progress toward remediation of Year 2000 issues and to monitor MediaOne Group's investment value. (II) INTERNATIONAL INVESTMENTS Internationally, MediaOne Group holds an investment in Telewest, the largest provider of combined cable and broadband communications services in the United Kingdom. MediaOne Group also holds interests in cable and broadband properties in the Netherlands, Belgium, the Czech Republic, Japan and Singapore. Additionally, MediaOne Group holds wireless interests which include a 50 percent joint venture interest in One 2 One, a provider of PCS services in the United Kingdom. MediaOne Group also 36 owns interests in wireless properties in Hungary, the Czech and Slovak Republics, Poland, Russia and India. All of the fourteen key international ventures in which MediaOne Group has an investment continue to be in the Conversion and Testing Phases. The current stage of activities varies within each venture as well as upon the type of component at issue. Based upon current information provided by the ventures to MediaOne Group, costs of addressing potential problems are not expected to have a material adverse impact on MediaOne Group's financial position. THIRD PARTY RELATIONSHIPS MediaOne Group has significant relationships and dependencies with regard to systems and technology provided and supported by third party vendors and service providers. As part of its Year 2000 program, MediaOne Group has established a vendor compliance group to obtain formal Year 2000 compliance representation from vendors who provide products and services to MediaOne Group. The scope of this group includes vendors who provide information technologies, network switching and elements, infrastructure, electronic trading partners and other third party suppliers. The vendor compliance process is being performed concurrently with the regional/business unit Year 2000 remediation activities. In addition, the MediaOne Group Year 2000 legal team has established in parallel a vendor contract analysis program. Because of the aforementioned reliance placed on third party vendors, MediaOne Group's estimate of costs to be incurred could change substantially should one or more of the vendors be unable to timely deliver Year 2000 compliant products. BUSINESS CONTINUITY Business continuity teams are in place for the Year 2000 program and include business contingency and response and recovery management. Initial contingency plans for mission critical projects that had not completed testing by December 31, 1998 have been developed that include trigger dates and processes for implementation of such plans if needed. Operational response and recovery plans are being refined and expected to be in place by third quarter 1999. There can be no assurance that the contingency plans developed by the Company will eliminate all potential for service interruption. COSTS OF YEAR 2000 PROGRAM MediaOne Group has incurred approximately $22 of costs to implement its Year 2000 compliance program through the fourth quarter of 1998 and currently expects to incur between $60 to $75 of costs in aggregate, of which $10 to $15 represent capitalized expenditures. Of the total costs being incurred, approximately $50 to $65 are incremental to MediaOne Group. The funding of these costs will be managed by the Company through its liquidity and capital resources plan. RISKS ASSOCIATED WITH YEAR 2000 ISSUES Due to the complexity of the issues presented by the Year 2000 and the proposed solutions, and the interdependence of MediaOne Group on a global list of third party suppliers, it is impossible to assess with any degree of accuracy the impact of a failure in any one aspect or combination of aspects of the Company's Year 2000 program in relation to the Company's critical business function areas. MediaOne Group cannot provide assurance that actual results will not differ from management's estimates due to the complexity of correcting the systems and related technologies surrounding the Year 2000 issue. Failure by MediaOne Group to complete its Year 2000 project in a timely or complete manner, within its estimate of projected costs, or failure by third parties, such as financial institutions and related networks, software providers, local telephone companies, long distance providers, power providers, etc., to correct their systems, with which MediaOne Group's systems interconnect, could have a material impact on future results of operations and financial position. Other factors which might cause a material difference from management's estimate would include, but not be limited to, the availability and cost of 37 personnel with appropriate skills and abilities to locate and correct all relevant computer code and similar uncertainties, as well as the collateral effects on MediaOne Group of the Year 2000 problem on the economy in general, or on MediaOne Group's business partners and customers in particular. However, MediaOne Group believes that the Year 2000 issue can be mitigated through its planned repair, replacement, or retirement of the relevant systems and related technologies, that are within MediaOne Groups reasonable control. FUTURE IMPLEMENTATION OF NEW ACCOUNTING STANDARDS In the year 2000, the Company will adopt SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. Among other things, the statement requires that an entity recognize all derivative instruments on the balance sheet as either assets or liabilities, and to account for those instruments at fair value. The Company is evaluating the impact of SFAS No. 133. Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," was issued in March 1998. SOP 98-1, among other things, requires that certain costs of internal use software, whether purchased or developed internally, be capitalized and amortized over the estimated useful life of the software. Adoption of SOP 98-1 is required as of January 1, 1999 and will not have a material impact on the results of operations of the Company. SOP 98-5, "Reporting on the Costs of Start-Up Activities," was issued in April 1998. SOP 98-5 requires, among other things, that the costs related to start-up activities of a new entity, facility, product or service be expensed. Adoption of SOP 98-5 is required as of January 1, 1999, and will not have a material impact on the results of operations of the Company. OUTLOOK The outlook section contains "forward looking information" within the meaning of the Private Securities Litigation Reform Act of 1995. Although MediaOne Group believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. For a detailed listing of factors that could cause actual results to differ from the Company's expectations, see the "Safe Harbor Language" on page 14, incorporated herein by reference. DOMESTIC CABLE AND BROADBAND BUSINESS The following expectations are based on the cable systems held as of December 31, 1998, and could be impacted by cable system acquisitions, dispositions or trades. CONSOLIDATED REVENUES. The Company expects total revenue growth around 10 percent during 1999. Total revenue includes video, HSD, telephony and other services. Revenue growth will be driven by the following: (i) Basic cable revenues--The Company anticipates average rate increases for its basic cable services to be no higher than five percent in 1999. (ii) Subscriber growth--As of year-end 1999, subscriber growth is expected to be around 1.5 percent, on a comparable basis. (iii) Premium services revenues--The negative trend in premium services revenues is expected to reverse during 1999 as a result of the introduction of "NexTV", a packaging proposition which focuses on clustering related premium channels. (iv) Pay per view revenues--Various sporting events in 1999 are expected to generate increased revenues over 1998 and reverse the overall decrease in this category. 38 (v) Advertising revenues--MediaOne Group expects growth of approximately 20 percent in advertising revenues during 1999. (vi) HSD revenues--The Company expects to increase its HSD customers by upwards of 100,000 during 1999. (vii) Telephony revenues--The telephony customer base is expected to more than triple by year-end 1999. CONSOLIDATED EBITDA. EBITDA growth is expected to be approximately five percent in 1999. The Company anticipates double digit EBITDA growth by the year 2000. New Products are expected to incur total losses of $55 during 1999 as a result of reduced EBITDA losses for HSD services, offset by increased EBITDA losses for telephony services. The Company is also working on a number of different initiatives to improve service and add to the domestic cable business capabilities. The costs of such initiatives are expected to amount to approximately $55 in each of 1999 and 2000. TIME WARNER ENTERTAINMENT. The Company's investment in Time Warner Entertainment continues to increase in value. Cash distributions from this asset are expected in the foreseeable future. INTERNATIONAL BUSINESS The Company expects to approximately double proportionate EBITDA from its international ventures in 1999. MediaOne Group continues to focus on high-growth ventures. Management's expectations are to continue making select investments in Europe and Asia as opportunities arise, to extract value from its international ventures when they reach peak levels, and to exit those ventures in which it cannot obtain an acceptable level of control. In the third quarter of 1998, Russia experienced a political and economic crisis which had a significant detrimental impact on the business climate. As a result of the crisis, the Company conducted an evaluation of its investments in Russia which are held by RTDC, a 66.5 percent owned subsidiary. The Company concluded that the investments held by RTDC, although impacted by the crisis, were not impaired at the present time. The future prospects for the Russian economy are unknown. Although predictions vary, the political or economic climate of Russia may decline further and could result in a change in the assessment of its investments. As of December 31, 1998, the Company had a net investment in RTDC of $11, a net receivable from the venture of $9, and an outstanding guarantee of RTDC debt of $17. The company owns a 49 percent interest in BPL Cellular Limited ("BPL Cellular"), a wireless venture which provides cellular telephone service in certain areas of India. In 1998, BPL Cellular made only partial payments on its cellular license due to the India government. In recent months, the government has indicated a willingness to re-examine its regulations applicable to cellular carriers, including the license fee structure. BPL Cellular will require cash from external sources to fund its operations in 1999 and is currently in negotiations with banks regarding its interim and long-term financing needs. As of December 31, 1998, the Company had a net investment in BPL Cellular of a negative $53. The Company has recorded losses in excess of its capital contributions due to outstanding loan guarantees of BPL Cellular's debt of approximately $86. The Company also has an outstanding receivable from BPL Cellular of $10. * * * * * * * * MediaOne Group from time to time engages in preliminary discussions regarding restructurings, dispositions and other similar transactions. Any such transaction may include, among other things, the transfer of certain assets, businesses or interests, or the incurrence or assumption of indebtedness, and could be material to the financial condition and results of operations of the Company. There is no assurance that any such discussions will result in the consummation of any such transaction. 39 SELECTED PROPORTIONATE FINANCIAL DATA The following table reflects the significant entities included in MediaOne Group's Consolidated Financial Statements and the percent ownership by industry segment. The proportionate financial and operating data for these entities are summarized in the proportionate data tables that follow.
DOMESTIC INTERNATIONAL CABLE AND BROADBAND CABLE AND BROADBAND WIRELESS COMMUNICATIONS C MediaOne of Delaware Cable Plus a.s. Russian O 100% (Czech Republic) Telecommunications N 97.1% Development Corp. S (Russia) O 66.5% L I D A T E D TWE Telewest (UK) One 2 One (UK) 25.51% 29.9% 50% E A2000 (KTA) Westel 450 Q (Netherlands) (Hungary) U 50% 49% I Telenet Westel 900 T (Belgium) (Hungary) Y 25% 49% Singapore Cablevision EuroTel M (Singapore) (Czech & Slovak E 25% Republics) T Titus Communications 24.5% H Corp. (Japan) Polska Telefonia Cyfrowa O 25% (Poland) D Chofu Cable Television 22.5% (Japan) BPL Cellular Limited 19.1% (India) 49%
Effective December 31, 1997, MediaOne Group no longer reflects proportionate information on Binariang SDN BHD in Malaysia and Aria WEST in Indonesia as the Company's investments in these entities have been written-down to zero. PROPORTIONATE RESULTS OF OPERATIONS--1998 COMPARED WITH 1997 The following table and discussion is not required by GAAP or intended to replace the Consolidated Financial Statements prepared in accordance with GAAP. It is presented supplementally because 40 SELECTED PROPORTIONATE FINANCIAL DATA (CONTINUED) MediaOne Group believes that proportionate financial and operating data facilitate the understanding and assessment of its Consolidated Financial Statements. The table does not reflect financial data of the capital assets segment. The financial information included below departs materially from GAAP because it aggregates the revenues and operating income of entities not controlled by MediaOne Group with those of the consolidated operations of MediaOne Group.
DECEMBER 31, CHANGE -------------------- -------------------- 1998 1997 $ % --------- --------- --------- --------- PROPORTIONATE REVENUES Cable and broadband: Domestic(1)................................................................ $ 5,591 $ 5,210 $ 381 7.3 International.............................................................. 339 474 (135) (28.5) --------- --------- --------- --------- 5,930 5,684 246 4.3 International wireless....................................................... 1,117 756 361 47.8 Corporate.................................................................... 20 17 3 17.6 Other(2)..................................................................... 65 114 (49) (43.0) --------- --------- --------- --------- Total proportionate revenues(3)............................................ $ 7,132 $ 6,571 $ 561 8.5 --------- --------- --------- --------- --------- --------- --------- --------- PROPORTIONATE EBITDA(4) Cable and broadband: Domestic(1)................................................................ $ 1,741 $ 1,641 $ 100 6.1 International.............................................................. 21 36 (15) (41.7) --------- --------- --------- --------- 1,762 1,677 85 5.1 International wireless....................................................... 184 41 143 -- Corporate.................................................................... (69) (80) 11 (13.8) Other........................................................................ 1 (18) 19 -- --------- --------- --------- --------- Total proportionate EBITDA(3).............................................. $ 1,878 $ 1,620 $ 258 15.9 --------- --------- --------- --------- --------- --------- --------- ---------
- ------------------------ (1) The proportionate results are based on MediaOne Group's 25.51 percent pro rata priority and residual equity interests in reported TWE results. The reported TWE results are prepared in accordance with GAAP and have not been adjusted to report TWE results on a proportionate basis. (2) Primarily includes international directories. (3) Amounts exclude proportionate revenues for the domestic wireless operations of $354 and $1,340, and proportionate EBITDA of $114 and $398, for 1998 and 1997, respectively. (4) Proportionate EBITDA represents MediaOne Group's equity interest in the entities multiplied by the entity's EBITDA. As such, proportionate EBITDA does not represent cash available to MediaOne Group. 41 SELECTED PROPORTIONATE FINANCIAL DATA (CONTINUED)
DECEMBER 31, CHANGE -------------------- -------------------- PROPORTIONATE STATISTICS (IN THOUSANDS) 1998 1997 AMOUNT % - ------------------------------------------------------------------------- --------- --------- --------- --------- Cable and broadband: Domestic video subscribers(1).......................................... 7,719 7,524 195 2.6 Domestic homes passed.................................................. 12,964 12,313 651 5.3 Domestic HSD subscribers............................................... 110 28 82 -- Domestic telephone lines............................................... 13 -- 13 100.0 International video subscribers........................................ 993 899 94 10.5 International homes passed............................................. 2,581 2,030 551 27.1 International telephone lines.......................................... 487 403 84 20.8 International wireless: Subscribers............................................................ 1,734 1,018 716 70.3 POPs................................................................... 72,754 76,927 (4,173) (5.4)
- ------------------------ (1) The proportionate results are based on MediaOne Group's 25.51 percent pro rata priority and residual equity interests in reported Time Warner Entertainment Company L.P. ("TWE") results. The reported TWE results are prepared in accordance with GAAP and have not been adjusted to report TWE results on a proportionate basis. Normalized for the one-time effects of acquisitions, dispositions and other asset transactions, proportionate revenues increased $961, or 15.7 percent, and EBITDA increased $317, or 20.7 percent. CABLE AND BROADBAND--DOMESTIC. During 1998, normalized for the one-time effects of cable system acquisitions and dispositions, and a change in classification of the domestic cable late fee revenues, proportionate revenues increased $538, or 10.7 percent. This is a result of increases in subscribers and revenue per subscriber mainly due to expanded channel offerings, repackaging of services and increased rates. Normalized for the one-time effects of cable system acquisitions and dispositions, proportionate EBITDA increased $123, or 7.7 percent. This increase is primarily a result of higher revenues, partially offset by higher programming fees, increased personnel costs related to customer service initiatives and costs associated with the deployment of HSD and telephony services. Proportionate EBITDA related to TWE operations increased 12.1 percent. TWE's results benefited from improved cable, programming and filmed entertainment operations, and gains realized by asset sales. CABLE AND BROADBAND--INTERNATIONAL. During 1998, normalized for asset dispositions and the suspended proportionate reporting of the Malaysian and Indonesian ventures in 1998, international cable and broadband proportionate revenues increased $61, or 21.9 percent, due primarily to customer growth at Telewest. During the same period, normalized proportionate EBITDA increased $32, to a positive $21 in proportionate EBITDA, due to improved operations at Telewest, partially offset by an increase in MediaOne Group international staff costs. Proportionate international cable subscribers totaled 993,000 at December 31, 1998, a 7.2 percent increase over last year on a comparable basis. Telewest's cable television subscribers increased 13.4 percent over last year on a comparable basis. INTERNATIONAL WIRELESS. During 1998, proportionate revenues and EBITDA for the international wireless operations increased due to the 80.1 percent increase in the international wireless subscriber base to 1,734,000, on a comparable basis. One 2 One, the PCS venture in the United Kingdom, and the digital wireless operations in Hungary, Czech Republic, Slovakia, and Poland contributed significantly to the increase. One 2 One added 454,000 proportionate customers, a 90 percent increase from a year ago. 42 SELECTED PROPORTIONATE FINANCIAL DATA (CONTINUED) CORPORATE. During 1998, proportionate revenues for corporate operations increased $3, or 17.6 percent, to $20. Proportionate EBITDA losses decreased $11, or 13.8 percent, to $(69) primarily due to a $30 charge in 1997 for management changes and moving costs related to relocating MediaOne's operations from Boston to Denver, partially offset by increased overhead costs. OTHER. Other reflects the results of the international directories operations located in South America in both 1998 and 1997, and in Poland and the United Kingdom in 1997. Also included are costs related to development activities, primarily for the development of Internet content services. Proportionate revenues decreased $49 during 1998, primarily due to the sale of the United Kingdom and Poland international directories operations in the latter part of 1997. Proportionate EBITDA increased $19 during 1998, primarily due to the July 1998 transfer of an Internet content service operation to the domestic cable and broadband operation, and to the sale in 1997 of the international directories operations discussed above. 43 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF MEDIAONE GROUP, INC.: We have audited the accompanying Consolidated Balance Sheets of MediaOne Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related Consolidated Statements of Operations, Shareowners' Equity and Cash Flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and this schedule 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of MediaOne Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the consolidated 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule appearing on page S-1 of this Form 10-K 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 audit 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 Denver, Colorado, February 18, 1999 (except with respect to the matters discussed in Note 22, as to which the date is March 22, 1999). 44 REPORT OF MANAGEMENT The Consolidated Financial Statements of MediaOne Group have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The integrity and objectivity of information in these financial statements, including estimates and judgments, are the responsibility of management, as is all other financial information included in this report. MediaOne Group maintains a system of internal accounting controls designed to provide reasonable assurance as to the integrity and reliability of financial statements, the safeguarding of assets and the prevention and detection of material errors or fraudulent financial reporting. Monitoring of such systems includes an internal audit program designed to objectively assess the effectiveness of internal controls and recommend improvements therein. Limitations exist in any system of internal accounting controls based upon the recognition that the cost of the system should not exceed the benefits derived. MediaOne Group believes that the Company's system does provide reasonable assurance that transactions are executed in accordance with management's general or specific authorizations and is adequate to accomplish the stated objectives. The independent certified public accountants, whose report is included herein, were engaged to express an opinion on our Consolidated Financial Statements. Their opinion is based on procedures performed in accordance with generally accepted auditing standards, including examining, on a test basis, evidence supporting the amounts and disclosures in the Consolidated Financial Statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. In an attempt to assure objectivity, the financial information contained in this report is subject to review by the Audit Committee of the Board of Directors. The Audit Committee is composed of outside directors who meet regularly with management, internal auditors and independent auditors to review financial reporting matters, the scope of audit activities and the resolution of audit findings. Charles M. Lillis PRESIDENT AND CHIEF EXECUTIVE OFFICER Richard A. Post EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER February 18, 1999 45 MEDIAONE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- DOLLARS IN MILLIONS Sales and other revenues........................................................... $ 2,882 $ 3,847 $ 1,837 Operating expenses: Cost of sales and other revenues................................................. 1,013 1,255 563 Selling, general and administrative.............................................. 926 1,305 844 Depreciation and amortization.................................................... 1,182 1,257 386 --------- --------- --------- Total operating expenses....................................................... 3,121 3,817 1,793 --------- --------- --------- Operating income (loss)............................................................ (239) 30 44 Interest expense................................................................... (491) (678) (164) Equity losses in unconsolidated ventures........................................... (417) (909) (346) Gain on sale of domestic wireless investment....................................... 3,869 -- -- Gains on sales of investments...................................................... 70 421 -- Loss on PrimeStar investment....................................................... (163) -- -- Guaranteed minority interest expense............................................... (74) (87) (55) Other income (expense)--net........................................................ 83 16 (16) --------- --------- --------- Income (loss) from continuing operations before income taxes....................... 2,638 (1,207) (537) (Provision) benefit for income taxes............................................... (1,208) 380 180 --------- --------- --------- Income (loss) from continuing operations........................................... 1,430 (827) (357) Income from discontinued operations--net of tax: (See Note 24) Results of operations............................................................ 747 1,524 1,535 Gain on Separation............................................................... 24,461 -- -- --------- --------- --------- Income before extraordinary item................................................... 26,638 697 1,178 Extraordinary item--early extinguishment of debt--net of tax....................... (333) -- -- --------- --------- --------- NET INCOME......................................................................... $ 26,305 $ 697 $ 1,178 --------- --------- --------- --------- --------- --------- Preferred stock dividends and accretion............................................ (55) (52) (9) Loss on redemption of Preferred Securities......................................... (53) -- -- --------- --------- --------- EARNINGS AVAILABLE FOR COMMON STOCK(1)............................................. $ 26,197 $ 645 $ 1,169 --------- --------- --------- --------- --------- ---------
- ------------------------ (1) The Company distributed $25,345 as a dividend to New U S WEST stockholders upon the Separation representing the fair value of the businesses comprising New U S WEST. The accompanying notes are an integral part of the Consolidated Financial Statements. 46 MEDIAONE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS MEDIAONE GROUP STOCK(1) BASIC EARNINGS (LOSS) PER COMMON SHARE: Income (loss) from continuing operations................................... $ 2.18 $ (1.45) $ (0.74) Income from discontinued operations(2)..................................... 0.26 0.57 0.58 Gain on Separation......................................................... 40.25 -- -- Extraordinary item--early extinguishment of debt........................... (0.55) -- -- ---------- ---------- ---------- Basic earnings (loss) per common share....................................... $ 42.14 $ (0.88) $ (0.16) ---------- ---------- ---------- ---------- ---------- ---------- BASIC AVERAGE COMMON SHARES OUTSTANDING...................................... 607,648 606,749 491,924 ---------- ---------- ---------- ---------- ---------- ---------- DILUTED EARNINGS (LOSS) PER COMMON SHARE: Income (loss) from continuing operations................................... $ 2.10 $ (1.45) $ (0.74) Income from discontinued operations(2)..................................... 0.24 0.57 0.58 Gain on Separation......................................................... 37.46 -- -- Extraordinary item--early extinguishment of debt........................... (0.51) -- -- ---------- ---------- ---------- Diluted earnings (loss) per common share..................................... $ 39.29 $ (0.88) $ (0.16) ---------- ---------- ---------- ---------- ---------- ---------- DILUTED AVERAGE COMMON SHARES OUTSTANDING.................................... 652,955 606,749 491,924 ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ (1) For additional earnings per share information of MediaOne Group Stock and earnings per share information of Communications Stock, see Note 17--Earnings Per Share--to the Consolidated Financial Statements. (2) Amounts represent the operations of U S WEST Dex, Inc., which were discontinued as of June 12, 1998. The accompanying notes are an integral part of the Consolidated Financial Statements. 47 MEDIAONE GROUP, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------- 1998 1997 --------- --------- DOLLARS IN MILLIONS ASSETS Current assets: Cash and cash equivalents................................................................... $ 415 $ 184 Accounts and notes receivable, less allowance for credit losses of $31 and $64, respectively.............................................................................. 255 604 Income tax receivable....................................................................... 375 -- Current portion of deferred tax asset....................................................... 74 102 Prepaid and other........................................................................... 33 77 Marketable securities....................................................................... 48 -- Net investment in assets of discontinued operations......................................... -- 4,367 --------- --------- Total current assets.......................................................................... 1,200 5,334 Property, plant and equipment-net............................................................. 4,069 4,272 Investment in AirTouch Communications......................................................... 5,919 -- Investment in Time Warner Entertainment....................................................... 2,442 2,486 Net investment in international ventures...................................................... 1,344 742 Net investment in assets held for sale........................................................ -- 419 Intangible assets-net......................................................................... 11,647 12,597 Other assets.................................................................................. 1,571 933 --------- --------- Total assets.................................................................................. $ 28,192 $ 26,783 --------- --------- --------- --------- LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Short-term debt............................................................................. $ 569 $ 735 Accounts payable............................................................................ 332 395 Employee compensation....................................................................... 80 109 Deferred revenue and customer deposits...................................................... 87 108 Other....................................................................................... 546 841 --------- --------- Total current liabilities..................................................................... 1,614 2,188 Long-term debt................................................................................ 4,853 8,228 Deferred income taxes......................................................................... 6,035 3,276 Deferred credits and other.................................................................... 641 587 Commitments and contingencies................................................................. Minority interest in Centaur Funding.......................................................... 1,099 -- Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company-guaranteed debentures........................................................ 1,061 1,080 Preferred stock subject to mandatory redemption............................................... 100 100 Shareowners' equity: Series D Preferred Stock--$1.00 per share par value, 20,000,000 shares authorized, 19,999,478 shares issued and outstanding.................................................. 927 923 Common shares--............................................................................. 10,324 10,876 MediaOne Group Stock--$0.01 per share par value, 2,000,000,000 shares authorized, 630,915,792 and 626,565,410 issued, and 603,475,920 and 607,807,934 outstanding, respectively............................................................................. Communications Stock--$0.01 per share par value, 2,000,000,000 shares authorized, 484,522,015 issued and 484,515,415 outstanding in 1997................................... Retained earnings (deficit)................................................................. 669 (359) LESOP guarantee............................................................................. -- (46) Accumulated other comprehensive income (loss)............................................... 869 (70) --------- --------- Total shareowners' equity..................................................................... 12,789 11,324 --------- --------- Total liabilities and shareowners' equity..................................................... $ 28,192 $ 26,783 --------- --------- --------- ---------
The accompanying notes are an integral part of the Consolidated Financial Statements. 48 MEDIAONE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- DOLLARS IN MILLIONS OPERATING ACTIVITIES Net income........................................................................... $ 26,305 $ 697 $ 1,178 Adjustments to net income: Discontinued operations............................................................ (747) (1,524) (1,535) Gain on Separation................................................................. (24,461) -- -- Extraordinary loss on debt extinguishment.......................................... 333 -- -- Depreciation and amortization...................................................... 1,182 1,257 386 Equity losses in unconsolidated ventures........................................... 417 909 346 Distribution from unconsolidated ventures.......................................... 51 9 14 Gain on sale of domestic wireless investment....................................... (3,869) -- -- Gains on sales of investments...................................................... (70) (421) -- Loss on PrimeStar investment....................................................... 163 -- -- Deferred income taxes and amortization of investment tax credits................... 1,579 (149) (68) Provision for uncollectibles....................................................... 42 74 44 Separation costs paid................................................................ (140) -- -- Changes in operating assets and liabilities: Accounts and notes receivable...................................................... 142 (163) (83) Prepaid and other current assets................................................... (22) (44) 14 Accounts payable and accrued liabilities........................................... (304) 239 114 Other-net............................................................................ (37) 111 21 --------- --------- --------- Cash provided by operating activities................................................ 564 995 431 --------- --------- --------- INVESTING ACTIVITIES Expenditures for property, plant and equipment....................................... (1,726) (1,522) (627) Payment to Continental Cablevision shareowners....................................... -- (1,150) -- Investments in international ventures................................................ (583) (334) (257) Investments in domestic ventures..................................................... (108) (249) (164) Purchase of miscellaneous assets..................................................... (92) (25) -- Proceeds from sales of investments................................................... 241 1,827 28 Cash from net investment in assets held for sale..................................... 31 231 213 Other-net............................................................................ (164) -- -- --------- --------- --------- Cash used for investing activities................................................... (2,401) (1,222) (807) --------- --------- --------- FINANCING ACTIVITIES Net proceeds from (repayments of) short-term debt.................................... 728 (3,556) 3,829 Repayments of long-term debt......................................................... (5,447) (379) (4,217) Repayments of Preferred Securities................................................... (582) -- -- Proceeds from issuance of long-term debt-net......................................... 1,642 4,123 360 Proceeds from issuance of Preferred Securities-net................................... 484 -- 465 Proceeds from issuance of common stock............................................... 144 106 136 Proceeds from issuance of Centaur Funding Preference Shares-net...................... 1,099 -- -- Purchases of treasury stock.......................................................... (383) (53) (297) Dividends paid on common stock....................................................... (519) (992) (939) Dividends paid on preferred stock.................................................... (51) (50) (9) --------- --------- --------- Cash used for financing activities................................................... (2,885) (801) (672) --------- --------- --------- Cash provided by discontinued operations............................................. 4,953 1,091 1,149 --------- --------- --------- CASH AND CASH EQUIVALENTS Increase........................................................................... 231 63 101 Beginning balance.................................................................. 184 121 20 --------- --------- --------- Ending balance..................................................................... $ 415 $ 184 $ 121 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the Consolidated Financial Statements. 49 MEDIAONE GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) ------------- PREFERRED COMMON RETAINED FOREIGN STOCK STOCK EARNINGS LESOP CURRENCY AMOUNT AMOUNT (DEFICIT) GUARANTEE TRANSLATION ----------- ----------- --------- ----------- ------------- DOLLARS IN MILLIONS BALANCE DECEMBER 31, 1995......................... $ 8,228 $ (121) $ (127) $ (38) Issuance of Communications Stock.................. 216 Issuance of MediaOne Group Stock for Continental Acquisition..................................... 2,590 Other issuances of MediaOne Group Stock........... 38 Issuance of Series D Preferred Stock.............. $ 920 Purchase of treasury stock........................ (297) Common dividends declared ($2.14 per Communications share)........................... (1,024) Preferred dividends............................... (9) Other............................................. (34) (7) 36 Comprehensive Income: Net income...................................... 1,178 Market value adjustments for debt and equity securities, net............................... Foreign currency translation.................... (1) Other comprehensive income, net............... Total comprehensive income........................ ----- ----------- --------- ----- --- BALANCE DECEMBER 31, 1996......................... 920 10,741 17 (91) (39) Issuance of Communications Stock.................. 138 Issuance of MediaOne Group Stock.................. 40 Purchase of treasury stock........................ (53) Common dividends declared ($2.14 per Communications share)........................... (1,034) Preferred dividends............................... 3 (52) Other............................................. 10 13 45 Comprehensive Income: Net income...................................... 697 Market value adjustments for debt and equity securities, net............................... Foreign currency translation.................... (56) Other comprehensive income, net............... Total comprehensive income........................ ----- ----------- --------- ----- --- BALANCE DECEMBER 31, 1997......................... 923 10,876 (359) (46) (95) Issuance of Communications Stock.................. 24 Distribution of New U S WEST...................... (421) (24,924) Issuance of MediaOne Group Stock.................. 81 Purchase of treasury stock........................ (383) Common dividends declared ($0.535 per Communications share)........................... (260) Preferred dividends and accretion................. 4 (55) Loss on redemption of Preferred Securities........ (53) Other............................................. 147 15 46 Comprehensive Income: Net income...................................... 26,305 Market value adjustments for debt and equity securities and Exchangeable Notes, net........ Foreign currency translation.................... (4) Other comprehensive income, net............... Total comprehensive income........................ ----- ----------- --------- ----- --- BALANCE DECEMBER 31, 1998......................... $ 927 $ 10,324 $ 669 $ -- $ (99) ----- ----------- --------- ----- --- ----- ----------- --------- ----- --- UNREALIZED GAIN/(LOSS) ON DEBT AND EQUITY COMPREHENSIVE SECURITIES TOTAL INCOME ----------------- --------- -------------- BALANCE DECEMBER 31, 1995......................... $ 6 $ (32) Issuance of Communications Stock.................. Issuance of MediaOne Group Stock for Continental Acquisition..................................... Other issuances of MediaOne Group Stock........... Issuance of Series D Preferred Stock.............. Purchase of treasury stock........................ Common dividends declared ($2.14 per Communications share)........................... Preferred dividends............................... Other............................................. Comprehensive Income: Net income...................................... $ 1,178 Market value adjustments for debt and equity securities, net............................... (5) (5) Foreign currency translation.................... (1) --------- Other comprehensive income, net............... (6) (6) ------- Total comprehensive income........................ $ 1,172 ----- --------- ------- ------- BALANCE DECEMBER 31, 1996......................... 1 (38) Issuance of Communications Stock.................. Issuance of MediaOne Group Stock.................. Purchase of treasury stock........................ Common dividends declared ($2.14 per Communications share)........................... Preferred dividends............................... Other............................................. Comprehensive Income: Net income...................................... 697 Market value adjustments for debt and equity securities, net............................... 24 24 Foreign currency translation.................... (56) --------- Other comprehensive income, net............... (32) (32) ------- Total comprehensive income........................ $ 665 ----- --------- ------- ------- BALANCE DECEMBER 31, 1997......................... 25 (70) Issuance of Communications Stock.................. Distribution of New U S WEST...................... Issuance of MediaOne Group Stock.................. Purchase of treasury stock........................ Common dividends declared ($0.535 per Communications share)........................... Preferred dividends and accretion................. Loss on redemption of Preferred Securities........ Other............................................. Comprehensive Income: Net income...................................... 26,305 Market value adjustments for debt and equity securities and Exchangeable Notes, net........ 943 943 Foreign currency translation.................... (4) --------- Other comprehensive income, net............... 939 939 ------- Total comprehensive income........................ $ 27,244 ----- --------- ------- ------- BALANCE DECEMBER 31, 1998......................... $ 968 $ 869 ----- --------- ----- ---------
The accompanying notes are an integral part of the Consolidated Financial Statements. 50 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 1: THE SEPARATION Prior to June 12, 1998, MediaOne Group, Inc. ("MediaOne Group" or the "Company") was known as "U S WEST, Inc." ("Old U S WEST"). On June 12, 1998, Old U S WEST separated its businesses into two independent public companies (the "Separation"). Until the Separation, Old U S WEST conducted its businesses through two groups: U S WEST Media Group (the "Media Group") and U S WEST Communications Group (the "Communications Group"). Upon Separation, Old U S WEST was renamed "MediaOne Group, Inc." and retained the multimedia businesses of Media Group, except for U S WEST Dex, Inc. ("Dex"), the domestic directory business. The telecommunications businesses of the Communications Group became an independent public company and retained the "U S WEST, Inc." name ("New U S WEST"). In addition, Dex was aligned with New U S WEST (the "Dex Alignment"). The Separation was consummated pursuant to the terms of a separation agreement between MediaOne Group and New U S WEST (the "Separation Agreement"). The Company accounted for the distribution of New U S WEST stock to the Communications Group stockholders, and to the Media Group stockholders for the Dex Alignment, as a discontinuance of the businesses comprising New U S WEST. As a result, certain financial information of Old U S WEST has been restated to give effect to the classification of New U S WEST as a discontinued operation. See Note 24--Discontinued Operations--to the Consolidated Financial Statements. Prior to the Separation, Old U S WEST had outstanding two separate classes of common stock which reflected the performance of its two groups. The performance of Media Group was reflected by the U S WEST Media Group common stock (the "Media Stock") and the performance of the Communications Group was reflected by the U S WEST Communications Group common stock (the "Communications Stock"). Upon Separation, and in accordance with the Separation Agreement, each outstanding share of Media Stock remains outstanding and represents one share of MediaOne Group common stock ("MediaOne Group Stock"). Each issued and outstanding share of Communications Stock was redeemed for one share of New U S WEST common stock. See Note 16--Shareowners' Equity--to the Consolidated Financial Statements. In connection with the Dex Alignment, (i) each holder of Media Stock received as a dividend .02731 shares of New U S WEST common stock for each share of Media Stock held (the "Dex Dividend"), and (ii) $3.9 billion of Old U S WEST debt was refinanced by New U S WEST. In connection with the Separation, MediaOne Group refinanced substantially all of the indebtedness issued or guaranteed by Old U S WEST through a combination of tender offers, prepayments and consent solicitations (the "Refinancing"). See Note 10--Debt--to the Consolidated Financial Statements. NOTE 2: BUSINESS OVERVIEW MediaOne Group is a diversified global broadband communications company, and the third largest cable television system operator in the United States with large clusters in Atlanta, Massachusetts, California, Florida, Detroit, and Minneapolis/St. Paul. The Company has operations and investments in two principal areas: (1) domestic broadband communications, and (2) international broadband and wireless communications. Among its investments, MediaOne Group owns an investment in Time Warner 51 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2: BUSINESS OVERVIEW (CONTINUED) Entertainment Company, L.P. ("TWE" or "Time Warner Entertainment"), which provides cable programming, filmed entertainment and broadband communications services, and is the second largest cable television system operator in the United States. The Company also owns an investment in Telewest Communications plc ("Telewest"), the largest provider of residential cable, telephone and Internet access services in the United Kingdom. NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. The Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. Effective on December 31, 1998, the Consolidated Balance Sheet includes the accounts of the capital assets segment. Prior to this time, the capital assets segment had been reported as "net investment in assets held for sale." See Note 23--Net Investment In Assets Held For Sale--to the Consolidated Financial Statements. All significant intercompany amounts and transactions within continuing operations have been eliminated. Investments in less than majority-owned ventures are generally accounted for using the equity method. Certain reclassifications within the Consolidated Financial Statements have been made to conform to the current year presentation. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS. Cash and cash equivalents include highly liquid investments with original maturities of three months or less that are readily convertible into cash and are not subject to significant risk from fluctuations in interest rates. PROPERTY, PLANT AND EQUIPMENT. The investment in property, plant and equipment, including construction materials, is carried at cost less accumulated depreciation. Additions, replacements and substantial betterments are capitalized. Costs for normal repair and maintenance of property, plant and equipment are expensed as incurred. MediaOne of Delaware, Inc. ("MediaOne"), the domestic cable and broadband subsidiary of the Company, provides for depreciation of certain property, plant and equipment using various straight-line group methods and remaining economic lives. When depreciable property, plant and equipment accounted for on the group methods is retired or sold, the original cost less the net salvage value is generally charged to accumulated depreciation. The Company's remaining assets are depreciated using the straight-line method. Gains or losses on disposal are included in income. The Company depreciates buildings between 10 to 35 years, cable distribution systems between 3 to 15 years, and general purpose computers and other between 3 to 20 years. Interest related to qualifying construction projects, including construction projects of equity method investees, is capitalized and reflected as a reduction of interest expense. Amounts capitalized were $19, $36 and $38 for the years ended 1998, 1997 and 1996, respectively. 52 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPUTER SOFTWARE. MediaOne capitalizes computer software, whether purchased or developed internally. Capitalized software costs are amortized over periods ranging up to 5 years. MediaOne Group expenses all other computer software costs. Capitalized computer software of $89 and $24 at December 31, 1998 and 1997, respectively, is recorded in property, plant and equipment. MediaOne amortized capitalized computer software costs of $13, $10 and $1 in 1998, 1997 and 1996, respectively. INTANGIBLE ASSETS. Intangible assets are recorded when the cost of acquired companies exceeds the fair value of their net tangible assets. The costs of identified intangible assets and goodwill are amortized by the straight-line method over periods ranging from 5 to 25 years. These assets are evaluated for impairment with other related assets, using the methodology as prescribed by Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." INVESTMENTS IN DEBT AND EQUITY SECURITIES. Debt and marketable equity securities are classified as available for sale and are carried at fair market value with unrealized gains and losses included in equity as a component of other comprehensive income. FOREIGN CURRENCY TRANSLATION. Assets and liabilities of international subsidiaries and investments are translated at year-end exchange rates, and income statement items are translated at average exchange rates for the year. Resulting translation adjustments are included in equity as a component of other comprehensive income. Gains and losses resulting from foreign currency transactions are included in income. FINANCIAL INSTRUMENTS. Synthetic instrument accounting is used for interest rate swaps if the index, maturity, and amount of the instrument match the terms of the underlying debt. Net interest accrued is recognized over the life of the instruments as an adjustment to interest expense and is a component of cash provided by operating activities. Any gain or loss on the termination of an instrument that qualifies for synthetic instrument accounting would be deferred and amortized over the remaining life of the original instrument. Deferral accounting is used for foreign currency forward and purchased option contracts which qualify for and are designated as hedges of firm equity investment commitments and for forward and purchased option contracts which qualify as hedges of future debt issues or investments in debt and equity securities. To qualify for deferral accounting, the contracts must have a high inverse correlation to the exposure being hedged, and reduce the risk or volatility associated with changes in foreign exchange rates, interest rates, or equity prices. Qualified foreign exchange contracts are carried at market value with gains and losses recorded in equity until sale of the investment. Qualified interest rate contracts are associated with the related debt and amortized as yield adjustments. Qualified interest rate and equity contracts associated with investments in debt or equity securities are carried at market value, with gains and losses recorded to the associated investment account. Any gain or loss on the termination of a contract that qualifies for deferral accounting would be deferred and accounted for with the underlying transaction being hedged. If a contract does not maintain the required correlation with the hedged item, deferral accounting is terminated and a gain or loss is recognized in the Consolidated Statement of Operations for the difference between the change in the fair value of the contract and the change in the fair value of the hedged item. Market value accounting is used for derivative contracts which do not qualify for synthetic instrument or hedge accounting. Market value accounting is also used for foreign exchange contracts designated as 53 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) hedges of foreign denominated receivables and payables. These contracts are carried at market value in other assets or liabilities with gains and losses recorded as other income or expense. The Company does not enter into derivative financial instruments for trading purposes. STOCK OPTIONS. MediaOne Group accounts for its stock incentive plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." The Company also follows the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." See Note 18--Stock Incentive Plans--to the Consolidated Financial Statements. REVENUE RECOGNITION. Cable television, local telephone and high speed data Internet access are generally billed monthly in advance, and revenues are recognized the following month when services are provided. Revenues derived from other cable television services, including pay-per-view and advertising, are recognized as the service is provided. ADVERTISING COSTS. Costs related to advertising are expensed as incurred. Advertising expense was $114, $206 and $73 in 1998, 1997 and 1996, respectively. INCOME TAXES. The provision for income taxes consists of an amount for taxes currently payable or receivable and an amount for tax consequences deferred to future periods. EARNINGS PER COMMON SHARE. MediaOne Group computes basic and diluted earnings per common share in accordance with SFAS No. 128, "Earnings Per Share." See Note 17--Earnings Per Share--to the Consolidated Financial Statements. Unless otherwise indicated, all per share amounts in the notes to the Consolidated Financial Statements are computed based on basic weighted average common shares outstanding. FUTURE IMPLEMENTATION OF NEW ACCOUNTING STANDARDS. In the year 2000, the Company will adopt SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. Among other things, the statement requires that an entity recognize all derivative instruments on the balance sheet as either assets or liabilities, and to account for those instruments at fair value. The Company is evaluating the impact of SFAS No. 133. Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," was issued in March 1998. SOP 98-1, among other things, requires that certain costs of internal use software, whether purchased or developed internally, be capitalized and amortized over the estimated useful life of the software. Adoption of SOP 98-1 is required as of January 1, 1999 and will not have a material impact on the financial position or results of operations of the Company. SOP 98-5, "Reporting on the Costs of Start-Up Activities," was issued in April 1998. SOP 98-5 requires, among other things, that the costs related to start-up activities of a new entity, facility, product or service be expensed. Adoption of SOP 98-5 is required as of January 1, 1999 and will not have a material impact on the results of operations of the Company. 54 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4: DOMESTIC ACQUISITIONS AND DISPOSITIONS AIRTOUCH COMMUNICATIONS. On April 6, 1998, MediaOne Group sold its domestic wireless businesses to AirTouch Communications, Inc. ("AirTouch") in a tax-efficient transaction (the "AirTouch Transaction"). The AirTouch Transaction was consummated pursuant to an agreement and plan of merger (the "AirTouch Merger Agreement") dated as of January 29, 1998. The domestic wireless businesses included cellular communication services provided to 2.6 million customers in 12 western and midwestern states and a 25 percent interest in PrimeCo Personal Communications, L.P. ("PrimeCo"). Pursuant to the AirTouch Merger Agreement, AirTouch acquired these cellular and personal communications services ("PCS") interests. Consideration under the AirTouch Transaction consisted of (i) debt assumption of $1,350, (ii) the issuance to MediaOne Group of $1,650 in liquidation preference of 5.143 percent dividend bearing AirTouch preferred stock (fair value of $1,493), and (iii) the issuance to MediaOne Group of 59,314,000 shares of AirTouch common stock. The transaction resulted in a gain of $2,257, net of deferred taxes of $1,612. MediaOne Group accounts for its investment in AirTouch stock under the cost method of accounting, as available for sale securities. The AirTouch preferred stock is stated at fair value on the Consolidated Balance Sheet, in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." To minimize MediaOne Group's exposure to fluctuations in the fair value of the AirTouch preferred stock, the Company entered into an interest rate swap agreement in April 1998 and an interest rate option agreement in October 1998. The interest rate swap agreement matured in October 1998, and the interest rate option agreement in December 1998. During September 1998, the change in the value of the AirTouch preferred stock and interest rate swap did not achieve the required correlation to continue deferral accounting. Consequently, the Company recognized a net loss of $31 (net of income tax benefits of $19) in other income for the change in the fair value of the AirTouch preferred stock not offset by the fair value of the interest rate swap agreement in accordance with SFAS No. 80, "Accounting for Futures Contracts." In addition, the Company recorded a charge of $12 (net of income tax benefits of $8) for the purchase of the interest rate option offset by a gain on the portion of the interest rate option associated with the issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company-guaranteed debentures ("Preferred Securities"). The gain on the interest rate option associated with the Preferred Securities was $6 (net of income tax expense of $4). In January 1999, AirTouch entered into an agreement to merge its operations with a subsidiary of Vodafone Group Public Limited Company ("Vodafone"). See Note 22--Subsequent Events--to the Consolidated Financial Statements. CABLE SYSTEMS. In December 1998, the Company acquired Time Warner, Inc.'s ("Time Warner") cable systems in the cities of Dearborn and Wayne, Michigan for $57. The systems serve approximately 31,000 subscribers. In addition, during 1998, MediaOne Group sold various cable television systems in California, Idaho, Iowa and Washington, serving approximately 33,000 subscribers, for total proceeds of $50. On October 13, 1998, MediaOne Group and Tele-Communications, Inc. ("TCI") signed a definitive agreement to exchange certain of MediaOne Group's cable television systems in Illinois and Michigan for certain of TCI's cable television systems in South Florida and California. The cable systems each serve approximately 500,000 subscribers. Consummation of the exchange is expected to occur in mid-1999, subject to regulatory approvals. These cable systems had a net book value of $521 at December 31, 1998, 55 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4: DOMESTIC ACQUISITIONS AND DISPOSITIONS (CONTINUED) and contributed revenues of $253 and operating income of $33 during 1998. In addition, MediaOne Group entered into a definitive agreement to sell its cable television systems in Reno, Nevada for approximately $21. The Nevada systems served approximately 10,000 subscribers, and closed in the first quarter of 1999. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company stopped depreciating and amortizing the systems held for sale. In May 1997, pursuant to a Federal Communications Commission ("FCC") order, the Company entered into an agreement to sell its cable systems in Minnesota (the "Minnesota System") for proceeds of $600. Under the terms of the agreement, the Company had the right to terminate the agreement at any time upon payment of a $30 termination fee. As a result of the Separation, the Company was no longer prohibited by federal law from owning the Minnesota System. In February 1998, in response to Old U S WEST's petition, the FCC granted a waiver which permitted the Company to retain the Minnesota System. The Company terminated the agreement to sell the Minnesota System and otherwise settled all claims related thereto. HIGH SPEED DATA JOINT VENTURE. On June 15, 1998, MediaOne Group formed a joint venture with Time Warner, TWE and Time Warner Entertainment-Advance/Newhouse Partnership ("TWE/AN") called "ServiceCo, LLC" (the "HSD Joint Venture") to deliver high speed data ("HSD") services. The parties to the joint venture contributed certain of their respective HSD assets into the HSD Joint Venture in exchange for common equity interests of approximately 31.4 percent for MediaOne Group, 10.7 percent for Time Warner, 25.0 percent for TWE and 32.9 percent for TWE/AN. In addition, Microsoft Corporation and Compaq Computer Corporation each contributed $212.5 million for a respective 10 percent preferred equity investment in the HSD Joint Venture. The preferred shares are convertible into a combined 20 percent common equity interest in the HSD Joint Venture. MediaOne Group will provide HSD services under the "Road Runner" brand name. Assuming the conversion of the preferred shares and taking into account MediaOne Group's ownership in TWE, MediaOne Group would hold a proportionate diluted common equity interest in the HSD Joint Venture of approximately 34.6 percent. MediaOne Group accounts for its investment in the HSD Joint Venture under the equity method of accounting. The HSD Joint Venture is responsible for maintaining connections to the Internet, providing technical customer support and developing national content. The parties to the joint venture operate their respective HSD businesses and are responsible for their respective customers' billing and customer service issues. Accordingly, MediaOne Group continues to reflect HSD service revenues in its consolidated results, as well as a service fee payable to the HSD Joint Venture for services provided. COMPETITIVE LOCAL EXCHANGE BUSINESSES. During November 1998, MediaOne Group entered into a definitive agreement with Hyperion Communications to sell the Company's investments in Continental Fiber Technologies, Inc. and Alternet of Virginia, Inc., providers of business telephony services in Jacksonville, Florida and Richmond, Virginia, respectively, for approximately $80, (the "CLEC Businesses"). The sale is expected to close in the first half of 1999. In accordance with SFAS No. 121, the Company has stopped depreciating these assets. The CLEC Businesses had a net book value at December 31, 1998 of $33, and contributed revenues of $14 and operating losses of $3 during 1998. 56 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4: DOMESTIC ACQUISITIONS AND DISPOSITIONS (CONTINUED) PRIMESTAR. Prior to April 1, 1998, the Company held a 10.4 percent interest in PrimeStar Partners, L.P. ("Old PrimeStar"). In addition, MediaOne distributed PrimeStar direct broadcast satellite ("DBS") services to subscribers in its service areas and, as a result, reflected consolidated operating results with respect to such subscribers. On April 1, 1998, the Company contributed its interest in Old PrimeStar, as well as its PrimeStar subscribers and certain related assets, to PrimeStar, Inc. ("PrimeStar"), a newly formed entity, in exchange for an approximate 10 percent interest in PrimeStar and $77 in cash (the "PrimeStar Contribution"). In December 1998, PrimeStar management provided a business plan to its board of directors, of which MediaOne Group is a part. Additionally, in January 1999, Hughes Electronics Corporation ("Hughes") entered into an agreement to purchase PrimeStar's DBS assets. Based on its review of PrimeStar's business plan and on the anticipated sale to Hughes, the Company believes it will not receive proceeds on the sale of its investment in PrimeStar. As a result, MediaOne Group recorded a charge of $163 ($100 after tax) to reduce the carrying amount of its investment in PrimeStar to zero. MediaOne Group is currently a guarantor of letters of credit for PrimeStar totaling approximately $100. See Note 22--Subsequent Events--to the Consolidated Financial Statements. NOTE 5: OPERATING SEGMENTS In fourth-quarter 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for disclosures about products and services and geographic areas. Operating segments are components of an enterprise for which separate financial information is available and which is evaluated regularly by the Company's chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. Operating segments are managed separately and represent strategic business units that offer different products and serve different markets. The Company's reportable segments include: (1) domestic cable and broadband, (2) international services, and (3) corporate and other. The domestic cable and broadband segment is comprised of MediaOne and Multimedia Ventures. MediaOne consists of cable television properties serving 5.0 million domestic subscribers and passing 8.5 million domestic homes. Multimedia Ventures includes the Company's equity interest in Time Warner Entertainment. The international services segment includes the cable and broadband and wireless communications operations located abroad, in addition to international corporate overhead. Corporate and other includes the discontinued operations of New U S WEST, capital assets (which was held for sale until December 31, 1998), investments in domestic interactive services, the domestic wireless business (which was sold in April 1998 in conjunction with the AirTouch Transaction), the international directories operations (of which the wholly owned operations in the United Kingdom and Poland were sold in 1997), and corporate overhead. MediaOne Group believes that proportionate financial data facilitates the understanding and assessment of its results. Therefore, "Sales and Other Revenues" for each segment is presented on a proportionate basis. Proportionate results reflect the relative weight of MediaOne Group's ownership in each of its respective domestic and international equity ventures together with the consolidated results of its subsidiaries. In addition, the Company believes earnings before interest, taxes, depreciation, amortization and other ("EBITDA") is an important indicator of the operating performance of its businesses. As such, 57 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5: OPERATING SEGMENTS (CONTINUED) EBITDA is also presented, on a proportionate basis, for each segment. The computation of EBITDA also excludes gains on asset sales, equity losses, guaranteed minority interest expense, and restructuring charges. Adjustments made to "Sales and Other Revenues" and EBITDA to arrive at proportionate results are reversed in the column labeled "Eliminations and Adjustments," in conformance with SFAS 131, so that in total, "Sales and Other Revenues" and EBITDA reflect consolidated results. All other line items presented in the tables reflect consolidated results. Consolidated results for the operating segments reflect the accounting policies described in Note 3-- Summary of Significant Accounting Policies--to the Consolidated Financial Statements. Intersegment sales and transfers are accounted for at fair value as if the sales were to third parties. For proportionate results, the venture's management determines its accounting policies. Industry segment financial information follows. Certain prior year information has been reclassified to conform with the 1998 presentation.
DOMESTIC CABLE & BROADBAND ------------------------ ELIMINATIONS MULTIMEDIA & MEDIAONE VENTURES(1) INTERNATIONAL OTHER ADJUSTMENTS CONSOLIDATED ----------- ----------- ------------- --------- ------------ ------------ 1998 Sales and other revenues.................... $ 2,467 $ 3,124 $ 1,456 $ 439 $ (4,604) $ 2,882 EBITDA(2)................................... 941 800 205 46 (1,049) 943 Net income (loss)........................... (536) (11) (317) 27,169 -- 26,305 Equity gains (losses) in unconsolidated ventures.................................. (24) 7 (352) (48) -- (417) Total assets................................ 16,003 2,551 2,308 7,330 -- 28,192 Investments in equity ventures.............. 46 2,442 1,083 71 -- 3,642 Capital expenditures........................ 1,618 -- 12 96 -- 1,726 ----------- ----------- ------ --------- ------------ ------------ 1997 Sales and other revenues.................... $ 2,323 $ 2,887 $ 1,230 $ 1,471 $ (4,064) $ 3,847 EBITDA(2)................................... 930 711 77 300 (731) 1,287 Net income (loss)........................... (402) (21) (488) 1,608 -- 697 Equity gains (losses) in unconsolidated ventures.................................. (22) 13 (775) (125) -- (909) Total assets................................ 15,719 2,534 2,164 6,366 -- 26,783 Investments in equity ventures.............. 61 2,486 624 523 -- 3,694 Capital expenditures........................ 1,216 -- 21 265 -- 1,502 ----------- ----------- ------ --------- ------------ ------------ 1996 Sales and other revenues.................... $ 499 $ 2,768 $ 687 $ 1,295 $ (3,412) $ 1,837 EBITDA(2)................................... 196 580 (52) 242 (536) 430 Net income (loss)........................... (77) (32) (304) 1,591 -- 1,178 Equity gains (losses) in unconsolidated ventures.................................. (3) 13 (320) (36) -- (346) Total assets................................ 16,348 2,558 2,327 6,494 -- 27,727 Investments in equity ventures.............. 64 2,477 1,458 439 -- 4,438 Capital expenditures........................ 348 -- 18 277 -- 643 ----------- ----------- ------ --------- ------------ ------------
58 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5: OPERATING SEGMENTS (CONTINUED) - ------------------------ (1) Multimedia Ventures includes MediaOne Group's 25.51 percent equity interest in TWE, as well as domestic cable overheads. The reported TWE results are prepared in accordance with GAAP and have not been adjusted to report TWE investments accounted for under the equity method on a proportionate basis. (2) EBITDA should not be considered an alternative to operating or net income as an indicator of the performance of MediaOne Group's businesses, or as an alternative to cash flows from operating activities as a measure of liquidity, in each case determined in accordance with GAAP. A portion of general and administrative costs, including executive management, legal, tax, accounting and auditing, treasury, strategic planning and public policy services, are directly assigned to the Company's subsidiaries based on actual utilization or are allocated based on operating expenses, number of employees, external revenues, average capital and/or average equity. Total assets are those assets and investments that are used in, or pertain to, each segment's operations. The "Other" column includes primarily cash; debt and equity securities; net assets of discontinued operations and net investment in assets held for sale for the capital assets segment in 1997 and 1996; the domestic wireless businesses; investments in domestic interactive services; and other corporate assets. The following table presents a geographic breakout for proportionate revenues and EBITDA and a reconciliation to consolidated amounts:
YEAR ENDED DECEMBER 31, 1998 1997 1996 - -------------------------------------------------------------- --------- --------- --------- PROPORTIONATE REVENUE: United States............................................... $ 5,966 $ 6,571 $ 4,356 United Kingdom.............................................. 856 609 416 Central Europe.............................................. 510 378 301 Asia and other.............................................. 154 353 176 --------- --------- --------- Proportionate revenue......................................... 7,486 7,911 5,249 Less: Proportionate adjustments............................... (4,604) (4,064) (3,412) --------- --------- --------- Consolidated revenues....................................... $ 2,882 $ 3,847 $ 1,837 --------- --------- --------- --------- --------- --------- PROPORTIONATE EBITDA: United States............................................... $ 1,779 $ 1,937 $ 998 United Kingdom.............................................. 106 (23) (45) Central Europe.............................................. 169 102 82 Asia and other.............................................. (62) 2 (69) --------- --------- --------- Proportionate EBITDA.......................................... 1,992 2,018 966 Less: Proportionate adjustments............................... (1,049) (731) (536) --------- --------- --------- Consolidated EBITDA......................................... $ 943 $ 1,287 $ 430 --------- --------- --------- --------- --------- ---------
CONTINENTAL ACQUISITION. On November 15, 1996, the Company acquired Continental Cablevision, Inc. ("Continental"), the third largest cable operator in the United States (the "Continental Acquisition" or the "Acquisition"), and accounted for the Acquisition by the purchase method of accounting. Continental's results of operations have been included in the consolidated results of operations 59 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5: OPERATING SEGMENTS (CONTINUED) since the Acquisition date. Had the Acquisition occurred at the beginning of 1996, MediaOne Group's consolidated revenues would have been $3,543, loss from continuing operations would have been $801, and basic loss per share of MediaOne Group Stock would have been $1.37. NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT On September 15, 1993, the Company acquired 25.51 percent pro-rata priority capital and residual equity interests ("equity interests") in Time Warner Entertainment for an aggregate purchase price of $2.553 billion. TWE owns and operates substantially all of the entertainment assets previously owned by Time Warner, consisting primarily of its filmed entertainment, programming-HBO and cable television businesses. The Company has an option to increase its pro-rata priority capital and residual equity interests in TWE from 25.51 percent up to 31.84 percent depending upon cable operating performance. The option is exercisable, in whole or in part, between January 1, 1999 and May 31, 2005, for an aggregate cash exercise price ranging from $1.25 billion to $1.8 billion, depending upon the year of exercise. Either TWE or the Company may elect that the exercise price for the option be paid with partnership interests rather than cash. Pursuant to the TWE Partnership Agreement, there are four levels of capital. From the most to least senior, the capital accounts are: senior preferred (held by the general partners); A preferred priority capital (held pro rata by the general and limited partners); B preferred priority capital (held by the general partners); and residual equity capital (held pro rata by the general and limited partners). Of the $2.553 billion contributed by the Company, $1.658 billion represents a preferred priority capital and $895 represents residual equity capital. The TWE Partnership Agreement provides for special allocations of income and distributions of partnership capital. Partnership income, to the extent earned, is allocated as follows: (1) to the partners so that the economic burden of the income tax consequences of partnership operations is borne as though the partnership was taxed as a corporation ("special tax allocations"); (2) to the partners' preferred capital accounts in order of priority described above, at various rates of return ranging from 8 percent to 13.25 percent; and (3) to the partners' residual equity capital accounts according to their residual partnership interests. To the extent partnership income is insufficient to satisfy all special allocations in a particular accounting period, the unearned portion is carried over until satisfied out of future partnership income. Partnership losses generally are allocated in reverse order, first to eliminate prior allocations of partnership income, except senior preferred and special tax income, next to reduce initial capital amounts, other than senior preferred, then to reduce the senior preferred account and finally, to eliminate special tax allocations. 60 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT (CONTINUED) A summary of the contributed capital and priority capital rates of return follows:
PRIORITY LIMITED PARTNERS CAPITAL RATES (OWNERSHIP %) OF RETURN(D) TIME ---------------------- UNDISTRIBUTED CUMULATIVE (% PER ANNUM WARNER MEDIA CONTRIBUTED PRIORITY COMPOUNDED GENERAL TIME ONE PRIORITY OF CONTRIBUTED CAPITAL CAPITAL(A) CAPITAL(B) QUARTERLY) PARTNERS WARNER GROUP - ------------------------------------------ ------------- ----------- --------------- ----------- ----------- --------- Senior preferred.......................... $ 500 $ 600(c) 8.00% 100.00% -- -- A Preferred priority capital.............. 5,600 12,800 13.00% 63.27% 11.22% 25.51% B Preferred priority capital.............. 2,900 6,800 13.25% 100.00% -- -- Residual equity capital................... 3,300 3,300 -- 63.27% 11.22% 25.51%
- ------------------------ (a) Represents the estimated fair value of net assets contributed as of formation of TWE, excluding partnership income or loss allocated thereto. (b) Cumulative priority capital is not necessarily indicative of the fair value of the underlying priority capital interests. (c) Net of $1,500 of cumulative cash distributions received by Time Warner. (d) To the extent income allocations are concurrently distributed, the priority capital rates of return on the A preferred capital and the B preferred capital are 11% and 11.25%, respectively. Cash distributions are required to be made to the partners to permit them to pay income taxes at statutory rates based on their allocable taxable income from TWE ("Tax Distributions"). The aggregate amount of such Tax Distributions is computed generally by reference to the taxes that TWE would have been required to pay if it were a corporation. Tax Distributions are paid to the partners on a current basis. For distributions other than those related to taxes or the senior preferred, the TWE Partnership Agreement requires certain cash distribution thresholds be met to the limited partners before the general partners receive their full share of distributions. No cash distributions have been made to the Company. Through the TWE management committee, the Company and Time Warner jointly direct the businesses and affairs of TWE cable systems, subject in certain cases to regulatory approval. The TWE management committee has full discretion and final authority with respect to the businesses and affairs of such cable systems. The TWE management committee consists of six voting members, of which three members are designated by the Company and three members are designated by Time Warner. Each voting member of the TWE management committee has one vote. Any action required or permitted to be taken by the TWE management committee must be approved by a majority of its members. Determinations of the TWE management committee are binding upon TWE and the TWE board of representatives. The Company accounts for its investment in TWE under the equity method of accounting. The excess of fair market value over the book value of total partnership net assets implied by the Company's initial investment was $5.7 billion. This excess is being amortized on a straight-line basis over 25 years. The Company's recorded share of TWE operating results represents allocated TWE net income or loss adjusted for the amortization of the excess of fair market value over the book value of the partnership net assets. As a result of this amortization and the special income allocations described above, the Company's recorded pretax share of TWE operating results before extraordinary item was $7, $11 and $(4) in 1998, 1997 and 1996, respectively. 61 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT (CONTINUED) As consideration for its expertise and participation in the cable operations of TWE, the Company earned a management fee of $130 over five years, ending in September 1998. The fee was payable over a four-year period beginning in 1995, and final payment was received in September 1998. Management fees of $18, $26 and $26 were recorded to other income in 1998, 1997 and 1996. The Consolidated Balance Sheets included a management fee receivable of $42 at December 31, 1997. In addition, MediaOne purchases cable television programming from TWE and Time Warner at market prices. These services totaled $142, $110 and $23 in 1998, 1997 and 1996, respectively. Summarized financial information for TWE is presented below:
YEAR ENDED DECEMBER 31, ------------------------------- SUMMARIZED OPERATING RESULTS 1998 1997 1996 - ------------------------------------------------------------- --------- --------- --------- Revenues..................................................... $ 12,246 $ 11,318 $ 10,852 Operating expenses(1, 2)..................................... 10,527 9,874 9,774 Interest and other expense, net(3, 4)........................ (1,301) (722) (798) Income before income taxes and extraordinary item............ 418 722 280 Income before extraordinary item............................. 326 637 210 Net income................................................... 326 614 210
- ------------------------ (1) Includes depreciation and amortization of $1,436, $1,370 and $1,235, in 1998, 1997 and 1996, respectively. (2) Operating expenses are reflected net of approximately $90 and $200 of net gains related to the sale or exchange of certain cable television systems in 1998 and 1997, respectively. (3) Includes corporate services of $72, $72 and $69 in 1998, 1997 and 1996, respectively, and minority interest expense of $264, $305 and $207 in 1998, 1997 and 1996, respectively. (4) 1998 interest and other expense includes a charge of approximately $210 principally to reduce the carrying value of TWE's interest in PrimeStar. 1997 interest and other expense includes a gain of approximately $250 related to the sale of TWE's interest in E! Entertainment Television, Inc.
DECEMBER 31, -------------------- SUMMARIZED FINANCIAL POSITION 1998 1997 - -------------------------------------------------------------------------------------------- --------- --------- Current assets(5)........................................................................... $ 4,183 $ 3,622 Noncurrent assets(6)........................................................................ 18,047 17,109 Current liabilities......................................................................... 4,936 3,974 Noncurrent liabilities, including minority interests........................................ 11,584 9,306 Senior preferred capital.................................................................... 603 1,118 Partners' capital(7)........................................................................ 5,107 6,333
- ------------------------ (5) Includes cash of $87 and $322 at December 31, 1998 and 1997, respectively. (6) Includes a loan receivable from Time Warner of $400 at December 31, 1998 and 1997. (7) Contributed capital is based on the estimated fair value of the net assets that each partner contributed to the partnership. The aggregate of such amounts is significantly higher than TWE's partners' capital as reflected in this Summarized Financial Position, which is based on the historical cost of the contributed net assets. 62 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6: INVESTMENT IN TIME WARNER ENTERTAINMENT (CONTINUED) TIME WARNER TELECOM. On July 14, 1998, TWE, TWE-A/N and Time Warner contributed the assets and liabilities of the Time Warner competitive local exchange business (the "Time Warner Telecom Business") into a newly formed entity, Time Warner Telecom LLC ("TW Telecom"). The Time Warner Telecom Business had been jointly operated by the parties to provide telephony services to business customers in their respective cable markets. TWE and TWE-A/N distributed their ownership interest in TW Telecom on a pro rata basis to Time Warner, MediaOne Group and Advance/Newhouse. As a result, MediaOne Group now holds an 18.85 percent interest in TW Telecom. Since the investment in TW Telecom resulted from a distribution by TWE, MediaOne Group's investment balance in TWE was reduced in 1998 by $48, the book value of the TW Telecom investment attributable to MediaOne Group. As of December 31, 1998, the investment in TW Telecom is included in "Other Assets" in the Consolidated Balance Sheet. The Company uses the cost method of accounting for its investment in TW Telecom. NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES COMBINED FINANCIAL RESULTS OF INTERNATIONAL EQUITY INVESTMENTS. The following table reflects summarized combined financial information for the Company's investments in international ventures, accounted for on the equity method. Information for 1998 excludes activity related to the Company's investment in Binariang SDN BHD in Malaysia and Aria WEST in Indonesia. Both investments were determined to be impaired at the end of 1997 and the Company terminated or suspended equity method accounting on such investments in 1998. See additional discussion under "EVALUATION OF ASIAN INVESTMENTS."
YEAR ENDED DECEMBER 31, ------------------------------- COMBINED RESULTS OF OPERATIONS 1998 1997 1996 - ------------------------------------------------------------------------------------ --------- --------- --------- Revenues............................................................................ $ 4,031 $ 3,353 $ 1,869 Operating losses.................................................................... (161) (601) (540) Net loss............................................................................ (948) (1,696) (857)
- ------------------------ Note: Combined Results of Operations for Continental international ventures have been included since the date of Acquisition.
DECEMBER 31, -------------------- COMBINED FINANCIAL POSITION 1998 1997 - --------------------------------------------------------------------------------------------- --------- --------- Current assets............................................................................... $ 1,535 $ 1,140 Property, plant and equipment--net........................................................... 7,889 6,625 Other assets................................................................................. 2,541 1,610 --------- --------- Total assets................................................................................. $ 11,965 $ 9,375 --------- --------- --------- --------- Current liabilities.......................................................................... $ 1,630 $ 1,570 Long-term debt............................................................................... 7,388 5,527 Other liabilities............................................................................ 1,177 389 Equity....................................................................................... 1,770 1,889 --------- --------- Total liabilities and equity................................................................. $ 11,965 $ 9,375 --------- --------- --------- ---------
INTERNATIONAL ACQUISITIONS AND DISPOSITIONS. On September 1, 1998, Telewest, a cable and telecommunications provider in the United Kingdom, acquired General Cable PLC ("General Cable"), a cable 63 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED) provider in the United Kingdom, for approximately $1.1 billion in stock and cash. Telewest raised cash for the acquisition through a rights offering to its existing shareholders, including MediaOne Group. MediaOne Group purchased 85 million new Telewest shares at a cost of $131. In addition, MediaOne Group recorded an estimated gain in equity of $39, net of deferred taxes of $25, related to Telewest's acquisition of General Cable. On November 10, 1998, MediaOne Group purchased an additional 175 million Telewest shares from Southwestern Bell International Holdings at a price of $2.25 per share, or $394. The Company now holds a 29.9 percent interest in Telewest. Telewest, which is the only equity method investment of the Company for which a quoted market price is available, had a market value of $1,803 and $464 at December 31, 1998 and 1997, respectively. In November 1998, MediaOne Group converted its note with Cable & Wireless Optus Limited ("Optus") into 50 million Optus shares and entered into a put option to lock in a floor price of Australian $1.44 per Optus share. The put options expire during the first quarter of 1999. The Company also acquired 24.2 million Optus shares, related to MediaOne Group's anti-dilution rights, for $30. Such shares were subsequently sold for $39, realizing an after tax gain on the sale of $6. The Company accounts for its investment in Optus using the cost method of accounting. At December 31, 1998, the investment is stated in the Consolidated Balance Sheet at the investment's fair market value of $105. During the first quarter of 1999, MediaOne Group sold its investment in the 50 million Optus shares. See Note 22--Subsequent Events--to the Consolidated Financial Statements. In July 1998, Westel 900, a digital wireless service company in Hungary, repurchased shares of its stock. This repurchase resulted in an increase in MediaOne Group's interest in Westel 900 to 49.0 percent from 46.6 percent. During the first quarter of 1997, the Company sold its five percent interest in a French wireless venture for proceeds of $81. The Company recognized a gain of $31, net of income tax expenses of $20. On October 27, 1997, the Company sold its 90 percent interest in Fintelco, S.A. ("Fintelco"), a cable and telecommunications venture located in Argentina, for proceeds of $641. The Company acquired a 50 percent interest in Fintelco in connection with the Continental Acquisition and then acquired an additional 40 percent interest in August 1997, to bring its total interest in Fintelco to 90 percent. The Company recognized a gain on the sale of $80, net of income tax expenses of $55. 64 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED) The Company's key equity method investments in international ventures follow:
PERCENTAGE OF OWNERSHIP DECEMBER 31, -------------------- VENTURE(1) 1998 1997 - ------------------------------------------------------------------------------ --------- --------- CABLE AND BROADBAND Telewest Communications, United Kingdom....................................... 29.9 26.8 A2000 (KTA), Netherlands...................................................... 50.0 50.0 Telenet, Belgium.............................................................. 25.0 25.0 Singapore Cablevision, Singapore.............................................. 25.0 25.0 Titus Communications Corp., Japan............................................. 25.0 25.0 Chofu Cable Television, Japan................................................. 19.1 19.1 WIRELESS One 2 One, United Kingdom..................................................... 50.0 50.0 Delta Telecommunications, Russia(2)........................................... 42.5 42.5 Moscow Cellular Communications, Russia(2)..................................... 22.0 22.0 Westel Radiotelefon, Hungary.................................................. 49.0 49.0 Westel 900 GSM Mobile Telecommunications, Hungary............................. 49.0 46.6 Eurotel Praha, Czech Republic................................................. 24.5 24.5 Eurotel Bratislava, Slovak Republic........................................... 24.5 24.5 Polska Telefonia Cyfrowa, Poland.............................................. 22.5 22.5 BPL Cellular Limited, India................................................... 49.0 49.0
- ------------------------ (1) MediaOne Group also holds a 50 percent investment in a South American directory operation. (2) Investments are held by Russian Telecommunications Development Corporation owned 66.5 percent by the Company. At December 31, 1998 and 1997, the difference between the carrying amount and the Company's interest in the underlying equity of the international ventures was approximately $160 and $23, respectively. The increase during 1998 was due primarily to a purchase premium of $136 related to Telewest shares acquired during the year, which is being amortized over 20 years. The remaining difference has been allocated primarily to licenses and is being amortized over lives ranging from 5 to 20 years. FOREIGN CURRENCY TRANSACTIONS. The Company selectively enters into forward and purchased option contracts to manage the market risks associated with fluctuations in foreign exchange rates after considering offsetting foreign exposures among international operations. The use of forward and purchased option contracts allows the Company to fix or cap the cost of firm foreign investment commitments, the amount of foreign currency proceeds from sales of foreign investments, the repayment of foreign currency denominated receivables and the repatriation of dividends. All foreign exchange contracts have maturities of one year or less. The use of such contracts was limited in 1998 and 1997. As of December 31, 1998, there were no foreign exchange contracts outstanding. As of December 31, 1997, the market value of foreign exchange contracts outstanding was not material. Forward contracts were selectively used to hedge foreign denominated proceeds from the sale of foreign investments and foreign denominated receivables during 1998 and 1997. Foreign currency pretax hedging gains of $1 and $5 were included in earnings in the years ended December 31, 1998 and 1997, 65 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED) respectively. The counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not have significant exposure to an individual counterparty and does not anticipate nonperformance by any counterparty. Foreign currency transaction pretax gains of $13 and pretax losses of $40 were included in earnings in the years ended December 31, 1998 and 1997, respectively. EVALUATION OF ASIAN INVESTMENTS. During 1997, the value of the Malaysian currency declined 36 percent and the Indonesian currency declined 57 percent as compared with the U. S. dollar. As a result of this significant decline, the Company reviewed its investments in Malaysia and Indonesia and concluded that each investment was impaired and in each case the fair value of the investment was zero as of December 31, 1997. The Company recorded pretax charges of $145 and $55 in 1997 related to the ventures in Malaysia and Indonesia, respectively. In the case of Malaysia, the charge of $145 in 1997 was to recognize that the investment was impaired and to write down the carrying value of the investment to its fair value of zero. The following factors were considered by management in determining that the investment was impaired: - The venture had negative cash flow and no ability to meet its debt obligations of $482 due in 1998. - As determined on a U. S. GAAP basis, the venture's liabilities exceeded its assets as of December 31, 1997, making the venture insolvent at that time. - The business plan for the venture contemplated a significant contribution to cash flows from the wireline business. The actual and potential cash flows of the venture have been severely diminished by the inability of the venture to effectively establish the wireline business. During 1998, British Telecom acquired a 33.3 percent stake in Binariang SDN BHD, the investment in Malaysia, and assumed MediaOne Group's loan guarantee of the venture. As a result, the Company's interest in the venture was diluted to 12.6 percent from 19 percent, and the Company considers its investment to be a cost method investment. MediaOne Group continues to evaluate opportunities to exit this venture. In the case of Indonesia, the net book value of the venture had been reduced to its fair value of zero through recognition of $43 of equity losses during 1997. The $55 charge in 1997 was to recognize probable funding commitments in connection with a shareholder support agreement. The probable funding commitments consisted of the Company's remaining contractual commitment under the shareholder support agreement of $19 and its partners' remaining commitments of $36, as of December 31, 1997. Under the terms of the shareholder support agreement, each shareholder is responsible for the full unfunded liability if the other shareholders do not meet their proportionate obligations. As a result, the Company has accrued for its partners' share of the commitment under the shareholder support agreement. During 1998, MediaOne Group funded $6 under the shareholder support agreement and the partners funded $10. The Company is currently attempting to restructure its investment in Indonesia. 66 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7: NET INVESTMENT IN INTERNATIONAL VENTURES (CONTINUED) The following factors were considered by management in 1997 in determining that the Indonesian investment was impaired and that accrual of the Company's and its partners' funding liabilities were necessary: - As determined on a U. S. GAAP basis, the venture's liabilities, predominantly U. S. dollar denominated debt, exceeded its assets as of December 31, 1997. - Management believed the venture was not viable given the political and economic uncertainties in Indonesia. - The venture had ceased funding capital projects. The Company's other ventures in Asia, located in Japan, Singapore and India, were evaluated for impairment at December 31, 1997. Such evaluation indicated there was no impairment as the fair value of these ventures exceeded their recorded values. NOTE 8: PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment follows:
DECEMBER 31, -------------------- 1998 1997 --------- --------- Land and buildings......................................................... $ 117 $ 321 Cable distribution systems................................................. 3,736 2,787 Cellular systems........................................................... -- 1,124 General purpose computers and other........................................ 785 857 Construction in progress................................................... 299 482 --------- --------- 4,937 5,571 Less accumulated depreciation.............................................. 868 1,299 --------- --------- Property, plant and equipment--net......................................... $ 4,069 $ 4,272 --------- --------- --------- ---------
Property, plant and equipment balances at December 31, 1998 reflect the disposition of the assets of the domestic wireless businesses which were sold in connection with the AirTouch Transaction. Depreciation expense was $657, $727 and $255 for the years ended 1998, 1997 and 1996, respectively. NOTE 9: INTANGIBLE ASSETS The composition of intangible assets follows:
DECEMBER 31, -------------------- 1998 1997 --------- --------- Identified intangibles, primarily franchise value....................... $ 9,089 $ 9,185 Goodwill................................................................ 3,741 4,159 --------- --------- 12,830 13,344 Less accumulated amortization........................................... 1,183 747 --------- --------- Total intangible assets--net............................................ $ 11,647 $ 12,597 --------- --------- --------- ---------
Intangible assets at December 31, 1998 reflect the disposition of the assets of the domestic wireless businesses which were sold in connection with the AirTouch Transaction. Amortization expense for 1998, 1997 and 1996 was $525, $530 and $131, respectively. 67 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10: DEBT On June 12, 1998, $4.9 billion notional medium and long-term debt was redeemed as part of the Refinancing for a total cash redemption amount of $5.5 billion. MediaOne Group extinguished the debt by issuing commercial paper at a weighted-average interest rate of 5.85 percent. In accordance with the Separation Agreement, New U S WEST funded to MediaOne Group $3.9 billion related to the Dex Alignment. The Company used the funds to repay a portion of the amount of commercial paper issued in connection with the Refinancing. Debt extinguishment costs related to the Refinancing totaled $333 (net of income tax benefits of $209) and are reflected in the Consolidated Statements of Operations as an extraordinary item. In addition to refinancing costs, such costs included the difference between the market and face value of the debt redeemed and a charge for unamortized debt issuance costs. MediaOne Group financed the debt extinguishment costs by issuing commercial paper, net of a $140 reimbursement by New U S WEST for shared costs. Remaining commercial paper issued in connection with the Refinancing was subsequently repaid with proceeds generated from the Exchangeable Notes offering, as described below in "Long-term Debt." In connection with the AirTouch Transaction, AirTouch assumed $1,350 of short-term debt from MediaOne Group. SHORT-TERM DEBT The components of short-term debt follow:
DECEMBER 31, -------------------- 1998 1997 --------- --------- Notes payable: Commercial paper............................................................ $ 216 $ 750 Bank loan................................................................... -- 17 Current portion of long-term debt............................................. 353 266 Allocated to the capital assets segment-net................................... -- (100) Allocated to discontinued operations.......................................... -- (198) --------- --------- Total......................................................................... $ 569 $ 735 --------- --------- --------- ---------
The weighted-average interest rate on commercial paper was 6.09 percent and 6.15 percent at December 31, 1998 and 1997, respectively. In May 1998, MediaOne Group entered into 365-day and 5-year bank credit facilities totaling $4.0 billion to support its commercial paper program. The facilities were reduced effective December 1998 to a total of $3.0 billion. At December 31, 1998, $2.8 billion was available on the facilities. The bank loan at December 31, 1997 was a floating-rate loan denominated in Czech Koruna. In January 1997, the Company paid the cash portion of the Continental Acquisition consideration totaling $1,150. This payment was financed with commercial paper. On December 15, 1998, $130 of Debt Exchangeable for Common Stock ("DECS") matured. Effective with the Separation, the DECS became the obligation of MediaOne Group. In accordance with the terms of the original debt issuance, the DECS were redeemed for shares of Enhance Financial Services Group, Inc. ("Enhance") held by MediaOne Group. In addition, the Company settled an option issued in 1997 for the purchase of MediaOne Group's residual shares of Enhance common stock at the DECS 68 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10: DEBT (CONTINUED) maturity, resulting in a pretax gain of $9. As a result of both transactions, the Company has disposed of its ownership in shares of Enhance. On May 13, 1996, Old U S WEST issued $254 of DECS due May 15, 1999, in the principal amount of $26.63 per note. The notes bear annual interest at 7.625 percent. Effective with the Separation, the DECS became the obligation of MediaOne Group. Upon maturity, the DECS will be mandatorily redeemed by the Company for shares of Financial Security Assurance Holdings Ltd. ("FSA") held by MediaOne Group or the cash equivalent, at MediaOne Group's option. The number of shares to be delivered at maturity varies based on the per share market price of FSA. If the market price is $26.63 per share or less, one share of FSA will be delivered for each note; if the market price is between $26.63 and $32.48 per share, a fractional share is delivered so that the value at maturity is equal to $26.63; if the market price is greater than $32.48 per share, .8197 of a share is delivered for each note. At December 31, 1998, the FSA shares had a market price of $54.25 per share. LONG-TERM DEBT In August and September 1998, MediaOne Group issued 29 million shares of 6.25 percent Exchangeable Notes (the "Exchangeable Notes") for an issuance price of $58.125 per note, or gross proceeds of $1,686. The notes mature on August 15, 2001 and are mandatorily redeemable at MediaOne Group's option into (i) shares of AirTouch common stock held by MediaOne Group, (ii) the cash equivalent, or (iii) a combination of cash and AirTouch common stock. The number of shares of AirTouch common stock to be exchanged at maturity for each Exchangeable Note, and/or the cash equivalent, varies based upon the fair value of the AirTouch common stock, as follows: (a) If the fair value of AirTouch common stock is greater than or equal to $71.75 per share, each Exchangeable Note is equivalent to .8101 of a share of AirTouch common stock; (b) If the fair value of AirTouch common stock is less than or equal to $58.125 per share, each Exchangeable Note is equivalent to one share of AirTouch common stock; or (c) If the fair value of AirTouch common stock is less than $71.75 per share but greater than $58.125 per share, each Exchangeable Note is equivalent to a fractional share of AirTouch common stock equal to the percent of the initial issuance price per Exchangeable Note versus the fair value of the AirTouch common stock per share. The Exchangeable Notes are unsecured obligations of MediaOne Group, ranking equally in right of payment with all other unsecured and unsubordinated obligations of MediaOne Group. MediaOne Group used the proceeds from the debt issuance to reduce outstanding commercial paper and for general corporate purposes. The Exchangeable Notes are being accounted for as an indexed debt instrument since the maturity value of the Exchangeable Notes is dependent upon the fair value of the underlying AirTouch common stock. The Company has, therefore, eliminated the market risk on a decline in the AirTouch common stock value below $58.125 per share on 29 million of the 59.3 million shares held by the Company. The maturity value of the Exchangeable Notes was increased by $16 from its original issuance value to reflect the corresponding increase in the fair value of the underlying AirTouch common stock at December 31, 1998. At December 31, 1998, the AirTouch common stock had a fair value of $72.4375 per share; MediaOne Group would be entitled to 19 percent of the fair value in excess of $71.75 per share on 29 million shares of AirTouch common stock. Since the AirTouch common stock is a cost method investment being accounted 69 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10: DEBT (CONTINUED) for as "available for sale" securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," changes in the maturity value of the Exchangeable Notes are being recorded in equity as unrealized gains or losses. See Note 22--Subsequent Events--to the Consolidated Financial Statements for a discussion of the potential merger of AirTouch with Vodafone. In conjunction with the Refinancing, MediaOne Group assumed from Old U S WEST $351 of medium and long-term debt securities which remained outstanding after the Refinancing. The debt securities were already reflected in the outstanding debt balances of MediaOne Group's restated Consolidated Balance Sheet as of December 31, 1997. Since the capital assets segment is no longer being accounted for as assets held for sale as of the end of 1998, its debt balances are now reflected in the Company's consolidated debt balances. As such, long-term debt of the Company increased $155 and short-term debt increased $43 at December 31, 1998, related to debt balances of the capital assets segment. See Note 23--Net Investment in Assets Held for Sale--to the Consolidated Financial Statements. The long-term debt increase primarily represents non recourse loans issued in September 1997 by MediaOne Financial Services, Inc. ("Financial Services"), a subsidiary of the Company and a member of the capital assets segment, which are securitized by certain finance receivables of Financial Services. The loans bear interest at an average rate of 6.9 percent and mature in April, 2009. In January 1997, the Company issued medium- and long-term debt totaling $4.1 billion, at a weighted-average interest rate of 7.47 percent, related to the refinancing of outstanding commercial paper issued in conjunction with the refinancing of $3,657 of the debt assumed from Continental in the Continental Acquisition. As discussed above, the majority of such debt was extinguished in 1998 as a result of the Separation and the Refinancing. The components of long-term debt follow:
DECEMBER 31, -------------------- 1998 1997 --------- --------- Senior unsecured notes, debentures and medium-term notes................... $ 2,346 $ 7,275 Senior subordinated debt................................................... 300 300 Exchangeable Notes......................................................... 1,702 -- Debt exchangeable for common stock......................................... -- 254 Securitized loans.......................................................... 154 -- Insurance company notes.................................................... -- 36 Capital lease obligations.................................................. 1 6 Other...................................................................... 89 81 Unamortized discount--net.................................................. -- (8) Unamortized premium--net................................................... 261 284 --------- --------- Total...................................................................... $ 4,853 $ 8,228 --------- --------- --------- ---------
Senior unsecured notes and debentures and senior subordinated debt totaling $2.3 billion as of December 31, 1998 were assumed by the Company in connection with the Continental Acquisition and are not guaranteed by the Company. These notes and debentures limit MediaOne's ability to, among other things, pay dividends, create liens, incur additional debt, dispose of property, investments and leases, and require certain minimum ratios of cash flow to debt and cash flow to related fixed charges. 70 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10: DEBT (CONTINUED) During 1997, the Company redeemed its zero coupon subordinated notes due June 25, 2011. Upon redemption, the notes had a recorded value of $268. The debt extinguishment resulted in a loss of $3 (net of income tax benefits of $2) primarily related to the write-off of deferred debt issuance costs. Also during 1997, MediaOne redeemed a 10.625 percent senior subordinated note with a recorded value of $110, including a premium of $10. The debt extinguishment resulted in a gain of $3 (net of income tax expenses of $2). The Company financed the redemptions with floating-rate commercial paper. Interest rates and maturities of long-term debt at December 31st follow:
MATURITIES ----------------------------------------------------- THERE- TOTAL TOTAL INTEREST RATES 2000 2001 2002 2003 AFTER 1998 1997 - --------------------------------------------- --------- --------- --------- --------- --------- --------- --------- Above 5% to 6%............................... $ -- $ -- $ -- $ 1 $ -- $ 1 $ 10 Above 6% to 7%............................... 5 1,705 42 24 172 1,948 2,498 Above 7% to 8%............................... -- -- 1 -- 44 45 2,730 Above 8% to 9%............................... 1 204 -- 100 1,375 1,680 1,717 Above 9% to 10%.............................. 2 1 -- -- 525 528 575 Above 10%.................................... -- -- -- -- 300 300 335 --------- --------- --------- --------- --------- --------- --------- $ 8 $ 1,910 $ 43 $ 125 $ 2,416 4,502 7,865 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Capital lease obligations and other.......... 90 87 Unamortized discount--net.................... -- (8) Unamortized premium--net..................... 261 284 --------- --------- Total........................................ $ 4,853 $ 8,228 --------- --------- --------- ---------
Interest payments, net of amounts capitalized, were $709, $572 and $232 for 1998, 1997 and 1996, respectively, of which $33, $47 and $59, respectively, related to the capital assets segment. INTEREST RATE RISK MANAGEMENT The objective of an interest rate risk management program is to minimize the total cost of debt over time and the interest rate variability. This is achieved through the use of interest rate swaps, which adjust the ratio of fixed- to variable-rate debt. Under an interest rate swap, the Company agrees with another party to exchange interest payments at specified intervals over a defined term. Interest payments are calculated by reference to the notional amount based on the fixed- and variable-rate terms of the swap agreements. MediaOne Group had no swaps or interest rate contracts outstanding as of December 31, 1998. During fourth-quarter 1996, the Company purchased $1.5 billion notional of put options on U. S. Treasury Bonds to protect against an increase in interest rates in conjunction with the 1997 refinancing of debt assumed from Continental in connection with the Continental Acquisition. The contracts closed in January 1997 and a deferred gain of $5 was recognized. The gain was recognized in 1998 in conjunction with the Refinancing as part of the loss on debt extinguishment. 71 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11: FAIR VALUES OF FINANCIAL INSTRUMENTS Fair values of cash equivalents, other current amounts receivable and payable, and short-term debt approximate carrying values due to their short-term nature. The carrying values of mandatorily redeemable preferred stock and long-term receivables approximate the fair values based on quoted market prices or discounting future cash flows. The carrying value of foreign exchange contracts approximate the fair values based on estimated amounts the Company would receive or pay to terminate such agreements. It is not practicable to estimate the fair value of financial guarantees because there are no quoted market prices for similar transactions. The fair values of interest rate swaps are based on estimated amounts the Company would receive or pay to terminate such agreements taking into account current interest rates and creditworthiness of the counterparties. The fair values of long-term debt, including debt associated with the capital assets segment, and Preferred Securities and Minority interest in Centaur Funding, are based on quoted market prices where available or, if not available, are based on discounting future cash flows using current interest rates.
DECEMBER 31, ---------------------------------------------- 1998 1997 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----------- --------- ----------- --------- Debt (includes short-term portion)....................................... $ 5,422 $ 5,861 $ 9,335 $ 9,910 Interest rate swap agreements--assets.................................... -- -- -- -- Interest rate swap agreements--liabilities............................... -- -- -- 19 ----------- --------- ----------- --------- Debt--net................................................................ $ 5,422 $ 5,861 $ 9,335 $ 9,929 ----------- --------- ----------- --------- Minority interest in Centaur Funding..................................... $ 1,099 $ 1,169 $ -- $ -- Preferred Securities..................................................... $ 1,061 $ 1,073 $ 1,080 $ 1,110
The unamortized cost and estimated market value of debt and equity securities follow:
DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------------------------------------ -------------------------- GROSS GROSS GROSS UNREALIZED UNREALIZED FAIR UNREALIZED SECURITIES COST GAINS LOSSES VALUE COST GAINS - ---------------------------------------------- --------- ----------- ------------- --------- --- ------------- Equity securities............................. $ 3,045 $ 1,609 $ -- $ 4,654 $ 21 $ 19 Debt securities............................... 1,782 2 (19) 1,765 18 -- Securitized loan.............................. -- -- -- -- 55 -- --------- ----------- ----- --------- --- --- Total......................................... $ 4,827 $ 1,611 $ (19) $ 6,419 $ 94 $ 19 --------- ----------- ----- --------- --- --- --------- ----------- ----- --------- --- --- GROSS UNREALIZED FAIR SECURITIES LOSSES VALUE - ---------------------------------------------- ------------- --------- Equity securities............................. $ -- $ 40 Debt securities............................... -- 18 Securitized loan.............................. (3) 52 ----- --------- Total......................................... $ (3) $ 110 ----- --------- ----- ---------
Investments in debt and equity securities are classified as available for sale and are carried at market value. Debt and equity securities for 1998 primarily represent AirTouch preferred and common securities received during the year in connection with the AirTouch Transaction. Net unrealized gains 72 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11: FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) and losses on marketable securities are included in comprehensive income. The market value of these securities is based on quoted market prices where available or, if not available, is based on discounting future cash flows using current interest rates. As of December 31, 1998, MediaOne Group held investments in debt securities of $33 with contractual maturities less than one year, $37 with contractual maturities greater than one year through five years, and $1,695 with contractual maturities greater than five years through the year 2020. Investments in debt securities may not be held to their contractual maturities as the Company may sell these securities in response to liquidity needs and changes in interest rates. During 1997, the Company received proceeds of $898 from the sales of Teleport Communications Group, Inc. ("TCG") and Time Warner shares, and realized pretax gains totaling $206. NOTE 12: LEASING ARRANGEMENTS The Company has entered into operating leases for office facilities, equipment and real estate. Rent expense under operating leases was $56, $74 and $42 in 1998, 1997 and 1996, respectively. Future minimum lease payments as of December 31, 1998, under noncancelable operating leases follow:
YEAR - -------------------------------------------------------------------------------------- 1999.................................................................................. $ 32 2000.................................................................................. 24 2001.................................................................................. 22 2002.................................................................................. 18 2003.................................................................................. 16 Thereafter............................................................................ 37 --------- Total................................................................................. $ 149 --------- ---------
NOTE 13: MINORITY INTEREST IN CENTAUR FUNDING On December 15, 1998, Centaur Funding Corporation ("Centaur"), a special purpose entity consolidated by MediaOne Group, issued three series of preferred shares to external investors (the "Preference Shares") as well as $25 of common securities. The Company owns all of the outstanding common securities, representing a 9.9 percent voting interest in Centaur. Centaur was formed for the principal purpose of raising capital through the issuance of the Preference Shares. The net proceeds from the issuance of the Preference Shares were loaned to MediaOne SPCII, LLC ("MediaOne SPCII"), a subsidiary of MediaOne Group (the "MediaOne SPC II Notes"). Principal and interest payments on the MediaOne SPC II Notes are expected to be Centaur's principal source of funds to make dividend and redemption payments on the Preference Shares. In addition, the dividend payments and certain redemption payments on the Preference Shares will be determined by reference to the dividend and redemption activity of the 5.143 percent Class D Cumulative Preferred Shares, Series 1998 of AirTouch (the "Class D ATI Shares") and the 5.143 percent Class E Cumulative Preferred Shares, Series 1998 of AirTouch (the "Class E ATI Shares" and collectively with the Class D ATI Shares, the "AirTouch Preferred Shares"). The AirTouch Preferred Shares are owned by MediaOne SPCII. Payments on the Preference Shares are neither guaranteed nor secured by MediaOne Group. The sole assets of Centaur are the MediaOne SPC II Notes 73 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13: MINORITY INTEREST IN CENTAUR FUNDING (CONTINUED) and the proceeds from the sale of the common securities, which may be invested in certain eligible investments as outlined in Centaur's articles of incorporation. The AirTouch Preferred Shares, 75 percent of the outstanding common stock of MediaOne International Holdings, Inc., (the "International Stock"), and a certain intercompany note receivable from MediaOne of Colorado, a wholly owned subsidiary of the Company, to MediaOne SPCII and certain other assets are properties of MediaOne SPCII and are not available to pay creditors of any member of the Company, other than creditors of MediaOne SPCII. The International Stock owned by MediaOne SPCII may be transferred or dividended by MediaOne SPCII to another member of the MediaOne Group if such transfer or dividend is in compliance with certain covenants and limitations. MediaOne SPCII is a limited liability company, the membership interest of which is owned by MediaOne SPCI LLC ("MediaOne SPCI"), a wholly owned subsidiary of the Company. That membership interest is the property of MediaOne SPCI and is not available to pay creditors of any member of MediaOne Group, other than creditors of MediaOne SPCI. The three series of Centaur preferred shares are as follows:
SERIES A SERIES B SERIES C TOTAL --------- ----------- ----------- --------- Dividend Rate.................................................... Variable 9.08% None Maturity Date.................................................... None 4/21/2020(1) 4/21/2020(1) Shares Outstanding............................................... 400 934,500 715,500 Book Value....................................................... $ 97 $ 909 $ 93 $ 1,099 --------- ----------- ----------- --------- --------- ----------- ----------- --------- Liquidation Value................................................ $ 100 $ 934 $ 716 $ 1,750 --------- ----------- ----------- --------- --------- ----------- ----------- --------- Voting Interest in Centaur....................................... 11.1% 49.0% 30.0%
- ------------------------ (1) Maturity dates of the Series B and Series C Preference Shares are referenced to the AirTouch Preferred Shares. The Auction Market Preference Shares, Series A (the "Series A Preference Shares") have a liquidation value of two hundred and fifty thousand dollars per share, and were recorded at their liquidation value less issuance costs of $3. Dividends on the Series A Preference Shares are payable quarterly as and when declared by Centaur's Board of Directors out of funds legally available. The 9.08 percent Cumulative Preference Shares, Series B (the "Series B Preference Shares") have a liquidation value of one thousand dollars per share, and were recorded at their liquidation value less issuance costs of $25. Dividends on the Series B Preference Shares are payable quarterly in arrears when declared by Centaur's Board of Directors out of funds legally available. In addition, dividends may be declared and paid only to the extent that dividends have been declared and paid on the AirTouch Preferred Shares. The Preference Shares, Series C (the "Series C Preference Shares") have a liquidation value of one thousand dollars per share at maturity, and were recorded at their fair value less issuance costs of $3. The value of the Series C Preference Shares will be accreted to reach its liquidation value upon maturity. Certain redemption payments on the Series B and Series C Preference Shares will be determined by reference to the redemption of the AirTouch Preferred Shares. On April 7, 2018, all of the outstanding shares of the Class E ATI Shares must be redeemed. The Class E ATI Shares represent 50 percent of the 74 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13: MINORITY INTEREST IN CENTAUR FUNDING (CONTINUED) AirTouch Preferred Shares. Consequently, if AirTouch redeems all of the Class E ATI Shares, Centaur must redeem 50 percent of the outstanding Series B and Series C Preference Shares. In addition, AirTouch has the option on or after April 7, 2018, to redeem the Class D ATI Shares. If AirTouch redeems all or a portion of the Class D ATI Shares, then Centaur would be obligated to redeem the same percentage of the Series B and Series C Preference Shares. Any remaining Series B and Series C Preference Shares would be redeemed upon maturity on April 21, 2020, to the extent that AirTouch has redeemed the remaining Class D ATI Shares. The Series A, Series B and Series C Preference Shares are recorded as "Minority Interest in Centaur Funding" on the Consolidated Balance Sheets of the Company. The Series B Preference Shares rank equally with the Series C Preference Shares as to redemption payments and upon liquidation, and the Series B and Series C Preference Shares rank senior to the Series A Preference Shares and the common shares of Centaur as to redemption payments and upon liquidation. The Series B Preference Shares rank senior to the Series A Preference Shares and the common shares with respect to dividend payments. Centaur may only pay a dividend to its common shareholder when its assets, including the MediaOne SPC II Notes, exceed the liquidation preference and accumulated and unpaid dividends on the Series B and Series C Preference Shares by $28 after paying the common dividends, and when it has a cash balance, including qualified investments, in excess of $28 after paying the common dividend. At December 31, 1998, Centaur held $26 in cash for its exclusive use. Since Centaur's cash management options are limited to non-affiliated, risk-free investments, and it is restricted from loaning the $26 in cash to MediaOne Group and its subsidiaries, Centaur's cash balance is not included in the Company's cash and cash equivalents balance. Instead, Centaur's cash balance has been classified in the Consolidated Balance Sheets of the Company as part of "Other Assets." 75 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14: COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY-GUARANTEED DEBENTURES The following table summarizes the Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company-guaranteed debentures (the "Preferred Securities") outstanding as of December 31, 1998:
PREFERRED SECURITIES 7.96% 8.25% 9.30% 9.50% 9.04% TOTAL - ------------------------ ---------------- --------------- ---------------- --------------- --------------- --------- Subsidiary.............. Financing I Financing II Finance I Finance II Finance III Maturity Date........... Sept. 30, 2025 Oct. 29, 2036 Sept. 30, 2025 Oct. 29, 2036 Dec. 31, 2038 Shares Outstanding...... 1,312,910 1,185,618 10,658,108 8,520,289 20,000,000 Book Value.............. $33 $30 $274 $224 $500 $1,061 ---------------- --------------- ---------------- --------------- --------------- --------- ---------------- --------------- ---------------- --------------- --------------- --------- Liquidation Value....... $33 $30 $266 $213 $500 $1,042 ---------------- --------------- ---------------- --------------- --------------- --------- ---------------- --------------- ---------------- --------------- --------------- --------- Value at Issuance....... $33 $30 $274 $224 $500 Common Securities....... 19 15 9 7 15 ---------------- --------------- ---------------- --------------- --------------- Subordinated Debt Securities............ $52 $45 $283 $231 $515 ---------------- --------------- ---------------- --------------- --------------- ---------------- --------------- ---------------- --------------- ---------------
THE EXCHANGE OFFER On June 12, 1998, MediaOne Group tendered for cash or exchange all of the outstanding Preferred Securities (the "Exchange Offer"). At that time, the Company had outstanding $600 face value of 7.96 percent Preferred Securities of Old U S WEST Financing I ("Financing I"), a subsidiary of Old U S WEST, and $480 face value of 8.25 percent Preferred Securities of Old U S WEST Financing II ("Financing II"), a subsidiary of Old U S WEST. Of the total outstanding, $301 face value of 7.96 percent Preferred Securities and $237 face value of 8.25 percent Preferred Securities were redeemed for cash. The cash redemption amount of $570 was financed by issuing commercial paper at a weighted average interest rate of 5.85 percent, which was subsequently repaid with net proceeds from the Exchangeable Notes issuance. See Note 10--Debt--to the Consolidated Financial Statements. In addition, $266 face value of 7.96 percent Preferred Securities of Financing I were exchanged for $274 fair value of 9.30 percent Preferred Securities issued by MediaOne Finance Trust I ("Finance I"), a subsidiary of MediaOne Group, and $213 face value of 8.25 percent Preferred Securities of Financing II were exchanged for $224 fair value of 9.50 percent Preferred Securities issued by MediaOne Finance Trust II ("Finance II"), a subsidiary of MediaOne Group. The Preferred Securities of Finance I and Finance II were recorded as issued at fair value of $25.75 and $26.30 per security, respectively. Finance I and Finance II also issued $9 and $7, respectively, of common securities which are held by MediaOne Group. With the exception of the dividend rates, the terms and maturity of the Finance I and Finance II Preferred Securities are substantially the same as those of the Financing I and Financing II Preferred Securities, respectively. The Preferred Securities of Financing I and Financing II which were neither redeemed for cash nor exchanged for new Preferred Securities remain outstanding and their respective common securities were retained by MediaOne Group. As a result of the Exchange Offer, MediaOne Group recorded a charge to equity of $53, after tax benefits of $28. Such charge represented redemption costs, including the difference between the face and 76 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14: COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY-GUARANTEED DEBENTURES (CONTINUED) market value of the securities, and a charge for unamortized issuance costs. Also included was a charge of $19 related to market value premiums on the exchanged securities. On October 23, 1998, MediaOne Finance Trust III ("Finance III"), a subsidiary of MediaOne Group, issued $500 of 9.04 percent Preferred Securities and $15 of common securities. The common securities are held by MediaOne Group. Total proceeds from the issuance of the Preferred Securities and the common securities of Financing I and Financing II (the "Old Trusts"), and Finance I, Finance II and Finance III, (the "New Trusts", and collectively with the Old Trusts, "the Trusts"), were used to purchase Subordinated Deferrable Interest Notes (the "Subordinated Debt Securities") from MediaOne Group Funding, Inc. ("MediaOne Funding"), a wholly owned subsidiary of MediaOne Group, the obligations under which are fully and unconditionally guaranteed by MediaOne Group (the "Debt Guarantees"). The Subordinated Debt Securities have the same interest rate and maturity date as the Preferred Securities to which they relate. The sole assets of the Trusts are and will be the Subordinated Debt Securities and the Debt Guarantees. In the Exchange Offer, the Subordinated Debt Securities that relate to the remaining outstanding Preferred Securities of the Old Trusts were assumed by MediaOne Group and the related Debt Guarantees were extinguished. MediaOne Group has guaranteed the payment of interest and redemption amounts to holders of the Preferred Securities when the Trusts have funds available for such payments (the "Payment Guarantee") as well as the Company's and MediaOne Funding's undertaking to pay all of the costs, expenses and other obligations (the "Expense Undertaking") of the Old Trusts and the New Trusts, respectively. The Payment Guarantee and the Expense Undertaking, including MediaOne Group's guarantee with respect thereto, considered together with MediaOne Funding's obligations under the indenture and Subordinated Debt Securities and MediaOne Group's obligations under the indenture, declaration and Debt Guarantees, constitute a full and unconditional guarantee by MediaOne Group of the Trusts' obligations under the Preferred Securities. The interest and other payment dates on the Subordinated Debt Securities are the same as the distribution and other payment dates on the Preferred Securities. Under certain circumstances, the Subordinated Debt Securities may be distributed to the holders of Preferred Securities and common securities in liquidation of the Trusts. All of the Subordinated Debt Securities are redeemable by the Company or MediaOne Funding at a redemption price of $25.00 per security, plus accrued and unpaid interest. If the Company or MediaOne Funding redeems the Subordinated Debt Securities, the Trusts are required to concurrently redeem their respective Preferred Securities at $25.00 per share plus accrued and unpaid distributions. The 9.30 percent and the 7.96 percent Subordinated Debt Securities are redeemable in whole or in part at any time on or after September 11, 2000. The 9.50 percent and the 8.25 percent Subordinated Debt Securities are redeemable in whole or in part at any time on or after October 29, 2001. The 9.04 percent Subordinated Debt Securities are redeemable in whole or in part at any time on or after October 28, 2003. NOTE 15: PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION On June 30, 1997, Old U S WEST acquired cable systems serving approximately 40,000 subscribers in Michigan for cash of $25 and the issuance of 994,082 shares of Old U S WEST Series E Preferred Stock (the "Series E Preferred Stock") with a fair value of $50. Dividends are payable quarterly at the annual rate of 6.34 percent. Effective with the Separation, the Old U S WEST Series E Preferred Stock remains outstanding and represents shares of MediaOne Group Series E Preferred Stock. The Series E Preferred 77 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15: PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION (CONTINUED) Stock was recorded at fair value of $50.00 per share at June 30, 1997, which was equal to its liquidation value. Upon redemption, the preferred stockholders may elect to receive cash or convert their Series E Preferred Stock into MediaOne Group Stock. Cash redemption is equal to the Series E Preferred Stock's liquidation value of $50.00 per share, plus accrued dividends. The number of shares of MediaOne Group Stock to be received upon conversion is $47.50 per share divided by the then current market price of MediaOne Group Stock. The conversion rate is subject to adjustment by the Company under certain circumstances. The Series E Preferred Stock is redeemable as follows: (a) the Company may call for redemption all or any part of the Series E Preferred Stock beginning on June 30, 2002; (b) on a yearly basis beginning August 1, 2007, and continuing through August 1, 2016, the Company will redeem 49,704 shares of Series E Preferred Stock, and on June 30, 2017, all of the remaining outstanding shares of Series E Preferred Stock; or (c) all of the outstanding Series E Preferred Stock shall be redeemed upon the occurrence of certain events, including the dissolution or sale of all or substantially all of MediaOne Group. On September 2, 1994, Old U S WEST issued to Fund American Enterprises Holdings Inc. ("FFC") 50,000 shares of a class of 7 percent Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock") for a total of $50. See Note 23--Net Investment in Assets Held for Sale--to the Consolidated Financial Statements. Effective with the Separation, the Series C Preferred Stock remains outstanding and represents shares of Series C Preferred Stock of MediaOne Group. The Series C Preferred Stock was recorded at the fair market value of $51 at the issue date. The Company has the right commencing September 2, 1999, to redeem the shares for one thousand dollars per share plus unpaid dividends and a redemption premium. The shares are mandatorily redeemable in 2004 at face value plus unpaid dividends. At the option of FFC, the preferred stock also can be redeemed for common shares of FSA. The market value of the option was $79 and $71 (based on the Black-Scholes model) at December 31, 1998 and 1997, respectively, with no carrying value. The Series E and Series C Preferred Stocks rank senior to all classes of MediaOne Group's common stock, are subordinated to any senior debt and the Preferred Securities, and rank equally with the Series D Preferred Stock. See Note 16--Shareowners' Equity--to the Consolidated Financial Statements. NOTE 16: SHAREOWNERS' EQUITY Prior to the Separation, Old U S WEST had outstanding two separate classes of common stock. Upon Separation, and in accordance with the terms of the Separation Agreement, each outstanding share of Media Stock remains outstanding and represents one share of MediaOne Group Stock. Each share of Media Stock held as treasury stock by Old U S WEST now represents one share of MediaOne Group Stock held as treasury stock by MediaOne Group. All issued and outstanding shares of Communications Stock were redeemed for shares of New U S WEST common stock. In addition, since the distribution of New U S WEST was accounted for at fair value, retained earnings were reduced by $24,924 and common stock was reduced by $421, representing the fair value of the businesses comprising New U S WEST previously held by Old U S WEST. COMMON STOCK. For 1998, other activity includes $44 for tax benefits on stock option exercises, a $39 gain related to the acquisition of General Cable by Telewest, a $39 gain on the exercise of a call option on shares of the Company's stock, and miscellaneous activity of $25. In connection with the November 15, 78 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16: SHAREOWNERS' EQUITY (CONTINUED) 1996, Continental Acquisition, the Company issued 150,615,000 shares of MediaOne Group Stock to Continental shareowners, valued at $2,590. SHARE REPURCHASE. On August 7, 1998, the Board of Directors of MediaOne Group authorized the repurchase of up to 25 million shares of the Company's common stock over the next three years, dependent on market and financial conditions. During 1998, MediaOne Group purchased and placed into treasury approximately 8,682,000 shares of MediaOne Group stock at an average purchase price of $40.51 per share, or a total cost basis of $352. Prior to the Separation, Old U S WEST purchased and placed into treasury $31 of Communications Stock. All outstanding shares of Communications Stock held as treasury stock by Old U S WEST were canceled as of the Separation date. During 1997 and 1996, the Company purchased and placed into treasury 2,838,000 and 15,919,000 shares of MediaOne Group Stock, at an average purchase price per share of $18.71 and $18.66, and a total cost basis of $53 and $297, respectively. Following is a roll-forward of share activity during the three years ended December 31, 1998:
COMMON SHARES --------------------------------- MEDIAONE GROUP COMMUNICATIONS STOCK STOCK ---------------- --------------- (IN THOUSANDS) BALANCE DECEMBER 31, 1995................................. 472,314 473,635 Issuance of Communications Stock........................ 6,822 Issuance of MediaOne Group Stock for Continental Acquisition........................................... 150,615 Other issuances of MediaOne Group Stock................. 1,853 Purchase of treasury stock.............................. (15,919) ------- --------------- BALANCE DECEMBER 31, 1996................................. 608,863 480,457 Issuance of Communications Stock........................ 4,058 Issuances of MediaOne Group Stock....................... 1,783 Purchase of treasury stock.............................. (2,838) ------- --------------- BALANCE DECEMBER 31, 1997................................. 607,808 484,515 Issuance of Communications Stock........................ 1,101 Distribution of New U S WEST............................ (485,042) Issuance of MediaOne Group Stock........................ 4,350 Purchase of treasury stock.............................. (8,682) (574) ------- --------------- BALANCE DECEMBER 31, 1998................................. 603,476 -- ------- --------------- ------- ---------------
SERIES D PREFERRED STOCK. On November 15, 1996, Old U S WEST issued 19,999,478 shares of 4.5 percent, 20 year, Series D Preferred Stock (the "Series D Preferred Stock") to Continental shareowners as partial consideration for the Continental Acquisition. Dividends are payable quarterly on the nonvoting Series D Preferred Stock as and when declared by the Board of Directors of MediaOne Group (the "Board of Directors") out of funds legally available. Effective with the Separation, the Series D Preferred Stock remains outstanding and represents Series D Preferred Stock of MediaOne Group. The Series D Preferred Stock has a liquidation value of $50 per share and was recorded at the November 15, 1996 fair value of $46 per share. The Series D Preferred Stock is convertible at any time at the option of the holder into 1.98052 shares of MediaOne Group Common Stock per share of Series D Preferred Stock. Since 79 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16: SHAREOWNERS' EQUITY (CONTINUED) holders of the Series D Preferred Stock did not participate in the Dex Dividend upon Separation, the Board of Directors adjusted the conversion rate of the Series D Preferred Stock from 1.905 shares of MediaOne Group Common Stock per share of Series D Preferred Stock to 1.98052 per share. Between November 15, 1999 and November 15, 2001, the Series D Preferred Stock is redeemable at par, at the option of the Company, into shares of MediaOne Group Stock if the market price of MediaOne Group common shares has closed at or above $34.08 per share for at least 20 of the 30 consecutive trading days prior to the notice of redemption. After November 15, 2001, the Series D Preferred Stock is redeemable at par, at the option of the Company, in cash, MediaOne Group Stock, or any combination of cash and stock. If MediaOne Group Stock is elected, the number of shares to be issued will be determined based on the average market price for the ten consecutive trading days ending on the third business day prior to redemption, reduced by five percent. On November 15, 2016, the Company is required to redeem the Series D Preferred Stock, at its election, for cash, MediaOne Group Stock, or any combination of cash and stock. Upon certain events, including the disposition of all or substantially all of the properties and assets attributed to MediaOne Group, the Series D Preferred Stock becomes mandatorily redeemable. The Series D Preferred Stock ranks senior to all classes of MediaOne Group common stock, is subordinated to any senior debt and the Preferred Securities, and ranks equally with the Series E and C Preferred Stocks. LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN ("LESOP"). MediaOne Group sponsors a defined contribution savings plan for substantially all employees of MediaOne Group, except for foreign national employees. Effective in 1997, employees of the Atlanta cable systems also became eligible to participate in the defined contribution savings plan. Borrowings associated with the LESOP were repaid in May 1998. Prior to that time, the borrowings associated with the LESOP, which were unconditionally guaranteed by Old U S WEST, were included in the Consolidated Balance Sheets of the Company and corresponding amounts were recorded as reductions to shareowners' equity. Contributions from Old U S WEST as well as dividends on unallocated shares held by the LESOP ($1, $3 and $5 in 1998, 1997 and 1996, respectively) were used for debt service. The Company matched a percentage of eligible employee contributions with shares of MediaOne Group Stock. Shares in the LESOP were released as principal and interest were paid on the debt. At December 31, 1998, 12,831,958 shares of MediaOne Group Stock and 12,537,710 shares of Communications Stock had been allocated from the LESOP to participants' accounts. At December 31, 1998, there are no remaining MediaOne Group shares to be allocated. The Company recognizes expense based on the cash payments method. MediaOne Group's contributions to the plan (excluding dividends) were $8, $9 and $10 in 1998, 1997 and 1996, respectively, of which $1, $1 and $2, respectively, have been classified as interest expense. SHAREHOLDER RIGHTS PLAN. The Board of Directors has adopted a shareholder rights plan which, in the event of a takeover attempt, would entitle existing shareowners to certain preferential rights. The rights expire on April 6, 1999, and are redeemable by MediaOne Group at any time prior to the date they would become effective. The expiration date for the rights has been extended to the year 2009. See Note 22-- Subsequent Events--to the Consolidated Financial Statements. COMPREHENSIVE INCOME. During 1998, MediaOne Group adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components within the financial statements. Comprehensive income includes net income 80 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16: SHAREOWNERS' EQUITY (CONTINUED) and other changes to equity not included in net income, such as foreign currency translation and unrealized gains or losses on debt and equity securities. Of the total net unrealized gains on debt and equity securities during 1998, $826 (net of deferred taxes of $530), relates to the Company's investment in AirTouch common and preferred stock acquired in connection with the AirTouch Transaction. During 1998, MediaOne Group recorded an unrealized gain of $147 related to its investment in AirTouch preferred stock. This unrealized gain was fully offset by a loss on an interest rate swap agreement which was designed to minimize the Company's exposure to fluctuations in the fair value of the AirTouch preferred stock as a result of interest rate changes. The following table presents the components of other comprehensive income and their related tax impacts. It also presents reclassification adjustments related to gains realized on the sale of debt and equity securities.
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1998 1997 ------------------------------- ------------------------------- PRE- AFTER- PRE- AFTER- TAX TAX TAX TAX TAX TAX --------- --------- --------- --------- --------- --------- Unrealized gain (loss) on debt and equity securities and Exchangeable Notes.............................. $ 1,556 $ (601) $ 955 $ 271 $ (109) $ 162 Less: Reclassification for gains realized in net income.............................................. (20) 8 (12) (231) 93 (138) --------- --------- --------- --------- --------- --------- Net unrealized gain (loss)............................ 1,536 (593) 943 40 (16) 24 Foreign currency translation.......................... (6) 2 (4) (92) 36 (56) --------- --------- --------- --------- --------- --------- Other comprehensive income (loss)..................... $ 1,530 $ (591) $ 939 $ (52) $ 20 $ (32) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 1996 ----------------- PRE- TAX TAX AFTER- TAX --- --- ----- Unrealized gain (loss) on debt and equity securities and Exchangeable Notes.............................. $ (6) $ 1 $ (5) Less: Reclassification for gains realized in net income.............................................. -- -- -- -- -- -- Net unrealized gain (loss)............................ (6) 1 (5) Foreign currency translation.......................... (2) 1 (1) -- -- -- Other comprehensive income (loss)..................... $ (8) $ 2 $ (6) -- -- -- -- -- --
NOTE 17: EARNINGS PER SHARE The following table reflects the computation of basic and diluted earnings (loss) per share for MediaOne Group Stock and Communications Stock, in accordance with the provisions of SFAS No. 128, "Earnings Per Share." The dilutive securities for 1998 represent the incremental weighted average shares from potential share issuances associated with stock options for MediaOne Group Stock and Communications Stock, and the assumed conversion of the convertible Series D Preferred Stock for MediaOne Group Stock. The diluted earnings (loss) and related per share amounts for 1997 and 1996 do not include potential share issuances associated with stock options and the convertible Series D Preferred Stock since the effect would have been antidilutive on the loss from continuing operations. 81 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17: EARNINGS PER SHARE (CONTINUED)
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- (SHARES IN THOUSANDS) MEDIAONE GROUP STOCK: Income (loss) from continuing operations..................................... $ 1,430 $ (827) $ (357) Preferred stock dividends and accretion.................................... (55) (52) (9) Loss on redemption of Preferred Securities................................. (53) -- -- ---------- ---------- ---------- Income (loss) from continuing operations available to MediaOne Group Stock shareowners used for basic earnings (loss) per share....................... 1,322 (879) (366) Preferred stock dividends and accretion on assumed conversion.............. 49 -- -- ---------- ---------- ---------- Income (loss) from continuing operations available to MediaOne Group Stock shareowners used for diluted earnings (loss) per share..................... $ 1,371 $ (879) $ (366) ---------- ---------- ---------- ---------- ---------- ---------- Income from discontinued operations used for basic and diluted earnings per share Results of operations(1)................................................... $ 158 $ 347 $ 286 ---------- ---------- ---------- ---------- ---------- ---------- Gain on Separation......................................................... $ 24,461 -- -- ---------- ---------- ---------- ---------- ---------- ---------- Extraordinary item--early extinguishment of debt--net of tax................. $ (333) $ -- $ -- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares used for basic earnings (loss) per share... 607,648 606,749 491,924 Effect of dilutive securities: Stock options.............................................................. 6,368 -- -- Series D Preferred Stock................................................... 38,939 -- -- ---------- ---------- ---------- Weighted average number of shares used for diluted earnings (loss) per share...................................................................... 652,955 606,749 491,924 ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ (1) Represents the operations of Dex, which were discontinued on June 12, 1998. 82 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17: EARNINGS PER SHARE (CONTINUED)
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- (SHARES IN THOUSANDS) MEDIAONE GROUP STOCK: BASIC EARNINGS (LOSS) PER SHARE: Continuing operations........................................................ $ 2.18 $ (1.45) $ (0.74) ---------- ---------- ---------- ---------- ---------- ---------- Discontinued operations--results of operations(1)............................ $ 0.26 $ 0.57 $ 0.58 ---------- ---------- ---------- ---------- ---------- ---------- Discontinued operations--gain on Separation.................................. $ 40.25 -- -- ---------- ---------- ---------- ---------- ---------- ---------- Extraordinary item--early extinguishment of debt--net of tax................. $ (0.55) -- -- ---------- ---------- ---------- ---------- ---------- ---------- DILUTED EARNINGS (LOSS) PER SHARE: Continuing operations........................................................ $ 2.10 $ (1.45) $ (0.74) ---------- ---------- ---------- ---------- ---------- ---------- Discontinued operations--results of operations(1)............................ $ 0.24 $ 0.57 $ 0.58 ---------- ---------- ---------- ---------- ---------- ---------- Discontinued operations--gain on Separation.................................. $ 37.46 -- -- ---------- ---------- ---------- ---------- ---------- ---------- Extraordinary item--early extinguishment of debt--net of tax................. $ (0.51) -- -- ---------- ---------- ---------- ---------- ---------- ---------- COMMUNICATIONS STOCK:(2) Income from discontinued operations used for basic and diluted earnings per share(3)................................................................... $ 589 $ 1,177 $ 1,249 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares used for basic earnings per share.......... 484,972 482,751 477,549 Effect of dilutive securities: Stock options................................................................ 4,097 -- -- ---------- ---------- ---------- Weighted average number of shares used for diluted earnings per share........ 489,069 482,751 477,549 ---------- ---------- ---------- ---------- ---------- ---------- BASIC AND DILUTED EARNINGS PER SHARE: Basic earnings per share from discontinued operations(3)..................... $ 1.21 $ 2.43 $ 2.62 ---------- ---------- ---------- ---------- ---------- ---------- Diluted earnings per share from discontinued operations(3)................... $ 1.20 $ 2.43 $ 2.62 ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ (1) Represents the operations of Dex, which were discontinued on June 12, 1998. (2) The Communications Stock was canceled on June 12, 1998, effective with the Separation. (3) Represents the operations of the Communications Group, which were discontinued on June 12, 1998, and included with New U S WEST. 83 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18: STOCK INCENTIVE PLANS MediaOne Group maintains stock incentive plans for executives and other employees and nonemployees, primarily members of the Board of Directors. The Amended MediaOne Group 1994 Stock Plan (the "Plan") is a successor plan to the Amended 1994 Stock Plan which was maintained by Old U S WEST. Under the Amended 1994 Stock Plan, each outstanding Old U S WEST stock option was converted into one Media Group and one Communications Group stock option. Subsequently, each group granted options primarily in its own stock. Effective on the Separation, stock options, whether held by individuals who became MediaOne Group or New U S WEST employees, continued to be outstanding as stock options for MediaOne Group and New U S WEST. The number of MediaOne Group stock options and the exercise prices were adjusted to preserve the economic value of the options before and after the Dex Dividend. The Plan is administered by the Human Resources Committee of the Board of Directors with respect to officers, executive officers and outside directors and by a special committee with respect to all other eligible employees and eligible nonemployees. As of December 31, 1998, the maximum aggregate number of shares of MediaOne Group Stock that could have been granted in any calendar year for all purposes under the Plan was three-quarters of one percent (0.75 percent) of the shares outstanding (excluding shares held in treasury) on the first day of such calendar year. In the event that fewer than the full aggregate number of shares available for issuance in any calendar year were issued in any such year, the shares not issued may be added to the shares available for issuance in any subsequent year or years. Options granted vest over periods up to three years and may be exercised no later than 10 years after the grant date. The compensation cost that has been included in income in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," was $26, zero and $1 in 1998, 1997 and 1996, respectively, all of which related to modifications of stock option terms. MediaOne Group has adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," but continues to account for the Plan under APB Opinion No. 25. Had compensation cost for the Plan been determined consistent with the fair value based accounting method under SFAS No. 123, the pro forma net income and earnings per share for both the MediaOne Group Stock and Communications Stock would have been the following. 84 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18: STOCK INCENTIVE PLANS (CONTINUED)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 1997 1996 1998 ---------------------- ---------------------- ---------------------- BASIC BASIC BASIC NET EARNINGS NET EARNINGS NET EARNINGS INCOME (LOSS) PER INCOME (LOSS) PER INCOME PER SHARE (LOSS) SHARE (LOSS) SHARE --------- ----------- --------- ----------- --------- ----------- MEDIAONE GROUP STOCK: As reported................................... $ 25,716 $ 42.14 $ (480) $ (0.88) $ (71) $ (0.16) Pro forma..................................... $ 25,681 42.08 (501) (0.91) (82) (0.18) COMMUNICATIONS STOCK: As reported................................... -- -- 1,177 2.43 1,249 2.62 Pro forma..................................... -- -- 1,164 2.41 1,247 2.61
The fair value based method of accounting for stock-based compensation plans under SFAS No. 123 recognizes the value of options granted as compensation cost over the options' vesting period and has not been applied to options granted prior to January 1, 1995. Accordingly, the resulting pro forma compensation cost is not representative of what compensation cost will be in future years. Following are the weighted-average assumptions used in connection with the Black-Scholes option-pricing model to estimate the fair value of options granted during 1998, 1997 and 1996:
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- MEDIAONE GROUP STOCK: Risk-free interest rate.................................. 5.53% 6.40% 6.30% Expected life............................................ 4.5 years 5.0 years 5.0 years Expected volatility...................................... 30.0% 30.0% 28.5% Weighted average grant date fair value................... $12.53 $7.81 $7.23 COMMUNICATIONS STOCK: Risk-free interest rate.................................. 6.40% 6.50% Expected dividend yield.................................. 5.80% 6.70% Expected life............................................ 4.0 years 4.5 years Expected volatility...................................... 25.0% 19.6% Weighted average grant date fair value................... $5.70 $3.67
85 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18: STOCK INCENTIVE PLANS (CONTINUED) Data for outstanding options under the Plan is summarized as follows:
MEDIAONE GROUP STOCK COMMUNICATIONS STOCK ------------------------- -------------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE SHARES PRICE SHARES PRICE ------------ ----------- ------------- ----------- Outstanding December 31, 1995................................. 9,708,166 $ 16.33 9,423,101 $ 24.39 ------------ ----------- ------------- ----------- Granted..................................................... 5,523,728 19.36 3,624,602 30.97 Exercised................................................... (507,329) 14.93 (1,205,730) 22.37 Canceled or expired......................................... (610,471) 17.86 (429,058) 25.01 ------------ ----------- ------------- ----------- Outstanding December 31, 1996................................. 14,114,094 $ 17.49 11,412,915 $ 26.67 ------------ ----------- ------------- ----------- Granted..................................................... 8,733,782 20.33 9,491,642 34.87 Exercised................................................... (1,371,529) 16.30 (2,648,569) 25.41 Canceled or expired......................................... (1,027,388) 18.35 (637,411) 27.54 ------------ ----------- ------------- ----------- Outstanding December 31, 1997................................. 20,448,959 $ 18.74 17,618,577 $ 31.23 ------------ ----------- ------------- ----------- Granted..................................................... 6,088,849 36.40 Dex Adjustment.............................................. 827,038 0.90 Separation.................................................. -- -- (17,618,577) -- Exercised................................................... (4,391,697) 17.46 Canceled or expired......................................... (1,239,154) 21.84 ------------ ----------- ------------- ----------- Outstanding December 31, 1998................................. 21,733,995 $ 23.13 -- -- ------------ ----------- ------------- ----------- ------------ ----------- ------------- -----------
The number of exercisable options under the Plan and the weighted-average exercise prices follow:
MEDIAONE GROUP STOCK COMMUNICATIONS STOCK ----------------------- ----------------------- WEIGHTED- WEIGHTED- AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE EXERCISABLE OPTIONS AT: OF SHARES PRICE OF SHARES PRICE - ----------------------------------------------------------------- ---------- ----------- ---------- ----------- December 31, 1996................................................ 4,867,207 $ 16.74 3,881,100 $ 25.71 December 31, 1997................................................ 7,235,685 16.54 5,299,955 25.72 December 31, 1998................................................ 9,742,450 18.30 -- --
86 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18: STOCK INCENTIVE PLANS (CONTINUED) The following table summarizes the status of outstanding and exercisable options under the Plan at December 31, 1998. The total options outstanding represent 3.6 percent of the MediaOne Group common shares outstanding.
OUTSTANDING OPTIONS ------------------------------------------ EXERCISABLE OPTIONS WEIGHTED- ----------------------- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE - --------------------------------------------------- ------------ --------------- ----------- ---------- ----------- MEDIAONE GROUP STOCK $9.81 - $14.87..................................... 2,190,892 4.37 $ 14.08 2,190,892 $ 14.08 $14.97 - $16.95.................................... 2,741,956 6.47 16.46 2,431,411 16.57 $17.06 - $17.78.................................... 2,991,600 8.08 17.75 251,696 17.50 $17.82 - $19.03.................................... 2,472,984 6.95 18.32 1,557,634 18.50 $19.10 - $19.83.................................... 2,449,508 6.55 19.74 1,837,436 19.77 $19.89 - $21.51.................................... 2,443,590 7.99 21.27 798,946 21.26 $21.75 - $33.40.................................... 2,647,064 8.65 29.16 622,030 30.03 $33.52 - $37.43.................................... 2,518,320 9.22 37.06 52,363 35.96 $37.49 - $49.13.................................... 1,277,731 9.54 44.93 42 44.38 $49.63 - $49.63.................................... 350 9.58 49.63 -- -- ------------ --- ----------- ---------- ----------- 21,733,995 7.48 $ 23.13 9,742,450 $ 18.30 ------------ --- ----------- ---------- ----------- ------------ --- ----------- ---------- -----------
A total of 6,088,849, 8,733,782 and 5,523,728 MediaOne Group Stock options were granted in 1998, 1997 and 1996, respectively. A total of 9,491,642 and 3,624,602 Communications Stock options were granted in 1997 and 1996, respectively. Included in the total grants were 249,827 of modified MediaOne Group Stock options and 198,027 of modified Communications Stock options revalued as new grants during 1996. The modified MediaOne Group Stock options were not significant in 1998 and 1997, and the Communications Stock options were not significant during 1997. Including the modified options, the weighted-average grant date fair value was $7.10 for MediaOne Group Stock options and $3.87 for Communications Stock options in 1996. The exercise price of MediaOne Group and Communications Stock options, excluding modified options, equals the market price on the grant date. The exercise prices of modified stock options may be greater or less than the market price on the revaluation date. Approximately 4,046,000 and 2,700,000 shares of MediaOne Group Stock were available for grant under the plans in effect at December 31, 1998 and 1997, respectively, and 3,100,000 shares of Communications Stock were available for grant under the plans in effect at December 31, 1997. Approximately 25,780,000 shares of MediaOne Group Stock were reserved for issuance under the Plan at December 31, 1998. 87 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19: EMPLOYEE BENEFITS MEDIAONE GROUP PLANS Effective on the Separation, MediaOne Group established a new defined benefit pension plan and a new retiree health care and life insurance plan for certain of its employees. A portion of the existing assets of the Old U S WEST pension plan were transferred at fair value to the MediaOne Group pension plan such that the ratio of plan assets to plan liabilities, calculated on a projected benefit obligation basis, was the same for the MediaOne Group and New U S WEST pension plans. The existing assets of the Old U S WEST postretirement plan were transferred to MediaOne Group in a similar manner, such that the ratio of plan assets to plan liabilities, calculated on an accumulated postretirement benefit obligation basis, was the same for MediaOne Group and New U S WEST. The MediaOne Group defined benefit pension plan covers substantially all of its employees, except for foreign national employees. Management benefits are based on a final pay formula and MediaOne Group uses the projected unit credit method for the determination of pension cost for financial reporting and funding purposes. MediaOne Group's policy is to fund amounts required under the Employee Retirement Income Security Act of 1974; no funding was required in 1998, 1997 nor 1996. MediaOne Group also sponsors a nonqualified pension plan which pays supplemental pension benefits to key executives in addition to amounts received under the MediaOne Group pension plan. The obligation and annual expense for this plan are included in the 1998 pension detail below. MediaOne Group provides certain health care and life insurance benefits to retired employees. MediaOne Group uses the projected unit credit method for the determination of postretirement medical and life costs for financial reporting purposes. The components of the 1998 net periodic benefit cost for pension benefits and for other postretirement benefits were $3 and $2, respectively, during the year. Below is a reconciliation of the change in the fair value of the plan assets for the pension and postretirement plans for 1998:
OTHER PENSION POSTRETIREMENT BENEFITS BENEFITS ----------- --------------- Fair value of plan assets at beginning of year....................... $ -- $ -- Actual return on plan assets....................................... 10 -- Contributions for non-qualified plan............................... 4 -- Assets transferred from Old U S WEST............................... 194 4 Assets due from Old U S WEST....................................... 19 1 Benefits paid...................................................... (9) -- ----- ----- Fair value of plan assets at end of year(1) $ 218 $ 5 ----- ----- ----- -----
- ------------------------ (1) Pension assets include MediaOne Group stock of $1. 88 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19: EMPLOYEE BENEFITS (CONTINUED) Below is a reconciliation of the change in the benefit obligation for the pension and postretirement plans for 1998:
OTHER PENSION POSTRETIREMENT BENEFITS BENEFITS ----------- --------------- Net benefit obligation at beginning of year.......................... $ -- $ -- Service cost....................................................... 8 1 Interest cost...................................................... 6 -- Liability transferred from Old U S WEST............................ 190 23 Actuarial loss..................................................... 5 1 Benefits paid...................................................... (9) -- ----- ----- Net benefit obligation at end of year................................ $ 200 $ 25 ----- ----- ----- -----
The following table represents the funded status of the pension and postretirement plans at December 31, 1998:
OTHER PENSION POSTRETIREMENT BENEFITS BENEFITS ----------- --------------- Funded status at end of year......................................... $ 18 $ (20) Unrecognized actuarial (gain) loss................................. (47) 5 Unrecognized prior service cost.................................... 20 1 Unrecognized net transition (asset) obligation..................... (7) -- ----- ----- Net accrued liability at end of year................................. $ (16) $ (14) ----- ----- ----- -----
The actuarial assumptions used to account for the plans are as follows:
OTHER PENSION POSTRETIREMENT BENEFITS BENEFITS --------------- ------------------------ WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31, 1998 Discount rate...................................... 6.75% 6.75% Expected return on assets.......................... 8.75% 8.75% Rate of compensation increase...................... 4.00% N/A Health care cost trend on covered charges.......... N/A 8% decreasing to an ultimate trend of 5% in 2011
A one percent change in the assumed healthcare cost trend rate would have increased the accumulated postretirement benefit obligation by $4 and decreased it by $3. The impact on service and interest cost components would not have been material. OLD U S WEST PLANS Prior to the Separation, MediaOne Group participated in the employee benefits plans sponsored by Old U S WEST. Since both MediaOne Group and New U S WEST belonged to a single pension and postretirement plan, assets were not segregated until Separation. Pension and postretirement benefit costs were allocated to MediaOne Group based on the ratio of MediaOne Group's service cost to 89 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19: EMPLOYEE BENEFITS (CONTINUED) the total service cost. MediaOne Group's share of the net pension cost (credit) for 1997 and 1996 was $(3) and zero, respectively. MediaOne Group's share of the net postretirement costs for 1997 and 1996 was $4 and $2, respectively. NOTE 20: INCOME TAXES The components of the provision for income taxes follow:
DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- FEDERAL: Current.......................................................... $ (372) $ (210) $ (96) Deferred......................................................... 1,358 (137) (88) --------- --------- --------- 986 (347) (184) --------- --------- --------- STATE AND LOCAL: Current.......................................................... (14) (20) (17) Deferred......................................................... 203 (26) (11) --------- --------- --------- 189 (46) (28) --------- --------- --------- FOREIGN: Current.......................................................... 15 (1) 2 Deferred......................................................... 18 14 30 --------- --------- --------- 33 13 32 --------- --------- --------- Provision (benefit) for income taxes............................... $ 1,208 $ (380) $ (180) --------- --------- --------- --------- --------- ---------
The Company paid $24, $636 and $693 for income taxes in 1998, 1997 and 1996, respectively, inclusive of the discontinued operations of New U S WEST and the capital assets segment. Income taxes paid for the discontinued operations of New U S WEST, through the Separation date of June 12, 1998, were $379, $906 and $814 in 1998, 1997 and 1996, respectively. The effective tax rate differs from the statutory tax rate as follows:
DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (IN PERCENT) Federal statutory tax rate.............................................. 35.0 35.0 35.0 State income taxes--net of federal effect............................... 3.5 2.5 3.3 Foreign taxes--net of federal effect.................................... (1.8) (0.7) (3.9) Goodwill amortization................................................... (4.5) (4.7) (2.4) Other................................................................... 0.6 (0.6) 1.5 --- --- --- Subtotal without gain on sale of domestic wireless...................... 32.8 31.5 33.5 Gain on sale of domestic wireless....................................... 13.0 -- -- --- --- --- Effective tax rate...................................................... 45.8 31.5 33.5 --- --- --- --- --- ---
90 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20: INCOME TAXES (CONTINUED) The components of the net deferred tax liability follow:
DECEMBER 31, -------------------- 1998 1997 --------- --------- Intangible assets.......................................................... $ 2,685 $ 2,605 Property, plant and equipment.............................................. 284 270 State deferred tax liability-- net of federal effect....................... 867 667 Leases..................................................................... 557 585 Investment in AirTouch Communications...................................... 1,978 -- Other...................................................................... 95 253 --------- --------- Deferred tax liabilities................................................. 6,466 4,380 --------- --------- Postemployment benefits, including pension................................. -- 23 State deferred tax asset--net of federal effect............................ 87 74 Reserves................................................................... 189 45 Investments................................................................ 203 203 Net operating loss and tax credit carryforwards............................ 127 155 Valuation allowance........................................................ (279) (320) Foreign currency translation adjustment.................................... 57 -- Other...................................................................... 121 357 --------- --------- Deferred tax assets...................................................... 505 537 --------- --------- Net deferred tax liability................................................. $ 5,961 $ 3,843 --------- --------- --------- ---------
In connection with the Continental Acquisition, the Company has acquired operating loss carryforwards of approximately $217 for federal income tax purposes, expiring in various years through 2011. The Company also acquired investment tax credit carryforwards of approximately $50, expiring in various years through 2005. Due to potential use limitations, a valuation allowance of $279 has been established for the carryforwards and for a deferred tax asset associated with an investment. If the realization of the carryforwards or deferred tax asset becomes more likely than not in future periods, any reduction in the valuation allowance will be allocated to reduce goodwill and acquired intangible assets. The current portion of the deferred tax asset was $74 and $102 at December 31, 1998 and 1997, respectively, resulting primarily from compensation-related items and other accrued expenses. The net deferred tax liability includes $669 in 1997 related to the capital assets segment. Foreign operations contributed pretax losses of $336, $604 and $362 during 1998, 1997 and 1996, respectively. NOTE 21: COMMITMENTS AND CONTINGENCIES MediaOne Group commitments and debt guarantees associated with its investments totaled approximately $310 for its international investments and $240 for its domestic investments. In addition, a MediaOne Group subsidiary guarantees debt, non-recourse to MediaOne Group, associated with its international investment of approximately $880. Certain cable subsidiaries of the Company in Florida, Michigan, Minnesota and Ohio have been named as defendants in various class action lawsuits challenging such subsidiaries' policies for charging late payment fees when customers fail to pay for subscriber services in a timely manner. MediaOne Group is 91 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21: COMMITMENTS AND CONTINGENCIES (CONTINUED) currently reviewing the lawsuits to determine what impact, if any, such lawsuits may have on the operations of the Company. NOTE 22: SUBSEQUENT EVENTS CABLE SYSTEMS. On February 2, 1999, MediaOne Group and Time Warner Cable, a division of Time Warner and TWE, signed a definitive agreement to trade certain cable systems. MediaOne Group will trade cable systems in Ohio, Maine and California serving approximately 350,000 subscribers, while Time Warner Cable will trade cable systems in Massachusetts, New Hampshire and Georgia serving approximately 310,000 subscribers. MediaOne Group will also receive cash from the trade. The transaction is expected to close in 1999. On March 2, 1999, MediaOne Group and Cox Communications, Inc. ("Cox") signed a definitive agreement to trade certain cable systems. MediaOne Group will trade cable systems in Connecticut and Rhode Island serving approximately 51,000 subscribers, while Cox will trade cable systems in Massachusetts serving approximately 54,000 subscribers. MediaOne Group will also pay cash for the trade. The transaction is expected to close during the third quarter of 1999, subject to legal and regulatory approval. SHAREHOLDER RIGHTS PLAN. On February 9, 1999, the Board of Directors approved a new shareholder rights plan to replace the existing plan upon expiration. The new rights expire on April 6, 2009. The new shareholder rights plan contains terms similar to the original plan. INVESTMENT IN AIRTOUCH COMMUNICATIONS. On January 15, 1999, AirTouch entered into a preliminary agreement with Vodafone Group Public Limited Company ("Vodafone") to merge its operations with a subsidiary of Vodafone. The proposed terms of the preliminary merger agreement indicate that the outstanding common shares of AirTouch would be converted into the right to receive five ordinary shares of Vodafone and $9.00 in cash per AirTouch common share held. MediaOne Group currently owns approximately 59.3 million shares of AirTouch common stock, of which a maximum of 29 million shares could be used in the future to extinguish the Exchangeable Notes outstanding. See Note 10--Debt--to the Consolidated Financial Statements. INVESTMENT IN PRIMESTAR. On January 22, 1999, PrimeStar announced that it had reached an agreement with Hughes Electronics Corporation ("Hughes") to sell its rights to acquire certain high-power satellite assets to Hughes for approximately $35 in cash and the assumption by Hughes of $465 of certain advances made by Old PrimeStar to Tempo Satellites, Inc. In addition, PrimeStar agreed to sell its DBS medium-power business and assets to Hughes for approximately $1.1 billion in cash and 4.871 million shares of General Motors Class H common stock. The sales are contingent upon the receipt of various regulatory approvals and the consent of certain third parties, including PrimeStar lenders. OPTUS SHARES. During the first quarter of 1999, MediaOne Group sold its investment in the 50 million Optus shares held as of year-end 1998, for net proceeds of $121 and a pre-tax gain of $119. In addition, during the first quarter of 1999, MediaOne Group received 13.6 million Optus shares as a result of having met certain performance measures at Optus, and purchased 5.6 million additional Optus shares related to the Company's anti-dilution rights. MediaOne Group is currently in the process of disposing of its remaining investment in Optus shares. COMCAST MERGER. On March 22, 1999, MediaOne Group announced that it had entered into a merger agreement with Comcast Corporation ("Comcast") whereby MediaOne Group would be merged into 92 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 22: SUBSEQUENT EVENTS (CONTINUED) Comcast. The merger agreement calls for MediaOne Group common shareowners to receive 1.1 shares of Comcast Class A Special Common Stock for each share of MediaOne Group common stock held. The transaction will be tax-free to MediaOne Group shareowners. Subject to the approval of both shareowner groups, and various federal, state and local regulatory bodies, the merger could be completed as early as year-end 1999. While the merger agreement prohibits MediaOne Group from soliciting competing acquisition proposals, MediaOne Group may, subject to compliance with the terms of the merger agreement and payment of a $1.5 billion fee to Comcast, accept a superior proposal that is submitted within 45 days of the date of the merger agreement. NOTE 23: NET INVESTMENT IN ASSETS HELD FOR SALE As of December 31, 1998, the disposal of assets held for sale of the capital assets segment was substantially completed. Therefore, the Consolidated Balance Sheet at December 31, 1998 includes the accounts of the capital assets segment. Prior to this time, the capital assets segment had been accounted for in accordance with Staff Accounting Bulletin No. 93, issued by the SEC, which required discontinued operations not disposed of within one year of the measurement date to be accounted for prospectively in continuing operations as a "net investment in assets held for sale." The remaining assets of the capital assets segment primarily represent long term lease finance receivables which will be run-off. These receivables are reflected in "Other Assets" in the Consolidated Balance Sheet for 1998. Beginning in 1999, the operations of the capital assets segment will also be reflected in the Consolidated Statements of Operations. MediaOne Real Estate, Inc. ("Real Estate") sold various assets during 1998, 1997 and 1996 for proceeds of $182, $88 and $156, respectively. The sales proceeds were in line with estimates. Proceeds from sales were primarily used to repay related debt. As of December 31, 1998, the Company had substantially completed the liquidation of this portfolio. Building sales and operating revenues of the capital assets segment were $208, $116 and $223 in 1998, 1997 and 1996 , respectively. During 1998, 1997 and 1996, income or losses from the capital assets segment were deferred and included within the reserve for assets held for sale. 93 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 23: NET INVESTMENT IN ASSETS HELD FOR SALE (CONTINUED) The components of net investment in assets held for sale as of December 31, 1997 follow:
DECEMBER 31, 1997 ------------- ASSETS Cash and cash equivalents........................................................................... $ 54 Finance receivables--net............................................................................ 777 Investment in real estate--net of valuation allowance............................................... 156 Bonds, at market value.............................................................................. 119 Investment in FSA................................................................................... 365 Other assets........................................................................................ 197 ------ Total assets........................................................................................ $ 1,668 ------ ------ LIABILITIES Debt................................................................................................ $ 372 Deferred income taxes............................................................................... 669 Accounts payable, accrued liabilities and other..................................................... 197 Minority interests.................................................................................. 11 ------ Total liabilities................................................................................... 1,249 ------ Net investment in assets held for sale.............................................................. $ 419 ------ ------
Finance receivables primarily consist of contractual obligations under long-term leases with maturity dates ranging from 1999 to 2016 that MediaOne Group intends to run off. Certain leases contain renewal options and buyout provisions. These long-term leases consist mostly of leveraged leases related to aircraft and power plants. For leveraged leases, the cost of the assets leased is financed primarily through nonrecourse debt which is netted against the related lease receivable. The components of finance receivables follow.
DECEMBER 31, -------------------- 1998 1997 --------- --------- Receivables.................................................................................... $ 671 $ 719 Unguaranteed estimated residual values......................................................... 431 431 --------- --------- 1,102 1,150 Less: Unearned income.......................................................................... 338 355 Credit loss and other allowances(1).......................................................... 138 18 --------- --------- Finance receivables--net....................................................................... $ 626 $ 777 --------- --------- --------- ---------
- ------------------------ (1) Includes allowance for credit losses of $13 in 1998 and 1997, respectively. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK--FINANCIAL GUARANTEES MediaOne Group retained certain risks in asset-backed obligations related to the commercial real estate portfolio. As of December 31, 1998, the principal amounts insured on asset-backed obligations were 94 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 23: NET INVESTMENT IN ASSETS HELD FOR SALE (CONTINUED) $146 for maturity terms up to five years and $138 for maturity terms ranging from 5 to 10 years, for a total principal amount insured of $284. As of December 31, 1997, the amounts were $449 for terms up to 5 years, and $266 for terms ranging from 5 to 10 years, for a total amount of $715. Concentrations of collateral associated with insured asset-backed obligations follow:
DECEMBER 31, -------------------- TYPE OF COLLATERAL 1998 1997 - -------------------------------------------------------------------------------------------------- --------- --------- Commercial mortgages: Commercial real estate.......................................................................... $ 37 $ 319 Corporate secured............................................................................... 247 396 --------- --------- Total............................................................................................. $ 284 $ 715 --------- --------- --------- ---------
ADDITIONAL FINANCIAL INFORMATION Information for Financial Services, a member of the capital assets segment, follows:
YEAR ENDED OR AS OF DECEMBER 31, ------------------------------- SUMMARIZED FINANCIAL INFORMATION 1998 1997 1996 - ------------------------------------------------------------------- --------- --------- --------- Revenue............................................................ $ 17 $ 23 $ 26 Net finance receivables............................................ 625 824 859 Total assets....................................................... 858 1,208 1,058 Total debt......................................................... 199 363 236 Total liabilities.................................................. 846 1,121 998 Equity............................................................. 12 87 60
NOTE 24: DISCONTINUED OPERATIONS In accordance with Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the Consolidated Financial Statements reflect New U S WEST as a discontinued operation. The assets and liabilities, revenues and expenses, and the cash flows of New U S WEST have been separately classified in the Consolidated Balance Sheets, Statements of Operations, and Statements of Cash Flows. The Company has accounted for the distribution of New U S WEST common stock to the holders of Communications Stock, and to the holders of MediaOne Group Stock for the Dex Alignment as a discontinuance of the businesses comprising New U S WEST. The measurement date for discontinued operations accounting purposes is June 4, 1998, the date upon which Old U S WEST's shareowners approved the Separation. Because the distribution was non pro-rata, as compared with the businesses previously attributed to Old U S WEST's two classes of shareowners, it was accounted for at fair value. The distribution resulted in a gain of $24,461, net of $114 of Separation costs (net of tax benefits of $37). Separation costs included cash payments under severance agreements of $45 and financial advisory, legal, registration fee, printing and mailing costs. Separation costs also included a one-time payment to terminate the sale of the Minnesota cable systems. 95 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 24: DISCONTINUED OPERATIONS (CONTINUED) Summarized financial information for the discontinued operations is as follows:
YEAR ENDED DECEMBER 31, SUMMARIZED FINANCIAL POSITION 1997 - ---------------------------------------------------------------------------------------------------- ------------ ASSETS Cash and cash equivalents........................................................................... $ 27 Accounts and notes receivable--net.................................................................. 1,717 Property, plant and equipment--net.................................................................. 14,308 Other assets........................................................................................ 1,344 ------------ Total assets........................................................................................ $ 17,396 ------------ ------------ LIABILITIES Debt................................................................................................ $ 5,715 Accounts payable, accrued liabilities and other..................................................... 4,260 Postretirement and other postemployment benefit obligation.......................................... 2,534 Deferred income taxes and credits................................................................... 520 ------------ Total liabilities................................................................................... $ 13,029 ------------ ------------ Net investment in assets of discontinued operations................................................. $ 4,367 ------------ ------------
SUMMARIZED OPERATING RESULTS 1998 1997 1996 - ---------------------------------------------------------------------------------- --------- --------- --------- Revenues.......................................................................... $ 5,454 $ 11,479 $ 11,168 Operating income.................................................................. 1,412 2,776 2,812 Income before income taxes, extraordinary item and cumulative effect of change in accounting principle............................................................ 1,187 2,429 2,377 Income tax expense................................................................ (440) (902) (876) --------- --------- --------- Income before extraordinary item and cumulative effect of change in accounting principle....................................................................... 747 1,527 1,501 Extraordinary item--debt extinguishment--net of tax............................... -- (3) -- Cumulative effect of change in accounting principle--net of tax................... -- -- 34 --------- --------- --------- Net income of discontinued operations............................................. $ 747 $ 1,524 $ 1,535 --------- --------- --------- --------- --------- ---------
96 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 25: QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA ------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- --------- ----------- ----------- 1998 Sales and other revenues(1).............................................. $ 972 $ 641 $ 626 $ 643 Income (loss) from continuing operations before income taxes............. (328) 3,716 (244) (506) Income (loss) from continuing operations................................. (222) 2,174 (184) (338) Income from discontinued operations - net of tax(2)...................... 434 24,774 -- -- Net income (loss)(2)..................................................... 212 26,615 (184) (338) MEDIAONE GROUP STOCK: Basic earnings (loss) per common share: Income (loss) from continuing operations............................... $ (0.38) $ 3.46 $ (0.32) $ (0.58) Income from discontinued operations per common share................... 0.14 40.28 -- -- Total basic earnings (loss) per common share........................... (0.24) 43.19 (0.32) (0.58) Diluted earnings (loss) per common shares................................ Income (loss) from continuing operations............................... $ (0.38) $ 3.24 $ (0.32) $ (0.58) Income from discontinued operations per common share................... 0.14 37.53 -- -- Total diluted earnings (loss) per common share......................... (0.24) 40.27 (0.32) (0.58) COMMUNICATIONS STOCK: Earnings from discontinued operations per common share: Basic earnings......................................................... $ 0.72 $ 0.50 $ -- $ -- Diluted earnings....................................................... 0.72 0.49 -- -- 1997 Sales and other revenues(3).............................................. $ 920 $ 981 $ 974 $ 972 Loss from continuing operations before income taxes...................... (270) (252) (342) (343) Loss from continuing operations.......................................... (190) (181) (226) (230) Income from discontinued operations--net of tax(4)....................... 420 416 420 268 Net income............................................................... 230 238 191 38 MEDIAONE GROUP STOCK: Basic and diluted loss from continuing operations per common share..... $ (0.33) $ (0.31) $ (0.40) $ (0.40) Basic and diluted earnings from discontinued operations per common share................................................................ 0.13 0.14 0.14 0.16 ----------- --------- ----------- ----------- Total basic and diluted loss per MediaOne Group Stock common share..... $ (0.20) $ (0.17) $ (0.26) $ (0.24) ----------- --------- ----------- ----------- ----------- --------- ----------- ----------- COMMUNICATIONS STOCK: Basic and diluted earnings from discontinued operations per common share................................................................ $ 0.70 $ 0.69 $ 0.69 $ 0.35 ----------- --------- ----------- ----------- ----------- --------- ----------- -----------
97 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 25: QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED) - ------------------------ (1) Sales and other revenues include revenues related to the domestic wireless operations of $341 and $20 for the first and second quarters of 1998, respectively. The domestic wireless operations were sold on April 6, 1998. (2) Income from discontinued operations includes $87 and $72 related to Dex, and $347 and $241 related to the Communications Group for the first and second quarters of 1998, respectively. (3) Sales and other revenues include revenues related to the domestic wireless operations of $335, $363, $373 and $357 for the first, second, third and fourth quarters of 1997, respectively (4) Income from discontinued operations includes $81, $84, $84 and $98 related to Dex, and $339, $332, $336 and $170 related to the Communications Group for the first, second, third and fourth quarters of 1997, respectively. First-quarter 1998 net income includes net income of $15 ($0.03 per share of MediaOne Group Stock) related to the domestic wireless businesses and a gain of $10 ($0.02 per share of MediaOne Group Stock) related to the sale of a cable programming investment. Second-quarter 1998 net income includes a gain of $24,461 ($40.16 per share of MediaOne Group Stock) related to the Separation, a gain of $2,257 ($3.71 per share of MediaOne Group Stock) related to the sale of MediaOne Group's domestic wireless businesses, gains of $14 ($0.02 per share of MediaOne Group Stock) related to various investment sales, net income of $5 ($0.01 per share of MediaOne Group Stock) related to the domestic wireless businesses, and a charge of $333 ($0.55 per share of MediaOne Group Stock) for the early extinguishment of debt. Third-quarter 1998 net income includes gains of $2 (no per share impact) on sales of miscellaneous domestic cable systems and a charge of $25 ($0.04 per share of MediaOne Group Stock) related to an interest rate swap agreement which did not qualify for deferral accounting. Fourth-quarter 1998 net income includes gains of $18 ($0.03 per share of MediaOne Group Stock) related to sales of various investments, a charge of $100 ($0.16 per share of MediaOne Group Stock) related to a write-down to zero of the Company's investment in PrimeStar, and a charge of $18 ($0.03 per share of MediaOne Group Stock) related to the termination of an interest rate swap agreement and the purchase of an interest rate option. First-quarter 1997 net income includes a gain of $31 ($0.05 per share of MediaOne Group Stock) related to the sale of MediaOne Group's wireless interest in France and net income of $25 ($0.04 per MediaOne Group Stock) related to the domestic wireless businesses. Second-quarter 1997 net income includes net income of $29 ($0.05 per MediaOne Group Stock) related to the domestic wireless businesses, a gain of $25 ($0.04 per share of MediaOne Group Stock) related to the sales of TCG and Time Warner shares and a gain of $3 (no per share MediaOne Group Stock impact) on the early extinguishment of debt. Third-quarter 1997 net income includes net income of $32 ($0.05 per MediaOne Group Stock) related to the domestic wireless businesses, a gain of $7 ($0.01 per share of MediaOne Group Stock) related to sales of TCG shares and a charge of $3 (no per share MediaOne Group Stock impact) for the early extinguishment of debt. Fourth-quarter 1997 net income includes a $120 charge ($0.20 per share of MediaOne Group Stock) related to Asian investments. Also included is a gain of $89 ($0.15 per share of MediaOne Group Stock) related to the sale of TCG shares, a gain of $80 ($0.13 per share of MediaOne Group Stock) on the sale of Fintelco, a gain of $17 ($0.03 per share of MediaOne Group Stock) from the sale of an international directories investment and a net loss of $3 ($0.01 per share of MediaOne Group Stock) related to the domestic wireless businesses. 98 MEDIAONE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 25: QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
MARKET PRICE (WHOLE DOLLARS) ---------------------------------- PER SHARE MARKET AND DIVIDEND DATA HIGH LOW CLOSE DIVIDENDS - ------------------------------------------------------------------ ---------- ---------- ---------- ----------- 1998 MEDIAONE GROUP STOCK First quarter................................................... $ 37.1875 $ 27.0000 $ 34.7500 $ -- Second quarter.................................................. 44.2500 34.1875 43.9375 -- Third quarter................................................... 50.1250 40.0000 44.4375 -- Fourth quarter.................................................. 47.0000 33.4375 47.0000 -- COMMUNICATIONS STOCK First quarter................................................... $ 56.7500 $ 43.3750 $ 54.6250 $ 0.5350 Second quarter (thru 6/12/98)(1)................................ 58.0000 49.5625 50.5000 -- 1997 MEDIAONE GROUP STOCK First quarter................................................... $ 20.6250 $ 17.6250 $ 18.5000 $ -- Second quarter.................................................. 22.3750 16.0000 20.2500 -- Third quarter................................................... 24.2500 19.8125 22.3125 -- Fourth quarter.................................................. 29.1250 22.3125 28.8750 -- COMMUNICATIONS STOCK First quarter................................................... $ 37.2500 $ 31.7500 $ 33.8750 $ 0.5350 Second quarter.................................................. 38.5000 31.1250 37.6875 0.5350 Third quarter................................................... 39.4375 35.6250 38.5000 0.5350 Fourth quarter.................................................. 46.9375 36.8750 45.1250 0.5350
- ------------------------ (1) The Communications Stock was canceled on June 12, 1998, effective with the Separation. 99 MEDIAONE GROUP, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS The following unaudited pro forma condensed combined statement of operations of MediaOne Group for the year ended December 31, 1998 gives effect to (i) the Refinancing, including the refinancing by New U S WEST of the Dex Indebtedness (the "MediaOne Group Separation Adjustments"), and (ii) the AirTouch Transaction (the "AirTouch Transaction Adjustments"), as if such transactions had been consummated as of January 1, 1998. The pro forma adjustments included herein are based on available information and certain assumptions that management believes are reasonable and are described in the accompanying notes. The unaudited pro forma financial statements do not necessarily represent what MediaOne Group's results of operation would have been had the transactions occurred at such date or to project MediaOne Group's results of operations at or for any future date or period. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma financial information have been made. The unaudited pro forma financial statements should be read in conjunction with the historical financial statements of MediaOne Group. 100 MEDIAONE GROUP, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
MEDIAONE GROUP PRO MEDIAONE FORMA MEDIAONE GROUP EXCLUDING AIRTOUCH MEDIAONE GROUP SEPARATION AIRTOUCH TRANSACTION GROUP PRO HISTORICAL ADJUSTMENTS TRANSACTION ADJUSTMENTS FORMA ----------- ------------- ------------- ----------- ----------- DOLLARS IN MILLIONS Sales and other revenues....................... $ 2,882 $ 2,882 $ (359)(E) $ 2,523 Cost of sales and other revenues............... 1,013 1,013 (72)(E) 941 Selling, general and administrative............ 926 926 (139)(E) 787 Depreciation and amortization.................. 1,182 1,182 (55)(E) 1,127 ----------- ----- ------ ----------- ----------- Total operating expense...................... 3,121 3,121 (266) 2,855 ----------- ----- ------ ----------- ----------- Operating loss from continuing operations................................... (239) (239) (93)(E) (332) Other income (expense): Interest expense............................. (491) 118(A) (373) 26(E) (347) Equity losses in unconsolidated ventures..... (417) (417) 35(E) (382) Other income (expense)--net.................. 3,785 17(B) 3,802 (3,841)(E) (39) ----------- ----- ------ ----------- ----------- Income (loss) from continuing operations before income taxes................................. 2,638 135 2,773 (3,873) (1,100) (Provision) benefit for income taxes........... (1,208) (54)(C) (1,262) 1,614(E) 352 ----------- ----- ------ ----------- ----------- Income (loss) from continuing operations................................... 1,430 81 1,511 (2,259) (748) ----------- ----- ------ ----------- ----------- Dividends and accretion on preferred stock..... (55) (55) (55) Loss on redemption of Preferred Securities..... (53) 53(D) -- -- ----------- ----- ------ ----------- ----------- Earnings (loss) available for common stock..... $ 1,322 $ 134 $ 1,456 $ (2,259) $ (803) ----------- ----- ------ ----------- ----------- ----------- ----- ------ ----------- ----------- Basic earnings (loss) per share................ $ 2.18 $ (1.32) ----------- ----------- ----------- ----------- Basic average shares outstanding............... 607,648 607,648 ----------- ----------- ----------- ----------- Diluted earnings (loss) per share.............. $ 2.10 $ (1.16) ----------- ----------- ----------- ----------- Diluted average shares outstanding............. 652,955 652,955 ----------- ----------- ----------- -----------
101 MEDIAONE GROUP, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (A) Reflects a reduction of historical interest expense of $109 million for the year ended December 31, 1998 as a result of the Refinancing, including the refinancing by New U S WEST of the Dex Indebtedness, and an increase in interest expense of $7 million for financing the costs of the Refinancing and the Separation. Also includes a $16 million decrease in interest expense to reverse interest expense recognized on the early termination of interest rate contracts due to the Separation. (B) Reflects a reduction in guaranteed minority interest expense (included in other income (expense)-- net) of $17 million for the year ended December 31, 1998 related to the redemption of the Preferred Securities. (C) Reflects the estimated income tax effects of the pro forma adjustments and the Separation. (D) Reflects the reversal of the $53 million loss incurred on the redemption of the Preferred Securities associated with the Separation in the year ended December 31, 1998. (E) Reflects the consummation of the AirTouch Transaction. The pro forma adjustments reflect the following: - Receipt of 59,314,000 of AirTouch common stock accounted for as marketable equity securities. - Receipt of $1,493 million of AirTouch preferred stock at market value (liquidation value of $1,650 million). - Receipt of $93 million in dividends per year ($25 million for the year ended December 31, 1998 due to the April 6, 1998 consummation). - Reduction in debt of $1,350 million and a corresponding reduction in interest expense of $26 million for the year ended December 31, 1998. - Removal of the consolidated revenues and expenses of MediaOne Group's domestic cellular operations. - Removal of MediaOne Group's equity method investments and related equity losses associated with its investment in PrimeCo. - Reversal of the $3,869 million pre-tax gain and the associated $1,612 million tax expense recognized for the sale of the domestic wireless businesses. 102 MEDIAONE GROUP, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN MILLIONS)
BALANCE AT CHARGED TO BEGINNING OF CHARGED TO OTHER BALANCE AT PERIOD EXPENSE ACCOUNTS DEDUCTIONS END OF PERIOD ------------- --------------- ------------- ------------- ------------- ALLOWANCE FOR CREDIT LOSSES 1998.............................................. $ 64 $ 43 $ (5)(a) $ (58)(b) $ 44 1997.............................................. 65 73 20 (94)(b) 64 1996.............................................. 38 44 28 (45)(b) 65 REAL ESTATE VALUATION ALLOWANCE AND 1993 PROVISION FOR LOSS ON DISPOSAL OF THE CAPITAL ASSETS SEGMENT (after tax) 1998.............................................. 116 -- -- (8) 108 1997.............................................. 100 -- -- 16 116 1996.............................................. 56 -- -- 44 100
- ------------------------------ (a) Represents a reduction related to the sale of the domestic wireless operations and an increase related to the capital assets segment. Effective December 31, 1998, account balances of the capital assets segment are now included in the Consolidated Balance Sheet. (b) Represents credit losses written off during the period, less collection of amounts previously written off. S-1 EX-10.A 2 EXHIBIT 10.A MEDIAONE GROUP, INC. EXECUTIVE SHORT-TERM INCENTIVE PLAN SECTION 1 PURPOSE The purpose of the MediaOne Group, Inc. Executive Short-Term Incentive Plan (the "Plan") is to provide key executives of MediaOne Group, Inc. and its subsidiaries (the "Company") with incentive compensation based upon the achievement of established performance goals. SECTION 2 ELIGIBILITY Eligibility for the Plan is limited to the Chief Executive Officer of MediaOne Group, Inc. ("CEO") and any individuals employed by the Company (at the end of any calendar year) who appear in the Summary Compensation Table of the Company's Proxy Statement to Shareholders for that year. The Human Resources and Executive Development Committee of the MediaOne Group Board of Directors (the "Committee") shall certify eligibility for participation. Individuals eligible to participate in the Plan are herein called "Participants." SECTION 3 AWARDS Participants will be eligible to receive shares of a cash bonus pool established annually, as described in Section 5, provided that the Committee shall have the authority to reduce the share of any participant to the extent it deems appropriate. Any such reduction of a participant's share will not result in an increase of another participant's share. SECTION 4 PERFORMANCE PERIODS Each performance period ("Period") shall have duration of one calendar year, commencing on January 1, and terminating on December 31. SECTION 5 PERFORMANCE FORMULA 5.1 At the end of each Period the Committee will certify the amount of the cash bonus pool pursuant to Section 5.2. 5.2 The cash bonus pool for any Period will be 0.50% (one-half of one percent) of the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of MediaOne Group, Inc. and its consolidated subsidiaries, determined on a proportionate basis (i.e., MediaOne Group's proportionate share of EBITDA of nonconsolidated investments are included with the EBITDA of consolidated investments) in accordance with the standards of the Financial Accounting Standards Board, less any amount that the Committee deems appropriate. 5.3 The pool shares shall be allocated 30% to the CEO, and the remainder shall be allocated pro rata among the other participants.. The Committee shall have the authority to reduce any participant's share of the cash bonus pool to the extent it deems appropriate. In determining the amount to be paid to a participant for any Period, the Committee will consider a number of performance factors, including, but 1 not limited to, the Company's EBITDA, revenues, cash flow, customer and quality indicators, and other relative operating and strategic results. 5.4 Shares of the cash bonus pool will be paid in the year following the completion of the performance period. SECTION 6 SPECIAL DISTRIBUTION RULES 6.1 CHANGE OF CONTROL. In the event of a Change of Control, as defined below, this Plan will cease to apply, and those individuals who would have participated in this Plan shall be entitled to such short-term incentive compensation as the Committee (or the Board, in the case of the CEO) shall have previously determined without regard to the provisions of this Plan. For purposes of the Plan, a "Change of Control" shall mean any of the following: (i) Any "person" (as such term is used in Sections 13 (d) and 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the MediaOne Group Board of Directors; (ii) Any period of two (2) consecutive calendar years during which there shall cease to be a majority of the MediaOne Group Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors any new director(s) whose election by the Board of Directors or nominations for election by the Company's shareholders 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; (iii) the Company becomes a party to a merger, consolidation or Share exchange in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or (iv) Any other event that a majority of the MediaOne Group Board of Directors, in its sole discretion, shall determine constitutes a Change of Control. 6.2 SPECIAL CIRCUMSTANCES. If, prior to a distribution from the cash bonus pool, a Participant (i) is discharged by the Company, (ii) is demoted, or (iii) becomes associated with, employed by or renders services to, or owns a material interest in any business that is competitive with the Company, the Committee shall have the authority to (a) reduce or cancel payments that would otherwise be paid from the cash bonus pool, (b) permit continued participation in the Plan or an early distribution therefrom, or (c) any combination of the foregoing. SECTION 7 MISCELLANEOUS PROVISIONS 7.1 ASSIGNMENT OR TRANSFER. No opportunity shall be assignable or transferable by a participant. 7.2 COSTS AND EXPENSES. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any participant. 2 7.3 OTHER INCENTIVE PLANS. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. 7.4 EFFECT ON EMPLOYMENT. Nothing contained in this Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any participant except to the extent specifically provided herein or therein. Nothing contained in this Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, any obligation on (i) the Company to continue the employment of any participant and (ii) any participant to remain in the employ of the Company. 7.5 TAXATION. The Company shall have the right to deduct from any award to be paid under the Plan any federal, state or local taxes required by law to be withheld with respect to such payment. 7.6 AMENDMENT OF PLAN. The MediaOne Group Board of Directors shall have the right to suspend or terminate this Plan at any time and may amend or modify the Plan prior to the beginning of any Period. SECTION 8 PLAN ADMINISTRATION 8.1 COMMITTEE AUTHORITY DELEGATION. The Committee shall have full power to administer and interpret the Plan and to establish rules for its administration. The Committee may designate Company employees to act in its behalf to engage in daily administration of the Plan. The Committee or its designee may administer the Plan in all respects including the proration or adjustment of awards in the case of retirements, terminations, entrance to or exit from a level of management, changes in base salary, dismissal or death and other conditions as appropriate. 8.2 GOVERNING LAW. The Plan shall be governed by the laws of the state of Colorado and applicable federal law. 8.3 COMMITTEE RELIANCE. The Committee, in making any determination under or referred to in the Plan shall be entitled to rely on opinions, reports or statements of officers or employees of the Company and other entities and of counsel, public accountants and other professional expert persons. SECTION 9 CLAIMS AND APPEALS 9.1 COMMITTEE PROCEDURE. Claims and appeals will be processed in accordance with the following procedures: (a) Any claim under the Plan by a participant or any one claiming through a participant shall be presented to the Committee. (b) Any person whose claim under the Plan has been denied may, within sixty (60) days after receipt of notice of denial, submit to the Committee a written request for review of the decision denying the claim. (c) The Committee shall determine conclusively for all parties all questions arising in the administration of the Plan. 9.2 ARBITRATION. Any dispute that may arise in connection with this Plan shall be determined solely by arbitration in Denver, Colorado under the rules of the American Arbitration Association. Any claim with respect to any benefit under this Plan must be established by a preponderance of the evidence submitted to the impartial arbitrator. The arbitrator shall have the authority to award the prevailing party damages incurred as a result of any breach, costs, reasonable attorneys' fees incurred in connection with the arbitration, and direct that the non-prevailing party pay the expenses of arbitration. The decision of the arbitrator (i) shall be final and binding; (ii) shall be rendered within ninety (90) days after the impanelment 3 of the arbitrator; and (iii) shall be kept confidential by the parties to such arbitration. The arbitration award may be enforced in any court of competent jurisdiction. The Federal Arbitration Act, 9 U.S.C. SS 1-15, not state law, shall govern the arbitrability of all claims. SECTION 10 ADOPTION OF THE PLAN This Plan shall become effective on the date on which it is approved by shareholders of MediaOne Group, Inc. 4 EX-10.B 3 EXHIBIT 10-B DATED JANUARY 1, 1999 MEDIAONE GROUP AMENDED MEDIAONE GROUP 1994 STOCK PLAN I. PURPOSE. This Amended MediaOne Group 1994 Stock Plan (the "Plan"), is intended to promote the long term success of MediaOne Group, Inc. (the "Company") by affording certain eligible employees, executive officers, non-employee directors of the Company and its Subsidiaries (as defined below) and certain outside consultants or advisors to the Company and its affiliates with an opportunity to acquire a proprietary interest in the Company, in order to incentivize such persons and to align the financial interests of such persons with the stockholders of the Company. II. DEFINITIONS. The following defined terms are used in the Plan: A. "Agreement" shall mean the agreement or grant letter accepted by the Participant as described in Section VIII of the Plan between the Company and a Participant under which the Participant receives an Award pursuant to this Plan. B. "Award" shall mean individually, collectively or in tandem, an incentive award granted under the Plan, whether in the form of Options, SARs, Stock Awards or Phantom Units. C. "Board" or "Board of Directors" shall mean the Board of Directors of the Company. D. "Change of Control" shall mean any of the following: 1. any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing twenty percent (20%) or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; or 2. any period of two (2) consecutive calendar years during which 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 3. the Company becomes a party to a merger or consolidation in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of Common Stock of the Company will be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or 4. any other event that a majority of the Board of Directors, in its sole discretion, shall determine constitutes a Change of Control. E. "Code" shall mean the Internal Revenue Code of 1986, as amended. F. "Committee" shall mean the Human Resources Committee or the Sponsor Committee or their delegates, as applicable, pursuant to provisions of Section III of the Plan. G. "Common Stock" shall mean the common stock, $.01 par value, of the Company. H. "Company" shall mean MediaOne Group, Inc., a Delaware corporation (previously known as "U S WEST, Inc."), and any successor thereof. I. "Director Compensation" shall mean all cash or stock remuneration payable to an Outside Director for service to the Company as a director, other than reimbursement for expenses or Common - -------------------------------------------------------------------------------- THIS DOCUMENT CONSTITUTES A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. Stock received upon exercise of an Option, and shall include retainer fees for service on, and fees for attendance at meetings of, the Board and any committees thereof. J. "Disabled" or "Disability" shall mean such condition as would qualify the individual as "disabled" for purposes of receiving a disability pension under the MediaOne Group Pension Plan or long-term disability benefits under the provisions of any MediaOne Group disability plan that provides long-term disability benefits and is maintained for the benefit of eligible employees of the Company or any Related Entity, provided, however, that in the case of an Incentive Option, "disability" shall have the meaning specified in Section 22(e)(3) of the Code. K. "Dividend Equivalent Rights" shall mean the right to receive the amount of any dividends that are paid on an equivalent number of shares of Common Stock underlying an Option or Phantom Unit, which shall be payable either in cash or in the form of additional Phantom Units or Stock. L. "Effective Date" shall mean the date on which the Plan was first approved by the stockholders of the Company. M. "Eligible Employee" shall mean any employee of the Company or any Related Entity who is employed on the date of the grant of an Award. N. "Eligible Non-Employee" shall mean any consultant or advisor to the Company or any Related Entity. O. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. P. "Executive Officers" shall mean any Officer of the Company or any Related Entity who, at the time of an Award, is subject to the reporting requirements of Section 16(a) of the Exchange Act. Q. "Fair Market Value" shall mean the closing price of a share of Common Stock as reported on the New York Stock Exchange for the applicable date, or if there were no sales on such date, on the last day on which there were sales. R. "Human Resources Committee" shall mean the human resources committee of the Board or any other committee of the Board appointed by the Board to administer the Plan in lieu of the Human Resources Committee, which committee shall consist of no fewer than three (3) persons, each of whom shall be a Non-Employee Director. S. "Incentive Option" shall mean an incentive stock option under the provisions of Section 422 of the Code. T. "Indexed" shall mean the periodic adjustment of an Option Price based upon adjustment criteria determined by the Committee, but in no event shall the Option Price be adjusted to an amount less than the original Option Price. U. "Non-Employee Director" shall have the meaning set forth in Rule 16b-3(b)(3) and its successor promulgated under the Exchange Act. V. "Nonqualified Option" shall mean an Option which does not qualify under Section 422 of the Code. W. "Officer" shall mean any executive of the Company or any Related Entity who participates in the Company's executive compensation programs. X. "Option" shall mean an option granted by the Company to purchase Common Stock pursuant to the provisions of this Plan, including Incentive Options, Nonqualified Options and Reload Options. Y. "Optionee" shall mean a Participant to whom one or more Options have been granted. Z. "Option Price" shall mean the price per share payable to the Company for shares of Common Stock upon the exercise of an Option. AA. "Parent Corporation" shall mean any corporation within the meaning of Section 424(e) of the Code. 2 AB. "Participant" shall mean an Eligible Employee, Eligible Non-Employee, Executive Officer or Non-Employee Director who is granted an Award. AC. "Phantom Unit" shall mean a notional account representing a value equivalent to one share of Common Stock on the Award date. AD. "Plan" shall mean the Amended MediaOne Group 1994 Stock Plan. AE. "Related Entity" shall mean any Parent Corporation or Subsidiary of the Company. AF. "Reload Option" shall mean the right to receive a further Option for a number of shares equal to the number of shares of Common Stock surrendered by the Optionee upon exercise of the original Option as provided in Section IX.E of the Plan. AG. "Restricted Period" shall mean the period of time from the date of grant of Restricted Stock until the lapse of restrictions attached thereto under the terms of the Agreement granting such Restricted Stock, pursuant to the provisions of the Plan or by action of the Committee. AH. "Restricted Stock" shall mean an Award made by the Committee entitling the Participant to acquire, at no cost or for a purchase price determined by the Committee at the time of grant, shares of Common Stock which are subject to restrictions in accordance with the provisions of Section XII hereof. AI. "Retirement" shall mean with respect to any Eligible Employee, that such person has terminated employment with the Company or any Related Entity other than "for cause" (as defined in subsection IX.H.(v)) and (i) such person specifically is treated as "retired" for purposes of the Plan under any individually negotiated, custom, written agreement or arrangement between the Company or any Related Entity and the Eligible Employee, or (ii) such person has attained one of the following combinations of age and years of service as of the date of such termination (measuring years of service for this purpose in the same manner as "term of employment" is measured under the MediaOne Group Pension Plan):
AGE YEARS OF SERVICE - ---------------- ------------------- Any age At least 30 years 50 through 54 At least 25 years 55 through 59 At least 20 years 60 through 64 At least 15 years 65 and older At least 10 years
AJ. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. AK. "Sponsor Committee" shall mean a committee of the Company consisting of employees of the Company or any Related Entity appointed by the Human Resources Committee and which shall administer the Plan as provided in Section III hereof. AL. "Stock Appreciation Right" or "SAR" shall mean a grant entitling the Participant to receive an amount in cash or shares of Common Stock or a combination thereof having a value equal to (or if the Committee shall so determine at the time of a grant, less than) the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the date of grant (or over the Option Price or such other price as the Committee shall determine, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of shares with respect to which the Stock Appreciation Right shall have been exercised, with the Committee having sole discretion to determine the form or forms of payment at the time of grant of the SAR. AM. "Stock Awards" shall mean any Award which is in the form of Restricted Stock and any outright grants of Common Stock approved by the Committee pursuant to the Plan. AN. "Subsidiary" shall mean with respect to any Award other than an Incentive Option, any corporation, joint venture or partnership in which the Company owns, directly or indirectly, (i) with respect to a corporation, stock possessing twenty percent (20%) or more of the total combined voting power of all classes of stock in the corporation or (ii) in the case of a joint venture or partnership, the Company possesses a twenty percent (20%) interest in the capital or profits of such joint venture or partnership. In 3 the case of any Incentive Option, Subsidiary shall mean any corporation within the meaning of Section 424(f) of the Code. AO. "Vested" shall mean the status that results with respect to an Option or other Award which may be immediately exercised under the terms of the Agreement granting such Option or other Award, pursuant to the provisions of the Plan or by action of the Committee. III. ADMINISTRATION. A. The Plan shall be administered by the Human Resources Committee with respect to Officers, Executive Officers and Non-Employee Directors and by the Sponsor Committee with respect to all other Eligible Employees and Eligible Non-Employees. The Human Resources Committee may adopt such rules, regulations and guidelines as it determines necessary for the administration of the Plan. Subject to any such rules, regulations and guidelines adopted by the Human Resources Committee, the Sponsor Committee shall have the power to adopt rules, regulations and guidelines to permit such Committee to administer the Plan with respect to Eligible Employees (other than Officers and Executive Officers) and with respect to Eligible Non-Employees. B. The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company or such Related Entity whose employees have benefited from the Plan, as determined by the Committee. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company or a Related Entity against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's gross negligence or willful misconduct. C. In furtherance of and not in limitation of the Committee's discretionary authority, subject to the provisions of the Plan, the Committee shall have the authority to: 1. determine the Participants to whom Awards shall be granted and the number of and terms and conditions upon which Awards shall be granted (which need not be the same for all Awards or types of Awards); 2. establish, in its sole discretion, annual or long-term financial goals of the Company, Related Entity, or division, department, or group of the Company or Related Entity, or individual goals which the Committee shall consider in granting Awards, if any; 3. determine the satisfaction of performance goals established by the Committee based upon periods of time or any combinations thereof; 4. determine the time when Awards shall be granted, the Option Price of each Option, the period(s) during which Options shall be exercisable (whether in whole or in part), the restrictions to be applicable to Awards, and the other terms and provisions of Awards; 5. modify grants of Awards pursuant to Paragraph D. of this Section III or rescind grants of Awards pursuant to Section IX.H(v), respectively; 6. provide the establishment of a procedure whereby a number of shares of Common Stock or other securities may be withheld from the total number of shares of Common Stock or other securities to be issued upon exercise of an Option, the lapse of restrictions on Restricted Stock and the vesting of Phantom Units (other than an Incentive Option) to meet the obligation of withholding for income, social security and other taxes incurred by a Participant upon such exercise or required to be withheld by the Company in connection with such exercise; 7. adopt, modify and rescind rules and regulations and guidelines relating to the Plan; 4 8. adopt modifications to the Plan and procedures, as may be necessary to comply with provisions of the laws and applicable regulatory rulings of countries in which the Company or a Related Entity operates in order to assure the legality of Awards granted under the Plan to Participants who reside in such countries; 9. obtain the approval of the stockholders of the Company with respect to Awards consisting of Phantom Units or Restricted Stock; provided, however, no action shall be proposed to stockholders without the approval of the Board of Directors; and 10. make all determinations, perform all other acts, exercise all other powers and establish any other procedures determined by the Committee to be necessary, appropriate or advisable in administering the Plan and to maintain compliance with any applicable law. D. The Committee may at any time, in its sole discretion, accelerate the exercisability of any Awards and waive or amend any and all restrictions and conditions of any Awards. E. Subject to and not inconsistent with the express provisions of the Plan, the Code and Rule 16b-3 of the Exchange Act, the Committee shall have the authority to require, as a condition to the granting of any Option, SAR or other Award (to the extent applicable) to any Executive Officer of the Company or any Related Entity that the Executive Officer receiving such Option, SAR or other Award agree not to sell or otherwise dispose of such Option, SAR or other Award or Common Stock acquired pursuant to such Option, SAR or other Award (to the extent applicable) or any other "derivative security" (as defined by Rule 16a-1(c) under the Exchange Act) for a period of six (6) months following the later of (i) the date of the grant of such Option, SAR or other Award (to the extent applicable) or (ii) the date when the other Option Price of such Option, SAR or other Award is fixed, if such Option Price is not fixed at the date of grant of such Option, SAR or other Award. IV. DECISIONS FINAL. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and assigns. V. ARBITRATION. Any agreement may contain, among other things, provisions that require arbitration of any and all disputes between a Participant and the Company or any Related Entity, in a form or forms acceptable to the Committee, in its sole discretion. VI. DURATION OF THE PLAN. The Plan shall remain in effect for a period of ten (10) years from the Effective Date, unless terminated by the Board pursuant to Section XX. VII. SHARES AVAILABLE; LIMITATIONS. A. The maximum aggregate number of shares of Common Stock that may be granted in any calendar year for all purposes under the Plan shall be one percent (1.0%) of the shares outstanding (excluding shares held in the Company's treasury) on the first day of such calendar year, provided, however, that in the event that fewer than the full aggregate number of shares available for issuance in any calendar year are issued in such year, the shares not issued shall be added to the shares available for issuance in any subsequent year or years. If, for any reason, any shares of Common Stock as to which Options, SARs, Restricted Stock, or Phantom Units have been granted cease to be subject to exercise or purchase hereunder (other than the exercise of SARs for cash), the underlying shares of Common Stock shall thereafter be available for grants to Participants under the Plan during any calendar year. Awards granted under the Plan may be fulfilled in accordance with the terms of the Plan with (i) authorized and unissued shares of the Common Stock or (ii) issued shares of Common Stock reacquired by the Company, in each situation, as the Board of Directors or the Committee may determine from time to time at its sole discretion. 5 B. The maximum number of shares of Common Stock that shall be subject to the grant of an Award in any calendar year for Awards other than Options or SARs shall not exceed one-third ( 1/3) of the total number of shares of Common Stock subject to Awards granted under the Plan for such calendar year. C. The maximum number of shares of Common Stock with respect to which Awards may be granted to any individual Participant in any calendar year may not exceed one million five hundred thousand (1,500,000). D. The cumulative number of shares of Common Stock that may be issued under this Plan in connection with the exercise of Incentive Options shall not exceed ten million (10,000,000). VIII. GRANT OF AWARDS. A. The Committee shall determine the type or types of Award(s) to be made to each Participant. Awards may be granted singly, in combination or in tandem subject to restrictions set forth in Section IX.C for Incentive Options. The types of Awards that may be granted under the Plan are Options, with or without Reload Options, SARs, Stock Awards and Phantom Units, and with respect to Phantom Units and Restricted Stock, with or without Dividend Equivalent Rights. B. Each grant of an Award under this Plan shall be evidenced by an Agreement dated as of the date of the grant of the Award, other than Stock Awards consisting of an outright grant of shares of Common Stock. This Agreement shall set forth the terms and conditions of the Award, as may be determined by the Committee, and if the Agreement relates to the grant of an Option, shall indicate whether the Option that it evidences, is intended to be an Incentive Option or a Nonqualified Option. Each grant of an Award is conditioned upon the acceptance by the Participant of the terms of the Agreement. Unless otherwise extended by the Committee, a Participant shall have ninety (90) days from the date of the Agreement to accept its terms. IX. OPTIONS. The Committee, in its sole discretion, may grant Incentive Options or Nonqualified Options to Eligible Employees, Officers, and Executive Officers, and Nonqualified Options to Non-Employee Directors and Eligible Non-Employees. Any Options granted to a Participant under predecessor plans which remain outstanding as of the Effective Date shall be governed by the terms and conditions of the Plan, except to the extent the provisions of the Plan are inconsistent with the terms of the Options granted under the predecessor plans, in which event the applicable provisions of the predecessor plans shall govern; provided, however, that in no event shall there be a modification of the terms of any Incentive Option granted under the predecessor plans. The terms and conditions of the Options granted under this Section IX shall be determined from time to time by the Committee, as set forth in the Agreement granting the Option, and subject to the following conditions: A. NONQUALIFIED OPTIONS. The Option Price for each share of Common Stock issuable pursuant to a Nonqualified Option may be an amount at or above the Fair Market Value on the date such Option is granted, may be Indexed from the original Option Price and may be granted with or without Dividend Equivalent Rights; provided, however, that with respect to Nonqualified Options granted to any Executive Officer, no Dividend Equivalent Rights may be granted. B. INCENTIVE OPTIONS. The Option Price for each share of Common Stock issuable pursuant to an Incentive Option shall not be less than one hundred percent (100%) of the Fair Market Value on the date such Option is granted and may be Indexed from the original Option Price. C. INCENTIVE OPTIONS; SPECIAL RULES. Options granted in the form of Incentive Options shall be subject to the following provisions: 1. GRANT. No Incentive Option shall be granted pursuant to this Plan more than ten (10) years after the Effective Date. 2. ANNUAL LIMIT. The aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Common Stock with respect to which one or more Incentive Options are exercisable for the first time by any Optionee during any calendar year under the Plan or under any other stock plan of the Company or any Related Entity shall not exceed $100,000 or such other maximum amount permitted 6 under Section 422 of the Code. Any Option purporting to constitute an Incentive Option in excess of such limitation shall constitute a Nonqualified Option. 3. 10% STOCKHOLDER. If any Optionee to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, an individual described in Section 422(b)(6) of the Code, then the following special provisions shall be applicable to the Option granted to such individual: (a) the Option Price of shares subject to such Incentive Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (b) the Option shall not have a term in excess of (5) years from the date of grant. D. OTHER OPTIONS. The Committee may establish rules with respect to, and may grant to Eligible Employees, Options to comply with any amendment to the Code made after the Effective Date providing for special tax benefits for stock options. E. RELOAD OPTIONS. Without in any way limiting the authority of the Committee to make Awards hereunder, the Committee shall have the authority to grant Reload Options. Any such Reload Option shall be subject to such other terms and conditions as the Committee may determine. Notwithstanding the above, (i) the Committee shall have the right, in its sole discretion, to withdraw a Reload Option to the extent that the grant thereof will result in any adverse accounting consequences to the Company and (ii) no additional Reload Options shall be granted upon the exercise of a Reload Option. F. TERM OF OPTION. No Option shall be exercisable after the expiration of ten (10) years from the date of grant of the Option. G. EXERCISE OF STOCK OPTION. Each Option shall be exercisable in one or more installments as the Committee in its sole discretion may determine at the time of the Award and as provided in the Agreement. The right to purchase shares shall be cumulative so that when the right to purchase any shares has accrued such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. The Option Price shall be payable (i) in cash or by an equivalent means acceptable to the Committee, (ii) by delivery (constructive or otherwise) to the Company of shares of Common Stock owned by the Optionee or (iii) by any combination of the above as provided in the Agreement. Shares delivered to the Company in payment of the Option Price shall be valued at the Fair Market Value on the date of the exercise of the Option. H. VESTING. The Agreement shall specify the date or dates on which the Optionee may begin to exercise all or a portion of his Option. Subsequent to such date or dates, the Option shall be deemed vested and fully exercisable. (i) DEATH. In the event of the death of any Optionee, all Options held by such Optionee on the date of his death shall become Vested Options and the estate of such Optionee, shall have the right, at any time and from time to time within one year after the date of death, or such other period, if any, as the Committee in its sole discretion may determine, to exercise the Options of the Optionee (but not after the earlier of the expiration date of the Option or, in the case of an Incentive Option, one (1) year from the date of death). (ii) DISABILITY. If the employment of any Optionee is terminated because of Disability, all Options held by such Optionee on the date of his or her termination shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued. The Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option or, in the case of Incentive Options where tax-advantaged treatment is desired, one year from the date of termination of employment. (iii) RETIREMENT. Upon an Optionee's Retirement, all Options held by such Optionee on the date of his or her Retirement shall be retained by such Optionee, and such Options that are not yet Vested Options shall become Vested Options in accordance with the vesting schedule established at the time such Options were issued, unless the Committee, in its sole discretion, determines otherwise. Unless the Committee, in its sole discretion, determines otherwise, the Optionee shall have the right to exercise Vested Options at any time and from time to time, but not after the expiration date of the Option. In the case of Incentive 7 Options where tax-advantaged treatment is desired, the Optionee shall have the right to exercise Vested Options three months from the date of Retirement. (iv) OTHER TERMINATION. If the employment with the Company or a Related Entity of an Optionee is terminated for any reason other than for death or Disability and other than "for cause" as defined in subparagraph (v) below, such Optionee shall have the right, in the case of a Vested Option, for a period of three (3) months after the date of such termination or such longer period as determined by the Committee, to exercise any such Vested Option, but in any event not after the expiration date of any such Option. (v) TERMINATION FOR CAUSE. Notwithstanding any other provision of the Plan to the contrary, if the Optionee's employment is terminated by the Company or any Related Entity "for cause" (as defined below), such Optionee shall immediately forfeit all rights under his Options except as to the shares of Common Stock already purchased prior to such termination. Termination "for cause" shall mean (unless another definition is agreed to in writing by the Company and the Optionee) termination by the Company because of: (a) the Optionee's willful and continued failure to substantially perform his duties (other than any such failure resulting from the Optionee's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Optionee by the Company, which demand specifically identifies the manner in which the Company believes the Optionee has not substantially performed his duties, (b) the willful conduct of the Optionee which is demonstrably and materially injurious to the Company or Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee for a felony by a court of competent jurisdiction. X. FOREIGN OPTIONS AND RIGHTS. The Committee may make Awards of Options to Eligible Employees, Officers, Executive Officers, Non-Employee Directors and Eligible Non-Employees who are subject to the tax laws of nations other than the United States, which Awards may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action which it deems advisable to obtain approval of such Option by the appropriate foreign governmental entity; provided, however, that no such Award may be granted pursuant to this Section X and no action may be taken which would result in a violation of the Exchange Act, the Code or any other applicable law. XI. STOCK APPRECIATION RIGHTS. The Committee shall have the authority to grant SARs to Eligible Employees, Officers, Executive Officers, Non-Employee Directors and Eligible Non-Employees either alone or in connection with an Option. SARs granted in connection with an Option shall be granted either at the time of grant of the Option or by amendment to the Option. The terms and conditions of all SARs, whether granted individually or in connection with an Option, shall be determined by the Committee and set forth in the Agreement granting the SARs, provided, however, that no fractional shares of Common Stock shall be issued upon exercise of any SAR. XII. RESTRICTED STOCK. The Committee may, in its sole discretion, grant Restricted Stock to Eligible Employees, Eligible Non-Employees, Officers, Executive Officers or Non-Employee Directors subject to the provisions below. A. RESTRICTIONS. A stock certificate representing the number of shares of Restricted Stock granted shall be held in custody by the Company for the Participant's account. The Participant shall have all rights and privileges of a stockholder as to such Restricted Stock, including the right to receive dividends, if any, and the right to vote such shares, except that, subject to the provisions of Paragraph B. below, the following restrictions shall apply: (i) the Participant shall not be entitled to delivery of the certificate until the expiration of the Restricted Period; (ii) none of the shares of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period; (iii) the Participant shall, if requested by the Company, execute and deliver to the Company, a stock power endorsed in blank. The Restricted Period shall lapse upon a Participant becoming Disabled or the death of a Participant. If a Participant ceases to be an employee of the Company or a Related Entity prior to the expiration of the Restricted Period applicable to such shares, except as a result of the death or Disability of the Participant, shares of Restricted Stock still subject to restrictions shall be forfeited unless otherwise determined by the Committee, and all rights of the Participant to such shares shall terminate without 8 further obligation on the part of the Company. Upon the forfeiture (in whole or in part) of shares of Restricted Stock, such forfeited shares shall become shares of Common Stock held in the Company's treasury without further action by the Participant. B. TERMS AND CONDITIONS. The Committee shall establish the terms and conditions for Restricted Stock pursuant to Section III of the Plan, including whether any shares of Restricted Stock shall have voting rights or a right to any dividends that are declared. Terms and conditions established by the Committee need not be the same for all grants of Restricted Stock. The Committee may provide for the restrictions to lapse with respect to a portion or portions of the Restricted Stock at different times or upon the occurrence of different events, and the Committee may waive, in whole or in part, any or all restrictions applicable to a grant of Restricted Stock. Restricted Stock Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. C. DELIVERY OF RESTRICTED SHARES. At the end of the Restricted Period as herein provided, a stock certificate for the number of shares of Restricted Stock with respect to which the restrictions have lapsed shall be delivered (less any shares delivered pursuant to Section XIX.C in satisfaction of any withholding tax obligation), free of all such restrictions, except applicable securities law restrictions, to the Participant or the Participant's estate, as the case may be. The Company shall not be required to deliver any fractional share of Common Stock but shall pay, in lieu thereof, the Fair Market Value (measured as of the date the restrictions lapse) of such fractional share to the Participant or the Participant's estate, as the case may be. Notwithstanding the foregoing, the Committee may authorize the delivery of the Restricted Stock to a Participant during the Restricted Period, in which event any stock certificates in respect of shares of Restricted Stock thus delivered to a Participant during the Restricted Period applicable to such shares shall bear an appropriate legend referring to the terms and conditions, including the restrictions, applicable thereto. XIII. PHANTOM UNITS. A. GENERAL. The Committee may, in its sole discretion, grant the right to earn Phantom Units to Eligible Employees, Officers, Executive Officers and Eligible Non-Employees. The Committee shall determine the criteria for the earning of Phantom Units, pursuant to Section III of the Plan. Upon satisfaction of such criteria, a Phantom Unit shall be deemed a Vested Award. A Phantom Unit granted by the Committee shall provide for payment in shares of Common Stock. A Phantom Unit shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii) the death of a Participant. Shares of Common Stock issued pursuant to this Section XIII may be issued for no cash consideration or for such minimum consideration as may be required by applicable law or such other consideration as may be determined by the Committee. The Committee shall determine whether a Participant granted a Phantom Unit shall be entitled to a Dividend Equivalent Right. B. UNFUNDED CLAIM. The establishment of Phantom Units under the Plan are unfunded obligations of the Company. The interest of a Participant in any such units shall be considered a general unsecured claim against the Company to the extent that the conditions for the earning of the Phantom Units have been satisfied. Nothing contained herein shall be construed as creating a trust or fiduciary relationship between the Participant, the Company or the Committee. C. ISSUANCE OF COMMON STOCK. Upon a Phantom Unit becoming a Vested Award, unless a Participant has elected to defer under Paragraph D. below, shares of Common Stock representing the Phantom Units shall be distributed to the Participant, unless the Committee, with the consent of the Participant, provides for the payment of the Phantom Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the Participant. D. DEFERRAL OF PHANTOM UNITS. Prior to the year with respect to which a Phantom Unit may become a Vested Award, the Participant may elect not to receive Common Stock upon the vesting of such Phantom Unit and for the Company to continue to maintain the Phantom Unit on its books of account. In such event, the value of a Phantom Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. 9 E. FINANCIAL HARDSHIP. Notwithstanding any other provision hereof, at the written request of a Participant who has elected to defer pursuant to Paragraph D. above, the Committee, in its sole direction, upon a finding that continued deferral will result in financial hardship to the Participant, may authorize the payment of all or a part of a Participant's Vested Phantom Units in a single installment or the acceleration of payment of any multiple installments thereof; provided, however, that distributions will not be made under this paragraph if such distribution would result in liability of an Executive Officer under Section 16 of the Exchange Act. F. DISTRIBUTION UPON DEATH. The Committee shall pay the Fair Market Value of the Phantom Units of a deceased Participant to the estate of the Participant, as soon as practicable following the death of the Participant. The value of the Phantom Units for the purpose of such distribution shall be based upon the Fair Market Value of shares of Common Stock underlying the Phantom Units on the date of the Participant's death. XIV. STOCK AWARDS TO NON-EMPLOYEE DIRECTORS. On the date of his or her admission to the Board, or in the case of existing Non-Employee directors, as of the first meeting of the Board that follows the date of this Prospectus, each Non-Employee Director shall be granted a Stock Award consisting of 1,000 shares of Common Stock, without restrictions, and 5,000 shares of Restricted Stock, which shall become Vested in 20% annual increments. XV. OUTSIDE DIRECTOR'S COMPENSATION. A. PAYMENT IN COMMON STOCK OR OPTIONS. Each Non-Employee Director may elect to receive payment of all or any portion of Director Compensation comprised of retainer fees for service on the Board and any committees thereof in Common Stock or Options to purchase Common Stock. The amount of Common Stock or Options then issuable shall be based on the Fair Market Value of the Common Stock or the Company's standard Black-Scholes option pricing model, as applicable, on the dates such retainer fees are otherwise due and payable to the Non-Employee Director. When any fees are paid in Common Stock under this Section XV.A, any fractional shares of Common Stock shall be paid in cash. Certificates evidencing such Common Stock shall be delivered promptly following such date. B. DEFERRAL OF PAYMENT. Each Non-Employee Director may elect to defer the receipt of Common Stock payable pursuant to Section XV.A, in which event such Non-Employee Director shall receive an equivalent number of Phantom Units with Dividend Equivalent Rights. Any such Phantom Units shall become Vested Awards at such time as the Non-Employee Director no longer serves as a member of the Board. If a Non-Employee Director elects to defer receipt of Common Stock and receive Phantom Units pursuant to this Section XV.B, the election shall be (i) in writing, (ii) delivered to the Secretary of the Company in the year preceding the year in which the Director Compensation would otherwise be paid (or, for a Director's initial calendar year of service, delivered prior to the date for which such services are rendered) and (iii) irrevocable. C. DIRECTOR STOCK OPTIONS. On the date of his or her admission to the Board, or in the case of existing Non-Employee Directors, as of the first meeting of the Board that follows the date of this Prospectus, each Non-Employee Director shall be granted an Option to purchase forty-two thousand (42,000) shares Common Stock. When such Option has become a Vested Option, the Non-Employee Director holding such Option shall be entitled, as of the first day of each calendar year thereafter, to a further Option having a value equal to $112,000 (as determined in accordance with the Company's standard Black-Scholes option pricing model). Any Option issued pursuant to this Section XV.C is (i) to become a Vested Option in annual one-third increments following the date of grant or, if earlier, in full upon the retirement of the Director, (ii) to remain exercisable notwithstanding the retirement of the Director from the Board (but in no event after the expiration date of the Option), and (iii) to expire ten years from the date of grant. XVI. FEDERAL SECURITIES LAW. With respect to grants of Awards to Directors and Executive Officers, the Company intends that the provisions of this Plan and all transactions effected in accordance with Plan shall comply with Rule 16b-3 under the Exchange Act. Accordingly, the Committee shall administer and interpret the Plan to the extent practicable, to maintain compliance with such rule. 10 XVII. CHANGE OF CONTROL; ACCELERATION. Upon the occurrence of a Change of Control: A. in the case of all outstanding Options and SARs, each such Option and SAR shall automatically become immediately fully exercisable by the Participant unless the Committee shall otherwise determine at the time such Option or SAR is granted as set forth in the respective grant Agreement; B. restrictions applicable to Restricted Stock shall automatically be deemed lapsed and conditions applicable to Phantom Units shall automatically be deemed waived, and the Participants who receive such grants shall become immediately entitled to receipt of the Common Stock subject to such grants; and C. the Human Resources Committee, in its discretion, shall have the right to accelerate payment of any deferrals of Vested Phantom Units. XVIII. ADJUSTMENT OF SHARES. A. In the event there is any change in the Common Stock by reason of any consolidation, combination, liquidation, reorganization, recapitalization, stock dividend, stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other like change in capital structure of the Company, the number or kind of shares or interests subject to an Award and the per share price or value thereof shall be appropriately adjusted by the Committee at the time of such event, provided that each Participant's economic position with respect to the Award shall not, as a result of such adjustment, be worse than it had been immediately prior to such event. Any fractional shares or interests resulting from such adjustment shall be rounded up to the next whole share of Common Stock. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Option granted hereunder other than an "incentive stock option" for purposes of Section 422 of the Code. B. In the event of an acquisition by the Company of another corporation where the Company assumes outstanding stock options or similar obligations of such corporation, the number of Awards available under the Plan shall be appropriately increased to reflect the number of such options or other obligations assumed. XIX. MISCELLANEOUS PROVISIONS. A. ASSIGNMENT OR TRANSFER. Except as otherwise permitted by this Section, no grant of any "derivative security" (as defined in the rules issued under Section 16 of the Exchange Act) made under the Plan or any rights or interests therein shall be assignable or transferable except by last will and testament or the laws of descent and distribution. No grant of any such derivative security shall be assignable or transferrable pursuant to a domestic relations order. An Optionee who is an Officer or a Non-Employee Director may assign or transfer an Option (other than an Incentive Option) or a SAR as a gift to one or more members of his or her immediate family or to trusts maintained for the benefit of such immediate family members if such assignment or transfer is not pursuant to a domestic relations order and (i) such assignment or transfer is expressly approved in advance by the Committee or its delegate(s) or (ii) such Option or SAR was granted to the Optionee on or after August 15, 1996, and the Agreement pertaining to such Option or SAR expressly permits the assignment or transfer of the Option or SAR. B. INVESTMENT REPRESENTATION; LEGENDS. The Committee may require each Participant acquiring shares of Common Stock pursuant to an Award to represent to and agree with the Company in writing that such Participant is acquiring the shares without a view to distribution thereof. No shares of Common Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange requirements have been satisfied. The Committee may require the placing of stop-orders and restrictive legends on certificates for Common Stock as it deems appropriate. C. WITHHOLDING TAXES. In the case of distributions of Common Stock or other securities hereunder, the Company, as a condition of such distribution, may require the payment (through withholding from the Participant's salary, payment of cash by the Participant, reduction of the number of shares of Common Stock or other securities to be issued (except in the case of an Incentive Option), or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such distribution. 11 D. COSTS AND EXPENSES. The costs and expenses of administering the Plan shall be borne by the Company and shall not be charged against any Award nor to any Participant receiving an Award. E. OTHER INCENTIVE PLANS. The adoption of the Plan does not preclude the adoption by appropriate means of any other incentive plan for employees. F. EFFECT ON EMPLOYMENT. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of employment of any Participant except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, an obligation on (i) the Company or any Related Entity to continue the employment of any Participant and (ii) any Participant to remain in the employ of the Company or any Related Entity. G. NONCOMPETITION. Any Agreement may contain, among other things, provisions prohibiting Participants from competing with the Company or any Related Entity in a form or forms acceptable to the Committee, in its sole discretion. H. GOVERNING LAW. This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. XX. AMENDMENT OR TERMINATION OF PLAN. The Board shall have the right to amend, modify, suspend or terminate the Plan at any time, provided that, with respect to Incentive Options, no amendment shall be made that (i) decreases the minimum Option Price in the case of any Incentive Option, or (ii) modifies the provisions of the Plan with respect to Incentive Options, unless such amendment is made by or with the approval of the stockholders or unless the Board receives an opinion of counsel to the Company that stockholder approval is not necessary with respect to any modifications relating to Incentive Options; and provided further that no amendment shall be made that (i) increases the number of shares of Common Stock that may be issued under the Plan, (ii) permits the Option Price for any Option to be less than Fair Market Value on the date such Option is granted, or (iii) extends the period during which awards may be granted under the Plan beyond ten (10) years from the Effective Date, unless such amendment is made by or with the approval of stockholders. No amendment, modification, suspension or termination of the Plan shall alter or impair any Awards previously granted under the Plan, without the consent of the holder thereof. 12 EX-10.C 4 EXHIBIT 10-C MEDIAONE GROUP EXECUTIVE LIFE INSURANCE PLAN AS AMENDED AND RESTATED EFFECTIVE AS OF JUNE 12, 1998 TABLE OF CONTENTS
Page PREAMBLE 1 ARTICLE I DEFINITIONS 1 ARTICLE II ELIGIBILITY 5 Section 2.1 Eligibility to Participate 5 Section 2.2 Service with Other Entities 6 ARTICLE III BASIC EXECUTIVE LIFE INSURANCE 6 Section 3.1 Participation in BELI 6 Section 3.2 Coverage Amount under BELI 7 Section 3.3 Cost of BELI Coverage 7 Section 3.4 BELI Death Benefit Payments 8 Section 3.5 BELI Coverage After Separation from Service 8 Section 3.6 BELI Coverage during Leave of Absence 9 Section 3.7 BELI Coverage During and After Disability 9 Section 3.8 DELI Coverage During a Rotational Assignment 9 ARTICLE IV SUPPLEMENTAL EXECUTIVE LIFE INSURANCE 9 Section 4.1 Participation in SELI 9 Section 4.2 Coverage Amount Under SELI 11 Section 4.3 Cost of SELI Coverage 11 Section 4.4 SELI Death Benefit Payments 12 Section 4.5 SELI Coverage After Separation from Service 12 Section 4.6 SELI Coverage During a Leave of Absence 14 Section 4.7 SELI Coverage During and After Disability 14 Section 4.8 SELI Coverage During a Rotational Assignment 14 ARTICLE V CHANGE IN CONTROL 14 Section 5.1 Change in Control 14 Section 5.2 Effect on the Plan 15 ARTICLE VI ADMINISTRATION 16 Section 6.1 The Committee 16 Section 6.2 The Administrator 16 Section 6.3 Claims Procedure 16 Section 6.4 Review of the Administrator's Decision 17 Section 6.5 Expenses 18 Section 6.6 Allocation of Responsibilities 18 Section 6.7 Adoption of Plan by Participating Companies 18 ARTICLE VII GENERAL PROVISIONS 18 Section 7.1 Rights to Benefit 18 Section 7.2 Source of Payments 18 Section 7.3 Assignment or Alienation 18 Section 7.4 Determination of Eligibility 19 Section 7.5 No Guarantee of Employment 19 Section 7.6 Nature of Benefits 19 Section 7.7 Plan Amendment and Termination 19 Section 7.8 Gender and Number 19 Section 7.9 Governing Law 19 SIGNATURE PAGE 19
ii MEDIAONE GROUP EXECUTIVE LIFE INSURANCE PLAN As Amended and Restated Effective as of June 12, 1998 PREAMBLE U S WEST, Inc. ("Old U S WEST"), a Delaware corporation, previously established the U S WEST Executive Life Insurance Plan to provide financial protection to a Participant and his beneficiaries in the event of his death during active employment or, subject to policy and individual employment agreement provisions, after active employment or during retirement. Effective with the separation of Old U S WEST into two public companies, USW-C, Inc., renamed U S WEST, Inc. as of the Separation Time, and MediaOne Group, Inc. (the "Company"), the Company assumes sponsorship of that portion of the U S WEST Executive Life Insurance Plan relating to its Eligible Employees which it names the MediaOne Group Executive Life Insurance Plan (the "Plan"). The Company hereby amends and restates the Plan in its entirety. ARTICLE I DEFINITIONS The following terms shall have the meanings set forth below. 1.1 "ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE" or "AD&D" shall mean the insurance coverage provided under the Group Life Insurance and Basic Executive Life Insurance that is payable in the event of a Participant's accidental death or dismemberment, in accordance with and defined in the policy or policies of insurance that apply to the Participant. 1.2 "ACTIVE EMPLOYEE" or "ACTIVELY EMPLOYED" shall mean an employee who is not Terminated, Disabled, or Retired, and who is not currently on a Leave of Absence. 1.3 "ADMINISTRATOR" shall mean the Senior Vice President of Human Resources or his or her delegate (or, in the event the Plan benefits of the Administrator are directly or indirectly impacted by any claim for benefits, the Chairperson of the Committee or his delegate). To the extent applicable, the Administrator shall be the "administrator" and the "named fiduciary" for purposes of the Employee Retirement Income Security Act of 1974, as amended. 1.4 "ANNUAL PAY" shall mean an amount equal to the following, increased to the next higher $1,000 increment: (a) For an Eligible Employee who is in his first year of participation in the STIP, his annual rate of base pay plus the mid-range of his target Short Term Incentive Award. (b) For an Eligible Employee who is in his second year of participation in the STIP, the average of the two amounts below: (i) The amount in Subsection 1.4(a) above; and (ii) His annual rate of base pay in effect in his second year of participation in the STIP plus the actual Short Term Incentive Award he was paid for the prior year, except that if his Short Term Incentive Award was prorated, the full target amount of the Short Term Incentive Award for such year; (c) For an Eligible Employee who is in his third year of participation in the STIP, the average of the three amounts below: (i) The amount in Subsection 1.4(a) above; (ii) The amount in Subsection 1.4(b)(ii) above; and (iii) His annual rate of base pay in effect in his third year of participation in the STIP plus the actual Short Term Incentive Award he was paid for the prior year. (d) For an Eligible Employee who is in his fourth year of participation in the STIP, the average of the three amounts below: (i) The amount in Subsection 1.4(b)(ii) above; (ii) The amount in Subsection 1.4(c)(iii) above; and (iii) His annual rate of base pay in effect in his fourth year of participation in the STIP plus the actual Short Term Incentive Award he was paid for the prior year. (e) For an Eligible Employee who has been an STIP participant for more than four years, the average of the two amounts below: (i) The average of his annual rate of base pay in effect for the applicable year, and the annual rate of base pay for the prior two years, plus (ii) The average of the prior three Short Term Incentive Awards paid to the Eligible Employee. 2 1.5 "BASIC EXECUTIVE LIFE INSURANCE" or "BELI" shall mean the insurance coverage provided to Participants pursuant to Article III. 1.6 "BENEFICIARY" shall mean the person who is designated by the Participant to receive the Death Benefit payable under this Plan on account of the death of the Participant. The Beneficiary for BELI is determined under Section 3.4, and the Beneficiary for SELI is determined under Section 4.4. 1.7 "BOARD" or "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company. 1.8 "CASH VALUE" shall mean the total premiums paid for a policy of BELI or SELI, plus earnings on such policy, minus the cost of insurance and cash surrender charges, if any. 1.9 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations and rulings in effect thereunder from time to time. 1.10 "COMMITTEE" shall mean the Human Resources Committee of the Board or its delegate. 1.11 "COMPANY" shall mean MediaOne Group, Inc., a Delaware corporation, or its successors. 1.12 "DEATH BENEFIT" shall mean the total amount of benefit payable pursuant to the terms of this Plan in the event of a Participant's death. 1.13 "DISABLED" or "DISABILITY" shall mean that a Participant is eligible for a disability benefit under the terms and conditions of the MediaOne Group Executive Disability Plan, as amended or superseded, or the MediaOne Group Pension Plan. 1.14 "EFFECTIVE DATE" shall mean, with respect to this amended and restated Plan, the Separation Time. 1.15 "ELIGIBLE EMPLOYEE" shall mean an employee who is eligible to participate in the Plan pursuant to Section 2.1. 1.16 "GROUP LIFE INSURANCE" or "GLI" shall mean the MediaOne Group Life Insurance Plan, as amended or superseded, except for purposes of this Plan, dependent group life insurance coverage thereunder shall be excluded from the definition of GLI. 1.17 "INSURANCE COMPANY" shall mean the life insurance company or companies, which may be selected from time to time by the Administrator, to provide insurance coverage under this Plan. 3 1.18 "LEAVE OF ABSENCE" shall mean a Company-approved leave of absence. 1.19 "PARTICIPANT" shall mean an Eligible Employee who has satisfied the applicable requirements of Section 2.1, and who has become a "BELI Participant" by satisfying the requirements of Section 3.1 or a "SELI Participant" by satisfying the requirements of Section 4.1. 1.20 "PARTICIPATING COMPANY" or "PARTICIPATING COMPANIES" shall mean the Company or any subsidiary of the Company that, with the consent or at the direction of the Administrator, participates in the Plan. 1.21 "PLAN" shall mean the MediaOne Group Executive Life Insurance Plan, as set forth herein, together with the Split Dollar agreements and Appendices attached hereto, as amended from time to time. 1.22 "PLAN YEAR" shall mean the fiscal year of the Plan, which shall be the calendar year, except for the initial short Plan Year which begins on the Effective Date and ends on December 31, 1998. 1.23 "RETIRED" or "RETIREMENT" shall mean a Participant's separation from the service of a Participating Company in accordance with one of the following circumstances: (a) An entitlement to an immediate service pension benefit under the MediaOne Group Pension Plan, as amended or superseded; (b) An entitlement to a pension benefit under any individually negotiated, custom written agreement or arrangement that the Participating Company may have entered into with the Eligible Employee; (c) Participants who retire with the following age and service combinations:
RETIREMENT AGE TERM OF EMPLOYMENT* Any Age at least 30 years 50-54 at least 25 years 55-59 at least 20 years 60-64 at least 15 years 4 65 and older at least 10 years
*as defined in the MediaOne Group Pension Plan (d) Any other circumstance as defined by the Committee. 1.24 "ROTATIONAL ASSIGNMENT" shall mean a work assignment in which an Employee moves to the payroll of an entity outside of the Company's "controlled group of corporations," as such term is defined in section 1563 of the Code, and retains a guarantee of re-employment with an entity within such controlled group of corporations upon the conclusion of such an assignment. Plan participation shall be continued for Eligible Employees on Rotational Assignment. 1.25 "SEPARATION TIME" shall mean the time that U S WEST, Inc., a Delaware corporation ("Old U S WEST"), is separated into two public companies, USW-C, Inc., renamed U S WEST, Inc., as of the Separation Time, and MediaOne Group, Inc. (the "Company"). 1.26 "SHORT TERM INCENTIVE AWARD" shall mean an award determined annually pursuant to the STIP. 1.27 "SPLIT DOLLAR" shall mean a method of purchasing life insurance in which the Company and the Participant split, in accordance with a predetermined formula, either the premium cost, the Cash Value and/or the Death Benefit under a life insurance policy. With regard to this definition, BELI is made available under an endorsement Split Dollar arrangement, and SELI is made available under a collateral assignment Split Dollar arrangement. 1.28 "STIP" shall mean the MediaOne Group Short Term Incentive Plan or the MediaOne Group Executive Short Term Incentive Plan, as amended or superseded. 1.29 "SUPPLEMENTAL EXECUTIVE LIFE INSURANCE" or "SELI" shall mean the insurance coverage provided to a Participant pursuant to Article IV. 1.30 "TERMINATED" or "TERMINATION" shall mean a Participant's separation from service of a Participating Company for reasons other than the Participant's death, Disability, or Retirement. 1.31 "UNDERWRITING" shall mean the process by which the Insurance Company determines whether or not it will issue a policy of life insurance to a Participant and the premium costs associated with the issuance of such a policy. Underwriting shall generally occur whenever commencement of SELI coverage or an increase in SELI coverage is elected by a Participant and under such other circumstances as the Insurance Company shall determine in accordance with its standard practices and procedures. 5 ARTICLE II ELIGIBILITY 2.1 ELIGIBILITY TO PARTICIPATE. An Active Employee who is: (a) the chief executive officer of the Company; (b) such other person designated by the Board or its delegate as an Eligible Employee or as member of a class of employees to be made Participants in this Plan; or (c) an individual who satisfies any other criteria for eligibility as determined by the Board or its delegate shall become a Participant in BELI on the date specified in Section 3.1. Each Active Employee who satisfies all of the criteria in the preceding sentence to be an Eligible Employee may also become a Participant in SELI on the date specified in Section 4.1. Such individual shall continue to be eligible to participate in BELI in accordance with Article III and in SELI in accordance with Article IV as long as such individual continues to be an Employee, regardless of the fact that he may no longer satisfy any of the eligibility criteria set forth above. Notwithstanding the foregoing, any individual who is a Participant in the MediaOne Group Select Executive Life Insurance Plan may not be an Eligible Employee under this Plan. 2.2 SERVICE WITH OTHER ENTITIES. An individual who otherwise satisfies the eligibility requirements specified in Section 2.1 and who is on Rotational Assignment shall be eligible to participate in this Plan with respect to service performed for an entity that is not a Participating Company at the time that such service is performed. ARTICLE III BASIC EXECUTIVE LIFE INSURANCE 3.1 PARTICIPATION IN BELI. (a) If, on or before the Effective Date, an Eligible Employee was a Participant under the Plan, he shall remain a BELI Participant as of the Effective Date. (b) An Eligible Employee not described in Subsection 3.1(a) hereof who is Actively Employed by a Participating Company shall commence participation in BELI in accordance with the following rules: (i) In the event such employee declines SELI coverage under the Plan and elects BELI coverage only, he shall commence BELI participation on the 6 first day of the month coinciding with or next following his refusal of SELI coverage and the occurrence of one of the following events: (A) the date the Insurance Company accepts substitution of the Participant for a prior insured former Participant, provided that such substitution can be made at that time; or (B) if the substitution cannot be made, the Insurance Company receives the premium payment from the Company; provided that the preceding events occur on or before June 30th of a calendar year. If such events occur after June 30th but before January 1st of the subsequent calendar year, he shall commence BELI participation on the January 1st next following the occurrence of such events. (ii) In the event such Eligible Employee elects SELI coverage, he shall commence BELI participation on his SELI participation commencement date, provided he submits a completed enrollment form to the Administrator and satisfies the requirements for SELI participation. (iii) If a Participant declines SELI coverage or is not approved for such coverage, he may elect either BELI coverage which shall commence pursuant to the provisions of Subsection 3.1(b)(i) above or remain a participant in GLI. (c) An Eligible Employee may elect to waive participation in BELI by choosing not to enroll. Failure by an Eligible Employee, however, to submit a completed enrollment form in a timely manner shall be deemed to be a waiver of BELI participation by such Eligible Employee. Once BELI participation has commenced, a BELI Participant may cease his participation by notifying the Administrator of such cessation, in a manner prescribed and communicated to Participants by the Administrator. (d) While an Eligible Employee is a BELI Participant, his GLI coverage shall be reduced to $50,000 and he shall receive no supplemental life insurance coverage under GLI. 3.2 COVERAGE AMOUNT UNDER BELI. A BELI Participant shall be covered by insurance on his life equal to one times Annual Pay, reduced by $50,000 as provided under GLI. In addition, a BELI Participant shall be covered by AD&D insurance equal to one times Annual Pay, reduced by $50,000 as provided under GLI, in the event he suffers accidental death or dismemberment, as defined in the applicable policy. Coverage amount changes due to an increase or decrease in a Participant's Annual Pay shall become effective on January 1st of the year following the year in which the change in the Participant's Annual Pay becomes effective. 3.3 COST OF BELI COVERAGE. (a) The premium cost of BELI coverage for Actively Employed BELI Participants and Retired BELI Participants shall be paid by the Company. Prior to Retirement, a BELI Participant shall be subject to the reporting of imputed income with respect to coverage under the BELI policy provided by the Company, in excess of the first $50,000 of GLI coverage. 7 (b) The Company shall be the owner of the policy or policies of BELI on each BELI Participant's life. 8 3.4 BELI DEATH BENEFIT PAYMENTS. (a) Payment of the BELI Death Benefit shall be made to the deceased Participant's Beneficiary as designated by the Participant on a form provided by the Administrator. Such payment shall be made in a single lump sum. (b) In the event that a Participant's Beneficiary designation for the BELI Death Benefit is ineffective, and the applicable policy does not provide for a different order of priority, such Participant's Beneficiary shall be his surviving spouse, if any, or if there is no surviving spouse, the Beneficiary shall be the Participant's then-living children and the descendants, per stirpes, of any of the Participant's children who do not survive the Participant, in equal shares. If there are no surviving children and no surviving spouse, the Beneficiary shall be the estate of the deceased Participant. (c) In the event that a BELI Participant commits suicide within one year after the effective date of initial BELI coverage, the Death Benefit payable under the BELI policy with respect to the entire coverage amount shall be zero. In the event a Participant commits suicide within one year after the effective date of an increase in BELI coverage, the Death Benefit shall be limited to the coverage amount in effect before such increase. 3.5 BELI COVERAGE AFTER SEPARATION FROM SERVICE. (a) In the event that a BELI Participant is Terminated, BELI coverage shall terminate at the end of the month in which such Termination occurs. Notwithstanding the foregoing and at the Company's discretion, a Terminated BELI Participant may purchase the BELI policy from the Company by paying to the Company in cash the greater of the Cash Value of the policy or the cumulative premiums that have been paid by the Company for such policy. (b) In the event that a BELI Participant is Retired, the Participant may elect either: (i) to continue the Split Dollar arrangement with respect to the BELI policy and continue to be subject to the reporting of imputed income with respect to coverage under the BELI policy in excess of the first $50,000 of GLI coverage provided by the Company, or (ii) to terminate the Split Dollar arrangement as of the date of Retirement. If the Split Dollar arrangement is terminated, the Company shall own and be the Beneficiary of the policy beginning on such date, and any future proceeds from the policy shall be payable to the Company; nevertheless, BELI coverage for the Retired Participant shall remain in effect in the same amount and on the same premium payment basis as for active Employees and as determined at the time of such Participant's Retirement, provided that the BELI benefit for such Retired Participants shall be payable from the general assets of the Company. 9 (c) A Participant's AD&D coverage shall terminate on the last day of the month in which Retirement occurs. Notwithstanding the foregoing and subject to the terms and conditions of an applicable insurance policy, if any, a Retired Participant may apply to convert the AD&D coverage, other than the first $50,000 provided through GLI, to an individual policy. 3.6 BELI COVERAGE DURING LEAVE OF ABSENCE. BELI coverage, including AD&D coverage, shall continue for a BELI Participant during a Leave of Absence for a period of up to twelve months, except that AD&D coverage under BELI shall not be continued for Participants who are on a military Leave of Absence. The coverage amount during such period shall be the same as for an Active Employee. 3.7 BELI COVERAGE DURING AND AFTER DISABILITY. BELI coverage (including AD&D coverage) during a Participant's Disability shall continue in the same amount as for an Active Employee. In the event that such a Participant is no longer Disabled, the BELI coverage amount applicable to such Participant upon his return to Active employment shall be calculated in accordance with such Participant's level of Annual Pay during the period of Active employment following the Disability, but in no event shall the amount of coverage be less than the amount that was in effect immediately prior to the Disability. If a Disabled Participant becomes eligible to receive long term disability payments under the MediaOne Group Executive Disability Plan or a disability pension under the MediaOne Group Pension Plan, the provisions of Subsection 3.5(a) shall govern the continuation of such Participant's BELI coverage. If a Disabled Participant becomes Retired, the provisions of Subsections 3.5(b) and (c) shall govern the continuation of such Participant's BELI coverage. 3.8 BELI COVERAGE DURING A ROTATIONAL ASSIGNMENT. At the discretion of the Administrator, to be applied on a case by case basis, a BELI Participant shall continue to participate in BELI for a period of up to five years while on a Rotational Assignment. Except as set forth in Appendix A, all other terms of participation for such Participant shall be determined by the Administrator. ARTICLE IV SUPPLEMENTAL EXECUTIVE LIFE INSURANCE 4.1 PARTICIPATION IN SELI. (a) If, on or before the Effective Date, an Eligible Employee was a Participant under the Plan, he shall remain a SELI Participant as of the Effective Date. (b) An Eligible Employee not described in Subsection 4.1(a) hereof who is Actively Employed by a Participating Company and who elects SELI coverage shall commence participation in SELI on the first day of the month coinciding with or next following the later of the following dates, provided that such date is on or before 10 June 30th and he is eligible to be a BELI Participant. In the event that the later of the following dates falls between July 1st and December 31st of a calendar year, the Eligible Employee shall commence SELI participation on January 1st of the following calendar year: (i) The date on which the Eligible Employee submits a completed enrollment form to the Administrator, which includes a collateral assignment to the Company of the total amount of the premiums paid, or to be paid, by the Company for SELI coverage for the Eligible Employee; or (ii) The date on which the Insurance Company completes Underwriting with respect to the Eligible Employee and approves the Eligible Employee for coverage and receives a premium for such coverage under a policy of SELI. (c) If an Eligible Employee fails to be approved for a SELI policy based on the Insurance Company's Underwriting standards, such Participant shall continue to be eligible for coverage under GLI in accordance with the provisions of the applicable plan or for coverage under BELI if the requirements specified in Section 3.1 have been met. In addition, such Eligible Employee may reapply for SELI coverage no more frequently than annually. (d) A SELI Participant who is not Terminated or Retired may cease participation in SELI by notifying the Administrator of such cessation, in a manner prescribed and communicated to Participants by the Administrator. Upon cessation of SELI participation, the SELI Participant shall have the following options: (i) Pay to the Company the total amount of cumulative premiums that the Company has paid for the SELI policy, whereupon the Company shall release the collateral assignment, thereby allowing the Participant to exercise full ownership rights under the policy in accordance with the rules and procedures established by the Insurance Company; or (ii) Surrender all or a portion of the policy to the Company, whereupon the Insurance Company shall pay to the Participant an amount equal to the Cash Value of the policy or that portion of the policy that has been surrendered, minus the total amount of the cumulative premiums that the Company has paid for the policy or portion of the policy that has been surrendered. A SELI Participant's options under this Subsection 4.1(d) shall be interpreted and administered in accordance with the terms of such SELI Participant's collateral assignment agreement with the Company, as well as with the terms of the applicable policy or policies. 4.2 COVERAGE AMOUNT UNDER SELI. 11 (a) A SELI Participant shall be covered by insurance on his life equal to one, two, three or four times his Annual Pay, or such other amount as the Company may determine from time to time, based on factors selected by the Company, such as a Participant's classification of employment, and all as set forth on Appendix B, attached hereto and incorporated herein. (b) Subject to the Insurance Company's Underwriting requirements, a SELI Participant may apply for an increase in SELI coverage. Such increase shall be effective on the first day of the month following the Insurance Company's approval of such application. (c) Coverage amount changes due to an increase or decrease in a Participant's Annual Pay shall become effective on January 1st of the year following the year in which: (i) with respect to a decrease in Annual Pay, such decrease becomes effective, or (ii) with respect to an increase in Annual Pay, the Insurance Company approves an increase in the coverage amount following Underwriting. (d) The amount of SELI coverage for a Terminated or Retired Participant shall be reduced in accordance with the provisions of Section 4.5. 4.3 COST OF SELI COVERAGE. (a) The premium cost of SELI coverage while a SELI Participant is Actively Employed by a Participating Company shall be divided between the Participant and the Company. The Participant shall pay an amount equal to the group term life insurance premium established by the Administrator for each Plan Year, and the Company shall pay the balance of the total premium cost for the Participant's SELI coverage. (b) The Participant is the owner of the policy or policies of SELI on such SELI Participant's life. Nevertheless, with the written consent of the Company and the Insurance Company, a Participant may make an irrevocable assignment of his rights under this Plan and his SELI policy or policies, in which case, the assignee shall be entitled to exercise all the rights and incidents of ownership that the Participant had immediately prior to the assignment. Except as provided in Subsection 4.1(d)(i), no Participant or assignee of the Participant may take a loan from the SELI policy on such Participant's life during active employment with the Company. (c) After a SELI Participant's Retirement, and provided that the collateral assignment has not been released in accordance with Subsection 4.5(b)(ii), the Company shall pay the entire premium cost for such Participant's SELI coverage until 12 such time as there is sufficient Cash Value in the policy to allow the Company to recover its cumulative premiums paid on the policy and to support a Death Benefit equal to 50% of the SELI coverage amount that was in effect immediately prior to the Participant's Retirement, based on mortality rates and interest assumptions then in effect. Notwithstanding the foregoing, the SELI coverage amount may be reduced pursuant to Subsection 4.5(b)(i) to avoid the possibility that the policy may become a modified endowment contract. The cost of SELI coverage for a Terminated or Retired Participant shall be determined in accordance with the provisions of Section 4.5. 4.4 SELI DEATH BENEFIT PAYMENTS. (a) Payment of the SELI Death Benefit shall be made to the deceased Participant's Beneficiary designated by the Participant on a form provided by the Administrator. For a Participant who was not Retired on the date of death, such payment shall be made by the Insurance Company in a single sum. Retired Participants may choose a Death Benefit settlement option provided by the Insurance Company in the SELI policy. Such Participants may change their election at any time in accordance with the applicable policy provisions. (b) In the event that the Participant's Beneficiary designation for a SELI Death Benefit is ineffective, and the applicable policy does not provide for a different order of priority, such Participant's Beneficiary shall be his surviving spouse, if any, or if there is no surviving spouse, the Beneficiary shall be the Participant's then-living children and the descendants, per stirpes, of any of the Participant's children who do not survive the Participant, in equal shares. If there are no surviving children and no surviving spouse, the Beneficiary shall be the estate of the deceased Participant. (c) In the event that a SELI Participant commits suicide within one year after the effective date of initial SELI coverage, the Death Benefit payable under the SELI policy with respect to the entire coverage amount in the case of suicide shall be zero. In the event a Participant commits suicide within one year after the effective date of an increase in SELI coverage, the Death Benefit shall be limited to the coverage amount in effect before such increase. 4.5 SELI COVERAGE AFTER SEPARATION FROM SERVICE. (a) TERMINATION OF EMPLOYMENT. In the event that a SELI Participant is Terminated, the Company, in its sole discretion, shall cease to pay premiums on the SELI policy for such Terminated Participant after such Termination occurs. In such event, the termination provisions set forth in the collateral assignment Split Dollar agreement shall apply, subject to Article V. (b) RETIREMENT. After a SELI Participant's Retirement, and provided that the collateral assignment has not been released, the Company shall pay the entire premium cost for the Participant's SELI coverage until such time as there is sufficient 13 Cash Value in the policy to allow the Company to recover its cumulative premiums paid on the policy and to support a Death Benefit equal to 50% of the SELI coverage amount that was in effect immediately prior to the Participant's Retirement, based on mortality rates and interest assumptions in effect at the time of the release of the collateral assignment. Notwithstanding the foregoing, such amount may be reduced pursuant to Subsection 4.5(b)(i) to avoid the possibility that the policy may become a modified endowment contract. (i) SELI DEATH BENEFIT. (A) At or after a SELI Participant's Retirement, such Participant's SELI Death Benefit shall be reduced by an amount to be determined by the Administrator, but in no event shall the SELI Death Benefit be more than 50% of the Participant's pre-Retirement SELI coverage amount. At Retirement, SELI coverage shall be adjusted at the discretion of the Company to ensure that the policy does not become a modified endowment contract. (B) In the event that a SELI Participant becomes Retired on or after the Effective Date, such Participant shall bear the risk of increased premium payments, reduction in Death Benefits, or outliving the Death Benefit after the collateral assignment is released. A Retired SELI Participant shall not have access to the policy's Cash Value either through withdrawal or loan until the Company's collateral assignment is released in accordance with Subsection 4.5(b)(ii) below. (ii) RELEASE OF COLLATERAL ASSIGNMENT. A Retired SELI Participant may obtain a release of the Company's collateral assignment and be paid the Cash Value of the SELI policy in excess of the cumulative premiums paid by the Company during the life of the policy, provided that: (A) If the Participant begins participation in the Plan after June 30, 1998, the Participant may not sever the collateral assignment nor access any excess Cash Value under the policy until the Company recovers all of the premiums that it has paid with respect to the policy. (B) If the Participant began participation in the Plan between January 1, 1991 and June 30, 1998, the SELI policy must have been in effect for at least ten years before the Participant may sever the collateral assignment and the Participant may have access to the Cash Value under the policy to support a Death Benefit equal to 50% of the SELI coverage amount then in effect, based upon mortality rates and interest assumptions in effect at the time of the release of the collateral assignment. (C) If the Participant began participation in the Plan on or before December 31, 1990, the Participant may sever the collateral assignment and may have access to a Cash Value under the policy to support a Death Benefit equal to 14 50% of the SELI coverage amount then in effect, based upon mortality rates and interest assumptions in effect at the time of the release of the collateral assignment. After release of the collateral assignment, a Retired SELI Participant may borrow against the Cash Value of the SELI policy and exercise full ownership rights under the policy in accordance with such rules and procedures as may be prescribed by the Insurance Company. 4.6 SELI COVERAGE DURING A LEAVE OF ABSENCE. SELI coverage shall continue for a SELI Participant during a Leave of Absence for a period of up to twelve months or such other period specified by the Administrator. The coverage amount and premium payment basis during such period shall be the same as for an Active Employee. 4.7 SELI COVERAGE DURING AND AFTER DISABILITY. SELI coverage during a Participant's initial 52 weeks of Disability shall continue in the same amount and on the same premium payment basis as for an Active Employee. In the event that such a Participant is no longer Disabled, the SELI coverage amount after the Participant returns to active employment following the Disability shall be calculated in accordance with such Participant's level of Annual Pay during the period of active employment following the Disability, but in no event shall the amount of coverage be less than the amount that was in effect immediately prior to the Disability. If a Disabled Participant becomes eligible to receive disability payments under the MediaOne Group Executive Disability Plan or the MediaOne Group Pension Plan, the applicable provisions of Section 4.5 shall govern the continuation of such Participant's SELI coverage. 4.8 SELI COVERAGE DURING A ROTATIONAL ASSIGNMENT. At the discretion of the Committee, to be applied on a case by case basis, a SELI Participant shall continue to participate in SELI for a period of up to five years while on a Rotational Assignment. Except as set forth in Appendix A, all other terms of participation for such Participant shall be determined by the Administrator. ARTICLE V CHANGE IN CONTROL 5.1 CHANGE IN CONTROL. For the purposes of the Plan, a "Change of Control" shall be deemed to have occurred under the following circumstances: (a) Any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing 20% or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board; 15 (b) Any period of two consecutive calendar years during which 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 and any new director or directors whose election by the Board 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; (c) The Company becomes a party to a merger, consolidation or share exchange in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of common stock of the Company will be converted into shares of any other (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or (d) Any other event that a majority of the Board of Directors, in its sole discretion, shall determine constitutes a Change of Control for all Plan Participants. 5.2 EFFECT ON THE PLAN. Upon the occurrence of a Change in Control of the Company, as defined in Section 5.1, the Company shall give written notice to the Administrator of such event and the following provisions shall take immediate effect: (a) GENERAL EFFECT. Except as set forth in Subsections 5.2(b) and (c) below, for a period of at least three years after a Change in Control, the Plan may not be amended or terminated in whole or in part to reduce the benefits that were available hereunder on the date immediately prior to the Change in Control. For the purposes of this Section 5.2, amendments that reduce benefits shall include, but not be limited to, changes in coverage and changes in participation requirements which have the effect of reducing benefits, and increases in Participant cost. (b) BELI COVERAGE. The Company shall not withdraw the Cash Value of any BELI policy covering any Participant who was an Active Employee on the date immediately prior to the Change in Control. (c) SELI COVERAGE. At the expiration of such three-year period, the Company shall release as a bonus to each SELI Participant in the Plan on the date immediately prior to the Change in Control that portion of the collateral assignment sufficient to fund a Death Benefit equal to 50% of the full Active Employee Death Benefit (whether or not the Participant is an Active Employee at the time), based on reasonable mortality and interest assumptions in effect at such time and no less favorable that those in effect prior to the Change in Control. 16 ARTICLE VI ADMINISTRATION 6.1 THE COMMITTEE. Acting in its capacity as the Plan sponsor, the Committee shall have the power and authority to amend or terminate the Plan, pursuant to Section 7.7 hereof, to appoint third party service providers and vendors to the Plan, other than fiduciaries, and to establish the eligibility criteria for participating in the Plan. Except to the extent delegated to the Administrator, the Committee shall have the power and authority to administer the Plan. The Committee shall have the discretion and authority to determine conclusively for all parties all questions arising in the administration of the Plan and any decision of the Committee shall be conclusive and binding and shall not be subject to further review. To the extent of any delegation under this Section 6.1, such discretion and authority shall be delegated. 6.2 THE ADMINISTRATOR. In accordance with his or her delegation of authority from the Committee pursuant to Section 6.1, the Administrator shall have the specific powers and responsibilities set forth below: (a) The Administrator shall award benefits under the Plan and authorize disbursements according to the provisions hereof. (b) In the event the Administrator denies a claim for benefits, he or she shall provide written notice, setting forth the specific reasons for such denial, to any Participant or Beneficiary whose claim has been denied in accordance with Section 6.3 hereof, in a manner consistent with applicable law and prescribed Participating Company practices. (c) The Administrator shall oversee the day to day operation and administration of the Plan, including the appointment of the Insurance Company. (d) The Administrator shall have limited authority to amend the Plan only to the extent that any such amendment is with respect to administrative matters only and that it does not affect the level of benefits provided under the Plan in any way. The Committee shall retain the authority to amend the Plan in all other respects and to terminate the Plan pursuant to Section 7.7 hereof. 6.3 CLAIMS PROCEDURE. Any claims shall be submitted to the Administrator or his or her delegate, in the circumstances and according to the rules prescribed by the Administrator or the terms of any applicable insurance policy. The review and appeal procedure for a Participant or Beneficiary whose claim has been denied shall be as follows. (a) All disputes concerning benefits under this Plan shall be subject to this Section 6.3. 17 (b) If a claim is denied, a written notice of denial shall be furnished by the Administrator to the claimant within 90 days after the receipt of the claim by the Administrator, unless special circumstances require an extension of time for processing the claim, in which event notification of the extension shall be provided to the Participant or Beneficiary and such extension shall not exceed an additional 90 days. (c) In the notice of denial, the Administrator shall set forth the specific reasons for such denial, specific reference to pertinent Plan or insurance policy provisions, a description of any additional material or information necessary for the claimant to perfect his claim, an explanation of why such material or information is necessary for the claimant to perfect his claim, and an explanation of why such material or information is necessary, all written in a manner calculated to be understood by the claimant. Such notice shall include appropriate information as to the steps to be taken if the claimant wishes to submit his claim for review. The claimant or the claimant's authorized representative may request such a review upon written application. The claimant may review pertinent documents and may submit issues or comments in writing. The claimant or the claimant's duly authorized representative must request such review within a reasonable period of time prescribed by the Administrator. In no event shall such a period of time be less than 60 days. (d) The Administrator shall serve as the final reviewing authority under the Plan and the Employee Retirement Income Security Act of 1974, as amended, to the extent applicable to the Plan, for the review of all claims by Participants whose initial claims for benefits have been denied, in whole or in part, by the Administrator. (e) A decision shall be rendered within 60 days after the receipt of the request for review by the Administrator. If special circumstances require a further extension of time for processing, a decision shall be rendered not later than 120 days following the Administrator's receipt of their request for review. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant. The decision of the Administrator shall be furnished to the claimant in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. (f) In any case in which the Administrator fails to notify a Participant of his or her decision with respect to a claim as required under this Section 6.3, such claim shall be considered to have been denied. 6.4 REVIEW OF THE ADMINISTRATOR'S DECISIONS. The Administrator shall determine conclusively for all parties all questions arising in the administration of the plan, and any decision of the Administrator shall not be subject to further review, except as required by applicable law. 18 6.5 EXPENSES. The expenses of the Administrator in administering the Plan shall be borne by the Company. 6.6 ALLOCATION OF RESPONSIBILITIES. The Administrator may allocate responsibilities for the operation and administration of the Plan consistent with the Plan's terms, including allocation of responsibilities to Participating Companies. The Administrator may designate in writing other persons to carry out his or her responsibilities under the Plan, and may employ persons to advise him or her with regard to any such responsibilities. 6.7 ADOPTION OF PLAN BY PARTICIPATING COMPANIES. The adoption of this Plan by any subsidiary of the Company shall be subject to any reasonable conditions and requirements that the Company or the Administrator sets forth in its written consent. Such conditions and requirements may include, but shall not be limited to, restrictions with respect to which Employees of any subsidiary may become eligible to participate in the Plan. The Company retains the right, in its sole discretion, to terminate prospectively any subsidiary's participation in this Plan by providing written notice to such subsidiary. In addition, the Company retains the sole right to amend, terminate and administer the Plan. By agreeing to participate in the Plan as an employer, each Participating Company (other than the Company) shall be deemed to have designated irrevocably the Company, or its delegate, as its agent in all matters concerning the Plan. ARTICLE VII GENERAL PROVISIONS 7.1 RIGHTS TO BENEFIT. A Participant or his Beneficiary shall have no right to any benefit under this Plan except as may be provided by the Company or each Participating Company through a policy of insurance covering the life of such Participant and as set forth in this Plan. 7.2 SOURCE OF PAYMENTS. Nothing contained in this Plan or action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, his Beneficiary or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. 7.3 ASSIGNMENT OR ALIENATION. No Participant or Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Company prior to the time such assets are paid to the Participant or Beneficiary. Except as provided specifically in the Plan, the benefits under this Plan shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by any Participant or Beneficiary, and any attempt to do so shall be null and void. 19 7.4 DETERMINATION OF ELIGIBILITY. In all questions relating to eligibility for any benefit hereunder, or relating to rates of pay for determining benefits, the decision of the Administrator, based upon this Plan and upon the records of the Participating Company last employing such individual, shall be final, in so far as permitted by applicable law. 7.5 NO GUARANTEE OF EMPLOYMENT. Nothing contained herein shall be construed as conferring upon the Participant the right to continue in the employ of any Participating Company in any capacity. 7.6 NATURE OF BENEFITS. Any benefits payable under this Plan shall not be deemed to be salary or other compensation to the employee for the purpose of computing benefits to which he may be entitled under any pension plan or other arrangement of any Participating Company for the benefit of its employees. 7.7 PLAN AMENDMENT AND TERMINATION. The Company, through resolution of the Committee or its delegate, retains the right to amend or terminate the Plan (including the insurance policies) in whole or in part, in its sole and absolute discretion, and each Participating Company retains the right to withdraw from this Plan, at any time, for any reason, with or without notice. Upon termination of the Plan, no Participant shall accrue any additional benefits after the effective date of the termination, and payments shall be made to Participants or their Beneficiaries as they become due under the terms of the Plan. 7.8 GENDER AND NUMBER. Whenever used herein, words in any gender shall be deemed to include the other genders, and the singular shall be deemed to include the plural and vice versa, unless the context expressly indicates otherwise. 7.9 GOVERNING LAW. This Plan shall be construed and enforced in accordance the laws of the State of Colorado, except to the extent preempted by Federal law. Executed this ___________ day of ________________ , 1998 MEDIAONE GROUP, INC. By ----------------------------------- Title ------------------------------- 20 EX-10.D 5 EXHIBIT 10-D MEDIAONE GROUP EXECUTIVE DISABILITY PLAN EFFECTIVE AS OF JUNE 12, 1998 TABLE OF CONTENTS
Page PREAMBLE 1 ARTICLE I DEFINITIONS 1 ARTICLE II ELIGIBILITY 4 Section 2.1 Eligibility to Participate 4 ARTICLE III SHORT TERM DISABILITY BENEFITS 4 Section 3.1 Benefit Commencement 4 Section 3.2 Amount of STD Payments 5 Section 3.3 Coordination with Other Sources of Disability Income 5 Section 3.4 Duration of STD Payments 5 ARTICLE IV LONG TERM DISABILITY BENEFITS 5 Section 4.1 Benefit Commencement 5 Section 4.2 Amount of LTD Payments 5 Section 4.3 Sources and Order of LTD Payments under the Plan 5 Section 4.4 Tax Effect 6 Section 4.5 Coordination with Other Sources of Disability Income 6 Section 4.6 Duration of LTD Payments 6 Section 4.7 Employment Status 6 Section 4.8 Portability 6 ARTICLE V CHANGE IN CONTROL 7 Section 5.1 Change in Control 7 Section 5.2 Effect on the Plan 7 ARTICLE VI ADMINISTRATION 8 Section 6.1 The Committee 8 Section 6.2 The Administrator 8 Section 6.3 Claims Procedure 9 Section 6.4 Review of the Administrator's Decision 10 Section 6.5 Expenses 10 Section 6.6 Allocation of Responsibilities 10 Section 6.7 Adoption of Plan by Participating Companies 10 ARTICLE VII GENERAL PROVISIONS 11 Section 7.1 Rights to Benefit 11 Section 7.2 Source of Payments 11 Section 7.3 Assignment or Alienation 11 Section 7.4 Determination of Eligibility 11 Section 7.5 No Guarantee of Employment Section 7.6 Nature of Benefits 11 Section 7.7 Plan Amendment and Termination 11 Section 7.8 Gender and Number 12 Section 7.9 Governing Law 12 SIGNATURE PAGE 12
MEDIAONE GROUP EXECUTIVE DISABILITY PLAN Effective as of June 12, 1998 PREAMBLE U S WEST, Inc. ("Old U S WEST"), a Delaware corporation, previously established the U S WEST Senior Management Long Term Disability & Survivor Protection Plan, which was terminated and replaced by the U S WEST Executive Disability Plan. Effective with the separation of Old U S WEST into USW-C, Inc. (renamed U S WEST, Inc. at the time of such separation) and MediaOne Group, Inc. (the "Company"), the Company assumes sponsorship of that portion of the Plan relating to its Eligible Employees, which it names the MediaOne Group Executive Disability Plan (the "Plan"). The purpose of the Plan is to provide disability benefits to Eligible Employees. ARTICLE I DEFINITIONS The following terms shall have the meanings set forth below. 1.1 "ADMINISTRATOR" shall mean the Senior Vice President of Human Resources or his or her delegate (or, in the event the Plan benefits of the Administrator are directly or indirectly impacted by any claim for benefits, the Chairperson of the Committee or his delegate). To the extent applicable, the Administrator shall be the "administrator" and the "named fiduciary" for purposes of the Employee Retirement Income Security Act of 1974, as amended. 1.2 "ANNUAL PAY" shall mean an amount equal to the following: (a) For an Eligible Employee who is in his first year of participation in the STIP, his annual rate of base pay plus the mid-range of his target Short Term Incentive Award. (b) For an Eligible Employee who is in his second year of participation in the STIP, his annual rate of base pay in effect for such year plus the average of the two amounts below: (i) The Short Term Incentive Award amount in Subsection 1.2(a) above; and (ii) The actual Short Term Incentive Award he was paid for the prior year, except that if his Short Term Incentive Award was prorated, the full target amount of the Short Term Incentive Award for such year; (c) For an Eligible Employee who is in his third year of participation in the STIP, his annual rate of base pay in effect for such year and the average of the three amounts below: (i) The Short Term Incentive Award amount in Subsection 1.2(a) above; (ii) The amount in Subsection 1.2(b)(ii) above; and (iii) The actual Short Term Incentive Award he was paid for the prior year. (d) For an Eligible Employee who is in his fourth year of participation in the STIP, his annual rate of base pay in effect for such year and the average of the three amounts below: (i) The amount in Subsection 1.2(b)(ii) above; (ii) The amount in Subsection 1.2(c)(iii) above; and (iii) The actual Short Term Incentive Award he was paid for the prior year. (e) For an Eligible Employee who has been an STIP participant for more than four years, his annual rate of base pay in effect for such year and the average of the prior three Short Term Incentive Awards paid to the Eligible Employee. 1.3 "BASE PAYMENT" shall mean a Participant's Annual Pay. (a) Pursuant to Article III, the Short Term Disability benefit under the Plan shall be 100% of Annual Pay; and (b) Pursuant to Article IV, the Long Term Disability benefit under the Plan shall be 60% of Annual Pay. 1.4 "BOARD" or "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company. 1.5 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations and rulings in effect thereunder from time to time. 2 1.6 "COMMITTEE" shall mean the Human Resources Committee of the Board or its delegate. 1.7 "COMPANY" shall mean MediaOne Group, Inc., a Delaware corporation, or its successors. 1.8 "CONTRACT" shall mean the contracts and individual insurance policies entered by the Company and an Insurance Company to provide benefits under the Plan. 1.9 "DISABLED" OR "DISABILITY" shall mean the circumstance when a Participant is unable to perform the essential functions of his own occupation due to an injury or illness, as determined in the sole discretion of the Administrator, and is under the care of a physician. The Plan provides Short Term Disability or STD benefits, as set forth in Article III hereof, and Long Term Disability or LTD benefits, as set forth in Article IV hereof. 1.10 "EFFECTIVE DATE" shall mean the Separation Time. 1.11 "ELIGIBLE EMPLOYEE" shall mean an employee who is eligible to participate in the Plan pursuant to Section 2.1. 1.12 "GROUP PLAN" means the MediaOne Group Disability Plan, as amended or superseded. 1.13 "INSURANCE COMPANY" shall mean the insurance company or companies, which may be selected from time to time by the Administrator, to provide disability insurance coverage under this Plan. 1.14 "PARTICIPANT" shall mean an Eligible Employee who has satisfied the applicable requirements of Section 2.1. 1.15 "PARTICIPATING COMPANY" or "PARTICIPATING COMPANIES" shall mean the Company or any subsidiary of the Company that, with the consent or at the direction of the Administrator, participates in the Plan. 1.16 "PLAN" shall mean the MediaOne Group Executive Disability Plan, as set forth herein, together with the Contracts and Appendices attached hereto, as amended from time to time. 1.17 "PLAN YEAR" shall mean the fiscal year of the Plan, which shall be the calendar year. 1.18 "SEPARATION TIME" shall mean the time that U S WEST, Inc., a Delaware corporation ("Old U S WEST"), is separated into two public companies, USW-C, Inc., 3 renamed U S WEST, Inc. as of the Separation Time, and MediaOne Group, Inc. (the "Company"). 1.19 "SERVICE" shall mean an Employee's Term of Employment as defined in the MediaOne Group Pension Plan. 1.20 "SOCIAL SECURITY" shall mean the federal Social Security Administration or disability benefits provided by that agency. 1.21 "SHORT TERM INCENTIVE AWARD" shall mean an award determined annually pursuant to the STIP. 1.22 "STIP" shall mean the MediaOne Group Short Term Incentive Plan or the MediaOne Group Executive Short Term Incentive Plan, as amended or superseded. 1.23 "WORKERS' COMPENSATION" shall mean the state agencies or the wage replacement benefits for an occupational injury or illness provided in accordance with state law in the state where an Employee resides, regardless of the differences in the title of the agency or the benefits provided. ARTICLE II ELIGIBILITY 2.1 ELIGIBILITY TO PARTICIPATE. An employee who is: (a) the chief executive officer of the Company; (b) such other person designated by the Board or its delegate as an Eligible Employee or as member of a class of employees to be made Participants in this Plan; or (c) an individual who satisfies any other criteria for eligibility as determined by the Board or its delegate shall be an Eligible Employee on the date upon which he is hired or placed into an eligible classification. An Eligible Employee shall commence participation in the Plan in accordance with the provisions set forth in Articles III and IV. ARTICLE III SHORT TERM DISABILITY BENEFITS 3.1 BENEFIT COMMENCEMENT. STD benefit payments shall commence for an Eligible Employee on the 8th calendar day after the date of the onset of his Disability. 4 3.2 AMOUNT OF STD PAYMENTS. A Participant shall receive STD benefit payments in the amount of Base Payment, as defined in Subsection 1.3(a) above, regardless of his years of Service. Pay increases and decreases that occur during a Participant's Disability shall be effective on the scheduled date of change and STD benefits shall be paid at the new rate for the duration of the STD period. 3.3 COORDINATION WITH OTHER SOURCES OF DISABILITY INCOME. Payments provided hereunder shall be offset by other sources of disability income, including, but not limited to, the Group Plan, Social Security and Workers' Compensation. No Plan payments shall be made when other sources of disability income exceed the STD benefit amount payable under the Plan. 3.4 DURATION OF STD PAYMENTS. Payments of STD benefits under the Plan shall continue until the occurrence of one the following events: (a) The Participant has expired 52 weeks of STD benefits; (b) The Participant receives disability income from other sources that exceeds the maximum STD benefit payable under the Plan; (c) The Participant's employment with the Company ceases; or (d) The Participant ceases to be an Eligible Employee. ARTICLE IV LONG TERM DISABILITY BENEFITS 4.1 BENEFIT COMMENCEMENT. An Eligible Employee shall commence participation in the Plan for LTD benefits after he has expired the maximum duration for STD benefit payments under the Plan and continues to be Disabled. 4.2 AMOUNT OF LTD PAYMENTS. A Participant shall receive LTD benefit payments in the amount of Base Payment, as defined in Subsection 1.3(b) above, regardless of his years of Service, but in no event shall such LTD benefit exceed a maximum of $30,000 per month. 4.3 SOURCES AND ORDER OF LTD PAYMENTS UNDER THE PLAN. The Plan shall provide LTD benefit payments through Contracts, if applicable, the MediaOne Group Pension Plan, or the general assets of the Company. The order of the sources from which LTD benefit payments shall be made to a Participant shall be as follows: 5 (a) Contract: An individual Contract shall provide LTD benefit payments to each Participant on a monthly basis in an amount equal to a Participant's Base Payment as set forth in Subsection 1.3(b), provided that each such monthly payment shall not exceed $7,500. In the event that a Primary Participant's monthly LTD benefit is greater than the maximum benefit amount under the Contract or a Contract is not is not in force, LTD benefits shall be paid using the other sources set forth above. (b) Modified Disability Pension Plan payments under the MediaOne Group Pension Plan; and (c) General assets of the Participating Company. 4.4 TAX EFFECT. All of the sources of LTD benefit payments set forth in Section 4.3 hereof shall be taxed as ordinary income to a Participant when paid, except in the event that a Participant makes an irrevocable election to treat the premium payments made by the Company for the Contract as imputed income while he is an active employee, the LTD benefit payments made to him if he becomes disabled shall be excluded from tax. Such an election is irrevocable and shall be made at the time the Contract is put in place. If a Participant does not make such an election, the LTD benefit payments made under the Contract shall be taxable to such Participant as ordinary income. 4.5 COORDINATION WITH OTHER SOURCES OF DISABILITY INCOME. Payments provided hereunder shall be offset by other sources of disability income, including, but not limited to, Social Security and Workers Compensation. 4.6 DURATION OF LTD PAYMENTS. Payments of LTD benefits under the Plan shall continue until the occurrence of one the following events: (a) The Participant is no longer Disabled; (b) A Participant's attaining age 65, subject to any maximum benefit periods set forth in the Contract; (c) The death of the Participant; or (d) The Participant receives disability income from other sources that exceeds the maximum LTD benefit payable under the Plan. 4.7 EMPLOYMENT STATUS. An individual who is receiving LTD benefits under the Plan shall be deemed to be a former Employee. 4.8 PORTABILITY. In the event that the Company purchases individual Contracts to provide Long Term Disability benefits to Eligible Employees under the Plan, an Eligible Employee shall have the opportunity to maintain such individual policy upon a 6 termination of employment by continuing premium payments on his own to the Insurance Company. 7 ARTICLE V CHANGE IN CONTROL 5.1 CHANGE IN CONTROL. For the purposes of the Plan, a "Change of Control" shall be deemed to have occurred under the following circumstances: (a) Any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes a beneficial owner of (or otherwise has the authority to vote), directly or indirectly, securities representing 20% or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board; (b) Any period of two consecutive calendar years during which 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 and any new director or directors whose election by the Board 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; (c) The Company becomes a party to a merger, consolidation or share exchange in which either (i) the Company will not be the surviving corporation or (ii) the Company will be the surviving corporation and any outstanding shares of common stock of the Company will be converted into shares of any other (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or (d) Any other event that a majority of the Board of Directors, in its sole discretion, shall determine constitutes a Change of Control for all Plan Participants. 5.2 EFFECT ON THE PLAN. Upon the occurrence of a Change in Control of the Company, as defined in Section 5.1, the Company shall give written notice to the Administrator of such event and the following provisions shall take immediate effect with respect to all Participants in the Plan immediately prior to the Change in Control: (a) GENERAL EFFECT. For a period of three years after a Change in Control and for such additional period as required to provide benefits under Subsection 5.2(c) below, with respect to Participants covered by such subsection, the Plan may not be amended or terminated in whole or in part to reduce the benefits that were available hereunder on the date immediately prior to the Change in Control. For the purposes of this Section 5.2, amendments that reduce benefits shall include, but not be limited to, 8 changes in coverage and changes in participation requirements which have the effect of reducing benefits, and increases in Participant cost. (b) ELIGIBLE EMPLOYEES UNDER THE PLAN. During the three-year period following the occurrence of a Change in Control and for such additional period as required to provide benefits under Subsection 5.2(c) below, with respect to Participants covered by such subsection, the definition of "Base Payment" hereunder shall not be amended, modified, or eliminated. In addition, in the event benefits are provided hereunder through Contracts, the Company contributions toward the premium amounts for such Contracts shall not be reduced below the contribution amounts paid in the period immediately preceding the Change in Control for the duration of such three-year period. (c) DISABLED PARTICIPANTS UNDER THE PLAN. A Participant who is Disabled under the Plan on or before the occurrence of a Change in Control or during the three-year period following such occurrence shall receive STD and/or LTD benefits, as applicable, in the same amounts, under the same terms and conditions, including the applicable maximum duration of benefit payments, in effect under the Plan prior to the Change in Control. ARTICLE VI ADMINISTRATION 6.1 THE COMMITTEE. Acting in its capacity as the Plan sponsor, the Committee shall have the power and authority to amend or terminate the Plan, pursuant to Section 7.7 hereof, to appoint third party service providers and vendors to the Plan, other than fiduciaries, and to establish the eligibility criteria for participating in the Plan. Except to the extent delegated to the Administrator, the Committee shall have the power and authority to administer the Plan. The Committee shall have the discretion and authority to determine conclusively for all parties all questions arising in the administration of the Plan and any decision of the Committee shall be conclusive and binding and shall not be subject to further review. To the extent of any delegation under this Section 6.1, such discretion and authority shall be delegated. 6.2 THE ADMINISTRATOR. In accordance with his or her delegation of authority from the Committee pursuant to Section 6.1, the Administrator shall have the specific powers and responsibilities set forth below: (a) The Administrator shall award benefits under the Plan and authorize disbursements according to the provisions hereof. (b) In the event the Administrator denies a claim for benefits, he or she shall provide written notice, setting forth the specific reasons for such denial, to any Participant or Beneficiary whose claim has been denied in accordance with Section 6.3 9 hereof, in a manner consistent with applicable law and prescribed Participating Company practices. (c) The Administrator shall oversee the day to day operation and administration of the Plan, including the appointment of the Insurance Company. (d) The Administrator shall have limited authority to amend the Plan only to the extent that any such amendment is with respect to administrative matters only and that it does not affect the level of benefits provided under the Plan in any way. The Committee shall retain the authority to amend the Plan in all other respects and to terminate the Plan pursuant to Section 7.7 hereof. 6.3 CLAIMS PROCEDURE. Any claims shall be submitted to the Administrator or his or her delegate, in the circumstances and according to the rules prescribed by the Administrator or the terms of any applicable insurance policy. The review and appeal procedure for a Participant or Beneficiary whose claim has been denied shall be as follows. (a) All disputes concerning benefits under this Plan shall be subject to this Section 6.3. (b) If a claim is denied, a written notice of denial shall be furnished by the Administrator to the claimant within 90 days after the receipt of the claim by the Administrator, unless special circumstances require an extension of time for processing the claim, in which event notification of the extension shall be provided to the Participant or Beneficiary and such extension shall not exceed an additional 90 days. (c) In the notice of denial, the Administrator shall set forth the specific reasons for such denial, specific reference to pertinent Plan or insurance policy provisions, a description of any additional material or information necessary for the claimant to perfect his claim, an explanation of why such material or information is necessary for the claimant to perfect his claim, and an explanation of why such material or information is necessary, all written in a manner calculated to be understood by the claimant. Such notice shall include appropriate information as to the steps to be taken if the claimant wishes to submit his claim for review. The claimant or the claimant's authorized representative may request such a review upon written application. The claimant may review pertinent documents and may submit issues or comments in writing. The claimant or the claimant's duly authorized representative must request such review within a reasonable period of time prescribed by the Administrator. In no event shall such a period of time be less than 60 days. (d) The Administrator shall serve as the final reviewing authority under the Plan and the Employee Retirement Income Security Act of 1974, as amended, to the extent applicable to the Plan, for the review of all claims by Participants whose initial claims for benefits have been denied, in whole or in part, by the Administrator. 10 (e) A decision shall be rendered within 60 days after the receipt of the request for review by the Administrator. If special circumstances require a further extension of time for processing, a decision shall be rendered not later than 120 days following the Administrator's receipt of their request for review. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant. The decision of the Administrator shall be furnished to the claimant in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. (f) In any case in which the Administrator fails to notify a Participant of his or her decision with respect to a claim as required under this Section 6.3, such claim shall be considered to have been denied. 6.4 REVIEW OF THE ADMINISTRATOR'S DECISIONS. The Administrator shall determine conclusively for all parties all questions arising in the administration of the Plan, and any decision of the Administrator shall not be subject to further review, except as required by applicable law. 6.5 EXPENSES. The expenses of the Administrator in administering the Plan shall be borne by the Company. 6.6 ALLOCATION OF RESPONSIBILITIES. The Administrator may allocate responsibilities for the operation and administration of the Plan consistent with the Plan's terms, including allocation of responsibilities to Participating Companies. The Administrator may designate in writing other persons to carry out his or her responsibilities under the Plan, and may employ persons to advise him or her with regard to any such responsibilities. 6.7 ADOPTION OF PLAN BY PARTICIPATING COMPANIES. The adoption of this Plan by any subsidiary of the Company shall be subject to any reasonable conditions and requirements that the Company or the Administrator sets forth in its written consent. Such conditions and requirements may include, but shall not be limited to, restrictions with respect to which Employees of any subsidiary may become eligible to participate in the Plan. The Company retains the right, in its sole discretion, to terminate prospectively any subsidiary's participation in this Plan by providing written notice to such subsidiary. In addition, the Company retains the sole right to amend, terminate and administer the Plan. By agreeing to participate in the Plan as an employer, each Participating Company (other than the Company) shall be deemed to have designated irrevocably the Company, or its delegate, as its agent in all matters concerning the Plan. 11 ARTICLE VII GENERAL PROVISIONS 7.1 RIGHTS TO BENEFIT. A Participant or his Beneficiary shall have no right to any benefit under this Plan except as may be provided by the Company or each Participating Company through a policy of insurance covering the life of such Participant and as set forth in this Plan. 7.2 SOURCE OF PAYMENTS. Nothing contained in this Plan or action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, his Beneficiary or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. 7.3 ASSIGNMENT OR ALIENATION. No Participant or Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Company prior to the time such assets are paid to the Participant or Beneficiary. Except as provided specifically in the Plan, the benefits under this Plan shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by any Participant or Beneficiary, and any attempt to do so shall be null and void. 7.4 DETERMINATION OF ELIGIBILITY. In all questions relating to eligibility for any benefit hereunder, or relating to rates of pay for determining benefits, the decision of the Administrator, based upon this Plan and upon the records of the Participating Company last employing such individual, shall be final, in so far as permitted by applicable law. 7.5 NO GUARANTEE OF EMPLOYMENT. Nothing contained herein shall be construed as conferring upon the Participant the right to continue in the employ of any Participating Company in any capacity. 7.6 NATURE OF BENEFITS. Any benefits payable under this Plan shall not be deemed to be salary or other compensation to the employee for the purpose of computing benefits to which he may be entitled under any pension plan or other arrangement of any Participating Company for the benefit of its employees. 7.7 PLAN AMENDMENT AND TERMINATION. The Company, through resolution of the Committee or its delegate, retains the right to amend or terminate the Plan (including the insurance policies) in whole or in part, in its sole and absolute discretion, and each Participating Company retains the right to withdraw from this Plan, at any time, for any reason, with or without notice. Upon termination of the Plan, no Participant shall accrue any additional benefits after the effective date of the termination, and payments shall be 12 made to Participants or their Beneficiaries as they become due under the terms of the Plan. 7.8 GENDER AND NUMBER. Whenever used herein, words in any gender shall be deemed to include the other genders, and the singular shall be deemed to include the plural and vice versa, unless the context expressly indicates otherwise. 7.9 GOVERNING LAW. This Plan shall be construed and enforced in accordance the laws of the State of Colorado, except to the extent preempted by Federal law. Executed this ___________ day of ________________ , 1998 MEDIAONE GROUP, INC. By ----------------------------------- Title ------------------------------- 13 EX-10.E 6 EXHIBIT 10-E MEDIAONE GROUP NONQUALIFIED PENSION PLAN TABLE OF CONTENTS
Page Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 "Administrator". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 "Beneficiary". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 "Board" or "Board of Directors". . . . . . . . . . . . . . . . . . . . . 3 1.4 "Commencement Date". . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.5 "Company". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.6 "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.7 "Installments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.8 "Nonqualified Percentage". . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 "Nonqualified Plan" or "Plan". . . . . . . . . . . . . . . . . . . . . . 3 1.10 "Nonqualified Plan Hypothetical Benefit". . . . . . . . . . . . . . . . 3 1.11 "Participant" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.12 "Pension Plan". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.13 "Pension Plan Hypothetical Benefit" . . . . . . . . . . . . . . . . . . 4 1.14 "Pension Percentage". . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.15 "Plan". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.16 "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.17 "Short Term Incentive Award". . . . . . . . . . . . . . . . . . . . . . 4 1.18 "Wages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE II ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Eligibility to Participate . . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Entitlement to Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE III PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . 5 3.1 Commencement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.2 Lump Sum Distributions and Installments. . . . . . . . . . . . . . . . . 5 3.3 Election of Form of Benefit. . . . . . . . . . . . . . . . . . . . . . . 6 3.4 Small Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.5 Default Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.6 Suspension of Benefit Payments . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE IV AMOUNT OF BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1 Calculation in First Year. . . . . . . . . . . . . . . . . . . . . . . . 8 4.2 Calculation in Subsequent Years. . . . . . . . . . . . . . . . . . . . . 9 4.3 Survivor Annuity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 i 4.4 Actuarial Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.5 Example. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.6 Certain Increases in Pension Plan Benefits . . . . . . . . . . . . . . . 11 ARTICLE V SPECIAL RULES APPLICABLE TO LUMP SUM DISTRIBUTIONS AND INSTALLMENTS. . . . . . . . . . . . . . . 11 5.1 Entire Pension Plan Benefit Paid in a Lump Sum . . . . . . . . . . . . . 11 5.2 Nonqualified Plan Benefit Paid in a Lump Sum . . . . . . . . . . . . . . 11 5.3 Deferral of Lump Sum Distribution. . . . . . . . . . . . . . . . . . . . 13 5.4 Special Rules for Participants Who Elect a Partial Lump Sum Option Under the Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.5 No Partial Lump Sum Option Under the Nonqualified Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.6 Example. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.7 Special Rules for Participants Electing Installments. . . . . . . . . . . . . . . . . . . . . . . . . . 15 5.8 Inconsistent Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE VI PRE-RETIREMENT DEATH BENEFITS . . . . . . . . . . . . . . . . . . . 16 6.1 Death of Participant Prior to Annuity Starting Date Under the Pension Plan . . . . . . . . . . . . . . 16 6.2 Death of Participant after Annuity Starting Date under the Pension Plan but Prior to Commencement Date under the Nonqualified Plan. . . . . . . . . . . . . . . . . . . . . . . 16 6.3 No Election of Beneficiary or Form of Payment. . . . . . . . . . . . . . 17 ARTICLE VII ANCILLARY DEATH BENEFITS. . . . . . . . . . . . . . . . . . . . . . 17 7.1 Eligibility for Death Benefits . . . . . . . . . . . . . . . . . . . . . 17 7.2 Amount of Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . 17 7.3 Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7.4 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VIII Disability Benefits. . . . . . . . . . . . . . . . . . . . . . 19 8.1 Eligibility for Disability Benefit . . . . . . . . . . . . . . . . . . . 19 8.2 Amount of Disability Benefit . . . . . . . . . . . . . . . . . . . . . . 19 8.3 Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE IX ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 9.1 Administrator Responsibility . . . . . . . . . . . . . . . . . . . . . . 20 9.2 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ii 9.3 Review of Administrator Decisions. . . . . . . . . . . . . . . . . . . . 20 9.4 Delegation of Responsibilities . . . . . . . . . . . . . . . . . . . . . 20 9.5 Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 10.1 Rights to Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 10.2 Source of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 21 10.3 Forfeiture of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 22 10.4 Assignment or Alienation. . . . . . . . . . . . . . . . . . . . . . . . 22 10.5 Determination of Eligibility. . . . . . . . . . . . . . . . . . . . . . 23 10.6 Payments to Others. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.7 No Guarantee of Employment. . . . . . . . . . . . . . . . . . . . . . . 23 10.8 Nature of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.9 Plan Amendment and Termination. . . . . . . . . . . . . . . . . . . . . 23 10.10 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 10.11 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 10.12 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
iii MEDIAONE GROUP NONQUALIFIED PENSION PLAN PREAMBLE I. Predecessor Plan History. U S WEST, Inc., a Delaware corporation ("Old U S WEST"), established the U S WEST Senior Management Non-Qualified Pension Plan (the "Predecessor Nonqualified Plan") effective January 1, 1984 to restore to certain of its executives and to the executives of certain of its subsidiaries various pension benefits that cannot be paid from the U S WEST Pension Plan (the "Predecessor Pension Plan"). Effective January 1, 1997, the Predecessor Nonqualified Plan was amended, restated, and renamed the U S WEST Nonqualified Pension Plan. II. Corporate History. In 1995, pursuant to a Restated Certificate of Incorporation of Old U S WEST, Old U S WEST assets, liabilities and businesses were divided between the Communications Group and the Media Group. Both Communications Group and Media Group employees participated in the Predecessor Nonqualified Plan. In 1998, Old U S WEST determined that it was desirable to separate the Communications Group and the Media Group into two separate public companies. In furtherance of that goal, Old U S WEST effected a restructuring of certain of its assets among the Communications Group and Media Group. In addition, Old U S WEST redeemed all of the Old U S WEST Communications Group Common Stock for all of the capital stock of USW-C, Inc., a wholly-owned subsidiary of Old U S WEST; as a result, USW-C, Inc. ceased to be affiliated with Old U S WEST. Upon such redemption, USW-C, Inc. was renamed U S WEST, Inc. In addition, Old U S WEST was renamed MediaOne Group, Inc. All of the existing shares of Old U S WEST Media Group Common Stock remain outstanding as MediaOne Group, Inc. Common Stock. The foregoing transactions became effective on the Separation Time. III. Current Plan. In connection with the foregoing separation, Old U S WEST determined that it was desirable to transfer sponsorship of the Predecessor Nonqualified Plan to USW-C, Inc. In addition, MediaOne Group, Inc. adopted this Nonqualified Plan to accept liabilities with respect to Media Participants, as set forth in the Employee Matters Agreement between Old U S WEST and USW-C, Inc. This Plan document sets forth the terms and conditions of the Nonqualified Plan, effective as of the Separation Time (except as otherwise noted), and reflects the transfer of liabilities of all Media Participants to this Nonqualified Plan from the 1 Predecessor Nonqualified Plan. No benefits will be paid under this Nonqualified Plan to Communications Participants after the Separation Time unless (1) in accordance with the Employee Matters Agreement, a Terminated Communications Employee is reclassified as a Terminated Media Employee (as such terms are defined in the Employee Matters Agreement) or (2) a Communications Participant becomes an Employee and Participant hereunder after the Separation Time. Except as otherwise provided herein, the provisions of this Nonqualified Plan apply solely to an Employee of a Participating Company whose Eligible Separation occurred on or after the Separation Time. If a Media Participant's Eligible Separation occurred prior to the Separation Time, that person is entitled to benefits under this Nonqualified Plan in accordance with the terms of the Predecessor Nonqualified Plan as the Predecessor Nonqualified Plan existed on the date of the Employee's Eligible Separation. ARTICLE I DEFINITIONS Capitalized terms in this Nonqualified Plan which are also defined in the Pension Plan shall have the meaning set forth in the Pension Plan, unless otherwise provided below: 1.1 "Administrator" shall mean the Senior Vice President of Human Resources of the Company or his or her duly-authorized delegate, or, in the event the Plan benefits of the Senior Vice President, Human Resources are directly or indirectly impacted by any claim for benefits, the Human Resources Committee of the Board. 1.2 "Beneficiary" means, as the context warrants, (i) the contingent annuitant designated by a Participant with respect to a pension benefit hereunder, (ii) the beneficiary set forth in Article VI with respect to a pre-retirement death benefit payable in Article VI, (iii) the person or persons designated to receive any unpaid Installments after the Participant's death, and/or (iv) the beneficiary set forth in Section 7.3 with respect to the ancillary benefits payable under Article VII. 1.3 "Board" or "Board of Directors" shall mean the Board of Directors of the Company. 1.4 "Commencement Date" is defined in Section 3.1. 1.5 "Company" shall mean MediaOne Group, Inc., a Delaware corporation and any successor thereto. Up and until immediately prior to the Separation Time, Company meant Old U S WEST as defined in the Preamble. 1.6 "Compensation" shall mean compensation as defined in Section 1.10 of the Pension Plan without regard to sub-sections (d) and (e) thereof (the provisions 2 implementing Section 401(a)(17) of the Code), plus the following: (a) Compensation deferred under the Company's Deferred Compensation Plan for a Plan Year (excluding any amounts deferred or payable pursuant to any incentive plan of the Company), prorated to one-twelfth (1/12) and spread evenly over the months for the Plan Year of the deferral; (b) The amount of any Short Term Incentive Awards paid with respect to a Plan Year, prorated to one-twelfth (1/12) and spread evenly over the twelve months of the Plan Year during which the Short Term Incentive Awards were earned; and (c) The value of the Company's common stock (without regard to its restricted status on the date of grant) paid as an award under a plan that provides for awards in the form of the Company's common stock in lieu of cash and that has been approved by the shareholders of the Company, provided that such award is designated by the Administrator as Compensation under this Nonqualified Plan. In all cases, such awards shall be valued for purposes of this Nonqualified Plan as of the date of the award. 1.7 "Installments" shall mean a form of benefit in which a Participant's benefit under this Plan is paid in a fixed number of annual installments, not to exceed ten, elected by the Participant in accordance with procedures established by the Administrator. 1.8 "Nonqualified Percentage" is defined in Section 4.1(b). 1.9 "Nonqualified Plan" or "Plan" shall mean this MediaOne Group Nonqualified Pension Plan, as amended. 1.10 "Nonqualified Plan Hypothetical Benefit" is defined in Section 4.1(c). 1.11 "Participant" . shall mean an Employee of a Participating Company who has satisfied the applicable requirements of Section 2.1. 1.12 "Pension Plan" shall mean the MediaOne Group Pension Plan as it exists after the Separation Time, and as amended from time to time. References to any article or section of the Pension Plan include reference to any comparable or succeeding provisions that amend, supplement or replace such article or section. Prior to the Separation Time, "Pension Plan" meant the U S WEST Pension Plan maintained by Old U S WEST. After the Separation Time, the term "Pension Plan" shall also mean the U S WEST Pension Plan or its successor to the extent such plan or successor provides benefits to Participants in this Plan which are attributable to periods prior to the Separation Time. 1.13 "Pension Plan Hypothetical Benefit" is defined in Section 4.1(a). 1.14 "Pension Percentage" is defined in Section 4.1(b). 3 1.15 "Plan" shall mean this MediaOne Group Nonqualified Pension Plan, as amended. 1.16 "Plan Year" shall mean the fiscal year of the Plan, which shall be the calendar year. 1.17 "Short Term Incentive Award" shall mean an award determined annually pursuant to either the Company's Short Term Incentive Plan or the Company's Executive Short Term Incentive Plan, as amended or superseded. For Nonqualified Plan benefit calculation purposes, (i) any Short Term Incentive Award earned in the year of Termination shall be prorated and spread evenly over the applicable months on the payroll in the final Plan Year of employment and (ii) for a Participant who Terminates and who has a Short Term Incentive Award that is paid after Termination, the award will be spread evenly over the months of the year the award was earned. If a Short Term Incentive Award is paid after Termination, the Participant's benefit under this Nonqualified Plan shall be adjusted retroactively to reflect such payment if necessary. 1.18 "Wages" shall mean wages as defined under Section 7.9 of the Pension Plan as of February 28, 1993, calculated without regard to Code Section 401(a)(17), plus the Short Term Incentive Award most recently paid prior to February 28, 1993. ARTICLE II ELIGIBILITY 2.1 ELIGIBILITY TO PARTICIPATE. Each Media Participant who is a participant in the Predecessor Nonqualified Plan immediately prior to the Separation Time, shall become a Participant hereunder at the Separation Time. Subject to Part III of the Preamble, each other participant in the Pension Plan (a) whose Compensation for a Plan Year exceeds the limit on includible compensation for benefit accrual purposes under Code Section 401(a)(17), or (b) who is a participant in the Company's Deferred Compensation Plan, or (c) who is eligible for a Short Term Incentive Award with respect to a Plan Year, shall be eligible to participate in this Nonqualified Plan. Such an eligible individual's participation in the Nonqualified Plan shall commence on the 90th day after the date he receives the information concerning participation in the Nonqualified Plan. If the information is given by hand delivery, the Participant shall receive the information on the date it is delivered. If the information is given by mail, it shall be deemed received by the Participant on the third day after deposit in the United States first class mail, postage prepaid, addressed to the Participant at the most current address in the Company's records. Such individual shall continue to participate in this Nonqualified Plan until such Participant ceases to satisfy at least one of the eligibility requirements specified in this Section 2.1. 2.2 ENTITLEMENT TO BENEFITS. Notwithstanding the foregoing, a person who is eligible to participate pursuant to subsection (a) of Section 2.1 shall not be entitled to any 4 benefits from this Plan unless such person's benefits under the Pension Plan would be greater if the limit on includible compensation under Section 401(a)(17) of the Code did not apply or Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. For purposes of the preceding sentence, the determination of whether the benefit under the Pension Plan would be greater shall be made by assuming that Code Section 415 did not apply. If a person's benefits under the Pension Plan are reduced solely by virtue of Code Section 415, no benefits shall be payable from this Plan although the individual may be entitled to a benefit from the excess plan set forth in Section 5C.2 of the Pension Plan. If a Participant is entitled to a benefit under this Nonqualified Plan, no benefits shall be payable from the excess plan set forth in Section 5C.2 of the Pension Plan. ARTICLE III PAYMENT OF BENEFITS 3.1 COMMENCEMENT DATE. Payment of a Nonqualified Plan benefit shall commence as of such time (the "Commencement Date") as elected (or deemed elected) by the Participant; provided, however, except as provided in Sections 3.2, 3.4, 3.5 and 10.10, the Commencement Date may not be earlier than the Annuity Starting Date elected under the Pension Plan or, except as provided by the next sentence, later than the fifth anniversary of his Eligible Separation. Except as provided in Sections 3.2, 3.4, 3.5 and 10.10, if the Annuity Starting Date under the Pension Plan is later than the fifth anniversary of the Participant's Eligible Separation, then the Commencement Date shall be the same day as the Annuity Starting Date. For purposes of this Section 3.1, if the Participant elects a partial lump sum under the Pension Plan, the Annuity Starting Date under the Pension Plan shall be the date as of which the annuity under the Pension Plan commences. 3.2 LUMP SUM DISTRIBUTIONS AND INSTALLMENTS. (a) Notwithstanding Section 3.1, if a Participant elects payment under this Plan in the form of a lump sum distribution or Installments, the distribution shall be paid or commence to be paid approximately 60 days after Eligible Separation (unless the Participant elects deferral of the distribution), with an additional payment, which shall be paid approximately sixty (60) days following the payment of the Participant's final Short Term Incentive Award, which shall take into account any Short Term Incentive Awards that were not included in the calculation of the payment that the Participant had already received. The Commencement Date of such a distribution shall be the Participant's First Starting Date, even though the distribution may not be made for approximately 60 days (no interest shall be paid due to the delay in payment). If a Participant who has elected payment of benefits under this Plan in the form of a lump sum dies after the Commencement Date, but before the payment of the lump sum, said lump sum shall be paid to the deceased Participant's estate. 5 (b) Notwithstanding Section 3.1, if the Participant elects deferral of the lump sum distribution or Installments, the distribution shall be paid or commence to be paid, in accordance with the Participant's election, in March of the first, second, third, fourth or fifth calendar year after the calendar year in which the Eligible Separation occurs. The Commencement Date of such a distribution shall be the March 1 of the year in which the distribution is to commence, even though the distribution may not actually commence on such date (no interest shall be paid due to the delay in payment). 3.3 ELECTION OF FORM OF BENEFIT. (a) If a Participant becomes eligible for participation in this Nonqualified Plan, he shall, within 90 days after he receives information regarding participation in the Nonqualified Plan and prior to the date he commences participation in the Nonqualified Plan, elect the form in which benefit payments shall be made. A Participant may elect to change the form of benefit at any time after the fifth anniversary of the previous election (excluding elections made under the Predecessor Nonqualified Plan before May 1997). However, any such election shall be void unless the Participant remains an Employee at least six months after the date the election is filed with the Administrator. If a Participant ceases to participate in the Plan and subsequently recommences participation, any prior election (or deemed election) shall remain valid unless a new election is made. (b) A Participant may elect payment of the Nonqualified Plan benefit in any form of benefit available to that Participant under the Pension Plan (excluding the partial lump sum option) or Installments. (c) The Participant shall have full power and authority to make elections with respect to the form of payment of benefits under this Plan without obtaining the consent of such Participant's spouse, including the waiver of payment in the form of a joint and survivor annuity. All such elections shall be made on a form provided by the Administrator in accordance with procedures established by the Administrator. (d) Notwithstanding the foregoing, a Participant's affirmative election of a lump sum benefit or Installments under this Nonqualified Plan shall not be valid unless the Participant acknowledges that he will not be entitled to any cost-of-living adjustments provided under Code Section 415 under the Pension Plan after his Eligible Separation. (e) Any election in effect under the Predecessor Nonqualified Plan at the Separation Time shall remain in effect under this Plan until changed by the Participant in accordance with the rules set forth above. 6 3.4 SMALL BENEFITS. Notwithstanding any election or deemed election pursuant to Sections 3.3 or 3.5 or any other provision of this Plan, if the Participant's benefit under this Nonqualified Plan (excluding any benefits payable under Article VII of this Nonqualified Plan), expressed as a lump sum in accordance with Article V, is $10,000 or less, the Nonqualified Plan benefit (excluding any benefits payable under Article VII of this Nonqualified Plan) shall be payable only in the form of a lump sum approximately sixty (60) days after the Participant's Eligible Separation. For purposes of the preceding sentence, if the Participant's Annuity Starting Date under the Pension Plan is more than sixty (60) days after his Eligible Separation, the Participant's benefits under this Nonqualified Plan shall be calculated as if the Participant elected a single life annuity under the Pension Plan (if the Participant is not married on the First Starting Date) or as a 50% joint and survivor annuity under the Pension Plan (if the Participant is married on the First Starting Date), in each case commencing at age 65 or the First Starting Date, whichever produces the lower Nonqualified Percentage, based on the Code Section 415 limits in effect on the date of Eligible Separation. 3.5 DEFAULT ELECTIONS. (a) This subsection (a) applies to all Participants other than those described in sub-section (b) below. If a Participant fails to elect a Commencement Date and either (i) fails to elect a form of Nonqualified Plan benefit or (ii) elects a lump sum, the Nonqualified Plan benefit shall be paid in the form of a lump sum approximately 60 days after the Eligible Separation. If a Participant fails to elect a Commencement Date and elects Installments, the Nonqualified Plan benefit shall be paid in the form of Installments commencing approximately 60 days after the Eligible Separation. If a Participant elects an annuity form of benefits under the Nonqualified Plan, but fails to elect a Commencement Date, the Commencement Date shall be the Annuity Starting Date under the Pension Plan. If the Participant elects a Commencement Date, but fails to elect a form of Nonqualified Plan benefit, it shall be paid in a lump sum on that date set forth in Section 3.2 coinciding with or immediately preceding the elected Commencement Date. (b) This subsection (b) applies to Media Participants hired by Old U S WEST or one of its subsidiaries before May 1997 who do not make any benefit elections after April 1997. If a Participant fails to elect a form of Nonqualified Plan benefit, benefits shall be paid as a single life annuity (if the Participant is not married on the Commencement Date) or as a 50% joint and survivor annuity (if the Participant is married on the Commencement Date). If a Participant elected a lump sum or Installments under the Predecessor Nonqualified Plan before May, 1997, but fails to elect a Commencement Date, the distribution shall be paid or commence to be paid approximately 60 days after the Eligible Separation. If a Participant fails to elect a Commencement Date, and (i) the Participant elected an annuity under the Predecessor Nonqualified Plan prior to May 1997 or (ii) the Participant did not elect a form of benefits, the Participant shall be deemed to have elected a Commencement Date that is his Annuity Starting Date under the Pension Plan. 3.6 SUSPENSION OF BENEFIT PAYMENTS. Reemployment with a Participating Company commencing on or after January 1, 1997 as a Management Employee shall not result in suspension of benefits. Reemployment with any Participating Company prior to 7 1997 subsequent to Termination with any type of benefits described heretofore shall result in the suspension of the benefit for the period of such employment or reemployment. ARTICLE IV AMOUNT OF BENEFIT 4.1 CALCULATION IN FIRST YEAR. Subject to Articles III and V, the amount of a Participant's benefit payable under this Nonqualified Plan in the Plan Year in which the Commencement Date occurs shall be calculated in the following manner: (a) The Participant's hypothetical benefit that would be payable under the Pension Plan for that year shall be calculated (i) by using the form of benefit and Annuity Starting Date elected by the Participant under the Pension Plan, (ii) by taking into account any cost-of-living adjustments provided under the Pension Plan, and (iii) by assuming Code Sections 401(a)(17) and 415 (and the Pension Plan provisions implementing such Code sections) did not apply and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. This hypothetical amount will be referred to as the Pension Plan Hypothetical Benefit. (b) The ratio of (i) the actual Pension Plan benefit payable for that year using the form of benefit and Annuity Starting Date elected by the Participant under the Pension Plan and taking into account any cost-of-living adjustments provided under the Pension Plan or under Code Section 415, if applicable, to (ii) the Pension Plan Hypothetical Benefit, shall be calculated and expressed as a percentage (or fraction). This amount shall be referred to as the Pension Percentage for the year. The Nonqualified Percentage for that year shall equal 100 percent (or one) minus the Pension Percentage for the year. (c) The Participant's hypothetical benefit that would be payable under the Pension Plan for that year shall be calculated (i) by using the form of benefit and Commencement Date elected by the Participant under the Nonqualified Plan, (ii) by taking into account any cost-of-living adjustments provided under the Pension Plan and (iii) by assuming if Code Sections 401(a)(17) and 415 (and the Pension Plan provisions implementing such Code sections) did not apply and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. This amount will be referred to as the Nonqualified Plan Hypothetical Benefit. (d) Except as provided in Section 5.7, the annual amount of the Nonqualified Plan benefit payable for the Plan Year in which the Commencement Date occurs equals the Nonqualified Plan Hypothetical Benefit multiplied by the Nonqualified Percentage. Unless the Participant elects a lump sum benefit or Installments, one-twelfth of such amount shall be paid each month in arrears (with a pro rata adjustment for the first payment if the Commencement Date is not the first day of a month), provided that 8 no payment shall be made for months (or parts of a month) prior to the Commencement Date. (e) In the event the Participant elects the same form of benefit under both the Pension Plan and Nonqualified Plan (other than a lump sum) and also elects that benefits under the two plans commence on the same date, the foregoing calculations will result in a benefit payable from this Nonqualified Plan equal to the excess of the amount set forth in Section 4.1(a) over the amount described in Section 4.1(b)(i). (f) As set forth in Section 3.3, if the sole reason that the Pension Plan Hypothetical Benefit exceeds the amount set forth in Section 4.1(b)(i) is due to the application of Code Section 415, no benefits shall be payable from this Nonqualified Plan. 4.2 CALCULATION IN SUBSEQUENT YEARS. The calculations described in Section 3.1 shall be performed again in each subsequent Plan Year in which a Nonqualified Plan benefit (other than a benefit in the form of Installments) is payable in accordance with the form of Nonqualified Plan benefit elected. Subject to Section 4.3, if the Pension Plan benefit ceases to be paid prior to the Nonqualified Plan benefit, the Nonqualified Percentage shall be fixed in the last Plan Year the Pension Plan pension benefit or survivor annuity is paid. 4.3 SURVIVOR ANNUITY. If the form of benefits elected by the Participant under this Nonqualified Plan provides for a survivor annuity (including a 10-year certain and life benefit, but excluding Installments) after his death and, if applicable, the contingent beneficiary outlives the Participant, the calculations described in this Article IV shall be performed again, beginning in the first month a benefit is payable to the beneficiary and recalculated in each subsequent Plan Year in which a Nonqualified Plan survivor annuity is payable in accordance with the form of Nonqualified Plan benefit elected. For this purpose, however, the respective survivor annuities shall be used rather than the pension benefits. If the Pension Plan benefit ceases to be paid prior to Nonqualified Plan benefit (or if there is no Pension Plan survivor annuity), the Nonqualified Percentage shall be fixed in the last Plan Year the Pension Plan pension benefit or survivor annuity is paid. 4.4 ACTUARIAL FACTORS. Except as set forth in Article V, the Pension Plan Hypothetical Benefit and the Nonqualified Plan Hypothetical Benefit shall be calculated using the actuarial factors set forth in the Pension Plan appropriate for the form of benefit and benefit commencement dates elected for the Pension Plan benefit and Nonqualified Plan benefit respectively, without regard to any adjustments under Code Section 415. 4.5 EXAMPLE. This Section 4.5 illustrates how the amount of Nonqualified Plan benefits is calculated for a Plan Year. For this purpose, assume the Participant incurs an Eligible Separation on his 62nd birthday and that his Defined Lump Sum and DLS Normal Pension under the Pension Plan (in each case calculated as if Code Sections 401(a)(17) and 415 did not apply and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan) are $2.2 million and $200,000/year, respectively. The Participant's DLS benefits are in all cases greater than the benefits 9 under the grandfather formula in Pension Plan Article V-B (or Article V-A of the Pension Plan, if applicable). At the time the Participant is 62, assume the DLS Normal Pension payable at age 65 under the Pension Plan is limited to $150,000/year due to Code Section 415. Assume that the Section 415 limit increases to $160,000/year by the time the Participant attains age 65. (a) (i) First, assume the Participant's Annuity Starting Date and Commencement Date occur upon attainment of age 65. The Participant elects a single life annuity under the Pension Plan and a Qualified Joint and 100% Survivor Annuity under the Nonqualified Plan. In this case, the Nonqualified Percentage is 20% [1 - ($160,000 DIVIDED BY $200,000)]. The Participant's Nonqualified Plan Hypothetical Benefit is $200,000 multiplied by 84% (to reflect payment in the form of a Qualified Joint and 100% Survivor Annuity), or $168,000. The amount payable from the Nonqualified Plan for the year the Participant attains age 65 is 20% of $168,000, or $33,600. (ii) Assume that the next year the amount payable from the Pension Plan increases to $165,000 due to the cost of living increases in Code Section 415(d). Accordingly, this year, the Nonqualified Percentage is 17.5% [1 - ($165,000 DIVIDED BY $200,000)]. Thus, the amount payable from the Nonqualified Plan this year is 17.5% of $168,000, or $29,400. (b) Assume instead that the Participant elected Pension Plan benefits in the form of a Qualified Joint and 100% Survivor Annuity at age 65. In this case, the Pension Plan Hypothetical Benefit is $168,000 [84% times $200,000]. The Pension Plan benefit remains $160,000/year since the survivor spousal annuity is ignored under Code Section 415. Accordingly, the Nonqualified Percentage is 8/168. If the Participant elected a Qualified Joint and 100% Survivor Annuity under the Nonqualified Plan, he would receive an $8,000/year benefit [$168,000 times 8/168]. If he elected a life annuity under the Nonqualified Plan, the benefit would equal $200,000 times 8/168, or $9,523.81. (c) (i) Now assume the Participant commences Pension Plan benefits at age 62 in the form of a single life annuity. In this case, the Pension Plan Hypothetical Benefit is $144,000 [$200,000 times 72% (the Pension Plan's early retirement factor]. In contrast, under Code Section 415, the early retirement factor is 80% at 62; thus, the actual benefit payable under the Pension Plan is $120,000. Accordingly, the Nonqualified Percentage is 1/6 [1 minus (120/144)]. If the Participant elected a 10 Year Certain Life Annuity under the Nonqualified Plan at age 62, the Nonqualified Plan Hypothetical Benefit is $144,000 multiplied by 96% (to reflect payment in the form of a 10 Year Certain Life Annuity), or $138,240. The amount payable from the Nonqualified Plan for the year the Participant attains age 62 is $138,240 multiplied by 1/6, or $23,040. (ii) Because the Section 415 limit increases to $160,000 by the time the Participant attains age 65, the amount payable from the Pension Plan increases to $128,000 [160,000 times .8]. Accordingly, this year the Nonqualified Percentage is 1/9 [1 - ($128,000 DIVIDED BY $144,000)]. Thus, the amount payable from the Nonqualified Plan this year is 1/9 of $138,240, or $15,360. 10 (d) Assume the Participant in Section 4.5(c) commenced the Pension Plan benefits at age 62, but started the Nonqualified Plan benefit at age 65. As described in Section 4.5(c)(ii), the Nonqualified Percentage equals 1/9 [1 minus (128/144)]. If the Participant elected a 10 Year Certain Life Annuity under the Nonqualified Plan, the Nonqualified Plan Hypothetical Benefit is $200,000 multiplied by 96% (to reflect payment in the form of a 10 Year Certain Life Annuity), or $192,000. The amount payable from the Nonqualified Plan for the year is $192,000 multiplied by 1/9, or $21,333.33. No adjustment is made to reflect the fact that the Nonqualified Percentage is lower at age 65 when the Nonqualified Plan benefit commences than it would have been in earlier years when the Pension Plan benefit commenced. 4.6 CERTAIN INCREASES IN PENSION PLAN BENEFITS. Notwithstanding any other provision of this Nonqualified Plan, any increase in Pension Plan benefits which may occur upon termination of the Pension Plan as a result of the operation of Section 11.5(b) of the Pension Plan shall be disregarded in determining each Participant's Nonqualified Plan Hypothetical Benefit and Pension Plan Hypothetical Benefit (and Hypothetical Death Benefit) under this Nonqualified Plan. ARTICLE V SPECIAL RULES APPLICABLE TO LUMP SUM DISTRIBUTIONS AND INSTALLMENTS 5.1 ENTIRE PENSION PLAN BENEFIT PAID IN A LUMP SUM. Notwithstanding Article IV, if a Participant receives his entire Pension Plan benefit in the form of a lump sum, the Nonqualified Percentage shall be calculated as of the First Starting Date and shall never change. 5.2 NONQUALIFIED PLAN BENEFIT PAID IN A LUMP SUM. Notwithstanding Article IV, the following rules shall apply if a Participant elects to receive his Nonqualified Plan benefit in the form of an immediate lump sum. First, the Nonqualified Percentage shall be calculated in accordance with Section 4.1(a) and (b), except that it shall be calculated as of the First Starting Date and shall never change. For purposes of the preceding sentence, if the Participant's Annuity Starting Date under the Pension Plan is more than sixty (60) days after his Commencement Date, the Participant's benefits under this Nonqualified Plan shall be calculated as if the Participant elected a single life annuity under the Pension Plan (if the Participant is not married on the First Starting Date) or as a 50% joint and survivor annuity under the Pension Plan (if the Participant is married on the First Starting Date), in each case commencing at age 65 or the First Starting Date, whichever produces the lower Nonqualified Percentage, based on the Code Section 415 limits in effect on the date of Eligible Separation. Second, notwithstanding Sections 4.1(c) and (d), the benefit under this Nonqualified Plan shall be equal to the Nonqualified Percentage multiplied by a lump sum Nonqualified Plan Hypothetical Benefit, which is defined as set forth below. The lump sum Nonqualified Plan Hypothetical Benefit shall be 11 computed as of the date of the Participant's Eligible Separation and shall equal the greater of the following amounts: (a) If the Participant has a pension under (i) Article V-A of the Pension Plan and he is not SPE or (ii) Article V-B of the Pension Plan that is not a service pension, a hypothetical Normal Retirement Pension under Article V-A or V-B as applicable of the Pension Plan payable at age 65 shall be calculated by assuming Code Sections 401(a)(17) and 415 (and the Plan provisions implementing such Code sections) did not apply and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. If the Participant has a pension under (i) Article V-A of the Pension Plan and he is SPE or (ii) Article V-B of the Pension Plan and is eligible for a service pension in accordance with Section 5B.1 of the Pension Plan, a hypothetical immediate annuity commencing on the First Starting Date shall be calculated under that Section by assuming that Code Sections 401(a)(17) and 415 (and the Plan provisions implementing such Code sections) did not apply and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. For purposes of calculating the lump sum Nonqualified Plan Hypothetical Benefit, the foregoing hypothetical Normal Retirement Pension or immediate annuity, as applicable, under Article V-A or V-B, as applicable, of the Pension Plan shall be converted into a lump sum based on the following factors: (i) The interest rate used for this purpose shall equal: (A) 65% of the average yield on 30-Year Treasury Bonds as released by the Federal Reserve Board for the five business days immediately preceding the First Starting Date for Participants who have an Eligible Separation prior to August 1, 1997; or (B) 65% of the average yield on 30-Year Treasury Bonds as released by the Federal Reserve Board for the business days occurring during the 30-day calendar period ending on the day before the date of Eligible Separation for Participants who have an Eligible Separation on or after August 1, 1997. (ii) Mortality shall be based on the 1983 Group Annuity Mortality Table, weighted 80% for males and 20% for females. The Administrator shall use such other actuarial assumptions in calculating the present value of a Participant's benefit for the purpose of determining the amount of a lump sum distribution as it shall determine in its sole discretion. (b) A hypothetical Defined Lump Sum under Article V-D or Article V-E, as applicable, of the Pension Plan shall be calculated by assuming Code Sections 401(a)(17) and 415 (and the Plan provisions implementing such Code sections) did not apply and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. For purposes of calculating the lump sum Nonqualified Plan Hypothetical Benefit, the resulting hypothetical Defined Lump Sum under Article V-D or 12 Article V-E, as applicable of the Pension Plan shall be multiplied by 1.35. 5.3 DEFERRAL OF LUMP SUM DISTRIBUTION. Notwithstanding Article IV, if a Participant elects payment of his Nonqualified Plan benefit in the form of a lump sum and defers payment of such benefit pursuant to Section 3.2(b), the Nonqualified Plan Hypothetical Benefit shall not be computed by calculating the lump sum that would be payable under the Pension Plan as of the Commencement Date. Instead, the Nonqualified Plan benefit shall be calculated in accordance with Section 5.2 above as of the Participant's Eligible Separation and increased with interest from the date of the Eligible Separation to the Commencement Date at an annual rate equal to: (a) The yield on 10-year Treasury Notes on the date of the Eligible Separation as released by the Federal Reserve Board plus one percent during any period from the date of Eligible Separation to December 31, 1997; and (b) For any portion of a Plan Year occurring on or after January 1, 1998, the average yield on 5-year Treasury Notes as released by the Federal Reserve Board on the business days occurring during December prior to such Plan Year. This rate shall be revised each year for all deferrals, including deferrals from prior years. 5.4 SPECIAL RULES FOR PARTICIPANTS WHO ELECT A PARTIAL LUMP SUM OPTION UNDER THE PENSION PLAN. This Section 5.4 applies to an X Participant who elects a partial lump sum option under the Pension Plan. (a) Unless the Participant elects a lump sum under the Nonqualified Plan, the Commencement Date may not be prior to the date the annuity under the Pension Plan commences. (b) The Pension Percentage shall equal the sum of two percentages. The first shall equal the actual lump sum paid by the Pension Plan divided by the Pension Plan Hypothetical Benefit, calculated as if the ENTIRE benefit were paid as a lump sum in the year the Pension Plan lump sum is paid. This amount shall not change in subsequent years. The second percentage shall equal the actual annual annuity paid by the Pension Plan divided by the Pension Plan Hypothetical Benefit for that year, calculated as if the ENTIRE benefit were paid in the same form of annuity elected under the Pension Plan. This amount may change in subsequent years. (If the Participant elected a lump sum under this Plan, the second percentage shall be calculated at the Eligible Separation in accordance with Section 5.2 and shall never change.) The Nonqualified Percentage for each year shall equal 100 percent (or one) minus the Pension Percentage for the year as calculated above. 5.5 NO PARTIAL LUMP SUM OPTION UNDER THE NONQUALIFIED PLAN. A Participant may not elect a partial lump sum option under the Nonqualified Plan. 5.6 EXAMPLE. This Section 5.6 illustrates how the lump sum calculations apply. The basic assumptions are set forth in Section 4.5. 13 (a) Assume the Participant commences Pension Plan benefits in the form of a single life annuity at age 62 and a lump sum under the Nonqualified Plan at age 62. First, as set forth in Section 4.5(c)(i), the Nonqualified Percentage is 1/6. Second, the hypothetical $2.2 million lump sum amount that would be paid under the Pension Plan (if Code Sections 401(a)(17) and 415 were disregarded) is multiplied by 1.35 to provide a Nonqualified Plan Hypothetical Benefit of $2.97 million. Finally, the Nonqualified Plan lump sum benefit is 1/6 of $2.97 million, or $495,000. (b) Now assume the Participant is single, defers his Pension Plan benefits and elects a lump sum under the Nonqualified Plan at age 65. First, as set forth in Section 5.2, because the Participant defers his Pension Plan benefits, the Nonqualified Percentage is the lesser of the Nonqualified Percentage which would result if the Participant is deemed to have elected a life annuity at age 65 under the Pension Plan or the Nonqualified Percentage which would result if the Participant is deemed to have elected a life annuity at the First Starting Date (age 62 in this example) under the Pension Plan, regardless of the Participant's actual elections, and is based on the current Code Section 415 limits. Thus, the Nonqualified Percentage is the lesser of: (i) 25% [1 minus (150/200)] based on the assumption that the Participant commences Pension Plan benefits in the form of a single life annuity at age 65; or (ii) 1/6 [1 minus (120/144)] based on the assumption that the Participant commences Pension Plan benefits in the form of a single life annuity at age 62. Since, under Section 5.2, the lower percentage is used as the Nonqualified Percentage, the Nonqualified Percentage would be 1/6. This Nonqualified Percentage is then applied to the Nonqualified Plan Hypothetical Benefit of $2.97 million calculated in Section 5.6(a) which results in a Nonqualified Plan lump sum benefit at age 62 of $495,000. This amount would then be increased with interest to age 65 pursuant to Section 5.3. Note that the amount would be different if the Participant were married at age 62 since the Nonqualified Percentage would be calculated by assuming the Participant elected a 50% joint and survivor annuity under the Pension Plan. (c) Now assume the Participant elected a lump sum under the Pension Plan at age 62 upon Eligible Separation and a lump sum under the Nonqualified Plan. Assume that due to Section 415, the Defined Lump Sum payable from the Pension Plan is limited to $1.5 million. Accordingly, the Nonqualified Percentage is 7/22 [1 minus 1,500,000/2,200,000)]. If the Nonqualified Plan lump sum is also paid at age 62, it equals $2.97 million (as determined in Section 5.6(a)) times 7/22, or $945,000. If the Nonqualified Plan lump sum is paid at age 65, the amount of $945,000 is increased with interest from age 62 to age 65 in accordance with Section 5.3. (d) Now assume the Participant is single, elects a partial lump sum of $750,000 under the Pension Plan at age 62 and defers the balance of his pension under the Pension Plan. He also elects a lump sum under the Nonqualified Plan at age 65. 14 Two Pension Percentages are calculated, one for each form of benefit. The lump sum percentage is 7.5/22. The annuity percentage is calculated pursuant to Section 5.2 and equals 5/12 [the greater of 4.5/12 (75,000/200,000, which is the percentage assuming payment is at age 65) or 5/12 (60,000/144,000, which is the percentage assuming payment is at age 62)]. The Nonqualified Percentage equals 1 minus 7.5/22 minus 5/12. The Nonqualified Plan benefit is the Nonqualified Percentage times $2.97 million, or $720,000 payable at age 62. This amount is increased with interest to age 65 pursuant to Section 5.3. 5.7 SPECIAL RULES FOR PARTICIPANTS ELECTING INSTALLMENTS. Notwithstanding any other provision of this Plan to the contrary, if a Participant elects payment of his Nonqualified Plan benefit in the form of Installments, each Installment shall be calculated as follows: (a) The Participant shall be deemed to have an account balance which initially shall be equal to the amount that would have been payable under this Plan if the Participant had elected payment under this Nonqualified Plan in the form of a lump sum distribution to be paid on the same date as the actual Commencement Date. (b) The initial account balance shall be divided by the number of annual Installments elected by the Participant to determine the first annual Installment due on the Commencement Date. (c) The account balance shall then be: (i) debited on the date of each annual Installment by the amount of such Installment; and (ii) credited with interest at the rates set forth in Section 5.3(b) (taking into account the rate change as of January 1) from the date of such annual Installment to the date of the next Installment. (d) The account balance as of the date of the next Installment shall be divided by the remaining number of annual Installments elected by the Participant to determine the amount of such Installment. (e) Subsections (c) and (d) shall be repeated each year to determine each subsequent Installment. (f) If a Participant who has elected payment of benefits under this Plan in the form of Installments dies after the Commencement Date, but before the payment of all Installments, any unpaid Installments shall be paid to the deceased Participant's Beneficiary. Should the Beneficiary die before payment of all remaining Installments, any remaining account balance shall be paid to the Beneficiary's estate. 5.8 INCONSISTENT PROVISIONS. The provisions of this Article V shall take precedence over any obviously inconsistent provisions in Article III or Article IV (other than Sections 4.1(f) or 4.6). 15 ARTICLE VI PRE-RETIREMENT DEATH BENEFITS This Article VI describes the pre-retirement death benefits payable if the Participant dies prior to the Commencement Date. For purposes of this Article VI, the death benefits set forth in Article VII of the Pension Plan and in Article VII of this Plan shall be ignored. If a Participant dies after the Commencement Date, but before his Annuity Starting Date under the Pension Plan, no benefit is payable under this Article VI. 6.1 DEATH OF PARTICIPANT PRIOR TO ANNUITY STARTING DATE UNDER THE PENSION PLAN. This Section 6.1 applies if (i) a Participant dies while employed by the Company or a Subsidiary or (ii) a Participant dies after his Eligible Separation but prior to both his Commencement Date under this Plan and his Annuity Starting Date under the Pension Plan. The Participant's pre-retirement death benefits shall be paid in the same form and at the same time as the pre-retirement death benefits under the Pension Plan; in addition, his Beneficiary under the Nonqualified Plan shall be the same as his beneficiary under the Pension Plan. The amount of the pre-retirement death benefit from the Nonqualified Plan shall equal the excess, if any, of the Hypothetical Death Benefit (as defined below) over the amount of pre-retirement death benefits which are payable under the Pension Plan. The Hypothetical Death Benefit shall equal the amount of pre-retirement death benefit that would be payable from the Pension Plan (based on the form and commencement date elected) if Code Sections 401(a)(17) and 415 (and the Plan provisions implementing such Code Sections) did not apply, and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. If a lump sum (rather than an annuity) is payable, such excess amount (as opposed to the Hypothetical Death Benefit) shall be calculated by (i) converting the excess hypothetical Qualified Preretirement Survivor Annuity under Article V-A or V-B of the Pension Plan into a lump sum using the factors in Section 5.2(a)(i) and (ii), or (ii) multiplying the excess hypothetical Defined Lump Sum by 1.35 as set forth in Section 5.2(b), whichever is applicable. 16 6.2 DEATH OF PARTICIPANT AFTER ANNUITY STARTING DATE UNDER THE PENSION PLAN BUT PRIOR TO COMMENCEMENT DATE UNDER THE NONQUALIFIED PLAN. This Section 6.2 applies if a Participant dies after the Annuity Starting Date under the Pension Plan but prior to the Commencement Date under this Nonqualified Plan. In that case, the pre-retirement death benefits from the Nonqualified Plan shall automatically be paid as an immediate lump sum. The amount of such lump sum shall be calculated under Article V, as if the Participant did not die but had instead elected a lump sum benefit from the Nonqualified Plan payable on the date of his death. The pre-retirement lump sum death benefit under this Section shall be paid to the beneficiary of the survivor annuity under the Pension Plan. If no survivor annuity is payable under the Pension Plan (either due to the form of Pension Plan benefit elected or the fact that the beneficiary predeceases the Participant), then the pre-retirement lump sum death benefit under this Section shall be paid to the Participant's estate, or if there is no such estate to the person who would receive such benefit under the rules set forth in Section 5D.5(g) of the Pension Plan. After the date of death, no cost of living adjustments under Code Section 415 shall be made to the survivor annuity payable under the Pension Plan. 6.3 NO ELECTION OF BENEFICIARY OR FORM OF PAYMENT. A Participant may not elect a Beneficiary or form of pre-retirement death benefit under this Nonqualified Plan. All pre-retirement death benefits shall be paid pursuant to Sections 6.1 through 6.3. ARTICLE VII ANCILLARY DEATH BENEFITS 7.1 ELIGIBILITY FOR DEATH BENEFITS. Any Participant who is eligible for death benefits under Article VII of the Pension Plan shall be a participant in the death benefit provisions of this Article VII, but only with respect to the Wages of such Participant on February 28, 1993. Any individual who became a Participant in the Pension Plan on or after March 1, 1993 shall not be entitled to any death benefits under this Article VII. Notwithstanding any provision of the Plan to the contrary, the death benefit payable under Article VII of the Pension Plan and Article VII of this Nonqualified Plan shall be ignored for purposes of calculating the benefits described in Articles III through VI and Article VIII of this Nonqualified Plan. 7.2 AMOUNT OF DEATH BENEFITS. (a) Upon the payment of a death benefit under Article VII of the Pension Plan, the Participant shall also receive a death benefit under this Nonqualified Plan at the same time. The amount of this death benefit shall equal the excess, if any, of the Hypothetical Death Benefit (as defined below) over the amount of death benefits which are payable pursuant to Article VII of the Pension Plan. (b) The Hypothetical Death Benefit shall equal the death benefit that would be payable under Article VII of the Pension Plan if Code Sections 401(a)(17) and 17 415 (and the Plan provisions implementing such Code Sections) did not apply, and Wages under the Nonqualified Plan were substituted for wages under the Pension Plan. In addition, in the case of a Participant entitled to a death benefit pursuant to Section 7.1 of the Pension Plan, the Hypothetical Death Benefit shall be calculated without regard to the $50,000 limitation in Section 7.1(a) of the Pension Plan and the benefit payable from this Nonqualified Plan shall be reduced by any amount payable pursuant to Section 7.1(c) of the Pension Plan by a Participating Company or pursuant to any insurance policy described therein. (c) This subsection (c) applies only if a death benefit is payable pursuant to Section 7.3(c) of the Pension Plan and the Participant is married on his First Starting Date. In that case, the lump sum paid to the Participant from this Plan under Article VII shall be the greater of the amount set forth in Section 7.2(a) and the Special Death Benefit, as described below. First, a Special Hypothetical Death Benefit shall be calculated; it shall equal the Hypothetical Death Benefit described in Section 7.2(b) except that it shall be calculated based on the assumptions set forth in Section 5.2 of the Nonqualified Plan (with the spouse's mortality based on the 1983 Group Annuity Mortality Table, weighted 20% for males and 80% for females) and using the actual age of the Participant and the Participant's spouse instead of the actuarial assumptions set forth in the Section 7.3(c) of the Pension Plan and Appendix L of the Pension Plan. Second, the ratio of (i) the actual death benefit paid pursuant to Section 7.3(c) of the Pension Plan (after the application of subsection (e), if applicable) to (ii) the Hypothetical Death Benefit calculated pursuant to Section 7.2(b), shall be calculated and expressed as a percentage. Finally, the Special Death Benefit shall equal the Special Hypothetical Death Benefit multiplied by a percentage equal to 1 minus the percentage calculated in the preceding sentence. (d) Notwithstanding the foregoing, in the case of a Participant whose Eligible Separation occurred before July 1, 1998, who received his benefit under the Pension Plan in the form of a lump sum and is receiving his benefit under this Nonqualified Plan in a form other than a lump sum, Section 7.2(a)-(c) shall not apply and the death benefit under this Article VII shall be paid at death if the Participant is survived by a beneficiary as defined in Article VII of the Pension Plan. The amount of such benefit shall be calculated in the following manner: (i) The ratio of (A) the death benefit paid under Article VII of the Pension Plan (after the application of sub-section (e) below, if applicable), to (B) the Hypothetical Death Benefit, determined in accordance with Section 7.2(b), shall be calculated and expressed as a percentage. (ii) The death benefit payable under this Nonqualified Plan shall equal the Hypothetical Death Benefit, determined under Section 7.2(b) (assuming the Pension Plan death benefit was paid at death rather than Eligible Separation), multiplied by a percentage equal to 1 minus the percentage calculated in paragraph (i) above. (e) For purposes of sub-sections (c) and (d) above, if the Pension Plan benefit is limited by the application of Code Section 415, it shall be assumed that the 18 retirement benefit portion of the Pension Plan benefit is paid prior to the death benefit portion under Article VII of the Pension Plan benefit so that the death benefit portion under Article VII is limited first. 7.3 METHOD OF PAYMENT. The death benefits payable under Section 7.2 shall be paid in a lump sum. Except in the case of a death benefit payable to the Participant (i.e., the Participant is entitled to a death benefit pursuant to Section 7.3(c) of the Pension Plan), the death benefit hereunder shall be payable to the beneficiaries who receive such death benefit (or, if Section 7.2(d) applies, would have received such benefit) pursuant to Sections 7.4 and 7.5 of the Pension Plan; such payment shall be made within 180 days after the date that the Participant's death is reported to the Administrator. 7.4 CLAIMS. All claims for death benefits must be made within one year of the death on which the claim is based. If notice of the existence of a spouse, child or other dependent relative of a deceased Participant or pensioner is not given to the Administrator within one year after the Participant's or pensioner's death, the Administrator shall not be required to recognize any claim made by or in behalf of any such person. ARTICLE VIII DISABILITY BENEFITS 8.1 ELIGIBILITY FOR DISABILITY BENEFIT. A Participant who is entitled to a disability benefit under Appendix H of the Pension Plan shall also be entitled to a disability pension under this Nonqualified Plan. Notwithstanding any provision of the Plan to the contrary, the disability pension payable under the Pension Plan and under this Nonqualified Plan shall be ignored for purposes of calculating the benefits and death benefits described in Articles III through VII of this Nonqualified Plan. 8.2 AMOUNT OF DISABILITY BENEFIT. The amount of the disability payable hereunder shall be the excess of (x) the Hypothetical Disability Pension over (y) the sum of (i) actual amount of disability pension payable under Appendix H of the Pension Plan, including any amount paid by the Company or Participating Company pursuant to Section 3.4 of Appendix H of the Pension Plan and (ii) any long term disability benefit paid through a Company-provided plan or policy, including insurance or otherwise. The Hypothetical Disability Pension equals the disability pension that would be paid under Appendix H of the Pension Plan if Code Sections 401(a)(17) and 415 (and the Plan provisions implementing such Code sections) did not apply. 8.3 METHOD OF PAYMENT. The disability payable hereunder shall be paid at the same time and in the same form as the disability pension under Appendix H of the Pension Plan is paid. Such disability pension under this Nonqualified Plan shall cease at the time the disability pension under Appendix H of the Pension Plan ceases. 19 ARTICLE IX ADMINISTRATION 9.1 ADMINISTRATOR RESPONSIBILITY. The Administrator shall have the administrative responsibilities set forth below: (a) The Administrator shall have the specific powers elsewhere herein granted to it and shall have such other powers as may be necessary to enable it to administer the Nonqualified Plan, except for powers herein granted or provided to be granted to others. (b) The Administrator shall have the full and complete power to interpret the terms of this Nonqualified Plan, to determine the eligibility of Employees to participate in this Nonqualified Plan and to determine the amount of benefits payable to any Participant. The Administrator shall also have full and complete power to determine the benefit payable if the specific facts applicable to the Participant or his beneficiary are not addressed in this document; such determination shall be made, by the Administrator in its sole discretion, on a basis reasonably consistent with the purpose of, and principles in, this Plan. In general, subject to the different actuarial assumptions in this Plan and the Pension Plan, the Administrator shall calculate benefits under this Plan so that the sum of the aggregate benefits from this Plan and the Pension Plan do not exceed the aggregate benefits that would be paid under the Pension Plan if Code Sections 401(a)(17) and 415 (and the Plan provisions implementing such Code sections) did not apply and Compensation under the Nonqualified Plan were substituted for compensation under the Pension Plan. 9.2 CLAIMS PROCEDURE. The review and appeal procedure for a Participant who has a claim under the Nonqualified Plan shall be the same procedures set forth in Section 13.2 of the Pension Plan; Sections 13.2(a)-(d) are hereby incorporated by reference (substituting the Administrator under this Plan for the Committee under the Pension Plan). 9.3 REVIEW OF ADMINISTRATOR DECISIONS. The Administrator shall determine conclusively for all parties all questions arising in the administration of the Nonqualified Plan, and any decision of the Administrator shall not be subject to further review, except as required by applicable law. 9.4 DELEGATION OF RESPONSIBILITIES. The Administrator may delegate responsibilities for the operation and administration of the Nonqualified Plan consistent with the Nonqualified Plan's terms, including delegation of responsibilities to Participating Companies. The Administrator may designate in writing other persons to carry out its responsibilities under the Nonqualified Plan, and may employ persons to advise it with regard to any such responsibilities. 9.5 OTHER PROVISIONS. The expenses of the Administrator shall be borne by 20 the Company. The Administrator shall be the agent of the Plan for service of legal process. ARTICLE X GENERAL PROVISIONS 10.1 RIGHTS TO BENEFIT, (a) The Participant, spouse or beneficiary of the Participant, shall have no right to any benefit under this Nonqualified Plan except as may be provided by the Participating Company employing the Participant. Where a Participant's Term of Employment has included service with more than one Participating Company, the last such Participating Company to employ him prior to his termination of employment shall be solely responsible for the full benefit under this Plan. No Participant, spouse or Beneficiary shall have any claim or interest in (i) the assets of the Participating Company liable for the payments prior to the time such assets are payable to such person under the terms of this Nonqualified Plan or (ii) the assets of any other Participating Company at any time. However, if the Company establishes a "rabbi trust" with respect to this Plan, the Participating Company shall have no obligation to pay any benefits under this Nonqualified Plan to the extent such benefits are paid from such trust. (b) In circumstances specified in Section 10.3 below, benefits previously awarded may be discontinued in the sole discretion of the Participating Company or the Administrator. (c) In addition to the other prerequisites for a benefit set forth herein, an individual, or his surviving spouse or beneficiary, as applicable, shall only be eligible for a benefit if the individual is a Participant at the time of Eligible Separation. 10.2 SOURCE OF PAYMENTS. Except as set forth in Sections 10.1(a) or 10.10(a)(iii), nothing contained in this Nonqualified Plan or any action taken pursuant to the provisions of this Nonqualified Plan shall create or be construed to create a trust of any kind. Nothing contained in this Nonqualified Plan or any action taken pursuant to the provisions of this Nonqualified Plan shall create or be construed to create a fiduciary relationship between the Company (or any Participating Company) and any Participant, his beneficiary or any other person. The Nonqualified Plan is intended to be "unfunded" for purposes of the Code and ERISA and shall be interpreted and administered in a manner consistent with this intention. To the extent that any person acquires a right to receive payments under this Nonqualified Plan, such right shall be no greater than the right of any unsecured general creditor of the Participating Company that owes the payment, as set forth in Section 10.1. 10.3 FORFEITURE OF BENEFITS. All benefits for which a Participant would be otherwise eligible hereunder may, at the sole discretion of the Administrator, be forfeited 21 under any of the following circumstances: (a) The Participant discloses "confidential information," except under circumstances where the Company or a court of competent jurisdiction has approved or required such disclosure. For purposes of this Section 10.3(a), "confidential information" means and includes, without limitation, any confidential, legal, financial, marketing, business, technical, or other information, including specifically but not exclusively, information that the Participant prepared, caused to be prepared, or received in connection with the Participant's employment with the Company (or its Subsidiaries), such as, management and business plans, business strategies, software, software evaluations, trade secrets, personnel information, marketing methods and techniques, and any of the above-recited information as it relates to the Company (or its Subsidiaries) that shall have been obtained and/or learned during his or her employment and that shall not be public knowledge. This definition does not apply to (i) information or knowledge that already is or subsequently may come into the public domain after the termination of employment other than by way of unauthorized disclosure by the Participant, (ii) information or knowledge that the Participant is required to disclose by order of a court or governmental agency after the Participant provides advance notice to the Company (or its Subsidiaries) at least ten (10) calendar days prior to such disclosure (or, if the Participant is so required to make such disclosure within less than ten (10) calendar days of receipt of such an order, after the Participant provides timely advance notice to the Company (or its Subsidiaries)) to allow the Company (or its Subsidiaries) to take legal action with respect to the matter, or (iii) information that the Participant learns from a third party not known by the Participant, after due inquiry, to be under a confidentiality agreement with the Company (or its Subsidiaries). (b) Determination by the Board of a Participating Company in its sole discretion that a Participant is engaged in misconduct in connection with his employment with such Participating Company. (c) The Participant, without the consent of his employing Participating Company or the Participating Company 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 or one of its Subsidiaries or with any business in which the Company or one of its Subsidiaries has a substantial interest (other than as a shareholder with a non-substantial interest in such business) as determined by the board of such Participating Company. 10.4 ASSIGNMENT OR ALIENATION. The benefits under this Nonqualified Plan shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by any Participant, spouse or beneficiary, and any attempt to do so shall be null and void. 10.5 DETERMINATION OF ELIGIBILITY. In all questions relating to eligibility for any benefit hereunder, or relating to Term of Employment and rates of pay for determining benefits, the decision of the Administrator, based upon this Nonqualified Plan and upon the records of the Participating Company last employing such individual, and insofar as 22 permitted by applicable law, shall be final. 10.6 PAYMENTS TO OTHERS. If any person entitled to a payment under the Nonqualified Plan is a minor, or if the Administrator determines that any such person is incapacitated by reason of physical or mental disability, whether or not legally adjudicated an incompetent, the Administrator shall have the power to cause the payments becoming due to such person to be made to another for his benefit without responsibility of the Administrator to see to the application of such payments. Payments made pursuant to such power shall operate as a complete discharge of the Nonqualified Plan, the Company and the Administrator. 10.7 NO GUARANTEE OF EMPLOYMENT. Nothing contained herein shall be construed as conferring upon the Participant the right to continue in the employ of the Company or any Participating Company as an executive or in any other capacity. 10.8 NATURE OF BENEFITS. Any benefits payable under this Nonqualified Plan shall not be deemed to be salary or other compensation to the employee for the purpose of computing benefits to which he may be entitled under any pension plan or other arrangement of the Company or any Participating Company for the benefit of its employees. 10.9 PLAN AMENDMENT AND TERMINATION. The Company, through resolution of the Administrator, retains the right to make amendments to the Nonqualified Plan in its sole and absolute discretion, except that the Administrator may not make any amendment which would affect the level of benefits under the Nonqualified Plan. The Company, through resolution of the Human Resources Committee of the Board of Directors, retains the right to make amendments to the Nonqualified Plan which would affect the level of benefits under the Nonqualified Plan and to terminate the Nonqualified Plan in whole or in part in its sole and absolute discretion. Each Participating Company retains the right to withdraw from this Nonqualified Plan, at any time, for any reason, with or without notice. Upon termination of the Nonqualified Plan, payments shall be made to Participants and their beneficiaries as they become due under the terms of the Nonqualified Plan, but no participant shall accrue any additional benefits after the effective date of the termination. In order to determine a Participant's benefit, (i) following the effective date of termination of this Nonqualified Plan there shall be no increases in any Participant's Nonqualified Plan Hypothetical Benefit or Pension Plan Hypothetical Benefit (or Hypothetical Death Benefit) and (ii) the Pension Percentage shall equal the percentage (not in excess of 100 percent) obtained by comparing the actual Pension Plan payment (as set forth in Section 4.1(b)(i)), including any accruals earned after the date of this Plan's termination, to the Pension Plan Hypothetical Benefit, as modified by the preceding clause (i). 10.10 CHANGE IN CONTROL. (a) Upon a "Change in Control" of the Company, as defined in the Company's Executive Deferred Compensation Plan, the following provisions shall be applicable: 23 (i) Each Participant in this Nonqualified Plan may elect, no later than thirty days after the Change in Control, to receive (within sixty days after the Change in Control) a single lump sum payment equal to 94 percent of the present value of his benefits under this Nonqualified Plan (as set forth in subsection (b)) as of the date of the Change in Control. A Participant making such election shall permanently forfeit the remaining six percent of the present value of his benefits under this Nonqualified Plan (as set forth in subsection (b)) as of the date of the Change in Control and the Company shall have no further liability to the Participant with respect to benefits accrued under this Nonqualified Plan for periods prior to the Change in Control. (ii) Without the written consent of each affected Participant, this Nonqualified Plan may not be amended during the period commencing on the date of the Change in Control and ending three years thereafter in any way that would cause a Participant to receive lower benefits under this Nonqualified Plan than he would have received if such amendment had not been made. (iii) The Company has established an irrevocable "rabbi trust" that may provide a source of funds to satisfy the Company's liability under this Nonqualified Plan. Upon a Change in Control, the Company shall transfer to the trustee of such trust an amount equal to the present value of all benefits under this Nonqualified Plan as of the date of the Change in Control. The trustee shall be a bank or other entity that may be granted corporate trustee powers under applicable law. The Company shall have no obligation to pay any benefits under this Nonqualified Plan to the extent such benefits are paid from such trust. (b) For purposes of this Section 10.10, the present value of the benefits under the Plan shall be determined as follows: (i) In the case of a Participant or Beneficiary receiving benefits under this Plan, the present value of the remaining benefits payable in the future shall be calculated using the assumptions set forth in Section 5.2. (ii) In the case of any other Participant, the present value shall be that lump sum payment which would be made under this Plan if the Participant terminated employment on the date of the Change in Control and elected a Commencement Date on the next day. For purposes of the preceding sentence, if the Participant's Annuity Starting Date under the Pension Plan is more than sixty (60) days after the date of the Change in Control, the Participant's benefits under this Nonqualified Plan shall be calculated as if the Participant elected a single life annuity under the Pension Plan (if the Participant is not married on the Plan termination date) or a 50% joint and survivor annuity under the Pension Plan (if the Participant is married on the Plan termination date), in each case commencing at age 65 or the date of the Change in Control, whichever produces the lower Nonqualified Percentage, based on the Code Section 415 limits in effect on the date of the Change in Control. (c) Notwithstanding the foregoing, a Participant in this Nonqualified Plan 24 who is not a Vested Participant under the Pension Plan at the time of the Change in Control shall be treated under this Nonqualified Plan (but not under the Pension Plan) as if he were a Vested Participant under both this Nonqualified Plan and the Pension Plan with respect to benefits accrued as of the Change in Control, with the result that the Participant shall receive: (i) (A) if the Participant makes the election described in Section 10.10(a)(i), the amount provided under that Section to be paid within sixty days following the Change in Control; or (B) if the Participant does not make such election and is still not a Vested Participant under the Pension Plan at the time of his Eligible Separation, a lump sum to be paid within sixty days following his Eligible Separation equal to the amount that would be payable under this Nonqualified Plan if the Participant were a Vested Participant under the Pension Plan, had an Eligible Separation on the date of the Change in Control, and elected payment under this Nonqualified Plan in the form of a lump sum (for this purpose, the Pension Percentage shall be calculated in accordance with the second sentence of Section 10.10(b)(ii)), plus interest on such amount at the rate set forth in Section 5.3(b) from the date which is 60 days after the date of the Change in Control to the date of payment; and (ii) within sixty days following the end of the Plan Year in which his Eligible Separation occurs, an additional lump sum equal to the lump sum that would have been payable under the Pension Plan as if he were vested and incurred an Eligible Separation as of the date of the Change in Control, plus interest on such amount at the rate set forth in Section 5.3(b) from the date which is 60 days after the date of the Change in Control to the date of payment, provided that no payment shall be made pursuant to this clause (ii) if the Participant is a Vested Participant under the Pension Plan at the end of the year in which his Eligible Separation occurs. If the Participant does not make the election described in Section 10.10(a)(i) and is a Vested Participant under the Pension Plan at the time of his Eligible Separation, the benefits otherwise payable under this Plan shall be paid; no special rules apply. This Section 10.10(c) shall not affect the determination of the Participant's benefit under the Pension Plan. (d) If benefits under this Plan are paid to a Participant either because the Participant makes the election described in Section 10.10(a)(i) or because the Participant receives benefits after an Eligible Separation pursuant to Section 10.10(c) (the amount of such benefits shall be the "First Payment"), and the Participant subsequently becomes entitled to additional benefits under this Nonqualified Plan (either because he continues to be employed or is later reemployed) (a "Second Payment"), the following rules shall apply: (i) If the Participant elects to receive the Second Payment in the form of an immediate lump sum or Installments, such lump sum benefit (or the initial account balance under Section 5.7(a), if Installments are elected) shall equal: (A) the amount of the lump sum benefit to which the Participant would have been entitled under this Plan had the First Payment not been made; reduced by (B) an amount equal to the 25 sum of the First Payment and, if applicable, the amount forfeited under Section 10.10(a)(i) increased with interest on such sum at the rate set forth in Section 5.3(b) credited annually from the date of the First Payment to the date of the Second Payment. If the lump sum or Installments are deferred, such net amount shall be increased with interest in accordance with Section 5.3(b). (ii) If the Participant elects to receive the Second Payment in a form other than a lump sum or Installments, the Participant's monthly benefit shall equal the amount determined under the following formula: C x (1 - B/A) where: C is the amount of the monthly benefit to which the Participant would have been entitled under this Plan in the form elected by the Participant had the First Payment not been made; and A and B are defined in accordance with the preceding paragraph (i). (iii) If the Participant received a payment pursuant to Section 10.10(c)(ii), then for purposes of the preceding paragraphs (i) and (ii), B shall equal the sum of the amount set forth in clause (B) of Section 10.10(d)(i) plus the lump sum made pursuant to Section 10.10(c)(ii), increased with interest at the rate set forth in Section 5.3(b) credited annually from the date of such payment to the date of the Second Payment. (e) Notwithstanding the foregoing, no benefits shall be paid pursuant to this Section 10.10 unless the Participant acknowledges that he will not be entitled to any cost-of-living adjustments provided under Code Section 415 under the Pension Plan after the earlier of the Change in Control or the Participant's Eligible Separation. 10.11 GENDER AND NUMBER. Whenever used herein, words in any gender shall be deemed to include the other genders, and the singular shall be deemed to include the plural and vice versa, unless the context expressly indicates otherwise. 10.12 GOVERNING LAW. This Nonqualified Plan shall be construed and enforced in accordance the laws of the State of Colorado, except to the extent preempted by Federal law. Dated: __________, 1998 MEDIAONE GROUP, INC. By ----------------------------------- Its ----------------------------------- 26 EX-10.F 7 EXHIBIT 10-F MEDIAONE GROUP, INC. MID-CAREER PENSION PLAN TABLE OF CONTENTS
Page Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Board or Board of Directors. . . . . . . . . . . . . . . . . . . . . . . 2 1.4 Commencement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Final Average Compensation . . . . . . . . . . . . . . . . . . . . . . . 2 1.7 Installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.8 Mid-Career Pension Credits . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10 Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.12 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.13 Short Term Incentive Award . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE II ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Eligibility to Participate . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . 5 3.1 Commencement Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.2 Lump Sum Distributions and Installments. . . . . . . . . . . . . . . . . 5 3.3 Election of Form of Benefit. . . . . . . . . . . . . . . . . . . . . . . 5 3.4 Small Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.5 Default Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.6 Suspension of Benefit Payments . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE IV RETIREMENT BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . 7 4.1 Eligibility for Service Pension Benefit. . . . . . . . . . . . . . . . . 7 4.2 Amount of Service Pension Benefit. . . . . . . . . . . . . . . . . . . . 7 4.3 Early Retirement Discount. . . . . . . . . . . . . . . . . . . . . . . . 8 4.4 Eligibility for Deferred Vested Benefit. . . . . . . . . . . . . . . . . 8 4.5 Amount of Deferred Vested Benefit. . . . . . . . . . . . . . . . . . . . 8 4.6 Not Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.7 Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 i ARTICLE V SPECIAL RULES APPLICABLE TO LUMP SUM DISTRIBUTIONS AND INSTALLMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 5.1 Plan Benefit Paid in a Lump Sum. . . . . . . . . . . . . . . . . . . . . 9 5.2 Deferral of Lump Sum Distribution. . . . . . . . . . . . . . . . . . . . 10 5.3 No Partial Lump Sum Option Under the Plan. . . . . . . . . . . . . . . . 10 5.4 Special Rules for Participants Electing Installments . . . . . . . . . . 10 5.5 Inconsistent Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE VI NO DISABILITY BENEFIT OR ANCILLARY DEATH BENEFITS . . . . . . . . . 11 6.1 No Disability Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . 11 6.2 No Ancillary Death Benefits. . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE VII PRE-RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . 11 7.2 Qualified Preretirement Survivor Annuity . . . . . . . . . . . . . . . . 11 7.2 No Other Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VIII ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.1 Administrator Responsibility . . . . . . . . . . . . . . . . . . . . . . 12 8.2 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.3 Review of Administrator Decisions. . . . . . . . . . . . . . . . . . . . 12 8.4 Delegation of Responsibilities . . . . . . . . . . . . . . . . . . . . . 12 8.5 Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 13 9.2 Source of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9.3 Forfeiture of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 13 9.4 Assignment or Alienation . . . . . . . . . . . . . . . . . . . . . . . . 14 9.5 Determination of Eligibility . . . . . . . . . . . . . . . . . . . . . . 14 9.6 Payments to Others . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 9.7 No Guarantee of Employment . . . . . . . . . . . . . . . . . . . . . . . 15 9.8 Nature of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.9 Plan Amendment and Termination . . . . . . . . . . . . . . . . . . . . . 15 9.10 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.11 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 9.12 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ii MEDIAONE GROUP, INC. MID-CAREER PENSION PLAN PREAMBLE I. Predecessor Plan History. U S WEST, Inc., a Delaware corporation ("Old U S WEST"), established the U S WEST Mid-Career Pension Plan (the "Predecessor Plan") effective January 1, 1984 to restore to certain of its employees and to the employees of certain of its subsidiaries various pension benefits to which they would have been entitled if they had become employees at an earlier stage of their careers. Effective January 1, 1988 and January 1, 1997, the Predecessor Plan was amended and restated. II. Corporate History. In 1995, pursuant to a Restated Certificate of Incorporation of Old U S WEST, Old U S WEST assets, liabilities and businesses were divided between the Communications Group and the Media Group. Both Communications Group and Media Group employees participated in the Predecessor Plan. In 1998, Old U S WEST determined that it was desirable to separate the Communications Group and the Media Group into two separate public companies. In furtherance of that goal, Old U S WEST effected a restructuring of certain of its assets among the Communications Group and Media Group. In addition, Old U S WEST redeemed all of the Old U S WEST Communications Group Common Stock for all of the capital stock of USW-C, Inc., a wholly-owned subsidiary of Old U S WEST; as a result, USW-C, Inc. ceased to be affiliated with Old U S WEST. Upon such redemption, USW-C, Inc. was renamed U S WEST, Inc. In addition, Old U S WEST was renamed MediaOne Group, Inc. All of the existing shares of Old U S WEST Media Group Common Stock remain outstanding as MediaOne Group, Inc. Common Stock. The foregoing transactions became effective on the Separation Time. III. Current Plan. In connection with the foregoing separation, Old U S WEST determined that it was desirable to transfer sponsorship of the Predecessor Plan to USW-C, Inc. In addition, MediaOne Group, Inc. adopted this Plan to accept liabilities with respect to Media Participants, as set forth in the Employee Matters Agreement between Old U S WEST and USW-C, Inc. This Plan document sets forth the terms and conditions of the Plan, effective as of the Separation Time (except as otherwise noted), and reflects the transfer of liabilities of all Media Participants to this Plan from the Predecessor Plan. No benefits will be paid under this Plan to Communications Participants after the Separation Time unless, in accordance with the Employee Matters Agreement, a Terminated Communications 1 Employee is reclassified as a Terminated Media Employee (as such terms are defined in the Employee Matters Agreement). Except as otherwise provided herein, the provisions of this Plan apply solely to an Employee of a Participating Company whose Eligible Separation occurred on or after the Separation Time. If a Media Participant's Eligible Separation occurred prior to the Separation Time, that person is entitled to benefits under this Plan in accordance with the terms of the Predecessor Plan as the Predecessor Plan existed on the date of the Employee's Eligible Separation. ARTICLE I DEFINITIONS Capitalized terms in this Plan which are also defined in the Pension Plan shall have the meaning set forth in the Pension Plan, unless otherwise provided below: 1.1 "ADMINISTRATOR" shall mean the Senior Vice President of Human Resources of the Company or his or her duly-authorized delegate, or, in the event the Plan benefits of the Senior Vice President, Human Resources are directly or indirectly impacted by any claim for benefits, the Human Resources Committee of the Board. 1.2 "BENEFICIARY" means, as the context warrants, (i) the contingent annuitant designated by a Participant with respect to a pension benefit hereunder or (ii) the person or persons designated to receive any unpaid Installments after the Participant's death. 1.3 "BOARD" or "BOARD OF DIRECTORS". shall mean the Board of Directors of the Company. 1.4 "COMMENCEMENT DATE" is defined in Section 3.1. 1.5 "COMPANY" shall mean MediaOne Group, Inc., a Delaware corporation and any successor thereto. Up and until immediately prior to the Separation Time, Company meant Old U S WEST as defined in the Preamble. 1.6 "FINAL AVERAGE COMPENSATION" shall mean final average compensation as defined in Section 1.21 of the Pension Plan, except that for this purpose the following definition of Compensation shall be substituted for compensation as defined in Section 1.10 of the Pension Plan. Compensation for this purpose shall mean compensation as defined in Section 1.10 of the Pension Plan without regard to sub-sections (d) and (e) thereof (the provisions implementing Section 401(a)(17) of the Code), plus the following: (a) Compensation deferred under the Company's Deferred Compensation Plan for a Plan Year (excluding any amounts deferred or payable pursuant to any incentive plan of the Company), prorated to one-twelfth (1/12) and spread evenly over the months for the Plan Year of the deferral; 2 (b) The amount of any Short Term Incentive Awards paid with respect to a Plan Year, prorated to one-twelfth (1/12) and spread evenly over the twelve months of the Plan Year during which the Short Term Incentive Awards were earned; and (c) The value of the Company's common stock (without regard to its restricted status on the date of grant) paid as an award under a plan that provides for awards in the form of the Company's common stock in lieu of cash and that has been approved by the shareholders of the Company, provided that such award is designated by the Administrator as Compensation under this Plan. In all cases, such awards shall be valued for purposes of this Plan as of the date of the award. 1.7 "INSTALLMENTS" shall mean a form of benefit in which a Participant's benefit under this Plan is paid in a fixed number of annual installments, not to exceed ten, elected by the Participant in accordance with procedures established by the Administrator. 1.8 "MID-CAREER PENSION CREDITS" shall mean an amount equal to the lesser of (a) one-half (1/2) of the number of full and fractional years of the Participant's Pension Calculation Service under the Pension Plan earned since the later of his Employment Commencement Date or his most recent Reemployment Commencement Date or (b) one-half (1/2) of the difference between (1) age 30 and (2) the Participant's attained age on the later of his Employment Commencement Date or his most recent Reemployment Commencement Date. 1.9 "PARTICIPANT" shall mean an Employee of a Participating Company who has satisfied the applicable requirements of Section 2.1. 1.10 "PENSION PLAN" shall mean the MediaOne Group Pension Plan as it exists after the Separation Time, and as amended from time to time. References to any article or section of the Pension Plan include reference to any comparable or succeeding provisions that amend, supplement or replace such article or section. Prior to the Separation Time, "Pension Plan" meant the U S WEST Pension Plan maintained by Old U S WEST. 1.11 "PLAN" shall mean this MediaOne Group Mid-Career Pension Plan, as amended. 1.12 "PLAN YEAR" shall mean the fiscal year of the Plan, which shall be the calendar year. 1.13 "SHORT TERM INCENTIVE AWARD" shall mean an award determined annually pursuant to either the Company's Short Term Incentive Plan or the Company's Executive Short Term Incentive Plan, as amended or superseded. For Plan benefit calculation purposes, (i) any Short Term Incentive Award earned in the year of Termination shall be prorated and spread evenly over the applicable months on the payroll in the final Plan Year of employment and (ii) for a Participant who Terminates and who has a Short Term Incentive Award that is paid after Termination, the award will be spread evenly over the months of the year the award was earned. If a Short Term Incentive Award is paid after 3 Termination, the Participant's benefit under this Plan shall be adjusted retroactively to reflect such payment if necessary. ARTICLE II ELIGIBILITY 2.1 ELIGIBILITY TO PARTICIPATE. (a) The only persons who shall be Participants in this Plan shall be persons who both (1) are Media Participants and (2) were Participants in the Predecessor Plan at the Separation Time. No person may become a Participant on or after the Separation Time, including any person who previously participated under the terms of the Predecessor Plan but is not a Participant at the Separation Time. (b) An individual was a Participant in the Predecessor Plan if he met all of the following conditions: (1) he must have been a participant in the Old U S WEST Pension Plan, (2) his Employment Commencement Date or most recent Re-employment Commencement Date must have occurred on or after the date on which such participant attained the age of thirty-five (35) years, and (3) the Old U S WEST Vice President of Human Resources must have designated him to participate in this Plan. Notwithstanding the foregoing, no person, including a former Participant who is not employed on August 27, 1996 and was or is reemployed thereafter, became or shall become a Participant on or after August 27, 1996. (c) A Participant who incurs an Eligible Separation on or after August 27, 1996 and is subsequently reemployed shall not be eligible to participate with respect to periods of reemployment. (d) The Participant's participation in the Plan commenced on the 90th day after the date he receives the information concerning participation in the Plan. If the information is given by hand delivery, the Participant shall receive the information on the date it is delivered. If the information is given by mail, it shall be deemed received by the Participant on the third day after deposit in the United States first class mail, postage prepaid, addressed to the Participant at the most current address in the Company's records. ARTICLE III PAYMENT OF BENEFITS 3.1 COMMENCEMENT DATE. Except as provided in Sections 3.2, 3.4, 3.5 and 9.10, payment of a Plan benefit shall commence as of such time (the "Commencement Date") as elected (or deemed elected) by the Participant. 4 3.2 LUMP SUM DISTRIBUTIONS AND INSTALLMENTS. (a) Notwithstanding Section 3.1, but subject to Sections 3.4, 3.5 and 9.10, if a Participant elects payment under this Plan in the form of a lump sum distribution or Installments, the distribution shall be paid or commence to be paid approximately 60 days after Eligible Separation (unless the Participant elects deferral of the distribution), with an additional payment, which shall be paid approximately sixty (60) days following the payment of the Participant's final Short Term Incentive Award, which shall take into account any Short Term Incentive Awards that were not included in the calculation of the payment that the Participant had already received. The Commencement Date of such a distribution shall be the Participant's First Starting Date, even though the distribution may not be made for approximately 60 days (no interest shall be paid due to the delay in payment). If a Participant who has elected payment of benefits under this Plan in the form of a lump sum dies after the Commencement Date, but before the payment of the lump sum, said lump sum shall be paid to the deceased Participant's estate. (b) Notwithstanding Section 3.1, but subject to Sections 3.4, 3.5 and 9.10, if the Participant elects deferral of the lump sum distribution or Installments, the distribution shall be paid or commence to be paid, in accordance with the Participant's election, in March of the first, second, third, fourth or fifth calendar year after the calendar year in which the Eligible Separation occurs. The Commencement Date of such a distribution shall be the March 1 of the year in which the distribution is to commence, even though the distribution may not actually commence on such date (no interest shall be paid due to the delay in payment). 3.3 ELECTION OF FORM OF BENEFIT. (a) Within 90 days after a Participant received information regarding participation in the Plan and prior to the date he commenced participation in the Plan, he was permitted to elect the form in which benefit payments shall be made. A Participant may elect to change the form of benefit at any time after the fifth anniversary of the previous election (excluding elections made under the Predecessor Plan before May 1997). However, any such election shall be void unless the Participant remains an Employee at least six months after the date the election is filed with the Administrator. If a Participant ceased to participate in the Plan and subsequently recommenced participation, any prior election (or deemed election) remained valid unless a new election is made. (b) A Participant may elect payment of the Plan benefit in any form of benefit available to that Participant under the Pension Plan (excluding the partial lump sum option) or Installments. Except as set forth in Article V (dealing with payments of lump sums and Installments), the benefit under the Plan shall be calculated by converting the single life annuity otherwise payable under Article IV into the form elected (or deemed elected under Section 3.5) using the actuarial factors set forth in the Pension Plan appropriate for the form of benefit elected, without regard to any adjustments under Code Section 415. 5 (c) The Participant shall have full power and authority to make elections with respect to the form of payment of benefits under this Plan without obtaining the consent of such Participant's spouse, including the waiver of payment in the form of a joint and survivor annuity. All such elections shall be made on a form provided by the Administrator in accordance with procedures established by the Administrator. Any election in effect under the Predecessor Plan at the Separation Time shall remain in effect under this Plan until changed by the Participant in accordance with the rules set forth above. 3.4 SMALL BENEFITS. Notwithstanding any election or deemed election pursuant to Sections 3.3 or 3.5 or any other provision of this Plan, if the Participant's benefit under this Plan, expressed as a lump sum in accordance with Article V, is $10,000 or less, the Plan benefit shall be payable only in the form of a lump sum approximately sixty (60) days after the Participant's Eligible Separation. 3.5 DEFAULT ELECTIONS. (a) This subsection (a) applies to Participants who make any benefit elections after April 30, 1997. If a Participant fails to elect a Commencement Date and either (i) fails to elect a form of Plan benefit or (ii) elects a lump sum, the Plan benefit shall be paid in the form of a lump sum approximately 60 days after the Eligible Separation. If a Participant fails to elect a Commencement Date and elects Installments, the Plan benefit shall be paid in the form of Installments commencing approximately 60 days after the Eligible Separation. If a Participant elects an annuity form of benefits under the Plan, but fails to elect a Commencement Date, the Commencement Date shall be the Annuity Starting Date under the Pension Plan. If the Participant elects a Commencement Date, but fails to elect a form of Plan benefit, it shall be paid in a lump sum on that date set forth in Section 3.2 coinciding with or immediately preceding the elected Commencement Date. (b) This subsection (b) applies to Participants who do not make any benefit elections after April 1997. If a Participant fails to elect a form of Plan benefit, benefits shall be paid as a single life annuity (whether or not the Participant is married on the Commencement Date); no survivor or contingent annuitant benefits shall be payable to any person. If a Participant elected a lump sum or Installments under the Predecessor Plan before May, 1997, but fails to elect a Commencement Date, the distribution shall be paid or commence to be paid approximately 60 days after the Eligible Separation. If a Participant fails to elect a Commencement Date, and (i) the Participant elected an annuity under the Predecessor Plan prior to May 1997 or (ii) the Participant did not elect a form of benefits, the Participant shall be deemed to have elected a Commencement Date that is his Annuity Starting Date under the Pension Plan. 3.6 SUSPENSION OF BENEFIT PAYMENTS. Reemployment with a Participating Company commencing on or after January 1, 1997 shall not result in suspension of benefits. Reemployment with any Participating Company prior to 1997 subsequent to Termination with any type of benefits described heretofore shall result in the suspension of the benefit for the period of such employment or reemployment. 6 ARTICLE IV RETIREMENT BENEFIT 4.1 ELIGIBILITY FOR SERVICE PENSION BENEFIT. A Participant shall be eligible for a service pension benefit pursuant to this Plan if he incurs an Eligible Separation and qualifies for a service pension under Article V-B of the Pension Plan. The Participant's Mid-Career Pension Credits shall not be taken into account for purposes of determining whether the Participant is eligible for a service pension under this Plan, the Pension Plan or any other plan and shall not be considered as term of employment for any purpose under any such plan or otherwise. 4.2 AMOUNT OF SERVICE PENSION BENEFIT. (a) Benefit Formula. The service pension benefit of a Participant under this Plan shall be a pension for the life of the Participant payable in monthly installments, the monthly amount of which shall equal one-twelfth of the following amount: (1) the sum of 1.25 percent of the Participant's Final Average Compensation (not in excess of Covered Compensation) and 1.50 percent of the excess of Final Average Compensation over Covered Compensation, multiplied by (2) the number of Mid-Career Pension Credits which the Participant has earned. (b) Ad Hoc Increases. No ad hoc increases set forth in the Pension Plan, including the increases effective January 1, 1996 and January 1, 1998, shall apply under this Plan. 4.3 EARLY RETIREMENT DISCOUNT. The monthly service pension benefit for each Participant who is granted a service pension benefit under Section 4.1 shall be reduced by one-half percent (0.5%) for each month by which his age (in terms of completed years and months) at the time of his Commencement Date is less than 55. If the Participant has a Term of Employment of thirty or more years, all of the adjustments set forth in Section 5B.1(d) shall be applied. 4.4 ELIGIBILITY FOR DEFERRED VESTED BENEFIT. A Participant who is not eligible for a service pension benefit under Section 4.1 shall be eligible for a deferred vested benefit pursuant to this Plan if he incurs an Eligible Separation and completed five or more Years of Vesting Service. 4.5 AMOUNT OF DEFERRED VESTED BENEFIT. The monthly benefit payable for each Participant eligible for a deferred vested benefit under Section 4.4 shall be calculated exclusively in accordance with Section 4.2(a), provided that if the Participant's Commencement Date under this Plan occurs prior to attainment to age 65, the benefit shall be reduced in accordance with the factors set forth in Appendix C of the Pension Plan. 7 Such amount shall be calculated as of the date of the Participant's Eligible Separation and shall be calculated as if such Participant had retired on such date. No recalculation of the benefit shall be made after such date or as a result of amendments made to this Plan subsequent to such date. 4.6 NOT VESTED. A participate who is not Vested under the Pension Plan shall not be entitled to any benefits under this Plan. 4.7 OTHER PROVISIONS. (a) The Pension Plan contains Defined Lump Sum benefits under Articles V-D and V-E of the Pension Plan. No similar benefit is provided under the terms of this Plan. (b) The Pension Plan benefit is generally the greater of the benefit under Article V-B or Article V-D of the Pension Plan. No similar rules apply under this Plan. Accordingly, a Participant under this Plan is entitled to the benefits set forth in this Plan regardless of whether the Article V-D benefit under the Pension Plan exceeds the Article V-B benefit under the Pension Plan. (c) The Pension Plan contains different benefit formulas in Article V-B depending upon whether the participant has 30 or more years of Pension Calculation Service. No similar rules apply under this Plan. Accordingly, the formula in Section 4.2(a) of this Plan applies even if the Participant's Pension Calculation Service (or the sum of such service and his Mid-Career Pension Credits) exceeds 30. (d) Notwithstanding any other provision of this Plan, any increase in Pension Plan benefits which may occur upon termination of the Pension Plan as a result of the operation of Section 11.5(b) of the Pension Plan shall be disregarded in determining the benefit under this Plan. ARTICLE V SPECIAL RULES APPLICABLE TO LUMP SUM DISTRIBUTIONS AND INSTALLMENTS 5.1 PLAN BENEFIT PAID IN A LUMP SUM. Notwithstanding Article IV, the following rules shall apply if a Participant elects to receive his Plan benefit in the form of an immediate lump sum. The benefit under this Plan shall be computed as of the date of the Participant's Eligible Separation and shall equal the following amount. First, if the Participant has a pension under Article V-B of the Pension Plan that is not a service pension, the pension under Sections 4.4 and 4.5 payable at age 65 shall be calculated. If the Participant is eligible for a service pension in accordance with Section 5B.1 of the Pension Plan, an immediate annuity under Sections 4.1, 4.2 and 4.3 commencing on the First Starting Date shall be calculated. Second, the foregoing 8 hypothetical pension payable at age 65 or immediate annuity, as applicable, shall be converted into a lump sum based on the following factors: (a) The interest rate used for this purpose shall equal: (i) 65% of the average yield on 30-Year Treasury Bonds as released by the Federal Reserve Board for the five business days immediately preceding the First Starting Date for Participants who have an Eligible Separation prior to August 1, 1997; or (ii) 65% of the average yield on 30-Year Treasury Bonds as released by the Federal Reserve Board for the business days occurring during the 30-day calendar period ending on the day before the date of Eligible Separation for Participants who have an Eligible Separation on or after August 1, 1997. (b) Mortality shall be based on the 1983 Group Annuity Mortality Table, weighted 80% for males and 20% for females. The Administrator shall use such other actuarial assumptions in calculating the present value of a Participant's benefit for the purpose of determining the amount of a lump sum distribution as it shall determine in its sole discretion. 5.2 DEFERRAL OF LUMP SUM DISTRIBUTION. Notwithstanding Article IV, if a Participant elects payment of his Plan benefit in the form of a lump sum and defers payment of such benefit pursuant to Section 3.2, the Plan benefit in this case shall not be computed by calculating the lump sum that would be payable as of the Commencement Date. Instead, the Plan benefit shall be calculated in accordance with Section 5.1 above as of the Participant's Eligible Separation and increased with interest from the date of the Eligible Separation to the Commencement Date at an annual rate equal to: (a) The yield on 10-year Treasury Notes on the date of the Eligible Separation as released by the Federal Reserve Board plus one percent during any period from the date of Eligible Separation to December 31, 1997; and (b) For any portion of a Plan Year occurring on or after January 1, 1998, the average yield on 5-year Treasury Notes as released by the Federal Reserve Board on the business days occurring during December prior to such Plan Year. This rate shall be revised each year for all deferrals, including deferrals from prior years. 5.3 NO PARTIAL LUMP SUM OPTION UNDER THE PLAN. A Participant may not elect a partial lump sum option under the Plan. 5.4 SPECIAL RULES FOR PARTICIPANTS ELECTING INSTALLMENTS. Notwithstanding any other provision of this Plan to the contrary, if a Participant elects payment of his Plan benefit in the form of Installments, each Installment shall be calculated as follows: (a) The Participant shall be deemed to have an account balance which 9 initially shall be equal to the amount that would have been payable under this Plan if the Participant had elected payment under this Plan in the form of a lump sum distribution to be paid on the same date as the actual Commencement Date. (b) The initial account balance shall be divided by the number of annual Installments elected by the Participant to determine the first annual Installment due on the Commencement Date. (c) The account balance shall then be: (i) debited on the date of each annual Installment by the amount of such Installment; and (ii) credited with interest at the rates set forth in Section 5.2 (taking into account the rate change on January 1) from the date of such annual Installment to the date of next Installment. (d) The account balance as of the date of the next Installment shall be divided by the remaining number of annual Installments elected by the Participant to determine the amount of the next annual Installment. (e) Subsections (c) and (d) shall be repeated each year to determine each subsequent Installment. (f) If a Participant who has elected payment of benefits under this Plan in the form of Installments dies after the Commencement Date, but before the payment of all Installments, any unpaid Installments shall be paid to the deceased Participant's Beneficiary. Should the Beneficiary die before payment of all remaining Installments, any remaining account balance shall be paid to the Beneficiary's estate. 5.5 INCONSISTENT PROVISIONS. The provisions of this Article V shall take precedence over any obviously inconsistent provisions in Article III or Article IV. ARTICLE VI NO DISABILITY BENEFIT OR ANCILLARY DEATH BENEFITS 6.1 NO DISABILITY BENEFIT. No person shall be eligible to receive a disability pension from this Plan. 6.2 NO ANCILLARY DEATH BENEFITS. Article VII of the Pension Plan provides for certain ancillary death benefits. No similar rules are provided under this Plan. No ancillary death benefits are payable under this Plan. 10 ARTICLE VII PRE-RETIREMENT BENEFITS 7.2 QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. If a Vested Participant dies prior to the Commencement Date and is survived by a spouse, a death benefit in the form of a Qualified Preretirement Survivor Annuity, as described below, shall be payable to such surviving spouse. Such Survivor Annuity shall be a monthly life annuity for the life of the surviving spouse which is equal to the greatest of the following: (a) The amount the surviving spouse would have received under this Plan if the Participant had commenced receiving benefits under a Qualified Joint and 50% Survivor Annuity on the day before his death. (b) An amount equal to 45% of the single life annuity that would have been payable under this Plan had the Active Participant Terminated on the date of his death, survived until age 65 and began to receive payments at age 65. This clause (b) shall not apply to the surviving spouse of a Former Participant. Payment of the Survivor Annuity shall be made as soon as practicable after the death of the Participant; the first payment shall include any payments not made which were due on and after the date as of which it commenced. 7.2 NO OTHER DEATH BENEFITS. If a Participant dies before the Commencement Date and does not have five years of Vesting Service (and is not otherwise Vested) or if Participant is not survived by a surviving spouse, no death benefit shall be payable under this Plan. ARTICLE VIII ADMINISTRATION 8.1 ADMINISTRATOR RESPONSIBILITY. The Administrator shall have the administrative responsibilities set forth below: (a) The Administrator shall have the specific powers elsewhere herein granted to it and shall have such other powers as may be necessary to enable it to administer the Plan, except for powers herein granted or provided to be granted to others. (b) The Administrator shall have the full and complete power to interpret the terms of this Plan and to determine the amount of benefits payable to any Participant. The Administrator shall also have full and complete power to determine the benefit payable if the specific facts applicable to the Participant or his beneficiary are not addressed in this document; such determination shall be made, by the Administrator in its sole discretion, on a basis reasonably consistent with the purpose of, and principles in, this Plan. 11 8.2 CLAIMS PROCEDURE. The review and appeal procedure for a Participant who has a claim under the Plan shall be the same procedures set forth in Section 13.2 of the Pension Plan (substituting the Administrator under this Plan for the Committee under the Pension Plan). 8.3 REVIEW OF ADMINISTRATOR DECISIONS. The Administrator shall determine conclusively for all parties all questions arising in the administration of the Plan, and any decision of the Administrator shall not be subject to further review, except as required by applicable law. 8.4 DELEGATION OF RESPONSIBILITIES. The Administrator may delegate responsibilities for the operation and administration of the Plan consistent with the Plan's terms, including delegation of responsibilities to Participating Companies. The Administrator may designate in writing other persons to carry out its responsibilities under the Plan, and may employ persons to advise it with regard to any such responsibilities. 8.5 OTHER PROVISIONS. The expenses of the Administrator shall be borne by the Company. The Administrator shall be the agent of the Plan for service of legal process. ARTICLE IX GENERAL PROVISIONS 9.1 RIGHTS TO BENEFIT. (a) The Participant, spouse or beneficiary of the Participant, shall have no right to any benefit under this Plan except as may be provided by the Participating Company employing the Participant. Where a Participant's Term of Employment has included service with more than one Participating Company, the last such Participating Company to employ him prior to his termination of employment shall be solely responsible for the full benefit under this Plan. No Participant, spouse or Beneficiary shall have any claim or interest in (i) the assets of the Participating Company liable for the payments prior to the time such assets are payable to such person under the terms of this Plan or (ii) the assets of any other Participating Company at any time. However, if the Company establishes a "rabbi trust" with respect to this Plan, the Participating Company shall have no obligation to pay any benefits under this Plan to the extent such benefits are paid from such trust. (b) In circumstances specified in Section 9.3 below, benefits previously awarded may be discontinued in the sole discretion of the Participating Company or the Administrator. 9.2 SOURCE OF PAYMENTS. Except as set forth in Sections 9.1(a) or 9.10(a)(iii), nothing contained in this Plan or any action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind. Nothing contained in this Plan or 12 any action taken pursuant to the provisions of this Plan shall create or be construed to create or a fiduciary relationship between the Company (or any Participating Company) and any Participant, his beneficiary or any other person. The Plan is intended to be "unfunded" for purposes of the Code and ERISA and shall be interpreted and administered in a manner consistent with this intention. To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Participating Company that owes the payment, as set forth in Section 9.1. 9.3 FORFEITURE OF BENEFITS. All benefits for which a Participant would be otherwise eligible hereunder may, at the sole discretion of the Administrator, be forfeited under any of the following circumstances: (a) The Participant discloses "confidential information," except under circumstances where the Company or a court of competent jurisdiction has approved or required such disclosure. For purposes of this Section 9.3(a), "confidential information" means and includes, without limitation, any confidential, legal, financial, marketing, business, technical, or other information, including specifically but not exclusively, information that the Participant prepared, caused to be prepared, or received in connection with the Participant's employment with the Company (or its Subsidiaries), such as, management and business plans, business strategies, software, software evaluations, trade secrets, personnel information, marketing methods and techniques, and any of the above-recited information as it relates to the Company (or its Subsidiaries) that shall have been obtained and/or learned during his or her employment and that shall not be public knowledge. This definition does not apply to (i) information or knowledge that already is or subsequently may come into the public domain after the termination of employment other than by way of unauthorized disclosure by the Participant, (ii) information or knowledge that the Participant is required to disclose by order of a court or governmental agency after the Participant provides advance notice to the Company (or its Subsidiaries) at least ten (10) calendar days prior to such disclosure (or, if the Participant is so required to make such disclosure within less than ten (10) calendar days of receipt of such an order, after the Participant provides timely advance notice to the Company (or its Subsidiaries)) to allow the Company (or its Subsidiaries) to take legal action with respect to the matter, or (iii) information that the Participant learns from a third party not known by the Participant, after due inquiry, to be under a confidentiality agreement with the Company (or its Subsidiaries). (b) Determination by the Board of a Participating Company in its sole discretion that a Participant is engaged in misconduct in connection with his employment with such Participating Company. (c) The Participant, without the consent of his employing Participating Company or the Participating Company 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 or one of its Subsidiaries or with any business in which the Company or one of its Subsidiaries has a substantial interest (other than as a shareholder with a non-substantial interest in such business) as determined by the 13 board of such Participating Company. 9.4 ASSIGNMENT OR ALIENATION. The benefits under this Plan shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by any Participant, spouse or beneficiary, and any attempt to do so shall be null and void. 9.5 DETERMINATION OF ELIGIBILITY. In all questions relating to eligibility for any benefit hereunder, or relating to Term of Employment and rates of pay for determining benefits, the decision of the Administrator, based upon this Plan and upon the records of the Participating Company last employing such individual, and insofar as permitted by applicable law, shall be final. 9.6 PAYMENTS TO OTHERS. If any person entitled to a payment under the Plan is a minor, or if the Administrator determines that any such person is incapacitated by reason of physical or mental disability, whether or not legally adjudicated an incompetent, the Administrator shall have the power to cause the payments becoming due to such person to be made to another for his benefit without responsibility of the Administrator to see to the application of such payments. Payments made pursuant to such power shall operate as a complete discharge of the Plan, the Company and the Administrator. 9.7 NO GUARANTEE OF EMPLOYMENT. Nothing contained herein shall be construed as conferring upon the Participant the right to continue in the employ of the Company or any Participating Company as an executive or in any other capacity. 9.8 NATURE OF BENEFITS. Any benefits payable under this Plan shall not be deemed to be salary or other compensation to the employee for the purpose of computing benefits to which he may be entitled under any pension plan or other arrangement of the Company or any Participating Company for the benefit of its employees. 9.9 PLAN AMENDMENT AND TERMINATION. The Company, through resolution of the Administrator, retains the right to make amendments to the Plan in its sole and absolute discretion, except that the Administrator may not make any amendment which would affect the level of benefits under the Plan. The Company, through resolution of the Human Resources Committee of the Board of Directors, retains the right to make amendments to the Plan which would affect the level of benefits under the Plan and to terminate the Plan in whole or in part in its sole and absolute discretion. Each Participating Company retains the right to withdraw from this Plan, at any time, for any reason, with or without notice. Upon termination of the Plan, payments shall be made to Participants and their beneficiaries as they become due under the terms of the Plan, but no participant shall accrue any additional benefits after the effective date of the termination. 9.10 CHANGE IN CONTROL. (a) Upon a "Change in Control" of the Company, as defined in the Company's Executive Compensation Plan, the following provisions shall be applicable: 14 (i) Each Participant in this Plan may elect, no later than thirty days after the Change in Control, to receive (as soon as practicable after the Change in Control) a single lump sum payment equal to 94 percent of the present value of his benefits under this Plan (as set forth in subsection (b)) as of the date of the Change in Control. A Participant making such election shall permanently forfeit the remaining six percent of the present value of his benefits under this Plan (as set forth in subsection (b)) as of the date of the Change in Control and the Company shall have no further liability to the Participant with respect to benefits accrued under this Plan for periods prior to the Change in Control. (ii) Without the written consent of each affected Participant, this Plan may not be amended during the period commencing on the date of the Change in Control and ending three years thereafter in any way that would cause a Participant to receive lower benefits under this Plan than he would have received if such amendment had not been made. (iii) The Company has established an irrevocable "rabbi trust" which may provide a source of funds to satisfy the Company's liability under this Plan. Upon a Change in Control, the Company shall transfer to the trustee of such trust an amount equal to the present value of all benefits under this Plan as of the date of the Change in Control. The trustee shall be a bank or other entity that may be granted corporate trustee powers under applicable law. The Company shall have no obligation to pay any benefits under this Plan to the extent such benefits are paid from such trust. (b) For purposes of this Section 9.10, the present value of the benefits under the Plan shall be determined as follows: (i) In the case of a Participant or Beneficiary receiving benefits under this Plan, the present value of the remaining benefits payable in the future shall be calculated using the assumptions set forth in Section 5.1. (ii) In the case of any other Participant, the present value shall be that lump sum payment which would be made under this Plan if the Participant terminated employment on the date of the Change in Control and elected a Commencement Date on the next day. (c) Notwithstanding the foregoing, a Participant in this Plan who is not a Vested Participant under the Pension Plan at the time of the Change in Control shall be treated under this Plan (but not under the Pension Plan) as if he were a Vested Participant under this Plan with respect to benefits accrued as of the Change in Control, with the result that the Participant shall receive: (i) if the Participant makes the election described in Section 9.10(a)(i), the amount provided under that Section to be paid within sixty days following the Change in Control; 15 (ii) if the Participant does not make such election and is still not a Vested Participant under the Pension Plan at the time of his Eligible Separation, a lump sum to be paid within sixty days following his Eligible Separation equal to the amount that would be payable under this Plan if the Participant were vested under the Plan, had an Eligible Separation on the date of the Change in Control, and elected payment under this Plan in the form of a lump sum, plus interest on such amount at the rate set forth in Section 5.2(b) from the date which is 60 days after the date of the Change in Control to the date of payment. Such a Participant shall not be entitled to any additional benefits if he is later reemployed; or (iii) if the Participant does not make such election and is a Vested Participant under the Pension Plan at the time of his Eligible Separation, the benefits otherwise payable under this Plan shall be paid; no special rules shall apply. This Section 9.10(c) shall not affect the determination of the Participant's benefit under the Pension Plan. (d) If benefits under this Plan are paid to a Participant because the Participant makes the election described in Section 9.10(a)(i) (the amount of such benefits shall be the "First Payment"), and the Participant subsequently becomes entitled to additional benefits under this Plan (because he continues to be employed) (a "Second Payment"), the following rules shall apply: (i) If the Participant elects to receive the Second Payment in the form of an immediate lump sum or Installments, such lump sum benefit (or the initial account balance under Section 5.4(a), if Installments are elected) shall equal: (A) the amount of the lump sum benefit to which the Participant would have been entitled under this Plan had the First Payment not been made; reduced by (B) an amount equal to the sum of the First Payment and the amount forfeited under Section 9.10(a)(i), increased with interest on such sum at the rate set forth in Section 5.2(b) credited annually from the date of the First Payment to the date of the Second Payment. If the lump sum or Installments are deferred, such net amount shall be increased with interest in accordance with Section 5.2(b). (ii) If the Participant elects to receive the Second Payment in a form other than a lump sum or Installments, the Participant's monthly benefit shall equal the amount determined under the following formula: C x (1 - B/A) where: C is the amount of the monthly benefit to which the Participant would have been entitled under this Plan in the form elected by the Participant had the First Payment not been made; and A and B are defined in accordance with the preceding paragraph (i). 9.11 GENDER AND NUMBER. Whenever used herein, words in any gender shall be deemed to include the other genders, and the singular shall be deemed to include the plural and vice versa, unless the context expressly indicates otherwise. 16 9.12 GOVERNING LAW. This Plan shall be construed and enforced in accordance the laws of the State of Colorado, except to the extent preempted by Federal law. Dated: __________, 1998 MEDIAONE GROUP, INC. By ----------------------------------- Its ----------------------------------- 17 EX-10.G 8 EXHIBIT 10-G MEDIAONE GROUP DEFERRED COMPENSATION PLAN TABLE OF CONTENTS
Page PREAMBLE 1 ARTICLE I DEFINITIONS 1 ARTICLE II PARTICIPATION 3 Section 2.1 Eligibility to Participate 3 Section 2.2 Election of Deferred Compensation 3 Section 2.3 Participants' Accounts 4 ARTICLE III DEFERRED ACCOUNTS 4 Section 3.1 Crediting of Deferrals--Cash Account 4 Section 3.2 Crediting of Deferrals--Company Shares Account 4 Section 3.3 Transferring Shares Between Accounts 4 Section 3.4 Dividends on Company Shares Accounts 4 Section 3.5 Cash Account 5 Section 3.6 Change in Outstanding Shares 5 ARTICLE IV MATCHING COMPANY CONTRIBUTIONS 5 Section 4.1 Funds Eligible for Company Match 5 Section 4.2 Forfeiture of Company Match 5 Section 4.3 Company Match Investment 6 ARTICLE V DISTRIBUTION 6 Section 5.1 Timing of Distribution 6 Section 5.2 Form of Distribution 6 Section 5.3 Automatic Lump Sum Distribution 7 Section 5.4 Distribution to Beneficiaries 7 Section 5.5 Unforeseeable Emergency 7 ARTICLE VI CHANGE IN CONTROL 8 Section 6.1 Change in Control 8 Section 6.2 Change in Control Defined 9 ARTICLE VII MISCELLANEOUS 9 Section 7.1 Satisfaction of Interests 9 Section 7.2 Inalienability of Benefits 9 Section 7.3 Effect on Employment 10 Section 7.4 Taxation 10 Section 7.5 Amendment or Termination 10 Section 7.6 Binding Effect 10 Section 7.7 Status of Participants 10 Section 7.8 Governing Law 11 Section 7.9 Federal Securities Law 11 ARTICLE VIII CLAIMS PROCEDURE 11 Section 8.1 Disputes 11 Section 8.2 Submission of Claims 11 Section 8.3 Denial of Claim 11 Section 8.4 Adequate Notice 11 Section 8.5 Review of Claim 11 Section 8.6 Decision on Claim 12 SIGNATURE PAGE 12
MEDIAONE GROUP DEFERRED COMPENSATION PLAN PREAMBLE Prior to the Separation Time, U S WEST, Inc. maintained the U S WEST, Inc. Deferred Compensation Plan (the "U S WEST Plan") to permit certain employees of U S WEST to defer receipt of a portion of their compensation and to provide a "matching credit" with respect to all or a portion of such deferred compensation. As of the Separation Time, the MediaOne Group, Inc. Deferred Compensation Plan (the "Plan") was adopted as set forth herein to permit certain MediaOne Group employees to defer a portion of their compensation and to provide a "matching credit" with respect to all or a portion of such deferred compensation. As of the Separation Time, U S WEST, Inc. and the U S WEST Plan shall have no liability for benefits accrued under the U S WEST Plan by individuals who participated in the U S WEST Plan prior to the Separation Time and who are employees of MediaOne Group, Inc. at the Separation Time. MediaOne Group, Inc. and this Plan shall assume all of the liabilities accrued under the U S WEST Plan relating to such individuals. The Plan is intended to be a nonqualified deferred compensation "top-hat" plan for "a select group of management or highly compensated employees," as that phrase is used in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE I DEFINITIONS 1.1 "ADMINISTRATOR" means the Senior Vice President-Human Resources of the Company or his or her delegate (or, in the event the Plan benefits of the Senior Vice President-Human Resources are directly or indirectly impacted by any claim for benefits, the Chairperson of the Committee or his or her delegate). 1.2 "BOARD OF DIRECTORS" means the Board of Directors of the Company. 1.3 "CODE" means the Internal Revenue Code of 1986, as amended. 1.4 "COMMITTEE" means the Human Resources Committee of the Board of Directors or its delegate. 1.5 "COMPANY" means MediaOne Group, Inc., a Delaware corporation, any successor Company and any adopting subsidiaries approved by MediaOne Group, Inc. or its successor. 1 1.6 "DEFERRED COMPENSATION" means Eligible Compensation deferred under the Plan, reduced by any taxes deducted in accordance with Section 7.5. 1.7 "ELIGIBLE COMPENSATION" means (a) any award payable under an annual incentive program, including a team award and an STIP, (b) Excluded Compensation, and (c) Pay (as defined in the Savings Plan) earned by a Participant during a Plan Year after the Participant has contributed to the Savings Plan the maximum pre-tax contribution permitted under section 402(g) of the Code. 1.8 "ELIGIBLE EMPLOYEE" means any management or highly compensated employee of the Company solicited by the Administrator in his or her sole discretion. 1.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.10 "EXCLUDED COMPENSATION" means that part of a Participant's Pay (as defined in the Savings Plan) earned from the Company that exceeds the dollar limit in effect during the Plan Year under section 401(a)(17) of the Code or exceeds any other limit established by the Administrator. 1.11 "NEW EXECUTIVE" means an Eligible Employee who has not met the minimum service requirements of the Savings Plan and any individual who, during the Plan Year is promoted to a key executive or managerial position. 1.12 "PARTICIPANT" means an Eligible Employee who has elected to participate in the Plan. 1.13 "PENSION PLAN" means the MediaOne Group Pension Plan, as amended from time to time. 1.14 "PLAN" means this MediaOne Group Deferred Compensation Plan, as amended from time to time. 1.15 "PLAN YEAR" means the calendar year. 1.16 "SAVINGS PLAN" means the MediaOne Group Savings Plan/ESOP, as amended from time to time. 1.17 "SEPARATION TIME" means the time at which U S WEST, Inc., a Delaware corporation, ("Old U S WEST") is separated into two separate public companies, USW-C, Inc., renamed U S WEST, Inc. as of the Separation Time and U S WEST, Inc., renamed MediaOne Group, Inc. as of the Separation Time (the "Company"). 2 1.18 "STIP" means any senior management short term incentive award, including any award under the Short Term Incentive Plan and the Executive Short Term Incentive Plan maintained by the Company. ARTICLE II PARTICIPATION 2.1 ELIGIBILITY TO PARTICIPATE. Participation in the Plan shall be limited to Eligible Employees who are chosen to participate in the Plan by the Administrator in his or her sole discretion. 2.2 ELECTION OF DEFERRED COMPENSATION. Participants shall make irrevocable Deferred Compensation elections in such form as is specified by the Company. A Deferred Compensation election shall apply only to Eligible Compensation earned during the Plan Year specified in the election, and shall specify the whole percentage to be deferred, up to 75% of Excluded Compensation and any annual incentive award or bonus other than an STIP and the whole percentage up to 100%, net of required withholding taxes, of any STIP. Deferred Compensation elections shall be made prior to the last day of the Plan Year preceding the Plan Year in which the services for which the compensation is payable are performed or, if earlier, prior to the close of the enrollment period specified by the Administrator. Compensation shall actually be deferred at the time such compensation would otherwise be paid to the Participant (e.g., a deferral election regarding an annual award to be earned in 2000 must be made in 1999 and the actual deferral of such award shall be at the time the award becomes payable in 2001). Notwithstanding the foregoing, New Executives shall make Deferred Compensation elections within 30 days of the date their employment with the Company commences. Annual elections are voluntary and irrevocable as to the amount of Deferred Compensation. A Participant's initial annual election must specify the time and form of payment (pursuant to Sections 5.1 and 5.2) of such Deferred Compensation and must specify the accounts to which deferrals shall be credited. Once a Participant has specified the time and form of payment and the account to which deferrals shall be credited, such elections shall remain in effect and apply to subsequent years' Deferred Compensation until the Participant chooses different time, form and/or accounts in his or her annual election. Payments attributable to the Company match shall be distributed at the same time and in the same form as the corresponding Deferred Compensation. Subject to the limitations below, a Participant may make an additional election to change elections made in prior years regarding the timing and form of distributions from all prior annual accounts. Such additional elections shall be made no more often than once every five years and only with regard to prior years for which payment has not yet begun. Any such additional election shall be effective on the date that is six months after the date the Participant made such election, provided the Participant has been continuously 3 employed by the Company for such six-month period. In the event a Participant requests an Additional Election within five years of the date of a previous Additional Election that has taken effect, or with respect to an account that is scheduled to be distributed or to commence distribution within 6 months of such election, such Additional Election shall be null and void. 2.3 PARTICIPANTS' ACCOUNTS. For every Plan Year, a separate bookkeeping account shall be maintained for each Participant. Each Participant's accounts may include the following: (a) an account treated as invested in MediaOne Group, Inc. common stock (the "Company Shares Account"), (b) an account treated as invested in cash, ("Cash Account"), and (c) an account accumulating the Company match (the "Company Match Account"), which shall be treated as invested entirely in MediaOne Group, Inc. common stock in a Company Shares Account. ARTICLE III DEFERRED ACCOUNTS 3.1 CREDITING OF DEFERRALS -- CASH ACCOUNT. A Participant may elect that up to 50% of his or her annual Deferred Compensation be credited to the Cash Account. The Cash Account shall be merely a bookkeeping entry and shall not represent funds set aside and invested. 3.2 CREDITING OF DEFERRALS - COMPANY SHARES ACCOUNT. Pursuant to a Participant's election, Deferred Compensation (unless credited to the Cash Account) shall be credited to the Participant's Company Shares Account, which shall be credited with phantom shares of MediaOne Group, Inc. common stock. The amounts so credited shall be converted to shares of phantom stock in accordance with standard record keeping procedures. 3.3 TRANSFERRING SHARES BETWEEN ACCOUNTS. No more frequently than two times per year, or as otherwise determined by the Administrator, a Participant may elect to transfer all or a portion of his or her Cash Account to his or her Company Shares Account. A Participant may not transfer any portion of his or her Company Shares Account to his or her Cash Account unless the Participant is no longer employed by the Company. 3.4 DIVIDENDS ON COMPANY SHARES ACCOUNTS. Participants shall be credited dividend payments on the phantom stock held in their Company Shares Accounts if, and to the extent, a dividend is paid by the Company on its common stock. The amount credited shall be credited in shares of phantom stock and shall be calculated by multiplying the number of phantom shares held in the Participant's Company Shares Accounts by the dividend payable per share of Company common stock. 3.5 CASH ACCOUNT. Deferred Compensation that is credited to a Participant's Cash Account shall be credited with additional amounts representing earnings from the date 4 the Deferred Compensation is credited to the Participant's Cash Account. The crediting rate for such earnings shall be determined at the beginning of each quarter and shall be based on 10-year U.S. Treasury note rates plus 1% for deferrals credited after December 31, 1990 (DC-T Plus One). Deferrals made to Cash Accounts prior to 1991 shall be credited with interest based on 10-year U.S. Treasury note rates plus 2% (DC-T Plus Two). 3.6 CHANGE IN OUTSTANDING SHARES. In the event of any change in outstanding MediaOne Group, Inc. shares by reason of any stock dividend or split, recapitalization, merger, consolidation or exchange of shares or other similar corporate change, the Board of Directors or its delegate shall make such adjustments, if any, that it deems appropriate in the number of phantom shares then credited to the Participant's accounts. Any and all such adjustments shall be conclusive and binding upon all parties concerned. ARTICLE IV MATCHING COMPANY CONTRIBUTIONS 4.1 FUNDS ELIGIBLE FOR COMPANY MATCH. A Participant who has contributed the maximum before-tax amount permitted under Code section 402(g) to the Savings Plan, less the amount, if any, by which such contributions are reduced, recharacterized or refunded so that the Savings Plan may satisfy the actual deferral percentage test of Code section 401(k), shall receive matching contribution credits on his or her Deferred Compensation in accordance with the matching formula, if any, applicable to such Participant under the provisions of the Savings Plan, as if such Deferred Compensation had been contributed to the Savings Plan. If a Participant contributes to both the Savings Plan and the Plan, deferrals under the Plan shall receive matching contributions credits only to the extent that the Participant has elected a contribution percentage under the Savings Plan that is less than the maximum percentage eligible for Company match under the Savings Plan. Annual incentive awards shall be eligible for a match without regard to whether the Participant is employed by the Company on the date the annual incentive award is paid. For purposes of matching contribution credits, STIP awards shall be eligible for a match without regard to whether the maximum before-tax amount permitted under Code section 402(g) has been met in the Savings Plan, without regard to whether the Participant's Pay (as defined in the Savings Plan) has exceeded the dollar limit in effect during the Plan Year under Code section 401(a)(17)), and without regard to whether the Participant is employed by the Company on the date the STIP award is paid. 4.2 FORFEITURE OF COMPANY MATCH. Subject to Article 6, a Participant's Company matching contribution credits and the earnings thereon shall be subject to forfeiture unless and until the Participant is vested in the Company match in the Savings Plan. 5 4.3 COMPANY MATCH INVESTMENT. The Company's matching contribution shall be credited to the Participant's Company Match Account and shall be treated as invested in accordance with Sections 2.3 and 3.2 above. ARTICLE V DISTRIBUTION 5.1 TIMING OF DISTRIBUTION. Benefit payments under the Plan shall commence at the time specified in the Participant's deferral election made pursuant to Section 2.2, which time may be while the Participant is employed by the Company; however, benefit payments shall commence no later than March of the Plan Year next following the earliest to occur of the following events: (a) the date that is five years after the Participant's termination of employment, (b) the Participant's 65th birthday if the Participant is not employed by the Company on such date, or (c) the Participant's death. If the Participant fails to specify a distribution date, the Participant's benefit payments shall commence no later than March of the Plan Year next following the Plan Year in which the Participant's termination of employment occurs. Notwithstanding the preceding paragraph, in the event that the Internal Revenue Service or a court determines that amounts deferred under the Plan are currently taxable to any Participant due to the administration, operation or any provision of the Plan, the Committee shall have the discretion to cause such taxable amounts to be distributed to such Participant during the year in which such amounts are taxable or during any year thereafter. 5.2 FORM OF DISTRIBUTION. (a) At the time a Participant makes an election to participate in the Plan, the Participant shall also make an election with respect to the form or timing of distribution of the amounts credited to such Participant's account. Such election shall be made at the same time as part of the election made in Section 2.2 above. Amounts shall be distributed in cash, provided, however that a Participant may elect to receive amounts credited to the Participant's Company Shares Accounts as shares of MediaOne Group, Inc. common stock. (b) A Participant may elect to receive the amount credited to such Participant's accounts: (i) in one lump sum payment, (ii) in some other whole number of approximately equal or percentage-based annual installments, not to exceed ten installments, or (iii) in a combination of a lump sum and installments; except that if the total amount credited to all of a Participant's accounts is less than $10,000 at the time benefits commence, such amount shall be distributed as a lump sum pursuant to Section 5.3. Notwithstanding the foregoing, Participants who commence a leave of absence or other assignment approved by the Company or continue to accrue service credit with the Company following their termination of employment shall not be subject to an automatic lump sum distribution from the Plan. 6 5.3 AUTOMATIC LUMP SUM DISTRIBUTION. The entire amount credited to a Participant's account shall be paid in a single payment to the Participant in March of the Plan Year next following the Plan Year in which the Participant's termination of employment occurs if: (a) a Participant failed to specify a form of payment, (b) a Participant's balance is less than $10,000 and the Participant has not received prior payments under the Plan, or (c) a Participant becomes a proprietor, officer, partner, employee, agent, or otherwise enters into a similar relationship with a competitor or a governmental agency having jurisdiction over the activities of the Company. 5.4 DISTRIBUTION TO BENEFICIARIES. In connection with the election described in Section 5.2, a Participant may elect that if such Participant dies before full distribution of all amounts credited to his or her account, the balance of the account shall be distributed to the beneficiary or beneficiaries designated in writing by the Participant. If no such designation has been made, the balance of the account shall be distributed to the estate of the Participant. The Participant shall designate whether the distribution to the beneficiary is to be made in one payment or some other number of approximately equal installments (not exceeding 10). If the form of distribution is not specified, the distribution shall be made as a lump sum payment. The first installment (or the lump sum payment if the Participant has so elected) shall be paid no later than March of the Plan Year next following the Plan Year in which the Participant dies. 5.5 UNFORESEEABLE EMERGENCY. The Participant may, in writing, request early withdrawal in the event of an "unforeseeable emergency." The request should be directed to the Administrator, who may, in his or her discretion, approve an early withdrawal in an amount not to exceed the amount reasonably necessary to meet the emergency, reduced by any funds that the Administrator determines may be used by a Participant to relieve the hardship, including, but not limited to, reimbursement or compensation by insurance or otherwise, liquidation of assets (to the extent such liquidation itself would not cause severe financial hardship), or amounts realized through a cessation of deferrals under the Plan. In the case of individuals subject to Section 16 of the Exchange Act (as hereinafter defined), an early withdrawal shall be subject to the discretion of the Committee. An "unforeseeable emergency" is an unanticipated emergency 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. "Unforeseeable emergency" includes: (a) a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent of the Participant (as defined in Code section 152(a)); (b) a loss of property due to casualty; or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control. 7 "Unforeseeable emergencies" shall not include college tuition or the costs of purchasing a home. ARTICLE VI CHANGE IN CONTROL 6.1 CHANGE IN CONTROL. Upon a Change in Control (defined in Section 6.2) of the Company, the following provisions shall apply: (a) As of the Change in Control, each Participant shall be fully vested in his or her Company Match Account, regardless of vesting status under the Savings Plan. Each Participant whose service with the Company terminates after the Change in Control and before such Participant is fully vested in the Company match in the Savings Plan shall be entitled to an additional payment under this Plan equal to the amount forfeited under the Savings Plan. Such additional amount shall be payable in accordance with Article 5. (b) Each Participant in this Plan may elect no later than thirty days after the Change in Control to receive as soon as practicable following the Change in Control a single lump sum payment equal to 94% of the value of his benefits under this Plan as of the date of the Change in Control. A Participant making such election shall permanently forfeit the remaining 6% of the value of his benefits under this Plan as of the date of the Change in Control and the Company shall have no further liability to the Participant with respect to benefits accrued under this Plan for periods prior to the Change in Control. (c) Without the written consent of each affected Participant, this Plan may not be amended during the period commencing on the date of the Change in Control and ending three years thereafter in any way that would cause an individual to receive lower benefits under this Plan than he would have received if such amendment had not been made, including, but not limited to, amendments affecting eligibility and coverage. (d) The Company has established an irrevocable "rabbi trust" that may provide a source of funds to satisfy the Company's liability under this Plan. Upon a Change in Control, the Company shall transfer to the trustee of such trust an amount equal to the present value of all benefits under this Plan as of the date of the Change in Control. The trustee shall be a bank or other entity that may be granted corporate trustee powers under applicable law. The Company shall have no obligation to pay any benefits under this Plan to the extent such benefits are paid from such trust. 6.2 CHANGE IN CONTROL DEFINED. For purposes of the Plan, a "Change in Control" shall be deemed to have occurred in the following circumstances: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes a beneficial owner of (or otherwise has the authority to vote), 8 directly or indirectly, securities representing 20% or more of the total voting power of all of the Company's then outstanding voting securities, unless through a transaction arranged by, or consummated with the prior approval of the Board of Directors; (b) any period of two consecutive calendar years during which 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 (c) the Company becomes a party to a merger, consolidation or share exchange in which either (i) the Company shall not be the surviving corporation or (ii) the Company shall be the surviving corporation and any outstanding shares of common stock of the Company shall be converted into shares of any other company (other than a reincorporation or the establishment of a holding company involving no change of ownership of the Company) or other securities or cash or other property (excluding payments made solely for fractional shares); or (d) any other event that a majority of the Board of Directors, in its sole discretion, shall determine constitutes a Change of Control for all Plan Participants. ARTICLE VII MISCELLANEOUS PROVISIONS 7.1 SATISFACTION OF INTERESTS. The Company may transfer assets to a trustee to be held in trust. Any trust created by the Company and any assets held by such trust to assist it in meeting its obligations under the Plan shall conform to the terms of the model trust (the "Trust"), as described in Revenue Procedure 92-64, 1992-33 I.R.B. 11, as modified, or any successor thereto. It is the intention of the Company and the Participants that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA. Benefits under the Plan shall be paid from the Trust to the extent that there are sufficient assets in the Trust. However, the Company, at its discretion, may pay the benefits payable under the Plan out of its operating assets. If the assets of the Trust are not sufficient to pay the benefits under the Plan, the Company shall pay the benefits. 7.2 INALIENABILITY OF BENEFITS. A Participant's rights to benefit payments under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or creditors of the Participant's beneficiary. 7.3 EFFECT ON EMPLOYMENT. Nothing contained in the Plan or any agreement related hereto or referred to herein shall affect, or be construed as affecting, the terms of 9 employment of any Participant except to the extent specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto or referred to herein shall impose, or be construed as imposing, any obligation on (a) the Company to continue the employment of any Participant and (b) any Participant to remain in the employ of the Company. 7.4 TAXATION. The Company shall have the right to deduct from any deferral to be made or any distribution to be paid under the Plan any federal, state or local income and employment taxes that it is required by law to withhold. In the event that the Internal Revenue Service or a court determines that amounts deferred under the Plan are currently taxable to any Participant due to the administration, operation or any provision of the Plan, such liability shall be the sole responsibility of the Participant, and the Company shall not be liable for any such taxes. 7.5 AMENDMENT OR TERMINATION. The Committee may at any time amend or terminate the Plan, but such amendments or termination shall not adversely affect the rights of any Participant to any accrued vested benefit under the Plan prior to the effective date of such amendment or termination without his or her consent. The Administrator or his or her delegate shall be authorized to make minor or administrative amendments to the Plan. Participants' account balances shall be frozen upon termination of the Plan, and any assets held in trust pursuant to Section 7.1 in excess of the amount required to pay benefits under the Plan shall be paid to the Company. 7.6 BINDING EFFECT. The Plan and all benefits payable hereunder shall be binding upon and inure to the benefit of the Company, its successors and assigns and the Participant and his or her heirs, executors, administrators and legal representatives. 7.7 STATUS OF PARTICIPANTS. Participants and beneficiaries shall have the status of unsecured creditors of the Company. The Plan constitutes a mere promise by the Company to make benefit payments in the future. No Participant or beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of any trust established in connection with the Plan pursuant to Section 7.1 prior to the time such assets are paid to the Participant or beneficiary. All rights created under the Plan and any trust shall be mere unsecured contractual, but enforceable rights of the Participants and beneficiaries against the Company. The rights under the Plan and assets in the trust, if any, shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by any Participant or beneficiary, and any attempt to do so shall be null and void. 7.8 GOVERNING LAW. The Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Colorado. 10 7.9 FEDERAL SECURITIES LAW. With respect to individuals subject to Section 16 of the Exchange Act, the Company intends that the provisions of this Plan and all transactions effected in accordance with the Plan shall comply with Rule 16b-3 under the Exchange Act. Accordingly, notwithstanding any other provision set forth in this Plan, the Administrator shall administer and interpret the Plan to maintain compliance with such rule. ARTICLE VIII CLAIMS PROCEDURE 8.1 DISPUTES. All disputes concerning benefits under this Plan shall be subject to this Article VIII. 8.2 SUBMISSION OF CLAIMS. Claims must be submitted in writing and presented to the Administrator, who shall have full and absolute discretion to interpret the provisions of the Plan. 8.3 DENIAL OF CLAIM. If a claim is denied, notice of denial shall be furnished by the Administrator to the claimant within 90 days after the receipt of the claim by the Administrator, unless special circumstances require an extension of the time for processing the claim, in which event notification of extension shall be provided to the Participant or the beneficiary. The extension shall not exceed 90 days. 8.4 ADEQUATE NOTICE. The Administrator shall provide adequate notice, in writing, to any claimant whose claim has been denied, setting forth the specific reasons for such denial, specific reference to pertinent Plan provisions, a description of any additional material or information necessary for the claimant to perfect his or her claim and an explanation of why such material or information is necessary, all written in a manner calculated to be understood by the claimant. Such notice shall include appropriate information as to the steps to be taken if the claimant wishes to submit his or her claim for review. The claimant or the claimant's authorized representative may request such a review upon written application. The claimant may review pertinent documents and may submit issues or comments in writing. The claimant or the claimant's duly authorized representative must request such review within the reasonable period of time prescribed by the Administrator. In no event shall such a period of time be less than 60 days. 8.5 REVIEW OF CLAIM. The Administrator shall serve as the final review committee, under the Plan, ERISA, and the Code, for the review of all claims by Participants whose initial claims for benefits have been denied, in whole or in part, by the Company. The Administrator shall have the authority to interpret the provisions of the Plan in his or her full and absolute discretion. 8.6 DECISION ON CLAIM. A decision on review shall be rendered within 60 days after the receipt of the request for review by the Administrator. If special circumstances require a further extension of time for processing, a decision shall be rendered not later than 11 120 days following the Administrator's receipt of the request for the review. If such an extension of time of review is required, written notice of the extension shall be furnished to the claimant. The decision of the Administrator shall be furnished to the claimant in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. The decision of the Administrator shall be final and binding. Executed this ____________________ day of ___________________________, 1998. MEDIAONE GROUP, INC. By --------------------------------- Its --------------------------------- 12 EX-10.H 9 EXHIBIT 10-H MEDIAONE GROUP EXECUTIVE FINANCIAL COUNSELING PLAN ARTICLE I PURPOSE The MediaOne Group Executive Financial Counseling Plan (the "Plan") has been established by MediaOne Group, Inc. to provide certain officers and executives of MediaOne Group, Inc. and its subsidiaries (the "Company") with the opportunity to understand more fully and maximize the value of the compensation and benefits they receive from the Company through comprehensive financial counseling and related services. ARTICLE II DEFINITIONS 2.1 "CAUSE" shall mean (unless another definition is agreed to in writing by MediaOne Group, Inc. and the Participant) termination by the Company because of (a) the Participant's willful and continued failure to substantially perform his or her duties (other than any such failure resulting from the Participant's incapacity due to physical or mental impairment) after a written demand for substantial performance is delivered to the Participant by the Company, which demand specifically identifies the manner in which the Company believes the Participant has not substantially performed his or her duties, (b) the willful conduct of the Participant which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (c) the conviction of the Participant for a felony by a court of competent jurisdiction. 2.2 "COMMITTEE" shall mean the Human Resources Committee of the MediaOne Group, Inc. Board of Directors, its delegate, or any other person the MediaOne Group, Inc. Board may designate from time to time. 2.3 "COMPANY" shall mean MediaOne Group, Inc., its subsidiaries, affiliates and any successors thereof. 2.4 "CONSULTANT" shall mean a firm or individual that is a professional provider of financial counseling and related services. 2.5 "PARTICIPANT" shall mean those individuals of the Company selected to participate in the Plan as set forth in Article III. 2.6 "PLAN" shall mean the MediaOne Group Executive Financial Counseling Plan. 2.7 "PLAN YEAR" shall mean the year beginning on July 1 and ending on June 30. 2.8 "PREFERRED PROVIDER" shall mean a Consultant with whom MediaOne Group, Inc. has entered into an agreement for such Consultant to provide Services at a negotiated fee for those Participants who so elect to receive their Services. 2.9 "RETIREMENT" shall mean, for any Participant, that such Participant has retired from the Company and currently is eligible to receive a service pension benefit under the MediaOne Group Pension Plan or a pension benefit under any individually negotiated, custom written agreement or arrangement executed by a duly authorized representative of MediaOne Group, Inc. and the Participant. 2.10 "SERVICES" shall mean financial counseling and related services provided to a Participant by a Consultant, including without limitation, estate planning, insurance planning, retirement planning, and tax planning and preparation, except that Services shall not include services provided in connection with a tax audit. ARTICLE III ELIGIBILITY 3.1 ELIGIBILITY CRITERIA. Eligibility for participation in the Plan shall be limited to (i) the Chief Executive Officer of MediaOne Group, Inc.; (ii) Band I officers of the Company; and (iii) such other Company officers and/or executives selected to participate in the Plan by the Committee or its delegate. Except as provided in Section 3.2, individuals who are eligible to participate in the Plan on any day during a Plan Year shall be eligible for the full financial counseling allowance provided under the Plan for such Plan Year as set forth in Article IV. 3.2 DISCONTINUANCE OF EMPLOYMENT; INELIGIBILITY. A Participant who ceases to meet the eligibility criteria for participation in the Plan during any Plan Year as set forth in Section 3.1 due to the Participant's discontinuance of employment with the Company (other than for Cause) or change of position within the Company shall continue to be eligible to participate in the Plan or, within the sole discretion of the Committee, to receive a payment equal to the value of such continued participation, for the remainder of the Plan Year and for such additional period, if any, as provided by written agreement between the Participant and the Company. If a Participant's employment with the Company terminates for Cause, such Participant's participation in the Plan shall cease immediately. 2 3.3 RETIREMENT. A Participant who ceases to meet the eligibility criteria for participation in the Plan during any Plan Year as set forth in Section 3.1 due to Retirement shall be eligible to participate in the Plan or, within the sole discretion of the Committee, to receive a payment equal to the value of such continued participation, for an additional Plan Year in addition to, and immediately following, the continued eligibility for participation set forth in Section 3.2. ARTICLE IV FINANCIAL COUNSELING ALLOWANCE 4.1 CHIEF EXECUTIVE OFFICER AND BAND I OFFICERS OF THE COMPANY. The Chief Executive Officer and each Band I officer of the Company shall be entitled to receive a benefit equal to 100 percent of the cost of Services incurred by the Participant during any Plan Year, whether or not provided by a Preferred Provider, up to such amount as may be determined by the Committee or its delegate from time to time. 4.2 OTHER PARTICIPANTS. Any other Participant shall be entitled to receive Services from a Consultant during any Plan Year. If such Consultant is a Preferred Provider, MediaOne Group, Inc. shall pay to such Preferred Provider a flat fee for Services provided during the Plan Year in such amount as may be negotiated by MediaOne Group, Inc. and approved by the Committee or its delegate from time to time. Alternatively, each such Participant shall be entitled to receive, upon submission of invoice to MediaOne Group, Inc., reimbursement in an amount equal to 75 percent of the cost of Services provided by any Consultants other than a Preferred Provider, up to a total of $4,500, incurred by the Participant during any Plan Year. If a Participant submits invoices for reimbursement under the Plan for Services from any Consultants other than a Preferred Provider at any time during the Plan Year, the total benefit payable for Services provided to such Participant for the Plan Year shall not exceed $4,500 in the aggregate. 4.3 PREFERRED PROVIDER. If a Participant other than the Chief Executive Officer or a Band I officer of the Company elects to receive Services from a Preferred Provider, such Participant will be deemed to have received a benefit for each quarter of a Plan Year (or part thereof) in which the Participant maintains a relationship with such Preferred Provider, regardless of the amount of Services actually provided to the Participant. The value of such benefit to the Participant shall be equal to the fee paid by MediaOne Group, Inc. to the Preferred Provider, the amount of which shall be negotiated by MediaOne Group, Inc. and approved by the Committee or its delegate from time to time. A Participant may discontinue his or her relationship with a Preferred Provider at any time, effective upon the expiration of the current quarter of the Plan Year, by providing written notice to MediaOne Group, Inc. and the Preferred Provider. 3 ARTICLE V ARBITRATION 5.1 SCOPE OF ARBITRATION. Any claim, controversy or dispute between a Participant and the Company, whether sounding in contract, statute, tort, fraud, misrepresentation, discrimination or any other legal theory, including, but not limited to, disputes relating to the interpretation of this Plan; claims under Title VII of the Civil Rights Act of 1964, as amended; claims under the Civil Rights Act of 1991; claims under the Age Discrimination in Employment Act of 1967, as amended; claims under 42 U.S.C. Section 1981, Section 1981a, Section 1983, Section 1985, or Section 1988; claims under the Family and Medical Leave Act of 1993; claims under the Americans with Disabilities Act of 1990, as amended; claims under the Fair Labor Standards Act of 1938, as amended; claims under the Employee Retirement Income Security Act of 1974, as amended; claims under the Colorado Anti-Discrimination Act; or claims under any other similar federal, state or local law or regulation, whenever brought, shall be resolved by arbitration. The only legal claims between Participant and the Company that are not included for arbitration within this Plan are claims by Participant for workers' compensation or unemployment compensation benefits and/or claims for benefits under any Company benefit plan, if the plan does not provide for arbitration of such disputes. IN CONSIDERATION OF ANY BENEFIT PROVIDED TO A PARTICIPANT UNDER THE TERMS OF THIS PLAN, SUCH PARTICIPANT VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHT HE OR SHE MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL AND THE RIGHT TO RECOVER PUNITIVE DAMAGES ON ANY COMMON LAW AND/OR CONTRACT CLAIMS. The Federal Arbitration Act, 9 U.S.C. Sections 1-16 ("FAA") shall govern the arbitrability of all claims, provided that they are enforceable under the FAA, as it may be amended from time to time. In the event the FAA does not govern, the Colorado Uniform Arbitration Act shall apply. Additionally, the substantive law of Colorado, to the extent it is consistent with the terms stated in this Plan for arbitration, shall apply to any common law claims. This arbitration provision supersedes any other arbitration agreement between Participant and the Company to the extent they are inconsistent. 5.2 ARBITRATION PROCEEDINGS. A single arbitrator engaged in the practice of law shall conduct the arbitration under the applicable rules and procedures of the American Arbitration Association ("AAA"). Any dispute that relates directly or indirectly to Participant's employment with the Company or to the termination of Participant's employment will be conducted under the AAA Employment Dispute Resolution Rules, effective November 1993. The arbitrator shall be chosen from a state other than Participant's state of residence and other than Colorado. Other than as set forth herein, the arbitrator shall have no authority to add to, detract from, change, amend, or modify existing law. All arbitration proceedings, including without limitation, settlements and awards, under this Plan will be confidential. The parties shall share equally the hourly fees of the arbitrator. The Company shall pay the expenses (such as travel and lodging) of the arbitrator. The prevailing party in any arbitration may be entitled to receive reasonable attorneys' fees. The arbitrator's decision and award shall be final and binding, 4 as to all claims that were, or could have been, raised in the arbitration, and judgment upon the award rendered by the arbitrator may be entered to any court having jurisdiction thereof. If any party hereto files a judicial or administrative action asserting claims subject to this arbitration provision, and another party successfully stays such action and/or compels arbitration of such claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay and/or compelling arbitration, including reasonable attorneys' fees. 5.3 REFORMATION. If any provision of this Article V is held by any arbitrator or court of competent jurisdiction to be enforceable only if such provision is modified in scope, then the Company and the Participant shall consider such provision to be so amended and modified to comply with such determination or order. All other terms and provisions of the Plan shall remain in full force and effect as originally written or modified pursuant to Section 6.6. ARTICLE VI MISCELLANEOUS PROVISIONS 6.1 COSTS AND EXPENSES. The costs and expenses of administering the Plan shall be borne by MediaOne Group, Inc. and shall not be charged against any Participant or the Plan benefit of any Participant. 6.2 RESPONSIBILITY LIMIT OF THE COMPANY. The Company shall not be responsible or otherwise held liable for any advice or any other Service or other matters whatsoever provided or not provided to a Participant by any Consultant, whether or not a Preferred Provider, or for failure of a Consultant to provide any such Service, advice or other matter or for any loss or other loss experienced by any Participant or by any other party as a result of any such advice or service. To the extent the Company is held so liable, the Company shall be indemnified in full by any Consultant involved in any way with the matter giving rise to the liability. 6.3 INALIENABILITY OF BENEFITS. A Participant's right to benefits under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or the Participant's beneficiary. 6.4 TAXATION. The Company shall have the right to deduct from a Participant's regular salary any federal, state or local income and employment taxes that it is required by law to withhold. 6.5 EFFECT ON EMPLOYMENT. Nothing contained in this Plan or any related agreement or other related documentation shall affect, or be construed as affecting, the terms of employment of any Participant. Nothing contained in this Plan or any related 5 agreement shall impose, or be construed as imposing, any obligation on the Company to continue the employment of any Participant or any Participant to remain in the employ of the Company or alter the "at will" nature of any Participant's employment. 6.6 AMENDMENT OR TERMINATION OF PLAN. The Committee or its delegate shall have the right to amend, modify, suspend or terminate this Plan at any time for any reason and without prior notice to Participants. 6.7 ADMINISTRATION. The Plan shall be administered and interpreted by the Committee, which may adopt such rules, regulations and guidelines as it determines necessary for the administration of the Plan. The Committee may delegate to one or more of its members, or to one or more other agents, such duties as it may deem advisable, and the Committee or any person to whom it has delegated such duties may employ one or more persons to render advice on any responsibility that the Committee or such person or any Participant may have under the Plan. The Company shall indemnify members of the Committee and any agent of the Committee who is also an employee of the Company against any and all liabilities or expenses to which they may be subject by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving gross negligence or willful misconduct. 6.8 GOVERNING LAW. This Plan and actions taken in connection with this Plan shall be governed and construed in accordance with the laws of the State of Colorado. 6 TABLE OF CONTENTS
Page ARTICLE I PURPOSE 1 ARTICLE II DEFINITIONS 1 ARTICLE III ELIGIBILITY 2 Section 3.1 Eligibility Criteria 2 Section 3.2 Discontinuance of Employment; Ineligibility 2 Section 3.3 Retirement 2 ARTICLE IV FINANCIAL COUNSELING ALLOWANCE 3 Section 4.1 Chief Executive Officer and Bank I Officers of the Company 3 Section 4.2 Other Participants 3 Section 4.3 Preferred Provider 3 ARTICLE V ARBITRATION 4 Section 5.1 Scope of Arbitration 4 Section 5.2 Arbitration Proceedings 4 Section 5.3 Reformation 5 ARTICLE VI MISCELLANEOUS Section 6.1 Costs and Expenses 5 Section 6.2 Responsibility Limit of the Company 5 Section 6.3 Inalienability of Benefits 5 Section 6.4 Taxation 5 Section 6.5 Effect on Employment 5 Section 6.6 Amendment or Termination 6 Section 6.7 Administration 6 Section 6.8 Governing Law 6
7 EX-10.I 10 EXHIBIT 10-I [FORM 4 - NON-QUALIFIED STOCK OPTION AGREEMENT (EXECUTIVE HRC VERSION)] MEDIAONE GROUP, INC. NON-QUALIFIED STOCK OPTION AGREEMENT GRANT # THIS AGREEMENT is made between MediaOne Group, Inc. (the "Company") and the Optionee ("Optionee") named in the schedule attached to and made part of this Agreement (the "Schedule"), as of the date set forth in the Schedule. Pursuant to the MediaOne Group, Inc. Amended 1994 Stock Plan (the "Plan"), the Human Resources Committee of the Company's Board of Directors (the "Committee") has approved the granting to Optionee of an option to purchase shares of Common Stock (the "Option"), without par value on the terms and conditions set forth in this Agreement, as a matter of separate inducement in connection with Optionee's engagement with the Company or a Related Entity, and not in lieu of salary or other compensation for Optionee's services. The Option shall not be treated as an incentive stock option. In consideration of the foregoing and of the mutual covenants set forth herein, and other good and valuable consideration, the Company and Optionee agree as follows: 1. INCORPORATION OF PLAN AND DEFINED TERMS. The Option is granted pursuant to the Plan, the terms of which are incorporated by reference and apply to this Agreement as if they were fully set forth herein. Terms used in this Agreement and not otherwise defined shall have the meanings set forth in the Plan. 2. SHARES OPTIONED; OPTION PRICE. Optionee may purchase all or any part (in whole shares) of an aggregate of the number of shares of Common Stock, at a purchase price per share (which is not less than the Fair Market Value on the date of this Agreement) as specified in the Schedule, on the terms and conditions set forth herein. 3. OPTION TERM; VESTING; TIMES OF EXERCISE. The Option shall become Vested in one-third increments upon each of the first three (3) anniversaries following the date hereof. The vesting on any such increment shall be subject to the continuous employment of Optionee until the anniversary date on which such increment is scheduled to vest, and provided further that the Option shall expire and shall no longer be exercisable following ten (10) years from the date of this Agreement (the "Expiration Date"). Except as otherwise specifically set forth below and elsewhere in this Agreement, the Option shall become Vested only to the extent that the foregoing continuous employment requirement is satisfied, regardless of the circumstances under which Optionee's employment is terminated. (i) DEATH. In the event of the death of Optionee, the Option shall become Vested and the estate of the Optionee shall have the right, at any time and from time to time consistent with rules established by the Committee for the administration of the Plan, within one year after the date of death or such longer period, if any, as the Committee in its sole discretion shall determine (but not after the Expiration Date), to exercise all or any portion of the Option. (ii) DISABILITY. Except as otherwise set forth in this Agreement, if the employment of Optionee is terminated because of Disability, the Option shall be retained by Optionee, and the Option, if not then Vested, shall become Vested as set forth in the vesting schedule in Paragraph 3 of this Agreement. Upon vesting, Optionee shall have the right to exercise the Option, at any time and from time to time, but not after the Expiration Date. (iii) RETIREMENT. Except as otherwise set forth in this Agreement, upon Optionee's Retirement, the Option shall be retained by Optionee, and the Option, if not then Vested, shall become Vested as set forth in the vesting schedule in Paragraph 3 of this Agreement, unless the Committee, in its sole discretion, determines otherwise; provided, however, that the continuation of vesting shall be contingent upon Optionee's execution and delivery to the Company, on or prior to the effective date of Optionee's Retirement, of the Company's standard form of "Waiver & Release" of claims, available from the Human Resources Department of the Company. Upon vesting, Optionee shall have the right to exercise the Option, at any time and from time to time, until the Expiration Date, unless otherwise provided in this Agreement. (iv) OTHER TERMINATION. If Optionee's employment with the Company or a Related Entity is terminated for any reason other than for death, Disability or Retirement and other than "for cause," as such term is defined in the Plan, Optionee shall have the right to exercise all or any portion of the Option, if the Option is then Vested, at any time and from time to time within three (3) months of termination or such other period, if any, as the Committee in its sole discretion shall determine (but not after the Expiration Date). (v) EXECUTIVE SEVERANCE AGREEMENT. If Optionee has executed an Executive Severance Agreement with the Company, the Option will be Vested in accordance with the terms of the Executive Severance Agreement if Optionee becomes entitled to the receipt of "Severance Benefits," as set forth in that Executive Severance Agreement and sixteen (16) days have passed following the execution of a standard form of "Waiver & Release" of claims and compliance with the "Conditions" by Optionee as set forth in the Company's standard Executive Severance Agreement. (vi) CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Option shall be Vested immediately. For purposes of this paragraph, "Change of Control" shall have the identical meaning as set forth in the Change of Control Agreement, if any, that Optionee has executed with the Company. To ensure parallel application, for purposes of this paragraph only, defined terms contained in the definition of "Change of Control" set forth in Optionee's Change of Control Agreement shall have the same meaning here as 2 set forth in that Change of Control Agreement. If Optionee has not executed any such Change of Control Agreement, "Change of Control" shall have the identical meaning as set forth in the Plan. (vii) TERMINATION FOR CAUSE. Notwithstanding any other provision in this Agreement, if Optionee's employment is terminated by the Company or any Related Entity "for cause," as such term is defined in the Plan, Optionee shall forfeit immediately all rights under the Option except as to the shares of Common Stock already purchased prior to such termination. 4. EXERCISE: PAYMENT FOR AND DELIVERY OF STOCK. The Option may be exercised only by Optionee or his or her transferee(s) by last will and testament or the laws of descent and distribution. The Option may be exercised by giving notice of exercise to the Company specifying the number of shares (minimum of 100, unless the unexercised balance of the Option is less than 100) to be purchased and the total purchase price. The purchase price shall be payable (i) in cash or by an equivalent means, (ii) by delivery, constructive or otherwise, to the Company of shares of Common Stock owned by Optionee, or (iii) any combination of the foregoing. Any shares of Common Stock so tendered shall be valued as of the Option exercise date. 5. NON-TRANSFERABILITY OF OPTION. Except as specifically set forth in this Paragraph, the Option is not transferable other than by last will and testament or the laws of descent and distribution, and the Option shall not be assigned, transferred, pledged, hypothecated, or otherwise disposed of in any way, whether by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. The Option shall not be assignable or transferable pursuant to a domestic relations order. In limited circumstances, with the prior approval of the Senior Vice President - Human Resources, in full compliance with Section 16 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, and after Optionee has satisfied the Company's executive stock ownership goal then in effect and set by the Committee, Optionee may transfer the Option, in whole or in part, to one or more member(s) of his or her family (as that term is defined in Internal Revenue Code Reg. Section 25.2701-2(d)) ("Member(s) of the Family") or to trusts maintained for the benefit of such Member(s) of the Family (together, "Transferee(s)"). Any such transfer shall be contingent upon the execution by both Optionee and Transferee(s) of a "Stock Option Transfer Agreement," in the form provided by the Company ("Transfer Agreement"). The Option shall not be transferable by Transferee(s). Upon any attempt to assign, transfer, pledge, hypothecate or otherwise dispose of the Option other than as specifically set forth in this Paragraph, or upon the levy of any execution, attachment or similar process upon the Option, the Option shall immediately terminate and become null and void. 3 6. PERFORMANCE FOR COMPETITORS. If at any time following the date of this Agreement and before the Option is Vested, regardless of whether Optionee has Retired, Optionee directly or indirectly receives payment for services rendered to, or is otherwise employed by, any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as any goods or services provided or under development by the Company, Optionee immediately shall forfeit all rights under the Option, unless the Committee in its sole discretion determines otherwise, or unless Optionee is in full compliance with the Company's Policy on Service on Outside Boards of Directors, as interpreted solely by the Company's Senior Management Compliance Committee. If at any time Optionee renders services to or becomes otherwise employed by any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as goods or services provided or under development by the Company, Optionee shall have three (3) months after the date of such employment to exercise any Vested and non-expired Option. Any determination under this Paragraph 6, including whether a person, firm or corporation is "in competition with" the Company or providing "substantially the same" goods or services as the Company provides or is developing, will be subject to the sole discretion of the Committee. 7. NON-SOLICITATION OF EMPLOYEES. Optionee agrees that he or she will not for a period of one (1) year immediately following the termination of his or her employment with the Company for any reason, either on Optionee's own account or in conjunction with or on behalf of any other person or entity whatsoever, directly or indirectly induce, solicit, or entice away any person who, at any time during the three (3) months immediately preceding Optionee's termination of employment, is a managerial level employee of the Company (including, but not limited to, any Officer, Executive Director or director-level employee, or any equivalent or successor term for any such employees). If Optionee engages in any conduct contrary to the provisions of this Paragraph 7, Optionee shall forfeit the Option to the extent the Option has not Vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available under law. 8. INTELLECTUAL PROPERTY OWNERSHIP AND PROTECTION. Optionee agrees that any inventions, discoveries, creations (including without limitation software, writings, drawings and other works), improvements, confidential information or other intellectual property that he or she may develop or create, or assist in developing or creating, during his or her employment with the Company, whether or not patentable or eligible for copyright, that relate to the actual, planned, or foreseeable business or other activities of the Company, or that result from his or her work for the Company, are the exclusive property of the Company. Optionee agrees to disclose promptly such property to the Company and will, both during and after his or her employment, and without additional compensation, execute all assignments and other documents and do all things reasonably necessary to secure and enforce U.S. and foreign intellectual property rights for the Company, including patents and copyrights. Optionee is not obligated to assign any intellectual property to Company that Optionee created prior to Optionee's employment with the Company. To avoid any confusion, Optionee must identify in writing on Attachment A any such intellectual property that has not been patented or published and forward it along with this letter. 4 Optionee agrees that Optionee will hold in confidence and will not, during or after his or her employment, disclose or use for the benefit of any person or entity other than Company, any Company confidential information that was developed or received during his or her employment. "Company confidential information" shall include all trade secrets, research and development information, product and marketing plans, business or legal strategies, personnel or financial data, product and service specifications, prototypes, software, customer lists and other confidential information or materials of Company or of others with whom Company has a confidential relationship. Optionee will promptly return all such information and materials to Company when his or her employment ends. If Optionee fails to comply with the provisions of this Paragraph____, Optionee shall forfeit the Option to the extent the Option has not vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available to the Company. 9. DECISIONS OF COMMITTEE. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan or the Option shall be final, binding and conclusive on the Company and Optionee and any respective heir, executor, administrator, successor or assign. 10. ARBITRATION. Optionee agrees that any claim, controversy or dispute that may arise directly or indirectly in connection with Optionee's employment or termination of employment with MediaOne, and/or any associated or related disputes arising therefrom involving MediaOne and/or any employee(s), Director(s), officer(s), or agent(s) of MediaOne, whether arising in contract, statute, tort, fraud, misrepresentation, discrimination, common law or any other legal theory, including, but not limited to: Disputes relating to the making, performance or interpretation of this Agreement; and claims or other disputes arising under Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; 42 U.S.C. Section 1981, Section 1981a, Section 1983, Section 1985, or Section 1988; the Family and Medical Leave Act of 1993; the Americans with Disabilities Act of 1990, as amended; the Rehabilitation Act of 1973, as amended; the Fair Labor Standards Act of 1938, as amended; the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); the Colorado Anti-Discrimination Act; or any other similar federal, state or local law or regulation, whenever brought, shall be resolved by arbitration. If, however, Optionee would otherwise be legally required to exhaust administrative remedies to obtain legal relief, Optionee can and must exhaust such administrative remedies prior to pursuing arbitration. The only legal claims between Optionee and MediaOne that are not included for arbitration within this Agreement are claims for workers' compensation or unemployment compensation benefits. BY SIGNING THIS AGREEMENT, OPTIONEE VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHT OPTIONEE MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. MEDIAONE ALSO HEREBY VOLUNTARILY, KNOWINGLY, AND INTELLIGENTLY WAIVES ANY RIGHT IT MIGHT OTHERWISE HAVE TO SEEK REMEDIES AGAINST OPTIONEE IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. The Federal Arbitration Act, 9 U.S.C. Sections 1-16 ("FAA") shall govern the arbitrability of all claims, provided that they are enforceable under the FAA, as it may be amended from time to time. In the event the FAA does not govern, the Colorado Uniform Arbitration Act shall apply. Additionally, the substantive law of Colorado, to the extent it is consistent with the terms stated in this Agreement for arbitration, shall apply to any common law 5 claims. This Agreement for arbitration supersedes any prior arbitration agreement between Optionee and MediaOne to the extent they are inconsistent. A single arbitrator engaged in the practice of law shall conduct the arbitration under the applicable rules and procedures of the American Arbitration Association ("AAA"), unless otherwise agreed to by the parties. Any dispute, that relates directly or indirectly to Optionee's employment with MediaOne or to the termination of Optionee's employment will be conducted under the AAA National Rules for the Resolution of Employment Disputes, effective June 1, 1997. The arbitrator shall be chosen from a state other than Optionee's state of residence and other than Colorado. Other than as set forth herein, the arbitrator shall have no authority to add to, detract from, change, amend, or modify existing law. The arbitrator shall have the authority to order such discovery as is necessary for a fair resolution of the dispute. The arbitrator may award punitive damages, as allowed by Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; and the Americans with Disabilities Act of 1990, as amended, regardless of any limitations imposed by federal, state, or local laws regarding amounts that may be awarded in arbitration proceedings. All arbitration proceedings, including without limitation, settlements under this Agreement, will be confidential. Optionee shall not be required to pay more than One Hundred Fifty Dollars ($150.00) of the arbitrator's hourly fees and expenses. The prevailing party in any arbitration shall be entitled to receive reasonable attorneys' fees as provided by law. The arbitrator's decision and award shall be final and binding, as to all claims that were, or could have been, raised in the arbitration, and judgment upon the award rendered by the arbitrator may be entered to any court having jurisdiction thereof. If any party hereto files a judicial or administrative action asserting claims subject to this arbitration provision, and another party successfully stays such action and/or compels arbitration of such claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay and/or compelling arbitration, including reasonable attorneys' fees not to exceed Two Thousand Five Hundred Dollars ($2,500.00). 11. MISCELLANEOUS. (i) NOTICES. Any notice to be given to the Company shall be personally delivered to or addressed to its Senior Vice President - Human Resources, and any notice to be given to Optionee shall be addressed to him or her at the address given beneath his or her signature below or such other address as the Company reasonably believes to be his or her most current address. Any notice to the Company is deemed given when received on behalf of the Company by the Senior Vice President - Human Resources, of the Company at 188 Inverness Drive West, 5th Floor Englewood, CO 80112. Any notice to Optionee is deemed given when personally delivered or enclosed in a properly sealed envelope addressed as aforesaid and deposited, postage prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. 6 (ii) EMPLOYMENT. THE COMPANY MAY TERMINATE OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE, UNLESS THE TERM OF EMPLOYMENT IS COVERED BY SEPARATE CONDITIONS CONTAINED IN ANOTHER AUTHORIZED WRITTEN AGREEMENT SIGNED BY THE COMPANY AND THE OPTIONEE. NOTHING CONTAINED IN THIS AGREEMENT CREATES OR IMPLIES AN EMPLOYMENT CONTRACT OR TERM OF EMPLOYMENT OR ANY PROMISE OF SPECIFIC TREATMENT UPON WHICH THE OPTIONEE MAY RELY. (iii) GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Colorado. 7 (iv) AMENDMENTS. The Company may at any time propose to amend this Agreement, but any such alteration or amendment shall be effective only if in writing, signed by a duly authorized officer of the Company and by Optionee. MediaOne Group, Inc. By /s/ [ILLEGIBLE] OPTIONEE CHAIRMAN, CEO & PRESIDENT ------------------------------------- Full Name ------------------------------------- Address ------------------------------------- City, State, Zip Social Security Number: -------------- 8 [NAME] DATE ATTACHMENT A PAGE 1 INTELLECTUAL PROPERTY THAT HAS NOT BEEN PATENTED OR PUBLISHED 1. 2. 3. EX-10.J 11 EXHIBIT 10-J [FORM 5-LTIP OPTION AGREEMENT] [1999 LTIP VERSION] MEDIAONE GROUP, INC. NON-QUALIFIED STOCK OPTION AGREEMENT GRANT # _______ THIS AGREEMENT is made between MediaOne Group, Inc. (the "Company") and the Optionee ("Optionee") named in the schedule attached to and made part of this Agreement (the "Schedule"), as of the date set forth in the Schedule. Pursuant to the MediaOne Group, Inc. Amended 1994 Stock Plan (the "Plan"), the Human Resources Committee of the Company's Board of Directors (the "Committee") has approved the granting to Optionee of an option to purchase shares of Common Stock (the "Option") on the terms and conditions set forth in this Agreement, as a matter of separate inducement in connection with Optionee's engagement with the Company or a Related Entity, in addition to and not in lieu of salary or other compensation for Optionee's services. The Option shall not be treated as an incentive stock option. In consideration of the foregoing and of the mutual covenants set forth herein, and other good and valuable consideration, the Company and Optionee agree as follows: 1. INCORPORATION OF PLAN AND DEFINED TERMS. The Option is granted pursuant to the Plan, the terms of which are incorporated by reference and apply to this Agreement as if they were fully set forth herein. Terms used in this Agreement and not otherwise defined shall have the meanings set forth in the Plan. 2. SHARES OPTIONED; OPTION PRICE. Optionee may purchase all or any part (in whole shares) of an aggregate of the number of shares of Common Stock, at a purchase price per share (which is not less than the Fair Market Value on the date of this Agreement) as specified in the Schedule, on the terms and conditions set forth herein. BEST PAYMENT PROVISO: IN THE EVENT THAT THE VESTING OF THE OPTION TOGETHER WITH ALL OTHER PAYMENTS AND THE VALUE OF ANY BENEFIT RECEIVED OR TO BE RECEIVED BY OPTIONEE (UNDER THIS OR ANY OTHER ARRANGEMENT) WOULD RESULT IN ALL OR A PORTION OF SUCH TOTAL PAYMENTS TO BE SUBJECT TO EXCISE TAX UNDER SECTION 4999 OF THE CODE, THEN OPTIONEE'S PAYMENTS UNDER THIS AGREEMENT AND ALL OTHER ARRANGEMENTS SHALL BE EITHER (A) THE FULL PAYMENT OR (B) SUCH LESSER AMOUNT WHICH WOULD RESULT IN NO PORTION OF THE PAYMENT BEING SUBJECT TO EXCISE TAX UNDER SECTION 4999 OF THE CODE, WHICHEVER OF THE FOREGOING AMOUNTS, TAKING INTO ACCOUNT THE APPLICABLE FEDERAL, STATE, AND LOCAL EMPLOYMENT TAXES, INCOME TAXES, AND THE EXCISE TAX IMPOSED BY SECTION 4999 OF THE CODE, RESULTS IN THE RECEIPT BY OPTIONEE, ON AN AFTER-TAX BASIS, OF THE GREATEST AMOUNT OF THE PAYMENT NOTWITHSTANDING THAT ALL OR SOME PORTION OF THE PAYMENT MAY BE TAXABLE UNDER SECTION 4999 OF THE CODE; PROVIDED, HOWEVER, THAT OPTIONEE WILL BE ENTITLED TO RECEIVE THE FULL PAYMENT ONLY IF THE EXCESS OF (C) THE "PARACHUTE PAYMENTS" AS DEFINED IN SECTION 280G(B)(2) OF THE CODE, OVER (D) 2.99 TIMES OPTIONEE'S "BASE AMOUNT" AS DEFINED IN SECTION 280G(B)(3) OF THE CODE EXCEEDS THE SUM OF (X) FIVE PERCENT (5%) OF THE AMOUNT IN CLAUSE (C), ABOVE, PLUS (Y) THE EXCISE TAX IMPOSED UNDER SECTION 4999 OF THE CODE, PLUS (Z) THE APPLICABLE FEDERAL, STATE, AND LOCAL EMPLOYMENT TAXES AND INCOME TAXES IMPOSED ON THE EXCESS OF (i) THE "PARACHUTE PAYMENTS" AS DEFINED IN SECTION 280G(B)(2) OF THE CODE, OVER (ii) 2.99 TIMES OPTIONEE'S "BASE AMOUNT" AS DEFINED IN SECTION 280G(B)(3) OF THE CODE. ALL DETERMINATIONS REQUIRED TO BE MADE UNDER THIS PARAGRAPH SHALL BE MADE IN THE SOLE OPINION OF A TAX CONSULTANT SELECTED BY THE COMPANY AND REASONABLY ACCEPTABLE TO OPTIONEE (THE "TAX CONSULTANT"). THE COMPANY SHALL CAUSE THE TAX CONSULTANT TO PROVIDE DETAILED SUPPORTING CALCULATIONS OF ITS DETERMINATIONS TO THE COMPANY AND OPTIONEE. NOTICE MUST BE GIVEN TO THE TAX CONSULTANT WITHIN FIFTEEN (15) BUSINESS DAYS AFTER AN EVENT ENTITLING OPTIONEE TO A PAYMENT UNDER THIS AGREEMENT. ALL FEES AND EXPENSES OF THE TAX CONSULTANT SHALL BE BORNE SOLELY BY THE COMPANY. THE TAX CONSULTANT'S DETERMINATIONS MUST BE MADE WITH SUBSTANTIAL AUTHORITY (WITHIN THE MEANING OF SECTION 6662 OF THE INTERNAL REVENUE CODE). FOR PURPOSES OF THIS BEST PAYMENT PROVISO, THE TERM "PAYMENT" SHALL MEAN ANY AMOUNT THAT WOULD BE CONSIDERED A "PARACHUTE PAYMENT" UNDER SECTION 280G(b)(2) OF THE CODE. 3. OPTION TERM; VESTING; TIMES OF EXERCISE. The Option shall become Vested in one-third increments upon each of the first three (3) annual anniversaries from the date of this Agreement. The vesting of any such increment shall be subject to the continuous employment of Optionee until the anniversary date on which such increment is scheduled to vest, and provided further that the Option shall expire and shall no longer be exercisable after ten (10) years from the date of this Agreement (the "Expiration Date"). Except as otherwise specifically set forth below and elsewhere in this Agreement, the Option shall become Vested only to the extent that the foregoing continuous employment requirement is satisfied, regardless of the circumstances under which Optionee's employment is terminated. (i) DEATH. In the event of the death of Optionee, the Option shall become Vested immediately and (i) the estate of Optionee, (ii) Optionee's transferees by last will and testament or the laws of descent and distribution, or (iii) in the event Optionee transfers the Option under the limited circumstances specified in Paragraph 5 below, Transferee(s) (as defined in Paragraph 5 below), shall have the right, at any time and from time to time consistent with rules established by the Committee for the administration of the Plan, within one (1) year after the date of death or such longer period, if any, as the Committee in its sole discretion shall determine (but not after the Expiration Date), to exercise all or any portion of the Option. (ii) DISABILITY. Except as otherwise set forth in this Agreement, if the employment of Optionee is terminated because of Disability, the Option shall be retained by Optionee, and the Option, if not then Vested, shall become Vested as set forth in the vesting schedule in Paragraph 3 of this Agreement. Upon vesting, Optionee shall have the right to exercise the Option, at any time and from time to time, but not after the Expiration 2 Date, unless otherwise provided in this Agreement. (iii) RETIREMENT. Except as otherwise set forth in this Agreement, upon Optionee's Retirement, the Option shall be retained by Optionee, and the Option, if not then Vested, shall become Vested as set forth in the vesting schedule in Paragraph 3 of this Agreement, unless the Committee, in its sole discretion, determines otherwise; provided, however, that the continuation of vesting shall be contingent upon Optionee's execution and delivery to the Company, on or prior to the effective date of Optionee's Retirement, of the Company's standard form of "Waiver & Release" of claims, available from the Human Resources Department of the Company. Upon vesting, Optionee shall have the right to exercise the Option, at any time and from time to time, but not after the Expiration Date, unless otherwise provided in this Agreement. NOTWITHSTANDING ANY OTHER TERMS OF THIS PARAGRAPH 3(III), IF OPTIONEE'S RETIREMENT OCCURS BEFORE THE FIRST ANNIVERSARY OF THE DATE OF OPTION GRANT SET FORTH IN THE SCHEDULE, ALL OPTION RIGHTS AS TO ONE-HALF (1/2) OF THE NUMBER OF SHARES OF COMMON STOCK WITH RESPECT TO WHICH OPTIONS ARE GRANTED SHALL BE FORFEITED EXCEPT AS TO THOSE OPTIONS ALREADY EXERCISED PRIOR TO SUCH RETIREMENT. (iv) TERMINATION FOR CAUSE. Notwithstanding any other provision in this Agreement, if Optionee's employment is terminated by the Company or any Related Entity "for cause," as such term is defined in the Plan, Optionee shall forfeit immediately all rights under the Option except as to the shares of Common Stock already purchased prior to such termination. (v) OTHER TERMINATION. If Optionee's employment with the Company or a Related Entity is terminated for any reason other than for death, Disability or Retirement and other than "for cause," as such term is defined in the Plan, Optionee shall have the right to exercise all or any portion of the Option, if the Option is then Vested, at any time and from time to time within three (3) months of termination or such other period, if any, as the Committee in its sole discretion shall determine (but not after the Expiration Date). (vi) EXECUTIVE SEVERANCE AGREEMENT. If Optionee has executed an Executive Severance Agreement with the Company, the Option will be Vested in accordance with 3 the terms of the Executive Severance Agreement if: (1) Optionee becomes entitled to the receipt of "Severance Benefits," as set forth in that Executive Severance Agreement; and (2) sixteen (16) calendar days have passed following (i) the execution of a standard form of "Waiver & Release" of claims and (ii) compliance with the "Conditions" by Optionee as set forth in the Company's standard Executive Severance Agreement. (vii) CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Option shall be Vested immediately. For purposes of this paragraph, "Change of Control" shall have the identical meaning as set forth in the Change of Control Agreement, if any, that Optionee has executed with the Company. To ensure parallel application, for purposes of this paragraph only, defined terms contained in the definition of "Change of Control" set forth in Optionee's Change of Control Agreement shall have the same meaning here as set forth in that Change of Control Agreement. If Optionee has not executed any such Change of Control Agreement, "Change of Control" shall have the same meaning as set forth in Stock Plan. 4. EXERCISE: PAYMENT FOR AND DELIVERY OF STOCK. The Option shall be exercisable only by: (i) Optionee; (ii) Optionee's guardian or legal representative, (iii) Optionee's estate; (iv) Optionee's transferee(s) by last will and testament or the laws of descent and distribution or, (v) in the event Optionee transfers the Option under the limited circumstances specified in Paragraph 5 below, by Transferee(s). The Option may be exercised by giving notice of exercise to the Company, specifying the number of shares to be purchased (minimum of 100, unless the unexercised balance of the Option is less than 100) and the total purchase price. The purchase price shall be payable: (i) in cash or by an equivalent means; (ii) by delivery, constructive or otherwise, to the Company of shares of Common Stock owned by Optionee; or (iii) any combination of the 4 foregoing. Any shares of Common Stock so tendered shall be valued as of the Option exercise date. 5. NON-TRANSFERABILITY OF OPTION. Except as specifically set forth in this Paragraph 5, the Option is not transferable other than by last will and testament or the laws of descent and distribution, and the Option shall not be assigned, transferred, pledged, hypothecated, or otherwise disposed of in any way, whether by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. The Option shall not be assignable or transferable pursuant to a domestic relations order. In limited circumstances, with the prior approval of the Senior Vice President - Human Resources, in full compliance with Section 16 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, and after Optionee has satisfied the Company's executive stock ownership goal then in effect and set by the Committee, Optionee may transfer the Option, in whole or in part, to one or more member(s) of his or her family (as that term is defined in Internal Revenue Code Reg. Section 25.2701-2(d)) ("Member(s) of the Family") or to trusts maintained for the benefit of such Member(s) of the Family (together, "Transferee(s)"). Any such transfer shall be contingent upon the execution by both Optionee and Transferee(s) of a "Stock Option Transfer Agreement," in the form provided by the Company ("Transfer Agreement"). The Option shall not be transferable by Transferee(s). Upon any attempt to assign, transfer, pledge, hypothecate or otherwise dispose of the Option other than as specifically set forth in this Paragraph 5, or upon the levy of any execution, attachment or similar process upon the Option, the Option shall immediately terminate and become null and void. 6. PERFORMANCE FOR COMPETITORS. If at any time following the date of this Agreement and before the Option is Vested, regardless of whether Optionee has Retired, Optionee directly or indirectly receives payment for services rendered to, or is otherwise employed by, any person, firm or corporation that is in competition with the Company or a Related Entity or engaged in providing any goods or services that are substantially the same as any goods or services provided or under development by the Company or a Related Entity, Optionee immediately shall forfeit all rights under the Option, unless: 1) the Committee in its sole discretion determines otherwise; or 2) the only services rendered by Optionee to any such person, firm or corporation are those of an outside director and Optionee is in full compliance with the Company's Policy on Service on Outside Boards of Directors (as if Optionee remained an employee of the Company or a Related Entity), as interpreted solely by the Company's Senior Management Compliance Committee. If at any time Optionee renders services to or becomes otherwise employed by any person, firm or corporation that is in competition with the Company or a Related Entity or engaged in providing any goods or services that are substantially the same as goods or services provided or under development by the Company or a Related Entity, Optionee shall have three (3) months after the date of such employment to exercise any Vested and non-expired Option. Any determination under this Paragraph 6, including whether a person, firm or corporation is "in competition with" the Company or a Related Entity or providing "substantially the same" goods or services as the Company or a Related Entity provides or is developing, will be subject to the sole discretion of the Committee. 5 7. NON-SOLICITATION OF EMPLOYEES. Optionee agrees that he or she will not for a period of one (1) year immediately following the termination of his or her employment with the Company or a Related Entity for any reason, either on Optionee's own account or in conjunction with or on behalf of any other person or entity whatsoever, directly or indirectly induce, solicit, or entice away any person who, at any time during the three (3) months immediately preceding Optionee's termination of employment, is a managerial level employee of the Company or a Related Entity (including, but not limited to, any Officer, Executive Director or Director-level employee, or any equivalent or successor term for any such employees). If Optionee engages in any conduct contrary to the provisions of this Paragraph 7, Optionee shall forfeit the Option to the extent the Option has not Vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available to the Company by law. 8. INTELLECTUAL PROPERTY OWNERSHIP AND PROTECTION. Optionee agrees that any inventions, discoveries, creations (including without limitation software, writings, drawings and other works), improvements, confidential information or other intellectual property that he or she may develop or create, or assist in developing or creating, during his or her employment with the Company, whether or not patentable or eligible for copyright, that relate to the actual, planned, or foreseeable business or other activities of the Company, or that result from his or her work for the Company, are the exclusive property of the Company. Optionee agrees to disclose promptly such property to the Company and will, both during and after his or her employment, and without additional compensation, execute all assignments and other documents and do all things reasonably necessary to secure and enforce U.S. and foreign intellectual property rights for the Company, including patents and copyrights. Optionee is not obligated to assign any intellectual property to Company that Optionee created prior to Optionee's employment with the Company. To avoid any confusion, Optionee must identify in writing on Attachment A any such intellectual property that has not been patented or published and forward it along with this letter. Optionee agrees that Optionee will hold in confidence and will not, during or after his or her employment, disclose or use for the benefit of any person or entity other than Company, any Company confidential information that was developed or received during his or her employment. "Company confidential information" shall include all trade secrets, research and development information, product and marketing plans, business or legal strategies, personnel or financial data, product and service specifications, prototypes, software, customer lists and other confidential information or materials of Company or of others with whom Company has a confidential relationship. Optionee will promptly return all such information and materials to Company when his or her employment ends. If Optionee fails to comply with the provisions of this Paragraph 8, Optionee shall forfeit the Option to the extent the Option has not vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available to the Company. 9. DECISIONS OF COMMITTEE. Any decision, interpretation or other action made or taken in good faith by the Committee or its designee arising out of or in connection with the Plan or the 6 Option shall be final, binding and conclusive on the Company and Optionee and any respective heir, executor, administrator, successor or assign. 10. ARBITRATION. Optionee agrees that any claim, controversy or dispute that may arise directly or indirectly in connection with Optionee's employment or termination of employment with MediaOne Group, and/or any associated or related disputes arising therefrom involving MediaOne Group and/or any employee(s), Director(s), officer(s), or agent(s) of MediaOne Group, whether arising in contract, statute, tort, fraud, misrepresentation, discrimination, common law or any other legal theory, including, but not limited to: Disputes relating to the making, performance or interpretation of this Agreement; and claims or other disputes arising under Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; 42 U.S.C. Section 1981, Section 1981a, Section 1983, Section 1985, or Section 1988; the Family and Medical Leave Act of 1993; the Americans with Disabilities Act of 1990, as amended; the Rehabilitation Act of 1973, as amended; the Fair Labor Standards Act of 1938, as amended; the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); the Colorado Anti-Discrimination Act; or any other similar federal, state or local law or regulation, whenever brought, shall be resolved by arbitration. If, however, Optionee would otherwise be legally required to exhaust administrative remedies to obtain legal relief, Optionee can and must exhaust such administrative remedies prior to pursuing arbitration. The only legal claims between Optionee and MediaOne Group that are not included for arbitration within this Agreement are claims for workers' compensation or unemployment compensation benefits. BY SIGNING THIS AGREEMENT, OPTIONEE VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHT OPTIONEE MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. MEDIAONE GROUP ALSO HEREBY VOLUNTARILY, KNOWINGLY, AND INTELLIGENTLY WAIVES ANY RIGHT IT MIGHT OTHERWISE HAVE TO SEEK REMEDIES AGAINST OPTIONEE IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. The Federal Arbitration Act, 9 U.S.C. Sections 1-16 ("FAA") shall govern the arbitrability of all claims, provided that they are enforceable under the FAA, as it may be amended from time to time. In the event the FAA does not govern, the Colorado Uniform Arbitration Act shall apply. Additionally, the substantive law of Colorado, to the extent it is consistent with the terms stated in this Agreement for arbitration, shall apply to any common law claims. This Agreement for arbitration supersedes any prior arbitration agreement between Optionee and MediaOne Group to the extent they are inconsistent. A single arbitrator engaged in the practice of law shall conduct the arbitration under the applicable rules and procedures of the American Arbitration Association ("AAA"), unless otherwise agreed to by the parties. Any dispute, that relates directly or indirectly to Optionee's employment with MediaOne Group or to the termination of Optionee's employment will be conducted under the AAA National Rules for the Resolution of Employment Disputes, effective June 1, 1997. The arbitrator shall be chosen from a state other than Optionee's state of residence and other than Colorado. Other than as set forth herein, the arbitrator shall have no authority to add to, detract from, change, amend, or modify existing law. The arbitrator shall have the authority to order such discovery as is necessary for a fair resolution of the dispute. The arbitrator may award punitive damages, as allowed by Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; and the Americans with Disabilities Act of 1990, as amended, regardless of any 7 limitations imposed by federal, state, or local laws regarding amounts that may be awarded in arbitration proceedings. All arbitration proceedings, including without limitation, settlements under this Agreement, will be confidential. Optionee shall not be required to pay more than One Hundred Fifty Dollars ($150.00) of the arbitrator's hourly fees and expenses. The prevailing party in any arbitration shall be entitled to receive reasonable attorneys' fees as provided by law. The arbitrator's decision and award shall be final and binding, as to all claims that were, or could have been, raised in the arbitration, and judgment upon the award rendered by the arbitrator may be entered to any court having jurisdiction thereof. If any party hereto files a judicial or administrative action asserting claims subject to this arbitration provision, and another party successfully stays such action and/or compels arbitration of such claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay and/or compelling arbitration, including reasonable attorneys' fees not to exceed Two Thousand Five Hundred Dollars ($2,500.00). 11. MISCELLANEOUS. (i) NOTICES. Any notice to be given to the Company shall be personally delivered to or addressed to its Senior Vice President - Human Resources, and any notice to be given to Optionee shall be addressed to him or her at the address given beneath his or her signature below or such other address as the Company reasonably believes to be his or her most current address. Any notice to the Company is deemed given when received on behalf of the Company by the Senior Vice President - Human Resources of the Company at 188 Inverness Drive West, 5th Floor, Englewood, CO 80112. Any notice to Optionee is deemed given when personally delivered or enclosed in a properly sealed envelope addressed as described above and deposited, postage prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. (ii) EMPLOYMENT. THE COMPANY OR A RELATED ENTITY MAY TERMINATE OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE, UNLESS THE TERM OF EMPLOYMENT IS COVERED BY SEPARATE CONDITIONS CONTAINED IN ANOTHER AUTHORIZED WRITTEN AGREEMENT SIGNED BY THE COMPANY AND THE OPTIONEE. NOTHING CONTAINED IN THIS AGREEMENT CREATES OR IMPLIES AN EMPLOYMENT CONTRACT OR TERM OF EMPLOYMENT OR ANY PROMISE OF SPECIFIC TREATMENT UPON WHICH THE OPTIONEE MAY RELY. (iii) GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Colorado. (iv) AMENDMENTS. The Company may at any time propose to amend this Agreement, but any such alteration or amendment shall be effective only if in writing, signed by a duly authorized officer of the Company and by Optionee. 8 MediaOne Group, Inc. By /s/ [ILLEGIBLE] OPTIONEE CHAIRMAN, CEO & PRESIDENT ---------------------------------------- Full Name ---------------------------------------- Address ---------------------------------------- City, State, Zip Social Security Number: ----------------- 9 [NAME] DATE ATTACHMENT A PAGE 7 INTELLECTUAL PROPERTY THAT HAS NOT BEEN PATENTED OR PUBLISHED 1. 2. 3. EX-10.K 12 EXHIBIT 10-K [FORM 6 - RESTRICTED STOCK AGREEMENT (EXECUTIVE HRC VERSION)] MEDIAONE GROUP RESTRICTED STOCK AGREEMENT THIS AGREEMENT is entered into between MediaOne Group (the "Company") and the Grantee ("Grantee") named in the schedule attached hereto and made a part of this Agreement (the "Schedule"), as of the date set forth in the Schedule. Pursuant to the MediaOne Group 1994 Stock Plan as amended (the "Plan"), the Human Resources Committee of the Board of Directors (the "Committee") has granted to Grantee restricted shares of Common Stock ("Restricted Shares") on the terms and conditions set forth in this Agreement, as a matter of separate inducement in connection with Grantee's engagement with the Company or a Related Entity, and not in lieu of salary or other compensation for Grantee's services. In consideration of the foregoing and of the mutual covenants set forth herein and other good and valuable consideration, the Company and Grantee agree as follows: 1. INCORPORATION OF PLAN AND DEFINED TERMS. The Restricted Stock is granted pursuant to the Plan, the terms of which are incorporated by reference and apply to this Agreement as though they were fully set forth herein. Terms used in this Agreement and not otherwise defined shall have the meanings set forth in the Plan. 2. GRANT OF RESTRICTED STOCK. On the terms and conditions set forth in this Agreement, the Company hereby grants to Grantee the aggregate number of shares of Restricted Stock set forth in the Schedule. 3. RESTRICTED PERIOD. The Restricted Stock shall become Vested in accordance with the schedule set forth in the Schedule (the "Restricted Period"). Except as specifically set forth below and elsewhere in this Agreement, the Restricted Stock shall not become Vested before the expiration of the Restricted Period, regardless of the circumstances under which Grantee's employment is terminated. The Restricted Stock shall remain subject to forfeiture during the Restricted Period. (i) DEATH. In the event of the death of Grantee, the Restricted Stock shall no longer be subject to any restriction and shall be Vested immediately. (ii) DISABILITY. Except as otherwise set forth in this Agreement, if Grantee's employment with the Company or a Related Entity is terminated because of Disability, the Restricted Stock shall no longer be subject to any restriction and shall be Vested immediately. (iii) RETIREMENT. Except as otherwise set forth in this Agreement, if the Restricted Stock is not Vested upon Grantee's Retirement, the Restricted Period shall continue and all restrictions respecting such Restricted Stock shall lapse as of the date(s) such Restricted Stock is scheduled to Vest, unless the Committee, in its sole discretion, determines otherwise. The continuation of the Restricted Period after Retirement shall be contingent upon Grantee's execution and delivery to the Company, on or prior to the effective date of Grantee's Retirement, of the Company's standard form of "Waiver & Release" of claims, available from the Human Resources Department of the Company. (iv) OTHER TERMINATION. If Grantee's employment with the Company or a Related Entity is terminated for any reason other than for death, Disability, or Retirement, any unvested portion of the Restricted Stock shall be forfeited immediately unless (i) such forfeiture is contrary to the terms of an Executive Severance Agreement executed by Grantee and an authorized officer of the Company, (ii) another provision of this Agreement expressly sets forth otherwise or (iii) the Committee, in its sole discretion, determines that such Restricted Stock then is Vested or sets alternative terms on which such Restricted Stock may become Vested. (v) EXECUTIVE SEVERANCE AGREEMENT. If Grantee has executed an Executive Severance Agreement with the Company and becomes entitled to the receipt of "Severance Benefits," as set forth in that Executive Severance Agreement, {[CHOICE A -- USE FOR "COMPENSATION TYPE" GRANTS, E.G. LTIP-RELATED GRANTS] the Restricted Stock will become Vested immediately upon the expiration of sixteen (16) days following Grantee's execution and delivery to the Company of the standard "Waiver & Release" of claims and compliance with the "Conditions" as set forth in that Executive Severance Agreement.] OR [CHOICE B -- USE FOR "RETENTION TYPE" GRANTS] any unvested portion of the Restricted Stock shall be forfeited immediately unless the Committee, in its sole discretion, determines that any such Restricted Stock then is Vested or sets alternative terms on which such Restricted Stock may become Vested. CHANGE OF CONTROL. For purposes of this Paragraph, "Change of Control" shall have the identical meaning as set forth in the Change of Control Agreement, if any, that Grantee has executed with the Company. To ensure parallel application, for purposes of this Paragraph only, defined terms contained in the definition of "Change of Control" set forth in Grantee's Change of Control Agreement shall have the same meaning here as set forth in that Change of Control Agreement. If Grantee has not executed any such Change of Control 2 Agreement, "Change of Control" shall have the identical meaning as set forth in the [Stock, LTIP, etc.] Plan. 4. CUSTODY; VOTING AND DIVIDENDS. The Company shall hold the Restricted Stock in an account on behalf of Grantee. Grantee shall execute and return the attached Stock Power in favor of the Company, to be exercised by the Company only in the case of the forfeiture or other return of the Restricted Stock to the Company as provided in this Agreement. Grantee shall receive such dividends as may be declared on such Restricted Stock and shall be entitled to voting privileges associated with such Restricted Stock. 5. PERFORMANCE FOR COMPETITORS. If at any time following the date of this Agreement and before the Restricted Stock is Vested, regardless of whether Grantee has Retired, Grantee directly or indirectly receives payment for services rendered to, or is otherwise employed by, any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as any goods or services provided or under development by the Company, Grantee immediately shall forfeit all rights under the Restricted Stock, unless the Committee in its sole discretion determines otherwise, or unless Grantee is in full compliance with the Company's Policy on Service on Outside Boards of Directors, as interpreted solely by the Company's Senior Management Compliance Committee. If at any time Grantee renders services to or becomes otherwise employed by any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as goods or services provided or under development by the Company, Grantee shall have ninety (90) days after the date of such employment to exercise any Vested and non-expired Restricted Stock. Any determination under this Paragraph 6, including whether a person, firm or corporation is "in competition with" the Company or providing "substantially the same" goods or services as the Company provides or is developing, will be subject to the sole discretion of the Committee. 6. NON- SOLICITATION OF EMPLOYEES ("NO RAID"). Grantee agrees that he or she will not for a period of one (1) year immediately following the termination of his or her employment with the Company for any reason, either on Grantee's own account or in conjunction with or on behalf of any other person or entity whatsoever, directly or indirectly induce, solicit, or entice away any person who, at any time during the three (3) months immediately preceding Grantee's termination of employment, is a managerial level employee of the Company (including, but not limited to, any Officer, Executive Director or director-level employee, or any equivalent or successor term for any such employees). If Grantee engages in any conduct contrary to the provisions of this Paragraph 7, Grantee shall forfeit the Restricted Stock to the extent the Restricted Stock has not Vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available under law. 7. INTELLECTUAL PROPERTY OWNERSHIP AND PROTECTION. Grantee agrees that any inventions, discoveries, creations (including without limitation software, writings, drawings and other 3 works), improvements, confidential information or other intellectual property that he or she may develop or create, or assist in developing or creating, during his or her employment with the Company, whether or not patentable or eligible for copyright, that relate to the actual, planned, or foreseeable business or other activities of the Company, or that result from his or her work for the Company, are the exclusive property of the Company. Grantee agrees to disclose promptly such property to the Company and will, both during and after his or her employment, and without additional compensation, execute all assignments and other documents and do all things reasonably necessary to secure and enforce U.S. and foreign intellectual property rights for the Company, including patents and copyrights. Grantee is not obligated to assign any intellectual property to Company that Grantee created prior to Grantee's employment with the Company. To avoid any confusion, Grantee must identify in writing on Attachment A [MAKE SURE APPROPRIATE ATTACHMENT IS REFERENCED] any such intellectual property that has not been patented or published and forward it along with this letter. Grantee agrees that Grantee will hold in confidence and will not, during or after his or her employment, disclose or use for the benefit of any person or entity other than Company, any Company confidential information that was developed or received during his or her employment. "Company confidential information" shall include all trade secrets, research and development information, product and marketing plans, business or legal strategies, personnel or financial data, product and service specifications, prototypes, software, customer lists and other confidential information or materials of Company or of others with whom Company has a confidential relationship. Grantee will promptly return all such information and materials to Company when his or her employment ends. [USE AS NEEDED, COULD REMOVE DEPENDING ON THE CIRCUMSTANCE I.E., NO STOCK IN THE OFFER]. If Grantee fails to comply with the provisions of this paragraph____, Grantee shall forfeit the Restricted Stock to the extent the Restricted Stock has not vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available to the Company. 10. DECISIONS OF COMMITTEE. Any decision, interpretation or other action made or taken in good faith by the Committee or its designee arising out of or in connection with the Plan or the Restricted Stock shall be final, binding and conclusive on the Company and Grantee and any respective heir, executor, administrator, successor or assign. 11. ARBITRATION. Grantee agrees that any claim, controversy or dispute that may arise directly or indirectly in connection with Grantee's employment or termination of employment with MediaOne, and/or any associated or related disputes arising therefrom involving MediaOne and/or any employee(s), Director(s), officer(s), or agent(s) of MediaOne, whether arising in contract, statute, tort, fraud, misrepresentation, discrimination, common law or any other legal theory, including, but not limited to, disputes relating to the making, performance or interpretation of this Agreement; and claims or other disputes arising under Title VII of the Civil 4 Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; 42 U.S.C. Section 1981, Section 1981a, Section 1983, Section 1985, or Section 1988; the Family and Medical Leave Act of 1993; the Americans with Disabilities Act of 1990, as amended; the Rehabilitation Act of 1973, as amended; the Fair Labor Standards Act of 1938, as amended; the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); the Colorado Anti-Discrimination Act; or any other similar federal, state or local law or regulation, whenever brought, shall be resolved by arbitration. If, however, Grantee would otherwise be legally required to exhaust administrative remedies to obtain legal relief, Grantee can and must exhaust such administrative remedies prior to pursuing arbitration. The only legal claims between Grantee and MediaOne that are not included for arbitration within this Agreement are claims for workers' compensation or unemployment compensation benefits. BY SIGNING THIS AGREEMENT, GRANTEE VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHT GRANTEE MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. MEDIAONE ALSO HEREBY VOLUNTARILY, KNOWINGLY, AND INTELLIGENTLY WAIVES ANY RIGHT IT MIGHT OTHERWISE HAVE TO SEEK REMEDIES AGAINST GRANTEE IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. The Federal Arbitration Act, 9 U.S.C. Sections 1-16 ("FAA") shall govern the arbitrability of all claims, provided that they are enforceable under the FAA, as it may be amended from time to time. In the event the FAA does not govern, the Colorado Uniform Arbitration Act shall apply. Additionally, the substantive law of Colorado, to the extent it is consistent with the terms stated in this Agreement for arbitration, shall apply to any common law claims. This Agreement for arbitration supersedes any prior arbitration agreement between Grantee and MediaOne to the extent they are inconsistent. A single arbitrator engaged in the practice of law shall conduct the arbitration under the applicable rules and procedures of the American Arbitration Association ("AAA"), unless otherwise agreed to by the parties. Any dispute, that relates directly or indirectly to Grantee's employment with MediaOne or to the termination of Grantee's employment will be conducted under the AAA National Rules for the Resolution of Employment Disputes, effective June 1, 1997. The arbitrator shall be chosen from a state other than Grantee's state of residence and other than Colorado. Other than as set forth herein, the arbitrator shall have no authority to add to, detract from, change, amend, or modify existing law. The arbitrator shall have the authority to order such discovery as is necessary for a fair resolution of the dispute. The arbitrator may award punitive damages, as allowed by Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; and the Americans with Disabilities Act of 1990, as amended, regardless of any limitations imposed by federal, state, or local laws regarding amounts that may be awarded in arbitration proceedings. All arbitration proceedings, including without limitation, settlements under this Agreement, will be confidential. Grantee shall not be required to pay more than One Hundred Fifty Dollars ($150.00) of the arbitrator's hourly fees and expenses. The prevailing party in any arbitration shall be entitled to receive reasonable attorneys' fees as provided by law. The arbitrator's decision and award shall be final and binding, as to all claims that were, or could have been, raised in the arbitration, and judgment upon the award rendered by the arbitrator may be entered to any court having jurisdiction thereof. If any party hereto files a judicial or administrative action asserting claims subject to this arbitration provision, and another party successfully stays such action and/or compels arbitration of such claims, the party filing said 5 action shall pay the other party's costs and expenses incurred in seeking such stay and/or compelling arbitration, including reasonable attorneys' fees not to exceed Two Thousand Five Hundred Dollars ($2,500.00). 12. MISCELLANEOUS. (i) NOTICES. Any notice to be given to the Company shall be personally delivered to or addressed to its Senior Vice President - Human Resources, and any notice to be given to Grantee shall be addressed to him or her at the address given beneath his or her signature below, or such other address as the Company reasonably believes to be his or her most current address. Any notice to the Company is deemed given when received on behalf of the Company by its Senior Vice President - Human Resources at 188 Inverness Drive West, 5th Floor, Englewood, CO 80112. Any notice to Grantee is deemed given when personally delivered or enclosed in a properly sealed envelope addressed as described above and deposited, postage prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. (ii) EMPLOYMENT. THE COMPANY OR A RELATED ENTITY MAY TERMINATE ANY GRANTEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE, UNLESS THE TERM OF EMPLOYMENT IS COVERED BY SEPARATE CONDITIONS CONTAINED IN ANOTHER AUTHORIZED WRITTEN AGREEMENT SIGNED BY THE COMPANY AND THE GRANTEE. NOTHING CONTAINED IN THIS AGREEMENT CREATES OR IMPLIES AN EMPLOYMENT CONTRACT OR TERM OF EMPLOYMENT OR ANY PROMISE OF SPECIFIC TREATMENT UPON WHICH GRANTEE MAY RELY. (iii) GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Colorado. (iv) AMENDMENTS. The Company may at any time propose to amend this Agreement, but any such alteration or amendment shall be effective only if in writing, signed by a duly authorized officer of the Company and by Grantee. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth in the Schedule. MediaOne Group GRANTEE By: -------------------------- -------------------------------- Name 6 ---------------------------------- Street Address ---------------------------------- City, State and Zip Code ---------------------------------- Social Security Number 7 IRREVOCABLE STOCK POWER FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer to: MEDIAONE GROUP 84-0926774 (Tax Identification Number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ((NOShrs)) shares of Common Stock issued by MediaOne Group (the "Company") represented by Grant Number ((Grant no)), standing in the name of the undersigned on the books of the Company. The undersigned does (do) hereby irrevocably constitute and appoint the Executive Vice President - Human Resources for the Company as attorney to transfer the said stock on the books of the Company, with full power of substitution in the premises. - ----------------------------------------- Dated: ((FirstName))((MidName))((LastName)) ------------------------- - ------------------------------------------------------------------------------ IMPORTANT -- READ CAREFULLY: The signature(s) of this Stock Power must correspond with the name(s) as written upon the face of the certificate(s) or account(s) in every particular without alteration or enlargement or any change whatever. - ------------------------------------------------------------------------------ 8 [NAME] DATE ATTACHMENT A PAGE 1 INTELLECTUAL PROPERTY THAT HAS NOT BEEN PATENTED OR PUBLISHED 1. 2. 3. EX-10.L 13 EXHIBIT 10-L [FORM 7-- EXECUTIVE RETENTION AGREEMENT (RESTRICTED STOCK ONLY)] MEDIAONE GROUP, INC. EXECUTIVE RETENTION AGREEMENT THIS AGREEMENT is made between MediaOne Group, Inc. (the "Company") and _________________ ("Grantee"), as of ____________________ ("Date of Grant"). Pursuant to the Amended MediaOne Group, Inc. 1994 Stock Plan (the "Plan"), the Human Resources Committee of the Board of Directors (the "Committee") has approved the granting to Grantee of restricted shares of MediaOne Group Common Stock ("Restricted Stock"), as of the Date of Grant, on the terms and conditions set forth in this Agreement, as a matter of separate inducement in connection with Grantee's engagement with the Company or a Related Entity, and not in lieu of salary or other compensation for Grantee's services. In consideration of the foregoing and of the mutual covenants set forth herein, and other good and valuable consideration, the Company and Grantee agree as follows: 1. INCORPORATION OF PLAN AND DEFINED TERMS. The Restricted Stock is granted pursuant to the Plan, the terms of which are incorporated by reference and apply to this Agreement as if they were fully set forth herein. Terms used in this Agreement and not otherwise defined shall have the meanings set forth in the Plan. 2. CONTINUOUS EMPLOYMENT REQUIREMENT. Grantee hereby expressly agrees and acknowledges that he or she must remain in the continuous employment of the Company or a Related Entity for the full duration of the vesting period applicable to the Restricted Stock granted under this Agreement in order for the Restricted Stock to become Vested, unless otherwise expressly set forth elsewhere in this Agreement. Grantee further expressly agrees and acknowledges that if he or she discontinues employment with the Company or a Related Entity at any time whatsoever, for any reason whatsoever, including without limitation termination of employment by the Company or Related Entity, prior to the time at which the Restricted Stock granted under this Agreement becomes Vested, Grantee shall forfeit all such unvested Restricted Stock. 3. RESTRICTED STOCK. A. GRANT OF RESTRICTED STOCK. On the terms and conditions set forth in this Agreement, the Company hereby grants to Grantee ______ shares of Restricted Stock. B. RESTRICTED PERIOD. Except as otherwise set forth in this Agreement, the Restricted Stock shall become Vested on the fifth (5th) annual anniversary of the Date of Grant; provided, however, that the vesting of the Restricted Stock shall be subject to the continuous 1 employment of Grantee until the fifth (5th) annual anniversary of the Date of Grant (the "Restricted Period"). Except as set forth in this Agreement, the Restricted Stock shall become Vested only to the extent that the foregoing continuous employment requirement is satisfied, regardless of the circumstances under which Grantee's employment is terminated, and the Restricted Stock consequently shall remain subject to forfeiture during the Restricted Period. (i) DEATH OR DISABILITY. Except as otherwise set forth in this Agreement, in the event of the death or Disability of Grantee, a prorated number of shares of the Restricted Stock shall become Vested and the Restricted Stock shall not vest further. Such proration shall be based on the number of months in the Restricted Period through the month of Grantee's death or Disability in relation to the total number of months in the Restricted Period. (ii) RETIREMENT. Except as otherwise set forth in this Agreement, if the Restricted Stock has not Vested upon Grantee's Retirement, the Restricted Period shall continue and restrictions shall lapse at the end of the Restricted Period, unless the Committee, in its sole discretion, determines otherwise. The continuation of vesting shall be contingent upon Grantee's execution and delivery to the Company, on or prior to the effective date of Grantee's Retirement, of the Company's standard form of "Waiver & Release" of claims, available from the Human Resources Department of the Company. (iii) OTHER TERMINATION. If Grantee's employment with the Company or a Related Entity is terminated for any reason other than for death, Disability or Retirement, the Restricted Stock shall be forfeited unless the Committee, in its sole discretion, determines that such Restricted Stock is then Vested or sets alternative terms on which such Restricted Stock may become Vested. (iv) CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the restrictions on the Restricted Stock shall lapse and shall be Vested immediately. For purposes of this Paragraph, "Change of Control" shall have the identical meaning as set forth in the Change of Control Agreement, if any, that Grantee has executed with the Company, as may be amended in writing with the consent of both parties. To ensure parallel application, for purposes of this Paragraph only, defined terms contained in the definition of "Change of Control" set forth in Grantee's Change of Control Agreement have the same meaning here as set forth in that Change of Control Agreement. If Grantee has not executed any such Change of Control Agreement, then "Change of Control" shall have the identical meaning as set forth in the Plan. C. CUSTODY; VOTING AND DIVIDENDS. The Company shall hold the Restricted Stock in an account on behalf of Grantee. The Grantee shall execute and return the attached Stock Power in favor of the Company, to be exercised by the Company only in the case of the forfeiture or other return of the Restricted Stock to the Company as provided herein. The Grantee shall reinvest such dividends as may be declared on such Restricted Stock, which dividends shall vest concurrently with the Restricted Stock. Grantee shall be entitled to voting privileges associated with such Restricted Stock. 2 D. NON-TRANSFERABILITY OF RESTRICTED STOCK. Except as specifically set forth in this Paragraph, the Share is not transferable other than by last will and testament or the laws of descent and distribution, and the Share shall not be assigned, transferred, pledged, hypothecated, or otherwise disposed of in any way, whether by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. The Share shall not be assignable or transferable pursuant to a domestic relations order. In limited circumstances, with the prior approval of the Senior Vice President - Human Resources, in full compliance with Section 16 of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, and after Grantee has satisfied the Company's executive stock ownership goal then in effect and set by the Committee, Grantee may transfer the Share, in whole or in part, to one or more member(s) of his or her family (as that term is defined in Internal Revenue Code Reg. Section 25.2701-2(d)) ("Member(s) of the Family") or to trusts maintained for the benefit of such Member(s) of the Family (together, "Transferee(s)"). Any such transfer shall be contingent upon the execution by both Grantee and Transferee(s) of a "Stock Transfer Agreement," in the form provided by the Company ("Transfer Agreement"). The Share shall not be transferable by Transferee(s). Upon any attempt to assign, transfer, pledge, hypothecate or otherwise dispose of the Share other than as specifically set forth in this Paragraph, or upon the levy of any execution, attachment or similar process upon the Share, the Share shall immediately terminate and become null and void. 4. PERFORMANCE FOR COMPETITORS. If at any time following the date of this Agreement and before the Restricted Stock is Vested, regardless of whether Grantee has Retired, Grantee directly or indirectly receives payment for services rendered to, or is otherwise employed by, any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as any goods or services provided or under development by the Company, Grantee immediately shall forfeit all rights under the Restricted Stock, unless the Committee in its sole discretion determines otherwise, or unless Grantee is in full compliance with the Company's Policy on Service on Outside Boards of Directors, as interpreted solely by the Company's Risk Management Executive Council. If at any time Grantee renders services to or becomes otherwise employed by any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as goods or services provided or under development by the Company, Grantee shall have three (3) months after the date of such employment to exercise any Vested and non-expired Restricted Stock. Any determination under this Paragraph 4, including whether a person, firm or corporation is "in competition with" the Company or providing "substantially the same" goods or services as the Company provides or is developing, will be subject to the sole discretion of the Committee. 5. NON-SOLICITATION OF EMPLOYEES ("NO RAID"). Grantee agrees that he or she will not for a period of one (1) year immediately following the termination of his or her employment with the Company for any reason, either on Grantee's own account or in conjunction with or on behalf of any other person or entity whatsoever, directly or indirectly induce, solicit, or entice away any 3 person who, at any time during the three (3) months immediately preceding Grantee's termination of employment, is a managerial level employee of the Company (including, but not limited to, any Officer, Executive Director or director-level employee, or any equivalent or successor term for any such employees). If Grantee engages in any conduct contrary to the provisions of this Paragraph 5, Grantee shall forfeit the Restricted Stock to the extent the Restricted Stock has not Vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available under law. 6. INTELLECTUAL PROPERTY OWNERSHIP AND PROTECTION. Grantee agrees that any inventions, discoveries, creations (including without limitation software, writings, drawings and other works), improvements, confidential information or other intellectual property that he or she may develop or create, or assist in developing or creating, during his or her employment with the Company, whether or not patentable or eligible for copyright, that relate to the actual, planned, or foreseeable business or other activities of the Company, or that result from his or her work for the Company, are the exclusive property of the Company. Grantee agrees to disclose promptly such property to the Company and will, both during and after his or her employment, and without additional compensation, execute all assignments and other documents and do all things reasonably necessary to secure and enforce U.S. and foreign intellectual property rights for the Company, including patents and copyrights. Grantee is not obligated to assign any intellectual property to Company that Grantee created prior to Grantee's employment with the Company. To avoid any confusion, Grantee must identify in writing on Attachment A any such intellectual property that has not been patented or published and forward it along with this letter. Grantee agrees that Grantee will hold in confidence and will not, during or after his or her employment, disclose or use for the benefit of any person or entity other than Company, any Company confidential information that was developed or received during his or her employment. "Company confidential information" shall include all trade secrets, research and development information, product and marketing plans, business or legal strategies, personnel or financial data, product and service specifications, prototypes, software, customer lists and other confidential information or materials of Company or of others with whom Company has a confidential relationship. Grantee will promptly return all such information and materials to Company when his or her employment ends. If Grantee fails to comply with the provisions of this Paragraph, Grantee shall forfeit the Restricted Stock to the extent the Restricted Stock has not Vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available to the Company. 7. NON-DISCLOSURE OF AGREEMENT. As a condition of receipt of the consideration in this Agreement, executive agrees not to disclose, directly or indirectly, the existence of this Agreement, or the terms, conditions, or amounts set forth in this Agreement, except as may be required by law (after notice to the Company), provided, however, that the Executive may 4 disclose the existence and terms of this Agreement to Executive's immediate family, attorney, tax return preparer, and financial counselor. 8. DECISIONS OF COMMITTEE. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan or the Restricted Stock shall be final, binding and conclusive on the Company and Grantee and any respective heir, executor, administrator, successor or assign. 9. ARBITRATION. Grantee agrees that any claim, controversy or dispute that may arise directly or indirectly in connection with Grantee's employment or termination of employment with MediaOne Group, and/or any associated or related disputes arising therefrom involving MediaOne Group and/or any employee(s), Director(s), officer(s), or agent(s) of MediaOne Group, whether arising in contract, statute, tort, fraud, misrepresentation, discrimination, common law or any other legal theory, including, but not limited to, disputes relating to the making, performance or interpretation of this Agreement; and claims or other disputes arising under Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; 42 U.S.C. Section 1981, Section 1981a, Section 1983, Section 1985, or Section 1988; the Family and Medical Leave Act of 1993; the Americans with Disabilities Act of 1990, as amended; the Rehabilitation Act of 1973, as amended; the Fair Labor Standards Act of 1938, as amended; the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); the Colorado Anti-Discrimination Act; or any other similar federal, state or local law or regulation, whenever brought, shall be resolved by arbitration. If, however, Grantee would otherwise be legally required to exhaust administrative remedies to obtain legal relief, Grantee can and must exhaust such administrative remedies prior to pursuing arbitration. The only legal claims between Grantee and MediaOne Group that are not included for arbitration within this Agreement are claims for workers' compensation or unemployment compensation benefits. BY SIGNING THIS AGREEMENT, GRANTEE VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHT GRANTEE MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. MEDIAONE GROUP ALSO HEREBY VOLUNTARILY, KNOWINGLY, AND INTELLIGENTLY WAIVES ANY RIGHT IT MIGHT OTHERWISE HAVE TO SEEK REMEDIES AGAINST GRANTEE IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. The Federal Arbitration Act, 9 U.S.C. Sections et.seq. ("FAA") shall govern the arbitrability of all claims, provided that they are enforceable under the FAA, as it may be amended from time to time. In the event the FAA does not govern, the Colorado Uniform Arbitration Act shall apply. Additionally, the substantive law of Colorado, to the extent it is consistent with the terms stated in this Agreement for arbitration, shall apply to any common law claims. This Agreement for arbitration supersedes any prior arbitration agreement between Grantee and MediaOne Group to the extent they are inconsistent. A single arbitrator engaged in the practice of law shall conduct the arbitration under the applicable rules and procedures of the American Arbitration Association ("AAA"), unless otherwise agreed to by the parties. Any dispute, that relates directly or indirectly to Grantee's employment with MediaOne Group or to the termination of Grantee's employment will be conducted under the AAA National Rules for the Resolution of Employment Disputes, effective June 1, 1997. The arbitrator shall be chosen from a state other than Grantee's state of residence and other than Colorado. Other than as set forth herein, the arbitrator shall have no authority to 5 add to, detract from, change, amend, or modify existing law. The arbitrator shall have the authority to order such discovery as is necessary for a fair resolution of the dispute. The arbitrator may award punitive damages, as allowed by Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; and the Americans with Disabilities Act of 1990, as amended, regardless of any limitations imposed by federal, state, or local laws regarding amounts that may be awarded in arbitration proceedings. All arbitration proceedings, including without limitation, settlements under this Agreement, will be confidential. Grantee shall not be required to pay more than One Hundred Fifty Dollars ($150.00) of the arbitrator's hourly fees and expenses. The prevailing party in any arbitration shall be entitled to receive reasonable attorneys' fees as provided by law. The arbitrator's decision and award shall be final and binding, as to all claims that were, or could have been, raised in the arbitration, and judgment upon the award rendered by the arbitrator may be entered to any court having jurisdiction thereof. If any party hereto files a judicial or administrative action asserting claims subject to this arbitration provision, and another party successfully stays such action and/or compels arbitration of such claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay and/or compelling arbitration, including reasonable attorneys' fees not to exceed Two Thousand Five Hundred Dollars ($2,500.00). 10. EXECUTIVE SEVERANCE AGREEMENT AND OTHER AGREEMENT WITH THE COMPANY. Except as expressly provided in this Agreement, the provisions of this Agreement shall not be affected in any way whatsoever by any Executive Severance Agreement or any other written or verbal agreement between Grantee and the Company or a Related Entity. 11. MISCELLANEOUS. A. NOTICES. Any notice to be given to the Company shall be personally delivered to or addressed to its Senior Vice President - Human Resources, and any notice to be given to Grantee shall be addressed to him or her at the address given beneath his or her signature below or such other address as the Company reasonably believes to be his or her most current address. Any notice to the Company is deemed given when received on behalf of the Company by the Senior Vice President - Human Resources, of the Company at 188 Inverness Drive West, 5th Floor, Englewood, CO 80112. Any notice to Grantee is deemed given when personally delivered or enclosed in a properly sealed envelope addressed as aforesaid and deposited, postage prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. B. EMPLOYMENT. THE COMPANY OR RELATED ENTITY MAY TERMINATE GRANTEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE, UNLESS THE EMPLOYMENT IS COVERED BY SEPARATE CONDITIONS CONTAINED IN A COLLECTIVE BARGAINING AGREEMENT OR OTHER AUTHORIZED WRITTEN AGREEMENT SIGNED BY BOTH PARTIES, AND NOTHING CONTAINED IN THIS AGREEMENT CREATES OR IMPLIES AN EMPLOYMENT CONTRACT OR TERM OF EMPLOYMENT OR ANY PROMISE OF SPECIFIC TREATMENT UPON WHICH GRANTEE MAY RELY. 6 C. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Colorado. 7 D. AMENDMENTS. The Company may at any time propose to amend this Agreement, but any such alteration or amendment shall be effective only if in writing, signed by a duly authorized officer of the Company and by Grantee. MEDIAONE GROUP, INC. GRANTEE By: /s/ [ILLEGIBLE] GRANTEE CHAIRMAN, CEO & PRESIDENT ------------------------------------ Full Name ------------------------------------ Street Address ------------------------------------ City, State and Zip Code ------------------------------------ Social Security Number 8 IRREVOCABLE STOCK POWER FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer to: MEDIAONE GROUP, INC. 84-0926774 (Tax Identification Number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ((NOShrs)) shares of Common Stock issued by MediaOne Group, Inc. (the "Company") represented by Grant Number ((Cgrantno)), standing in the name of the undersigned on the books of the Company. The undersigned does (do) hereby irrevocably constitute and appoint the Vice President - Law, General Corporate and Litigation Group for the Company as attorney to transfer the said stock on the books of the Company, with full power of substitution in the premises. Dated: - ----------------------------------------- ------------------------ ((FIRSTNAME)) ((MIDLNAME)) ((LASTNAME)) - ------------------------------------------------------------------------------- IMPORTANT -- READ CAREFULLY: The signature(s) of this Stock Power must correspond with the name(s) as written upon the face of the certificate(s) or account(s) in every particular without alteration or enlargement or any change whatever. - ------------------------------------------------------------------------------- 9 [NAME] DATE ATTACHMENT A PAGE 1 INTELLECTUAL PROPERTY THAT HAS NOT BEEN PATENTED OR PUBLISHED 1. 2. 3. EX-10.M 14 EXHIBIT 10-M [FORM 8 - EXECUTIVE RETENTION AGREEMENT RESTRICTED STOCK AND OPTIONS VERSION] MEDIAONE GROUP, INC. EXECUTIVE RETENTION AGREEMENT THIS AGREEMENT is made between MediaOne Group, Inc. (the "Company") and _________________ ("Grantee"), as of ____________________ ("Date of Grant"). Pursuant to the MediaOne Group, Inc. 1994 Stock Plan (the "Plan"), the Human Resources Committee of the Board of Directors (the "Committee") has approved the granting to Grantee of restricted shares of __________________ Common Stock ("Restricted Stock") and an option to purchase shares of __________________ Common Stock (the "Option"), without par value, as of the Date of Grant, on the terms and conditions set forth in this Agreement, as a matter of separate inducement in connection with Grantee's engagement with the Company or a Related Entity, and not in lieu of salary or other compensation for Grantee's services. In consideration of the foregoing and of the mutual covenants set forth herein, and other good and valuable consideration, the Company and Grantee agree as follows: 1. INCORPORATION OF PLAN AND DEFINED TERMS. The Restricted Stock and Option are granted pursuant to the Plan, the terms of which are incorporated by reference and apply to this Agreement as if they were fully set forth herein. Terms used in this Agreement and not otherwise defined shall have the meanings set forth in the Plan. 2. CONTINUOUS EMPLOYMENT REQUIREMENT. Grantee hereby expressly agrees and acknowledges that he or she must remain in the continuous employment of the Company or a Related Entity for the full duration of the vesting period applicable to any Award granted under this Agreement in order for the Award to become Vested, unless otherwise expressly set forth elsewhere in this Agreement. Grantee further expressly agrees and acknowledges that if he or she discontinues employment with the Company or a Related Entity at any time whatsoever, for any reason whatsoever, including without limitation termination of employment by the Company or Related Entity, prior to the time at which an Award granted under this Agreement becomes Vested, Grantee shall forfeit all unvested Restricted Stock and unvested Stock Options granted under this Agreement. 3. RESTRICTED STOCK. A. GRANT OF RESTRICTED STOCK. On the terms and conditions set forth in this Agreement, the Company hereby grants to Grantee ______ shares of Restricted Stock. B. RESTRICTED PERIOD. Except as otherwise set forth in this Agreement, the Restricted Stock shall become Vested on the fifth (5th) annual anniversary of the Date of Grant; provided, however, that the vesting of the Restricted Stock shall be subject to the continuous employment of Grantee until the fifth (5th) annual anniversary of the Date of Grant (the "Restricted Period"). Except as set forth in this Agreement, the Restricted Stock shall become Vested only to the extent that the foregoing continuous employment requirement is satisfied, regardless of the circumstances under which Grantee's employment is terminated, and the Restricted Stock consequently shall remain subject to forfeiture during the Restricted Period. (i) DEATH OR DISABILITY. Except as otherwise set forth in this Agreement, in the event of the death or Disability of Grantee, a prorated number of shares of the Restricted Stock shall become Vested and the Restricted Stock shall not vest further. Such proration shall be based on the number of months in the Restricted Period through the month of Grantee's death or Disability in relation to the total number of months in the Restricted Period. (ii) RETIREMENT. Except as otherwise set forth in this Agreement, if the Restricted Stock has not Vested upon Grantee's Retirement, the Restricted Period shall continue and restrictions shall lapse at the end of the Restricted Period, unless the Committee, in its sole discretion, determines otherwise. The continuation of vesting shall be contingent upon Grantee's execution and delivery to the Company, on or prior to the effective date of Grantee's Retirement, of the Company's standard form of "Waiver & Release" of claims, available from the Human Resources Department of the Company. (iii) OTHER TERMINATION. If Grantee's employment with the Company or a Related Entity is terminated for any reason other than for death, Disability or Retirement, the Restricted Stock shall be forfeited unless the Committee, in its sole discretion, determines that such Restricted Stock is then Vested or sets alternative terms on which such Restricted Stock may become Vested. iv) CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the restrictions on the Restricted Stock shall lapse and shall be Vested immediately. .For purposes of this Paragraph, "Change of Control" shall have the identical meaning as set forth in the Change of Control Agreement, if any, that Grantee has executed with the Company. To ensure parallel application, for purposes of this Paragraph only, defined terms contained in the definition of "Change of Control" set forth in Grantee's, Change of Control Agreement shall have the same meaning here as set forth in that Change of Control Agreement. If Grantee has not executed any such Change of Control Agreement, "Change of Control" shall have the identical meaning as set forth in the [Stock, LTIP, etc.] Plan. 2 C. CUSTODY; VOTING AND DIVIDENDS. The Company shall hold the Restricted Stock in an account on behalf of Grantee. The Grantee shall execute and return the attached Stock Power in favor of the Company, to be exercised by the Company only in the case of the forfeiture or other return of the Restricted Stock to the Company as provided herein. The Grantee shall reinvest such dividends as may be declared on such Restricted Stock, which dividends shall vest concurrently with the Restricted Stock. Grantee shall be entitled to voting privileges associated with such Restricted Stock. 4. STOCK OPTION. A. SHARES OPTIONED; OPTION PRICE. The Grantee may purchase all or any part (in whole shares) of an aggregate of ________ shares of Common Stock, at a purchase price per share of ________ (which is not less than the Fair Market Value on the Date of Grant), (the "Option Price") on the terms and conditions set forth in this Agreement. B. OPTION TERM; VESTING; TIMES OF EXERCISE. Except as otherwise set forth in this Agreement, the Option shall become Vested upon the third (3rd) annual anniversary of the Date of Grant, provided, however, that the vesting of the Option shall be subject to the continuous employment of Grantee until the third (3rd) annual anniversary of the Date of Grant (the "Option Vesting Period"), and provided further that the Option shall expire and shall no longer be exercisable following ten (10) years from the Date of Grant (the "Expiration Date"). Except as set forth in this Agreement, the Option shall become Vested only to the extent that the foregoing continuous employment requirement is satisfied, regardless of the circumstances under which Grantee's employment is terminated. (i) DEATH. In the event of the death of Grantee, the Option shall become Vested with respect to a prorated number of shares of Common Stock underlying the Option and shall not vest further. The estate of Grantee shall have the right to exercise all or any portion of the Option, at any time and from time to time consistent with rules established by the Committee for the administration of the Plan, within one (1) year after the date of death or such other period, if any, as the Committee in its sole discretion shall determine (but not after the Expiration Date). Such proration shall be based on the number of months in the Option Vesting Period through the month of Grantee's death in relation to the total number of months in the Option Vesting Period. (ii) DISABILITY. Except as otherwise set forth in this Agreement, if the employment of Grantee is terminated because of Disability, the Option shall become Vested with respect to a prorated number of shares of Common Stock underlying the Option and shall not vest further. Such proration shall be based on the number of months in the Option Vesting Period through the month of Grantee's Disability in relation to the total number of months in the Option Vesting Period. Upon vesting, Grantee shall have the right to exercise the Option, at any time and from time to time, but not after the Expiration Date. 3 (iii) RETIREMENT. Except as otherwise set forth in this Agreement, upon Grantee's Retirement, the Option shall be retained by Grantee, and the Option, if not then Vested, shall become Vested at the expiration of the Option Vesting Period, unless the Committee, in its sole discretion, determines otherwise; provided, however, that the continuation of vesting shall be contingent upon Grantee's execution and delivery to the Company, on or prior to the effective date of Grantee's Retirement, of the Company's standard form of "Waiver & Release" of claims, available from the Human Resources Department of the Company. Upon vesting, Grantee shall have the right to exercise the Option, at any time and from time to time, until the Expiration Date unless otherwise provided in this Agreement. (iv) OTHER TERMINATION. If Grantee's employment with the Company or a Related Entity is terminated for any reason other than for death, Disability or Retirement and other than "for cause," as such term is defined in the Plan, Grantee shall have the right to exercise all or any portion of the Option, if the Option is Vested, at any time and from time to time within three (3) months of termination or such other period, if any, as the Committee in its sole discretion shall determine (but not after the Expiration Date). (v) CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Option shall become Vested immediately. For purposes of this Paragraph, "Change of Control" shall have the identical meaning as set forth in the Change of Control Agreement, if any, that Grantee has executed with the Company. To ensure parallel application, for purposes of this Paragraph only, defined terms contained in the definition of "Change of Control" set forth in Grantee's, Change of Control Agreement shall have the same meaning here as set forth in that Change of Control Agreement. If Grantee has not executed any such Change of Control Agreement, "Change of Control" shall have the identical meaning as set forth in the [Stock, LTIP, etc.] Plan. (vi) TERMINATION FOR CAUSE. Notwithstanding any other provision in this Agreement, if Grantee's employment is terminated by the Company or any Related Entity "for cause," as such term is defined in the Plan, Grantee immediately shall forfeit all rights under the Option except as to the shares of Common Stock already purchased prior to such termination. C. EXERCISE: PAYMENT FOR AND DELIVERY OF STOCK. The Option may be exercised only by Grantee or his or her transferee(s) by last will and testament or the laws of descent and distribution. The Option may be exercised by giving notice of exercise to the Company specifying the number of shares (minimum of 100, unless the unexercised balance of the Option is less than 100) to be purchased and the total purchase price. The purchase price shall be payable (i) in cash or by an equivalent means, (ii) by delivery, constructive or otherwise, to the Company of shares of Common Stock owned by Grantee, or (iii) any combination of the foregoing. Any shares of Common Stock so 4 tendered shall be valued at their Fair Market Value as of the Option exercise date. D. NON-TRANSFERABILITY OF OPTION. The Option is not transferable other than by last will and testament or the laws of descent and distribution. The Option shall not otherwise be transferred or assigned, pledged, hypothecated or otherwise disposed of in any way, whether by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. The Option shall not be assignable or transferable pursuant to a domestic relations order. During the lifetime of Grantee, the Option shall be exercisable only by Grantee or Grantee's guardian or legal representative. Upon any attempt to transfer the Option other than by last will and testament or the laws of descent and distribution, or to assign, pledge, hypothecate or otherwise dispose of the Option, or upon the levy of any execution, attachment or similar process upon the Option, the Option shall terminate immediately and become null and void. 5. PERFORMANCE FOR COMPETITORS. If at any time following the date of this Agreement and before the [Option/Restricted Stock] is Vested, regardless of whether Grantee has Retired, Grantee directly or indirectly receives payment for services rendered to, or is otherwise employed by, any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as any goods or services provided or under development by the Company Grantee immediately shall forfeit all rights under the [Option/Restricted Stock], unless the Committee in its sole discretion determines otherwise, or unless Grantee is in full compliance with the Company's Policy on Service on Outside Boards of Directors, as interpreted solely by the Company's Senior Management Compliance Committee. If at any time Grantee renders services to or becomes otherwise employed by any person, firm or corporation that is in competition with the Company or engaged in providing any goods or services that are substantially the same as goods or services provided or under development by the Company, Grantee shall have ninety (90) days after the date of such employment to exercise any Vested and non-expired [Option/Restricted Stock]. Any determination under this Paragraph 5, including whether a person, firm or corporation is "in competition with" the Company or providing "substantially the same" goods or services as the Company provides or is developing, will be subject to the sole discretion of the Committee. 6. NONSOLICITATION OF EMPLOYEES ("NO RAID") Grantee agrees that he or she will not for a period of one (1) year immediately following the termination of his or her employment with the Company for any reason, either on Grantee's own account or in conjunction with or on behalf of any other person or entity whatsoever, directly or indirectly induce, solicit, or entice away any person who, at any time during the three (3) months immediately preceding Grantee's termination of employment, is a managerial level employee of the Company (including, but not limited to, any Officer, Executive Director or director-level employee, or any equivalent or successor term for any such employees). If Grantee engages in any conduct contrary to the provisions of this Paragraph 6, Grantee shall forfeit the [Option/Restricted Stock] to the extent the [Option/Restricted Stock] has not Vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available under law. 5 7. INTELLECTUAL PROPERTY OWNERSHIP AND PROTECTION. Grantee agrees that any inventions, discoveries, creations (including without limitation software, writings, drawings and other works), improvements, confidential information or other intellectual property that he or she may develop or create, or assist in developing or creating, during his or her employment with the Company, whether or not patentable or eligible for copyright, that relate to the actual, planned, or foreseeable business or other activities of the Company, or that result from his or her work for the Company, are the exclusive property of the Company. Grantee agrees to disclose promptly such property to the Company and will, both during and after his or her employment, and without additional compensation, execute all assignments and other documents and do all things reasonably necessary to secure and enforce U.S. and foreign intellectual property rights for the Company, including patents and copyrights. Grantee is not obligated to assign any intellectual property to Company that Grantee created prior to Grantee's employment with the Company. To avoid any confusion, Grantee must identify in writing on Attachment A [MAKE SURE APPROPRIATE ATTACHMENT IS REFERENCED] any such intellectual property that has not been patented or published and forward it along with this letter. Grantee agrees that Grantee will hold in confidence and will not, during or after his or her employment, disclose or use for the benefit of any person or entity other than Company, any Company confidential information that was developed or received during his or her employment. "Company confidential information" shall include all trade secrets, research and development information, product and marketing plans, business or legal strategies, personnel or financial data, product and service specifications, prototypes, software, customer lists and other confidential information or materials of Company or of others with whom Company has a confidential relationship. Grantee will promptly return all such information and materials to Company when his or her employment ends. [USE AS NEEDED, COULD REMOVE DEPENDING ON THE CIRCUMSTANCE I.E., NO STOCK IN THE OFFER]. If Grantee fails to comply with the provisions of this paragraph 7, Grantee shall forfeit the [Option/Restricted Stock] to the extent the [Option/Restricted Stock] has not vested, unless the Committee determines otherwise. Such forfeiture is in addition to any other remedies available to the Company. 8. NON-DISCLOSURE OF AGREEMENT. If, at any time, regardless of whether Grantee is Retired or otherwise not employed by the Company or a Related Entity, Grantee discloses, directly or indirectly, the existence of this Agreement, or the terms, conditions, or amounts set forth in this Agreement, except as may be required by law (after reasonable advance notice to the Company), and other than to Grantee's immediate family, attorney, tax return preparer and financial counselor, Grantee immediately shall forfeit the Option or Restricted Stock to the extent the Option or Restricted Stock has not Vested or to the extent the Restricted Stock or Option became Vested within one year prior to the date Grantee discloses such information. If Grantee has sold such forfeited Restricted Stock, Grantee immediately shall remit to the Company, in cash, an amount equal to the Fair Market Value of such Restricted Stock as of the date the Restricted Stock became Vested. If Grantee discloses such information within one (1) year following the date Grantee exercises any portion of the Option, Grantee immediately shall remit to the Company, in cash, an amount equal to the Fair Market Value of the number of shares of 6 Common Stock acquired on the date Grantee exercised that portion of the Option, less the Option Price paid by Grantee for such shares. The foregoing provisions of this Paragraph 8 apply unless otherwise determined by the Committee or its designee in its sole discretion. 9. DECISIONS OF COMMITTEE. Any decision, interpretation or other action made or taken in good faith by the Committee arising out of or in connection with the Plan or the Restricted Stock or Option shall be final, binding and conclusive on the Company and Grantee and any respective heir, executor, administrator, successor or assign. 10. ARBITRATION. Grantee agrees that any claim, controversy or dispute that may arise directly or indirectly in connection with Grantee's employment or termination of employment with MediaOne Group, and/or any associated or related disputes arising therefrom involving MediaOne and/or any employee(s), Director(s), officer(s), or agent(s) of MediaOne, whether arising in contract, statute, tort, fraud, misrepresentation, discrimination, common law or any other legal theory, including, but not limited to, disputes relating to the making, performance or interpretation of this Agreement; and claims or other disputes arising under Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; 42 U.S.C. Section 1981, Section 1981a, Section 1983, Section 1985, or Section 1988; the Family and Medical Leave Act of 1993; the Americans with Disabilities Act of 1990, as amended; the Rehabilitation Act of 1973, as amended; the Fair Labor Standards Act of 1938, as amended; the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); the Colorado Anti-Discrimination Act; or any other similar federal, state or local law or regulation, whenever brought, shall be resolved by arbitration. If, however, Grantee would otherwise be legally required to exhaust administrative remedies to obtain legal relief, Grantee can and must exhaust such administrative remedies prior to pursuing arbitration. The only legal claims between Grantee and MediaOne that are not included for arbitration within this Agreement are claims for workers' compensation or unemployment compensation benefits. BY SIGNING THIS AGREEMENT, GRANTEE VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHT GRANTEE MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. MEDIAONE ALSO HEREBY VOLUNTARILY, KNOWINGLY, AND INTELLIGENTLY WAIVES ANY RIGHT IT MIGHT OTHERWISE HAVE TO SEEK REMEDIES AGAINST GRANTEE IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL. The Federal Arbitration Act, 9 U.S.C. Sections 1-16 ("FAA") shall govern the arbitrability of all claims, provided that they are enforceable under the FAA, as it may be amended from time to time. In the event the FAA does not govern, the Colorado Uniform Arbitration Act shall apply. Additionally, the substantive law of Colorado, to the extent it is consistent with the terms stated in this Agreement for arbitration, shall apply to any common law claims. This Agreement for arbitration supersedes any prior arbitration agreement between Grantee and MediaOne to the extent they are inconsistent. A single arbitrator engaged in the practice of law shall conduct the arbitration under the applicable rules and procedures of the American Arbitration Association ("AAA"), unless otherwise agreed to by the parties. Any dispute, that relates directly or indirectly to Grantee's employment with MediaOne or to the termination of Grantee's employment will be conducted under the AAA National Rules for the Resolution of Employment Disputes, effective June 1, 1997. The arbitrator shall be chosen from a state other than your state of residence and other than Colorado. Other than as set forth herein, the arbitrator shall have no authority to add to, 7 detract from, change, amend, or modify existing law. The arbitrator shall have the authority to order such discovery as is necessary for a fair resolution of the dispute. The arbitrator may award punitive damages, as allowed by Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended; and the Americans with Disabilities Act of 1990, as amended, regardless of any limitations imposed by federal, state, or local laws regarding amounts that may be awarded in arbitration proceedings. All arbitration proceedings, including without limitation, settlements under this Agreement, will be confidential. Grantee shall not be required to pay more than One Hundred Fifty Dollars ($150.00) of the arbitrator's hourly fees and expenses. The prevailing party in any arbitration shall be entitled to receive reasonable attorneys' fees as provided by law. The arbitrator's decision and award shall be final and binding, as to all claims that were, or could have been, raised in the arbitration, and judgment upon the award rendered by the arbitrator may be entered to any court having jurisdiction thereof. If any party hereto files a judicial or administrative action asserting claims subject to this arbitration provision, and another party successfully stays such action and/or compels arbitration of such claims, the party filing said action shall pay the other party's costs and expenses incurred in seeking such stay and/or compelling arbitration, including reasonable attorneys' fees not to exceed Two Thousand Five Hundred Dollars ($2,500.00). 11. EXECUTIVE SEVERANCE AGREEMENT AND OTHER AGREEMENT WITH THE COMPANY. Except as expressly provided in this Agreement, the provisions of this Agreement shall not be affected in any way whatsoever by any Executive Severance Agreement or any other written or verbal agreement between Grantee and the Company or a Related Entity. 12. MISCELLANEOUS. A. NOTICES. Any notice to be given to the Company shall be personally delivered to or addressed to its Senior Vice President - Human Resources, and any notice to be given to Grantee shall be addressed to him or her at the address given beneath his or her signature below or such other address as the Company reasonably believes to be his or her most current address. Any notice to the Company is deemed given when received on behalf of the Company by the Senior Vice President - Human Resources, of the Company at 188 Inverness Drive West, Suite 500, Englewood, CO 80112. Any notice to Grantee is deemed given when personally delivered or enclosed in a properly sealed envelope addressed as aforesaid and deposited, postage prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. B. EMPLOYMENT. THE COMPANY MAY TERMINATE GRANTEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE, UNLESS THE EMPLOYMENT IS COVERED BY SEPARATE CONDITIONS CONTAINED IN A COLLECTIVE BARGAINING AGREEMENT OR OTHER AUTHORIZED WRITTEN AGREEMENT SIGNED BY BOTH PARTIES, AND NOTHING CONTAINED IN THIS AGREEMENT CREATES OR IMPLIES AN EMPLOYMENT CONTRACT OR TERM OF EMPLOYMENT OR ANY PROMISE OF SPECIFIC TREATMENT UPON WHICH GRANTEE MAY RELY. 8 C. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of Colorado. D. AMENDMENTS. The Company may at any time propose to amend this Agreement, but any such alteration or amendment shall be effective only if in writing, signed by a duly authorized officer of the Company and by Grantee. MediaOne Group, Inc. GRANTEE By: --------------------------- ---------------------------------------- Title: Full Name -------------------------- ---------------------------------------- Street Address ---------------------------------------- City, State and Zip Code ---------------------------------------- Social Security Number 9 IRREVOCABLE STOCK POWER FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer to: MEDIAONE GROUP, INC. 84-0926774 (Tax Identification Number) ((NOShrs)) shares of Common Stock issued by MediaOne Group, Inc. (the "Company") represented by Grant Number ((Cgrantno)), standing in the name of the undersigned on the books of the Company. The undersigned does (do) hereby irrevocably constitute and appoint the Vice President - Law for the Company as attorney to transfer the said stock on the books of the Company, with full power of substitution in the premises. Dated: - ---------------------------------------- ----------------------- ((FIRSTNAME)) ((MIDLNAME)) ((LASTNAME)) - ------------------------------------------------------------------------------- IMPORTANT -- READ CAREFULLY: The signature(s) of this Stock Power must correspond with the name(s) as written upon the face of the certificate(s) or account(s) in every particular without alteration or enlargement or any change whatever. - ------------------------------------------------------------------------------- 10 [NAME] DATE ATTACHMENT A PAGE 1 INTELLECTUAL PROPERTY THAT HAS NOT BEEN PATENTED OR PUBLISHED 1. 2. 3. EX-12 15 EXHIBIT 12 Exhibit 12 MediaOne Group, Inc. RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in Millions)
Quarter Ended 12/31/98 12/31/97 - ------------------------------------------------------- -------- -------- (Loss) from continuing operations before income taxes $ (506) $ (343) Interest expense (net of amounts capitalized) 112 160 Interest factor on rentals (1/3) 2 3 Equity losses in unconsolidated ventures (less than 50% owned) 92 342 Minority interest expense 22 22 -------- -------- Earnings $ (278) $ 184 -------- -------- -------- -------- Interest expense $ 96 $ 176 Interest factor on rentals (1/3) 2 3 Minority interest expense 22 22 Preferred stock dividends (pre-tax equivalent) 27 20 -------- -------- Fixed charges $ 147 $ 221 -------- -------- -------- -------- Ratio of earnings to combined fixed charges and preferred stock dividends - # - # - ------------------------------------------------------- -------- --------
#) Earnings for the quarters ended December 31, 1998 and 1997 were insufficient to cover fixed charges by $425 and $37, respectively. Exhibit 12 MediaOne Group, Inc. RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in Millions)
Year-to-Date 12/31/98 12/31/97 - ------------------------------------------------------- -------- -------- Income (Loss) from continuing operations before income taxes $ 2,638 $(1,207) Interest expense (net of amounts capitalized) 491 678 Interest factor on rentals (1/3) 8 14 Equity losses in unconsolidated ventures (less than 50% owned) 280 690 Minority interest expense 85 87 -------- -------- Earnings $ 3,502 $ 262 -------- -------- -------- -------- Interest expense $ 510 $ 714 Interest factor on rentals (1/3) 8 14 Minority interest expense 85 87 Preferred stock dividends (pre-tax equivalent) 102 76 -------- -------- Fixed charges $ 705 $ 891 -------- -------- -------- -------- Ratio of earnings to combined fixed charges and preferred stock dividends 4.97 A - B - ------------------------------------------------------- -------- --------
A) Earnings for the year ended December 31, 1998 include a $3,869 gain from the sale of domestic wireless operations. Without the gain, earnings would be insufficient to cover fixed charges by $1,072. B) Earnings for the period ended December 31, 1997 were insufficient to cover fixed charges by $629. Exhibit 12 MediaOne Group, Inc. RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Millions)
Quarter Ended 12/31/98 12/31/97 - ------------------------------------------------------- -------- -------- Loss from continuing operations before income taxes $ (506) $ (343) Interest expense (net of amounts capitalized) 112 160 Interest factor on rentals (1/3) 2 3 Equity losses in unconsolidated ventures (less than 50% owned) 92 342 Minority interest expense 22 22 -------- -------- Earnings $ (278) $ 184 -------- -------- -------- -------- Interest expense $ 96 $ 176 Interest factor on rentals (1/3) 2 3 Minority interest expense 22 22 -------- -------- Fixed charges $ 120 $ 201 -------- -------- -------- -------- Ratio of earnings to fixed charges - # - # - ------------------------------------------------------- -------- --------
#) Earnings for the quarters ended December 31, 1998 and 1997 were insufficient to cover fixed charges by $398 and $ 17, respectively. Exhibit 12 MediaOne Group, Inc. RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Millions)
Year Ended 12/31/98 12/31/97 - ------------------------------------------------------- -------- -------- Income (Loss) from continuing operations before income taxes $ 2,638 $(1,207) Interest expense (net of amounts capitalized) 491 678 Interest factor on rentals (1/3) 8 14 Equity losses in unconsolidated ventures (less than 50% owned) 280 690 Minority interest expense 85 87 -------- -------- Earnings $ 3,502 $ 262 -------- -------- -------- -------- Interest expense $ 510 $ 714 Interest factor on rentals (1/3) 8 14 Minority interest expense 85 87 -------- -------- Fixed charges $ 603 $ 815 -------- -------- -------- -------- Ratio of earnings to fixed charges 5.81 A - B - ------------------------------------------------------- -------- --------
A) Earnings for the year ended December 31, 1998 include a $3,869 gain from the sale of the domestic wireless operations. Without the gain, earnings would be insufficient to cover fixed charges by $970. B) Earnings for the period ended December 31, 1997 were insufficient to cover fixed charges by $553. EX-21 16 EXHIBIT 21 MEDIAONE GROUP, INC. AND ITS SUBSIDIARIES I. MediaOne Group, Inc. (DE 5/12/95) amended from U S WEST, Inc. A. MediaOne of Colorado, Inc. (CO 5/10/93); amended name from MediaOne Group, Inc. 9-16-98; amended name from U S WEST Multimedia Communications, Inc. 4/13/98; amended name from U S WEST Cable Corporation 9/16/93. 1. MediaOne of Delaware, Inc. (DE 6/13/96); amended name from Continental Cablevision, Inc. 4/15/97; amended name from Continental Merger Corporation 11/15/96. a. MediaOne HSD, LLC (DE 5-7-98; 18.4% interest) b. Continental Cablevision Asia Pacific, Inc. (MA 5/20/94) (1) Continental Cablevision Singapore Pte Ltd. (Singapore 9/6/94) c. MediaOne of Minnesota, Inc. (MN 6/20/86); amended name from Continental Cablevision of Minnesota, Inc. 5/15/98. (1) MediaOne Communications Holding Company, Inc. (DE 12/21/88); amended name from Minnesota Cable Communications Holding Company, Inc. 5/22/98. (2) MediaOne North Central Communications Corporation (DE 6/3/86); amended name from North Central Cable Communications Corporation 5/22/98. (a) MediaOne of Burnsville/Eagan, Inc. (MN 6/29/82); amended name from Group W Cable of Burnsville/Eagan, Inc. 5/15/98. (b) MediaOne of Columbia Heights/Hilltop, Inc. (MN 5/14/81); amended name from Group W Cable of Columbia Heights/Hilltop, Inc. 5/15/98. (c) MediaOne of the North Suburbs, Inc. (MN 6/29/82); amended name from Group W Cable of the North Suburbs, Inc. 5/15/98. (d) MediaOne of the North Central Suburbs, Inc. (MN 6/29/82); amended name from Group W Cable of the North Central Suburbs, Inc. 5/15/98. (e) MediaOne of Quad Cities, Inc. (MN 4/19/82); Group W Cable of Quad Cities, Inc. 5/15/98. (f) MediaOne of Ramsey/Washington, Inc. (MN 6/29/81); amended name from Group W Cable of Ramsey/Washington, Inc. 5/15/98. d. MediaOne of St. Paul, Inc. (MN 2/23/83); amended name from Continental Cablevision of St. Paul, Inc. 5/15/98. e. Continental Cablevision Satellite Company of Northern California, Inc. (CA 11/6/90) (1) MediaOne Satellite II, Inc. (DE 10/3/97; 50% interest, other 50% interest held by Continental Satellite Company of Florida, Inc.) f. Continental Satellite Company, Inc. (MA 11/17/86) g. Continental Satellite Company of Chicago, Inc. (IL 1/13/94) h. Continental Satellite Company of Minnesota, Inc. (MN 5/31/94) i. Continental Satellite Company of New England, Inc. (NH 11/1/90) j. Continental Satellite Company of Ohio, Inc. (OH 1/23/92) k. Continental Satellite Company of Virginia, Inc. (VA 10/30/90 l. MediaOne Acquisitions of Northern Illinois, Inc. (IL 3/9/95); amended name from Continental Cablevision Acquisitions of Northern Illinois, Inc. 4/29/97. m. MediaOne Digital Radio, Inc. (MA 1/30/91); amended name from Continental Cablevision Digital Radio, Inc. 4/29/97. n. MediaOne Enterprises, Inc. (RI 6/23/69); amended name from Colony Communications, Inc. 5/29/97. (1) CCF Management Services, Inc. (FL 11/18/92) (2) CCI Management Services, Inc. (CA 12/16/91) (3) MediaOne of Lakewood, Inc. (CA 10/21/91); amended name from Colony Cablevision of Lakewood, Inc. 9/5/97. (4) Copley/Colony, Inc. (DE 10/9/81) (a) MediaOne of Costa Mesa, Inc. (CA 10/22/80); amended name from Copley/Colony of Costa Mesa, Inc. 9/5/97. (b) MediaOne of Cypress, Inc. (CA 3/21/83); amended name from Copley/Colony Cablevision of Cypress, Inc. 9/5/97. (c) MediaOne of Harbor, Inc. (CA 8/14/80); amended name from Copley/Colony Harbor Cablevision, Inc. 9/5/97. (d) MediaOne of Lomita, Inc. (CA 2/16/82); amended name from Copley/Colony Cablevision of Lomita, Inc. 9/5/97. (e) MediaOne of Los Angeles County, Inc. (CA 8/2/82); amended name from Copley/Colony Cablevision of Los Angeles County, Inc. 9/5/97. (f) MediaOne of Orange County, Inc. (CA 9/8/83); amended name from Copley/Colony Cablevision of Orange County, Inc. 9/5/97. (5) King Videocable Company (WA 9/2/65) (a) MediaOne of the Upper Midwest, Inc. (WA 7/2/88); amended name from King Videocable Company-Minnesota 5/26/98. (b) King Videocable Company-Twin Falls (ID 6/10/64) (i) King Videocable Company-Idaho (CO 12/5/69) 2 (c) MediaOne of Newhall, Inc. (CA 1/10/67); amended name from King Videocable Company-Newhall 9/15/97. (d) MediaOne of North Valley, Inc. (CA 1/10/67); amended name from King Videocable Company-Valencia 9/15/97. (6) MediaOne Interconnects, Inc. (DE 3/15/83); amended name from Colony Interconnects, Inc. 4/28/97. (7) MediaOne of Greater New York, Inc. (RI 7/6/70); amended name from U.S. Cablevision Corp. 6/20/97. (8) MediaOne of South Florida, Inc. (FL 3/20/71); amended name from Dynamic Cablevision of Florida, Inc. 4/29/97. (9) MediaOne of Southern New England, Inc. (MA 6/16/70); amended name from Continental Cablevision of Southern New England, Inc. 5/15/97. o. MediaOne Holdings 1, Inc. (DE 9/5/78); amended name from American Cablesystems Corporation 4/28/97. (1) MediaOne of Los Angeles, Inc. (CA 1/9/86); amended name from American Cablesystems of California, Inc. 9/5/97. (a) MEDIAONE OF SOUTH CENTRAL LOS ANGELES, INC. amended from American Cablesystems of South Central Los Angeles, Inc. (DE 4/3/87; 84.16% interest) (2) MediaOne of Milton, Inc. (MA 7/28/81; 99% interest); amended name from Milton Cablesystems Corporation 5/15/97. (3) MediaOne of New York, Inc. (NY 6/2/83); amended name from American Cablesystems of New York, Inc. 5/16/97. p. MediaOne Investments, Inc. (DE 4/3/97); amended name from Continental Cablevision Investments, Inc. 4/28/97. (1) Fostoria Communications, Inc. (MA 8/22/95) (2) MediaOne Cable News, Inc. (MA 9/24/90); amended name from CCI Cable News, Inc. 4/29/97. (3) MediaOne of Southeast Michigan, Inc. (MI 6/29/95); amended name from Continental Cablevision of Southeast Michigan, Inc. 5/1/97. (4) MediaOne Programming Partners 1, Inc. (MA 8/10/93); amended name from Continental Programming Partners I, Inc. 4/29/97. q. MediaOne of Australia, Inc. (MA 2/17/94); amended name from Continental Cablevision of Australia, Inc. 5/15/97. r. MediaOne of Brockton, Inc. (DE 11/30/81; 99.9% interest); amended name from Continental Cablevision Brockton, Inc. 5/9/97. 3 s. MediaOne of California, Inc. (CA 3/1/69); amended name from Continental Cablevision of California, Inc. 9/5/97. t. MediaOne of Greater Florida, Inc. (FL 2/25/71); amended name from Continental Cablevision of Jacksonville, Inc. 4/29/97. (1) Alrif Co., Inc. (MA 6/4/85) (2) Continental Satellite Company of Florida, Inc. (FL 1/20/94) (a) MediaOne Satellite II, Inc. (DE 10/3/97; 50% interest other 50% held by Continental Cablevision Satellite Company of Northern California, Inc.) u. MediaOne of Illinois, Inc. (DE 10/4/67); amended name from Continental Cablevision of Illinois, Inc. 4/28/97. v. MediaOne of Massachusetts, Inc. (MA 1/6/72); amended name from Continental Cablevision of Massachusetts, Inc. 5/15/97. w. MediaOne of Metropolitan Detroit, Inc. (MI 3/18/74); amended name from Continental Cablevision of Michigan, Inc. 4/30/97. (1) Continental Satellite Company of Michigan, Inc. (MI 12/27/93) (2) MediaOne of Eastern Michigan, Inc. (DE 1/17/95); amended name from Continental Cablevision of Eastern Michigan, Inc. 4/28/97. x. MediaOne of Needham, Inc. (DE 11/19/82; 99.8% interest); amended name from Continental Cablevision of Needham, Inc. 4/28/97. y. MediaOne of New England, Inc. (NH 1/30/68); amended name from Continental Cablevision of New England, Inc. 4/30/97. (1) MediaOne of New Hampshire, Inc. (MD 10/27/44); amended name from Continental Cablevision of Manchester, Inc. 4/29/97. z. MediaOne of Northern Illinois, Inc. (DE 8/29/79); amended name from Continental Cablevision of Northern Illinois, Inc. 4/28/97. aa. MediaOne of Ohio, Inc. (OH 5/5/66); amended name from Continental Cablevision of Ohio, Inc. 4/29/97. bb. MediaOne of Sierra Valleys, Inc. (CA 7/1/86); amended name from Continental Cablevision of Sierra Valleys, Inc. 9/5/97. (1) MediaOne of Fresno, Inc. (CA 9/10/75); amended name from Fresno Cable TV Limited 11/6/97. (2) MediaOne of Nevada, Inc. (NV 1/18/78); amended name from Telcab Communications, Inc. 4/30/97. (3) MediaOne of Northern California, Inc. (CA 10/24/60); amended name from Nor Cal Cablevision, Inc. 9/5/97. cc. MediaOne of Virginia, Inc. (VA 7/27/77); amended name from Continental Cablevision of Virginia, Inc. 4/29/97. (1) Continental Cablevision of Richmond, Inc. (VA 6/12/78; CL.A 100% PS. 100%, CL.B 64%) d/b/a MediaOne of Richmond, Inc. 5/19/97. 4 dd. MediaOne of Western New England, Inc. (DE 2/10/82); amended name from Continental Cablevision of Western New England, Inc. 4/28/97. ee. MediaOne Telecommunications Corp. (MA 11/6/92); amended name from Continental Telecommunications Corp. 4/29/97. (1) Continental Australia Programming, Inc. (MA 11/1/93) (2) MediaOne Telecommunications Corp. of Minnesota (MN 3/12/93); amended name from Continental Telecommunications Corp. of Minnesota 5/15/98. (3) Continental Telecommunications Corp. of Virginia (VA 3/4/93) (4) Continental Teleport Partners, Inc. (MA 12/10/92) (5) MediaOne Connect, Inc. (DE 10/8/97) (6) MediaOne Express Midwest, Inc. (OH 12/21/95); amended name from Continental Online - Midwest, Inc. 4/29/97. (a) MediaOne HSD, LLC (DE 5-7-98; 7.5% interest) (7) MediaOne Express of California, Inc. (CA 12/21/95); amended name from Continental Online of California, Inc. 5/22/97. (a) MediaOne HSD, LLC (DE 5-7-98; 10% interest) (8) MediaOne Express of Florida, Inc. (FL 12/21/95); amended name from Continental Online of Florida, Inc. 4/29/97. (a) MediaOne HSD, LLC (DE 5-7-98; 26.9% interest) (9) MediaOne Express of Illinois, Inc. (IL 12/21/95); amended name from Continental Online of Illinois, Inc. 4/29/97. (10) MediaOne Express of New England, Inc. (MA 12/19/95); amended name from Continental Online of New England, Inc. 4/29/97. (a) MediaOne HSD, LLC (DE 5-7-98; 31.4% interest) (11) MediaOne Express of Virginia, Inc. (VA 1/24/97); amended name from Continental Online of Virginia, Inc. 4/29/97. (12) MediaOne Fiber Technologies, Inc. (FL 1/17/92; 80% interest); amended name from Continental Fiber Technologies, Inc. 5/29/97. (13) MediaOne Florida Telecommunications, Inc. (FL 6/19/95); amended name from Continental Florida Telecommunications, Inc. 4/29/97. (14) MediaOne Information Technology Systems, Inc. (MA 1/9/96); amended name from Continental Information Technology Systems, Inc. 4/29/97. (15) MediaOne International Programming, Inc. (MA 10/8/93); amended name from Continental International Programming, Inc. 4/29/97. 5 (16) MediaOne Telecommunications Corp. of New England (MA 11/6/92); amended name from Continental Telecommunications Corp. of New England 4/29/97. (17) MediaOne Telecommunications Corp. of Ohio (OH 12/21/93); amended name from Continental Telecommunications Corp. of Ohio, Inc. 5/16/97. (18) MediaOne Telecommunications of California, Inc. (CA 8/23/95); amended name from Continental Telecommunications of California, Inc. 5/22/97. (19) MediaOne Telecommunications of Illinois, Inc. (IL 11/9/92); amended from Continental Telecommunications of Illinois, Inc. 4/29/97. (20) MediaOne Telecommunications of Massachusetts, Inc. (MA 12/5/94); amended name from Continental Telecommunications of Massachusetts, Inc. 4/29/97. (21) MediaOne Telecommunications of Michigan, Inc. (MI 12/18/95); amended name from Continental Telecommunications of Michigan, Inc. 4/30/97. (22) MediaOne Telecommunications of New Hampshire, Inc. (NH 12/20/95); amended name from CCI Telecommunications of New Hampshire, Inc. 4/30/97. (23) MediaOne Telecommunications of Ohio, Inc. (OH 12/26/95);amended name from Continental Telecommunications of Ohio, Inc. 4/29/97. (24) MediaOne Telecommunications of Virginia, Inc. (VA 2/1/96); amended name from CCI Telecommunications of Virginia, Inc. 4/29/97. ff. S.A. Ventures, Inc. (MA 2/7/94) (1) S.A. Ventures (Delaware), Inc. (DE 9/22/97) gg. S.A. Ventures II, Inc. (MA 8/12/97) 2. MediaOne Capital Corporation (CO 11/9/89); amended name from U S WEST Capital Corporation 5/1/98; Holding company for Capital Assets Group companies. a. MediaOne Capital (America), Inc. (CO 7/20/90); amended name from U S WEST Capital (America) Inc. 5/1/98. b. MediaOne Capital Limited (U. K. 12/1/90); amended name from U S WEST Capital Limited effective 6/23/98. c. Commercial Reinsurance Company (OK 12/23/93; 91.6% interest) d. MediaOne Financial Services, Inc. (CO 1/4/84; amended name from U S WEST Financial Services, Inc. 6/15/98). (1) Commercial Funding, Inc. (NY 11/12/85) (2) MediaOne Delta, Inc. (CO 12/29/89); amended name from U S WEST Delta, Inc. 5/1/98. (3) MediaOne Finance Corporation (CO 10/5/95); amended name from USW Finance Corporation 5/1/98. 6 (4) U S WEST Financial Services Foreign Sales, Inc. (Virgin Islands 7/27/90) (5) MediaOne FS Leasing 1995, Inc. (CO 12/19/95); amended name from USWFS Leasing 1995, Inc. 5/1/98. (6) New York Cogenco, Inc. (DE 5/29/92); amended name from Onondaga Cogeneration Corporation 6/12/92. (7) MediaOne Shacres, Inc. (CA 8/29/91); amended from USW Shacres, Inc. 6/2/98. (8) SIFD ONE, LTD. (DE 11/15/90) (a) MediaOne FSC ONE, LTD. (Bermuda 11/16/90) amended from USW FSC ONE, LTD. 7/10/98. (9) SIFD TWO, LTD. (DE 1/3/91) (a) MediaOne FSC TWO, LTD. (Bermuda 1/4/91) amended from USW FSC TWO, LTD. 7/10/98. (10) SIFD THREE, LTD. (DE Business Trust 4/1/91) (a) MediaOne FSC THREE, LTD. (Bermuda 3/18/91) amended from USW FSC THREE, LTD. 7/10/98. (11) MediaOne SPE, Inc. (DE 8/1/97); amended name from USWSPE, Inc. 5/1/98. (12) MediaOne Leveraged Lease Partners 1997, L.P. (13) Valertex, Inc. (TX 10/12/90) e. MediaOne Services (America) Inc. (CO 7/20/90); amended name from U S WEST Services (America) Inc. 5/1/98. f. MediaOne Services Limited (U.K. 1/26/90); amended name from U S WEST Services Limited effective 6/23/98. 3. MediaOne Cellular Holdings, Inc. (DE 7/18/94); amended name from U S WEST Cellular Holdings, Inc. 5/1/98. 4. Domestic Cable, Inc. (CO 1/21/97) 5. Far East Investment Company (CO 8/19/97) a. MediaOne Far East Telecommunications, Inc. (DE 6/17/94; 49% interest) amended name from U S WEST Far East Telecommunications, Inc. 5/1/98. 6. MediaOne Interactive Services, Inc. (CO 8/22/95); amended name from US WEST Interactive Services, Inc. 4/13/98. 7. MediaOne International Holdings, Inc. (DE 3/11/88); amended name from U S WEST International Holdings, Inc. 5/1/98. a. MediaOne Cable Partnership Holdings, Inc. (CO 6/13/89); amended name from U S WEST Cable Partnership Holdings, Inc. 5/1/98. 7 b. MediaOne Cable Programming Corporation, Inc. (CO 7/11/92); amended name from U S WEST Cable Programming Corporation 5/1/98. c. MediaOne Czech Cable Company (DE 11/10/94); amended name from U S WEST Czech Cable Company 5/1/98. d. MediaOne Espana Telecommunications, Inc. (DE 12/8/93); amended name from U S WEST Espana Telecommunications, Inc. 5/1/98; amended name from U S WEST Hungarian Telecommunications, Inc. 6/27/94. e. MediaOne Europe, Inc. (CO 6/29/92); amended name from U S WEST Europe, Inc. 5/1/98. f. MediaOne Far East Telecommunications, Inc. (DE 6/17/94; 51% interest) amended name from U S WEST Far East Telecommunications, Inc. 5/1/98. g. MediaOne Foreign Investments, Inc. (CO 7/14/88); amended name from U S WEST Foreign Investments, Inc. 5/1/98; amended name from Euclid, Inc. 1/18/89. h. MediaOne International, Inc. (CO 1/28/83); amended name from U S WEST International, Inc. 5/1/98; amended name from U S WEST Holdings, Inc. 2/15/85. I. MEDIAONE JAPAN, INC. (DE 1-23-99) j. WatchMark, Inc. (CO 11/21/94); amended name from U S WEST International Systems Group, Inc. 5/1/98. (1) WatchMark Technologies, Inc. (CO 11/21/94); amended name from U S WEST ISG Technologies, Inc. 5/1/98. (2) WATCHMARK OPTIONS CORP. (TX 1-30-86); acquired by WatchMark, Inc. 12-22-98 k. Overseas Operations, Inc. (CO 3/7/89); amended name U S WEST Overseas Operations, Inc. 3/19/97 l. Overseas Operations II, Inc. (DE 3/19/97) m. MediaOne PCN, Inc. (CO 1/23/91); amended name from USW PCN, Inc. 5/1/98; amended name from U S WEST U.K. PCN, Inc. 2/11/91. n. RTDC Holdings, Inc. (DE 10/31/95; approximately 67.8% interest) (1) Russian Telecommunications Development Corporation (DE 12/15/93) (a) Russian Telecommunications Asset Management Corporation (DE 10/3/94) (b) Russian Telecommunications Development Finance Corporation (DE 3/19/96) (c) Russian Telecommunications Development Holding Corporation (DE 10/3/94) (d) Russian Telecommunications Development Holding Corporation II (DE 11/12/97) (e) Russian Telecommunications Development Management Corporation (DE 12/15/93) 8 (f) U S WEST SERVICES (RUSSIA 12/22/93) DISSOLVED 7-1-97 o. MediaOne U. K. Cable, Inc. (CO 2/7/90); amended name from U S WEST U.K. Cable, Inc. 5/1/98; amended name from U S WEST Avon Partnership Holdings, Inc. 7/30/90. p. MediaOne India B. V. (Netherlands 6/25/93); amended name from U S WEST India B.V. 6/15/98. (1) MEDIAONE CELLULAR INVESTMENTS COMPANY (Mauritius 3-27-95); amended from U S WEST Cellular Investments Company 9-1-98 (99% interest) q. MediaOne International B.V. (Netherlands 11/14/90); amended from U S WEST International B.V. 6/15/98. (1) U S WEST Deutschland GmbH (Germany 12/4/91); amended name from Maxi Beteiligungs GmbH 9/21/92; acquired 9/24/92. (2) U S WEST Polska Sp. z.o.o (Poland 1/3/92) r. MediaOne U.K. Limited (U.K. 3/3/89); amended name from U S WEST U.K. Limited 4/6/98. (1) U S WEST Cable Partnership Limited (U.K. 5/22/89) (Inactive) (2) WatchMark Limited (U.K. 2/24/89); amended name from U S WEST International Systems Group Limited 6/4/98; amended name from U S WEST Cable Communications Limited 10/19/94. (3) WatchMark Installation Services Limited (U.K. 10/12/94); amended from U S WEST ISG Installation Services Limited 6/4/98; amended name from Duskmist Limited 11/23/94. (4) MediaOne Marketing Resources (UK) Limited (U.K. 2/3/94); amended name from U S WEST Marketing Resources (UK) Ltd. 4/6/98. s. U S WEST Westelcom B.V. (Netherlands 8/12/92) 8. MediaOne Investments Holdings, Inc. (CO 11/1/85); amended name from U S WEST Investments, Inc. 6/1/98. a. MediaOne Real Estate, Inc. (CO 10/11/83); amended name from US WEST Real Estate, Inc. 5/1/98; amended name from BetaWest Properties, Inc. 5/11/90. (1) MediaOne Fresno Properties, Inc. (CO 8/19/94); amended name from USW Fresno, Inc. 5/1/98. (2) Taurus Properties, Inc. (CO 2/22/85) (3) Verend, Inc. (TX 11/3/89) 9. MediaOne PCS Services, Inc. (CO 7/27/95); amended name from U S WEST PCS Services, Inc. 5/1/98. 10. MediaOne HSD, LLC (DE 5-7-98; 5.8% interest) 9 11. MEDIAONE SPC I, LLC (DE 11-9-98) a. MEDIAONE SPC II, LLC (DE 11-9-98) 12. MEDIAONE CABLE ADVERTISING OF METROPOLITAN ATLANTA, L.L.C (CO 8-12-98) 13. MEDIAONE TELECOMMUNICATIONS OF GEORGIA, L.L.C (CO 7-21-98) B. MediaOne Financing A amended from U S WEST Financing I (DE Business Trust 3/1/95) 6-12-98 C. MediaOne Financing B amended from U S WEST Financing II (DE Business Trust 3/1/95) 6-12-98 D. MEDIAONE B.V. HOLDINGS, INC. (DE 11-19-98) E. MediaOne Finance Trust I (DE 4/13/98) F. MediaOne Finance Trust II (DE 4/13/98) G. MEDIAONE FINANCE TRUST III (DE 10-5-98) H. MEDIAONE FINANCE TRUST IV (DE 10-5-98) I. MEDIAONE FINANCE TRUST V (DE 10-5-98) J. MEDIAONE FINANCE TRUST VI (DE 10-5-98) K. MediaOne Group Funding, Inc. (DE 4/13/98) L. MediaOne of Michigan, Inc. (DE 11/27/96) M. MediaOne Federal Relations, Inc. (DE 5/8/97); amended name from USW, Inc. 5/15/98. N. MEDIAONE RACING , INC. (DE 1-11-99) O. Western Range Insurance Co. (VT 4/1/87) P. MEDIAONE TWE HOLDINGS, INC. (DE 3-15-99) Level 2 under MediaOne of Colorado, Inc. 10 EX-23 17 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 18, 1999 (except with respect to the matters discussed in Note 22, as to which the date is March 22, 1999) on the consolidated financial statements and the consolidated financial statement schedule of MediaOne Group, Inc., as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, included in this Annual Report on Form 10-K into MediaOne Group, Inc.'s previously filed registration statements on Forms S-3 (Nos. 33-50047, 33-50047-01 and 333-50227) and on Forms S-8 (Nos. 333-01931, 33-63093, 33-63085, 33-63091, 333-24285 and 333-67679). Denver, Colorado, March 30, 1999. EX-24 18 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, MediaOne Group, Inc., a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K for the fiscal year ended December 31, 1998; and WHEREAS, each of the undersigned is a Director of the Company; NOW THEREFORE, each of the undersigned constitutes and appoints RICHARD A. POST, CONSTANCE P. CAMPBELL and STEPHEN E. BRILZ, and each of them, as attorneys for him or her and in his or her name, place, and stead, and in his or her capacity as a Director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney this __ day of March 1999. /s/ KATHLEEN A. COTE /s/ CHARLES M. LILLIS - ---------------------------------- -------------------------------- Kathleen A. Cote Charles M. Lillis /s/ ROBERT L. CRANDALL /s/ CHARLES P. RUSS, III - ---------------------------------- -------------------------------- Robert L. Crandall Charles P. Russ, III /s/ GRANT A. DOVE /s/ LOUIS A. SIMPSON - ---------------------------------- -------------------------------- Grant A. Dove Louis A. Simpson /s/ ALLEN D. GILMOUR /s/ JACK SLEVIN - ---------------------------------- -------------------------------- Allan D. Gilmour Jack Slevin /s/ PIERSON M. GRIEVE /s/ DANIEL W. YOHANNES - ---------------------------------- -------------------------------- Pierson M. Grieve Daniel W. Yohannes POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS; WHEREAS, MediaOne Group, Inc., a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K for the fiscal year ended December 31, 1998 and WHEREAS, the undersigned is an officer or Director, or both, of the Company and holds the office, or offices, in the Company as indicated below his name; NOW THEREFORE, the undersigned hereby constitutes and appoints RICHARD A. POST, CONSTANCE P. CAMPBELL and STEPHEN E. BRILZ, and each of them, as attorneys for him and in his name, place, and stead, and in each of his offices and capacities in the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this __ day of March, 1999. /s/ CHARLES M. LILLIS --------------------------------------- Charles M. Lillis Chairman of the Board, President and Chief Executive Officer EX-27 19 EXHIBIT 27
5 1,000,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 415 48 255 0 0 1,200 4,937 868 28,192 1,614 4,853 1,161 927 10,324 1,538 28,192 2,882 2,882 0 0 3,121 0 491 2,638 1,208 1,430 25,208 (333) 0 26,305 42.14 39.29
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