-----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, JbhUVEq8JT8VKe8+g7OTXZeyw/Vzl0a/EFnJlWdUMg7igb9t9dz+vIctsRlALSmt H0EwUgeErMszbAtEWOB0jQ== 0000732715-98-000014.txt : 19980317 0000732715-98-000014.hdr.sgml : 19980317 ACCESSION NUMBER: 0000732715-98-000014 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980313 SROS: BSE SROS: CSX SROS: NYSE SROS: PHLX SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERITECH CORP /DE/ CENTRAL INDEX KEY: 0000732715 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 363251481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08612 FILM NUMBER: 98565696 BUSINESS ADDRESS: STREET 1: 30 S WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 8002570902 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INFORMATION TECHNOLOGIES CORP DATE OF NAME CHANGE: 19910514 10-K405 1 COVER - --------------------------------------------------------------------- U.S. Securities and Exchange Commission Washington, D.C. 20549 - ------------------------------------------- Form 10-K - ------------------------------------------- Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 - ------------------------------------------- Commission File Number 1-8612 Ameritech Corporation ----------------------------- A Delaware Corporation ----------------------------- 30 S. Wacker Drive Chicago, Illinois 60606 ----------------------------- I.R.S. Employer Identification Number 36-3251481 Telephone number (800) 257-0902 Securities registered under Section 12(b) of the Act: Common Stock (Par Value $1.00 Per Share) Preference Stock Purchase Rights Ameritech's Common Stock is registered on the New York, Chicago, Boston, Pacific and Philadelphia stock exchanges. The Preference Stock Purchase Rights attached to the shares of Common Stock are registered on the New York Stock Exchange. We have no securities registered under Section 12(g) of the Act. We are subject to certain filing requirements under Sections 13 and 15 (d) of the Securities Exchange Act of 1934 and have filed all the required reports during the preceding 12 months. Disclosure of delinquent filers under Item 405 of Regulation S-K is not contained in this report and will not be contained in the 1998 annual meeting proxy statement, which is incorporated by reference in this report. Based on the average sales price, the aggregate market value of the voting stock held by nonaffiliates of Ameritech Corporation on February 27, 1998 was approximately $45,541,000,000. As of that date, 1,100,694,827 common shares and preference stock purchase rights were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of Ameritech's annual report to shareowners for the year ended December 31, 1997 Portions of Ameritech's 1998 annual meeting proxy statement dated February 27, 1998 These documents are available on Ameritech's Internet site at www.ameritech.com/investor TABLE OF CONTENTS PART I Item Page ---- ---- 1. Business......................................... 1 2. Properties....................................... 12 3. Legal Proceedings................................ 12 4. Submission of Matters to a Vote of Security Holders ........................................ 14 Executive Officers............................... 14 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters............................. 15 6. Selected Financial and Operating Data............ 15 7. Management's Discussion and Analysis of Results of Operations and Financial Condition .......................... 15 8. Financial Statements and Supplementary Data...... 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 16 PART III 10. Directors and Executive Officers of the Registrant................................ 16 11. Executive Compensation........................... 16 12. Security Ownership of Certain Beneficial Owners and Management.................................. 16 13. Certain Relationships and Related Transactions... 16 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 16 Glossary.......................................... 22 i 1 When reading this annual report, you should be familiar with the terminology unique to our business. We have defined a number of terms in the Glossary on page 22. PART I Item 1. Business. General Ameritech Corporation is a holding company incorporated in 1983 under the laws of the State of Delaware. We provide a wide range of communications services, including local and long distance telephone, cellular, paging, security, cable TV, Internet access and directory publishing services. We operate our business within the framework of customer-specific business units delivering specialized services to various categories of customers, each with unique requirements. Our business units provide a complete menu of communication options to consumers and businesses as well as other companies in the communications industry. The products and services of all of our companies are marketed, under the "Ameritech" brand identity, in all 50 states and 40 countries. Our executive offices are located at 30 South Wacker Drive, Chicago, Illinois 60606 (telephone number 1-800-257-0902). Our Internet site (www.ameritech.com) offers extensive information on our company and industry. The Telecommunications Act The Telecommunications Act of 1996 (the 1996 Act), signed into law in February 1996, was intended to stimulate competition in the market for communications services and to remove barriers that prevented the telecommunications, cable TV and broadcast industries from entering each others' businesses. The 1996 Act addresses various aspects of competition within, and regulation of, the communications industry. It provides that all conduct or activities subject to the consent decree issued at the time of AT&T Corp.'s court-approved divestiture in 1984 of certain assets to seven regional holding companies (RHCs), including Ameritech, are now subject to the provisions of the 1996 Act. Among other things, the law defines the conditions under which Ameritech and the other RHCs may offer long distance service and provides certain mechanisms intended to facilitate local exchange competition. The 1996 Act gives the Federal Communications Commission (FCC) authority to determine when incumbent local exchange carriers have satisfied the statutory criteria required to provide long distance service in an in-region state, including meeting a 14-point competitive checklist. For the RHCs, immediate relief under the law included permission to provide in and out-of-region cellular long distance, out-of-region landline long distance and certain incidental long distance services. Since passage of the 1996 Act, there have been numerous challenges to the rules, discussed further in the section on Regulatory Environment - Federal. It is difficult to determine how the rules will evolve and exactly what effect competition fostered by the 1996 Act will have on our business over time. Ameritech's Full-Service Communications Business Landline Communications Services Our five landline communications subsidiaries (Illinois Bell Telephone Company; Indiana Bell Telephone Company, Incorporated; Michigan Bell Telephone Company; The Ohio Bell Telephone Company and Wisconsin Bell, Inc.) are responsible for providing telephone and other communications services, subject to regulation by the FCC and the state regulatory commissions, in their respective service areas. In this report, we refer to these companies collectively as the "Ameritech landline communications subsidiaries" and individually as Ameritech Illinois, Ameritech Indiana, etc. The Ameritech landline communications subsidiaries furnish a wide variety of advanced communications services, including local exchange and toll service and network access, and communications products to more than 12 million business, residential and communications company customers in an operating area comprised of 37 Local Access and Transport Areas (LATAs) in our region. These LATAs are generally centered on a city or other identifiable community of interest. Each LATA marks the boundary within which each company may provide telephone service. The Ameritech landline communications subsidiaries provide two basic types of communications services: 2 - - They transport communications traffic between a customer's equipment and the telephone exchange offices located within the same LATA (intraLATA service). These services include local exchange, private line and intraLATA toll services (including 800 and special services for data, radio and video transport). - - They provide exchange access service, which links a subscriber's telephone or other equipment to the transmission facilities of long distance carriers, which in turn provide communications service between LATAs (interLATA, or long distance, service). Ameritech also provides directory publishing, public telephone and local and toll operator services (including collect calls, third number billing, person-to-person and calling card calls). A national directory assistance service is offered in Chicago, Detroit and Grand Rapids, with plans to expand across the region. We offer call management services (including voice mail, Caller ID, call waiting and call forwarding), as well as digital network services (such as online database access and fax messaging, document sharing functions and video conferencing for desktop computers). We provide billing and collection services for several companies, including billing for long distance services offered by certain long distance carriers. We currently offer a single monthly statement for a variety of Ameritech services. The single bill option and around-the-clock customer service is available in all five states in our core market area for all residential, small business, Internet, cellular, cable TV and home office customers. We market our local phone services on a wholesale basis to certain other companies that resell our network services. At year end, we served more than 3,000 network and information providers, including cellular, personal communications services (PCS) and competing local service companies, who buy our services to use in their product offerings. We added 840,000 customer access lines in 1997, including 133,000 residential and business lines we acquired in November 1997 with the purchase of the telecommunications assets of Sprint Corporation's local exchange business in suburban Chicago. We now serve more than 20.5 million lines in our upper Midwest market region, a 4.3% increase over lines served in 1996 (3.6% without the lines acquired from Sprint). Customer access line growth was fueled by second line additions and increased business usage. Demand for speed and access drove record growth in our data services. Sales of ISDN lines, which carry voice, data and video simultaneously at many times the capacity of conventional phone lines, were up more than 71% and sales of high speed circuits increased 20%. Revenues from call management services grew by 20% as customers sought greater convenience and control over their telephone communications. At the end of 1997, we led our industry peers in productivity with 401 customer lines per phone company employee, improving in this measure of operational efficiency with a 50% increase over the past five years. Now that we have approval from the Missouri public service commission, we plan to offer local and long distance phone service to residential customers in the St. Louis metropolitan area in early 1998. This move expands our communications offerings in Missouri and marks the first time we will offer local phone service to customers beyond our traditional operating territory. Our offerings in the St. Louis market will include local phone, long distance, cellular, paging and wireless data services. Customers will have the option of a consolidated bill. Cellular and Other Wireless Services Ameritech provides wireless transport of voice, data and video, plus certain call management services, to about 3.2 million cellular customers in Illinois, Indiana, Hawaii, Michigan, Missouri, Ohio and Wisconsin. In 1997, we added approximately 665,000 cellular customers to our base, a 27% increase over the prior year. We offer long distance service to our cellular customers in Illinois, Indiana, Michigan, Ohio, Wisconsin and Missouri and we are currently serving more than 1.7 million customers with cellular long distance service. In 1997, we increased our cellular retail capacities by acquiring twenty-four stores from Triangle Stereo Inc., which doubles the number of Ameritech-owned retail stores in the Chicago metropolitan and northwest Indiana area. Commercial use of ClearPathSM, our new digital cellular service, debuted in the Chicago area and in Detroit in September 1997. ClearPath offers outstanding call clarity, longer battery life, enhanced privacy, nationwide roaming, fraud protection and advanced calling features, such as Caller ID and text and numeric messaging. We plan to expand the new digital service to Milwaukee, Cleveland, Columbus, Cincinnati, Indianapolis and St. Louis in 1998. We currently provide local and nationwide paging services to customers using more than 1.5 million paging units in Illinois, Indiana, Michigan, Minnesota, Missouri, Ohio and Wisconsin, a 31% increase over 1996. We began offering 2-way paging to customers regionwide in 1997. The return paging channel enables users of two- way pagers to acknowledge a page and to provide a detailed 3 response. We offer features such as fax notification, voice mail and alphanumeric paging. In 1995, Ameritech acquired broadband PCS licenses in the Cleveland and Indianapolis major trading areas and we have begun system construction in both of these markets. These licenses cover almost 8 million potential customers and provide an effective complement to our existing cellular and landline networks. We plan to provide ClearPath digital PCS service in these markets beginning in mid-1998. Directories and Electronic Advertising Services Ameritech provides directory and electronic advertising to local, regional and national businesses throughout our region. We publish Ameritech PagesPlusr white and yellow pages directories in Illinois, Indiana, Michigan, Ohio and Wisconsin with a total distribution of over 40 million directories. In order to complement our existing product lines and leverage our present content investments, we offer online Yellow Pages. The service links Internet users to millions of businesses in the United States and thousands of other World Wide Web information and shopping sources. The Ameritech Internet Yellow PagesSM, located at yp.ameritech.com, provides extensive national, regional and local information in the familiar yellow pages directory format. In addition to offering simple listings, we develop custom web sites to help advertisers meet their promotional and business needs. Capital Services Ameritech provides a wide range of competitive leasing and equipment financing solutions for businesses ranging from sole proprietorships to multi-million dollar corporations and government units. Serving 6,700 communications and information systems customers nationwide, we have financed more than $3.2 billion worth of equipment and services since 1984. Cable TV We currently offer enhanced cable TV service in 40 communities in the Chicago, Cleveland, Columbus and Detroit metropolitan areas. We have signed cable TV franchise agreements giving us the ability to compete with incumbent providers in 65 Midwestern cities with 2.5 million people residing in more than 1 million households. Ameritech, The Walt Disney Company, BellSouth Corporation, GTE Corporation and Southern New England Telecommunications Corporation are partners in a venture called Americast, designed to develop, acquire, package and market traditional and interactive video programming to millions of consumers nationwide. Customers who choose americastr service receive 90 channels of video programming, including local broadcast, expanded basic and premium channels, and a new in-home movie service called americast express cinemaT, offering pay-per-view movies. Security Services SecurityLink from Ameritech offers a full array of security products and services for homes and businesses, including burglar and fire alarm systems, personal emergency response service, closed circuit TV and electronic access control. SecurityLink is North America's second largest security monitoring provider in a $15 billion market, currently serving more than 1 million residential and business customers. We now have a presence in 92 of the United States' 100 largest metropolitan areas, as well as in Canada where we are the largest security monitoring provider. In October 1997, SecurityLink purchased the security monitoring assets of Republic Security Company Holdings, a subsidiary of Florida-based Republic Industries, Inc. In the same month, we also acquired the security monitoring assets of Rollins Protective Services, a subsidiary of Rollins, Inc. headquartered in Georgia. Earlier in 1997, SecurityLink from Ameritech purchased assets of Masada Security, Inc. based in Alabama, Norman Security Systems, Inc. based in Illinois, Central Controls Alarm Corp. based in Wisconsin and Cross- Global Alarms based in Ontario, Canada. Long Distance Services InterLATA long distance is a $9 billion market in the Ameritech region. Under the 1996 Act, Ameritech and the other RHCs must open their respective local markets to competition by implementing a 14- point checklist before they can offer interLATA long distance service to their local landline customers. In considering an application to offer interLATA long distance services, the FCC must 4 determine whether or not an RHC has satisfied the statutory criteria, including the competitive checklist, compliance with structural and accounting rules and whether its entry into long distance is consistent with the public interest. An RHC is restricted from providing interLATA long distance service until the FCC determines that the statutory criteria have been met. The FCC will give substantial weight to Department of Justice recommendations in reviewing RHC applications to enter the market. In August 1997, the FCC denied Ameritech's application to provide long distance service in Michigan, stating in its order that we failed to meet three of the 14 requirements included in the competitive checklist. The order set forth various actions that we must take in order to demonstrate compliance with the checklist. In March 1998, we sought permission from the FCC to offer long distance data services in our region under a portion of the 1996 Act that allows the FCC to grant regulatory relief to carriers seeking to deploy advanced data networks. We are working with the courts, the FCC and the state commissions toward full long distance entry consistent with the 1996 Act and under terms and conditions that make economic sense for Ameritech. Ameritech Communications, Inc., a subsidiary of Ameritech, is certified to provide long distance service in all states outside our five-state region. With approval from the Missouri public service commission, we plan to offer local and long distance phone service to residential customers in the St. Louis metropolitan area in early 1998. With passage of the 1996 Act, Ameritech and the other RHCs were allowed to provide long distance service to their cellular customers, regardless of location. Currently, more than 1.7 million of our cellular customers use Ameritech's cellular long distance service. In 1997, we expanded our long distance capabilities through our new Ameritech Global Calling Service, which offers wholesale international switching and transport capabilities to the hundreds of long distance companies, wireless communications companies, independent phone companies and emerging local and Internet service providers that do not have their own international facilities. Ameritech Global Calling Service will also carry international calls from the Ameritech landline communications subsidiaries once we receive approval from the FCC to offer domestic long distance services in our region. International long distance minutes of use are growing 12% annually, making it one of the fastest growing segments of the telecommunications industry. Managed Services We formed an alliance with IBM Corporation that joins our companies as leaders in the $35 billion desktop computing and communications market. Together we provide voice, data and video managed desktop services for businesses. We offer customers a single point of contact for managing every aspect of desktop-based communications and computing systems, including personal computers, software, telephones, videoconferencing, PBXs and local area networks. Ameritech GlobalDesk targets major corporate clients concerned with improving their information and telecommunications systems in multiple locations, including employees working in remote locations or from their homes. We operate a 24-hour customer service facility seven days a week to provide technical and consulting support for these services. Through GlobalDesk, we now support more than 2 million users serving major customers throughout the United States including Baxter Healthcare, Comerica, Ford Motor Company, IBM and United Airlines. Internet Access Our dial-up Internet access service was launched in January 1997. Ameritech.netSM provides easy-to-use Internet service designed specifically for consumers and small businesses. In addition to affordable pricing plans, users have access to the Internet's most popular features, including the millions of Internet websites worldwide, E-mail and chat and news groups. We offer Ameritech.net in the Chicago, Cleveland, Columbus, Dayton, Detroit, Grand Rapids, Indianapolis, Kalamazoo and Milwaukee metropolitan areas, making Internet access available to nearly 8 out of 10 Ameritech customers. In December 1997, we expanded our Internet service by offering Ameritech.netSM High-Speed Internet access which lets subscribers access the Internet at speeds up to fifty times faster than traditional modems. This service uses ASDL technology which uses standard copper phone wiring and a special high speed modem. Ameritech has a partnership with Microsoft to make the service easier to install and uses Microsoft's Internet Explorer software as the browser for our high speed Internet service. We plan to offer Ameritech.net High-Speed Internet Service to 7 out of 10 Ameritech customers over the next three years. Businesses in the Chicago, Cleveland and Detroit metropolitan areas can now get continuous Internet connectivity supported by around-the-clock network monitoring and technical help. 5 Electronic Commerce In May 1994, we invested $473 million in GE Information Services, Inc. (GEIS), a wholly owned subsidiary of General Electric Company and a global leader in the electronic commerce market. Our investment was in the form of a four-year interest bearing convertible debenture, guaranteed as to repayment by GE, which was to convert to equity upon the lifting of legal restrictions. In early 1998, with legal restrictions still in place, our agreement with GE was suspended and GE repaid the note. Other Business Interests In November 1997, the RHCs completed the sale of their jointly owned research company, Bell Communications Research, Inc. (Bellcore), based in New Jersey, to a California-based defense contractor, Science Applications International Corp. (SAIC). Ameritech and each of the other original RHCs owned an equal one- seventh interest in Bellcore. The sale was precipitated by the owners' diverging strategies and business plans and the desire to allow Bellcore more freedom to operate in a less restrictive and more competitive environment. Bellcore had furnished the RHCs with technical support, such as applied research, network planning, engineering and software development, and had served as a central point of contact for coordinating the efforts of the RHCs in meeting national security and emergency preparedness requirements of the federal government. SAIC, which derives most of its business from government contracts, primarily from consulting, will utilize Bellcore's considerable software and programming talent. Under terms of the sale, SAIC will honor contractual obligations to provide Bellcore's former owners with technical support and basic research and software assistance. Bellcore's current national security functions will be handled by a new organization to be funded initially by the RHCs. The new organization, the National Telecommunications Alliance, will continue to ensure that the RHCs' national security and emergency preparedness responsibilities are met. Ameritech's Global Presence Ameritech's businesses reach customers in all 50 states and more than 40 countries. With our January 1998 investment in Tele Danmark A/S, Ameritech is the largest U.S. investor in the European telecommunications industry with investments totaling approximately $6 billion in market value and financial interests in 15 European countries. We expect to continue to pursue other opportunities in North America and Europe, concentrating on expanding markets in countries that combine substantial growth potential with a high degree of economic and political stability. We have invested in four of the world's largest privatizations, in Belgium, Denmark, Hungary and New Zealand. Belgium Ameritech and our consortium partners, Tele Danmark, Singapore Telecommunications Limited and several Belgian investors, have a 49.9% stake in Belgacom S.A., the national telecommunications operator in Belgium. With 4.8 million access lines, Belgacom provides local and long distance service, serves 700,000 cellular customers and offers Internet, security and other telecommunication services to a country of 11 million people. Belgacom is growing through the rapid introduction of new services, such as 800 service and call management features. Through its 35% interest in the consortium, Ameritech holds an approximate 17.5% interest in Belgacom. Canada Ameritech is the largest security monitoring services provider in Canada. The full scope of our service offerings is covered earlier in the section entitled "Security Services." China In 1997, we withdrew from a joint venture with China Communications System Company Ltd. (ChinaCom), a communications systems and engineering company. The joint venture was originally established in 1995 to assist the People's Republic of China in the development of its telecommunications infrastructure. We made the decision to redirect that part of our foreign investment because of certain restrictions and poor prospects for returns on our investment. 6 Denmark In January 1998, we purchased a 34% interest in Tele Danmark, the national communications provider in Denmark, from the Kingdom of Denmark for approximately $3.1 billion. As part of the investment agreement, Tele Danmark is in the process of buying back and retiring the remaining shares owned by the Danish government. When this repurchase is completed in April 1998, we will hold approximately 42% of Tele Danmark's outstanding capital stock. Tele Danmark serves domestic customers through 3.3 million phone lines, 850,000 cellular phones and 750,000 cable TV connections. In addition to its 16.5% investment in Belgacom, Tele Danmark has investments in wireless services in Hungary, Poland, the Ukraine and Lithuania and in competitive telecom operators in Sweden, Germany, Hungary, Switzerland, and the Czech Republic. Denmark's telephone penetration of 63 phone lines per 100 people is comparable to that of the United States. Germany We own WLW, a leading Germany-based publisher of business-to- business directories for Germany, Austria, Switzerland, Belgium, Luxembourg, the Netherlands, Croatia, Solenia, Slovakia and the Czech Republic. WLW publishes product and company information on approximately 232,000 European companies and has a current annual circulation of over 90,000, more than three quarters of which is distributed on CD-ROM. WLW provides electronic commerce services in 10 countries using the Internet. Hungary Since 1993, Ameritech and our partner, Deutsche Telekom AG, have had an interest in MATAV, the Hungarian telecommunications company. After MATAV's initial public offering in November 1997, MagyarCom, the alliance owned in equal shares by Ameritech and Deutsche Telekom, owns approximately 59% of MATAV. The Hungarian government owns 6%. MATAV is the principal provider of local, long distance and international telephone service and the controlling shareowner in cellular ventures using both analog and GSM digital technology. MATAV has approximately 2.4 million access lines in a country of 10.5 million people and serves more than 442,000 cellular subscribers. MATAV has added more than 1 million telephone lines since 1994 and expects to increase the number of access lines in Hungary by more than 8% annually through the year 2001. In 1997, MATAV eliminated Hungary's 13-year waiting list for phone lines and became the first central European company to be listed on the New York Stock Exchange. New Zealand In 1990, Ameritech and Bell Atlantic Corporation purchased Telecom Corporation of New Zealand Limited (New Zealand Telecom), New Zealand's state-owned principal supplier of domestic and international communications services, including local, long distance, cellular, satellite TV and directory services. After public offerings and private sales of New Zealand Telecom stock required by the government at the time of the acquisition, Ameritech and Bell Atlantic each had a 24.8% interest in the company. New Zealand Telecom currently serves approximately 1.8 million customer lines and approximately 470,000 cellular customers. In 1997, New Zealand Telecom repurchased a portion of its stock in the open market. Because the New Zealand government prohibits foreign companies from owning more than 49.9% of New Zealand Telecom's stock, we sold a pro rata share of our holdings to New Zealand Telecom, as did Bell Atlantic. The repurchase program had no material effect on our holdings, increasing our ownership interest to 24.95%. In December 1997, we announced plans to sell our stake in New Zealand Telecom in a global public offering of the shares. The offering is scheduled for the first half of 1998. In 1997, we sold our 12.5% interest in Sky Network Television Limited of New Zealand, a satellite pay-TV company. We acquired our interest in the Sky TV in May 1991 and helped to increase its customer base six-fold over the six-year period of our ownership interest. Norway Since 1993, Ameritech has held an interest in NetCom, a Norwegian cellular telephone company. NetCom began providing GSM digital cellular service in September 1993. Norway has the highest per capita use of cellular telephones in the world at over 30%. Cellular penetration is expected to grow to 50% or more by 2005. With more than 400,000 current customers, NetCom has constructed an extensive mobile infrastructure network covering over 91% of the population. After a public offering in 1996, we own 19.7% of NetCom. 7 Worldwide Ameritech Library Services provides advanced management systems and information access solutions to national and international library markets. Ameritech's Human Resources We employed 74,359 people as of December 31, 1997, compared with 66,128 as of December 31, 1996. This increase was primarily attributable to growth in the security services, PCS and cable TV businesses. The Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW) represent more than 42,500 of Ameritech's employees. Of the union- represented employees, about 70% are members of the CWA and about 30% are members of the IBEW, both of which are affiliated with the AFL-CIO. Current three-year contracts expire this summer; the IBEW on June 28, 1998 and the CWA on August 8, 1998. In January 1997, a three-year agreement between Ameritech's advertising services unit and the CWA was ratified. Terms of the agreement were retroactive to August 11, 1996, the expiration date of the prior contract. At year end, the CWA represented approximately 800 of advertising service's 1,260 employees. Patents, Trademarks and Other Intellectual Property Certain Ameritech companies own or have licenses to use various patents, copyrights, trademarks and other intellectual property necessary to conduct our business. We also license other companies to use this property. We do not believe that the expiration of any of our intellectual property, or the nonrenewal of rights to use it, would have a material adverse affect on our business. Regulatory Environment - Federal The FCC develops and implements policies concerning interstate and international communications by radio, television, wire, satellite and cable. In addition to developing regulations to carry out the intent of the 1996 Act, the FCC prescribes for certain communications companies a uniform system of accounts and rules for apportioning costs between regulated and nonregulated services. The FCC, in consultation with representatives of state regulatory commissions, is also responsible for the principles and standard procedures used to separate regulated property, plant and equipment costs, revenues, expenses, taxes and reserves between those applicable to interstate services under FCC jurisdiction and those applicable to intrastate services under the respective state regulatory commission's jurisdiction. Local Competition The 1996 Act directed the FCC to establish rules and regulations to enforce the law and to preempt specific state provisions in certain circumstances. As required by the 1996 Act, in August 1996 the FCC adopted rules to implement the local competition provisions. The rules required local exchange carriers, including the Ameritech landline communications subsidiaries, among other duties, to: - - provide interconnection to any telecommunications carrier at any technically feasible point, equal in quality to that provided for the local exchange carrier's own operations; - - provide those carriers with access to network elements on an unbundled basis; and - - offer for resale, at wholesale rates, any telecommunications services that the local exchange carrier provides at retail to subscribers who are not telecommunications carriers. The FCC's rules addressed pricing for interconnection, unbundled network elements and resale of telecommunications services. In October 1996, in an order entered in an appeal filed by certain local exchange carriers, the United States Court of Appeals for the Eighth Circuit stayed the portion of the FCC rules with respect to pricing and the FCC's so-called "pick and choose" rule that would allow requesting carriers to pick and choose among individual provisions of existing interconnection agreements. The United States Supreme Court declined to overturn the appeals court stay. In July 1997, the court of appeals struck down several provisions of the FCC's August 1996 order designed to implement the interconnection provisions of the 1996 Act, ruling that: 8 - - the FCC's pricing guidelines intrude upon the rights of state regulatory commissions to implement key elements of the 1996 Act; - - the FCC lacks jurisdiction to review state regulatory commission decisions regarding interconnection agreements between incumbent local exchange carriers and their competitors; - - the FCC's pick and choose rule does not promote negotiated agreements and is unreasonable; - - local exchange carriers must provide unbundled network elements (including operations support systems and certain other services) in a manner that allows competing carriers to combine them, but they need not actually combine the elements; and - - the 1996 Act does not require incumbent local exchange carriers to provide competitors with superior quality connections. In October 1997, the Eighth Circuit Court overturned the FCC ruling requiring Ameritech and other incumbent local exchange carriers to resell bundled network services at unbundled wholesale rates. As a result of the court's decision, if new entrants to the local exchange market wish to purchase network elements at unbundled discounted prices, they must recombine the elements themselves. The RHCs had maintained that when a new entrant seeks a pre-existing combination of network elements, they are purchasing a service for resale and do not qualify for the deep discounts applicable to unbundled network elements. In January 1998, the Eighth Circuit Court ordered the FCC to uphold the court's earlier ruling transferring the power of the federal agency to set terms on prices and connections to local phone networks to the state commissions. The order came a day before the United States Supreme Court agreed to consolidate numerous appeals centering on the 1996 Act filed by AT&T, MCI, the FCC and others. Barring additional action, the case will be argued before the Supreme Court in October 1998. In December 1997, the United States District Court in Wichita Falls, Texas, declared unconstitutional a key part of the 1996 Act that excludes only the RHCs' landline communications subsidiaries from the long distance market. Two of those companies, SBC Communications Inc. and US West Communications, Inc. initiated the lawsuit. Long distance industry opponents of the ruling, the FCC and the Department of Justice asked the court for an injunction barring SBC Communications, US West and Bell Atlantic Corporation, which joined in the suit, from preparing to provide in-region long distance service until the court ruled on their stay requests. In February 1998, the court issued two orders: the final judgment giving legal effect to the court's earlier opinion and an order staying that decision pending resolution of appeals from it. The court denied the motions for injunctions. In addition, BellSouth Communications, Inc. brought two appeals to the United States Court of Appeals for the District of Columbia challenging the constitutionality of many of the same provisions of the 1996 Act for which SBC Communications and US West sought review in the Texas District Court. One action challenges the section of the 1996 Act covering electronic publishing and another challenges the sections which address long distance. Ameritech has intervened in this later appeal. Consequently, the Fifth Circuit Court and the D.C. Circuit Court are deciding the constitutionality of the provisions of the 1996 Act specifically applicable to the RHCs' landline communications subsidiaries. Price Cap Reform Ameritech's interstate revenues are regulated by a price cap mechanism rather than by rate-of-return regulation. The FCC's price cap regulatory scheme sets maximum limits on the prices that local exchange carriers can charge other carriers to access their facilities to originate or terminate interstate long distance calls and other communications. The limits are adjusted each year to reflect inflation, a productivity factor and certain other cost changes. Under price caps, local exchange carriers have increased flexibility to change prices of access services, as well as prices for interstate intraLATA service, provided they do not exceed the allowed price cap. In May 1997, the FCC issued three closely related orders addressing revisions to the original price cap plan, interstate access charge reform and funding for universal service. The new price cap rules reduced access charges by increasing the price cap productivity offset factor to 6.5% from the prior 5.3% and by applying this factor uniformly to all access providers. The new rates were effective July 1, 1997 and local exchange carriers were required to compute the new rates as if the 6.5% productivity factor had been in effect since July 1, 1996. 9 Access Charge Reform The FCC's original access charge structure was adopted at the time of the divestiture by AT&T. These policies were designed primarily to promote competition in the interstate long distance market by ensuring that all long distance companies would be able to originate and terminate their traffic over incumbent local exchange carriers' networks at just, reasonable and nondiscriminatory rates. Although these policies contemplated long distance competition, they did not attempt to address the potential effects of local or access competition. In December 1996, the FCC laid out its proposals on access charge reform, asking for comments on a number of steps it proposed to take to restructure the fees to make the system compatible with the pro-competitive deregulatory framework established by the 1996 Act. In its May 1997 access charge reform order, the FCC adopted changes to its tariff structure requiring usage-sensitive recovery that is more reflective of the way in which costs are incurred. In general, the order provides that only costs incurred on a usage- sensitive basis should be recovered in per-minute access charges and costs not incurred on a usage-sensitive basis should be recovered through flat rate charges. Universal Service In November 1996, the Federal-State Universal Service Joint Board issued its recommendations to the FCC for reforming the existing system of subsidizing universal basic telephone service. The goal was to preserve and advance universal service in a manner that permits local telephone markets to move from monopoly to competition. The FCC's May 1997 ruling required creation of a multi-billion-dollar universal service fund for subsidizing low- income customers, high cost service areas, rural health care providers, schools and libraries. Telecommunications service providers began to pay into this new universal service fund beginning on January 1, 1998. Subsidies to low-income and rural customers became available on that date and funds for linking schools and libraries to the Internet will be available as needed. Other FCC Matters As part of the process of reforming the interstate access charge system, the FCC sought comment on the treatment of Internet and other information service providers (sometimes referred to as enhanced service providers) that also use the local exchange carriers' facilities. Since the access charge system was established in 1983, enhanced service providers have been classified, for purposes of the access charge rules, as end users rather than carriers and have been exempt from access charges. In 1997, the FCC concluded that enhanced service providers should continue to be exempt from access charges. The FCC ruled in April 1997 that Ameritech has met all competitive requirements under the pay phone portion of the 1996 Act. The move to deregulate pay phone services culminated in October 1997, when responsibility for setting the price of a local pay phone call was transferred from state regulators to the competitive marketplace. Many of the provisions included in the 1996 Act, which served as the road map for pay phone deregulation, were patterned after competitive pay phone measures already in place in Illinois and Michigan. In November 1997, the FCC approved measures to implement the World Trade Organization's (WTO) landmark telecommunications agreement, opening the United States market to competition from foreign carriers and satellite providers. The FCC approved two measures that end existing requirements that foreign companies from WTO-member countries must meet tough conditions about the state of competition in their home countries before being allowed to enter the United States market. The new rules open the United States market to any of the 132-member nations of the WTO. In December 1997, the FCC announced plans to reduce rates by promoting cable competition. It proposed rules that would give cable competitors, including Ameritech, greater access to cable TV channels and called for better enforcement of existing rules to promote competition. Under the Cable Act of 1992, cable competitors are supposed to be able to broadcast any channel they choose and pay the same price as incumbent carriers. In addition, in December the United States Court of Appeals for the District of Columbia Circuit remanded to the FCC a case involving a claim that the purchase of security monitoring assets of a certain company by SecurityLink violated a provision of the 1996 Act. The FCC had previously ruled that the transaction was permissible under the Act. On remand, the court directed the FCC to resolve an ambiguity in the statute. In addition to the case on remand, three similar challenges to transactions involving purchases of security monitoring assets by SecurityLink are currently pending before the FCC. 10 Regulatory Environment - State The Ameritech landline communications subsidiaries are also subject to regulation by state commissions with respect to certain intrastate rates and services. Illinois In 1994, the Illinois Commerce Commission (ICC) approved Advantage Illinois, providing a framework for regulating Ameritech Illinois by capping prices for noncompetitive services. At the same time, the ICC approved a cap on the monthly line charge for residential customers and residential calling rates within local calling areas at November 1994 levels for five years. In return for these price protections, the ICC removed a ceiling on earnings to reflect the increasingly competitive communications industry and to create incentives to invest in new technology, develop new services and improve efficiency. In 1996, Ameritech Illinois offered Dial-1-plus capability (dialing parity) in local toll markets, giving customers the ability to choose an alternate carrier for intraLATA toll calls. In July 1997, we reduced rates in Illinois by $54 million annually. Lower prices are reflected in several product and service areas, but the largest portion of the reductions comes from increased volume discounts for certain local calls. 1997 marked the fourth consecutive year of price reductions, now totaling $461 million, under the Advantage Illinois price cap plan. Indiana In 1994, the Indiana Utility Regulatory Commission (IURC) approved the Opportunity Indiana plan. Under the plan, market- based pricing and flexibility was instituted for competitive services, including Centrex, dedicated communications services, 800 service, WATS, operator services and business intraLATA toll service. In 1997, Ameritech Indiana filed a revised alternative regulation plan and requested an interim extension of Opportunity Indiana, which was due to expire at the end of 1997. The revised plan has not yet been acted upon by the IURC. In December 1997, the IURC issued an interim order in the Opportunity Indiana proceeding. The order addressed the manner in which Ameritech Indiana will be regulated until such time as a longer term replacement regulatory structure is finalized. The ruling extended the alternative regulation plan that had been in place since 1994. However, it also ordered Ameritech Indiana to reduce rates for basic residential and business service by 4.6% and to continue infrastructure spending on fiber optics for interested schools, hospitals and government centers, and on contributions to a fund to provide distance learning equipment and courses in schools all over the state. Ameritech Indiana has initiated an appeal of this order to the Indiana Court of Appeals. The record in the appeal is not due to be filed until June 1, 1998. Until such time as the Court of Appeals issues a ruling, Ameritech Indiana will operate under the provisions of the IURC's order, with the exception of the requirement to reduce basic local service rates. Because Indiana law provides that Ameritech Indiana can continue charging current rates until the order is entered on the appeal, basic local rates will be maintained at current levels. The prices residential customers pay in Indiana have decreased by 16% over the past three years under Opportunity Indiana. Ameritech Indiana has not increased basic local service prices in 11 years. Michigan The Michigan Telecommunications Act (MTA), which is in effect until January 2001, regulates Ameritech Michigan. Ameritech Michigan began adjusting local exchange pricing structure in February 1996 to remove historical subsidies that deterred competition. We increased prices in Michigan for basic local services for business and certain residential customers. This was our first increase in residential prices and the second increase in business prices since 1984. In 1996, the Michigan Public Services Commission (MPSC) ordered Ameritech Michigan to provide statewide dialing parity on intraLATA toll calls or to discount intraLATA toll access rates. In January 1997, the Michigan Court of Appeals issued a stay of the MPSC order. In August, the Michigan Supreme Court declined AT&T's and MCI's motion to vacate the court of appeal's stay. The court of appeals held oral arguments on the main appeal in October, but has not issued a decision. To date, Ameritech Michigan is providing Dial-1-plus capability in Michigan in over 70% of our access lines on a voluntary basis. We have reduced certain access fees to long distance companies in Michigan by 55% where Dial-1-plus capability does not exist. 11 Ohio In January 1995, Ameritech Ohio implemented the Advantage Ohio price regulation plan following approval by the Public Utility Commission of Ohio (PUCO). Under the plan, overall rate changes are subject to price caps. Rates for all services were capped in 1995 and rates for basic access lines and usage were capped for an additional five years. The plan provides for the ability to flexibly price competitive and discretionary services. We are phasing in a series of annual rate reductions totaling $84 million over a six-year period including reductions in the rates for residential local usage and access lines, reductions in carrier access charges and the deaveraging of access line rates. Ameritech Ohio has committed to meeting certain benchmarks for the deployment of advanced technology to schools, hospitals and libraries, funding of community computer centers, a discounted Lifeline telephone service for low-income customers and $21 million in grants for new technology in public schools and for economic development. Under the plan, in 1997, Ameritech Ohio reduced rates by $5 million annually on popular phone features including Caller ID and call waiting. Wisconsin Under telecommunications legislation passed in 1994, the Public Service Commission of Wisconsin (PSCW) regulates Ameritech Wisconsin's prices rather than earnings. By the year 2000, Ameritech Wisconsin will invest at least $700 million on new equipment and technology, extending fiber optics to hundreds of secondary schools, technical colleges, universities, hospitals and libraries in the state. Ameritech Wisconsin has committed to meeting a number of infrastructure benchmarks along with the deployment of the infrastructure investment. Beginning in 1994, residential and small business access line rates were reduced by 10% and then frozen over the next three years. IntraLATA access rates have also declined along with interLATA access rates. Since September 1996, all of Ameritech Wisconsin's service area has had Dial-1-plus capability. Under the law, the Wisconsin Advanced Telecommunications Foundation was established to fund advanced telecommunications technology application projects and efforts to educate consumers about advanced services. Ameritech Wisconsin has contributed over $6 million through 1997 to the fund and has committed to funding at least an additional $7 million through 2001. Other State Matters In January 1998, the Michigan Public Service Commission ruled that we owe compensation under interconnection agreements to other local exchange carriers. This compensation relates to calls made by our customers to the Internet using Internet service providers who, in turn, are the customers of those other local exchange carriers. Similar issues involving the interpretation of the interconnection agreements are the subject of regulatory proceedings pending in the four other states in our region. These issues ultimately may be determined by the FCC, where a docket is currently pending. We have negotiated and secured state commission approval of over 150 agreements with competing local carriers to interconnect to our network, as provided under the 1996 Act. More agreements are pending approval. The state commissions have, in some cases, arbitrated agreements between Ameritech and competitive carriers. These agreements provide competitive carriers with the services and network elements they need to enter the local service market. Evolution of the Industry Growing customer need for new services, new technologies, regulatory reform and corporate alliances are accelerating the pace of change and creating intense competition in the communications industry. That will mean greater choice, an explosion of new products and services and better values for consumers. Ameritech faces competitors in virtually every aspect of our business. In business pursuits in and outside of the United States, we face as competitors the other RHCs, long distance service providers, cable TV companies and Internet and wireless service providers, as well as a variety of foreign entities and other entrants from adjacent segments of the communications and information services industries. Competition is global and increasingly between multinational firms with partners from different nations. More competition in our industry is inevitable. 12 We see competition as an opportunity for Ameritech to grow as the overall market expands. To stay competitive, we have continued to transform our culture, hone our strategies, achieve regulatory reform, adjust our workforce, control costs and expand our interests globally. We continue to prepare to be a formidable competitor at the heart of our dynamic industry. Item 2. Properties. General The large number and widespread locations of Ameritech's properties make it difficult to provide detailed descriptions of the physical characteristics of the individual components. In general, however, we can categorize our investment in property, plant and equipment at year-end 1997 as follows: - - "Land and Buildings," consisting of land owned by Ameritech, including improvements (namely central and administrative offices), represents 10% of our total investment; - - "Central office equipment," including switching and transmission equipment and related facilities, represents 39%; - - "Cable, wiring and conduit (or outside plant)," including aerial cable, poles, underground cable, conduit and wiring, represents 40%; - - "Other," including motor vehicles, computers and other support assets, represents 10%, and - - "Plant under construction" represents 1%. Capital Expenditures We believe that investment in Ameritech's core communications business (local phone, wireless, advertising and capital services) will: - - facilitate the introduction of new products and services; - - enhance our responsiveness to ever-increasing competitive challenges; and - - increase the operating efficiency and productivity of our network. Growth in capital expenditures was driven by demand in our core business, deployment of digital technology in our cellular networks and regulatory requirements, such as those related to the 1996 Act. Capital expenditures, the single largest use of Ameritech's funds, were $ 2.7 billion in 1997, $2.5 billion in 1996, $2.2 billion in 1995, $2.0 billion in 1994 and $2.1 billion in 1993. Our capital spending is based on customer needs and our business plans. Investments in technologies that will enable us to provide customers with new products and services represent a high priority. We continued to modernize the landline communications network throughout 1997. By year end, 86% of our customer access lines were served by digital switches. We also had installed 1,556,000 miles of fiber optic cable. By investing in our telecommunications infrastructure, we can anticipate and meet the demands on the network by customers wanting Internet access, high speed data transmission, information management and other communications services. We estimate capital spending to be about $2.9 billion for 1998. That amount will include building of our PCS networks in Cleveland and Indianapolis. Item 3. Legal Proceedings. The United States District Court for the District of Columbia signed and approved a Plan of Reorganization in connection with AT&T's divestiture, effective January 1, 1984, of certain assets to the RHCs, including Ameritech. The Plan provides for the recognition and payment of liabilities that are attributable to predivestiture events (including transactions to implement the divestiture) but that do not become certain until after the divestiture. These contingent liabilities relate principally to litigation and other claims with respect to the Bell Companies' (the former Bell telephone company subsidiaries of AT&T) rates, taxes, contracts, equal employment matters, environmental matters and torts (including business torts, such as alleged violations of the antitrust laws). 13 With respect to these liabilities, under agreements entered into at divestiture AT&T and the Bell Companies will share: - - the costs of any judgment or other determination of liability entered by a court or administrative agency; - - the costs of defending the claim (including attorneys' fees and court costs); and - - the cost of interest or penalties with respect to any judgment or determination. Unless the affected parties agree otherwise, the general rule is that responsibility for contingent liabilities will be divided among AT&T and the Bell Companies on the basis of their relative net investment (defined as total assets less accumulated depreciation) as of January 1, 1984. Different allocation rules apply to liabilities which relate exclusively to predivestiture interstate or intrastate operations. In January 1995, Ameritech and the other RHCs agreed to terminate the sharing arrangement among the Bell Companies with respect to predivestiture contingent liabilities for certain matters. AT&T did not enter into the agreement and, accordingly, the sharing arrangement remains in effect with respect to AT&T's pre-divestiture liabilities and AT&T's share of Bell Company predivestiture liabilities. In November 1997, we reached an agreement in principle to settle class action lawsuits regarding our inside wire maintenance and LINE-BACKERr services. Those customers who subscribe to these services pay a monthly fee to cover repairs to inside telephone wiring and jacks. They thereby avoid charges for labor and material at the time of repair. The lawsuits charged unfair sales practices and violations of the antitrust laws allegedly arising from our sales and marketing practices. The settlement consists of, among other things, free calling cards and pay-per-use services over specified time periods, as well as billing credits. Ameritech and its subsidiaries are also subject to claims arising in the ordinary course of business. Although we can not be sure of the outcome of any litigation, in management's opinion any financial impact would not have a material effect on our financial results. 14 Item 4. Submission of Matters to a Vote of Security Holders. We did not submit any matter to a vote of shareowners in the fourth quarter of 1997. EXECUTIVE OFFICERS OF AMERITECH (AS OF MARCH 12, 1998) The following table includes the name, age, office and term of office of each of Ameritech's executive officers. Held Name Age Officer Since - ---- --- ------ ----- Management Committee Richard C. Notebaert* 50 Chairman, President and Chief 1994 Executive Officer Barry K. Allen 49 Executive Vice President -- 1997 Regulatory and Wholesale Operations W. Patrick Campbell 51 Executive Vice President -- Corporate 1994 Strategy and Business Development Walter M. Oliver 52 Senior Vice President -- Human 1994 Resources Thomas E. Richards 43 Executive Vice President -- 1997 Communications and Information Products Oren G. Shaffer 55 Executive Vice President and Chief 1994 Financial Officer Joan H. Walker 50 Senior Vice President -- Corporate 1996 Communications Kelly R. Welsh 45 Executive Vice President and General 1996 Counsel Other Corporate Officers Walter S. Catlow 52 President -- International 1996 Bruce B. Howat 53 Secretary 1983 Barbara A. Klein 43 Vice President and Comptroller 1996 Gary R. Lytle 53 Vice President -- Federal Relations 1994 Sari L. Macrie 40 Vice President -- Investor Relations 1994 Richard W. Pehlke 43 Vice President and Treasurer 1994 * Member of the board of directors and Chairman of the Executive Committee 15 For at least the past five years, Mr. Notebaert, Mr. Catlow, Mr. Lytle, Mr. Pehlke and Mr. Howat have held high level management or executive positions with Ameritech or our subsidiaries. Prior to assuming their present positions with Ameritech, for the last five years the other executive officers were employed as follows: Mr. President Ameritech enhanced 1995 to 1997 Allen President business services 1993 to 1995 President and Chief Marquette Electronics, 1993 Executive Officer Inc. 1989 to 1993 President Illinois Bell Telephone Company Wisconsin Bell, Inc. Mr. President and Chief Columbia TriStar Home 1989 to 1994 Campbell Executive Officer Video Mr. VP-Human Resources Johnson Controls 1989 to 1994 Oliver Mr. President Ameritech network 1995 to 1997 Richards Vice President -- services 1991 to 1995 Network Operations Bell Atlantic Mr. President Virgo Cap Inc. 1992 to 1994 Shaffer Ms. Partner Bozell Sawyer Miller 1996 Walker President and Chief Group 1993 to 1996 Executive Officer Bozell Public Relations Mr. Corporation Counsel City of Chicago 1989 to 1993 Welsh Ms. Vice President and The Pillsbury Co. 1996 Klein Controller Pillsbury Bakeries & 1993 to 1996 Vice President - Finance Foodservice 1988 to 1993 Controller Sears Direct Marketing (Sears, Roebuck and Co.) Ms. VP and Director of Christensen & 1990 to 1994 Macrie Research Associates Under the By-Laws of Ameritech, officers are elected annually, but may be removed at any time at the discretion of the board of directors. PART II Items 5 Through 8. There were 760,075 owners of record of Ameritech Common Stock as of December 31, 1997. Ameritech Common Stock is listed on the New York, Boston, Chicago, Pacific, Philadelphia, London, Tokyo, Amsterdam, Basel, Geneva and Zurich stock exchanges. We have included the rest of the information required by these items in the financial section of our 1997 annual report to shareowners on pages 22 through 33, pages 35 through 49 and on the inside back cover. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP provides authoritative guidance for the capitalization of certain computer software costs developed or obtained for our internal applications, such as: - - external direct costs of materials and services, such as programming costs, - - payroll costs for employees devoting time to the software project, and - - interest costs to be capitalized. 16 Costs incurred during the preliminary project stage, as well as training and data conversion costs, are to be expensed as incurred. The SOP is effective for fiscal years beginning after December 15, 1998, however earlier application is encouraged. We have not yet quantified the impacts of adopting this SOP on our financial statements and have not determined the timing of our adoption. We have historically expensed most computer software costs as incurred. In March 1998, Ameritech Wisconsin entered into a definitive agreement to sell to Century Telephone Enterprises, Inc. the assets related to a portion of our local exchange business in Wisconsin for approximately $225 million. Under terms of the agreement, Ameritech Wisconsin will sell assets used to serve about 85,000 residential and business access lines in northern and parts of central Wisconsin. We anticipate that the transaction will conclude in late 1998, pending regulatory approval. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. We have agreed with our accountants on all matters concerning accounting principles and practices, financial statement disclosure, auditing scope and procedure during the period covered by this annual report. PART III Items 10 Through 13. We are including certain information regarding executive officers in a separate disclosure in Part I of this report. We have included the other information required by these items in our 1998 annual meeting proxy statement dated February 27, 1998. You will find our responses to these items on pages 2 through 6, in the section on Compensation of Directors on page 6, in the section on Officer and Director Stock Ownership on page 7, and in the section on Executive Compensation on pages 10 through 19. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Documents filed as part of this report (a): (1)Financial Statements (You will find these financial statements in our 1997 annual report to shareowners on the page noted): Page ---- Selected Financial and Operating Data.................... 22 Report of Management.............................. 34 Report of Independent Public Accountants................. 35 Consolidated Statements of Income........................ 36 Consolidated Balance Sheets.............................. 37 Consolidated Statements of Shareowners' Equity........... 38 Consolidated Statements of Cash Flows.................... 39 Notes to Consolidated Financial Statements............... 40 (2)Financial Statement Schedule - (We have omitted additional financial statement schedules because the required information is contained in the consolidated financial statements and notes listed above, or because schedules are not required or applicable. We have omitted separate financial statements of subsidiaries not consolidated and 50% or less owned entities because these companies are not "significant subsidiaries" as defined in the SEC rules): II -- Valuation and Qualifying Accounts.................. 25 (3)Report of Independent Public Accountants................. 24 17 (4)Exhibits - (We are including as exhibits to this report certain documents we have previously filed with the SEC, identified in parentheses below): Exhibit Number ------ 3a - Ameritech's Certificate of Incorporation, as amended on April 30, 1996 (Exhibit 3a to Form 10-Q for the quarter ended March 31, 1996, File No. 1-8612). 3b - Ameritech's By-Laws, as amended on March 19, 1997 (Exhibit 3b to Form 10-Q for the quarter ended March 31, 1997, File No. 1-8612). 4b - We are not required to file documents which define the rights of holders of long and intermediate term debt of Ameritech and all of its consolidated subsidiaries. We have agreed to furnish a copy of these documents to the SEC on request. 10a - Reorganization and Divestiture Agreement between American Telephone and Telegraph Company and American Information Technologies Corporation and Affiliates, dated as of November 1, 1983 (Exhibit 10a to Form 10-K for 1983, File No. 1-8612). 10b - Agreement Concerning Contingent Liabilities, Tax Matters and Termination of Certain Agreements, among American Telephone and Telegraph Company, Bell System Operating Companies, Regional Holding Companies and Affiliates dated as of November 1, 1983 (Exhibit 10j to Form 10-K for 1983, File No. 1-8612). 10c - Ameritech Senior Management Short Term Incentive Plan as amended and restated effective as of February 1, 1998. 10d - Ameritech Stock Retirement Plan for Non-Employee Directors (Exhibit 10ll to Form 10-K for 1986, File No. 1-8612). 10d- - First Amendment of Ameritech Stock Retirement Plan for 1 Non-Employee Directors (Exhibit 10ll-1 to Form 10-K for 1988, File No. 1-8612). 10d- - Second Amendment of Ameritech Stock Retirement Plan 2 for Non-Employee Directors (Exhibit 10ll-2 to Form 10- K for 1989, File No. 1-8612). 10e - Ameritech Senior Management Life Insurance Plan Agreements (Exhibit 10cc to Form 10-K for 1990, File No. 1-8612). 10f - Ameritech Perquisite Program (Exhibit 10ff to Form 10- K for 1991, File No. 1-8612) 10g - Ameritech Deferred Compensation Plan for Non-Employee Directors (Exhibit 10gg to Form 10-K for 1985, File No. 1-8612). 10g- - First Amendment of Deferred Compensation Plan for Non- 1 Employee Directors (Exhibit 10gg-1 to Form 10-K for 1986, File No. 1-8612). 10g- - First Amendment of American Information Technologies 2 Corporation Deferred Compensation Plan for Non- Employee Directors effective as of January 1, 1989 (Exhibit 10gg-2 to Form 10-K for 1988, File No. 1-8612). 10g- - Second Amendment of American Information Technologies 3 Corporation Deferred Compensation Plan for Non- Employee Directors (Exhibit 10gg-3 to Form 10-K for 1990, File No. 1-8612). 10g- - Third Amendment of American Information Technologies 4 Corporation Deferred Compensation Plan for Non- Employee Directors (Exhibit 10gg-4 to Form 10-K for 1990, File No. 1-8612). 10g- - Fourth Amendment of American Information Technologies 5 Corporation Deferred Compensation Plan for Non- Employee Directors (Exhibit 10gg-5 to Form 10-K for 1992, File No. 1-8612). 10h - Ameritech Plan for Non-Employee Directors' Travel Accident Insurance (Exhibit 10hh to Registration Statement No. 2-87838). 10i - Ameritech Management Supplemental Pension Plan as amended through the Seventh Amendment (Exhibit 10ii to Form 10-K for 1991, File No. 1-8612). 10i- - Eighth Amendment of Ameritech Management Supplemental 1 Pension Plan (Exhibit 10ii-1 to Form 10-K for 1991, 18 File No. 1-8612). 10i- - Ninth Amendment of Ameritech Management Supplemental 2 Pension Plan (Exhibit 10ii-2 to Form 10-K for 1991, File No. 1-8612). 10i- - Tenth Amendment to Ameritech Management Supplemental 3 Pension Plan (Exhibit 10ii-3 to Form 10-K for 1993, File No. 1-8612). 10I- - Eleventh Amendment to Ameritech Management 4 Supplemental Pension Plan (Exhibit 10ii-4 to Form 10-K for 1993, File No. 1-8612). 10I- - Twelfth Amendment to Ameritech Management Supplemental 5 Pension Plan (Exhibit 10ii-5 to Form 10-K for 1993, File No. 1-8612). 10I- - Thirteenth Amendment to Ameritech Management 6 Supplemental Pension Plan (Exhibit 10j-6 to Form 10-K for 1994, File No. 1-8612). 10j - Ameritech 1989 Long Term Incentive Plan as amended and restated effective as of January 1, 1992 (Exhibit 10oo to Form 10-K for 1991, File No. 1-8612). 10j- - First Amendment to 1989 Long Term Incentive Plan 1 (Exhibit 10oo-1 to Form 10-K for 1993, File No. 1- 8612). 10j- - Resolution concerning the exercisability of stock 2 options granted under the Ameritech 1989 Long Term Incentive Plan, approved on January 17, 1995 (Exhibit 10k-2 to Form 10-K for 1995, File No. 1-8612). 10k - Ameritech (Subsidiary) Senior Management Short Term Incentive Plan as amended and restated effective January 1, 1992 (Exhibit 10pp to Form 10-K for 1991, File No. 1-8612). 10l - Ameritech Management Employees Benefit Protection Trust as amended and restated effective as of December 1, 1997. 10m - Ameritech Corporate Resource Severance Pay Trust as amended and restated effective as of December 1, 1997. 10n - Ameritech Mid-Career Pension Plan (Exhibit 10ff to Form 10-K for 1994, File No. 1-8612). 10n- - First Amendment to Ameritech Mid-Career Pension Plan 1 (Exhibit 10ff-1 to Form 10-K for 1994, File No. 1-8612). 10n- - Second Amendment to Ameritech Mid-Career Pension Plan 2 (Exhibit 10ff-2 to Form 10-K for 1994, File No. 1-8612). 10n- - Third Amendment to Ameritech Mid-Career Pension Plan 3 (Exhibit 10ff-3 to Form 10-K for 1994, File No. 1-8612). 10n- - Fourth Amendment to Ameritech Mid-Career Pension Plan 4 (Exhibit 10ff-4 to Form 10-K for 1994, File No. 1-8612). 10n- - Fifth Amendment to Ameritech Mid-Career Pension Plan 5 (Exhibit 10ff-5 to Form 10-K for 1994, File No. 1-8612). 10n- - Sixth Amendment to Ameritech Mid-Career Pension Plan 6 (Exhibit 10ff-6 to Form 10-K for 1994, File No. 1-8612). 10n- - Seventh Amendment to Ameritech Mid-Career Pension Plan 7 (Exhibit 10ff-7 to Form 10-K for 1994, File No. 1- 8612). 10n- - Eighth Amendment to Ameritech Mid-Career Pension Plan 8 (Exhibit 10ff-8 to Form 10-K for 1994, File No. 1-8612). 10n- Ninth Amendment to Ameritech Mid-Career Pension Plan 9 (Exhibit 10o-9 to Form 10-K for 1995, File No. 1-8612). 10o - Agreement Regarding Change in Control dated as of January 19, 1994 between Ameritech and Richard C. Notebaert, together with a schedule identifying other documents (Exhibit 10mm to Form 10-K for 1993, File No. 1-8612). 19 10p - Agreement Regarding Change in Control dated as of September 9, 1994 between Ameritech and W. Patrick Campbell (Exhibit 10z to Form 10-K for 1994, File No. 1-8612). 10q - Agreement Regarding Change in Control dated as of September 9, 1994 between Ameritech and Walter M. Oliver (Exhibit 10aa to Form 10-K for 1994, File No. 1- 8612). 10r - Agreement Regarding Change in Control dated as of January 1, 1995 between Ameritech and Oren G. Shaffer (Exhibit 10bb to Form 10-K for 1994, File No. 1-8612). 10s - Agreement Regarding Change in Control dated as of December 1, 1995 between Ameritech and Barry K. Allen (Exhibit 10v to Form 10-K for 1995, File No. 1-8612). 10t - Agreement Regarding Change in Control dated as of August 1, 1996 between Ameritech and Joan H. Walker (Exhibit 10u to Form 10-K for 1997, File No. 1-8612). 10u - Agreement Regarding Change in Control dated as of December 20, 1996 between Ameritech and Kelly R. Welsh (Exhibit 10-v to Form 10-K for 1997, File No. 1-8612). 10v - Agreement Regarding Change in Control dated as of January 20, 1997 between Ameritech and Thomas E. Richards (Exhibit 10-w to Form 10-K for 1997, File No. 1-8612). 10w - Ameritech Key Management Life Insurance Plan as amended and restated effective as of February 1, 1998. 10x - Ameritech Estate Preservation Plan as amended and restated effective as of February 1, 1998. 10y - Ameritech Corporate Resource Long Term Disability Plan as amended and restated effective as of February 1, 1998. 10z - Ameritech Corporate Resource Transfer Program as amended and restated effective as of February 1, 1998. 10aa - Ameritech Corporate Resource Supplemental Pension Plan as amended and restated effective as of December 1, 1995 (Exhibit 10bb to Form 10-K for 1995, File No. 1- 8612). 10bb - Ameritech Corporate Resource Supplemental Pension Trust as amended and restated effective as of May 1, 1996 (Exhibit 10cc to Form 10-K for 1997, File No. 1- 8612). 10cc - Ameritech Corporate Resource Deferral Plan as amended and restated effective as of February 1, 1998. 10dd - Ameritech Corporate Resource Severance Pay Plan as amended and restated effective as of February 1, 1998. 10ee - Ameritech Management Committee Short Term Incentive Plan as amended and restated effective February 1, 1998. 10ff - Ameritech Long-Term Stock Incentive Plan as amended and restated effective as of February 1, 1998. 12 - Computation of ratio of earnings to fixed charges for the five years ended December 31, 1997. 13 - Portions of Ameritech's 1997 annual report to shareowners. 21 - Ameritech's subsidiaries. 23 - Consent of Arthur Andersen LLP. 24 - Powers of Attorney. 27 - Financial Data Schedule for current period and restated Financial Data Schedules for other periods. 99a - Form 11-K Annual Report for the fiscal year ended December 31, 1997 of the Ameritech Savings Plan for Salaried Employees, to be filed by amendment. 99b - Form 11-K Annual Report for the fiscal year ended December 31, 1997 of the Ameritech Savings and Security Plan (Non-Salaried Employees), to be filed by amendment. 99c - Form 11-K Annual Report for the fiscal year ended December 31, 1997 of the DonTech Profit Participation Plan, to be filed by amendment. 20 We will furnish to a shareowner on request, without charge, a copy of the 1997 annual report to shareowners and the notice of 1998 annual meeting and proxy statement, portions of which are referred to in and considered part of this report. Copies of these two documents are also available on Ameritech's Internet site at www.ameritech.com. We will furnish any other exhibit at cost. (5)Reports on Form 8-K: We filed a Current Report on Form 8-K dated December 17, 1997 under Item 5, Other Items, to report a two-for-one stock split effected as a stock dividend, authorization of a stock repurchase plan and increase of the quarterly dividend to 30 cents per post- split share, payable February 2, 1998 to shareowners of record on December 31, 1997. We filed another Form 8-K dated January 13, 1998 under Item 7, Financial Statements and Exhibits, to report Ameritech's earnings for the fourth quarter and year ended December 31, 1997. 21 SIGNATURES ---------- According to requirements of the Securities Exchange Act of 1934, an authorized company official has signed this report on our behalf. AMERITECH CORPORATION /s/ Barbara A. Klein ----------------------------- Barbara A. Klein, Vice President and Comptroller March 12, 1998 22 According to the requirements of the Securities Act of 1934, the following officers and directors have signed this report on our behalf. Principal Executive Officer: R. C. Notebaert* Chairman, President and Chief Executive Officer Principal Financial Officer: O. G. Shaffer* Executive Vice President and Chief Financial Officer Principal Accounting Officer: B. A. Klein /s/ Barbara A. Klein ----------------------------- Vice President and Comptroller (*Barbara A. Klein, for herself and as Attorney-in-Fact) March 12, 1998 Directors: D. C. Clark* M. R. Goodes* H. H. Gray* J. A. Henderson* S. B. Lubar* A. C. Martinez* J. B. McCoy* R. C. Notebaert* J. D. Ong* A. B. Rand* L. D. Tyson* J. A. Unruh* GLOSSARY Access charges - - -------------- fees that local phone companies charge to long distance carriers for the handling of long distance calls on our local network. Access line - - ----------- a telephone line for voice, data or video reaching from a local phone company to a home or business. ADSL (Asymmetric Digital Subscriber Line) - - ----------------------------------------- a technology that uses the existing copper phone wiring serving virtually all homes and businesses to provide faster network access to the Internet and other popular multimedia and data services at speeds more than 50 times faster than an ordinary phone line. Advanced data services - - ---------------------- services that use advanced technology to allow faster network access to the Internet and other multimedia and data services. Bell Companies - - -------------- the former Bell telephone subsidiaries of AT&T, including Ameritech's five local exchange companies in Illinois, Indiana, Michigan, Ohio and Wisconsin. Bundled (unbundled) network elements - - ------------------------------------ two or more components of a regulated service for which one inclusive rate is charged; separate components of a regulated service for which separate rates are charged. Call management services - - ------------------------ services that add value and convenience for phone customers, such as call waiting, call forwarding and Caller ID. These services are sold to customers individually or in packages. Cellular - - -------- a communications system that transmits voice, data or video over radio frequencies. Data communications - - ------------------- digital transmissions through wired or wireless networks, usually linking computers. Derivative - - ---------- an instrument that derives its value from the value of something else, usually a price index, an interest rate, a foreign exchange rate, or the price of a financial instrument or commodity. Dial-1-plus (Dialing parity) - - ------------------------- a feature that allows local phone customers to designate a carrier other than the local service provider for toll calls within their calling area by simply dialing 1 plus the telephone number. Digital - - ------- an alternative to traditional analog communications, digital systems transport information in the 1's and 0's of computer code for improved clarity and quality. Federal Communications Commission (FCC) - - --------------------------------------- an independent government agency whose mission is to encourage competition in all communications markets and to protect the public interest. In response to direction from the Congress, the FCC develops and implements policy concerning interstate communications by radio, television, wire, satellite, and cable. Financial Accounting Standards Board (FASB) - - ------------------------------------------- the independent body responsible for setting accounting and financial reporting standards to be followed by United States business enterprises. Hedging activities - - ------------------- risk management activities involving derivatives. Interconnection - - --------------- allowing a competitive local service provider to use the local phone company's network, or elements of the network, to provide local phone service to its customers. Internet - - -------- the global web of networks that connects computers around the world providing rapid access to information from multiple sources. Internet service providers (ISPs) - - --------------------------------- those companies providing access to the Internet and other computer- based information networks. Landline - - -------- referring to conventional wired phone service. Local access - - ------------ the local portion of long distance calls. 23 Local access and transport areas (LATAs) - - ---------------------------------------- geographic areas established in connection with AT&T's 1982 antitrust settlement with the United States government. LATAs are applicable only to the former Bell Companies and mark the boundaries within which each company, including the Ameritech landline communications subsidiaries, may provide telephone service. They are generally centered on a city or other identifiable community of interest. Local exchange carriers (LECs) - - -------------------------------------- those companies primarily involved in providing local phone service and access to the local phone network, including Ameritech's landline in Illinois, Indiana, Michigan, Ohio and Wisconsin. Long distance - - ------------- voice, data and video communications to locations beyond local service areas. Operations support systems - the databases and information used to support the provision of telephone service to end users. Personal communications services (PCS) - wireless services, such as cellular phone service and two-way paging, that use digital technology to provide enhanced call security, longer battery life and other convenience features. Price caps - - ---------- a form of regulation that sets maximum limits on the prices that local exchange carriers can charge for access services instead of limits on rate of return or profits. Privatization - - ------------- a government sale of part or all of a national company to private firms and investors. Productivity factor - - ------------------- a portion of the interstate price cap formula that requires local exchange carriers to reduce the price cap based on an assumed increase in productivity. RHCs - - ---- the seven regional holding companies formed in connection with the court-approved divestiture of certain assets of AT&T Corp., formerly American Telephone and Telegraph Company. With the 1997 mergers of two of the RHCs, Pacific Telesis Group into SBC Communications Inc. and NYNEX Corporation into Bell Atlantic Corporation, five RHCs remain. Securities and Exchange Commission (SEC) - - ---------------------------------------- the federal agency that regulates the issuance and trading of public debt and equity securities in the United States and monitors compliance with these regulations. Security services - - ----------------- services that help secure people and property, including burglar and fire alarm systems, closed circuit cameras and electronic card access. Most of our revenue in this area is from the installation and monitoring of alarm systems. Switching and transport - - ----------------------- the process of carrying information from one end point to another by connecting appropriate communications channels to form a desired circuit between the two end points. Universal service - - ----------------- a concept designed to ensure access to the telecommunications network in rural and low-income areas at affordable prices. Funding typically comes from urban telecommunications operators. Wireless - - -------- voice, data and video communications that use radio frequencies rather than wires for transmission. Includes cellular, paging and personal communications services. 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors Ameritech Corporation We have audited in accordance with generally accepted auditing standards the financial statements included in Ameritech Corporation's annual report to shareowners for the year ended December 31, 1997, incorporated by reference in this Form 10-K, and have issued our report thereon dated January 13, 1998. Our audits were made for the purpose of forming an opinion on those financial statements taken as a whole. The financial statement schedule listed in Item 14(a)(2) is the responsibility of Ameritech's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois January 13, 1998 25 AMERITECH CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR UNCOLLECTIBLES (Dollars in Millions) COL. A COL. B COL. C COL. D COL. E ------ ------ ----------------- ------ ------ Additions ----------------- Balance at Charged Charged Balance Beginning to to Other at End of of Period Expense (a) Accounts (b) Deductions (c) Period --------- ---------- ----------- ------------- ------ Year 1997...........$ 320 $ 355 $493 $ 860 $ 308 Year 1996........... 166 421 368 635 320 Year 1995........... 147 205 231 417 166 ---------------------- (a)Excludes direct charges and credits to expense on the statements of income and reinvested earnings related to interexchange carrier receivables. (b)Includes principally amounts previously written off which were credited directly to this account when recovered and amounts related to long distance carrier receivables which are being billed by Ameritech, as well as a reclassification in 1996 of $42 million from current liabilities to more accurately state the allowance. (c)Amounts written off as uncollectible. EX-10.C 2 AMERITECH SENIOR MANAGEMENT SHORT TERM INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH SENIOR MANAGEMENT SHORT TERM INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 Purpose 1 2 Awards 1 3 Eligibility 2 4 Adjustments 4 5 Other Conditions 5 6 Change in Control 6 7 Designation of Beneficiaries 8 8 Plan Administration 8 9 Amendment and Termination of the Plan 9 AMERITECH SENIOR MANAGEMENT SHORT TERM INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) 1. Purpose. The purpose of the Ameritech Senior Management Short Term Incentive Plan (the "Plan") is to provide Senior Management Employees of Ameritech Corporation, a Delaware corporation (the "Company") or of any Subsidiary or Affiliate of the Company (an "Employer"), with incentive compensation based upon the achievement of financial, service and management performance goals for the Company and its Subsidiaries or Affiliates. For purposes of the Plan, the term "Subsidiary" means any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote. The term "Affiliate" means any corporation other than a Subsidiary which would be a member of a controlled group of corporations with the Company under section 1563(a) of the Code. The "Effective Date" of the amended and restated Plan is February 1, 1998. 2. Awards. (a) The Board of Directors of the Company (the "Board") may make awards in each calendar year with respect to the preceding calendar year (the "Award Year"), beginning with awards made in 1985 with respect to Award Year 1984, in such amounts and to such of the eligible Senior Management Employees (as defined in Section 3) as it may determine in its sole discretion, subject to the conditions and limitations of the Plan. Awards shall be paid in cash in the calendar year during which such awards are made, except to the extent that an eligible employee has made an election to defer the receipt of such award pursuant to the Ameritech Corporate Resource Deferral Plan. (b) The Board shall approve a standard award ("Standard Award") for each level of management eligible to receive awards under the Plan for each Award Year for which it intends to grant awards. The Board shall also determine a percentage rate (the "Annual Percentage Rate") applicable to the Standard Awards based upon the criteria contained in subsection (c) below relating to the achievement of annual financial and other corporate goals during the Award Year. Annual Percentage Rate shall serve as a guideline in making awards to eligible Senior Management Employees under the Plan whose awards may, depending upon individual performance, be more or less (including no award) than such Annual Percentage Rate applied to the Standard Awards for an Award Year. . (c) The Annual Percentage Rate applicable to the Standard Awards referred to in subsection (b) above shall be based upon the level of achievement during the Award Year with regard to: A. Financial performance of the Company and its [consolidated subsidiaries] (prepared on the same basis as the financial statements published for financial reporting purposes and determined in accordance with subsection 8(a)); B. Service performance of the Company and its [consolidated subsidiaries]; and C. Management performance. The Board shall establish the performance criteria described in paragraphs A and B above and shall evaluate the management performance described in paragraph C above. 3. Eligibility. (a) An award may be granted for an Award Year to, or on account of, each Senior Management Employee of the Company or its Subsidiaries or Affiliates who is in active service during such Award Year (whether or not such Senior Management Employee is employed or alive on the date an award is actually granted); provided, however, that such Senior Management Employee has completed at least three months of active service at such level with the Company or a Subsidiary or Affiliate during the Award Year (excluding any time during which the Senior Management Employee was absent from service on account of sickness or disability and was receiving any benefits under a Sickness and Accident Disability Benefit Plan ("SADBP") maintained by the Company or an Associated Company ("Disability Benefits")). The term "Senior Management Employee" means an employee who has attained any of salary grades CR5 through 9 and any individual who was a participant in the Plan as of December 31, 1994 as long as such individual continues to meet the requirements to be a Senior Management Employee under the Plan as it existed as of December 31, 1994 or meets such requirements under the Plan as it exists from time to time after that date. Employees are not rendered ineligible under the Plan solely by reason of being a member of the Board. (b) Subject to the provisions of Section 6 below, the Standard Award applicable to an employee otherwise eligible to receive an award under the Plan for an Award Year shall be prorated over the Award Year, or the employee shall be ineligible to receive an award for an Award Year, as determined below: (1) entrance to or exit from - prorate from the date a level of management of entrance or exit eligible for awards after to the nearest half month the beginning of the Award Year (2) changes in market rate - prorate according to time during an Award Year of active service at each position rate to the nearest half month (3) receipt of Disability - prorate to the day based Benefits for more than on time of service while three months in an not receiving Disability Award Year under the Company or any Associated Company SADBP (4) receipt of Disability - no reduction in Benefits for three months applicable Standard or less in an Award Year Award under the Company or any Associated Company SADBP (5) normal retirement, early - prorate to date of retirement with the retirement or transfer approval of the Company or transfer to another Associated Company during an Award Year (6) leave of absence during - prorate to date leave an Award Year commences unless otherwise provided by the Board (7) death during an Award - prorate to date of death Year (8) early retirement during - no award an Award Year without the approval of the Company (9) resignation during an - no award Award Year (10)demotion during or after - no award an Award Year because of unsatisfactory performance to a position within a compensation group below the compensation group designated as "Senior Management Employee" (11) dismissal during or - no award after an Award Year by the Company or any Associated Company For all purposes under the Plan, the term "normal retirement" shall mean retirement on or after the date on which the employee reaches age 65 (or, if later, the fourth anniversary of the date the employee commenced participation in the Ameritech Management Pension Plan), and the term "early retirement" shall mean retirement on or after the date on which the Senior Management Employee's combined age and years of service equals 75, subject to Committee authorization. For all purposes under the Plan, an employee shall be deemed to have retired only if he has terminated employment with the Company and its Subsidiaries or Affiliates and is receiving retirement benefits under a pension plan maintained by the Company or a Subsidiary or Affiliated Company. (c) Notwithstanding any other provision of the Plan, with respect to eligible employees transferred between Subsidiaries or Affiliated Companies during an Award Year, the Subsidiary or Affiliated Company last employing the employee during such Award Year shall determine and pay the entire short term award, if any, for such Award Year. 4. Adjustments. (a) In order to effectuate the purpose of the Plan, the Board may make adjustments in the criteria established for any Award Year under Section 2 which reflect any extraordinary changes that may have occurred during the Award Year or which significantly alter the basis upon which such performance levels were determined. Such changes may include, without limitation, changes in accounting practices, tax, regulatory or other laws or regulations, or economic changes not in the ordinary course of business cycles. Any adjustments made by the Board can be made at any time and in any manner that the Board in its sole discretion deems appropriate and any and all such adjustments shall be conclusive and binding upon all parties concerned. (b) In the event of any change in the number of outstanding shares of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares, or other similar corporate change, the Board shall make such adjustments, if any, that it deems appropriate in the performance levels established under Section 2 for any Award Year not then completed and any and all such adjustments shall be conclusive and binding upon all parties concerned. 5. Other Conditions. (a) No person shall have any claim to be granted an award under the Plan and there is no obligation for uniformity of treatment of eligible employees under the Plan. Awards under the Plan may not be voluntarily or involuntarily assigned or alienated. (b) Neither the Plan, nor any action taken hereunder shall be construed as giving to any employee the right to be retained in the employ of the Company or any Associated Company. (c) The Company and any Associated Company shall have the right to deduct from any award to be paid under the Plan any Federal, state or local taxes required by law to be withheld with respect to such payment. (d) The amount of any award payable under the Plan shall be paid from the general revenues of the Company or an Associated Company, as the case may be. (e) Notwithstanding any other provision of the Plan, no awards will be made if, at the time payment would have been made: (i) the regular quarterly dividend on any outstanding common or preferred shares of the Company has been omitted and not subsequently paid or there exists any default in payment of dividends on any such outstanding shares; (ii) the rate of dividends on common shares of the Company is lower than any regular quarterly dividend paid during the Award Year, adjusted for any stock split, combination, exchange or similar change; or (iii) estimated net income of the Company, and its consolidated subsidiaries for the twelve-month period preceding the month the awards would otherwise have been made is less than the sum of: (1) the amount of the awards to be made under the Plan and the Short Term Incentive Plans of Associated Companies ("Associated Company Plans"); (2) the amount of payments and awards eligible for distribution to Senior Management Employees under the Ameritech Long Term Incentive Plan, the Ameritech 1989 Long Term Incentive Plan, the Long Term Stock Incentive Plan, and any successor plans, (the "Long Term Plans") in that month; and (3) all dividends applicable to such period on an accrual basis, either paid, declared or accrued at the most recently paid rate, on all outstanding preferred and common shares of the Company. In the event that net income available under clause (iii) next above for awards under the Plan, the Associated Company Plans and for payments and awards eligible for distribution under the Long Term Plans is sufficient to cover part but not all of such amounts, the following order shall be applied, pro rata, within each category: (i) dividend equivalent payments under the Long Term Plans; (ii) units eligible for distribution under the Long Term Plans; (iii)awards under the Plan and the Associated Company Plans. (f) Unless otherwise provided by the Board, awards under the Plan shall be excluded in determining benefits under any pension, retirement, disability, death, savings or other benefit plan of the Company excluding any non-qualified pension plan maintained by the Company for the purpose of providing non-qualified pension benefits with respect to such awards." 6. Change in Control. If a Change in Control (as defined below) occurs, then each eligible employee (determined under Section 3 but without regard to whether the employee has completed at least three months of active service in the applicable Award Year) who is also actively employed by the Company on the date of the Change in Control shall receive as soon as practicable following the earlier of his termination of employment or the end of the calendar year in which such Change in Control occurs, not less than 100% of the Standard Award for the Award Year in which the Change in Control occurs, subject to upward adjustment based on the criteria established by the Board of Directors of the Company prior to the Change in Control. For purposes of the Plan, the term "Change in Control" means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors which is as follows: (i) any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than: (A) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (B) the Participant or any other person acting in concert with the Participant; is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (i) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (ii) a tender offer is made for the stock of the Company, and the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (ii) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (iii) during any period of 12 consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (iv) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (A) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 55% of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (B) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of paragraph (iv) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (1) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (i) or paragraph (iv) above, or (2) any director who was not a director at the beginning of the 12-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors who were directors before the beginning of such period. 7. Designation of Beneficiaries. An eligible employee may designate a beneficiary or beneficiaries (who may be designated contingently or concurrently) to receive all or part of the awards which may be granted to the employee under the Plan in case of the eligible employee's death. A designation of beneficiary may be replaced by a new designation or may be revoked by the employee at any time. A designation or revocation shall be made on a form provided by the Company for the purpose and shall be signed by the employee and delivered to the Company prior to the employee's death. In case of the employee's death, an award granted under the Plan with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under applicable law) shall be paid to the designated beneficiary or beneficiaries. Any award granted to a deceased employee with respect to whom a designation of beneficiary is not effective, either because the employee failed to designate a beneficiary or because the designated beneficiary has predeceased the employee, shall be distributed to the employee's estate. If there shall be any question as to the legal right of any beneficiary to receive an award under the Plan, the amount in question may be paid to the estate of the employee, in which event the Company shall have no further liability to anyone with respect to such amount. 8. Plan Administration. (a) The Board shall have the exclusive right and discretion to administer and interpret the Plan, to establish rules for its administration and to determine the entitlement to benefits under the Plan. Any decision made by the Board on any matter within its discretion is conclusive, final and binding on all persons and not subject to further review. The level of financial, service and management performance referred to in Section 2 achieved for each Award Year shall be conclusively determined by the Board. The determination of financial performance achieved for any Award Year may but need not be adjusted to reflect extraordinary financial items and adjustment or restatements of the financial statements, in the discretion of the Board. Any such determination shall not be affected by subsequent adjustments or restatements. Any determinations or actions required or permitted to be made by the Board may be delegated to the Compensation Committee of the Board. The Board, and such Committee of the Board, in making any determinations under or referred to in the Plan shall be entitled to rely on opinions, reports or statements of officers or employees of the Company and any Subsidiary or Affiliated Company and of counsel, public accountants and other professional or expert persons. (b) The Plan shall be governed by the laws of the State of Illinois, to the extent not superseded by any applicable Federal law. 9. Amendment and Termination of the Plan. The Board may, at any time, amend or terminate the Plan; provided, however, that neither an amendment of nor the termination of the Plan shall reduce or impair the interests of eligible employees in awards made under the Plan as at the date of amendment or termination, as the case may be. EX-10.L 3 AMERITECH MANAGEMENT EMPLOYEES BENEFIT PROTECTION TRUST (As Amended and Restated Effective as of December 1, 1997) TABLE OF CONTENTS SECTION PAGE 1 Establishment, Name and Administration 1 1.1 Name 1 1.2 Definitions 1 1.3 Plans 2 1.4 Plan and Trust Administration 2 1.5 Change in Control 2 1.6 Trust Contributions 4 1.7 Minimum Funding Amount 5 2 Management and Control of Trust Fund Assets 5 2.1 The Trust Fund 5 2.2 Investment Guidelines and Investment Funds 5 2.3 Proxies 6 2.4 Exercise of Trustee's Duties 6 2.5 General Powers 6 2.6 Administrative Powers 12 3 Appointment of Investment Managers 13 3.1 Investment Managers 13 3.2 Investment Manager Account Cash 13 3.3 Directions 14 3.4 Notice 14 4 Establishment of Company Investment Account 14 4.1 Company Investment Accounts 14 5 Accounting and Distribution of Trust Assets 15 5.1 Common Fund 15 5.2 Trustee Records and Accounts 15 5.3 Benefit Payments 16 5.4 Withdrawals 17 6 Trustee Compensation and Expenses 17 6.1 Compensation and Expenses 17 7 Indemnification of Trustee 18 7.1 Indemnification of Trustee 18 TABLE OF CONTENTS SECTION PAGE 8 Trust Fund Assets 19 8.1 Reversions to the Company and the Subsidiaries 19 8.2 Claims of Creditors 19 8.3 Claims of Participants 20 9 Adoption by Subsidiaries 20 9.1 Adoption by and Definition of Subsidiaries 20 10 Tax Matters 21 10.1 Nature of Trust 21 10.2 Federal and State Reporting Requirements 2 1 10.3 Tax Matters 21 11 Change of Trustee 21 11.1 Resignation 21 11.2 Removal of Trustee 22 11.3 Duties of Resigning or Removed Trustee and of Successor Trustee 22 11.4 Additional Trustees 23 12 Amendment, Revocation and Termination 23 12.1 Amendment and Revocation 23 12.2 Termination 24 13 Miscellaneous 24 13.1 Disagreement as to Acts 24 13.2 Persons Dealing with Trustee 24 13.3 Evidence 24 13.4 Waiver of Notice 24 13.5 Counterparts 24 13.6 Governing Laws 24 13.7 Successors, Etc. 25 13.8 Service of Legal Process 25 13.9 Severability 25 13.10 Gender and Numbers 25 13.11 Headings 25 13.12 Action by Company and Subsidiaries 25 13.13 Nonalienation of Benefits 25 AMERITECH MANAGEMENT EMPLOYEES BENEFIT PROTECTION TRUST (As Amended and Restated Effective as of December 1, 1997) THIS TRUST AGREEMENT, made this _____ day of __________, 1997, by Ameritech Corporation, a Delaware corporation (the "Company") on behalf of itself and such of its subsidiaries and affiliates which have employees and former employees who may receive benefits from the Trust (the "Subsidiaries"), and State Street Bank and Trust Company, a trust company organized under the laws of the Commonwealth of Massachusetts, as trustee (the "Trustee"), WITNESSETH THAT: WHEREAS, the Company and the Subsidiaries have established or entered into various plans, arrangements and agreements to provide compensation, employee benefits and severance payments to or on account of eligible current and former employees of the Company and the Subsidiaries; and WHEREAS, since effective as of January 1, 1989, the Company and the Subsidiaries have maintained a grantor trust (as described in section 671 of the Internal Revenue Code of 1986, as amended (the "Code")) known as the Ameritech Management Employees Benefit Protection Trust to assure such employees and former employees that the payment of such amounts will not be improperly withheld in the event of a Change in Control of the Company (as defined in subsection 1.5); and WHEREAS, the Company and the Subsidiaries now wish to amend and restate this Trust in its entirety effective as of December 1, 1997; and NOW, THEREFORE, in consideration of the provisions and mutual covenants in this Trust, is it agreed by and between the Company on behalf of itself and the Subsidiaries and the Trustee as follows: Section 1. Establishment, Name and Administration 1.1 Name. The Company and the Trustee hereby amend and restate in its entirety the Ameritech Management Employees Benefit Protection Trust (the or this "Trust") effective as of December 1, 1997. 1.2 Definitions. Unless the context clearly requires otherwise, any word, term or phrase used in the Trust shall have the same meaning as is assigned to it under the terms of the Plans (defined below). 1.3 Plans. Subject to the provisions of Section 8, the Trust has been established to provide for the payment of compensation, employee benefits and severance benefits after a Change in Control (as defined herein) to persons entitled thereto (the "Participants" or "Participant") under the terms of the plans, arrangements and agreements listed on Schedule A of this Trust Agreement, which plans, arrangements and agreements are sometimes referred to below collectively as the "Plans" and individually as a "Plan". The Secretary of the Company shall deliver to the Trustee a certified copy of each Plan document and a copy of any amendments thereto for convenience of reference, but the rights, powers and duties of the Trustee shall be governed solely by the terms of this Agreement without reference to the provisions of any Plan. A payment under the Trust to a Participant shall, for purposes of the Plan, be deemed a payment under the Plan by the Company or the Subsidiary responsible for such payment under the Plan. 1.4 Plan and Trust Administration. Except as otherwise provided in subsection 2.2, all directions to the Trustee under this Trust shall be made by the Compensation Committee of the Company's Board of Directors (the "Committee"), and all notices from the Trustee shall be made to the Committee. The Secretary of the Company will certify the names of the members and provide the Trustee with a specimen signature of each member of the Committee. The Trustee may rely on the latest certificate without further inquiry or verification. The Committee shall act by a majority of its then members, by meeting or by writing (either a single document or concurrent documents) signed without meeting. The certificate of a majority of the members of the Committee that it has taken or authorized any action shall be conclusive in favor of any person relying on the certificate. A Committee member may delegate any of his rights, powers or duties with respect to the Trust to any other Committee member who accepts such delegation, provided that written evidence of the delegation and acceptance are filed with the Trustee. Further, as used in this Trust, the terms "Company", "Committee" or "Asset Management Committee" ("AMC") shall include, where appropriate, any applicable subcommittee or duly authorized delegate of the Company, the Committee or the AMC, as the case may be. Such duly authorized delegate may be an individual or organization within the Company, the Committee or the AMC, or may be an unrelated third party, individual or organization. 1.5 Change in Control. For purposes of the Trust, the term "Change in Control" means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors which occurs as follows: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this subparagraph (a) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (b) a tender offer is made for the stock of the Company, and one of the following occurs: (i) the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; or (ii) three business days before the offer is to terminate (unless the offer is withdrawn first) such person could own, by the terms of the offer plus any shares owned by such person, stock representing 50% or more of the total voting power of the Company's outstanding stock when the offer terminates, provided, however, that this subparagraph (b) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (c) during any period of twelve consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new Director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved; or (d) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (i) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than fifty-five percent (55%) of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (ii) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of subparagraph (d) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (A) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in subparagraph (a) or subparagraph (d) above, or (B) any director who was not a director at the beginning of the twelve-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the directors who were directors before the beginning of such period. The Secretary of the Company shall promptly notify the Trustee of the occurrence of a Change in Control and the circumstances described in subparagraphs (a), (b), (c) or (d) of this subsection 1.5 under which there is a Change in Control. 1.6 Trust Contributions. The Company has contributed $10,000 to the Trust. No additional contributions shall be required of the Company or any Subsidiary prior to a Change in Control. The Company and the Subsidiaries, however, at any time and from time to time, may contribute amounts to the Trust to be held, invested and distributed in accordance with the provisions of this Trust. As soon as possible, but no later than three business days, after a Change in Control, the Company shall contribute an amount to the Trust which is no less than the most recent Minimum Funding Amount (as defined in subsection 1.7) certified by the Committee to the Trust. As soon as possible, but no later than three business days, after each subsequent Minimum Funding Amount is certified to the Trust, the Company shall make an additional contribution of such subsequent Minimum Funding Amount to the Trust. Each Subsidiary shall reimburse the Company for each Minimum Funding Amount which is contributed to the Trust by the Company but is attributable to the potential liabilities of the Subsidiary under the Plans. After a Change in Control has occurred, if the Company fails to make a timely contribution to the Trust of any Minimum Funding Amount, the Trustee shall be obligated to commence legal action to compel the Company to make the contributions required by this subsection 1.6 unless the Company is Insolvent (as defined in subsection 8.2). 1.7 Minimum Funding Amount. The "Minimum Funding Amount" as of any date means the amount determined as follows: (a) the maximum potential liability of the Company and each Subsidiary with respect to the Plans determined as of that date in accordance with the following provisions of this subsection 1.7, REDUCED BY (b) the assets of the Trust Fund, if any, credited as of that date to the Accounts in accordance with the provisions of Section 5. The maximum potential liability of the Company and each Subsidiary with respect to each Plan shall be determined and certified as of the last day of each third calendar year, or of any interim calendar year in which changes to the compensation and/or benefit plans of eligible current or former employees would significantly affect the maximum potential liability as determined by the Secretary of the Committee, by an independent actuary (who shall be a Fellow of the Society of Actuaries selected by the Committee) on the basis of the employment period and earnings prior to the date of each individual who is participating in the Plan on that date and on the basis of the assumptions, if any, set forth with respect to that Plan on Schedule A and such actuarial assumptions as the actuary deems reasonable; provided, however, that after a Change in Control such actuarial assumptions shall not be changed, if the change would reduce the maximum potential liability for any Plan from the amount that would be determined as of the date of such change using the actuarial assumptions which were utilized for the last determination of the Minimum Funding Amount which was certified to the Trustee prior to the Change in Control. No later than sixty days after the end of each such third or interim calendar year, the Committee shall certify to the Trustee the amount of the maximum potential liability with respect to the Plans and the Minimum Funding Amount and shall furnish the Trustee with a copy of the applicable certificates of the actuary. In any year in which a calculation of the maximum potential liability is not required pursuant to the preceding sentences, the maximum potential liability shall be determined by using the prior year's maximum potential liability. Section 2. Management and Control of Trust Fund Assets 2.1 The Trust Fund. The term "Trust Fund" means all property of any kind held by the Trustee from time to time pursuant to this Trust. 2.2 Investment Guidelines and Investment Funds. Prior to a Change in Control, the Company's Asset Management Committee ("AMC") shall have the power to direct the Trustee with respect to the investment, retention, disposition and reinvestment of the Trust Fund other than the assets attributable to the Company or any Subsidiary after the date on which the Company or such Subsidiary becomes Insolvent. The AMC shall exercise such discretion with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Anything in this Trust to the contrary notwithstanding, after a Change in Control, the Trustee shall invest the Trust Fund, directly or through a trust or fund described in subsection 2.5(p), in short-term, fixed income investments, including, but not limited to, United States Treasury Bills, commercial paper, broker's acceptances and certificates of deposit. 2.3 Proxies. On behalf of itself and the Subsidiaries, the Company may, from time to time, direct the Trustee with respect to the handling and voting of proxies for all or any portion of the securities held in the Trust Fund, in which case the Trustee shall vote such proxies solely in accordance with the directions of the Company, notwithstanding the provisions of subsections 2.5(e) and 3.1. 2.4 Exercise of Trustee's Duties. Subject to the provisions of Section 8, the Trustee shall discharge its duties hereunder solely in the interest of the Participants and other persons entitled to benefits under the Plans, and: (a) for the exclusive purpose of: (i) providing benefits to or on account of the Participants and other persons entitled thereto under the Plans; and (ii) defraying the reasonable expenses of administering the Trust; and (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 2.5 General Powers. Subject to the provisions of subsection 2.2 and subsection 2.4 and Sections 3 and 4, with respect to the Trust Fund, the Trustee shall have the following powers, rights and duties in addition to those provided elsewhere in this Trust or by law: (a) To receive and hold all contributions paid to it by the Company or any Subsidiary; provided, however, that except as otherwise provided in subsection 1.6, the Trustee shall have no duty to require any contributions to be made, or to determine that any of the contributions received comply with the conditions and limitations of the Plan. (b) To apply for, pay premiums on and maintain in force on the lives of the Participants individual or group ordinary, term or universal life insurance policies for the benefit of the Participants on whose lives the policies are issued; to acquire such a policy from the Company or a Subsidiary or from the Participant on whose life the policy is issued, but only if the Trustee pays, transfers or otherwise exchanges for the policy no more than the cash surrender value of the policy and the policy is not subject to a mortgage or similar lien which the Trustee would be required to assume; to dispose of any such policy including a disposition to the Company or a Subsidiary or Participant, provided that, upon such disposition, the Trustee receives an amount which is not less than the cash surrender value of the policy; and to have with respect to such policies all of the rights, powers, options, privileges and benefits usually comprised in the term "incidents of ownership" and normally vested in an insured or owner of such policies. (c) To invest the Trust Fund in bonds, notes, debentures, certificates or other governmental, corporate, partnership, trust or personal obligations or evidences of indebtedness, mortgages, equipment trust certificates, certificates of deposit, money market securities, investment trust certificates, forward contracts, options, index options, warrants, rights, shares in mutual funds, commodities, derivative securities or instruments, futures contracts, preferred or common stocks (including securities of the Company), insurance and annuity contracts, investment contracts or other investment arrangements with insurance companies, banks or other financial institutions, common, group or collective trust funds, partnerships, shares of limited liability companies or in such other property, real or personal or any interest therein. (d) To purchase, retain, manage, sell, contract to purchase or sell, grant options to purchase or sell, convert, redeem, convey, exchange, transfer, abandon, improve, repair, insure, lease for any term even though commencing in the future or extending beyond the term of the Trust, and otherwise deal with all property, real or personal, (including selling short securities, futures, derivatives or other similar investments) on such terms and conditions as appropriate, and no person dealing with the Trustee shall be required to see to the application of any money or property delivered to the Trustee or to inquire into the validity or propriety of any transaction with the Trustee; and to acquire, hold or dispose of property, real or personal, in any form or manner including, without limitation, directly or indirectly through general or limited partnerships, corporations, trusts, participating or convertible mortgages or any other form. (e) Subject to the provisions of subsection 2.3, to have and exercise, with respect to the Trust Fund, all of the rights of an individual owner, including but not limited to the power to give proxies, to participate or oppose participation in voting trusts, mergers, consolidations, foreclosures, reorganizations or liquidations, to tender securities pursuant to tender offers, to exercise, buy or sell any stock subscription or conversion rights or privileges available in connection with any securities or other property and to deposit any property with any protective, reorganization or similar committee or with depositories designated thereby, to delegate power thereto, and to pay or agree to pay part of the expenses and compensation of any such committee and any assessments levied with respect to property so deposited. (f) To hold any securities or other property in the name of the Trustee or its nominee, or in such form as appropriate, with or without disclosing the trust relationship and to hold any securities in bearer form. (g) To engage in the lending of securities to banks, broker-dealers and other borrowers pursuant to any applicable regulatory authority and in accordance with a written agreement entered into with the Company containing any guidelines and directions provided by the Company, and to receive and invest collateral provided by the borrower. (h) To deposit securities with a clearing corporation as defined in Article 8 of the Massachusetts Uniform Commercial Code and to deposit or pledge securities or other property with any broker-dealer or other person (including the Trustee). The certificates representing securities, including those in bearer form, may be held in bulk form with, and may be merged into, certificates of the same class of the same issuer which constitute assets of other accounts or owners, without certification as to the ownership attached. Utilization of a book-entry system may be made for the transfer or pledge of securities held by the Trustee or by a clearing corporation. The Trustee shall at all times, however, maintain a separate and distinct record of the securities owned by the Trust Fund. (i) To participate in and use the Federal Book- entry Account System, a service provided by the Federal Reserve Bank for its member banks for deposit of Treasury securities. (j) To purchase, sell, hold and generally deal in any manner in and with interest rate, stock index, commodity, currency or other futures contracts and to close any open futures contracts positions prior to or in the contract's delivery month. (k) To grant, purchase, sell, exercise, permit to exercise, permit to beheld in escrow and otherwise to acquire, dispose of, hold and generally deal in any manner with or in all forms of options, including index options and over-the-counter options, in any combination. (l) To enter into and engage in any form of swap transaction. (m) To purchase, sell and otherwise acquire, dispose of, hold and generally deal in any manner with or in domestic or international currency or currency contracts, including transactions entered into with the Trustee, its agents or sub-custodians. (n) To manage, administer, operate, lease for any number of years, develop, improve, repair, alter, demolish, mortgage, pledge, grant options or easements with respect to, or otherwise deal with real property or any interest therein. (o) To renew or extend or participate in the renewal or extension of any mortgage, upon such terms as may be deemed advisable and to agree to a reduction in the rate of interest on any mortgage or to any other modification or change in the terms of any mortgage or to any guarantee pertaining thereto in any manner and to any extent that may be deemed advisable for the protection of the Trust or the preservation of the value of the investment; to waive any default, whether in the performance of any covenant or condition of any mortgage or in the performance of any guarantee, or to enforce any such default in such manner and to such extent as may be deemed advisable; to exercise and enforce any and all rights of foreclosure, to bid on property in foreclosure, to take a deed in lieu of foreclosure with or without paying a consideration therefor and in connection therewith to release the obligation on the bond secured by such mortgage, and to exercise and enforce in any action, suit or proceeding at law or in equity any rights or remedies with respect to any such mortgage or guarantee. (p) To invest all or any portion of the assets of the Trust Fund in any collective, combined, common or group investment trust or fund, including any such trust or fund maintained by the Trustee. (q) Subject to such directions as the Company provides (which may be either standing directions in the form of a written agreement with the Trustee or a separate letter of direction) to retain or invest any reasonable portion of the Trust Fund (including cash balances held from time to time as part of an Investment Manager or Company Investment Account as described in Sections 3 and 4) in cash or cash equivalents (pending other investment, reinvestment or payment of expenses or benefits), including, but not limited to, savings accounts, certificates of deposit, repurchase agreements (including savings accounts, certificates of deposit and repurchase agreements with the Trustee in its banking capacity or its affiliates, so long as such investments bear a reasonable rate of interest), United States Treasury bills, commercial paper and similar types of securities and any collective trust or mutual fund maintained by the Trustee for the management of cash or cash equivalents; and to sell any such cash equivalent instruments. (r) To borrow money to cover any overdraft; to borrow or lend money or otherwise extend credit from time to time, with or without security, from or to any legally permissible source in the best interest of the Trust Fund; to mortgage, encumber or pledge any part of the Trust Fund to secure repayment of any indebtedness resulting from such borrowing; to provide guarantees with respect to the extension of credit or other benefits by any entity; to assume liens on property acquired by the Trust and to acquire property subject to liens. (s) To convert any monies into any currency through foreign exchange transactions (which may be effected with the Trustee or an affiliate of the Trustee). (t) To form corporations and limited liability companies and to create partnerships or trusts to acquire, dispose of or hold title to any securities or other property of the Trust. (u) To settle, compromise, contest, submit to arbitration or abandon any claims, debts, damages or demands by or against the Trust Fund; to commence, maintain or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; provided that the Trustee shall not settle, compromise or abandon any such matter without the Company's written consent. (v) To retain any funds or property subject to any dispute without liability for payment of interest to any third party, and to withhold payment or delivery thereof until final adjudication of the dispute by a court of competent jurisdiction. (w) To make payments from the Trust Fund in accordance with subsection 5.3 and to pay out of or withhold from any benefit distributable from the Trust Fund any estate, inheritance, income or other tax, charge or assessment attributable thereto, subject to the provisions of subsection 6.1 and Section 10 and to require such release or other documents from any lawful taxing authority and such indemnity from the intended payee as may be necessary for the protection of the Trust, the Company, the Subsidiaries or the Trustee. (x) To employ agents experts, custodians (including but not limited to affiliates of the Trustee), sub-custodians and counsel (which may be counsel to the Company) and to delegate discretionary powers to, and reasonably rely upon information and advice furnished by, such agents, experts, custodians, sub-custodians and counsel. (y) To appoint trustees, sub-trustees, custodians or sub-custodians to hold title to property of the Trust in those jurisdictions in which the Trustee is not authorized to do business or as may otherwise be reasonable and necessary to carry out the purposes of the Trust and, subject to the provisions of this Trust, to define the scope of the responsibilities of each such trustee, sub- trustee, custodian and subcustodian. (z) To grant powers of attorney to such individuals or organizations as may be necessary or appropriate. (aa) To perform any and all other acts in its judgment necessary or appropriate for the proper and advantageous management, investment, and distribution of the Trust Fund or to carry out any of the foregoing powers and the purposes of the Trust. The Trustee shall transmit promptly to the Company or an Investment Manager, as the case may be, all notices of conversion, redemption, tender, exchange, subscription, class action, claim in insolvency proceedings or other rights or powers relating to any of the securities in a Company Investment Account or an Investment Manager Account managed by the Company or such Investment Manager, which notices are received by the Trustee from its agents or custodians, from issuers of the securities in question and from the party (or its agents) extending such rights. On a monthly basis (or at such other periodic intervals as the Company and the Trustee may agree upon), the Trustee shall transmit to the Company a summary of information regarding all class actions or claim in insolvency proceedings received by the Trustee in the preceding month (or other agreed-upon period), regardless of whether the Company or an Investment Manager is responsible for the securities in the Company Investment Account or Investment Manager Account to which such actions or proceedings relate. The Company may from time to time direct the Trustee to cease transmitting such reports if the Company determines they are not necessary at that time. The Trustee shall have no obligation to determine the existence of any conversion, redemption, tender, exchange, subscription, class action, claim in insolvency proceedings or other right or power relating to any of the securities in the Trust Fund of which notice was given prior to the purchase of such securities by the Trust Fund, and shall have no obligation to exercise any such right or power unless the Trustee is informed of the existence of the right or power. The Trustee shall not be liable for any untimely exercise or assertion of such rights or powers described in the subsection immediately above in connection with securities held in a Company Investment Account or an Investment Manager Account managed by the Company or an Investment Manager unless (i) the Trustee or its agents or custodians are in actual possession of such securities and (ii) the Trustee receives directions to exercise any such rights or powers from the Company or the Investment Manager, as the case may be, and both (i) and (ii) occur at least three business days prior to the date on which such rights or powers are to be exercised; provided, however, that the Trustee shall not be relieved from liability under this subsection for the untimely assertion of such rights or powers due to failure to timely receive direction with respect to any securities held in a Investment Manager Account for which the Trustee has been named the Investment Manager. 2.6 Administrative Powers. Notwithstanding the appointment of an Investment Manager, the Trustee shall have the following powers and authority to be exercised in its sole discretion, with respect to the Trust Fund: (a) To employ suitable agents, experts, custodians, sub-custodians and counsel. (b) To appoint ancillary trustees, sub-trustees, custodians or subcustodians to hold any portion of the assets of the Trust. (c) To register any securities held by the Trustee hereunder in its own name or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form and to deposit any securities or other property in a depository or clearing corporation. (d) To make, execute and deliver, as Trustee, any and all deeds, leases, mortgages, conveyances, waivers, releases or other instruments in writing necessary or desirable for the accomplishment of any of the foregoing powers. (e) Generally to do all ministerial acts, whether or not expressly authorized, which the Trustee may deem necessary or desirable in carrying out its duties under this Trust. Section 3. Appointment of Investment Managers 3.1 Investment Managers. Notwithstanding anything in this Trust to the contrary, the Company (or any organization or individual to whom the Company has delegated such authority) shall have the right from time to time to appoint or remove an individual, partnership or corporation (which may be a subsidiary of the Company or any other Subsidiary) as Investment Manager each of whom shall have the power to manage and to direct the Trustee with respect to the acquisition and disposal of assets constituting all or a portion of the Trust Fund, to be known as an "Investment Manager Account". Written notice of any such appointment and/or removal shall be given to the Trustee and the Investment Manager so appointed or removed. As long as an Investment Manager is acting, such Investment Manager shall direct the Trustee to invest and the Trustee shall invest the applicable Investment Manager Account (subject to the provisions of subsection 2.5(q)) in any property in which the Trustee could invest under this Trust. Subject to the provisions of the investment management agreement and subsection 2.5(q)), the Investment Manager of any Investment Manager Account shall have all of the investment powers and duties granted to or imposed on the Trustee under the provisions of subsection 2.5. Subject to the provisions of subsection 2.3, the Investment Manager shall have full authority and the responsibility to direct the Trustee with respect to the acquisition, retention, management, and disposition of all of the assets from time to time comprising the Investment Manager Account being managed by such Investment Manager and the voting of proxies thereon, and the Trustee shall have no duty or obligation to review the assets from time to time comprising such Investment Manager Account, to make recommendations with respect to the investment, reinvestment, or retention thereof, nor with respect to the voting of proxies thereon, except as would otherwise be required to meet the Trustee's obligations under the Trust, or any applicable law. At the request of the Trustee, an Investment Manager shall certify the value of any securities or other property held in the Investment Manager Account managed by the Investment Manager and the Trustee shall be entitled to incorporate such information in its reports. The Trustee shall inform the Company if the Trustee uses an Investment Manager's valuation for a particular security or other property. 3.2 Investment Manager Account Cash. Pending receipt of directions from the Investment Manager, cash received by the Trustee from time to time for any Investment Manager Account shall be fully invested in accordance with Company directions which may be either standing directions in the form of a written agreement with the Trustee or a separate letter of direction. 3.3 Directions. Any direction given to the Trustee by an Investment Manager with respect to an Investment Manager Account shall either (1) be made in writing or via facsimile or other electronic communications as shall be agreed upon by the Investment Manager and the Trustee or (2) if oral, shall be confirmed in writing or via facsimile or other electronic communications as shall be agreed upon by the Investment Manager and the Trustee within a reasonable period. The Trustee may issue to an Investment Manager security codes or passwords in order that the Trustee may verify that certain transmissions of information, including directions or instructions have been originated by the Investment Manager. To the extent that directions or instructions using such security codes or passwords constitute proper directions, Trustee liability associated with such directions shall be governed by Section 7 of this Trust. Except as otherwise provided in this Trust, the Investment Manager of an Investment Manager Account shall have the power and authority, to be exercised in its sole discretion at any time and from time to time, to issue orders for the purchase or sale of securities directly to a broker. Written notification of the issuance of each such order shall be given promptly to the Trustee by the Investment Manager and the confirmation of each such order shall be confirmed to the Trustee by the broker. Unless otherwise directed by the Investment Manager, such notification shall be authority for the Trustee to pay for securities purchased or to deliver securities sold as the case may be. Upon the direction of the Investment Manager, the Trustee will execute and deliver appropriate trading authorizations, but no such authorization shall be deemed to increase the liability or responsibility of the Trustee under this Trust Agreement. 3.4 Notice. The Trustee may assume that any Investment Manager Account previously established and the appointment of any Investment Manager for that account continues in force until receipt of written notice to the contrary from the Company, In addition, except as otherwise provided in subsection 3.2, the Trustee shall have no responsibility to invest or manage any asset held in an Investment Manger Account (unless the Trustee has itself been appointed Investment Manager for such account as described below) until the Trustee is (1) notified by the Company in writing of the termination of the Investment Manager's authority over the assets of such account and (2) directed in writing to terminate the Investment Manager Account and to transfer the assets of such account to the Trustee's management as part of the Trust Fund pursuant to a separate, written agreement. In the event that the Trustee enters into such an agreement, it shall have the powers and duties of an Investment Manager with regard to such account, in addition to its powers and duties as Trustee. Section 4. Establishment of Company Investment Account 4.1 Company Investment Accounts. The Company may, by writing filed with the Trustee, assume investment responsibility over any portion of the Trust Fund designated by it as a "Company Investment Account". In addition, during any time when there is no Investment Manager (including the Trustee if appointed as an Investment Manager ) appointed with respect to all or part of the Trust Fund, the Company shall direct the investment and reinvestment of all or such portion of the Trust Fund. With respect to assets of Company Investment Accounts over which the Company has assumed investment responsibility, the Company shall direct the Trustee to invest and the Trustee, shall invest the applicable Company Investment Account (subject to subsection 2.5(q)) in any property in which the Trustee could invest under this Trust. With respect to any Company Investment Account for which the Company has assumed investment responsibility, the Company shall have all of the investment powers and duties granted to or imposed on the Trustee under the provisions of subsection 2.5. The Company shall have full authority and the responsibility to direct the Trustee with respect to the acquisition, retention, management, and disposition of all of the assets from time to time comprising the Company Investment Account being managed by the Company and the voting of proxies thereon, and the Trustee shall have no duty or obligation to review the assets from time to time comprising such Company Investment Account, to make recommendations with respect to the investment, reinvestment or retention thereof nor with respect to the voting of proxies thereon, except as would otherwise be required to meet the Trustee's obligations under the Trust or any applicable law. The Company shall have the powers and duties with regard to the manner of giving direction to the Trustee which an Investment Manager would have under subsection 3.3 and the Trustee shall be protected to the same extent as if those directions came from an Investment Manager. Section 5. Accounting and Distribution of Trust Assets 5.1 Common Fund. Subject to the following provisions of this subsection 5.1 and the provisions of subsection 8.2, the Trustee shall not be required to make any separate investment of the Trust Fund for the account of the Plan as applied to the Company or any Subsidiary and may administer and invest all contributions made to the Trustee as one Trust Fund. The Trustee shall establish and maintain records which reflect the portion of the Trust Fund attributable to the Company and each of the Subsidiaries. Such records shall be adjusted, as of the last day of each calendar year and at such other times as the Company shall direct, to reflect changes in the Trust Fund and in the Company's and each Subsidiary's portion of the Trust Fund. The Trustee shall establish, maintain and adjust such records based upon information provided by the Company on behalf of itself and the Subsidiaries; or, if the Company fails to provide such information, the Trustee shall establish, maintain and adjust such records based upon the information otherwise reasonably available to the Trustee and subject to the Company's review and confirmation of such information. The Trustee shall not be required to make any separate investment of the Trust Fund for the account of any creditor of the Company or any Subsidiary prior to receipt of directions to make payments to such creditor in accordance with subsection 8.2. 5.2 Trustee Records and Accounts. The Trustee shall maintain accurate and detailed records and accounts of all investments, receipts, disbursements and other transactions hereunder; and all accounts, books and records relating hereto shall be open at all reasonable times to inspection and audit by such person or persons as the Company may designate. The Trustee shall submit to the auditors for the Company or to anyone the Company designates, such valuations, reports or other information as they may reasonably require. The Trustee and the Company acknowledge that cooperation with such audits could exceed the scope of the usual Trustee services, in which case the Trustee shall be entitled to reasonable compensation and reimbursement of its reasonable expenses incurred in connection with such audits, as agreed to by the Company and the Trustee at that time. The Trustee shall establish and maintain for operational and accounting purposes such other accounts or records as the Company and the Trustee may from time to time agree upon. Within ninety (90) days following the close of each calendar year (or following the close of such other period as may be agreed upon by the Trustee and the Company) and as often as may reasonably be requested by the Company and agreed to by the Trustee, the Trustee shall file with the Company a written account pursuant to guidelines provided by the Company and agreed to by the Trustee setting forth a description of all securities and other property purchased and sold, and all receipts, disbursements and other transactions effected by it upon its own authority or pursuant to the directions of any Investment Manager or the Company during such annual or shorter period, and showing the securities and other properties held at the end of such period, and their current value. Such securities and other property shall be valued at their market values, or if none, at their fair values as determined in good faith and pursuant to procedures established by the Trustee. Market values or fair values may be taken by the Trustee as of such times as the Trustee determines to be appropriate, and from such financial publications, pricing services, or other services or sources, including an Investment Manager, as the Trustee reasonably believes appropriate. The Company may approve such accounting by written notice of approval delivered to the Trustee or by failure to express objection to such accounting in writing delivered to the Trustee within twelve months from the date upon which the accounting was delivered to the Company. Upon the receipt of a written approval of the accounting, or upon the passage of the period of time within which objection may be filed without written objections having been delivered to the Trustee, such accounting shall be deemed to be approved, and the Trustee shall be released and discharged as to all items, matters and things set forth in such account. 5.3 Benefit Payments. Subject to the provisions of subsection 8.2, the Trustee shall make payments from the Trust Fund to Participants or other persons entitled to benefits under the Plan, in such manner, at such times and in such amounts as the Committee may certify to the Trustee, subject to the following: (a) If any payment directed to be made from the Trust Fund is not claimed, the Trustee shall notify the Committee of that fact within a reasonable time period and shall dispose of unclaimed distributions and take such further action as directed by the Committee. (b) If a benefit to which a Participant or other person is entitled under the terms of the Plan has not been paid when due (whether due to the failure of the Committee to notify the Trustee as required by this subsection or otherwise), then such individual may notify the Trustee thereof and request payment in writing. The Trustee shall notify the Committee within 10 days of the receipt of such payment request. If the Committee does not provide the Trustee with evidence satisfactory to the Trustee of the payment of any amount to which the individual is entitled within 30 days of the date the Trustee notifies the Committee of the payment request, subject to the provisions of subparagraph (c) below and the provisions of subsection 8.2, the Trustee shall make such payment to the individual and shall notify the Committee thereof. (c) In no event shall the Trustee make any payment to or on account of a Participant or any other person to the extent that such payment would exceed the portion of the Trust Fund then attributable to the Company or the Subsidiary responsible for such payment under the Plan. (d) Any payment under the Trust shall be made in cash unless the Trustee is otherwise directed by the Committee. 5.4 Withdrawals. If a Change in Control within the meaning of subsection 1.5(b)(ii) occurs but such event does not cause, and there does not otherwise occur within the immediately following 180-day period, a Change in Control within the meaning of subsections 1.5(a), 1.5(b)(i), or 1.5(c), the Trustee, upon receipt of a written withdrawal request from the Company or any Subsidiary, shall make a distribution from the Trust fund to the Company or Subsidiary, as the case may be, in an amount not in excess of the portion of the Trust Fund attributable to the Company or such Subsidiary under subsection 5.1. Section 6. Trustee Compensation and Expenses 6.1 Compensation and Expenses. The Trustee is authorized to pay from the Trust Fund such compensation and all reasonable and proper expenses, and charges (including fees of persons employed by the Trustee in accordance with subsection 2.5(x) and 2.5(y) and subsection 2.6(a) and 2.6(b) incurred in connection with the collection, administration, management, investment, protection and distribution of the Trust Fund as shall be agreed upon in writing by the Company and the Trustee and to the extent that they are not paid directly by the Company or any Subsidiary. In addition, the Trustee is authorized to pay from the Trust Fund any tax or assessment levied against the Trust Fund by any governmental authority. The Trustee shall notify the Company as soon as reasonably practicable (but in any event no later than five (5) business days) after the Trustee receives notice of such tax or assessment and shall provide the Company with such information as the Trustee has received concerning such tax or assessment. The Company may direct that the Trustee refrain from paying the tax or assessment for a period of up to 120 days (or, if longer, such period as may be available until such tax or assessment is due and payable under applicable law (the "Review Period")), during which time the Trustee will provide all reasonable assistance to the Company in determining the validity of such tax or assessment and will cooperate in all reasonable efforts to have the tax or assessment waived or mitigated if such tax or assessment is considered not to be owed by the Trust. At the end of such 120 days (or the Review Period), if the tax or assessment remains outstanding, the Trustee may pay the tax or assessment unless otherwise directed in writing by the Company, upon the advice of counsel satisfactory to both the Company and the Trustee. If the Trustee engages in the lending of securities or the investment of cash or cash equivalents pursuant to subsection 2.5(g) or 2.5(q), the Trustee's compensation shall include any additional compensation agreed to in writing by the Company and the Trustee with respect to such activities. In addition, the Trustee is authorized to pay from the Trust Fund all reasonable Investment Manager or investment advisor fees, legal fees, actuarial fees, accounting fees, and other reasonable administrative expenses of the Trust including Trust administration expenses incurred by the Company or any other Subsidiary at the direction of the Company, to the extent that they are not paid directly by the Company or any Subsidiary. To the extent that the foregoing expenses are paid directly by the Company or any Subsidiary, the Trustee shall reimburse the Company or such Subsidiary from the Trust Fund to the extent directed by the Company. Section 7. Indemnification of Trustee 7.1 Indemnification of Trustee. To the extent not prohibited by applicable law, the Company agrees to indemnify the Trustee and hold it harmless, from any and all liability or expense (including any reasonable legal fees and reasonable expenses incurred by the Trustee in its defense if the Company fails to provide such defense or any reasonable legal fees and reasonable expenses incurred by the Trustee pursuant to subsection 7.1(a) below), which the Trustee may sustain by (a) bringing any legal action required pursuant to subsection 1.6, (b) following any proper direction of an Investment Manager, the Company, the Committee or the AMC made in accordance with this Trust or (c) any failure to act in the absence of proper directions from an Investment Manager, the Company, the Committee or the AMC, provided that the Trustee's action or failure to act is otherwise consistent with its fiduciary obligations under any applicable law and the Trust, and provided further, that the Trustee shall not be indemnified if such liability or expense results from the Trustee's negligence or if the Trustee knowingly participates in, or knowingly undertakes to conceal an act or omission of such Investment Manager, the Company, the Committee, or the AMC, knowing such act or omission to be a breach. Anything in this Trust to the contrary notwithstanding, the preceding sentence shall not apply to the extent the Trustee is acting as an Investment Manager with respect to all or any portion of the Trust Fund. This Section shall survive the termination of the Trust or the resignation or removal of the Trustee with respect to liability or expense arising from events which occurred before the transfer of assets to a successor Trustee. Section 8. Trust Fund Assets 8.1 Reversions to the Company and the Subsidiaries. Subject to the following provisions of this subsection 8.1 and the provisions of subsection 8.2 on and after the date on which the Trust becomes irrevocable under subsection 12.1, no part of the corpus or income of the Trust Fund shall revert to the Company or any Subsidiary or be used for, or diverted to, purposes other than the exclusive benefit of Participants or other persons entitled to benefits under the Plan; provided, however, that if any funds attributable to contributions of the Company or any Subsidiary (or earnings thereon) remain after the satisfaction of all liabilities of the Trust with respect to all Participants who were previously employed by, or are entitled to benefits by reason of being a survivor or beneficiary of an employee of, the Company or such Subsidiary such amounts shall be returned to the Company or such Subsidiary. 8.2 Claims of Creditors. Notwithstanding any provision of this Trust, any property held in the Trust Fund shall be treated as an asset of the Company and the Subsidiaries and shall be subject to the claims of the general creditors of the Company and each Subsidiary to the extent of their respective interests under the Trust if such claims are not satisfied by payment from the other general assets of the Company or the Subsidiary, as the case may be, because of the Company's or Subsidiary's Insolvency (as described below). The Chairman of the Board of Directors and the Chief Executive Officer of the Company on behalf of the Company and/or any Subsidiary shall have a duty to notify the Trustee, in writing, of the Insolvency of the Company or such Subsidiary. In addition, if a person claiming to be creditor of the Company or a Subsidiary alleges in writing to the Trustee that the Company or such Subsidiary has become Insolvent, the Trustee shall determine whether the Company or such Subsidiary is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to the Plan Participants (or their beneficiaries) of the Company or such Subsidiary. Unless the Trustee has actual knowledge of the Company's or a Subsidiary's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company or a Subsidiary is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's or a Subsidiary's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's or a Subsidiary's solvency. If at any time the Trustee has determined that the Company or a Subsidiary is Insolvent, the Trustee shall discontinue payments to Plan Participants (or their beneficiaries) of the Company or such Subsidiary and shall hold the assets of the Trust equal to that portion of the Trust Fund attributable to the Company or such Subsidiary for the benefit of the Company's or such Subsidiary's general creditors. Nothing in this Trust shall in any way diminish any rights of Plan Participants or their beneficiaries to pursue their rights as general creditors of the Company or a Subsidiary with respect to benefits due under the Plan or otherwise. The Trustee shall resume the payment of benefits to the affected Plan Participants (or their beneficiaries) only after the Trustee has determined that the Company or such Subsidiary is not Insolvent (or is no longer Insolvent). Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to this subsection 8.2 and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan Participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to the Plan Participants or their beneficiaries by the Company or a Subsidiary in lieu of the payments provided for hereunder during any such period of discontinuance. The Company or any Subsidiary shall be considered as "Insolvent" (or in a condition of "Insolvency") for purposes of this Trust if it is (i) unable to pay its debts generally as they become due or (ii) engaged as a debtor in a proceeding under the Bankruptcy Code (11 U.S.C. 101 et seq.). 8.3 Claims of Participants. Neither the Participants nor other persons entitled to benefits under the terms of the Plans nor the Plans shall have any preferred claim on, or any beneficial ownership in, any assets of the Trust, or be entitled to any payment from the Trust, except to the extent that payment is due and unpaid, and all rights of a Participant (or such other person) created under the Plans and this Trust shall constitute unsecured contractual rights of the Participant (or such other person). It is intended that neither the Plans nor the Trust be subject to the provisions of part 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA"). To the extent the assets of the Trust are insufficient to pay all benefits of a Participant (or other person) when due, the Company and the Subsidiaries shall continue to be liable to the Participant (or other person) for such benefit payments in accordance with the terms of the Plans. Section 9. Adoption by Subsidiaries 9.1 Adoption by and Definition of Subsidiaries. Any Subsidiary may join in this Trust by obtaining the written consent of the Company and providing notice to the Trustee. The term "Subsidiary" means (i) any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote and which previously adopted or hereafter adopts the Plan and (ii) any affiliate, which means any corporation (other than a subsidiary described in (i) above) which would be a member of a controlled group of corporations with the Company under Section 1563(a) of the Code which previously adopted or hereafter adopts the Plan. Section 10. Tax Matters 10.1 Nature of Trust. This Trust is intended to constitute a grantor trust, as described in section 671 of the Code. The Company and the Subsidiaries agree that all income of the Trust is attributable to them as owners of the Trust assets for income tax purposes and will be income to the Company and the Subsidiaries. The Company and the Subsidiaries shall pay the Federal, state or local taxes on such Trust income or shall direct the Trustee to pay such taxes from Trust income based upon the information provided to the Company by the Trustee concerning such income in accordance with subsection 5.2. 10.2 Federal and State Reporting Requirements. The Trustee shall withhold Federal, state and local taxes which are assessable on amounts paid to or on account of the Participants based upon direction provided to the Trustee by the Company, or such larger amounts as may be requested by the Participant, and shall transmit the amount withheld either (i) to the Company which shall deposit and report such amounts to the applicable taxing authority or (ii) to the applicable taxing authority at the direction of the Company. The Company and the Trustee shall furnish to the Participants all withholding and benefit payment information with respect to amounts transmitted by them to the applicable taxing authorities as soon as practicable after the end of each calendar year. 10.3 Tax Matters. If the Internal Revenue Service determines that a Participant is subject to Federal income taxation on any amounts held in the Trust for his benefit in a calendar year prior to the calendar year in which he would otherwise receive such benefits then as soon as practicable after its receipt of a copy of the applicable notice of deficiency issued by the Internal Revenue Service, the Trustee shall distribute the amount of the benefits determined to be taxable to the Participant unless the Company or applicable Subsidiary provides satisfactory evidence to the Trustee that such benefits have previously been paid to the Participant under the Plan or that such Participant is not entitled to such benefits under the Plan. Section 11. Change of Trustee 11.1 Resignation. The Trustee may resign at any time prior to a Change in Control by giving one hundred twenty (120) days' advance written notice to the Company, the Committee, and the Participants, provided that if the Trustee is resigning because it will no longer be providing trustee services to plans such as the Plans, the Trustee must give one hundred eighty (180) days advance written notice of such resignation to the Company, the Committee, and the Participants. Prior to the effective date of any such resignation, the Company shall appoint a successor Trustee which is a corporation with not less than $5 billion in trust assets. After a Change in Control has occurred, the Trustee may resign only after the first to occur of: (i) a final decision of a court of competent jurisdiction removing the Trustee by reason of such court's determination of the existence of a conflict of interest which prevents the Trustee from properly performing its duties hereunder; or (ii) the third anniversary of the Change in Control. The Trustee agrees to use its best efforts to avoid any such conflict described in clause (i) above. For purposes of this subsection, the decision of a court shall not be deemed to be final unless the decision is not appealable, or no appeal has been taken from the decision and the time for an appeal has expired. Notwithstanding the foregoing provisions of this subsection, any such resignation pursuant to clauses (i) or (ii) above shall not be effective unless the Trustee has appointed and obtained the agreement of a corporation which is not affiliated with the Company and which has trust assets of not less than $5 billion to serve as successor trustee. 11.2 Removal of Trustee. (a) Except as provided in subparagraph (b) of this subsection 11.2 below, the Committee may remove any Trustee by giving thirty (30) days' advance written notice to the Trustee, subject to providing the removed Trustee with satisfactory written evidence of the appointment of a successor Trustee with not less than $5 billion in trust assets and of the successor Trustee's acceptance of the trusteeship; (b) Anything in this Trust to the contrary notwithstanding, in the event of a Change in Control as defined in subsection 5.4, the Company, by action of its Board of Directors or of a person or persons designated by its Board of Directors, may remove any Trustee only with the consent of all of the Participants, by giving thirty (30) days' advance written notice to the Trustee, subject to providing the removed Trustee with satisfactory written evidence of the appointment of a successor Trustee with not less than $5 billion in trust assets and of the successor Trustee's acceptance of the trusteeship. 11.3 Duties of Resigning or Removed Trustee and of Successor Trustee. Each successor Trustee shall succeed to the title to the Trust Fund vested in its predecessor, without the signing or filing of any further instrument, but any resigning or removed Trustee shall execute all documents and do all acts necessary to vest such title of record in any successor Trustee. In the event of the resignation or removal of the Trustee, the Trustee shall assign, transfer and pay over to the duly appointed successor Trustee the assets then constituting the Trust Fund, and only thereafter shall the resigning or removed Trustee be relieved of its duties and responsibilities as Trustee hereunder. Within ninety (90) days following the effective date of such resignation or removal, the resigned or removed Trustee shall furnish to the Company and the successor Trustee an account of its administration of the Trust from the date of its last account in accordance with the procedures described in subsection 5.2; provided, that if at such time current valuation information is not available for any individual or group of securities or other property, the Trustee shall use such values for this accounting as may then be available and, as soon as reasonably practicable after such current valuation information for such accounting period becomes available, shall provide the current values for that period to the Company and the successor Trustee. The Company and the successor Trustee may approve such accounting by written notice of approval delivered to the Trustee or by failure to express objection to such accounting in writing delivered to the Trustee within twelve months from the date upon which the account was delivered to the Company and the successor Trustee. Upon the receipt of a written approval of the account, or upon the passage of the period of time within which objection may be filed without written objections having been delivered to the Trustee, such accounting shall be deemed to be approved, and the Trustee shall be relieved and discharged as to all items, matters and things set forth in such account. Each successor Trustee shall have all the powers, rights and duties conferred by this Trust as if originally named Trustee. Except as otherwise provided under applicable law, neither the Trustee hereunder nor any successor Trustee shall be personally liable for any act or failure to act of a predecessor Trustee. 11.4 Additional Trustees. The Committee shall have authority at any time and for any purpose, to designate additional trustees and to define the scope of authority for each. Each additional trustee appointed under this Trust shall signify its acceptance of trusteeship by an instrument executed and acknowledged by it and delivered to the Committee. If there are two or more trustees acting hereunder, the Committee may at any time direct that all or any portion of the Trust Fund and the accounts, books and records relating thereto shall be transferred from one trustee to another. Each trustee shall individually hold, administer, invest and keep invested the portion of the Trust Fund held by it from time to time upon the terms, conditions, and limitations set forth in this Trust, as though the Company had entered into a separate trust agreement with each trustee having the same terms and conditions as this Trust, and each trustee shall be subject to the same duties and responsibilities and shall have the same powers and rights with respect to the portion of the Trust Fund held by it as a single trustee would have with respect to the entire Trust and each trustee shall have no duties or responsibilities and shall have no powers or rights with respect to that portion of the Trust Fund not held by it but held by another trustee, except as otherwise provided under the Code or other applicable law. As used in this Trust, the term "Trustee" shall mean any one or more duly appointed trustees with respect to that portion of the Trust Fund held from time to time by each such trustee. Section 12. Amendment, Revocation and Termination 12.1 Amendment and Revocation. The Company may amend or revoke this Trust, including Schedule A hereof, at any time prior to the earlier of a Change in Control or the date on which a tender offer which has not been negotiated and approved by the Company's Board of Directors is made for stock representing twenty percent or more of the total voting power of the Company's stock. This Trust, including Schedule A hereof, may be amended or revoked after a Change in Control or any such tender offer only with the consent of 75% of all employees and former employees who are currently or contingently entitled to benefits under the Plan. No amendment shall materially change the rights, duties and responsibilities of the Trustee without its consent. Subject to the foregoing provisions of this subsection 12.1, the Company's Senior Vice President - Human Resources, or such other officer of the Company as may from time to time be primarily responsible for human resources matters, may, with the concurrence of the Company's Executive Vice President and General Counsel, or such other officer of the Company as may from time to time be primarily responsible for legal matters, make minor or administrative amendments to the Trust. 12.2 Termination. Unless otherwise revoked in accordance with the provisions of subsection 12.1, this Trust shall continue in effect until such time as all of the assets of the Trust Fund have been distributed in accordance with the terms of this Trust. Upon termination of the Trust all of the provisions of the Trust as evidenced by this agreement nevertheless shall continue in effect until the Trust Fund has been distributed by the Trustee. Section 13. Miscellaneous 13.1 Disagreement as to Acts. If there is a disagreement between the Trustee and anyone as to any act or transaction reported in any accounting, the Trustee shall have the right to have its account settled by a court of competent jurisdiction. 13.2 Persons Dealing with Trustee. No person dealing with the Trustee shall be required to see to the application of any money paid or property delivered to the Trustee, or to determine whether or not the Trustee is acting pursuant to any authority granted to it under this Trust. 13.3 Evidence. Evidence required of anyone under this Trust may be by certificate, affidavit, document or other instrument which the person acting in reliance thereon reasonably considers pertinent and reliable, and signed, made or represented by the proper party. 13.4 Waiver of Notice. Any notice required under this Trust may be waived by the person entitled thereto. 13.5 Counterparts. This Trust may be executed in any number of counterparts, each of which shall be deemed an original and no other counterpart need be produced. 13.6 Governing Laws. This Trust shall be construed and administered according to the laws of the Commonwealth of Massachusetts to the extent that such laws are not preempted by the laws of the United States of America, provided that in the event that an action is brought by the Trustee on behalf of the Trust, the Company shall have the right to determine that such action shall be brought in an appropriate state or federal forum in the State of Illinois or elsewhere as the Company shall deem appropriate, and the Trustee shall follow any direction of the Company to that effect; and provided further, that in the event an action is brought by the Company against the Trustee, the Company shall have the right to determine that such action shall be brought in an appropriate state or federal forum either in the Commonwealth of Massachusetts or in the State of Illinois, subject to any right of the Trustee to remove such action from state court to an appropriate federal court in that state. 13.7 Successors, Etc. The provisions of this Trust shall be binding on the Company, the Subsidiaries and the Trustee and their successors and on all persons entitled to benefits under the Plan and their respective heirs and legal representatives. Neither the Company nor any Subsidiary shall merge or consolidate with any other corporation or liquidate or dissolve without making suitable arrangements for the fulfillment of all of its obligations under this Trust and the Plan. 13.8 Service of Legal Process. If the Trustee receives service of summons, subpoena or other legal process of any court with respect to any action relating to the Plan or this Trust, it shall promptly inform the Company of such service and, at the request of the Company, shall provide it with a copy of the document served. 13.9 Severability. In case any provision of this Trust is held invalid or illegal for any reason, such invalidity or illegality shall not affect the remaining provisions of this Trust and this Trust shall be construed and enforced as if such invalid or illegal provision had never been incorporated in this Trust. 13.10 Gender and Numbers. Where the context admits, words in the masculine gender shall include the feminine, the singular shall include the plural, and the plural shall include the singular. 13.11 Headings. The headings of Sections of this Trust are for convenience of reference only and shall have no substantive effect on the provisions of this Trust. 13.12 Action by Company and Subsidiaries. Except as otherwise provided in this Trust, any action required or permitted to be taken by the Company or any Subsidiary under the provisions of this Trust shall be by resolution of its Board of Directors, or by the person or persons authorized by resolution of its Board of Directors or if the Company or Subsidiary has no Board of Directors and is managed by its shareholder or shareholders, then by such shareholder or shareholders. 13.13 Nonalienation of Benefits. The interests under this Trust of Participants and any other persons entitled to benefits under the Plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated or encumbered. IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust to be signed and their seals to be hereunto affixed and attested by their duly authorized representatives, as of the day and year first above written. AMERITECH CORPORATION By:______________________________ Title:____________________________ ATTEST: By:____________________________ STATE STREET BANK AND TRUST Title:__________________________ COMPANY By:_______________________________ Title:_____________________________ ATTEST: By:____________________________ Title:__________________________ EX-10.M 4 AMERITECH CORPORATE RESOURCE SEVERANCE PAY TRUST (As Amended and Restated Effective As of December 1, 1997 ) TABLE OF CONTENTS SECTION PAGE 1 Establishment, Name and Administration 1 1.1 Name 1 1.2 Definitions 2 1.3 Plan 2 1.4 Plan and Trust Administration 2 1.5 Change in Control 2 1.6 Trust Contributions 4 1.7 Minimum Funding Amount 5 2 Management and Control of Trust Fund Assets 5 2.1 The Trust Fund 5 2.2 Investment Guidelines and Investment Funds 6 2.3 Proxies 6 2.4 Exercise of Trustee's Duties 6 2.5 General Powers 6 2.6 Administrative Powers 12 3 Appointment of Investment Managers 13 3.1 Investment Managers 13 3.2 Investment Manager Account Cash 13 3.3 Directions 14 3.4 Notice 14 4 Establishment of Company Investment Account 14 4.1 Company Investment Accounts 14 5 Accounting and Distribution of Trust Assets 15 5.1 Common Fund 15 5.2 Trustee Records and Accounts 15 5.3 Benefit Payments 16 5.4 Withdrawals 17 6 Trustee Compensation and Expenses 17 6.1 Compensation and Expenses 17 7 Indemnification of Trustee 18 7.1 Indemnification of Trustee 18 TABLE OF CONTENTS SECTION PAGE 8 Trust Fund Assets 19 8.1 Reversions to the Company and the Subsidiaries 19 8.2 Claims of Creditors 19 8.3 Claims of Participants 20 9 Adoption by Subsidiaries 20 9.1 Adoption by and Definition of Subsidiaries 20 10 Tax Matters 21 10.1 Nature of Trust 21 10.2 Federal and State Reporting Requirements 21 10.3 Tax Matters 21 11 Change of Trustee 21 11.1 Resignation 21 11.2 Removal of Trustee 22 11.3 Duties of Resigning or Removed Trustee and of Successor Trustee 22 11.4 Additional Trustees 23 12 Amendment, Revocation and Termination 23 12.1 Amendment and Revocation 23 12.2 Termination 24 13 Miscellaneous 24 13.1 Disagreement as to Acts 24 13.2 Persons Dealing with Trustee 24 13.3 Evidence 24 13.4 Waiver of Notice 24 13.5 Counterparts 24 13.6 Governing Laws 24 13.7 Successors, Etc. 25 13.8 Service of Legal Process 25 13.9 Severability 25 13.10 Gender and Numbers 25 13.11 Headings 25 13.12 Action by Company and Subsidiaries 25 13.13 Nonalienation of Benefits 25 AMERITECH CORPORATE RESOURCE SEVERANCE PAY TRUST (As Amended and Restated Effective as of December 1, 1997) THIS TRUST AGREEMENT, made this _____ day of __________, 1997, by Ameritech Corporation, a Delaware corporation (the "Company") on behalf of itself and such of its subsidiaries and affiliates which have employees and former employees who may receive benefits from the Trust (the "Subsidiaries"), and State Street Bank and Trust Company, a trust company organized under the laws of the Commonwealth of Massachusetts, as trustee (the "Trustee"), WITNESSETH THAT: WHEREAS, the Company maintains the Ameritech Corporate Resource Severance Pay Plan (the "Plan") to promote the long term financial interests of the Company and its shareholders by (i) providing the executives of the Company and its Subsidiaries with assurances of fair and equitable treatment as well as severance benefits consistent with competitive practices in the event of certain changes in control of the Company and (ii) reducing the risk of departures and distractions of key executives in a change in control situation which would be detrimental to the Company and its shareholders; and WHEREAS, since effective as of January 1, 1989, the Company and the Subsidiaries have maintained a grantor trust (as described in section 671 of the Internal Revenue Code of 1986, as amended (the "Code")) to provide for the payment of certain benefits under the Plan; and WHEREAS, the Company and the Subsidiaries now wish to amend and restate this Trust in its entirety effective as of December 1, 1997; and NOW, THEREFORE, in consideration of the provisions and mutual covenants in this Trust, it is agreed by and between the Company on behalf of itself and the Subsidiaries and the Trustee as follows: Section 1. Establishment, Name and Administration 1.1 Name. The Company and the Trustee hereby amend and restate in its entirety the Ameritech Corporate Resource Severance Pay Trust, formerly known as the Ameritech Senior Management Severance Pay Trust, (the or this "Trust") effective as of December 1, 1997. 1.2 Definitions. Unless the context clearly requires otherwise, any word, term or phrase used in the Trust shall have the same meaning as is assigned to it under the terms of the Plan. 1.3 Plan. Subject to the provisions of Section 8, the Trust has been established to provide for the payment of benefits after a Change in Control (as defined herein) to persons entitled thereto (the "Participants" or "Participant") under the terms of the Plan. The Secretary of the Company shall deliver to the Trustee a certified or executed copy of the Plan and of any amendments thereto for convenience of reference, but the rights, powers and duties of the Trustee shall be governed solely by the terms of this Trust. A payment under the Trust to a Participant shall, for purposes of the Plan, be deemed a payment under the Plan by the Company or the Subsidiary responsible for such payment under the Plan. 1.4 Plan and Trust Administration. Except as otherwise provided in subsection 2.2, all directions to the Trustee under this Trust shall be made by the Compensation Committee of the Company's Board of Directors (the "Committee"), and all notices from the Trustee shall be made to the Committee. The Secretary of the Company will certify the names of the members and provide the Trustee with a specimen signature of each member of the Committee. The Trustee may rely on the latest certificate without further inquiry or verification. The Committee shall act by a majority of its then members, by meeting or by writing (either a single document or concurrent documents) signed without meeting. The certificate of a majority of the members of the Committee that it has taken or authorized any action shall be conclusive in favor of any person relying on the certificate. A Committee member may delegate any of his rights, powers or duties with respect to the Trust to any other Committee member who accepts such delegation, provided that written evidence of the delegation and acceptance are filed with the Trustee. Further, as used in this Trust, the terms "Company", "Committee" or "Asset Management Committee" ("AMC") shall include, where appropriate, any applicable subcommittee or duly authorized delegate of the Company, the Committee or the AMC, as the case may be. Such duly authorized delegate may be an individual or organization within the Company, the Committee or the AMC, or may be an unrelated third party, individual or organization. 1.5 Change in Control. For purposes of the Trust, the term "Change in Control" means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors which occurs as follows: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this subparagraph (a) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (b) a tender offer is made for the stock of the Company, and one of the following occurs: (i) the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; or (ii) three business days before the offer is to terminate (unless the offer is withdrawn first) such person could own, by the terms of the offer plus any shares owned by such person, stock representing 50% or more of the total voting power of the Company's outstanding stock when the offer terminates, provided, however, that this subparagraph (b) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (c) during any period of twelve consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new Director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved; or (d) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (i) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than fifty-five percent (55%) of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (ii) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of subparagraph (d) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (A) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in subparagraph (a) or subparagraph (d) above, or (B) any director who was not a director at the beginning of the twelve-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the directors who were directors before the beginning of such period. The Secretary of the Company shall promptly notify the Trustee of the occurrence of a Change in Control and the circumstances described in subparagraphs (a), (b), (c) or (d) of this subsection 1.5 under which there is a Change in Control. 1.6 Trust Contributions. The Company has contributed $10,000 to the Trustee. No additional contributions shall be required of the Company or any Subsidiary prior to a Change in Control. The Company and the Subsidiaries, however, at any time and from time to time, may contribute amounts to the Trustee to be held, invested and distributed in accordance with the provisions of this Trust. As soon as possible, but no later than three business days, after a Change in Control, the Company shall contribute an amount to the Trust which is no less than the most recent Minimum Funding Amount (as defined in subsection 1.7) certified by the Committee to the Trustee. As soon as possible, but no later than three business days, after each subsequent Minimum Funding Amount is certified to the Trustee, the Company shall make an additional contribution of such subsequent Minimum Funding Amount to the Trust. Each Subsidiary shall reimburse the Company for each Minimum Funding Amount which is contributed to the Trust by the Company but is attributable to the potential liabilities of the Subsidiary under the Plan. After a Change in Control has occurred, if the Company fails to make a timely contribution to the Trust of any Minimum Funding Amount, the Trustee shall be obligated to commence legal action to compel the Company to make the contributions required by this subsection 1.6 unless the Company is Insolvent (as defined in subsection 8.2). 1.7 Minimum Funding Amount. The "Minimum Funding Amount" as of any date means the amount determined as follows: (a) the maximum potential liability of the Company and each Subsidiary with respect to the Plan determined as of that date in accordance with the following provisions of this subsection 1.7, REDUCED BY (b) the assets of the Trust Fund, if any, credited as of that date in accordance with the provisions of Section 5. The maximum potential liability of the Company and each Subsidiary with respect to the Plan shall be determined and certified as of the last day of each third calendar year, or of any interim calendar year in which changes to the compensation and/or benefit plans of eligible current or former employees would significantly affect the maximum potential liability as determined by the Secretary of the Committee, by an independent actuary (who shall be a Fellow of the Society of Actuaries selected by the Committee) on the basis of the employment period and earnings prior to that date of each individual who is participating in the Plan on that date and on the basis of the assumptions, if any, set forth with respect to that Plan on Schedule A and such actuarial assumptions as the actuary deems reasonable; provided, however, that after a Change in Control such actuarial assumptions shall not be changed, if the change would reduce the maximum potential liability for the Plan from the amount that would be determined as of the date of such change using the actuarial assumptions which were utilized for the last determination of the Minimum Funding Amount which was certified to the Trustee prior to the Change in Control. No later than sixty days after the end of each such third or interim calendar year, the Committee shall certify to the Trustee the amount of the maximum potential liability with respect to the Plan and the Minimum Funding Amount and shall furnish the Trustee with a copy of the applicable certificates of the actuary. In any year in which a calculation of the maximum potential liability is not required pursuant to the preceding sentences, the maximum potential liability shall be determined by using the prior year's maximum potential liability adjusted by a factor approved by the Committee. No later than sixty days after the end of any such calendar year, the Committee shall certify to the Trustee the amount of the adjusted maximum potential liability and the Minimum Funding Amount, as determined in accordance with the preceding sentence. Section 2. Management and Control of Trust Fund Assets 2.1 The Trust Fund. The term "Trust Fund" means all property of any kind held by the Trustee from time to time pursuant to this Trust. 2.2 Investment Guidelines and Investment Funds. Prior to a Change in Control, the Company's Asset Management Committee ("AMC") shall have the power to direct the Trustee with respect to the investment, retention, disposition and reinvestment of the Trust Fund other than the assets attributable to the Company or any Subsidiary after the date on which the Company or such Subsidiary becomes Insolvent. The AMC shall exercise such discretion with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Anything in this Trust to the contrary notwithstanding, after a Change in Control, the Trustee shall invest the Trust Fund, directly or through a trust or fund described in subsection 2.5(p), in short-term, fixed income investments, including, but not limited to, United States Treasury Bills, commercial paper, broker's acceptances and certificates of deposit. 2.3 Proxies. On behalf of itself and the Subsidiaries, the Company may, from time to time, direct the Trustee with respect to the handling and voting of proxies for all or any portion of the securities held in the Trust Fund, in which case the Trustee shall vote such proxies solely in accordance with the directions of the Company, notwithstanding the provisions of subsections 2.5(e) and 3.1. 2.4 Exercise of Trustee's Duties. Subject to the provisions of Section 8, the Trustee shall discharge its duties hereunder solely in the interest of the Participants and other persons entitled to benefits under the Plan, and: (a) for the exclusive purpose of: (i) providing benefits to or on account of the Participants and other persons entitled thereto under the Plan; and (ii) defraying the reasonable expenses of administering the Trust; and (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 2.5 General Powers. Subject to the provisions of subsection 2.2 and subsection 2.4 and Sections 3 and 4, with respect to the Trust Fund, the Trustee shall have the following powers, rights and duties in addition to those provided elsewhere in this Trust or by law: (a) to receive and hold all contributions paid to it by the Company or any Subsidiary; provided, however, that, except as otherwise provided in subsection 1.6, the Trustee shall have no duty to require any contributions to be made, or to determine that any of the contributions received comply with the conditions and limitations of the Plan. (b) to apply for, pay premiums on and maintain in force on the lives of Participants individual or group ordinary, term or universal life insurance policies for the benefit of the Participants on whose lives the policies are issued; to acquire such a policy from the Company or a Subsidiary or from the Participant on whose life the policy is issued, but only if the Trustee pays, transfers or otherwise exchanges for the policy no more than the cash surrender value of the policy and the policy is not subject to a mortgage or similar lien which the Trustee would be required to assume; to dispose of any such policy including a disposition to the Company or a Subsidiary or Participant, provided that, upon such disposition, the Trustee receives an amount which is not less than the cash surrender value of the policy; and to have with respect to such policies all of the rights, powers, options, privileges and benefits usually comprised in the term "incidents of ownership" and normally vested in an insured or owner of such policies. (c) To invest the Trust Fund in bonds, notes, debentures, certificates or other governmental, corporate, partnership, trust or personal obligations or evidences of indebtedness, mortgages, equipment trust certificates, certificates of deposit, money market securities, investment trust certificates, forward contracts, options, index options, warrants, rights, shares in mutual funds, commodities, derivative securities or instruments, futures contracts, preferred or common stocks (including securities of the Company), insurance and annuity contracts, investment contracts or other investment arrangements with insurance companies, banks or other financial institutions, common, group or collective trust funds, partnerships, shares of limited liability companies or in such other property, real or personal or any interest therein. (d) To purchase, retain, manage, sell, contract to purchase or sell, grant options to purchase or sell, convert, redeem, convey, exchange, transfer, abandon, improve, repair, insure, lease for any term even though commencing in the future or extending beyond the term of the Trust, and otherwise deal with all property, real or personal, (including selling short securities, futures, derivatives or other similar investments) on such terms and conditions as appropriate, and no person dealing with the Trustee shall be required to see to the application of any money or property delivered to the Trustee or to inquire into the validity or propriety of any transaction with the Trustee; and to acquire, hold or dispose of property, real or personal, in any form or manner including, without limitation, directly or indirectly through general or limited partnerships, corporations, trusts, participating or convertible mortgages or any other form. (e) Subject to the provisions of subsection 2.3, to have and exercise, with respect to the Trust Fund, all of the rights of an individual owner, including but not limited to the power to give proxies, to participate or oppose participation in voting trusts, mergers, consolidations, foreclosures, reorganizations or liquidations, to tender securities pursuant to tender offers, to exercise, buy or sell any stock subscription or conversion rights or privileges available in connection with any securities or other property and to deposit any property with any protective, reorganization or similar committee or with depositories designated thereby, to delegate power thereto, and to pay or agree to pay part of the expenses and compensation of any such committee and any assessments levied with respect to property so deposited. (f) To hold any securities or other property in the name of the Trustee or its nominee, or in such form as appropriate, with or without disclosing the trust relationship and to hold any securities in bearer form. (g) To engage in the lending of securities to banks, broker-dealers and other borrowers pursuant to any applicable regulatory authority and in accordance with a written agreement entered into with the Company containing any guidelines and directions provided by the Company, and to receive and invest collateral provided by the borrower. (h) To deposit securities with a clearing corporation as defined in Article 8 of the Massachusetts Uniform Commercial Code and to deposit or pledge securities or other property with any broker-dealer or other person (including the Trustee). The certificates representing securities, including those in bearer form, may be held in bulk form with, and may be merged into, certificates of the same class of the same issuer which constitute assets of other accounts or owners, without certification as to the ownership attached. Utilization of a book-entry system may be made for the transfer or pledge of securities held by the Trustee or by a clearing corporation. The Trustee shall at all times, however, maintain a separate and distinct record of the securities owned by the Trust Fund. (i) To participate in and use the Federal Book- entry Account System, a service provided by the Federal Reserve Bank for its member banks for deposit of Treasury securities. (j) To purchase, sell, hold and generally deal in any manner in and with interest rate, stock index, commodity, currency or other futures contracts and to close any open futures contracts positions prior to or in the contract's delivery month. (k) To grant, purchase, sell, exercise, permit to exercise, permit to be held in escrow and otherwise to acquire, dispose of, hold and generally deal in any manner with or in all forms of options, including index options and over-the-counter options, in any combination. (l) To enter into and engage in any form of swap transaction. (m) To purchase, sell and otherwise acquire, dispose of, hold and generally deal in any manner with or in domestic or international currency or currency contracts, including transactions entered into with the Trustee, its agents or sub-custodians. (n) To manage, administer, operate, lease for any number of years, develop, improve, repair, alter, demolish, mortgage, pledge, grant options or easements with respect to, or otherwise deal with real property or any interest therein. (o) To renew or extend or participate in the renewal or extension of any mortgage, upon such terms as may be deemed advisable and to agree to a reduction in the rate of interest on any mortgage or to any other modification or change in the terms of any mortgage or to any guarantee pertaining thereto in any manner and to any extent that may be deemed advisable for the protection of the Trust or the preservation of the value of the investment; to waive any default, whether in the performance of any covenant or condition of any mortgage or in the performance of any guarantee, or to enforce any such default in such manner and to such extent as may be deemed advisable; to exercise and enforce any and all rights of foreclosure, to bid on property in foreclosure, to take a deed in lieu of foreclosure with or without paying a consideration therefor and in connection therewith to release the obligation on the bond secured by such mortgage, and to exercise and enforce in any action, suit or proceeding at law or in equity any rights or remedies with respect to any such mortgage or guarantee. (p) To invest all or any portion of the assets of the Trust Fund in any collective, combined, common or group investment trust or fund, including any such trust or fund maintained by the Trustee. (q) Subject to such directions as the Company provides (which may be either standing directions in the form of a written agreement with the Trustee or a separate letter of direction) to retain or invest any reasonable portion of the Trust Fund (including cash balances held from time to time as part of an Investment Manager or Company Investment Account as described in Sections 3 and 4) in cash or cash equivalents (pending other investment, reinvestment or payment of expenses or benefits), including, but not limited to, savings accounts, certificates of deposit, repurchase agreements (including savings accounts, certificates of deposit and repurchase agreements with the Trustee in its banking capacity or its affiliates, so long as such investments bear a reasonable rate of interest), United States Treasury bills, commercial paper and similar types of securities and any collective trust or mutual fund maintained by the Trustee for the management of cash or cash equivalents; and to sell any such cash equivalent instruments. (r) To borrow money to cover any overdraft; to borrow or lend money or otherwise extend credit from time to time, with or without security, from or to any legally permissible source in the best interest of the Trust Fund; to mortgage, encumber or pledge any part of the Trust Fund to secure repayment of any indebtedness resulting from such borrowing; to provide guarantees with respect to the extension of credit or other benefits by any entity; to assume liens on property acquired by the Trust and to acquire property subject to liens. (s) To convert any monies into any currency through foreign exchange transactions (which may be effected with the Trustee or an affiliate of the Trustee). (t) To form corporations and limited liability companies and to create partnerships or trusts to acquire, dispose of or hold title to any securities or other property of the Trust. (u) To settle, compromise, contest, submit to arbitration or abandon any claims, debts, damages or demands by or against the Trust Fund; to commence, maintain or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; provided that the Trustee shall not settle, compromise or abandon any such matter without the Company's written consent. (v) To retain any funds or property subject to any dispute without liability for payment of interest to any third party, and to withhold payment or delivery thereof until final adjudication of the dispute by a court of competent jurisdiction. (w) To make payments from the Trust Fund in accordance with subsection 5.3 and to pay out of or withhold from any benefit distributable from the Trust Fund any estate, inheritance, income or other tax, charge or assessment attributable thereto, subject to the provisions of subsection 6.1 and Section 10 and to require such release or other documents from any lawful taxing authority and such indemnity from the intended payee as may be necessary for the protection of the Trust, the Company, the Subsidiaries or the Trustee. (x) To employ agents, experts, custodians (including but not limited to affiliates of the Trustee), sub-custodians and counsel (which may be counsel to the Company) and to delegate discretionary powers to, and reasonably rely upon information and advice furnished by, such agents, experts, custodians, sub-custodians and counsel. (y) To appoint trustees, sub-trustees, custodians or sub-custodians to hold title to property of the Trust in those jurisdictions in which the Trustee is not authorized to do business or as may otherwise be reasonable and necessary to carry out the purposes of the Trust and, subject to the provisions of this Trust, to define the scope of the responsibilities of each such trustee, sub- trustee, custodian and subcustodian. (z) To grant powers of attorney to such individuals or organizations as may be necessary or appropriate. (aa) To perform any and all other acts in its judgment necessary or appropriate for the proper and advantageous management, investment, and distribution of the Trust Fund or to carry out any of the foregoing powers and the purposes of the Trust. The Trustee shall transmit promptly to the Company or an Investment Manager, as the case may be, all notices of conversion, redemption, tender, exchange, subscription, class action, claim in insolvency proceedings or other rights or powers relating to any of the securities in a Company Investment Account or an Investment Manager Account managed by the Company or such Investment Manager, which notices are received by the Trustee from its agents or custodians, from issuers of the securities in question and from the party (or its agents) extending such rights. On a monthly basis (or at such other periodic intervals as the Company and the Trustee may agree upon), the Trustee shall transmit to the Company a summary of information regarding all class actions or claim in insolvency proceedings received by the Trustee in the preceding month (or other agreed-upon period), regardless of whether the Company or an Investment Manager is responsible for the securities in the Company Investment Account or Investment Manager Account to which such actions or proceedings relate. The Company may from time to time direct the Trustee to cease transmitting such reports if the Company determines they are not necessary at that time. The Trustee shall have no obligation to determine the existence of any conversion, redemption, tender, exchange, subscription, class action, claim in insolvency proceedings or other right or power relating to any of the securities in the Trust Fund of which notice was given prior to the purchase of such securities by the Trust Fund, and shall have no obligation to exercise any such right or power unless the Trustee is informed of the existence of the right or power. The Trustee shall not be liable for any untimely exercise or assertion of such rights or powers described in the subsection immediately above in connection with securities held in a Company Investment Account or an Investment Manager Account managed by the Company or an Investment Manager unless (i) the Trustee or its agents or custodians are in actual possession of such securities and (ii) the Trustee receives directions to exercise any such rights or powers from the Company or the Investment Manager, as the case may be, and both (i) and (ii) occur at least three business days prior to the date on which such rights or powers are to be exercised; provided, however, that the Trustee shall not be relieved from liability under this subsection for the untimely assertion of such rights or powers due to failure to timely receive direction with respect to any securities held in a Investment Manager Account for which the Trustee has been named the Investment Manager. 2.6 Administrative Powers. Notwithstanding the appointment of an Investment Manager, the Trustee shall have the following powers and authority to be exercised in its sole discretion, with respect to the Trust Fund: (a) To employ suitable agents, experts, custodians, sub-custodians and counsel. (b) To appoint ancillary trustees, sub-trustees, custodians or subcustodians to hold any portion of the assets of the Trust. (c) To register any securities held by the Trustee hereunder in its own name or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form and to deposit any securities or other property in a depository or clearing corporation. (d) To make, execute and deliver, as Trustee, any and all deeds, leases, mortgages, conveyances, waivers, releases or other instruments in writing necessary or desirable for the accomplishment of any of the foregoing powers. (e) Generally to do all ministerial acts, whether or not expressly authorized, which the Trustee may deem necessary or desirable in carrying out its duties under this Trust. Section 3. Appointment of Investment Managers 3.1 Investment Managers. Notwithstanding anything in this Trust to the contrary, the Company (or any organization or individual to whom the Company has delegated such authority) shall have the right from time to time to appoint or remove an individual, partnership or corporation (which may be a subsidiary of the Company or any other Subsidiary) as Investment Manager each of whom shall have the power to manage and to direct the Trustee with respect to the acquisition and disposal of assets constituting all or a portion of the Trust Fund, to be known as an "Investment Manager Account". Written notice of any such appointment and/or removal shall be given to the Trustee and the Investment Manager so appointed or removed. As long as an Investment Manager is acting, such Investment Manager shall direct the Trustee to invest and the Trustee shall invest the applicable Investment Manager Account (subject to the provisions of subsection 2.5(q)) in any property in which the Trustee could invest under this Trust. Subject to the provisions of the investment management agreement and subsection 2.5(q)), the Investment Manager of any Investment Manager Account shall have all of the investment powers and duties granted to or imposed on the Trustee under the provisions of subsection 2.5. Subject to the provisions of subsection 2.3, the Investment Manager shall have full authority and the responsibility to direct the Trustee with respect to the acquisition, retention, management, and disposition of all of the assets from time to time comprising the Investment Manager Account being managed by such Investment Manager and the voting of proxies thereon, and the Trustee shall have no duty or obligation to review the assets from time to time comprising such Investment Manager Account, to make recommendations with respect to the investment, reinvestment, or retention thereof, nor with respect to the voting of proxies thereon, except as would otherwise be required to meet the Trustee's obligations under the Trust, or any applicable law. At the request of the Trustee, an Investment Manager shall certify the value of any securities or other property held in the Investment Manager Account managed by the Investment Manager and the Trustee shall be entitled to incorporate such information in its reports. The Trustee shall inform the Company if the Trustee uses an Investment Manager's valuation for a particular security or other property. 3.2 Investment Manager Account Cash. Pending receipt of directions from the Investment Manager, cash received by the Trustee from time to time for any Investment Manager Account shall be fully invested in accordance with Company directions which may be either standing directions in the form of a written agreement with the Trustee or a separate letter of direction. 3.3 Directions. Any direction given to the Trustee by an Investment Manager with respect to an Investment Manager Account shall either (1) be made in writing or via facsimile or other electronic communications as shall be agreed upon by the Investment Manager and the Trustee or (2) if oral, shall be confirmed in writing or via facsimile or other electronic communications as shall be agreed upon by the Investment Manager and the Trustee within a reasonable period. The Trustee may issue to an Investment Manager security codes or passwords in order that the Trustee may verify that certain transmissions of information, including directions or instructions have been originated by the Investment Manager. To the extent that directions or instructions using such security codes or passwords constitute proper directions, Trustee liability associated with such directions shall be governed by Section 7 of this Trust. Except as otherwise provided in this Trust, the Investment Manager of an Investment Manager Account shall have the power and authority, to be exercised in its sole discretion at any time and from time to time, to issue orders for the purchase or sale of securities directly to a broker. Written notification of the issuance of each such order shall be given promptly to the Trustee by the Investment Manager and the confirmation of each such order shall be confirmed to the Trustee by the broker. Unless otherwise directed by the Investment Manager, such notification shall be authority for the Trustee to pay for securities purchased or to deliver securities sold as the case may be. Upon the direction of the Investment Manager, the Trustee will execute and deliver appropriate trading authorizations, but no such authorization shall be deemed to increase the liability or responsibility of the Trustee under this Trust Agreement. 3.4 Notice. The Trustee may assume that any Investment Manager Account previously established and the appointment of any Investment Manager for that account continues in force until receipt of written notice to the contrary from the Company. In addition, except as otherwise provided in Section 3.2, the Trustee shall have no responsibility to invest or manage any asset held in an Investment Manger Account (unless the Trustee has itself been appointed Investment Manager for such account as described below) until the Trustee is (1) notified by the Company in writing of the termination of the Investment Manager's authority over the assets of such account and (2) directed in writing to terminate the Investment Manager Account and to transfer the assets of such account to the Trustee's management as part of the Trust Fund pursuant to a separate, written agreement. In the event that the Trustee enters into such an agreement, it shall have the powers and duties of an Investment Manager with regard to such account, in addition to its powers and duties as Trustee. Section 4. Establishment of Company Investment Account 4.1 Company Investment Accounts. The Company may, by writing filed with the Trustee, assume investment responsibility over any portion of the Trust Fund designated by it as a "Company Investment Account". In addition, during any time when there is no Investment Manager (including the Trustee if appointed as an Investment Manager ) appointed with respect to all or part of the Trust Fund, the Company shall direct the investment and reinvestment of all or such portion of the Trust Fund. With respect to assets of Company Investment Accounts over which the Company has assumed investment responsibility, the Company shall direct the Trustee to invest and the Trustee, shall invest the applicable Company Investment Account (subject to subsection 2.5(q)) in any property in which the Trustee could invest under this Trust. With respect to any Company Investment Account for which the Company has assumed investment responsibility, the Company shall have all of the investment powers and duties granted to or imposed on the Trustee under the provisions of subsection 2.5. The Company shall have full authority and the responsibility to direct the Trustee with respect to the acquisition, retention, management, and disposition of all of the assets from time to time comprising the Company Investment Account being managed by the Company and the voting of proxies thereon, and the Trustee shall have no duty or obligation to review the assets from time to time comprising such Company Investment Account, to make recommendations with respect to the investment, reinvestment or retention thereof nor with respect to the voting of proxies thereon, except as would otherwise be required to meet the Trustee's obligations under the Trust or any applicable law. The Company shall have the powers and duties with regard to the manner of giving direction to the Trustee which an Investment Manager would have under subsection 3.3 and the Trustee shall be protected to the same extent as if those directions came from an Investment Manager. Section 5. Accounting and Distribution of Trust Assets 5.1 Common Fund. Subject to the following provisions of this subsection 5.1 and the provisions of subsection 8.2, the Trustee shall not be required to make any separate investment of the Trust Fund for the account of the Plan as applied to the Company or any Subsidiary and may administer and invest all contributions made to the Trustee as one Trust Fund. The Trustee shall establish and maintain records which reflect the portion of the Trust Fund attributable to the Company and each of the Subsidiaries. Such records shall be adjusted, as of the last day of each calendar year and at such other times as the Company shall direct, to reflect changes in the Trust Fund and in the Company's and each Subsidiary's portion of the Trust Fund. The Trustee shall establish, maintain and adjust such records based upon information provided by the Company on behalf of itself and the Subsidiaries; or, if the Company fails to provide such information, the Trustee shall establish, maintain and adjust such records based upon the information otherwise reasonably available to the Trustee and subject to the Company's review and confirmation of such information. The Trustee shall not be required to make any separate investment of the Trust Fund for the account of any creditor of the Company or any Subsidiary prior to receipt of directions to make payments to such creditor in accordance with subsection 8.2. 5.2 Trustee Records and Accounts. The Trustee shall maintain accurate and detailed records and accounts of all investments, receipts, disbursements and other transactions hereunder; and all accounts, books and records relating hereto shall be open at all reasonable times to inspection and audit by such person or persons as the Company may designate. The Trustee shall submit to the auditors for the Company or to anyone the Company designates, such valuations, reports or other information as they may reasonably require. The Trustee and the Company acknowledge that cooperation with such audits could exceed the scope of the usual Trustee services, in which case the Trustee shall be entitled to reasonable compensation and reimbursement of its reasonable expenses incurred in connection with such audits, as agreed to by the Company and the Trustee at that time. The Trustee shall establish and maintain for operational and accounting purposes such other accounts or records as the Company and the Trustee may from time to time agree upon . Within ninety (90) days following the close of each calendar year (or following the close of such other period as may be agreed upon by the Trustee and the Company) and as often as may reasonably be requested by the Company and agreed to by the Trustee, the Trustee shall file with the Company a written account pursuant to guidelines provided by the Company and agreed to by the Trustee setting forth a description of all securities and other property purchased and sold, and all receipts, disbursements and other transactions effected by it upon its own authority or pursuant to the directions of any Investment Manager or the Company during such annual or shorter period, and showing the securities and other properties held at the end of such period, and their current value. Such securities and other property shall be valued at their market values, or if none, at their fair values as determined in good faith and pursuant to procedures established by the Trustee. Market values or fair values may be taken by the Trustee as of such times as the Trustee determines to be appropriate, and from such financial publications, pricing services, or other services or sources, including an Investment Manager, as the Trustee reasonably believes appropriate. The Company may approve such accounting by written notice of approval delivered to the Trustee or by failure to express objection to such accounting in writing delivered to the Trustee within twelve months from the date upon which the accounting was delivered to the Company. Upon the receipt of a written approval of the accounting, or upon the passage of the period of time within which objection may be filed without written objections having been delivered to the Trustee, such accounting shall be deemed to be approved, and the Trustee shall be released and discharged as to all items, matters and things set forth in such account. 5.3 Benefit Payments. Subject to the provisions of subsection 8.2, the Trustee shall make payments from the Trust Fund to Participants or other persons entitled to benefits under the Plan, in such manner, at such times and in such amounts as the Committee may certify to the Trustee, subject to the following: (a) If any payment directed to be made from the Trust Fund is not claimed, the Trustee shall notify the Committee of that fact within a reasonable time period and shall dispose of unclaimed distributions and take such further action as directed by the Committee. (b) If a benefit to which a Participant or other person is entitled under the terms of the Plan has not been paid when due (whether due to the failure of the Committee to notify the Trustee as required by this subsection or otherwise), then such individual may notify the Trustee thereof and request payment in writing. The Trustee shall notify the Committee within 10 days of the receipt of such payment request. If the Committee does not provide the Trustee with evidence satisfactory to the Trustee of the payment of any amount to which the individual is entitled within 30 days of the date the Trustee notifies the Committee of the payment request, subject to the provisions of subparagraph (c) below and the provisions of subsection 8.2, the Trustee shall make such payment to the individual and shall notify the Committee thereof. (c) In no event shall the Trustee make any payment to or on account of a Participant or any other person to the extent that such payment would exceed the portion of the Trust Fund then attributable to the Company or the Subsidiary responsible for such payment under the Plan. (d) Any payment under the Trust shall be made in cash unless the Trustee is otherwise directed by the Committee. 5.4 Withdrawals. If a Change in Control within the meaning of subsection 1.5(b)(ii) occurs but such event does not cause, and there does not otherwise occur within the immediately following 180-day period, a Change in Control within the meaning of subsections 1.5(a), 1.5(b)(i) or 1.5(c), the Trustee upon receipt of a written withdrawal request from the Company or any Subsidiary, shall make distribution from the Trust Fund to the Company or Subsidiary, as the case may be, in an amount not in excess of the portion of the Trust Fund attributable to the Company or such Subsidiary under subsection 5.1. Section 6. Trustee Compensation and Expenses 6.1 Compensation and Expenses. The Trustee is authorized to pay from the Trust Fund such compensation and all reasonable and proper expenses, and charges (including fees of persons employed by the Trustee in accordance with subsection 2.5(x) and 2.5(y) and subsection 2.6(a) and 2.6(b) incurred in connection with the collection, administration, management, investment, protection and distribution of the Trust Fund as shall be agreed upon in writing by the Company and the Trustee and to the extent that they are not paid directly by the Company or any Subsidiary. In addition, the Trustee is authorized to pay from the Trust Fund any tax or assessment levied against the Trust Fund by any governmental authority. The Trustee shall notify the Company as soon as reasonably practicable (but in any event no later than five (5) business days) after the Trustee receives notice of such tax or assessment and shall provide the Company with such information as the Trustee has received concerning such tax or assessment. The Company may direct that the Trustee refrain from paying the tax or assessment for a period of up to 120 days (or, if longer, such period as may be available until such tax or assessment is due and payable under applicable law (the "Review Period")), during which time the Trustee will provide all reasonable assistance to the Company in determining the validity of such tax or assessment and will cooperate in all reasonable efforts to have the tax or assessment waived or mitigated if such tax or assessment is considered not to be owed by the Trust. At the end of such 120 days (or the Review Period), if the tax or assessment remains outstanding, the Trustee may pay the tax or assessment unless otherwise directed in writing by the Company, upon the advice of counsel satisfactory to both the Company and the Trustee. If the Trustee engages in the lending of securities or the investment of cash or cash equivalents pursuant to subsection 2.5(g) or 2.5(q), the Trustee's compensation shall include any additional compensation agreed to in writing by the Company and the Trustee with respect to such activities. In addition, the Trustee is authorized to pay from the Trust Fund all reasonable Investment Manager or investment advisor fees, legal fees, actuarial fees, accounting fees, and other reasonable administrative expenses of the Trust including Trust administration expenses incurred by the Company or any other Subsidiary at the direction of the Company, to the extent that they are not paid directly by the Company or any Subsidiary. To the extent that the foregoing expenses are paid directly by the Company or any Subsidiary, the Trustee shall reimburse the Company or such Subsidiary from the Trust Fund to the extent directed by the Company. Section 7. Indemnification of Trustee 7.1 Indemnification of Trustee. To the extent not prohibited by applicable law, the Company agrees to indemnify the Trustee and hold it harmless, from any and all liability or expense (including any reasonable legal fees and reasonable expenses incurred by the Trustee in its defense if the Company fails to provide such defense or any reasonable legal fees and reasonable expenses incurred by the Trustee pursuant to subsection 7.1(a) below), which the Trustee may sustain by (a) bringing any legal action required pursuant to subsection 1.6, (b) following any proper direction of an Investment Manager, the Company, the Committee or the AMC made in accordance with this Trust or (c) any failure to act in the absence of proper directions from an Investment Manager, the Company, the Committee or the AMC, provided that the Trustee's action or failure to act is otherwise consistent with its fiduciary obligations under any applicable law and the Trust, and provided further, that the Trustee shall not be indemnified if such liability or expense results from the Trustee's negligence or if the Trustee knowingly participates in, or knowingly undertakes to conceal an act or omission of such Investment Manager, the Company, the Committee, or the AMC, knowing such act or omission to be a breach. Anything in this Trust to the contrary notwithstanding, the preceding sentence shall not apply to the extent the Trustee is acting as an Investment Manager with respect to all or any portion of the Trust Fund. This Section shall survive the termination of the Trust or the resignation or removal of the Trustee with respect to liability or expense arising from events which occurred before the transfer of assets to a successor Trustee. Section 8. Trust Fund Assets 8.1 Reversions to the Company and the Subsidiaries. Subject to the following provisions of this subsection 8.1 and the provisions of subsection 8.2, on and after the date on which the Trust becomes irrevocable under subsection 12.1, no part of the corpus or income of the Trust Fund shall revert to the Company or any Subsidiary or be used for, or diverted to, purposes other than the exclusive benefit of Participants or other persons entitled to benefits under the Plan; provided, however, that if any funds attributable to contributions of the Company or any Subsidiary (or earnings thereon) remain after the satisfaction of all liabilities of the Trust with respect to all Participants who were previously employed by, or are entitled to benefits by reason of being a survivor or beneficiary of an employee of, the Company or such Subsidiary such amounts shall be returned to the Company or such Subsidiary. 8.2 Claims of Creditors. Notwithstanding any provision of this Trust, any property held in the Trust Fund shall be treated as an asset of the Company and the Subsidiaries and shall be subject to the claims of the general creditors of the Company and each Subsidiary to the extent of their respective interests under the Trust if such claims are not satisfied by payment from the other general assets of the Company or the Subsidiary, as the case may be, because of the Company's or Subsidiary's Insolvency (as described below). The Chairman of the Board of Directors and the Chief Executive Officer of the Company on behalf of the Company and/or any Subsidiary shall have a duty to notify the Trustee, in writing, of the Insolvency of the Company or such Subsidiary. In addition, if a person claiming to be creditor of the Company or a Subsidiary alleges in writing to the Trustee that the Company or such Subsidiary has become Insolvent, the Trustee shall determine whether the Company or such Subsidiary is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to the Plan Participants (or their beneficiaries) of the Company or such Subsidiary. Unless the Trustee has actual knowledge of the Company's or a Subsidiary's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company or a Subsidiary is Insolvent, the Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's or a Subsidiary's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's or a Subsidiary's solvency. If at any time the Trustee has determined that the Company or a Subsidiary is Insolvent, the Trustee shall discontinue payments to Plan Participants (or their beneficiaries) of the Company or such Subsidiary and shall hold the assets of the Trust equal to that portion of the Trust Fund attributable to the Company or such Subsidiary for the benefit of the Company's or such Subsidiary's general creditors. Nothing in this Trust shall in any way diminish any rights of Plan Participants or their beneficiaries to pursue their rights as general creditors of the Company or a Subsidiary with respect to benefits due under the Plan or otherwise. The Trustee shall resume the payment of benefits to the affected Plan Participants or their beneficiaries only after the Trustee has determined that the Company or such Subsidiary is not Insolvent (or is no longer Insolvent). Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to this subsection 8.2 and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan Participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to the Plan Participants or their beneficiaries by the Company or a Subsidiary in lieu of the payments provided for hereunder during any such period of discontinuance. The Company or any Subsidiary shall be considered as "Insolvent" (or in a condition of "Insolvency") for purposes of this Trust if it is (i) unable to pay its debts generally as they become due or (ii) engaged as a debtor in a proceeding under the Bankruptcy Code (11 U.S.C. 101 et seq.). 8.3 Claims of Participants. Neither the Participants nor other persons entitled to benefits under the terms of the Plan nor the Plan shall have any preferred claim on, or any beneficial ownership in, any assets of the Trust, or be entitled to any payment from the Trust, except to the extent that payment is due and unpaid, and all rights of a Participant (or such other person) created under the Plan and this Trust shall constitute unsecured contractual rights of the Participant (or such other person). It is intended that neither the Plan nor the Trust be subject to the provisions of part 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA"). To the extent the assets of the Trust are insufficient to pay all benefits of a Participant (or other person) when due, the Company and the Subsidiaries shall continue to be liable to the Participant (or other person) for such benefit payments in accordance with the terms of the Plan. Section 9. Adoption by Subsidiaries 9.1 Adoption by and Definition of Subsidiaries. Any Subsidiary may join in this Trust by obtaining the written consent of the Company and providing notice to the Trustee. The term "Subsidiary" means (i) any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote and which previously adopted or hereafter adopts the Plan and (ii) any affiliate, which means any corporation (other than a subsidiary described in (i) above) which would be a member of a controlled group of corporations with the Company under Section 1563(a) of the Code which previously adopted or hereafter adopts the Plan. Section 10. Tax Matters 10.1 Nature of Trust. This Trust is intended to constitute a grantor trust, as described in section 671 of the Code. The Company and the Subsidiaries agree that all income of the Trust is attributable to them as owners of the Trust assets for income tax purposes and will be income to the Company and the Subsidiaries. The Company and the Subsidiaries shall pay the Federal, state or local taxes on such Trust income or shall direct the Trustee to pay such taxes from Trust income based upon the information provided to the Company by the Trustee concerning such income in accordance with subsection 5.2. 10.2 Federal and State Reporting Requirements. The Trustee shall withhold Federal, state and local taxes which are assessable on amounts paid to or on account of the Participants based upon direction provided to the Trustee by the Company, or such larger amounts as may be requested by the Participant, and shall transmit the amount withheld either (i) to the Company which shall deposit and report such amounts to the applicable taxing authority or (ii) to the applicable taxing authority at the direction of the Company. The Company and the Trustee shall furnish to the Participants all withholding and benefit payment information with respect to amounts transmitted by them to the applicable taxing authorities as soon as practicable after the end of each calendar year. 10.3 Tax Matters. If the Internal Revenue Service determines that a Participant is subject to Federal income taxation on any amounts held in the Trust for his benefit in a calendar year prior to the calendar year in which he would otherwise receive such benefits, then as soon as practicable after its receipt of a copy of the applicable notice of deficiency issued by the Internal Revenue Service the Trustee shall distribute the amount of the benefits determined to be taxable to the Participant unless the Company or applicable Subsidiary provides satisfactory evidence to the Trustee that such benefits have previously been paid to the Participant under the Plan or that such Participant is not entitled to such benefits under the Plan. Section 11. Change of Trustee 11.1 Resignation. The Trustee may resign at any time prior to a Change in Control by giving one hundred twenty (120) days' advance written notice to the Company, the Committee and the Participants, provided that if the Trustee is resigning because it will no longer be providing trustee services to plans such as the Plan, the Trustee must give one hundred eighty (180) days advance written notice of such resignation to the Company, the Committee and the Participants. Prior to the effective date of any such resignation, the Company shall appoint a successor Trustee which is a corporation with not less than $5 billion in trust assets. After a Change in Control has occurred, the Trustee may resign only after the first to occur of: (i) a final decision of a court of competent jurisdiction removing the Trustee by reason of such court's determination of the existence of a conflict of interest which prevents the Trustee from properly performing its duties hereunder; or (ii) the third anniversary of the Change in Control. The Trustee agrees to use its best efforts to avoid any such conflict described in clause (i) above. For purposes of this subsection, the decision of a court shall not be deemed to be final unless the decision is not appealable, or no appeal has been taken from the decision and the time for an appeal has expired. Notwithstanding the foregoing provisions of this subsection, any such resignation pursuant to clauses (i) or (ii) above shall not be effective unless the Trustee has appointed and obtained the agreement of a corporation which is not affiliated with the Company and which has trust assets of not less than $5 billion to serve as successor trustee. 11.2 Removal of Trustee. (a) Except as provided in subparagraph (b) of this subsection 11.2 below, the Committee may remove any Trustee by giving thirty (30) days advance written notice to the Trustee, subject to providing the removed Trustee with satisfactory written evidence of the appointment of a successor Trustee with not less than $5 billion in trust assets and of the successor Trustee's acceptance of the trusteeship; (b) Anything in this Trust to the contrary notwithstanding, in the event of a Change in Control as defined in subsection 5.4, the Company, by action of its Board of Directors or of a person or persons designated by its Board of Directors, may remove any Trustee only with the consent of all of the Participants, by giving thirty (30) days' advance written notice to the Trustee, subject to providing the removed Trustee with satisfactory written evidence of the appointment of a successor Trustee with not less than $5 billion in trust assets and of the successor Trustee's acceptance of the trusteeship. 11.3 Duties of Resigning or Removed Trustee and of Successor Trustee. Each successor Trustee shall succeed to the title to the Trust Fund vested in its predecessor, without the signing or filing of any further instrument, but any resigning or removed Trustee shall execute all documents and do all acts necessary to vest such title of record in any successor Trustee. In the event of the resignation or removal of the Trustee, the Trustee shall assign, transfer and pay over to the duly appointed successor Trustee the assets then constituting the Trust Fund, and only thereafter shall the resigning or removed Trustee be relieved of its duties and responsibilities as Trustee hereunder. Within ninety (90) days following the effective date of such resignation or removal, the resigned or removed Trustee shall furnish to the Company and the successor Trustee an account of its administration of the Trust from the date of its last account in accordance with the procedures described in subsection 5.2; provided, that if at such time current valuation information is not available for any individual or group of securities or other property, the Trustee shall use such values for this accounting as may then be available and, as soon as reasonably practicable after such current valuation information for such accounting period becomes available, shall provide the current values for that period to the Company and the successor Trustee. The Company and the successor Trustee may approve such accounting by written notice of approval delivered to the Trustee or by failure to express objection to such accounting in writing delivered to the Trustee within twelve months from the date upon which the account was delivered to the Company and the successor Trustee. Upon the receipt of a written approval of the account, or upon the passage of the period of time within which objection may be filed without written objections having been delivered to the Trustee, such accounting shall be deemed to be approved, and the Trustee shall be relieved and discharged as to all items, matters and things set forth in such account. Each successor Trustee shall have all the powers, rights and duties conferred by this Trust as if originally named Trustee. Except as otherwise provided under applicable law, neither the Trustee hereunder nor any successor Trustee shall be personally liable for any act or failure to act of a predecessor Trustee. 11.4 Additional Trustees. The Committee shall have authority at any time and for any purpose, to designate additional trustees and to define the scope of authority for each. Each additional trustee appointed under this Trust shall signify its acceptance of trusteeship by an instrument executed and acknowledged by it and delivered to the Committee. If there are two or more trustees acting hereunder, the Committee may at any time direct that all or any portion of the Trust Fund and the accounts, books and records relating thereto shall be transferred from one trustee to another. Each trustee shall individually hold, administer, invest and keep invested the portion of the Trust Fund held by it from time to time upon the terms, conditions, and limitations set forth in this Trust, as though the Company had entered into a separate trust agreement with each trustee having the same terms and conditions as this Trust, and each trustee shall be subject to the same duties and responsibilities and shall have the same powers and rights with respect to the portion of the Trust Fund held by it as a single trustee would have with respect to the entire Trust and each trustee shall have no duties or responsibilities and shall have no powers or rights with respect to that portion of the Trust Fund not held by it but held by another trustee, except as otherwise provided under the Code or other applicable law. As used in this Trust, the term "Trustee" shall mean any one or more duly appointed trustees with respect to that portion of the Trust Fund held from time to time by each such trustee. Section 12. Amendment, Revocation and Termination 12.1 Amendment and Revocation. The Company may amend or revoke this Trust, including Schedule A hereof, at any time prior to the earlier of a Change in Control or the date on which a tender offer which has not been negotiated and approved by the Company's Board of Directors is made for stock representing twenty percent or more of the total voting power of the Company's stock. This Trust, including Schedule A hereof, may be amended or revoked after a Change in Control or any such tender offer only with the consent of 75% of all employees and former employees who are currently or contingently entitled to benefits under the Plan. No amendment shall materially change the rights, duties and responsibilities of the Trustee without its consent. Subject to the foregoing provisions of this subsection 12.1, the Company's Senior Vice President - Human Resources, or such other officer of the Company as may from time to time be primarily responsible for human resources matters, may, with the concurrence of the Company's Executive Vice President and General Counsel, or such other officer of the Company as may from time to time be primarily responsible for legal matters, make minor or administrative amendments to the Trust. 12.2 Termination. Unless otherwise revoked in accordance with the provisions of subsection 12.1, this Trust shall continue in effect until such time as all of the assets of the Trust Fund have been distributed in accordance with the terms of this Trust. Upon termination of the Trust all of the provisions of the Trust as evidenced by this agreement nevertheless shall continue in effect until the Trust Fund has been distributed by the Trustee. Section 13. Miscellaneous 13.1 Disagreement as to Acts. If there is a disagreement between the Trustee and anyone as to any act or transaction reported in any accounting, the Trustee shall have the right to have its account settled by a court of competent jurisdiction. 13.2 Persons Dealing with Trustee. No person dealing with the Trustee shall be required to see to the application of any money paid or property delivered to the Trustee, or to determine whether or not the Trustee is acting pursuant to any authority granted to it under this Trust. 13.3 Evidence. Evidence required of anyone under this Trust may be by certificate, affidavit, document or other instrument which the person acting in reliance thereon reasonably considers pertinent and reliable, and signed, made or represented by the proper party. 13.4 Waiver of Notice. Any notice required under this Trust may be waived by the person entitled thereto. 13.5 Counterparts. This Trust may be executed in any number of counterparts, each of which shall be deemed an original, and no other counterpart need be produced. 13.6 Governing Laws. This Trust shall be construed and administered according to the laws of the Commonwealth of Massachusetts to the extent that such laws are not preempted by the laws of the United States of America, provided that in the event that an action is brought by the Trustee on behalf of the Trust, the Company shall have the right to determine that such action shall be brought in an appropriate state or federal forum in the State of Illinois or elsewhere as the Company shall deem appropriate, and the Trustee shall follow any direction of the Company to that effect; and provided further, that in the event an action is brought by the Company against the Trustee, the Company shall have the right to determine that such action shall be brought in an appropriate state or federal forum either in the Commonwealth of Massachusetts or in the State of Illinois, subject to any right of the Trustee to remove such action from state court to an appropriate federal court in that state. 13.7 Successors, Etc. The provisions of this Trust shall be binding on the Company, the Subsidiaries and the Trustee and their successors and on all persons entitled to benefits under the Plan and their respective heirs and legal representatives. Neither the Company nor any Subsidiary shall merge or consolidate with any other corporation or liquidate or dissolve without making suitable arrangements for the fulfillment of all of its obligations under this Trust and the Plan. 13.8 Service of Legal Process. If the Trustee receives service of summons, subpoena or other legal process of any court with respect to any action relating to the Plan or this Trust, it shall promptly inform the Company of such service and, at the request of the Company, shall provide it with a copy of the document served. 13.9 Severability. In case any provision of this Trust is held invalid or illegal for any reason, such invalidity or illegality shall not affect the remaining provisions of this Trust and this Trust shall be construed and enforced as if such invalid or illegal provision had never been incorporated in this Trust. 13.10 Gender and Numbers. Where the context admits, words in the masculine gender shall include the feminine, the singular shall include the plural, and the plural shall include the singular. 13.11 Headings. The headings of Sections of this Trust are for convenience of reference only and shall have no substantive effect on the provisions of this Trust. 13.12 Action by Company and Subsidiaries. Except as otherwise provided in this Trust, any action required or permitted to be taken by the Company or any Subsidiary under the provisions of this Trust shall be by resolution of its Board of Directors, or by the person or persons authorized by resolution of its Board of Directors or if the Company or Subsidiary has no Board of Directors and is managed by its shareholder or shareholders, then by such shareholder or shareholders. 13.13 Nonalienation of Benefits. The interests under this Trust of Participants and any other persons entitled to benefits under the Plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated or encumbered. IN WITNESS WHEREOF, the Company and the Trustee have caused this Trust to be signed and their seals to be hereunto affixed and attested by their duly authorized representatives, as of the day and year first above written. AMERITECH CORPORATION By:______________________________ Title:____________________________ ATTEST: By:____________________________ STATE STREET BANK AND TRUST Title:__________________________ COMPANY By:_______________________________ Title:_____________________________ ATTEST: By:____________________________ Title:__________________________ EX-10.W 5 AMERITECH KEY MANAGEMENT LIFE INSURANCE PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH KEY MANAGEMENT LIFE INSURANCE PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 General 1 History, Purpose and Effective Date 1 Governing Documents 1 Plan Administration 1 Non-Alienation 1 Source of Benefits 2 Plan Year 2 Policy Year 2 Notices 2 Applicable Laws 2 Gender and Number 2 2 Participation 2 Participation 2 Plan Not Contract of Employment 3 3 Benefits 3 Available Coverage 3 Automatic Increases in Policy Coverage 3 Elected Increases and Decreases in Coverage 4 Cost 4 Cash Value 4 Limitation on Benefits 4 4 Split-Dollar and Collateral Assignment Agreements 4 Introduction 4 Insurance Policy 4 Policy Ownership 5 Payment of Premiums 5 Collateral Assignment Agreement 7 Limitations on Participant's Rights under Policy 7 Collection and Payment of Death Benefit 8 Termination of Split-Dollar Agreement 9 Options on Termination of Split-Dollar Agreement10 Change in Control 11 AMERITECH KEY MANAGEMENT LIFE INSURANCE PLAN TABLE OF CONTENTS SECTION PAGE 5 Plan Administration 13 Plan Administrator; Administration 13 Determination of Benefits 13 6 Miscellaneous 13 Amendment and Termination 13 Validity 14 Administrative Amendments 14 AMERITECH KEY MANAGEMENT LIFE INSURANCE PLAN (As Amended and Restated Effective as of February 1, 1998) SECTION 1 General 1.1 History, Purpose and Effective Date. Effective July 1, 1990 (the "Effective Date"), Ameritech Corporation, a Delaware corporation (the "Company"), established the Ameritech Key Management Life Insurance Plan (the "Plan"), as a substitute for the Ameritech Senior Management Life Insurance Plan and for the regular death benefits provided under the Ameritech Group Life Insurance Plan for electing, eligible employees. The purpose of the Plan is to enable corporate resource managers of the Company and of any Subsidiary or Affiliate of the Company which adopts the Plan (an "Employer") to purchase whole life insurance coverage (a "Policy") from one or more insurance companies (the "Insurer") designated by the Company, pursuant to a collateral assignment, split-dollar arrangement with the Company. The term "Subsidiary" means any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote. The term "Affiliate" means any corporation other than a Subsidiary which would be a member of a controlled group of corporations with the Company under section 1563(a) of the Internal Revenue Code of 1986, as amended. The following provisions constitute an amendment, restatement, and continuation of the Plan, effective as of February 1, 1998. 1.2 Governing Documents. In the event of any inconsistency between the terms of the Plan as described herein and the terms of any Policy purchased by a Participant (defined in subsection 2.1), or any related Split-Dollar Agreement or Collateral Assignment Agreement (as described in Section 4) executed by a Participant, the terms of such policy or agreement shall be controlling as to that Participant, his assignee (if any), his successor-in-interest (if any) and his beneficiary or beneficiaries. 1.3 Plan Administration. The authority to control and manage the day-to-day operation and administration of the Plan is vested in the Company's Senior Vice President-Human Resources (the "Plan Administrator") or such other officer of the Company as its Board of Directors shall designate; provided, however, that any action required or permitted to be taken by the Plan Administrator may be taken by the Compensation Committee of the Company's Board of Directors (the "Committee"). 1.4 Non-Alienation. Except to the extent provided under subsection 4.5 and under the terms of a Policy and the related Split-Dollar and Collateral Assignment Agreements, no Participant's benefits under the Plan may be voluntarily or involuntarily assigned or alienated. 1.5 Source of Benefits. Any benefit payable to or on account of a Participant under this Plan shall be paid by the Insurer. 1.6 Plan Year. The "Plan Year" shall be July 1, 1990 to December 31, 1990 and each calendar year thereafter. 1.7 Policy Year. The "Policy Year" shall mean the 12- consecutive month period designated as such in a Policy. For Policies issued during the initial enrollment period coinciding with the Effective Date, the Policy Year shall be July 1, 1990 to June 30, 1991 and each subsequent 12-consecutive month period beginning on July 1. 1.8 Notices. Any notice or document required to be given to or filed with the Plan Administrator shall be considered to be given or filed if delivered to the Administrator of the Plan or mailed by registered mail, postage prepaid to the Administrator, in care of the Company, at 30 South Wacker Drive, Chicago, Illinois 60606. 1.9 Applicable Laws. The Plan shall be construed and administered in accordance with the internal laws of the State of Illinois, except to the extent preempted by Federal law. 1.10 Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. SECTION 2 Participation 2.1 Participation. The following individuals shall be eligible to become Participants in the Plan: (a) Any member of the Company's Management Committee; and (b) Any full time management employee on the active roll of the Company or any Employer (i) who has attained any of salary grades CR 1 through CR 9; (ii) who has attained any of Investment Management salary grades IM10 through IM12; or (iii) who is an attorney in any of salary grades IV through VI. Each eligible individual described in subparagraph (a) or (b) above shall become a Participant in the Plan as of the date on or after the Effective Date on which he purchases a Policy pursuant to the terms of this Plan and executes a related "Split-Dollar Agreement" and "Collateral Assignment Agreement" as set forth in Section 4 hereof. Notwithstanding the foregoing provisions of this subsection 2.1, an individual who would only qualify as a Participant because of a temporary assignment to a position described in subparagraph (a) or (b) above shall not be eligible to participate in this Plan, unless the Plan Administrator, in his sole discretion, determines that participation in this Plan should be extended to such individual as part of the benefit package offered to him during his temporary assignment. The term Participant shall also include individuals who would have been described in subparagraph (a) or (b) of this subsection 2.1 had they not retired from the Company between March 1, 1990 and the Effective Date. Any Participant who elects to participate in this Plan by purchasing a Policy shall be deemed by such election to have waived any rights such employee or his beneficiary may have had to benefits under the Ameritech Senior Management Life Insurance Plan and to regular death benefits under the Ameritech Group Life Insurance Plan. 2.2 Plan Not Contract of Employment. The Plan does not constitute a contract of employment, and nothing in the Plan will give any employee or Participant the right to be retained in the employ of the Company or an Employer, nor the right to any incentive award, nor any right or claim to any benefit under the Plan, except to the extent specifically provided under the terms of the Plan. SECTION 3 Benefits 3.1 Available Coverage. Subject to satisfying any insurability requirements of the Insurer, each Participant may purchase a Policy providing whole life insurance coverage that will pay a death benefit equal to a multiple of, but not to exceed five times, the sum of the Participant's then applicable market rate and target bonus award, rounded to the next higher $1,000, prior to adjustment under the terms of the Split-Dollar Agreement and Collateral Assignment Agreement executed by such Participant in accordance with section 4. 3.2 Automatic Increases in Policy Coverage. The total amount described in subsection 3.1 payable as a death benefit (based upon the Participant's market rate and target bonus award at the time he purchases the Policy) under a Policy shall be indexed at the rate of a) seven percent (7%) for each Policy Year (following the initial Policy Year) that begins while he remains employed by the Company or an Employer, and rounded to the next higher $1,000, for any Participant who has a Policy Effective Date of July 1, 1996 or earlier, and b) at a rate to be established from time to time by the Plan Administrator for each Policy Year (following the initial Policy Year) that begins while he remains employed by the Company or an Employer, and rounded to the next higher $1,000, for any Participant who has a Policy Effective Date of January 1, 1997 or later; provided, that i) the rate established by the Plan Administrator shall be no less than five percent (5%) and no greater than seven percent (7%), and ii) the rate established for any Policy purchased by the Plan Administrator with a Policy Effective Date of January 1, 1997 or later shall be subject to Committee approval. 3.3 Elected Increases and Decreases in Coverage. In accordance with the terms of the Plan, and subject to satisfying any insurability requirements of the Insurer, the Participant, prior to his termination of employment with the Company and the Employers, may elect to increase or decrease the amount payable as a death benefit (within the limits set forth in subsection 3.1) in such form and at such time as the Company and the Insurer may require. 3.4 Cost. The cost of providing the life insurance coverage under any Policy purchased by a Participant shall be shared between the Participant (or owner other than the Participant, if applicable) and the Company in accordance with the terms of such policy and the related Split-Dollar Agreement and Collateral Assignment Agreement executed by the Participant, as described in subsection 4.4. 3.5 Cash Value. Each Policy purchased by a Participant shall be designed to have a cash value. In accordance with the specific terms of the Policy purchased by a Participant and subject to the related Split-Dollar Agreement and Collateral Assignment Agreement executed by that Participant, the Participant may be entitled to withdraw his interest in such cash value, surrender it for a lump sum cash payment or convert it to an annuity, with a corresponding reduction in the death benefit payable under the Policy. 3.6 Limitation on Benefits. The amount of benefits payable to or on account of a Participant pursuant to this Plan shall not exceed the total amount of death proceeds and other benefits payable by the Insurer under any Policy purchased by the Participant, reduced by the amount of such death proceeds to which the Company is entitled pursuant to the Split-Dollar Agreement and Collateral Assignment Agreement executed by the Participant. SECTION 4 Split-Dollar and Collateral Assignment Agreements 4.1 Introduction. The Split-Dollar Agreement and Collateral Assignment Agreement executed by the Participant in conjunction with his purchase of a Policy shall establish the rights of the Company to the proceeds of any such Policy acquired by the Participant. The terms of the particular Split-Dollar Agreement and Collateral Assignment Agreement executed by a Participant shall apply solely to that Participant. 4.2 Insurance Policy. The Policy shall be purchased by the Participant. The Company shall take all reasonable steps necessary to enable the Insurer to issue the Policy, and to comply with any reasonable request to take any further action which may be necessary to cause the Policy to conform to the provisions of this Plan. The Participant's rights under any Policy purchased by such Participant shall be subject to the terms and conditions of the related Split-Dollar Agreement and Collateral Assignment Agreement executed by the Participant. 4.3 Policy Ownership. Unless the Participant assigns the ownership of the Policy to another person in accordance with the terms thereof and of the related Split-Dollar and Collateral Assignment Agreements, the Participant shall be the sole and absolute owner of any Policy purchased by him, and may exercise all ownership rights granted to the owner thereof by the terms of the Policy, except as may otherwise be provided in the related Split-Dollar and Collateral Assignment Agreements executed by the Participant. 4.4 Payment of Premiums. While the Split-Dollar Agreement remains in effect: (a) Except as otherwise provided in the Split-Dollar Agreement, the premium to be paid to the Insurer for the Policy in each Policy Year ("Total Policy Year Premium") shall be set forth in an exhibit ("Exhibit") attached to the Split-Dollar Agreement. (b) Except as otherwise provided in the Split-Dollar Agreement, on or before the date of such Split-Dollar Agreement as to the first Policy Year and on or before the first day of each next succeeding Policy Year, or within the grace period provided in the Policy, the Company shall pay to the Insurer the Total Policy Year Premium set forth in the Exhibit for that Policy Year. However, for purposes of determining the amount due the Company as a result of its payments toward the premiums on the Policy, in each Policy Year the Company shall be deemed to have paid only that portion of the premium (the "Company's Policy Year Net Premium Payment") for which it has not received payment from the Participant as the Participant's contribution to the premium as provided for in paragraph (c) next below. (c) Except as otherwise provided herein, as to each Plan Year, a certain amount of contribution to the premium shall be due from the Participant (the "Participant's Plan Year Contribution to Premium") for such Plan Year, provided, however, that if the ownership of the Policy has been assigned to another person pursuant to the terms of such Policy and of the related Split-Dollar and Collateral Assignment Agreements such assignee shall be responsible for meeting the premium obligations set forth herein instead of the Participant. This amount shall be based upon the annual cost of the current life insurance coverage provided to the Participant for such Plan Year and shall be equal to the "Economic Benefit" of such current life insurance coverage for Federal income tax purposes, as provided in Revenue Ruling 64-328 (or the corresponding applicable provisions of any future Revenue Ruling) or as otherwise provided for Federal income tax purposes. The Participant shall be required to pay the Participant's Plan Year Contribution to Premium to the Company for each such Plan Year, subject to any assignment of the Policy in accordance with the terms thereof and of the related Split-Dollar and Collateral Assignment Agreements. So long as the Participant's employment with the Company continues and unless the Company and the Participant agree otherwise, the Company shall deduct the Participant's Plan Year Contribution to Premium from the Participant's normal salary payments on a level basis during the Plan Year, except as to the first Plan Year, during which the Participant's Plan Year Contribution to Premium shall be deducted on a level basis beginning as of the date of enrollment, and except as to the last Plan Year, during which the Participant's Plan Year Contribution to Premium shall be deducted on a level basis ending as of the date of the termination of the Split-Dollar Agreement. Upon the termination of the Participant's employment with the Company or an Employer in any Plan Year and continuing until the termination of the Split- Dollar Agreement, the Participant shall be required to pay the balance of the Participant's Plan Year Contribution to Premium for such Plan Year (which has not theretofore been deducted from the Participant's salary) generally within ninety (90) days of such termination of the Participant's employment with the Company, and the Participant shall be required to pay the Participant's Plan Year Contribution to Premium for each succeeding Plan Year generally within ninety (90) days of the premium payment date for the Policy for each such Plan Year. In all events, the Participant shall pay the Participant's Plan Year Contribution to Premium prior to the end of each such Plan Year. For the Plan Year in which the Participant dies, the Participant's employment with the Company or an Employer is terminated, or the Split-Dollar Agreement is otherwise terminated, an appropriate adjustment shall be made to the Participant's Plan Year Contribution to Premium for such Plan Year to reflect such event. (d) If the Participant's employment with the Company or an Employer terminates before the Participant attains age sixty-five (65) but the Split-Dollar Agreement remains in effect (hereinafter referred to as "Early Retirement"), then in the Policy Year in which the Participant's employment with the Company or Employer terminates and in each Policy Year thereafter until the termination of the Split-Dollar Agreement, the Company shall pay to the Insurer (in lieu of the amount set forth in the Exhibit to the Agreement) only such amount, if any, as shall be necessary to ensure Adequate Policy Funding (as defined below), or shall receive from the Insurer, out of partial surrenders of Policy additions (or otherwise), any Policy cash values in excess of that level of Policy cash value necessary to ensure Adequate Policy Funding, but in no event shall the Company receive more than the then cumulative total amount of the Company's Policy Year Net Premium Payment amounts. "Adequate Policy Funding" shall mean that level of Policy cash value on termination of the Split-Dollar Agreement, assuming such termination occurs under paragraph 4.8(a)(v) hereof, which would be sufficient to fund the reduced level of death benefit provided hereunder in the event of such Participant's Early Retirement (the "Participant's Death Benefit Upon Termination", as hereinafter defined), after recovery of the Company's Cumulative Net Premium Payment at Termination (as defined in paragraph 4.9(a)), based on the original policy configuration assumptions and the fact of such Participant's Early Retirement. For purposes of this paragraph (d), the Company may rely conclusively upon, and shall be held harmless in relying upon, the determination of the Insurer as to any such further premium obligation or any recovery of such excess Policy cash values. 4.5 Collateral Assignment Agreement. To secure the payment to the Company of the amount due it hereunder as a result of its payments toward the premiums on the Policy, the Participant shall contemporaneously with its purchase and the execution of the Split-Dollar Agreement assign the Policy in favor of the Company as collateral pursuant to a written agreement, which collateral assignment shall specifically provide that the sole right of the Company thereunder is to be paid the amount due it under the Split-Dollar Agreement as a result of its payments toward the premiums on the Policy. Such payment shall be made from the cash value of the Policy (as defined therein) if the Split-Dollar Agreement is terminated or if the Participant surrenders or cancels the Policy while the related Split-Dollar Agreement remains in effect, or from the death benefit provided under the Policy, if the Participant dies while the Policy and the related Split-Dollar Agreement remain in effect. Except as provided in paragraph 4.4(d), in no event shall the Company have any right to borrow against or withdraw amounts from the Policy, to surrender or cancel the Policy, or take any other action which would impair or defeat the rights of the Participant as the owner of the Policy. The collateral assignment of the Policy to the Company shall not be terminated, altered or amended by the Participant while the Split-Dollar Agreement is in effect. The Participant and the Company shall take all action necessary to cause such collateral assignment to conform to the provisions of the Split- Dollar Agreement. 4.6 Limitations on Participant's Rights under Policy. Unless he has assigned the ownership of the Policy pursuant to the terms of such Policy and of the related Split-Dollar and Collateral Assignment Agreements, as the sole and absolute owner of the Policy the Participant may exercise all of the rights, options, privileges and other incidents of ownership granted to the owner thereof by the terms of the Policy (including, without limitation, the unlimited ability to borrow against or withdraw amounts from the cash value of the Policy and to surrender or cancel the Policy). Notwithstanding the foregoing, so long as the Split-Dollar Agreement remains in effect: (a) the Participant shall not take any action with respect to the Policy which would have a direct or indirect adverse effect on the Company's interests under the Split-Dollar Agreement in the Policy without the Company's prior written consent; and (b) except with respect to the Participant's right to change the beneficiaries of the Participant's Death Benefit, as defined in subparagraph (iii) of paragraph 4.7(b), and to assign the Participant's interests in the Policy and under the related Split-Dollar Agreement as may be provided therein, the Participant shall not take any other action with respect to the Policy (regardless of whether it would directly or indirectly adversely affect the Company's interests under the Split-Dollar Agreement in the Policy) without the Company's prior written consent. For purposes of this subsection 4.6, the Participant may borrow against or withdraw from the cash value of the Policy any amounts which may be required to be paid to the Company and which are due the Company under paragraph 4.4(c), so long as the amount of any such loan or withdrawal is chargeable solely against the Participant's Death Benefit and that portion of the cash value of the Policy which is in excess of the cash value of the Policy due the Company under the related Split-Dollar Agreement as a result of its payments toward the premiums on the Policy pursuant to the Collateral Assignment Agreement. 4.7 Collection and Payment of Death Benefit. (a) Upon the death of the Participant while the Split- Dollar Agreement remains in effect, the Company and the Participant's beneficiary shall promptly take all action necessary to obtain the death benefit provided under the Policy and payable as a result of the maturity of the Policy (the "Death Benefit"). (b) The Death Benefit shall be paid as follows: (i) The Company shall first be paid from the Death Benefit any unpaid amount of the Participant's Plan Year Contribution to Premium owed to it by the Participant under paragraph 4.4(c). (ii) The Company shall next be paid from the Death Benefit the total net amount of the payments made by it toward the premiums of the Policy. Such amount shall be the sum of the Company's Policy Year Net Premium Payment amounts under paragraph 4.4(b) (the "Company's Cumulative Net Premium Payment"), less any amounts received by the Company pursuant to paragraph 4.4(d). (iii) The Participant's beneficiary under a Policy shall next be paid, in the manner and in the amount or amounts provided in the beneficiary designation provision of the Policy, from the Death Benefit an amount equal to the Participant's Death Benefit. For purposes of this subparagraph (iii), the "Participant's Death Benefit" shall be an amount equal to the least of (A) the maximum death benefit set forth in the Exhibit to the Agreement (the "Participant's Maximum Death Benefit") for the Policy Year in which the Participant shall have died, (B) the Participant's Death Benefit Upon Termination, or (C) that portion of the Death Benefit remaining after the payments provided for in subparagraphs (i) and (ii) of this subparagraph 4.7(b), and then reduced by any loan chargeable against the Participant's Death Benefit. For purposes of this subparagraph (iii), the "Participant's Death Benefit Upon Termination" shall be the amount set forth in the Exhibit for the Policy Year in which the Participant's employment with the Company terminates. (iv) The Company shall receive the balance, if any, of the Death Benefit remaining after the payments provided for in subparagraphs (i), (ii) and (iii) of this paragraph 4.7(b). (c) The beneficiary designation provision of the Policy shall conform to the provisions hereof. 4.8 Termination of Split-Dollar Agreement. (a) The Split-Dollar Agreement shall terminate, without notice, on the first day of the month following the month during which the first of the following events occurs: (i) the Participant (or the assignee of his Policy) fails to make any premium payment required under paragraph 4.4(c) for any Plan Year by the end of such Plan Year or the Participant (or assignee) notifies the Company that the Participant (or assignee) intends to surrender or cancel the Policy; (ii) the Participant's employment with the Company or an Employer terminates before the date upon which the Participant becomes retirement eligible, as defined in paragraph (c) below; (iii) the Participant is demoted by the Company or an Employer to a position below that of a management employee described in subparagraphs 2.1(a) and (b), even if the demotion occurs on or after the date upon which the Participant becomes retirement eligible; (iv) the Participant establishes a relationship with a competitor of the Company or an Employer or engages in any activity which is in conflict with or adverse to the interests of the Company or an Employer, as determined by the Committee in its sole discretion, whether before or after the Participant's employment with the Company or an Employer has terminated and whether before, on or after the date upon which the Participant becomes retirement eligible; or (v) the later of: (A) the date the Participant's employment with the Company or an Employer terminates on or after the date upon which the Participant becomes retirement eligible, or (B) the date immediately before the date fifteen (15) years after the policy date of the Policy (as defined therein) (ten (10) years in the case of a Senior Management Employee, as defined in the Plan on the Effective Date, with respect to a Policy purchased during the 60-day period following the Effective Date). For purposes of subparagraph (B) above, all years during which any Policy is in effect with respect to a Participant, whether or not consecutive, shall be aggregated. (b) In addition, the Participant may terminate the Split- Dollar Agreement at any time by written notice to the Company. (c) For purposes of the Plan, the Participant shall be deemed to be "retirement eligible" as of the date upon which (i) the Participant's combined age plus years of service totals 75 or more, or (ii) the Participant is eligible to receive a minimum retirement benefit or disability pension allowance under the Ameritech Corporate Resource Supplemental Pension Plan or (iii) the Participant has been disabled for more than fifty- two (52) weeks and had at least six (6) months credited service, as long as the Participant continues to be disabled, in each case as defined in the Ameritech Corporate Resource Long Term Disability Plan or the Ameritech Long Term Disability Plan for Salaried Employees. Anything contained in this Plan to the contrary notwithstanding, the Participant's employment with the Company or an Employer shall be deemed to continue for as long as the Participant is eligible to receive sickness and accident disability benefits under the Ameritech Sickness and Accident Disability Benefit Plan. For purposes of this paragraph (c), each of the Company's plans identified above shall also include any successor plan. 4.9 Options on Termination of Split-Dollar Agreement. (a) Upon termination of a Split-Dollar Agreement, the Company shall be entitled to receive from the cash value of the related Policy an amount equal to the sum of (i) the Company's Cumulative Net Premium Payment plus (ii) the amount owed to it by the Participant under paragraph 4.4(c), if any. Such amount is hereinafter referred to as the "Company's Cumulative Net Premium Payment at Termination". (b) For thirty (30) days after the date of the termination of the Split-Dollar Agreement, the Participant shall have the option of obtaining the release of the collateral assignment of the Policy to the Company . To obtain such release, the Participant shall pay to the Company an amount equal to the Company's Cumulative Net Premium Payment at Termination, and, notwithstanding any other provision hereof, the Participant shall specifically be allowed to borrow against or withdraw from the cash value of the Policy for this purpose. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy by the execution and delivery of an appropriate instrument of release. (c) If the Participant fails to exercise such option within such thirty (30) day period, then, at the request of the Company, the Participant shall execute any document or documents required by the Insurer to transfer the interest of the Participant in the Policy to the Company. Alternatively, the Company may enforce its right to be paid an amount equal to the Company's Cumulative Net Premium Payment at Termination under the collateral assignment of the Policy. Thereafter, neither the Participant, nor the Participant's heirs, assigns or beneficiaries shall have any further interest in and to the Policy, either under the terms thereof or under this Plan. However, in no event shall the Participant be liable to the Company in the event the cash value of a Policy at the time of the termination of the related Split- Dollar Agreement is insufficient to pay the Company an amount equal to the Company's Cumulative Net Premium Payment at Termination. (d) Anything contained in this Plan to the contrary notwithstanding, if the Split-Dollar Agreement terminates (other than as a result of the death of the Participant) for any reason other than pursuant to subparagraph 4.8(a)(v) of this Plan, the Company shall also be entitled to recover, in addition to the Company's Cumulative Net Premium Payment at Termination, an amount sufficient to pay all federal, state and local income taxes, if any, imposed upon the Company as a result of such early termination and attributable to the Policy so that the Company will receive the Company's Cumulative Net Premium Payment at Termination on an after-tax basis. The amount, if any, payable to the Company pursuant to this paragraph 4.9(d) shall be determined by the Company's independent certified public accountant which is responsible for preparing the income tax returns for the Company for such Plan Year. 4.10 Change in Control. Notwithstanding any other provisions of the Plan, if a Change in Control (as defined below) occurs, and if a Participant is retirement eligible, he shall receive the present value of the Company's portion of the life insurance premiums for the remainder of the minimum term of the Split Dollar agreement. Notwithstanding any other provisions of the Plan, if a Change in Control (as defined below) occurs, and if a Participant is non-retirement eligible, he shall receive the present value of two years life insurance premiums. For purposes of the Plan, as applied to any Participant, the term "Change in Control" means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors which occurs as follows: (a) any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than: (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (ii) the Participant or any person acting in concert with the Participant; is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (a) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (b) a tender offer is made for the stock of the Company, and the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (b) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (c) during any period of twelve consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (d) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (i) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 55% of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (ii) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of paragraph (d) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (A) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a) or paragraph (d) above, or (B) any director who was not a director at the beginning of the twelve-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors who were directors before the beginning of such period. SECTION 5 Plan Administration 5.1 Plan Administrator; Administration. The Senior Vice President-Human Resources of the Company or such other officer of the Company as its Board of Directors shall designate shall be the Plan Administrator under this Plan. Except as otherwise specifically provided herein, the Plan Administrator shall have discretionary authority to control and manage the operation and administration of this Plan. The Plan Administrator shall also have the power to establish, adopt, or revise such rules and regulations as the Plan Administrator may deem advisable for the administration of this Plan. The interpretation and construction of this Plan by the Plan Administrator (or the Committee with respect to subparagraph 4.8(a)(iv)) and any action taken thereunder, shall be binding and conclusive upon all persons. The Plan Administrator shall not, in any event, be liable to any person for any action taken or omitted to be taken in connection with the interpretation, construction or administration of the Plan, so long as such action or omission to act is made in good faith. The Plan Administrator shall be eligible to participate in this Plan but shall not vote or act upon any matter that relates solely to his interest in this Plan as a Participant. 5.2 Determination of Benefits. Except as otherwise specifically provided herein, the Plan Administrator shall make all determinations concerning rights to benefits under this Plan. Any decision by the Plan Administrator denying a claim by a Participant or his beneficiary for benefits under this Plan shall be stated in writing and delivered or mailed to the Participant or such beneficiary. Such decision shall set forth the specific reasons for the denial, written to the best of the Plan Administrator's ability in a manner that may be understood without legal or actuarial counsel. In addition, the Plan Administrator shall afford a reasonable opportunity to the Participant or such beneficiary for a full and fair review of the decision denying such claim. SECTION 6 Miscellaneous 6.1 Amendment and Termination. This Plan may be amended or terminated by the Company or its successor, in its discretion, at any time and without the consent or approval of any other person. 6.2 Validity. In the event any provision of this Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 6.3 Administrative Amendments. The Company's Senior Vice President - Human Resources, or such other officer of the Company as may from time to time be primarily responsible for human resources matters, may, with the concurrence of the Company's Executive Vice President and General Counsel, make minor or administrative amendments to the Plan. EX-10.X 6 AMERITECH ESTATE PRESERVATION PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH ESTATE PRESERVATION PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 General 1 History, Purpose and Effective Date 1 Governing Documents 1 Plan Administration 1 Non-Alienation 1 Source of Benefits 1 Plan Year 2 Policy Year 2 Notices 2 Applicable Laws 2 Gender and Number 2 2 Participation 2 Participation 2 Plan Not Contract of Employment 3 3 Benefits 3 Available Coverage 3 Elected Increases and Decreases in Coverage 3 Cost 3 Cash Value 3 Limitation on Benefits 3 4 Split-Dollar and Collateral Assignment Agreements 4 Introduction 4 Insurance Policy 4 Policy Ownership 4 Payment of Premiums 4 Collateral Assignment Agreement 6 Limitations on ParticipantOs Rights under Policy 6 Collection and Payment of Death Benefit 7 Termination of Split-Dollar Agreement 8 Options on Termination of Split-Dollar Agreement 9 Change in Control 10 AMERITECH ESTATE PRESERVATION PLAN TABLE OF CONTENTS SECTION PAGE 5 Plan Administration 12 Plan Administrator; Administration 12 Determination of Benefits 12 6 Miscellaneous 12 Amendment and Termination 12 Validity 12 Administrative Amendments 13 AMERITECH ESTATE PRESERVATION PLAN (As Amended and Restated Effective as of February 1, 1998) SECTION 1 General 1.1 History, Purpose and Effective Date. Effective July 1, 1990 (the OEffective DateO), Ameritech Corporation, a Delaware corporation (the OCompanyO), established the Ameritech Estate Preservation Plan (the OPlanO). The purpose of the Plan is to provide certain corporate resource managers of the Company and any Subsidiary or Affiliate of the Company which adopts the Plan (an OEmployerO) an opportunity to purchase a whole life insurance policy insuring the lives of such employee and his spouse and providing a death benefit upon the death of the later to die of either the employee or his spouse (an OEstate Preservation PolicyO). The term "Subsidiary" means any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote. The term "Affiliate" means any corporation other than a Subsidiary which would be a member of a controlled group of corporations with the Company under section 1563(a) of the Internal Revenue Code of 1986, as amended. The following provisions constitute an amendment, restatement and continuation of the Plan, effective as of February 1, 1998. 1.2 Governing Documents. In the event of any inconsistency between the terms of the Plan as described herein and the terms of any Estate Preservation Policy purchased by a Participant (defined in subsection 2.1), or any related Split-Dollar Agreement or Collateral Assignment Agreement (as described in Section 4) executed by a Participant, the terms of such policy or agreement shall be controlling as to that Participant, his spouse, his assignee (if any), his successor-in-interest (if any) and his beneficiary or beneficiaries. 1.3 Plan Administration. The authority to control and manage the day-to-day operation and administration of the Plan is vested in the CompanyOs Senior Vice President-Human Resources (the OPlan AdministratorO) or such other officer of the Company as its Board of Directors shall designate; provided, however, that any action required or permitted to be taken by the Plan Administrator may be taken by the Compensation Committee of the CompanyOs Board of Directors (the OCommitteeO). 1.4 Non-Alienation. Except to the extent provided under subsection 4.5 and under the terms of an Estate Preservation Policy and the related Split-Dollar and Collateral Assignment Agreements, no ParticipantOs benefits under the Plan may be voluntarily or involuntarily assigned or alienated. 1.5 Source of Benefits. Any benefit payable to or on account of a Participant under this Plan shall be paid by the Insurer. 1.6 Plan Year. The OPlan YearO shall be July 1, 1990 to December 31, 1990 and each calendar year thereafter. 1.7 Policy Year. The OPolicy YearO shall mean the 12- consecutive month period designated as such in an Estate Preservation Policy. For Estate Preservation Policies issued during the initial enrollment period coinciding with the Effective Date, the Policy Year shall be July 1, 1990 to June 30, 1991 and each subsequent 12-consecutive month period beginning on July 1. 1.8 Notices. Any notice or document required to be given to or filed with the Plan Administrator shall be considered to be given or filed if delivered to the Administrator of the Plan or mailed by registered mail, postage prepaid to the Administrator, in care of the Company, at 30 South Wacker Drive, Chicago, Illinois 60606. 1.9 Applicable Laws. The Plan shall be construed and administered in accordance with the internal laws of the State of Illinois, except to the extent preempted by Federal law. 1.10 Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. SECTION 2 Participation 2.1 Participation. Each Eligible Employee (as defined below) shall become a Participant in the Plan as of the date on or after the Effective Date on which he purchases an Estate Preservation Policy pursuant to the terms of this Plan and executes a related OSplit-Dollar AgreementO and OCollateral Assignment AgreementO as set forth in Section 4 hereof. The term OEligible EmployeeO means a full-time employee who is on the active roll of the Company or any Employer and who (i) on or before September 30, 1994 had attained a level higher than Department Level or equivalent Fifth Level and held a postion that the Board of Directors of the Company designated to be within its Senior Management Group, (ii) is Chairman of the Board, Chief Executive Officer, Vice Chairman or President of the Company, (iii) is a member of the Company's Management Committee, or (iv) is an elected Corporate Officer (as defined below) or President of a Business Unit (as defined below) who had total annual cash compensation (base salary plus the target award under the Short Term Incentive Plan) of $300,000 or greater and whose participation in the Plan is approved by the Chairman of the Board. The term "elected Corporate Officer" means an officer elected by the Board of Directors of the Company. or appointed by the Chairman of the Board under the policy established by the Board of Directors of the Company. The term "Business Unit" means the customer-specific business units (11 as of September 30, 1994) as they exist from time to time, the Network Services Unit and each of the five former Bell telephone companies in the states of Illinois, Indiana, Michigan, Ohio, and Wisconsin. 2.2 Plan Not Contract of Employment. The Plan does not constitute a contract of employment, and nothing in the Plan will give any employee or Participant the right to be retained in the employ of the Company or an Employer, nor the right to any incentive award, nor any right or claim to any benefit under the Plan, except to the extent specifically provided under the terms of the Plan. SECTION 3 Benefits 3.1 Available Coverage. Subject to satisfying any insurability requirements of the Insurer, an Eligible Employee may purchase an Estate Preservation Policy on the joint lives of himself and his spouse. The death benefit coverage that may be purchased under an Estate Preservation Policy may not exceed (A) in the case of a Participant who was an Eligible Employee on or before September 30, 1994, an amount, in $500,000 increments, up to ten times the sum of the Participant's then applicable position rate and his target short term award, rounded to the next higher $500,000, and (B) in the case of a Participant who became an Eligible Employee on or after October 1, 1994, (i) $4,000,000 for the Chairman of the Board, the Chief Executive Officer and any other Participant who is or would be among the five most highly compensated employees of the Company (based on current base salary plus the target award under the Short Term Incentive Plan) ("Top 5"), and (ii) $3,000,000 for each other Participant. 3.2 Elected Increases and Decreases in Coverage. In accordance with the terms of the Plan, and subject to satisfying any insurability requirements of the Insurer, the Participant, prior to his termination of employment with the Company and the Employers, may elect to decrease the amount payable as a death benefit (within the limits set forth in subsection 3.1) in such form and at such time as the Company and the Insurer may require. No increases in coverage are permitted, except that a Participant who becomes a member of the Top 5 may increase his coverage up to a maximum of $4,000,000. 3.3 Cost. The cost of providing the life insurance coverage under any Estate Preservation Policy purchased by a Participant shall be shared between the Participant (or owner other than the Participant, if applicable) and the Company in accordance with the terms of such policy and the related Split-Dollar Agreement and Collateral Assignment Agreement executed by the Participant, as described in subsection 4.4. 3.4 Cash Value. Each Estate Preservation Policy purchased by a Participant shall be designed to have a cash value. In accordance with the specific terms of the Estate Preservation Policy purchased by a Participant and subject to the related Split-Dollar Agreement and Collateral Assignment Agreement executed by that Participant, the Participant may be entitled to withdraw his interest in such cash value, surrender it for a lump sum cash payment or convert it to an annuity, with a corresponding reduction in the death benefit payable under the Estate Preservation Policy. 3.5 Limitation on Benefits. The amount of benefits payable to or on account of a Participant pursuant to this Plan shall not exceed the total amount of death proceeds and other benefits payable by the Insurer under any Estate Preservation Policy purchased by the Participant, reduced by the amount of such death proceeds to which the Company is entitled pursuant to the Split- Dollar Agreement and Collateral Assignment Agreement executed by the Participant. SECTION 4 Split-Dollar and Collateral Assignment Agreements 4.1 Introduction. The Split-Dollar Agreement and Collateral Assignment Agreement executed by the Participant in conjunction with his purchase of an Estate Preservation Policy shall establish the rights of the Company to the proceeds of any such Estate Preservation Policy acquired by the Participant. The terms of the particular Split-Dollar Agreement and Collateral Assignment Agreement executed by a Participant shall apply solely to that Participant. 4.2 Insurance Policy. The Estate Preservation Policy shall be purchased by the Participant. The Company shall take all reasonable steps necessary to enable the Insurer to issue the Estate Preservation Policy, and to comply with any reasonable request to take any further action which may be necessary to cause the Estate Preservation Policy to conform to the provisions of this Plan. The ParticipantOs rights under any Estate Preservation Policy purchased by such Participant shall be subject to the terms and conditions of the related Split-Dollar Agreement and Collateral Assignment Agreement executed by the Participant. 4.3 Policy Ownership. Unless the Participant assigns the ownership of his Estate Preservation Policy to another person in accordance with the terms thereof and of the related Split-Dollar and Collateral Assignment Agreement, the Participant shall be the sole and absolute owner of any Estate Preservation Policy purchased by him, and may exercise all ownership rights granted to the owner thereof by the terms of the Estate Preservation Policy, except as may otherwise be provided in the related Split-Dollar and Collateral Assignment Agreement executed by the Participant. For purposes of this subsection 4.3 the reference to OParticipantO shall mean, to the extent applicable, the Participant and his spouse. 4.4 Payment of Premiums. While the Split-Dollar Agreement remains in effect: (a) Except as otherwise provided in the Split-Dollar Agreement, the premium to be paid to the Insurer for the Estate Preservation Policy in each Policy Year (OTotal Policy Year PremiumO) shall be set forth in an exhibit (OExhibitO) attached to the Split-Dollar Agreement. (b) Except as otherwise provided in the Split-Dollar Agreement, on or before the date of such Split-Dollar Agreement as to the first Policy Year and on or before the first day of each next succeeding Policy Year, or within the grace period provided in the Estate Preservation Policy, the Company shall pay to the Insurer the Total Policy Year Premium set forth in the Exhibit for that Policy Year. However, for purposes of determining the amount due the Company as a result of its payments toward the premiums on the Estate Preservation Policy, in each Policy Year the Company shall be deemed to have paid only that portion of the premium (the OCompanyOs Policy Year Net Premium PaymentO) for which it has not received payment from the Participant as the ParticipantOs contribution to the premium as provided for in paragraph (c) next below. (c) Except as otherwise provided herein, as to each Plan Year, a certain amount of contribution to the premium shall be due from the Participant (the OParticipantOs Plan Year Contribution to PremiumO) for such Plan Year, provided, however, that if the Estate Preservation Policy has been assigned to another person pursuant to the terms of such Policy and of the related Split-Dollar and Collateral Assignment Agreements such assignee shall be responsible for meeting the premium obligations set forth herein instead of the Participant. This amount shall be based upon the annual cost of the current life insurance coverage provided to the Participant for such Plan Year and shall be equal to the Oeconomic benefitO of such current life insurance coverage for Federal income tax purposes, as provided in Revenue Ruling 64-328 (or the corresponding applicable provisions of any future Revenue Ruling) or as otherwise provided for Federal income tax purposes. The Participant shall be required to pay the ParticipantOs Plan Year Contribution to Premium to the Company for each such Plan Year, subject to any assignment of the Estate Preservation Policy in accordance with the terms thereof and of the related Split-Dollar and Collateral Assignment Agreements. So long as the ParticipantOs employment with the Company or an Employer continues and unless the Company and the Participant agree otherwise, the Company shall deduct the ParticipantOs Plan Year Contribution to Premium from the ParticipantOs normal salary payments on a level basis during the Plan Year, except as to the first Plan Year, during which the ParticipantOs Plan Year Contribution to Premium shall be deducted on a level basis beginning as of the date of enrollment, and except as to the last Plan Year, during which the ParticipantOs Plan Year Contribution to Premium shall be deducted on a level basis ending as of the date of the termination of the Split-Dollar Agreement. Upon the termination of the ParticipantOs employment with the Company or an Employer in any Plan Year and continuing until the termination of the Split-Dollar Agreement, the Participant shall be required to pay the balance of the ParticipantOs Plan Year Contribution to Premium for such Plan Year (which has not theretofore been deducted from the ParticipantOs salary) generally within ninety (90) days of such termination of the ParticipantOs employment with the Company or the Employer, and the Participant shall be required to pay the ParticipantOs Plan Year Contribution to Premium for each succeeding Plan Year generally within ninety (90) days of the premium payment date for the Estate Preservation Policy for each such Plan Year. In all events, the Participant shall pay the ParticipantOs Plan Year Contribution to Premium prior to the end of each such Plan Year. For the Plan Year in which either the Participant or his spouse dies, the ParticipantOs employment with the Company and Employer is terminated, or the Split-Dollar Agreement is otherwise terminated, an appropriate adjustment shall be made to the ParticipantOs Plan Year Contribution to Premium for such Plan Year (and any applicable Plan Year thereafter) to reflect such event, including but not limited to adjustments based on a change from the P.S. 38 (joint) tables to the P.S. 58 (single) tables used to calculate the economic benefit of the life insurance coverage. 4.5 Collateral Assignment Agreement. To secure the payment to the Company of the amount due it hereunder as a result of its payments toward the premiums on the Estate Preservation Policy, the Participant shall contemporaneously with its purchase and the execution of the Split-Dollar Agreement assign the Estate Preservation Policy in favor of the Company as collateral pursuant to a written agreement, which collateral assignment shall specifically provide that the sole right of the Company thereunder is to be paid the amount due it under the Split-Dollar Agreement as a result of its payments toward the premiums on the Estate Preservation Policy. Such payment shall be made from the cash value of the Estate Preservation Policy (as defined therein) if the Split- Dollar Agreement is terminated or if the Participant surrenders or cancels the Estate Preservation Policy while the related Split- Dollar Agreement remains in effect, or from the death benefit provided under the Estate Preservation Policy, if both the Participant and his spouse die while the Estate Preservation Policy and the related Split-Dollar Agreement remain in effect. In no event shall the Company have any right to borrow against or withdraw amounts from the Estate Preservation Policy, to surrender or cancel the Estate Preservation Policy, or take any other action which would impair or defeat the rights of the Participant as the owner of the Estate Preservation Policy. The collateral assignment of the Estate Preservation Policy to the Company shall not be terminated, altered or amended by the Participant while the Split-Dollar Agreement is in effect. The Participant and the Company shall take all action necessary to cause such collateral assignment to conform to the provisions of the Split-Dollar Agreement. 4.6 Limitations on ParticipantOs Rights under Policy. Unless he has assigned the ownership of the Estate Preservation Policy pursuant to the terms of such Policy and of the related Split-Dollar and Collateral Assignment Agreements, as the sole and absolute owner of the Estate Preservation Policy the Participant may exercise all of the rights, options, privileges and other incidents of ownership granted to the owner thereof by the terms of the Estate Preservation Policy (including, without limitation, the unlimited ability to borrow against or withdraw amounts from the cash value of the Estate Preservation Policy and to surrender or cancel the Estate Preservation Policy). Notwithstanding the foregoing, so long as the Split-Dollar Agreement remains in effect: (a) the Participant shall not take any action with respect to the Estate Preservation Policy which would have a direct or indirect adverse effect on the CompanyOs interests under the Split-Dollar Agreement in the Estate Preservation Policy without the CompanyOs prior written consent; and (b) except with respect to the ParticipantOs right to change the beneficiaries of the ParticipantOs Death Benefit, as defined in subparagraph (iii) of paragraph 4.7(b), and to assign the ParticipantOs interests in the Estate Preservation Policy and under the related Split-Dollar Agreement as may be provided therein, the Participant shall not take any other action with respect to the Estate Preservation Policy (regardless of whether it would directly or indirectly adversely affect the CompanyOs interests under the Split-Dollar Agreement in the Estate Preservation Policy) without the CompanyOs prior written consent. For purposes of this subsection 4.6, the Participant may borrow against or withdraw from the cash value of the Estate Preservation Policy any amounts which may be required to be paid to the Company and which are due the Company under paragraph 4.4(c), so long as the amount of any such loan or withdrawal is chargeable solely against the ParticipantOs Death Benefit and that portion of the cash value of the Estate Preservation Policy which is in excess of the cash value of the Estate Preservation Policy due the Company under the related Split- Dollar Agreement as a result of its payments toward the premiums on the Estate Preservation Policy pursuant to the Collateral Assignment Agreement. 4.7 Collection and Payment of Death Benefit. (a) Upon the death of the survivor of the Participant and his spouse while the related Split-Dollar Agreement remains in effect, the Company and the ParticipantOs beneficiary shall promptly take all action necessary to obtain the death benefit provided under the Estate Preservation Policy and payable as a result of the maturity of the Estate Preservation Policy (the ODeath BenefitO). (b) The Death Benefit shall be paid as follows: (i) The Company shall first be paid from the Death Benefit any unpaid amount of the ParticipantOs Plan Year Contribution to Premium owed to it by the Participant under paragraph 4.4(c). (ii) The Company shall next be paid from the Death Benefit the total net amount of the payments made by it toward the premiums of the Estate Preservation Policy. Such amount shall be the sum of the CompanyOs Policy Year Net Premium Payment amounts under paragraph 4.4(b) (the OCompanyOs Cumulative Net Premium PaymentO). (iii) The ParticipantOs beneficiary under an Estate Preservation Policy shall next be paid, in the manner and in the amount or amounts provided in the beneficiary designation provision of such Estate Preservation Policy, from the Death Benefit an amount equal to the ParticipantOs Death Benefit. For purposes of this subparagraph (iii), the OParticipantOs Death BenefitO shall be an amount equal to the lesser of (A) the maximum death benefit set forth in the Exhibit (the OParticipantOs Maximum Death BenefitO) for the Policy Year in which the survivor of the Participant or his spouse shall have died or (B) that portion of the Death Benefit remaining after the payments provided for in subparagraphs (i) and (ii) of this paragraph 4.7(b), and then reduced by any loan chargeable against the ParticipantOs Death Benefit. (iv) The Company shall receive the balance, if any, of the Death Benefit remaining after the payments provided for in subparagraphs (i), (ii) and (iii) of this paragraph 4.7(b). (c) The beneficiary designation provision of the Estate Preservation Policy shall conform to the provisions hereof. 4.8 Termination of Split-Dollar Agreement. (a) The Split-Dollar Agreement shall terminate, without notice, on the first day of the month following the month during which the first of the following events occurs: (i) The Participant (or the assignee of his Estate Preservation Policy) fails to make any premium payment required under paragraph 4.4(c) for any Plan Year by the end of such Plan Year or the Participant (or assignee) notifies the Company that the Participant (or assignee) intends to surrender or cancel the Estate Preservation Policy; (ii) The ParticipantOs employment with the Company or an Employer terminates before the date upon which the Participant becomes retirement eligible, as defined in paragraph (c) below; (iii) The Participant is demoted or moved by the Company or an Employer to a position that is no longer that of an Eligible Employee, even if the change occurs on or after the date upon which the Participant becomes retirement eligible, unless the Senior Vice President - Human Resources makes a determination based on all relevant facts and circumstances that the Split-Dollar Agreement shall not terminate as a result of the ParticipantOs demotion and so notifies the Participant; (iv) The Participant establishes a relationship with a competitor of the Company or the Employers or engages in any activity which is in conflict with or adverse to the interests of the Company or an Employer, as determined by the Committee in its sole discretion, whether before or after the ParticipantOs employment with the Company or an Employer has terminated and whether before, on or after the date upon which the Participant becomes retirement eligible; or v) the latest of: (A) the date the ParticipantOs employment with the Company or an Employer terminates after the Participant has reached age 65 and on or after the date upon which the Participant becomes retirement eligible, or (B) the date the Participant reaches age 65 for any Participant whose employment with the Company or an Employer terminates on or after the date upon which the Participant becomes retirement eligible but before the Participant has reached age 65, or (C) the date immediately before the date fifteen (15) years after the policy date of the Estate Preservation Policy (as defined therein). For purposes of subparagraph (C) above, all years during which any Estate Preservation Policy is in effect with respect to a Participant, whether or not consecutive, shall be aggregated. (b) In addition, the Participant may terminate the Split- Dollar Agreement at any time by written notice to the Company. (c) For purposes of the Plan, the Participant shall be deemed to be Oretirement eligibleO as of the date upon which (i) the Participant's combined age plus yeas of service totals 75 or more, or (ii) the Participant is eligible to receive a minimum retirement benefit or disability pension allowance under the Ameritech Corporate Resource Supplemental Pension Plan, or (iii) the Participant has been disabled for more than fifty-two (52) weeks and had at least six (6) months credited service, as long as the Participant continues to be disabled, in each case as defined in the Ameritech Corporate Resource Long Term Disability Plan or the Ameritech Long Term Disability Plan for Salaried Employees. Anything contained in this Plan to the contrary notwithstanding, the ParticipantOs employment with the Company or an Employer shall be deemed to continue for as long as the Participant is eligible to receive sickness and accident disability benefits under the Ameritech Sickness and Accident Disability Benefit Plan. For purposes of this paragraph (c), each of the CompanyOs plans identified above shall also include any successor plan. 4.9 Options on Termination of Split-Dollar Agreement. (a) Upon termination of a Split-Dollar Agreement, the Company shall be entitled to receive from the cash value of the related Estate Preservation Policy an amount equal to the sum of (i) the CompanyOs Cumulative Net Premium Payment plus (ii) the amount owed to it by the Participant under paragraph 4.4(c), if any. Such amount is hereinafter referred to as the OCompanyOs Cumulative Net Premium Payment at TerminationO. (b) For thirty (30) days after the date of the termination of the Split-Dollar Agreement, the Participant shall have the option of obtaining the release of the collateral assignment of the Estate Preservation Policy to the Company. To obtain such release, the Participant shall pay to the Company an amount equal to the CompanyOs Cumulative Net Premium Payment at Termination, and, notwithstanding any other provision hereof, the Participant shall specifically be allowed to borrow against or withdraw from the cash value of the Estate Preservation Policy for this purpose. Upon receipt of such amount, the Company shall release the collateral assignment of the Estate Preservation Policy by the execution and delivery of an appropriate instrument of release. (c) If the Participant fails to exercise such option within such thirty (30) day period, then, at the request of the Company, the Participant shall execute any document or documents required by the Insurer to transfer the interest of the Participant in the Estate Preservation Policy to the Company. Alternatively, the Company may enforce its right to be paid an amount equal to the CompanyOs Cumulative Net Premium Payment at Termination under the collateral assignment of the Estate Preservation Policy. Thereafter, neither the Participant, nor the ParticipantOs heirs, assigns or beneficiaries shall have any further interest in and to the Estate Preservation Policy, either under the terms thereof or under this Plan. However, in no event shall the Participant be liable to the Company in the event the cash value of an Estate Preservation Policy at the time of the termination of the related Split-Dollar Agreement is insufficient to pay the Company an amount equal to the CompanyOs Cumulative Net Premium Payment at Termination. (d) Anything contained in this Plan to the contrary notwithstanding, if the Split-Dollar Agreement terminates (other than as a result of the death of the survivor of the Participant and his spouse) for any reason other than pursuant to subparagraph 4.8(a)(v) of this Plan, the Company shall also be entitled to recover, in addition to the CompanyOs Cumulative Net Premium Payment at Termination, an amount sufficient to pay all federal, state and local income taxes, if any, imposed upon the Company as a result of such early termination and attributable to the Estate Preservation Policy so that the Company will receive the CompanyOs Cumulative Net Premium Payment at Termination on an after-tax basis. The amount, if any, payable to the Company pursuant to this paragraph 4.9(d) shall be determined by the CompanyOs independent certified public accountant which is responsible for preparing the income tax returns for the Company for such Plan Year. 4.10 Change in Control. Notwithstanding any other provisions of the Plan, if a Change in Control (as defined below) occurs, and if a Participant is retirement eligible, he shall receive the present value of the Estate Preservation insurance premiums. Notwithstanding any other provisions of the Plan, if a Change in Control (as defined below) occurs, and if a Participant is non- retirement eligible, he shall receive the present value of two years Estate Preservation insurance premiums, or the remaining premiums, if less. For purposes of the Plan, as applied to any Participant, the term OChange in ControlO means a change in the beneficial ownership of the CompanyOs voting stock or a change in the composition of the CompanyOs Board of Directors which occurs as follows: (a) any OpersonO (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than: (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (ii) the Participant or any person acting in concert with the Participant; is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the CompanyOs then outstanding stock; provided, however, that this paragraph (a) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the CompanyOs Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the CompanyOs then outstanding stock; (b) a tender offer is made for the stock of the Company, and the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the CompanyOs then outstanding stock; provided, however, that this paragraph (b) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the CompanyOs Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the CompanyOs then outstanding stock; (c) during any period of twelve consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the CompanyOs stockholders was approved by a vote of at least 80% of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (d) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (i) a merger or consolidation which would result in the CompanyOs voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 55% of the combined voting power of the CompanyOs or such surviving entityOs outstanding voting stock immediately after such merger or consolidation; or (ii) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of paragraph (d) above, the phrase Osurviving entityO shall mean only an entity in which all of the CompanyOs stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase Odirectors of the Company who were directors immediately prior thereto" shall not include (A) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a) or paragraph (d) above, or (B) any director who was not a director at the beginning of the twelve-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the CompanyOs stockholders was approved by a vote of at least 80% of the directors who were directors before the beginning of such period. SECTION 5 Plan Administration 5.1 Plan Administrator; Administration. The Senior Vice President - Human Resources of the Company or such other officer of the Company as its Board of Directors shall designate shall be the Plan Administrator under this Plan. Except as otherwise specifically provided herein, the Plan Administrator shall have discretionary authority to control and manage the operation and administration of this Plan. The Plan Administrator shall also have the power to establish, adopt, or revise such rules and regulations as the Plan Administrator may deem advisable for the administration of this Plan. The interpretation and construction of this Plan by the Plan Administrator (or the Committee with respect to subparagraph 4.8(a)(iv)) and any action taken thereunder, shall be binding and conclusive upon all persons. The Plan Administrator shall not, in any event, be liable to any person for any action taken or omitted to be taken in connection with the interpretation, construction or administration of the Plan, so long as such action or omission to act is made in good faith. The Plan Administrator shall be eligible to participate in this Plan but shall not vote or act upon any matter that relates solely to his interest in this Plan as a Participant. 5.2 Determination of Benefits. Except as otherwise specifically provided herein, the Plan Administrator shall make all determinations concerning rights to benefits under this Plan. Any decision by the Plan Administrator denying a claim by a Participant or his beneficiary for benefits under this Plan shall be stated in writing and delivered or mailed to the Participant or such beneficiary. Such decision shall set forth the specific reasons for the denial, written to the best of the Plan AdministratorOs ability in a manner that may be understood without legal or actuarial counsel. In addition, the Plan Administrator shall afford a reasonable opportunity to the Participant or such beneficiary for a full and fair review of the decision denying such claim. SECTION 6 Miscellaneous 6.1 Amendment and Termination. This Plan may be amended or terminated by the Company or its successor, in its discretion, at any time and without the consent or approval of any other person. 6.2 Validity. In the event any provision of this Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 6.3 Administrative Amendments. The Company's Senior Vice President - Human Resources, or such other officer of the Company as may from time to time be primarily responsible for human resouces matters, may, with the concurrence of the Company's Executive Vice President and General Counsel, make minor or administrative amendments to the Plan. EX-10.Y 7 AMERITECH CORPORATE RESOURCE LONG TERM DISABILITY PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH CORPORATE RESOURCE LONG TERM DISABILITY PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 General 1 History and Purpose 1 Plan Administration 1 Non-Alienation 1 Source of Benefits 2 Notices 2 Applicable Laws 2 Gender and Number 2 2 Participation 2 Participation 2 Plan Not Contract of Employment 2 3 Disability 3 Disability During First Fifty-Two Weeks 3 Disability After Fifty-Two Weeks 3 Committee Determination 3 Measurement of Period of Disability 3 4 Disability Allowance 4 Disability Allowance For First Fifty-Two Weeks 4 Disability Allowance After Fifty-Two Weeks 4 Offsets 4 Medical Expense Benefits 4 5 Conditions of Payment 5 Distributions to Persons Under Legal Disability 5 Benefits May Not Be Assigned or Alienated 5 Forfeiture of Benefits 5 6 Amendment or Termination 5 Administrative Amendments 5 Amendments and Termination 6 Participant Rights 6 Successors 6 AMERITECH CORPORATE RESOURCE LONG TERM DISABILITY PLAN (As Amended and Restated Effective as of February 1, 1998) SECTION 1 General 1.1. History and Purpose. Effective as of January 1, 1986 the Ameritech Senior Management Long Term Disability Plan, now re- named the Ameritech Corporate Resource Long Term Disability Plan (the "Plan") was established by Ameritech Corporation, a Delaware corporation (the "Company"), as an amendment, restatement and continuation of the long term disability provisions of Ameritech Senior Management Long Term Disability and Survivor Protection Plan (the "Predecessor Plan"), as applied to employees of the Company and its subsidiaries and affiliates. The purpose of the Plan is to provide long term disability protection for corporate resource managers of the Company and of any Subsidiary or Affiliate of the Company which adopts the Plan (an "Employer"). The term "Subsidiary" means any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote. The term "Affiliate" means any corporation other than a Subsidiary which would be a member of a controlled group of corporations with the Company under section 1563(a) of the Internal Revenue Code of 1986, as amended. The following provisions constitute an amendment, restatement and continuation of the Plan, effective as of February 1, 1998. 1.2. Plan Administration. The authority to control and manage the operation and administration of the Plan as applied to the Company or any other Employer shall be vested in the Benefit Plan Committee or its delegate which administers the Ameritech Management Pension Plan (the "Pension Plan") with respect to the Company or such Employer (the "Committee") and, in exercising that authority, the Committee shall, to the extent necessary and appropriate, have the same rights, powers and duties as those delegated to it under the Pension Plan. The Committee has the exclusive right and discretion to interpret the provisions of the Plan and the entitlement to benefits under the Plan. Any decision made by the Committee on any matter within its discretion is conclusive, final and binding on all persons, and not subject to further review. The Committee (or its delegate) of the appropriate Employer shall grant or deny claims for benefits under the Plan and authorize disbursements. Adequate notice, pursuant to applicable law and prescribed Company practices, shall be provided in writing to any Participant or beneficiary whose claim has been denied, setting forth the specific reasons for such denial. The review and appeal procedures for any Participant or beneficiary whose claim has been denied shall be the same as those procedures set forth in the Pension Plan. 1.3. Non-Alienation. Benefits payable to any person under the Plan may not be voluntarily or involuntarily assigned or alienated. 1.4. Source of Benefits. Subject to the terms and conditions of the Plan, any amount payable to or on account of a Participant shall be paid from the general assets of the Company or the other Employer which last employed the Participant. The obligations of the Company and the other Employers under the Plan are solely contractual, and no trust or other separate fund shall be established for purposes of paying any benefits under the Plan. 1.5. Notices. Any notice or document required to be given to or filed with the Committee shall be considered to be given or filed if delivered to the Committee or mailed by registered mail, postage prepaid, to the Committee, in care of the Company, at 30 South Wacker Drive, Chicago, Illinois 60606. 1.6. Applicable Laws. The Plan shall be construed and administered in accordance with the laws of the State of Illinois, to the extent that such laws are not preempted by the laws of the United States of America. 1.7. Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. SECTION 2 Participation 2.1. Participation. Each employee of the Company and the other Employers shall become a Participant in the Plan on the first date after the Effective Date on which he is employed as: (a) a member of the Company's Management Committee; or (b) a full-time management employee on the active roll of the Company or any other Employer (i) who has attained any of salary grades CR1 through CR9; or (ii) has attained any of Investment Management salary grades IM10 through IM12; or (iii) who is an attorney in salary grades IV through VI; An employee shall cease to be a Participant as of the date he ceases to meet the requirements of subparagraph (a) or (b), even if he continues to be employed by the Company or another Employer. 2.2. Plan Not Contract of Employment. The Plan does not constitute a contract of employment, and nothing in the Plan will give any employee or Participant the right to be retained in the employ of the Company or any other Employer nor any right or claim to any benefit under the Plan, except to the extent specifically provided under the terms of the Plan. SECTION 3 Disability 3.1. Disability During First Fifty-Two Weeks. A Participant shall be considered to be "disabled" at any time during the first fifty-two week period following the onset of a physical or mental impairment, if such impairment prevents the Participant from meeting the performance requirements of the position held immediately preceding the onset of the physical or mental impairment. 3.2. Disability After Fifty-Two Weeks. A Participant shall be considered to be "disabled" after the first fifty-two week period following the onset of a physical or mental impairment, if such impairment prevents the Participant from meeting the performance requirements of (1) the position held immediately preceding the onset of the physical or mental impairment, (2) a similar position, or (3) any appropriate position within the Company or another Employer which the Participant would otherwise be capable of performing by reason of the Participant's background and experience. 3.3. Committee Determination. The Committee shall make the determination of whether a Participant is disabled within the meaning of subsections 3.1 and 3.2 when the onset of the physical or mental impairment occurs. In making such determinations, the Committee may rely on the opinion of a qualified physician selected by the Committee to examine the Participant. The Committee may at any reasonable time require reasonable proof of the continuing nature of the Participant's disability. 3.4. Measurement of Period of Disability. For purposes of subsections 3.1 and 3.2, the measurement of time following the onset of a physical or mental impairment shall coincide with the measurement of time used to calculate periods of sickness and accident disability benefits under the provisions of the Sickness and Accident Disability Benefit Plan maintained by the Company or applicable Employer. Successive periods of physical or mental impairment shall be counted together in computing the periods during which the Participant shall be entitled to the benefits provided under subsections 4.1 and 4.2, except that any disability absence after the Participant has been continuously engaged in the performance of duty for thirteen weeks shall be considered to commence a new period of physical or mental impairment under subsection 3.1, so that Participant shall be entitled during such new period to the benefits provided under subsection 4.1. SECTION 4 Disability Allowance 4.1. Disability Allowance For First Fifty-Two Weeks. A Participant who is disabled during a period described in subsection 3.1 shall be eligible to receive a monthly Disability Allowance for such period of disability equal to 100 percent of the Participant's monthly base salary rate on the last day the Participant was on the active payroll, reduced by any amounts described in subsection 4.3 which are attributable to the period for which benefits are provided under this subsection. 4.2. Disability Allowance After Fifty-Two Weeks. A Participant who is disabled during a period described in subsection 3.2 shall, prior to his sixty-fifth birthday, be eligible to receive a monthly Disability Allowance for such period of disability equal to 60 percent of the Participant's monthly base salary rate on the last day the Participant was on the active payroll, reduced by any amounts described in subsection 4.3 which are attributable to the period for which benefits are provided under this subsection. 4.3. Offsets. A Participant's Disability Allowance under the Plan for any period shall be reduced by the sum of the following benefits received (or which, at the election of the Participant, could be received) by the Participant which are attributable to such period: an accident disability benefit (and, in the case of the Disability Allowance under subsection 4.1, a sickness disability benefit) under the Sickness and Accident Disability Benefit Plan maintained by the Company or applicable Employer; in the case of the Disability Allowance under subsection 4.2, a long term disability benefit under the Long Term Disability Plan maintained by the Company. Any other retirement income payments, other than pension benefits received under the Ameritech Management Pension Plan and/or the Ameritech Corporate Resource Supplemental Pension Plan; any Worker's Compensation Benefit; and, in the case of a Disability Allowance under subsection 3.2, any Social Security Insurance Benefit. However, no reduction shall be made on account of any Social Security Benefit at a rate greater than the rate which the Participant would have first been eligible to receive after his disability and as if no other member of his family were eligible for any Social Security Benefit. Furthermore, the Board of Directors of the Company, in its discretion, may reduce the Disability Allowance by all or any portion of the amount of outside compensation or earnings of the Participant for work performed by the Participant during the period for which such Disability Allowance is provided. 4.4. Medical Expense Benefits. A Participant who is entitled to a benefit under subsection 4.1 or 4.2 whose combined age plus years of service at retirement is less than 75 shall be entitled to the same rights and benefits under the Company's or other Employer's Comprehensive Health Care Plan and Dental Expense Plan as if he had retired with age plus service totalling 75. SECTION 5 Conditions of Payment 5.1. Distributions to Persons Under Legal Disability. In the event an individual is declared incompetent and a conservator or other person legally charged with the care of the individual's person or estate is appointed, any benefits to which such individual is entitled under the Plan shall be paid to such conservator or other person. 5.2. Benefits May Not Be Assigned or Alienated. Benefits payable to, or on account of, any individual under the Plan may not be voluntarily or involuntarily assigned or alienated. 5.3. Forfeiture of Benefits. All benefits under the Plan shall be forfeited at the discretion of the Company's Board of Directors under the following circumstances: (a) The Participant is discharged by the Company or another Employer for cause; (b) The Board of Directors of the Company or another Employer determines that the Participant engaged in misconduct in connection with his employment with the Company or Employer; or (c) The Participant, without the consent of the Company or his employing Employer or the Employer paying him a benefit hereunder, at any time is employed by, becomes associated with, renders service to, or owns an interest in any business that is competitive with the Company, any other Employer or with any business in which the Company or any other Employer has a substantial interest (other than as a shareholder with a nonsubstantial interest in such business) as determined by the Board of Directors of the Company or such other Employer (or, if such other Employer does not have a Board of Directors and is managed by its shareholder or shareholders, by such shareholder or shareholders). SECTION 6 Amendment or Termination 6.1. Administrative Amendments. Subject to the provisions of subsection 6.3, the Company's Senior Vice President - Human Resources, or such other officer of the Company as may from time to time be primarily responsible for human resource matters, may, with the concurrence of the Company's Executive Vice President and General Counsel, make minor or administrative amendments to the Plan. 6.2. Amendments and Termination. Subject to the provisions of subsection 6.3, the Company's Board of Directors may amend or terminate the Plan at any time and any other Employer may, by action of its Board of Directors, terminate its participation in the Plan at any time. 6.3. Participant Rights. No action under this Section 6 shall, without the consent of the affected Participant, adversely affect the rights of any Participant with respect to any amount payable under the Plan to which the Participant previously became eligible to receive by reason of a disability which occurred prior to such action. 6.4. Successors. The obligations of the Company and each other Employer under the Plan shall be binding upon any assignee or successor in interest thereto. Neither the Company nor any other Employer shall merge or consolidate with any other corporation, or liquidate or dissolve, without making suitable arrangement for the payment of any benefits payable under the Plan. EX-10.Z 8 AMERITECH CORPORATE RESOURCE TRANSFER PROGRAM (As Amended and Restated Effective as of February 1, 1998) AMERITECH CORPORATE RESOURCE TRANSFER PROGRAM (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 Definitions 1 2 Residence Relocation Differential 1 3 Home Purchase Differential 3 4 General Provisions 4 Appendix 1 AMERITECH CORPORATE RESOURCE TRANSFER PROGRAM (As Amended and Restated Effective as of February 1, 1998) Section 1. Definitions 1. The word "Program" shall mean the Ameritech Corporate Resource Transfer Program. 2. The word "Company" shall mean Ameritech Corporation, or its successors. 3. The word "Employer" shall mean the Company and each Subsidiary or Affiliate of the Company which, with the consent of the Company, adopts the Program. The word "Subsididiary" means any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote. The word "Affiliate" means any corporation other than a Subsidiary which would be a member of a controlled group of corporations with the Company under Section 1563(a) of the Internal Revenue Code of 1986, as amended. 4. The term "eligible employee" shall mean a management employee on the active roll of the Company who (a) is a member of the Company's Management Committee, (b) has attained any of salary grades CR 5 through 9, or (c) is an attorney in salary grade VI. Section 2. Residence Relocation Differential 1. An eligible employee shall be entitled to receive a Residence Relocation Differential if: (a) the employee's primary work location within an Employer has been changed at the direction of the Employer or the employee's primary work location has changed because of a transfer to one Employer from another Employer. (b) the employee is eligible for reimbursement for moving expenses under the Ameritech Relocation Plan for Management Employees, as applied at the new work location (unless a waiver of this condition because of unusual circumstances is approved by the employee's supervisor and the Company's Senior Vice President - Human Resources), and (c) the employee moves to a new residence, within a 12-month period of the employee's transfer to the new work location. For the purpose of Paragraph l(c), an employee is considered to move to a new residence on the date of the closing in the case of a residence which is purchased, or in the case of a residence which is rented, on the earliest date in the rental period for which no reimbursement with respect to rent is made from an Employer to the employee. Also, in the case of rented premises, the suitability of such premises for use as a residence must be approved by the Company's Senior Vice President - Human Resources. 2. (a) Except as provided in Paragraph 2(c) and (d) of this Section 2, a Residence Relocation Differential shall be paid with respect to the 36- month period which begins with the first day of the month which contains the effective date of the employee's transfer to the new work location. The Residence Relocation Differential with respect to the first 12 months of the 36-month period shall equal 10% of the employee's base salary on the effective date of transfer to the new work location, or 8% of the employee's position rate on such effective date of transfer, whichever is higher. The Residence Relocation Differential with respect to the next 12-month period shall equal 80% of the Residence Relocation Differential during the first 12-month period. The Residence Relocation Differential with respect to the final 12-month period shall equal 60% of the Residence Relocation Differential during the first 12-month period. (b) The amount of Residence Relocation Differential payable with respect to each 12-month period shall be paid to an employee in equal monthly installments except that the amount payable with respect to any month preceding the month in which the employee moves to a new residence shall be accumulated and paid to such employee only after he has moved to a new residence. The Company's Senior Vice President - Human Resources shall have the authority to approve payment of any accumulated amounts in a lump sum or in a series of equal monthly installments not exceeding 12. (c) If an employee becomes an eligible employee after the employee has transferred to a new work location, the payment of a Residence Relocation Differential shall not be made with respect to any month (in the 36-month period referred to in Paragraph 2(a)) prior to the month in which the employee becomes an eligible employee. Furthermore, the Residence Relocation Differential for any such employee may be determined by substituting the words "the date the employee became an eligible employee" for "the effective date of transfer to the new work location" and for "such effective date of transfer" in the second sentence of Paragraph 2(a) of this Section 2. (d) The payment of a Residence Relocation Differential with respect to an employee's transfer to a new work location shall not be made with respect to any month after the month in which: (i) the employee, who has rented a residence near the new work location, ceases to occupy such residence and returns to his former residence, or (ii) the employee becomes entitled to a Residence Relocation Differential with respect to a subsequent change to another new work location, or (iii) the employee retires, dies or terminates employment with the Employers, or (iv) the employee commences a leave of absence, or (v) the employee ceases to be an eligible employee, and it shall be the responsibility of the employee to repay the Residence Relocation Differential paid in error with respect to any such month. Notwithstanding the provisions of this Paragraph 2(d)(iv) or (v), the Company's Senior Vice President - Human Resources shall have the authority to approve the continuation of payment of all or part of the Residence Relocation Differential with respect to an employee, or to approve the payment in a lump sum of all or part of the Residence Relocation Differential which would otherwise be payable on a monthly basis. (e) If an eligible employee transfers from one Employer to another Employer without changing his primary work location while such employee is receiving a Residence Relocation Differential under the Program, then the Employer to which such employee transfers shall continue to pay to such employee the amount of Residence Relocation Differential for the remainder of the 36-month period which would have been payable under such program had the employee not transferred to such Employer. Section 3. Home Purchase Differential 1. Effective as of January 1, 1987, an eligible employee shall be entitled to receive a Home Purchase Differential if: (a) the employee's primary work location has been changed at the direction of an Employer or the employee's primary work location has changed because of a transfer to one Employer from another Employer, (b) the employee purchases a residence within twelve months from the date of transfer, and (c) the new work location is in one of the Company's regional headquarters cities. 2. The amount of an eligible employee's Home Purchase Differential shall be determined in accordance with Appendix I, attached hereto, as it may be amended from time to time. An eligible employee's Home Purchase Differential shall be paid in a lump sum as soon as practicable following his purchase of a residence in the new location. An employee is considered to have purchased a new residence on the date of the closing for such residence. 3. The Employer shall pay the Federal, state and local income taxes associated with the Home Purchase Differential. This payment shall be made at the same time the Home Purchase Differential is made and shall be calculated at the maximum tax rate, as of the closing date for the residence. Section 4. General Provisions 1. The Residence Relocation Differential component of the Program became effective on January 1, 1984 and the Home Purchase Differential component of the Program became effective as of January 1, 1987. 2. The Company's Senior Vice President - Human Resources shall have the exclusive right and discretion to administer and interpret the Program and the entitlement to benefits under the Program. Any decision made by the Senior Vice President - Human Resources on any matter within the Senior Vice President - Human Resources' discretion is conclusive, final and binding on all persons. The Company's Senior Vice President - Human Resources shall grant or deny claims for benefits under the Plan and authorize disbursements. Adequate notice, pursuant to applicable law and prescribed Company practices, shall be provided in writing to any employee whose claim has been denied, setting forth the specific reasons for such denial. The review and appeal procedures for an employee whose claim has been denied shall be the responsibility of the Human Resources Committee of the Company's Board of Directors. 3. The Company's Senior Vice President - Human Resources or his delegate shall approve payments under the Program to eligible employees. 4. The rights of an employee to benefits under the Program shall not be subject to assignment or alienation. 5. Benefits under the Program shall be excluded in determining benefits under any pension, retirement, disability, death, savings or other benefit plans of the Employers. 6. All costs of providing the benefits under the Program shall be charged to the operating expense accounts of the Employer when and as paid. 7. The Company may from time to time make changes in the Program and the Company may terminate the Program, but such changes or termination shall not adversely affect the rights of any employee, without his consent, to any benefit under the Program to which such employee may have previously become entitled prior to the effective date of such change or termination. The Company's Senior Vice President - Human Resources with the approval of the Company's Executive Vice President and General Counsel shall be authorized to make minor or administrative changes to the Program. APPENDIX 1 CORPORATE RESOURCE HOME PURCHASE DIFFERENTIAL AMOUNTS Effective 1-1-91 CHICAGO TO: Amount Detroit 0 Milwaukee 0 Cleveland 0 Indianapolis 0 DETROIT TO: Chicago 48,000 Milwaukee 0 Cleveland 0 Indianapolis 0 MILWAUKEE TO: Chicago 43,000 Detroit 0 Cleveland 0 Indianapolis 0 CLEVELAND TO: Chicago 49,400 Detroit 10,000 Milwaukee 0 Indianapolis 0 INDIANAPOLIS TO: Chicago 37,700 Detroit 23,500 Milwaukee 10,000 Cleveland 0 [AMERITECH SUBSIDIARY] SENIOR MANAGEMENT TRANSFER PROGRAM (As Amended and Restated Effective as of January 1, 1992 [AMERITECH SUBSIDIARY] SENIOR MANAGEMENT TRANSFER PROGRAM SECTION 1 Definitions 1 SECTION 2 Residence Relocation Differential 1 SECTION 3 Home Purchase Differential 4 SECTION 4 General Provisions 4 Appendix 1 [AMERITECH SUBSIDIARY] SENIOR MANAGEMENT TRANSFER PROGRAM (AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1992) Section 1. Definitions 1. The word "Program" shall mean the [Ameritech Subsidiary] Senior Management Transfer Program. 2. The word "Company" shall mean [Ameritech Subsidiary], or its successors. 3. The term "eligible employee" shall mean an employee of the Company who has attained a level higher than Department level or equivalent Fifth Level, and who holds a position which the Company's Board of Directors (or, if the Company does not have a Board of Directors and is managed by its shareholder or shareholders, then such shareholder or shareholders) has determined to be within the Company's Senior Management Group. Section 2. Residence Relocation Differential 1. An eligible employee shall be entitled to receive a Residence Relocation Differential if: (a) the employee's primary work location within the Company has been changed at the direction of the Company or the employee's primary work location has changed because of a transfer to the Company from a subsidiary of Ameritech, (b) the employee is eligible for reimbursement for moving expenses under the [Ameritech Subsidiary] Relocation Plan for Management Employees, as applied at the new work location (unless a waiver of this condition because of unusual circumstances is approved by the employee's supervisor and the Personnel Vice President), and (c) the employee moves to a new residence, within a 12- month period of the employee's transfer to the new work location. For the purpose of Paragraph l(c), an employee is considered to move to a new residence on the date of the closing in the case of a residence which is purchased, or in the case of a residence which is rented, on the earliest date in the rental period for which no reimbursement with respect to rent is made from the Company to the employee. Also, in the case of rented premises, the suitability of such premises for use as a residence must be approved by the Personnel Vice President. 2. (a) Except as provided in Paragraph 2(C) and (d) of this Section 2, a Residence Relocation Differential shall be paid with respect to the 36- month period which begins with the first day of the month which contains the effective date of the employee's transfer to the new work location. The Residence Relocation Differential with respect to the first 12 months of the 36month period shall equal 10% of the employee's base salary on the effective date of transfer to the new work location, or 8% of the employee's position rate on such effective date of transfer, whichever is higher. The Residence Relocation Differential with respect to the next 12-month period shall equal 80% of the Residential Relocation Differential during the first 12-month period. The Residence Relocation Differential with respect to the final 12-month period shall equal 60% of the Residence Relocation Differential during the first 12-month period. (b) The amount of Residence Relocation Differential payable with respect to each 12-month period shall be paid to an employee in equal monthly installments except that the amount payable with respect to any month preceding the month in which the employee moves to a new residence shall be accumulated and paid to such employee only after he has moved to a new residence. The Personnel Vice President shall have the authority to approve payment of any accumulated amounts in a lump sum or in a series of equal monthly installments not exceeding 12. (c) If an employee becomes an eligible employee after the employee has transferred to a new work location, the payment of a Residence Relocation Differential shall not be made with respect to any month (in the 36-month period referred to in Paragraph 2(a)) prior to the month in which the employee becomes an eligible employee. Furthermore, the Residence Relocation Differential for any such employee may be determined by substituting the words "the date the employee became an eligible employee" for "the effective date of transfer to the new work location" and for "such effective date of transfer" in the second sentence of Paragraph 2(a) of this Section 2. (d) The payment of a Residence Relocation Differential with respect to an employee's transfer to a new work location shall not be made with respect to any month after the month in which: (i) the employee, who has rented a residence near the new work location, ceases to occupy such residence and returns to his former residence, or (ii) the employee becomes entitled to a Residence Relocation Differential with respect to a subsequent change to another new work location, or (iii) the employee retires, dies or terminates employment with the Company, or (iv) the employee commences a leave of absence, or (v) the employee ceases to be an eligible employee, and it shall be the responsibility of the employee to repay the Residence Relocation Differential paid in error with respect to any such month. Notwithstanding the provisions of this Paragraph 2(d)(iv) or (v), the Personnel Vice President with respect to Paragraph 2(d)(iv) and the Senior Vice President - Human Resources of Ameritech with respect to Paragraph 2(d)(v) shall have the authority to approve the continuation of payment of all or part of the Residence Relocation Differential with respect to an employee, or to approve the payment in a lump sum of all or part of the Residence Relocation Differential which would otherwise be payable on a monthly basis. (e) If an eligible employee transfers to the Company from Ameritech or another subsidiary of Ameritech without changing his primary work location while such employee is receiving a Residence Relocation Differential under the Senior Management Transfer Program of Ameritech or of such subsidiary, then the Company shall continue to pay to such employee the amount of Residence Relocation Differential for the remainder of the 36-month period which would have been payable under such program had the employee not transferred to the Company. Section 3. Home Purchase Differential 1. Effective as of January 1, 1987, an eligible employee shall be entitled to receive a Home Purchase Differential if: (a) the employee's primary work location has been changed at the direction of the Company or the employee's primary work location has changed because of a transfer to the Company from a subsidiary of Ameritech, (b) the employee purchases a residence within twelve months from the date of transfer, and (c) the new work location is one of Ameritech's regional headquarters cities. 2. The amount of an eligible employee's Home Purchase Differential shall be determined in accordance with Appendix I, attached hereto, as it may be amended from time to time. An eligible employee's Home Purchase Differential shall be paid in a lump sum as soon as practicable following his purchase of a residence in the new location. An employee is considered to have purchased a new residence on the date of the closing for such residence. 3. The Company shall pay the Federal, state and local income taxes associated with the Home Purchase Differential. This payment shall be made at the same time the Home Purchase Differential is made and shall be calculated at the maximum tax rate, as of the closing date for the residence. Section 4. General Provisions 1. The Residence Relocation Differential component of the Program shall be effective on January 1, 1984 and the Home Purchase Differential component of the Program shall be effective as of January 1, 1987. 2. The Personnel Vice President shall have the exclusive right and discretion to administer and to interpret the Program and the entitlement to benefits under the Program. Any decision made by the Personnel Vice President on any matter within the Personnel Vice President's discretion is conclusive, final and binding on all persons. The Personnel Vice President shall grant or deny claims for benefits under the Plan and authorize disbursements. Adequate notice, pursuant to applicable law and prescribed Company practices, shall be provided in writing to any employee whose claim has been denied, setting forth the specific reasons for such denial. The review and appeal procedures for an employee whose claim has been denied shall be the responsibility of the Human Resources Committee of the Ameritech Board of Directors. 3. The Personnel Vice President shall approve payments under the Program to eligible employees. 4. The rights of an employee to benefits under the Program shall not be subject to assignment or alienation. 5. Benefits under the Program shall be excluded in determining benefits under any pension, retirement, disability, death, savings or other benefit plans of the Company. 6. All costs of providing the benefits under the Program shall be charged to the operating expense accounts of the Company when and as paid. 7. The Company may from time to time make changes in the Program and the Company may terminate the Program, but such changes or termination shall not adversely affect the rights of any employee, without his consent, to any benefit under the Program to which such employee may have been previously become entitled prior to the effective date of such change or termination. The Personnel Vice President with the approval of the [insert title of appropriate officer] or the Senior Vice President - Human Resources of Ameritech with the approval of the Executive Vice President and General Counsel of Ameritech shall be authorized to make minor or administrative changes to the Program. SENIOR MANAGEMENT HOME PURCHASE DIFFERENTIAL AMOUNTS Effective 1-1-91 CHICAGO TO: Amount Detroit 0 Milwaukee 0 Cleveland 0 Indianapolis 0 DETROIT TO: Chicago 48,000 Milwaukee 0 Cleveland 0 Indianapolis 0 MILWAUKEE TO: Chicago 43,000 Detroit 0 Cleveland 0 Indianapolis 0 CLEVELAND TO: Chicago 49,400 Detroit 10,000 Milwaukee 0 Indianapolis 0 INDIANAPOLIS TO: Chicago 37,700 Detroit 23,500 Milwaukee 10,000 Cleveland 0 AMERITECH (AMERITECH SUBSIDIARY) SENIOR MANAGEMENT TRANSFER PROGRAM PURPOSE To mitigate the economic impact associated with a job transfer. COST Paid by the participant's company. ELIGIBILITY You are eligible to participate in this Plan if you are a Corporate Resource Manager. For purposes of this Plan, Corporate Resource Managers are defined as Management Committee members and managers in market grades CR5 through CR9. RESIDENCE RELOCATION DIFFERENTIAL A residence relocation differential is available to participants who: 1. Are transferred at the Company's direction; 2. Are eligible for reimbursement under the Company's Relocation Plan; and 3. Move to a new residence within twelve months of the date of transfer. The residence relocation differential is payable over a 36-month period which begins on the effective date of transfer. The amount payable is calculated as follows: First Twelve Months - The greater of 10% of base salary on the effective date of transfer or 8% of market rate on the effective date of transfer Next Twelve Months - 80% of the residence relocation differential payable during the first twelve months Final Twelve Months - 60% of the residence relocation differential payable during the first twelve months Payments under this Plan shall be made only after the employee has moved to a new residence. Any amounts withheld shall be paid out in a lump sum or in a series of monthly installments not exceeding twelve. HOME PURCHASE DIFFERENTIAL A home purchase differential may be available to participants who: 1.Are transferred at the Company's direction from a Company located in one of Ameritech's regional headquarters cities to Chicago; and 2.Purchase a new residence within twelve months of the date of transfer. The amount of the home purchase differential is based upon the individual's market grade and the regional city from which the employee is relocating. (See Attachment A for current rates). The differential, if any, for all other locations will be determined on a case-by-case basis. The home purchase differential is grossed up at the maximum tax rates and is paid in a lump sum as soon as practicable after the closing on the new residence. Attachment A CORPORATE RESOURCE HOME PURCHASE DIFFERENTIAL AMOUNTS EFFECTIVE 1-1-94 All amounts are paid for transfers to the Chicago metropolitan area: Corporate Resource 5 - 9 Managers and City Management Committee Members Cleveland $ 19,400 Detroit $14,300 Indianapolis $21,600 Milwaukee $16,500 No differential payments between other cities. FIRST ADMINISTRATIVE AMENDMENT TO AMERITECH SENIOR MANAGEMENT TRANSFER PROGRAM (As Amended and Restated Effective as of January 1, 1992) Pursuant to authority reserved to Ameritech Corporation, the Ameritech Senior Management Transfer Program (As Amended and Restated Effective as of January 1, 1992) (the "Program") is hereby amended effective as of January 1, 1995 as follows: 1. To delete Paragraph 3 of Section 1 in its entirety and to substitute the following therefor: "3. The term "eligible employee" shall mean a management employee on the active roll of the Company who (a) is a member of the Company's Management Committee or (b) has attained any of salary grades CR 5 through 9." Dated: April 3, 1995 AMERITECH CORPORATION By: Senior Vice President - Human Resources Concur: Executive Vice President and General Counsel EX-10.CC 9 AMERITECH CORPORATE RESOURCE DEFERRAL PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH CORPORATE RESOURCE DEFERRAL PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 General 1 History, Purpose and Effective Date 1 Plan Administration 1 Non-Alienation 2 Source of Benefits 2 Notices 2 Applicable Laws 2 Gender and Number 2 2 Participation 2 Participation 2 Plan Not Contract of Employment 3 3 Deferral of Compensation and Excess Savings Plan Credit 3 Deferral Requests 3 Supplemental Deferrals and Excess Savings Plan Credit 3 Deferred Amounts - Interest 5 Deferred Amounts - Stock Units 5 Deferred Amount 6 4 Payment of Deferred Amounts 6 Distribution 6 Termination of Employment Prior to Retirement Age 6 Death 7 Committee Discretion 7 Form of Payment 9 Change in Control 9 5 Amendment or Termination 11 Administrative Amendments 11 Amendments and Termination 11 Participation Rights 12 Successors 12 AMERITECH CORPORATE RESOURCE DEFERRAL PLAN (As Amended and Restated Effective as of February 1, 1998) SECTION 1 General 1.1. History, Purpose and Effective Date. Effective January 1, 1984, Ameritech Corporation, a Delaware corporation (the "Company"), established the Ameritech Corporate Resource Deferral Plan (the "Plan), which was then known as the "Ameritech Senior Management Incentive Award Deferral Plan", and later known as the "Ameritech Senior Management Supplemental Savings and Deferral Plan." The Plan has two primary purposes. The first is to enable senior management and certain management employees of the Company and of any Subsidiary or Affiliate of the Company which adopts the Plan (an "Employer") to defer the receipt of salary and incentive compensation awards. The second purpose is to provide such senior management and certain management employees an opportunity to receive the full Employer Matching Contribution and make the full level of contributions permitted under the Ameritech Savings Plan for Salaried Employees ("Savings Plan"), both of which might otherwise be limited by certain sections of the Internal Revenue Code of 1986, as amended (the "Code"). The following provisions constitute an amendment, restatement and continuation of the Plan, effective as of February 1, 1998 (the "Effective Date"). For purposes of the Plan, the term "Subsidiary" means any corporation of which the Company owns at least 50% of the combined voting power of all classes of stock entitled to vote. The term "Affiliate" means any corporation other than a Subsidiary which would be a member of a controlled group of corporations with the Company under section 1563(a) of the Code. 1.2. Plan Administration. The authority to control and manage the day-to-day operation and administration of the Plan is vested in the Company's Senior Vice President - Human Resources or such other officer of the Company as may from time to time be primarily responsible for human resource matters (the "Plan Administrator"), subject to the direction of the Compensation Committee of the Company's Board of Directors (the "Committee"). The Plan Administrator and the Committee shall each have the exclusive right and discretion to interpret the provisions of the Plan and the entitlement to benefits under the Plan with respect to the duties allocated to each of the Plan Administrator and the Committee. Any decision made by the Plan Administrator or the Committee on any matter within the Plan Administrator's or the Committee's discretion is conclusive, final and binding on all persons. The Plan Administrator shall grant or deny claims for benefits under the Plan and authorize disbursements. Adequate notice, pursuant to applicable law and prescribed Company practices, shall be provided in writing to any Participant or beneficiary whose claim has been denied, setting forth the specific reasons for such denial. The review and appeal procedures for a Participant or beneficiary whose claim has been denied shall be the responsibility of the Committee and shall be consistent with review and appeal procedures set forth in the Savings Plan. 1.3. Non-Alienation. Benefits payable to any person under the Plan may not be voluntarily or involuntarily assigned or alienated. 1.4. Source of Benefits. Subject to the terms and conditions of the Plan, any amount payable to or on account of a Participant under this Plan shall be paid from the general assets of the Company or applicable Employer or from one or more trusts, the assets of which are subject to the claims of the Company's or applicable Employer's general creditors. 1.5. Notices. Any notice or document required to be given to or filed with the Plan Administrator shall be considered to be given or filed if delivered to the Administrator of the Plan or mailed by registered mail, postage prepaid to the Administrator, in care of the Company, at 30 South Wacker Drive, Chicago, Illinois 60606. 1.6 Applicable Laws. The Plan shall be construed and administered in accordance with the laws of the State of Illinois, to the extent that such laws are not preempted by the laws of the United States of America. 1.7. Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. SECTION 2 Participation 2.1. Participation. Each Management Employee (as defined below) and each Senior Management Employee (as defined below) shall become a Participant in the Plan as of the earliest date on which he requests a deferral under subsection 3.1 or 3.2 or is entitled to an Excess Savings Plan Credit under subsection 3.2. The term "Management Employee" means a full-time employee on the active roll of the Company or any Employer who has attained any of salary grades CR1 through CR4, Investment Management salary grades IM10 through IM12, or, if an attorney, either of salary grades, IV or V. The term "Senior Management Employee" means an employee on the active roll of the Company or an Employer who has attained any of salary grades CR5 through CR9, or who is a member of the Company's Management Committee, or if an attorney, salary grade VI. The terms "Management Employee" and "Senior Management Employee" also include any individual who was a participant in the Plan as of Decemer 31, 1994 as long as such individual continues to meet the requirements to be a Management Employee or a Senior Management Employee under the Plan as it existed as of December 31, 1994 or meets such requirements under the Plan as it exists from time to time after that date. The term "Senior Management Employee" also includes a former Senior Management Employee who no longer meets the requirements to be a Senior Management Employee, but who has been authorized to retain part or all of the rights of a Senior Management Employee under the Plan pursuant to an agreement in writing executed by the Senior Management Employee and the Senior Vice President - Human Resources. 2.2. Plan Not Contract of Employment. The Plan does not constitute a contract of employment, and nothing in the Plan will give any employee or Participant the right to be retained in the employ of the Company or an Employer, nor the right to any incentive award, nor any right or claim to any benefit under the Plan, except to the extent specifically provided under the terms of the Plan. SECTION 3 Deferral of Compensation and Excess Savings Plan Credit 3.1. Deferral Requests. Any Management Employee of the Company or any Employer may elect to defer all or any portion (but not less than $1,000) of an award to which he may be entitled under the Company's long-term incentive plans or under an annual bonus plan of the Company or an Employer and shall receive an Excess Savings Plan Credit in accordance with subsection 3.2(c) with respect to such deferral. Any Senior Management Employee of the Company or any Employer may elect to defer: (a) subject to applicable law, all or any portion (but not less than $1,000) of an award to which he may be entitled under the Ameritech Long Term Incentive Plan or the Company's or Employer's Senior Management Short Term Incentive Plan or the Company's Management Committee Short Term Incentive Plan (collectively the "Incentive Plans" and individually an "Incentive Plan"); and (b) for any payroll period ending on or after December 31, 1987, all or any portion, up to 25% of his Base Salary for such period by filing a written request with the Plan Administrator at such time and in such form as the Plan Administrator may determine. "Base Salary" shall have the meaning assigned to the term "Salary" under the Savings Plan determined without regard to salary deferrals under this Plan and without regard to the limitations imposed by section 401(a)(17) of the Code. Any Senior Management Employee who elects to make a deferral under subsection 3.1(b) above shall receive an Excess Savings Plan Credit in accordance with subsection 3.2(b) with respect to such deferral. 3.2. Supplemental Deferrals and Excess Savings Plan Credit. For any payroll period ending after January 1, 1988, each Senior Management Employee, and, for any payroll period ending after January 1, 1990, each Management Employee of the Company and the Employers who is eligible to participate in the Savings Plan, shall be entitled to make a Supplemental Deferral and receive Excess Savings Plan Credit, in accordance with the following: (a) Supplemental Deferrals. Each Senior Management Employee who is prevented from making a salary allotment under the Savings Plan due to the limitations imposed by any of sections 401(k), 401(m), 402(g), or 415 of the Code, and each Management Employee who is prevented from making a salary allotment under the Savings Plan due to limitations of sections 401(m) and 415 of the Code, may elect, at such time and in such manner as the Plan Administrator may determine, to make a supplemental salary deferral in an amount equal to the allotments which he is prevented from making under the Savings Plan for such period; further, each Senior Management Employee and each Management Employee may also elect, prospectively, at such time and in such manner as the Plan Administrator may determine, to make a supplemental salary deferral of not less than 1% nor more than 12% (in multiples of 1%) of his Base Salary for any payroll period (or portion thereof) occuring after his Base Salary for that calendar year has reached the maximum limit under section 401(a)(17) of the Code (if any such Senior Management Employee or Management Employee has been making salary allotments to the Savings Plan during such calendar year, then for administrative convenience, the Plan Administrator may determine that it is appropriate that any such supplemental salary deferrals under the Plan by such Senior Management Employee or Management Employee shall be at the same percentage as the most recent salary allotments made under the Savings Plan by such Senior Management Employee or Management Employee unless such Senior Management Employee or Management Employee directs the Plan Administrator to use a different percentage); provided that no Senior Management Employee shall be permitted to make any supplemental salary deferral in any payroll period which would cause the aggregate of his supplemental salary deferrals and Base Salary deferrals for such payroll period to exceed the 25% limitation prescribed in subsection 3.1(b) above. (b) Senior Management Excess Savings Plan Credit. Subject to subsection 3.1, for each payroll period, each Senior Management Employee shall be credited with an "Excess Savings Plan Credit" in an amount equal to the lesser of: (i) 4-1/2% of his Base Salary and, to the extent such a Participant is in salary grade CR5 and participates in the Management Team Incentive Plan, his annual bonuses, for that period; or (ii) 75% of (A) his aggregate salary allotments under the Savings Plan during that period (including his annual bonuses to the extent such a Participant is in salary grade CR5 and participates in the Management Team Incentive Plan) and (B) base and supplemental salary deferrals under the Plan during that period; reduced by the amount of Employer Matching Contributions that he actually receives under the Savings Plan for that period. (c) Management Excess Savings Plan Credit. Subject to subsection 3.1, for each payroll period, each Management Employee shall be credited with an "Excess Savings Plan Credit" in an amount equal to the lesser of: (i) 4-1/2% of his Base Salary and, to the extent such a Participant participates in the Management Team Incentive Plan, his annual bonuses for that period; or (ii) 75% of (A) his aggregate salary allotments under the Savings Plan during that period (including his annual bonuses to the extent such a Participant participates in the Management Team Incentive Plan) and (B) supplemental salary deferrals under the Plan during that period; reduced by the amount of Employer Matching Contributions that he actually receives under the Savings Plan for that period. A Participant shall be fully vested in all Excess Savings Plan Credits regardless of the extent to which he is vested under the Savings Plan. 3.3. Deferred Amounts - Interest. Subject to the provisions of the Plan, any amounts deferred under subsection 3.1 (other than amounts which would otherwise have been distributed under an Incentive Plan in the form of the Company's common shares) or deferred or credited under subsection 3.2 shall be credited with interest from the date as of which the amount would otherwise have been paid to the Participant or credited to his account under the Savings Plan to the date as of which it is paid under the Plan. Such interest shall be compounded as of the last day of each calendar quarter and from the end of the preceding calendar quarter to the distribution date and shall be credited at such rate as the Committee may establish from time to time. 3.4. Deferred Amounts - Stock Units. Subject to the provisions of the Plan, for that portion, if any, of any amount deferred under subsection 3.1 which would otherwise have been distributed under an Incentive Plan in the form of the Company's common shares, or as common shares distributed to the Participant as a Final Distribution with respect to stock options granted on or after January 16, 1996, under the provisions of the Company's long term incentive plans, or as a result of an exercise of a stock option in which the Participant pays the option price by tendering shares of the Company's common stock in accordance with the provisions of the Company's long term incentive plans, the Participant shall be credited with an equivalent number of "Stock Units" under the Plan. As of each dividend payment date for the Company's common shares, each Participant shall be credited with an additional number of Stock Units which is equal to: (i) the dividend which would have been paid on such date on that number of Ameritech common shares which is equal to the number of Stock Units credited to the Participant under the Plan on the record date for such dividend, divided by (ii) the Fair Market Value (as defined below) of an Ameritech common share on such dividend payment date. For purposes of the Plan, the Fair Market Value of Ameritech common shares on any dividend payment date shall be the average of the average daily high and low sale prices of Ameritech common shares as quoted on the New York Stock Exchange - - Composite Transactions or other principal market quotation selected by the Committee for the calendar month next preceding the dividend payment date. In the event of any changes in outstanding Ameritech common shares by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Company's Board of Directors shall make such adjustments, if any, that it deems appropriate in the number of Stock Units then credited to Participant accounts. Any and all such adjustments shall be conclusive and binding upon all parties concerned. 3.5 Deferred Amount. A Participant's "Deferred Amount" under the Plan as of any date shall mean the amount deferred by him under subsection 3.1 or deferred or credited to him under subsection 3.2, each adjusted in accordance with subsections 3.3 and 3.4. SECTION 4 Payment of Deferred Amounts 4.1. Distribution. Any deferral made in accordance with subsections 3.1 or 3.2 shall include an election of a distribution commencement date and an election of a payment form either in a lump sum or in annual installments over a period of 2, 3, 4, 5, 10, 15 or 20 years; provided, however, that a) incentive awards payable pursuant to the Ameritech Management Committee Short Term Incentive Plan that are deferred by members of the Company's Management Committee may not be distributed to any such Participant until such Participant `s normal retirement or approved early retirement as defined in subsection 4.2 or termination of employment, and b) any Deferred Amount which, at the time of distribution, is less than or equal to $5,000.00 shall be paid in a lump sum, regardless of the Participant's election. Subject to the above conditions and the following provisions of the Plan, the distribution commencement date and form of payment of any Deferred Amount shall be as designated by the Participant in his deferral request, or in any comparable election under the Plan as in effect from time to time prior to the Effective Date. A Participant may, with the consent of the Committee, defer the commencement date or extend the distribution period for any Deferred Amount, within the guidelines set forth above, by filing a written request with the Plan Administrator, in such form as the Administrator may require; provided that any such request must be filed no later than one year prior to the earlier of the date distribution would otherwise commence or the date of the Participant's termination of employment. Any election under the preceding sentence shall be irrevocable by the Participant. Excess Savings Plan Credits associated with amounts deferred for any period will be paid at the same time and in the same form as provided in the deferral request for such deferred amount; provided, however, that if no deferral election is in place for such period, the deferral account including the Excess Savings Plan Credits for such period shall be paid in a lump sum on the Participant's termination of employment. 4.2. Termination of Employment Prior to Retirement Age. If a Participant's employment with the Company, its Subsidiaries and Affiliates terminates prior to the Participant's attaining eligibility for normal or approved early retirement as defined below, then, unless such termination is by reason of disability entitling the Participant to benefit under the Company's or an Employer's long-term disability plan or unless a different form or time of distribution is authorized by the Plan Administrator pursuant to Committee direction, his entire benefit under the Plan shall be distributed to him in a lump sum as soon as practicable after such termination of employment. For all purposes under the Plan, the term "normal retirement" shall mean retirement on or after the date on which the Participant reaches age 65 (or, if later, the fourth anniversary of the date the Participant commenced participation in the Ameritech Management Pension Plan), and the term "approved early retirement" shall mean retirement on or after the date on which the Participant's combined age and years of service equals 75, subject to Committee authorization. Anything in the Plan to the contrary notwithstanding and regardless of the Participant's election of a particular form of distribution, if, before a Participant receives full payment of all amounts credited to him under the Plan, the Participant without the consent of the Company, at any time is employed by, becomes associated with, renders service to, or owns an interest in any business that is competitive with the Company, with any Employer or with any business in which the Company or any Employer has a substantial interest (other than as a shareholder with a nonsubstanital interest in such business) or engages in any activity which is in conflict with or adverse to the interests of the Company or any Employer, then the Committee in its discretion may authorize the accelerated distribution of the balance of the Participant's Deferred Amount and may requre that such Deferred Amount be paid to the Participant in a lump sum as soon as practicable after such authorization. 4.3. Death. A Participant may elect one of the following payment options to be effective in the event the Participant should die before full payment of all amounts credited to him under this Plan: (a) If the Deferred Amount, or any portion thereof, has begun to be distributed in accordance with subsection 4.1 as of the Participant's date of death, the balance of the Deferred Amount shall continue to be distributed to the beneficiary or beneficiaries designated in writing by the Participant, or if no designation has been made, to the estate of the Participant, with no change in the scheduled number of installments. The first installment (or single payment if the Participant has one installment remaining as of the date of the Participant's death) to be paid to the beneficiary (or the estate) shall be paid according to the payment schedule in effect as of the date of the Participant's death, so that no more than one annual payment will be made in any one calendar year; or (b) The balance of the Deferred Amount shall be paid in one payment or in some other number of approximately equal annual installments (not exceeding 10) to the beneficiary or beneficiaries designated in writing by the Participant, or if no designation has been made, to the estate of the Participant. The first installment (or the single payment if the Participant has so elected) shall be paid as soon as practicable after the last day of the calendar quarter during which the Participant's death occurs. The Participant may change the beneficiary designation and the form of distribution of deferred funds to the beneficiary at any time. 4.4. Committee Discretion. The Committee, in its sole discretion, may alter the commencement date and period of distribution of any Deferred Amount as follows: (a) Hardship. At the request of a Participant or a Participant's beneficiary, the Committee may accelerate distribution to the extent necessary to meet any unanticipated financial need that is caused by an event beyond the control of the Participant or beneficiary and that would result in severe financial hardship to the individual if early withdrawal were not permitted. (b) Changed Circumstances. The Committee may accelerate distribution of any Deferred Amount to the extent that it determines such acceleration to be in the best interests of the Company or Employer because of changes in tax or accounting principles or any other reason which negates or diminishes the continued value of the Deferred Amount to the Company, Employer or Participant. (c) Involuntary or Force Reduction Termination. At the request of a Participant, the Committee may extend the period of distribution for any Deferred Amount as the Committee determines to be necessary or appropriate if a Participant terminates employment (i) involuntarily, (ii) voluntarily or involuntarily under a limited program of terminations of employment initiated by the Company or an Employer to achieve a specific force reduction or (iii) by mutual agreement under an individual separation arrangement; provided, that such an extension may be authorized only if the Participant's request and the Committee's approval of that request occur prior to the earlier of (A) the Participant's termination of employment or (B) the date of distribution would otherwise have commenced. (d) Accelerated Distribution. Anything in the Plan to the contrary notwithstanding, at the request of a Participant, the Committee may accelerate distribution of: (i) the entire Deferred Amount of any Participant on the active roll of the Company or an Employer whose Deferred Amount has not yet begun to be distributed in accordance with subsection 4.1; provided, that (a) the Deferred Amount to be distributed shall be paid in a lump sum and reduced by six percent (6%), as an early withdrawal penalty, (b) the valuation date used to determine such early withdrawal penalty shall be the most recent valuation date preceding the Committee's approval of the accelerated distribution, (c) such early withdrawal penalty shall be retained by the Company and never distributed to the Participant, and (d) the Participant shall be prohibited from participating in the Plan for a period of twelve (12) consecutive months following the date of the Participant's accelerated distribution; (ii) the entire Deferred Amount of any Participant on the active roll of the Company or an Employer whose Deferred Amount, or any portion thereof, is currently being distributed to the Participant in accordance with subsection 4.1; provided, that (a) the Deferred Amount to be distributed shall be paid in a lump sum and reduced by six percent (6%), as an early withdrawal penalty, (b) such early withdrawal penalty shall be determined based upon the Deferred Amount immediately prior to the distribution commencement date for the first installment payment as elected by Participant in accordance with subsection 4.1, valued as of such distribution commencement date, (c) such early withdrawal penalty shall be retained by the Company and never distributed to the Participant, and (d) the Participant shall be prohibited from participating in the Plan for a period of twelve (12) consecutive months following the date of the Participant's accelerated distribution; and (iii) the entire Deferred Amount of any Participant who has retired from employment with the Company, its Subsidiaries and Affiliates after attaining eligibility for normal or approved early retirement as defined in subsection 4.2 and whose Deferred Amount is currently being distributed to the Participant in accordance with subsection 4.1; provided, that (a) the Deferred Amount to be distributed shall be paid in a lump sum and reduced by eight percent (8%), as an early withdrawal penalty, (b) such early withdrawal penalty shall be determined based upon the Deferred Amount immediately prior to the distribution commencement date for the first installment payment as elected by Participant in accordance with subsection 4.1, valued as of such distribution commencement date, and (c) such early withdrawal penalty shall be retained by the Company and never distributed to the Participant. In no event shall the Committee approve any such request after having been notified of the Company's insolvency or bankruptcy. 4.5. Form of Payment. Deferred Amounts credited to a Participant in the form of Stock Units shall be distributed to the Participant or his beneficiary in shares of Ameritech common stock except as otherwise determined by the Committee. All other Deferred Amounts credited to a Participant shall be paid to him or his beneficiary in the form of cash. Any amount to be distributed in accordance with the foregoing provisions of this Section 4 shall be calculated as of the last day of a calendar quarter in the case of distributions pursuant to Sections 4.2, 4.3, or 4.4(d) and as of the distribution date for all other distributions and shall be distributed as soon as practicable thereafter. 4.6. Change in Control. Notwithstanding any other provisions of the Plan, if a Change in Control (as defined below) occurs, then the entire amount credited to each Participant under the Plan, including any benefit in pay status, shall be distributed to him in a lump sum cash payment as soon as practicable. At any time prior to a Change in Control, a Participant may irrevocably waive such lump sum payment by filing a written waiver with the Plan Administrator in a form acceptable to the Plan Administrator, in which case the Participant's benefit under the Plan shall be determined without regard to this subsection 4.6. If a Participant waives payment, the amount credited to the Participant shall be determined as of the date of the Change in Control with Stock Units being converted to cash amounts based on the highest fair market value of Common Stock on any date occurring during the period beginning thirty days prior to the Change in Control and ending thirty days after the Change in Control, and such amount shall be credited with interest which shall accrue for a period of five years from the date of a Change in Control, or until the distribution date designated by the participant, if earlier, at a rate no less than the rate in effect under the Plan on the date of a Change in Control. For purposes of the Plan, the term "Change in Control" means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors which occurs as follows: (a) any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than: (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (ii) the Participant or any person acting in concert with the Participant; is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (a) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (b) a tender offer is made for the stock of the Company, and the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (b) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (c) during any period of 12 consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (d) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (i) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 55% of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (ii) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of paragraph (d) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (A) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a) or paragraph (d) above, or (B) any director who was not a director at the beginning of the 12-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors who were directors before the beginning of such period. SECTION 5 Amendment or Termination 5.1. Administrative Amendments. Subject to the provisions of subsection 5.3, the Company's Senior Vice President-Human Resources, or such other officer of the Company as may from time to time be primarily responsible for human resource matters, may, with the concurrence of the Company's Executive Vice President and General Counsel, make minor or administrative amendments to the Plan. 5.2. Amendments and Termination. Subject to the provisions of subsection 5.3, the Company's Board of Directors may amend or terminate the Plan at any time and any Employer may, by action of its Board of Directors (or, if such Employer does not have a Board of Directors and is managed by its shareholder or shareholders, by action of such shareholder or shareholders), terminate its participation in the Plan at any time. 5.3. Participation Rights. No action under this Section 5 shall, without consent of the affected Participant or, in the event of his death, his beneficiary, adversely affect the rights of any Participant with respect to any Deferred Amount which was credited to him under the Plan prior to the date of such action. 5.4. Successors. The obligations of the Company and each Employer under the Plan shall be binding upon any assignee or successor in interest thereto. Neither the Company nor any Employer shall merge or consolidate with any other corporation, or liquidate or dissolve, without making suitable arrangement for the payment of any benefits payable under the Plan. EX-10.DD 10 AMERITECH CORPORATE RESOURCE SEVERANCE PAY PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH CORPORATE RESOURCE SEVERANCE PAY PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 General History and Purpose 1 Subsidiaries, Affiliates and Employers 1 Plan Administration 1 Source of Payments 1 Notices 2 Gender and Number 2 Action by Employers 2 2 Participation 2 Participation 2 Cessation of Participation 2 3 Employment After a Change in Control 3 Change in Control 3 Employment After Change in Control 4 4 Severance Benefits 5 Entitlement to Severance Benefits 5 Cause 5 Disability 5 Termination for Good Reason 6 Severance Benefits 6 Reduction for Other Severance Payments 7 Tax Limitations 7 Mitigation and Set-Off 7 Non-Alienation 8 Withholding 8 5 Enforcement 8 Governing Laws 8 Arbitration of All Disputes 8 Reimbursement of Costs and Expenses 8 6 Amendment or Termination 9 Amendments and Terminations 9 Participant Rights 9 Successors 9 AMERITECH CORPORATE RESOURCE SEVERANCE PAY PLAN (As Amended and Restated Effective as of February 1, 1998) SECTION 1 General 1.1. History and Purpose. The Ameritech Corporate Resource Severance Pay Plan (the "Plan"), formerly known as the Ameritech Senior Management Severance Pay Plan, was established by Ameritech Corporation, a Delaware corporation (the "Company"), effective as of January 1, 1989 to promote the long-term financial interests of the Company and its shareholders by (i) providing the executives of the Company and its Subsidiaries and Affiliates with assurances of fair and equitable treatment as well as severance benefits consistent with competitive practices in the event of a Change in Control of the Company and (ii) reducing the risk of departures and distractions of key executives in a Change in Control situation which would be detrimental to the Company and its shareholders. The following provisions constitute an amendment, restatement and continuation of the Plan, effective as of February 1, 1998. 1.2. Subsidiaries, Affiliates, and Employers. The term "Subsidiary" means any corporation of which the Company directly or indirectly owns at least 50% of the combined voting power of all classes of stock entitled to vote. The term "Affiliate" means any corporation other than a Subsidiary, which would be a member of a controlled group of corporations with the Company under Section 1563(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The Company and each Subsidiary and Affiliate which, with the consent of the Company, adopts the Plan, are referred to below, collectively, as the "Employers" and individually as an "Employer." 1.3. Plan Administration. The authority to control and manage the operation and administration of the Plan shall be vested in the Ameritech Severance Pay Plan Committee, the members of which shall be appointed by, and may be removed by, the Chairman of the Company (the "Committee"). The Committee shall have the power to adopt rules and regulations and prescribe forms for carrying out the purposes and provisions of the Plan. The Committee has the exclusive right and discretion to interpret the provisions of the Plan and the entitlement to benefits under the Plan. Any decision made by the Committee on any matter within its discretion is conclusive, final and binding on all persons, and not subject to further review. The Committee shall grant or deny claims for benefits under the Plan and authorize disbursements. Adequate notice, pursuant to applicable law and prescribed Company practices, shall be provided in writing to any Participant whose claim has been denied, setting forth the specific reasons for such denial. The review and appeal procedures for any Participant whose claim has been denied shall also be the responsibility of the Committee. 1.4. Source of Payments. The obligations of the Employers under the Plan are solely contractual, and any amount payable under the terms of the Plan shall be paid from the general assets of the Employers or from one or more trusts, the assets of which are subject to the claims of the Employers' general creditors. 1.5. Notices. Any notice or document required to be given under the Plan shall be considered to be given if delivered or mailed by registered mail, postage prepaid, if to an Employer, to the Secretary of such Employer at the Employer's principal business address or, if to a Participant, at the last address of such Participant filed with the Employer. 1.6. Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. 1.7. Action by Employers. Any action required or permitted to be taken by any Employer under the Plan shall be by resolution of its Board of Directors (or, if such Employer does not have a Board of Directors and is managed by its shareholder or shareholders, of such shareholder or shareholders) or by writing of a duly authorized officer of the Employer. SECTION 2 Participation 2.1. Participation. The following individuals shall be Participants in the Plan: (a) Any management employee on the active roll of an Employer who has attained any of salary grades CR 1 through 9; and (b) Any management employee on the active roll of an Employer who has attained any of Investment Management salary grades IM10 through IM12; and (b) Any management employee on the active roll of an Employer who is an attorney who has attained any of salary grades IV through VI. 2.2. Cessation of Participation. An employee shall cease to be a Participant in, or have any rights under, the Plan as of the date, if any, prior to a Change in Control on which he ceases to be a member of a class of employees designated as Participants in accordance with subsection 2.1. All employees of an Employer other than the Company shall cease to be Participants in, or have any rights under, the Plan as of the date, if any, on which the Employer ceases to be a Subsidiary or Affiliate prior to a Change in Control. SECTION 3 Employment After a Change in Control 3.1. Change in Control. For purposes of determining the rights of any Participant under the Plan, the term "Change in Control" means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors which occurs as follows: (a) any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than: (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (ii) the Participant or any person acting in concert with the Participant; is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (a) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (b) a tender offer is made for the stock of the Company, and the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (b) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (c) during any period of twelve consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at 80% of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (d) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (i) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 55% of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (ii) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of paragraph (d) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (A) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a) or paragraph (d) above, or (B) any director who was not a director at the beginning of the twelve-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors who were directors before the beginning of such period. 3.2. Employment After Change in Control. During such period of time as a Participant is actually employed by a Employer during the 24-consecutive-month period immediately following a Change in Control, the Participant's duties, responsibilities and authorities shall not be materially diminished by the Employer and the Participant shall be compensated by such Employer as follows: (a) he shall receive a base annual salary at a rate which is not less than his base annual salary rate in effect immediately prior to the Change in Control; (b) he shall be entitled to participate in short-term and long-term cash-based incentive compensation plans which, in the aggregate, provide bonus opportunities which are not materially less favorable than the opportunities provided to the Participant under all such plans in which he was participating prior to the Change in Control; (c) he shall be eligible to participate in stock option, stock appreciation rights, performance awards, restricted stock and other equity-based incentive compensation plans on a basis not materially less favorable than that applicable to him immediately prior to the Change in Control; and (d) he shall be entitled to receive employee benefits (including, but not limited to, tax-qualified and non- qualified pension and savings plan benefits, medical insurance, disability income protection, life insurance coverage and death benefits) and perquisites which are not materially less favorable than the employee benefits and perquisites to which the Participant would be entitled under the Employer's employee benefit plans and perquisites as in effect immediately prior to the Change in Control. SECTION 4 Severance Benefits 4.1. Entitlement to Severance Benefits. Subject to the following provisions of this Section 4, a Participant shall be entitled to receive severance benefits determined in accordance with subsection 4.5 if the Participant's employment with an Employer is terminated: (a) during the 24-consecutive-month period immediately following a Change in Control either by his Employer for reasons other than Cause (as defined in subsection 4.2) or Disability (as defined in subsection 4.3) or by the Participant because of Good Reason (as defined in subsection 4.4); or (b) by the Participant for any reason during the thirty-day period beginning on the first anniversary of a Change in Control. 4.2. Cause. For purposes of this Plan, the term "Cause" means a Participant willfully engaging in conduct materially injurious to an Employer or the willful and continual failure by a Participant to substantially perform the duties assigned to him in accordance with subsection 3.2 (other than any failure resulting from the Participant's incapacity due to physical injury or illness or mental illness), which failure has not been corrected by the Participant within 30 days after receipt of a written notice from the Chief Executive Officer or Board of Directors of the Employer (or, if the Employer does not have a Board of Directors and is managed by its shareholder or shareholders, then from such shareholder or shareholders owning a majority of the voting stock of the Employer) specifying the manner in which the Participant has failed to perform such duties. No act, or failure to act, by a Participant shall be deemed "willful" unless done, or omitted to be done, not in good faith and without reasonable belief that such action or omission was in the best interest of the Employer. 4.3. Disability. For Purposes of the Plan, the term "Disability" means an incapacity, due to physical injury or illness or mental illness, causing a Participant to be unable to perform his duties for an Employer on a full-time basis for a period of at least six consecutive months. 4.4. Termination for Good Reason. For purposes of this Plan, a termination because of "Good Reason" means a resignation by a Participant following the occurrence of: (a) a material diminishment in the duties, responsibilities or authorities of the Participant; (b) a failure by the Participant's Employer to compensate the Participant in accordance with the provisions of subsection 3.2; (c) the relocation of the Participant's office to a location more than fifty miles from the location of his office immediately prior to the Change in Control; (d) a reasonable determination by the Participant that, as a result of a Change in Control and a change in circumstances thereafter significantly affecting his position, he is unable to exercise the authorities, powers, functions or duties attached to his position and contemplated by subsection 3.2; or (e) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Plan as contemplated by subsection 6.3. 4.5. Severance Benefits. If a Participant becomes entitled to severance benefits in accordance with the provisions of subsection 4.1 he shall continue to receive medical insurance, disability income protection, life insurance protection and death benefits, and perquisites (all as described in paragraph 3.2(d)) for a period of not less than the 24 consecutive months immediately following the date of his termination of employment. If at the time of such a Participant's termination of employment, he is a Participant in the Ameritech Key Management Life Insurance Plan ("KMLIP") and/or the Ameritech Estate Preservation Plan ("EPP") and is not then "retirement eligible" as defined in the KMLIP and the EPP, the Company shall contribute on the Participant's behalf, for a period of not less than the 24 consecutive months immediately following the date of his termination of employment, such amount as the Company in its sole discretion shall determine to be needed to maintain the Participant's death benefit under the KMLIP and/or the EPP for that period. Any Participant described in the first sentence of this subsection 4.5 shall be further entitled to a lump sum payment in cash no later than ten business days after the date of termination equal to the sum of: (a) an amount equal to two times the Participant's base annual rate of salary as of the date of the Change in Control; (b) an amount equal to two times the Participant's target short-term incentive amount and other bonuses payable for the calendar year immediately preceding the date of the Change in Control; (c) the actuarial equivalent of the additional pension benefits which the Participant would have accrued under the terms of the Ameritech Management Pension Plan, the Ameritech Corporate Resource Supplemental Pension Plan and each other tax-qualified or non-qualified defined benefit pension plan maintained by the Employer (determined without regard to any termination or any amendment adversely affecting the Participant which is adopted on or after a Change in Control or in contemplation of a Change in Control) if, on the date of termination, the Participant (i) was credited for benefit accrual purposes with two additional years of service and two additional years of compensation at his annual base salary rate and target short-term incentive award in effect on the date of the Change in Control and (ii) was two years older than his actual age on such date; provided, however, that the additional service, compensation and age credits under this paragraph (c) shall, to the extent permitted by law, be proportionately reduced for any Participant who, on the date of termination, is at least age 63 and eliminated for any Participant who, on the date of termination, is at least age 65. For purposes of this subparagraph (c), actuarial equivalence shall be determined in accordance with the terms of the Ameritech Corporate Resource Supplemental Pension Plan for purposes of lump sum payments under that plan, but without regard to any amendment of that plan, adopted on or after a Change in Control or in contemplation of a Change in Control which would reduce the amount of such lump sum payment. 4.6. Reduction for Other Severance Payments. The amount of Severance Benefits to which a Participant is otherwise entitled upon a termination of employment under the foregoing provisions of this Section 4 shall be reduced by the amount, if any, of any other severance payments actually paid by reason of such termination to the Participant by an Employer under a plan which provides severance benefits only. 4.7. Tax Limitations. If any payments under this Plan, after taking into account all other payments to which a Participant is entitled from any Employer or Affiliate thereof, are more likely than not to result in a loss of a deduction to the Employer by reason of section 280G of the Code or any successor provision to that section, such payments shall be reduced by the least amount required to avoid such loss of deduction. If the Participant and the Employer shall disagree as to whether a payment under this Section 4 is more likely than not to result in the loss of a deduction, the matter shall be resolved by an opinion of tax counsel chosen by the Company's independent auditors. The Employer shall pay the fees and expenses of such counsel, and shall make available such information as may be reasonably requested by such counsel to prepare the opinion. If, by reason of limitations of this subsection 4.7, the maximum amount payable to the Participant under this Section 4 cannot be determined prior to the due date for such payment, the Employer shall pay on the due date the minimum amount which it in good faith determines to be payable and shall pay the remaining amount, with interest calculated at the rate prescribed by section 1274 (b) (2) (B) of the Code, as soon as such remaining amount is determined in accordance with this subsection 4.7. Tax counsel selected in accordance with this subsection shall have no liability to the Employers, or Participants or any other person for any action taken in good faith. 4.8. Mitigation and Set-Off. No Participant shall be required to mitigate the amount of any payment provided for in this Plan by seeking other employment or otherwise. The Employers shall not be entitled to set off against the amounts payable to any Participant under this Plan any amounts owed to the Employers by the Participant, any amounts earned by the Participant in other employment after termination of his employment with the Employer, or any amount which might have been earned by the Participant in other employment had he sought such other employment. 4.9. Non-Alienation. Participants shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this plan; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts or by operation of law. Nothing in this subsection shall limit a Participant's rights or powers to dispose of his property by will or limit any rights or powers which his executor or administrator would otherwise have. 4.10. Withholding. All payments to a Participant under this Plan will be subject to all applicable withholding of state and federal taxes. SECTION 5 Enforcement 5.1. Governing Laws. The Plan shall be construed and administered in accordance with the internal laws of the State of Illinois to the extent that such laws are not preempted by the laws of the United States. 5.2. Arbitration of All Disputes. Any controversy or claim arising out of or relating to this Plan shall be settled by arbitration in the city in which the principal executive offices of his Employer are located (disregarding any transfer of such offices after a Change in Control), by three arbitrators, one of whom shall be appointed by the Company, one by the Participant and the third of whom shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the Chief Judge of the United States Court of Appeals for such location. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this subsection 5.2. Judgment upon the awarded rendered by the arbitrators may be entered in any court having jurisdiction thereof. 5.3. Reimbursement of Costs and Expenses. In the event that it shall be necessary or desirable for a Participant to retain legal counsel or incur other costs and expenses in connection with enforcement of his rights under the Plan, his Employer shall pay (or the Participant shall be entitled to recover from the Employer, as the case may be) his reasonable attorneys' fees and costs and expenses in connection with enforcement of his rights (including the enforcement of any arbitration award in court). Payments shall be made to the Participant at the time such fees, costs and expenses are incurred. If, however, the arbitrators shall determine that, under the circumstances, payment by the Employer of all or a part of any such fees, costs and expenses would be unjust, the Participant shall repay such amounts to the Employer in accordance with the order of the arbitrators. SECTION 6 Amendment or Termination 6.1. Amendments and Terminations. Subject to the provisions of subsection 6.2: (a) the Company's Senior Vice President - Human Resources, or such other officer of the Company as may from time to time be primarily responsible for human resource matters, may, with the concurrence of the Company's Executive Vice President and General Counsel, make minor or administrative amendments to the Plan; (b) the Board of Directors of any Employer (or, if such Employer does not have a Board of Directors and is managed by its shareholder or shareholders, then such shareholder or shareholders) may terminate or, with the consent of the Company's Board of Directors, amend the Plan as applied to it at any time; and (c) the Company's Board of Directors may terminate the Plan as applied to it or as applied to each Employer at any time. 6.2. Participant Rights. No amendment or termination of the Plan which would directly or indirectly adversely affect any Participant shall be effective if adopted after a Change in Control or during the one-year period immediately preceding a Change in Control. 6.3. Successors. The obligations of each Employer under the Plan shall be binding upon any assignee or successor in interest thereto. No Employer shall merge or consolidate with any other corporation, or liquidate or dissolve, without making suitable arrangements for the payment of any benefits which are or may become payable under the Plan. Ameritech Corporate Resource Managers Severance Pay Plan Summary Plan Description TABLE OF CONTENTS Introduction 1 Plan at a Glance 1 Your Corporate Resource Managers Severance Pay Plan 2 Eligibility and Enrollment 3 Eligibility for Benefits 3 Calculating Your Benefit 4 How Your Benefits Are Paid 5 Filing a Claim For Benefits 5 If Your Claim Is Denied 5 Termination of the Plan 6 Administration 6 Your ERISA Rights 7 INTRODUCTION The Ameritech Corporate Resource Managers Severance Pay Plan (the "Plan") provides you with severance pay benefits in the event of a change in control of American Information Technologies Corporation (the "Company"). The Plan is designed to: Promote the long-term financial interests of the Company and its shareholders by providing key executives assurances of fair and equitable treatment in the event of a change in control of the Company; and Reduce the risk of departures and distractions of key executives which would be detrimental to the Company and its shareholders. This is your summary plan description (SPD) for the Ameritech Corporate Resource Managers Severance Pay Plan effective January 1, 1989. Please read this description carefully and make sure you understand your benefits and rights under this plan. This material only summarizes the basic benefits and rights associated with the Ameritech Corporate Resource Managers Severance Pay Plan. If there are any discrepancies between this description and the plan documents, the plan documents will be the final authority. If you have any questions about the Plan after reading this material, please contact your employing company's Vice President with Human Resources responsibilities. PLAN AT A GLANCE Your Severance Pay Plan The Ameritech Corporate Resource Managers Severance Pay Plan provides you with severance benefits in the event of a change in control of the Company. Eligibility and Enrollment If you are a Corporate Resource Managers employee, generally at a level higher than Department Level or equivalent Fifth Level within the Corporate Resource Managers Group, or an officer of a subsidiary of the Company, you are eligible to participate in this plan. You do not have to enroll in order to participate in the Plan. Eligibility for Benefits If there is a change in control of the Company, you will receive your severance benefits if: The Company terminates your employment without cause during the three years following the change in control; You leave the Company within the three years following the change in control for an approved reason; or You leave the Company for any reason during the 30-day period beginning on the first anniversary of the change in control. Your Severance Benefits As part of your severance benefits, you will receive severance pay equal to two times your annual base salary plus two times your target short-term incentive amount plus the equivalent of the additional pension benefits you would have accrued in any company-sponsored defined benefit pension plan if your employment had continued for two years beyond your termination date. In addition, you will continue to receive your medical insurance, disability income, life insurance, death benefits, and perquisites for at least two years following your termination of employment. How Benefits are Paid If you become entitled to severance benefits according to the Plan, generally, you will automatically receive a lump sum payment in cash no later than 10 business days after your termination of employment. YOUR CORPORATE RESOURCE MANAGERS SEVERANCE PAY PLAN The Ameritech Corporate Resource Managers Severance Pay Plan is designed to provide you with severance benefits in the event of a "change in control" of the Company. Generally, a change in control means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors that occurs in any of the following ways: Someone acquires 20 percent or more of the Company's stock; A tender offer is made for Company stock by someone who owns or acquires 20 percent or more of the Company stock; During any period of 24 consecutive months, there ceases to be a majority of the Board of Directors who were on the Board at the beginning of the period or whose election or nomination for election to the Board was approved by at least 2/3 of the Directors who meet the requirements described in the Plan; or The Company's stockholders approve a merger or consolidation with another company other than a merger or consolidation which results in either (1) the Company's existing voting stock continuing to represent more than 70% of the combined voting power of the Company's or surviving entity's outstanding voting stock after the merger or consolidation, or (2) the Company's existing directors continuing to constitute at least 50% of the directors of the surviving entity after the merger or consolidation. A "surviving entity" means an entity in which all of the Company's stockholders, immediately before the merger or consolidation, become stockholders by the terms of the merger or consolidation. "Company directors" shall not include any director who was designated by a person who entered into an agreement with the Company to cause the transaction described above, or any director who was not a director at the beginning of the 12- consecutive-month period preceding the date of the merger or consolidation and whose election or nomination for election to the Board was not approved by at least 80% of the directors who were directors before the beginning of such period. ELIGIBILITY AND ENROLLMENT You are eligible to participate in this plan if you are a "Corporate Resource Managers employee" or a "designated officer." A Corporate Resource Managers employee is defined as an active employee who: Has attained a level higher than Department Level or equivalent Fifth Level; and Holds a position that the Board of Directors of the Company has designated to be within its Corporate Resource Managers Group. A designated officer is defined as an active employee who is an officer of a subsidiary of the Company and who has been designated as a participant in the Plan by the Board of Directors of the Subsidiary. Your participation in the Plan is automatic. Your coverage under the Plan will end if you should stop being an eligible Corporate Resource Managers employee or designated officer prior to the change in control. Your coverage will also end and you will not receive benefits under the Plan if the Company sells or divests your employing company prior to the change in control. ELIGIBILITY FOR BENEFITS You are eligible to receive severance benefits if: Your employing company terminates your employment during the three-year period immediately following change in control for reasons other than cause or disability; or You leave your employing company during the three-year period immediately following the change in control because of an approved reason; or You terminate your employment with your employing company for any reason during the 30-day period beginning on the first anniversary of the change in control. Approved reasons for leaving during the three-year period following the change in control include the following: A material reduction in, or your reasonable determination that you are unable to exercise your duties, responsibilities, or authorities; Your employing company fails to provide you with "reasonable compensation"; A relocation of your office to a location more than fifty miles away; or The Company fails to cause any successor to comply with the terms of the Plan. You are entitled to receive reasonable compensation if your employment continues after a change in control. Reasonable compensation includes the following: A base annual salary equal to or greater than your annual base salary at the time of the change in control; Participation in short-term and long-term cash-based incentive compensation plans that provide opportunities equal to or greater than those provided to you at the time of the change in control; Participation in stock option, stock appreciation rights, performance awards, restricted stock, and other equity-based incentive compensation plans equal to or greater than those available to you at the time of the change in control; and Employee benefits equal to or greater than those provided to you at the time of a change in control. CALCULATING YOUR BENEFIT If you should become eligible for severance benefits, you will continue to receive the following employee benefits for at least the two-year period immediately following your termination of employment: Medical insurance; Disability income protection; Life insurance protection; Death benefits; and Perquisites. In addition, you will receive severance pay. The amount of your severance pay is calculated as follows: Two Times Your Annual Base Salary As of the Change of Control + Two Times Your Target Short-Term Incentive and Other Bonuses Payable for the First Calendar Year Prior to the Change in Control + The Equivalent of the Additional Pension Benefits Which Would Have Been Accrued Under Any Company-Sponsored Defined Benefit Pension Plan If Your Employment Had Continued For Two Years Beyond Your Termination Date or, If Earlier, Your Normal Retirement Age Note that if you receive severance payments from your employing company under another severance plan, the benefits from this plan will be offset and reduced by those benefits. Benefits are also limited to an amount that does not exceed any statutory limit as defined by the Internal Revenue Code. Let's look at an example of how severance pay benefits are calculated. EXAMPLE: Our example employee has worked for the Company for 20 years and has a base salary of $165,000 at the time of the change in control. The employee has a target annual award of $55,000 payable for the first calendar year prior to the change in control and would have accrued an additional pension benefit with a present value of approximately $14,000 if employment had continued for two years beyond the termination date. The employee's benefit is calculated as follows: Severance Pay = (2 x $165,000) + (2 x $55,000) + $14,000 = $330,000 + $110,000 + $14,000 = $454,000 Total HOW YOUR BENEFITS ARE PAID Your benefits will be paid to you in the form of a lump sum payment in cash. This cash payment is to be made no later than 10 business days after your termination of employment. IMPORTANT: Please note that your severance benefits will be considered taxable income for the year in which you receive them. Payment of your benefits will be subject to all tax limitations and applicable withholding of state and federal taxes. If you have questions about the taxation of your benefits, consult your personal tax adviser. FILING A CLAIM FOR BENEFITS If you believe you are entitled to severance pay and have not been notified, you may file a claim for benefits. Also, if you have received severance pay and you believe that you are entitled to an amount different from the amount you received, you may also file a claim for benefits. Your claim should be in writing and sent to the plan administrator listed in the Administration section of this summary. If Your Claim is Denied If your claim for benefits is denied, in whole or in part, you will receive a written explanation within 30 days after the receipt of your claim. The explanation will tell you: The specific reasons for denial; The specific references to the provisions of plan documents that support those reasons; The information needed to complete the claim; and The claim review procedure. Your denied claim or controversy concerning your claim will be settled by three arbitrators. You will appoint one arbitrator, the Company will appoint the second arbitrator, and the first and second arbitrators will appoint the third arbitrator. The final decision about your claim will be communicated to you in plain language in writing. It will include the reasons for the decision and the provisions on which the decision was based. If you need to hire an attorney or incur other costs and expenses to exercise your rights under the Plan, the Company will pay reasonable attorney fees, costs and expenses. However, if the arbitrators determine that payment of these costs by the Company is unjust, they may require you to pay all or part of the costs. TERMINATION OF THE PLAN The Company expects to continue the Corporate Resource Managers Severance Pay Plan indefinitely. However, it reserves the right to amend or terminate the Plan at any time. No amendment or termination of the Plan that would adversely affect your interest may be adopted after a change in control, or during the one-year period immediately before a change in control. ADMINISTRATION This section of the summary plan description provides you with information on the administration of the Ameritech Corporate Resource Managers Severance Pay Plan. Plan name: Ameritech Corporate Resource Managers Severance Pay Plan Employer identification number: 36-3251481 Plan number: 535 Plan administrator and trustee: American Information Technologies Corporation Attention: Secretary- Severance Pay Plan Committee 30 South Wacker Drive Chicago, Illinois 60606 (312) 750-5000 Plan sponsor and agent for legal service: American Information Technologies Corporation Attention: Secretary-Severance Pay Plan Committee 30 South Wacker Drive Chicago, Illinois 60606 (312) 750-5000 Type of plan: This plan is a special severance pay welfare plan. As such, the benefits it provides are not insured by the Pension Benefit Guaranty Corporation (PBGC). This is because certain benefits provided under defined benefit plans (pension plans) are the only benefits guaranteed by law. Plan year: January 1 to December 31. Plan costs: The employing companies pay all benefits provided by this plan from general assets or from one or more trusts, the assets of which are subject to the employing companies' general creditors. The cost of administering the Plan is paid directly by employing companies. YOUR ERISA RIGHTS As a participant in the Ameritech Corporate Resource Managers Severance Pay Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all participants shall be entitled to: 1. Examine without charge, at the plan administrator's office and at other specified locations such as worksites and union halls, all plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports and plan descriptions. 2. Obtain copies of all plan documents and other plan information upon written request to the plan administrator. The administrator may make a reasonable charge for copies. 3. Receive a summary of the Plan's annual financial report. The plan administrator is required by law to furnish each participant with a copy of this summary annual report. A complete list of the employers sponsoring the Plan may be obtained upon written notice to the plan administrator and is available for examination at the plan administrator's office and at other specified locations. You may receive from the plan administrator, upon written request, information as to whether a particular employer is a sponsor of the Plan, and if it is a sponsor, its address. In addition to creating rights for the plan participants, ERISA imposes duties on the people who are responsible for the operation of the Plan. The people who operate your plan, called "fiduciaries" of the Plan, have a duty to act prudently and in the interest of you and the other plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way for the sole purpose of preventing you from obtaining benefits under this plan or from exercising your rights under ERISA. If your claim for benefits is denied in whole or in part, you must receive a written explanation of the reasons for this denial. You have the right to have the Plan review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For example, if you request materials from the Plan and do not receive them within 30 days, you may file suit in federal court. In such a case, the court may require the plan administrator to provide the materials and pay you up to $100 a day until you receive them, unless the materials were not sent because of reasons beyond the control of the administrator. If you have a claim for benefits that is denied or ignored in whole or in part, you may file suit in a state or federal court. If you are discriminated against for asserting your rights, or if it should happen that plan fiduciaries misuse plan money, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The courts will decide who should pay court costs and legal fees. If you are successful, the court may order the person you sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim frivolous. If you have any questions about the Ameritech Corporate Resource Managers Severance Pay Plan, you should contact your local Personnel Vice President. If you have any questions about this statement or your rights under ERISA, you should contact the nearest area office of the U.S. Labor-Management Services Administration, Department of Labor. EX-10.EE 11 AMERITECH MANAGEMENT COMMITTEE SHORT TERM INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH MANAGEMENT COMMITTEE SHORT TERM INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 Purpose 1 2 Eligibility 1 3 Performance Periods 1 4 Administration 1 5 Performance Goals 1 6 Target Incentives and Payout Schedule1 7 Incentive Payout Calculation 2 8 Reduction of Calculated Payouts 2 9 Payouts 2 10 Change in Control 2 11 Miscellaneous Provisions 4 12 Adoption and Duration 4 AMERITECH MANAGEMENT COMMITTEE SHORT TERM INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) 1. Purpose. The purpose of the Ameritech Corporation Management Committee Short Term Incentive Plan (the "Plan") is to provide key executives of Ameritech Corporation (the "Company") with incentive compensation based upon the achievement of established annual performance goals. 2. Eligibility. The individuals eligible to participate in the Plan (the "Participants") are the Chief Executive Officer of the Company and each other executive officer who is for all or any part of a Performance Period (as hereinafter defined) a member of the Management Committee of the Company. If a Participant is a member of the Management Committee for less than a full Performance Period, his or her payout under the Plan for such Performance Period shall be prorated based on the portion of the Performance Period he or she served as a member of the Management Committee. 3. Performance Periods. Each performance period for purposes of the Plan shall have a duration of one calendar year, commencing January 1 and ending December 31. 4. Administration. The Compensation Committee of the Board of Directors of the Company (the "Committee") shall have the full power and authority to administer and interpret the Plan and to establish rules for its administration. Such power and authority shall include proration or adjustment of awards in the case of retirement, termination, changes in base salary, dismissal, death and other conditions as appropriate. 5. Performance Goals. On or before the 90th day of each Performance Period, the Committee shall establish in writing one or more performance criteria for the Performance Period, the weighting of the performance criteria if more than one. The performance criteria shall be quantifiable financial measures for the Company as a whole and may include net income, earnings per share, cash flow, revenues, or total shareowner return. To the extent net income is used alone or as a component of another performance criteria, it shall mean net income as reported to shareowners, but before losses resulting from discontinued operations, extraordinary losses (in accordance with generally accepted accounting principles, as currently in effect), the cumulative effect of changes in accounting principles and other unusual, non-recurring items of loss that are separately identified and quantified in the Company's audited financial statements. 6. Target Incentives and Payout Schedule. On or before the 90th day of each Performance Period, the Committee shall establish in writing a target incentive award for each Participant and a payout schedule specifying the percentages, ranging from 0% to 150%, of the target awards to be paid for varying levels of attainment of the financial performance criteria established pursuant to Section 5. 7. Incentive Payout Calculation. As soon as practicable after release of the Company's financial results for the Performance Period, the Committee will certify the Company's attainment of the financial performance criteria established for such Performance Period pursuant to Section 5 and will calculate the possible payout of incentive awards for each Participant under the payout schedule established pursuant to Section 6. 8. Reduction of Calculated Payouts. The Committee shall have the power and authority to reduce or eliminate for any reason the payout calculated pursuant to Section 7 that would otherwise be payable to a Participant based on the established target award and payout schedule. 9. Payouts. After calculation of incentive payouts pursuant to Section 7 and any reduction or elimination thereof pursuant to Section 8, the Committee shall certify the amount of the payout to each Participant under the Plan for the Performance Period. In no event shall the payout under the Plan to any Participant for any Performance Period exceed $4.5 million. Payment of the incentive award determined in accordance with the Plan for each Performance Period shall be made to a Participant in cash. Awards payable pursuant to the Plan may be deferred by a Participant under the terms of the Ameritech Senior Management Supplemental Savings and Deferral Plan in effect from time to time, provided that awards under the Plan so deferred may not be distributed to the Participant until the Participant's retirement with a service pension under the Company's Management Pension Plan or termination of employment. 10. Change in Control. If a Change in Control (as defined below) occurs, then each Participant who is actively employed by the Company on the date of the Change in Control shall receive, as soon as practicable following the earlier of his termination of employment or the end of the calendar year in which such Change in Control occurs, not less than 100% of the target award established for the Participant pursuant to Section 6 for the Performance Period in which the Change in Control occurs, subject to upward adjustment based on the criteria established by the Committee prior to the Change in Control. For purposes of the Plan, the term "Change in Control" means a change in the beneficial ownership of the Company's voting stock or a change in the composition of the Company's Board of Directors which as follows: (i) any "person" (as such terms is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than: (A) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (B) the Participant or any other person acting in concert with the Participant; is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (i) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (ii) a tender offer is made for the stock of the Company, and the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (ii) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (iii) during any period of twelve consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (iv) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (A) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 55% of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (B) a merger or consolidation which would result in the directors of the Company who were directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of paragraph (iv) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (1) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (i) or paragraph (iv) above, or (2) any director who was not a director at the beginning of the twelve-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors who were directors before the beginning of such period. 11. Miscellaneous Provisions. (a) The Board of Directors shall have the right to suspend or terminate this Plan at any time and may amend or modify the Plan with respect to future Performance Periods prior to the beginning of any Performance Period, provided that no such amendment or modification shall materially increase benefits payable to Participants under the Plan unless such amendment or modification shall have been approved by the shareowners of the Company. (b) Nothing contained in the Plan or any agreement related hereto shall affect or be construed as affecting the terms of employment of any Participant except as specifically provided herein or therein. Nothing contained in the Plan or any agreement related hereto shall impose or be construed as imposing any obligation on (i) the Company to continue the employment of any Participant or (ii) any Participant to remain in the employ of the Company. 12. Adoption and Duration. The Plan shall become effective as of the first day of the year in which it is approved by the shareowners of the Company and the Plan shall remain in effect for a period of five (5) calendar years. EX-10.FF 12 AMERITECH CORPORATION LONG-TERM STOCK INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) AMERITECH CORPORATION LONG-TERM STOCK INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) TABLE OF CONTENTS SECTION PAGE 1 The Plan 1 Purpose 1 Effective Date 1 2 Administration 1 Committee 1 Powers and Authority 1 Award Prices 1 Change in Control 2 3 Shares Subject to the Plan 3 Maximum Shares Available for Delivery 3 Other Share Limits 4 Adjustments for Corporate Transactions 4 4 Types of Awards 5 General 5 Stock Option 5 Stock Appreciation Rights 5 Stock Award 5 Dividends and Dividend Equivalents 5 5 Award Settlements and Payments 6 6 Plan Amendment and Termination 6 Amendments 6 Plan Suspensions and Termination 6 7 Miscellaneous 6 No Individual Rights 6 Binding Arbitration 6 Unfunded Plan 6 Other Benefit and Compensation Programs 7 No Fractional Shares 7 AMERITECH CORPORATION LONG-TERM STOCK INCENTIVE PLAN (As Amended and Restated Effective as of February 1, 1998) 1. The Plan a) Purpose. The purpose of this Long-Term Stock Incentive Plan (the "Plan") is to promote the longer-term financial success of Ameritech Corporation (the "Company") by providing a means to attract, retain and reward individuals who can and do contribute to such success. By using stock- based compensation, the recipients of awards under the Plan will further identify their interests with those of the Company's shareowners. b) Effective Date. To serve this purpose, the Plan will become effective upon its approval by the affirmative vote of a majority of the shares present or represented by proxy at the Company's 1997 Annual Meeting of Shareowners. 2. Administration a) Committee. The Plan shall be administered by a Committee, appointed by the Board of Directors of the Company, which shall consist of no less than three of its members, all of whom shall not be employees of the Company (the "Committee"); provided, however, that the Board of Directors of the Company may assume, at its sole discretion, administration of the Plan. b) Powers and Authority. The Committee's powers and authority include, but are not limited to, selecting individuals from among employees of the Company and any subsidiary of the Company or other entity in which the Company has a significant equity or other interest as determined by the Committee, and from among the members of the Board of Directors of the Company, to receive awards under the Plan; determining the types and terms and conditions of all awards granted, including performance and other earnout and/or vesting contingencies; permitting transferability of awards to third parties; interpreting the Plan's provisions; and administering the Plan in a manner that is consistent with its purpose. c) Award Prices. For Plan purposes, all stock options and stock appreciation rights shall have an exercise price which shall reflect the average traded price of a share of the common stock of the Company, par value $1.00 ("Share") on the applicable date as determined by the Committee, or if Shares are not traded on such date, the average price on the next preceding day on which such stock is traded. The applicable date shall be the date on which the award is granted, except that the Committee may provide that the applicable date may be: (i) the day on which an award recipient was hired, promoted or such similar singular event occurred, provided that the grant of such award occurs within 90 days following such applicable date; or (ii) in the case of a stock option or stock appreciation right granted retroactively in tandem with or as a substitution for another previously granted stock option or stock appreciation right, the applicable date for such prior award. The above notwithstanding, the per Share exercise price of any stock option or stock appreciation right may not be decreased after the grant of the award, and a stock option or stock appreciation right may not be surrendered as consideration in exchange for the grant of a new award with a lower per Share exercise price. d) Change in Control. The Committee may provide that any or all awards contain provisions which contemplate a "Change in Control" due to either a change in the beneficial ownership of the Company's voting stock or in the composition of the Company's Board of Directors. For all Plan purposes, a Change in Control shall be deemed to occur, unless the Board of Directors determines otherwise prior to such Change in Control occurring, when: (i) any "person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than: (A) a trustee or other fiduciary holding securities under an employee benefit plan of the Company; or (B) the Participant or any other person acting in concert with the Participant; is or becomes a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (i) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (ii) a tender offer is made for the stock of the Company, and the person making the offer owns or has accepted for payment stock of the Company representing 20% or more of the total voting power of the Company's then outstanding stock; provided, however, that this paragraph (ii) shall not apply to any tender offer made pursuant to an agreement with the Company approved by the Company's Board of Directors and entered into before the offeror has become a beneficial owner of stock of the Company representing 5% or more of the combined voting power of the Company's then outstanding stock; (iii) during any period of 12 consecutive months there shall cease to be a majority of the Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board of Directors and any new director(s) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (iv) the stockholders of the Company approve a merger or consolidation of the Company with, or a sale of all or substantially all of the Company's assets to, any other company other than: (A) a merger or consolidation which would result in the Company's voting stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than 55% of the combined voting power of the Company's or such surviving entity's outstanding voting stock immediately after such merger or consolidation; or (B) a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least a majority of the directors of the surviving entity immediately after such merger or consolidation. For purposes of paragraph (iv) above, the phrase "surviving entity" shall mean only an entity in which all of the Company's stockholders who are stockholders immediately before the merger or consolidation (other than stockholders exercising dissenter rights) become stockholders by the terms of the merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall not include (1) any director of the Company who was designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (i) or paragraph (iv) above, or (2) any director who was not a director at the beginning of the 12-consecutive-month period preceding the date of such merger or consolidation, unless his election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least 80% of the directors who were directors before the beginning of such period. 3. Shares Subject to the Plan a) Maximum Shares Available for Delivery. Subject to Section 3(c), the maximum number of Shares that may be delivered to participants and their beneficiaries under the Plan shall be equal to the sum of: (i) 20,000,000; (ii) any Shares available for future awards under the Company's 1989 Long-Term Incentive Plan as of the effective date of this Plan; and (iii) any Shares that represent awards granted under any prior plan of the Company which are forfeited, expire or are canceled without the delivery of Shares or which result in the forfeiture of Shares back to the Company. In addition, any Shares granted under the Plan which are forfeited back to the Company because of the failure to meet an award contingency or condition shall again be available for delivery pursuant to new awards granted under the Plan. Any Shares covered by an award (or portion of an award) granted under the Plan, which are forfeited or canceled, expires or is settled in cash, shall be deemed not to have been delivered for purposes of determining the maximum number of Shares available for delivery under the Plan. Likewise, if any stock option is exercised by tendering Shares, either actually or by attestation, to the Company as full or partial payment in connection with the exercise of a stock option under this Plan or any stock plan of the Company, only the number of Shares issued net of the Shares tendered shall be deemed delivered for purposes of determining the maximum number of Shares available for delivery under the Plan. Further, any Shares delivered under the Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of the Company acquiring another entity shall not reduce the maximum number of Shares available pursuant to this Section 3(a). b) Other Share Limits. Subject to Section 3(c), the following additional Share maximums are imposed under the Plan. The maximum number of Shares that may be covered by stock options intended to comply with Section 422 of the Internal Revenue Code ("incentive stock options:) shall be 20,000,000. The maximum number of Shares that may be issued in conjunction with awards granted pursuant to Section 4(d) shall be 7,000,000. The maximum number of Shares that may be covered by awards granted to any one individual shall be 2,500,000 over any consecutive five-year period. c) Adjustments for Corporate Transactions. The Committee may determine that a corporate transaction has affected the price per Share such that an adjustment or adjustments to outstanding awards are required to preserve (or prevent enlargement of) the benefits or potential benefits intended at time of grant. For this purpose a corporate transaction will include, but is not limited to, any stock split, stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares, or other similar occurrence. In the event of such a corporate transaction, the Committee may, in such manner as the Committee deems equitable, adjust (i) the number and kind of shares which may be awarded under the Plan pursuant to Sections 3(a) and 3(b); (ii) the number and kind of share subject to outstanding awards; and (iii) the exercise price of outstanding stock options and stock appreciation rights. 4. Types of Awards a) General. An award may be granted singularly, in combination with another award(s) or in tandem whereby exercise or vesting of one award held by a participant cancels another award held by the participant. Subject to Section 2(c), an award may be granted as an alternative to or replacement of an existing award or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company, including the plan of any entity acquired by the Company. The types of awards that may be granted under the plan include: b) Stock Option. A stock option represents a right to purchase a specified number of Shares during a specified period at a price per Share which is no less than that required by Section 2(c). A stock option may be in the form of an incentive stock option or in a form which does not qualify for federal tax treatment as an incentive stock option. The Shares covered by a stock option may be purchased by means of a cash payment or such other means as the Committee may from time-to-time permit, including (i) tendering (either actually or by attestation) Shares valued using the market price at the time of exercise, (ii) authorizing a third party to sell Shares (or a sufficient portion thereof) acquired upon exercise of a stock option and to remit to the Company a sufficient portion of the sale proceeds to pay for all the Shares acquired through such exercise and any tax withholding obligations resulting from such exercise; or (iii) any combination of the above. c) Stock Appreciation Rights. A stock appreciation right is a right to receive a payment in cash, Shares or a combination, equal to the excess of the aggregate market price at time of exercise of a specified number of Shares over the aggregate exercise price of the stock appreciation rights being exercised. d) Stock Award. A stock award is a grant of Shares or of a right to receive Shares (or their cash equivalent or a combination of both) in the future. Each stock award shall be subject to such conditions, restrictions and contingencies as the Committee shall determine. These may include continuous service and/or the achievement of performance goals. The performance goals that may be used by the Committee for such awards shall consist of cash generation targets, profit and revenue targets, profitability targets as measured by return ratios, and/or shareholder returns. The Committee may designate a single criterion or multiple criteria for performance measurement purposes with the measurement based on absolute Company or business unit performance and/or on performance as compared with that of other publicly-traded companies. e) Dividends and Dividend Equivalents. An award may contain the right to receive dividends or dividend equivalent payments which may be either paid currently or credited to a participant's account. Any such crediting of dividends or dividend equivalents or reinvestment in Shares may be subject to such conditions, restrictions and contingencies as the Committee shall establish, including the reinvestment of such credited amounts in Share equivalents. The performance goals that may be used by the Committee for such dividends or dividend equivalent award payments shall consist of cash generation targets, profit and revenue targets, profitability targets as measured by return ratios, shareholder returns and/or an increase in the Company stock value after the date of the related grant. 5. Award Settlements and Payments Awards may be settled through cash payments, the delivery of Shares, the granting of awards or any combination thereof as the Committee shall determine. Any award settlement, including payment deferrals, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any award payment, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest, or dividend equivalents, including converting such credits into deferred Share equivalents. 6. Plan Amendment and Termination a) Amendments. The Company's Board of Directors may amend this Plan as it deems necessary and appropriate to better achieve the Plan's purpose provided, however, that (i) the Share limitations set forth in Sections 3(a) and 3(b) cannot be increased and (ii) the minimum stock option and stock appreciation right exercise prices set forth in Section 2(c) cannot be changed, unless such a change is properly approved by the Company's shareowners. b) Plan Suspensions and Termination. The Board of Directors of the Company may suspend or terminate this Plan at any time. Any such suspension or termination shall not of itself impair any outstanding award granted under the Plan or the applicable participant's rights regarding such award. 7. Miscellaneous a) No Individual Rights. No person shall have any claim or right to be granted an award under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee or other person any right to continue to be employed by or to perform services for the Company, any subsidiary or related entity. The right to terminate the employment of or performance of services by any Plan participant at any time and for any reason is specifically reserved to the employing entity. b) Binding Arbitration. Any dispute or disagreement regarding participation and/or an award recipient's rights under the Plan shall be settled solely by binding arbitration in accordance with the applicable rules of the American Arbitration Association. c) Unfunded Plan. The Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any participant or beneficiary of a participant. To the extent any person holds any obligation of the Company by virtue of an award granted under the Plan, such obligation shall merely constitute a general unsecured liability of the Company and accordingly shall not confer upon such person any right, title or interest in any assets of the Company. d) Other Benefit and Compensation Programs. Unless otherwise specifically determined by the Committee, settlements of awards received by participants under the Plan shall not be deemed a part of a participant's regular, recurring compensation for purposes of calculating payments or benefits from any Company benefit plan or severance program. Further, the Company may adopt other compensation programs, plans or arrangements as it deems appropriate. e) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any award, and the Committee shall determine whether cash shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled. EX-12 13 Exhibit 12 AMERITECH CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1997 (Dollars in Millions) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- EARNINGS Income before interest income taxes, extraordinary item and undistributed equity earnings........ $ 4,116 $ 3,726 $ 3,537 $ 2,162 $ 2,707 Preferred dividends of subsidiaries (3).... 29 13 9 2 -- Portion of rent expense representing interest.. 73 73 67 64 65 Michigan Single Business Tax.... 43 43 34 33 28 -------- -------- -------- -------- -------- Total earnings (1) (2).............. $ 4,261 $ 3,855 $ 3,647 $ 2,261 $ 2,800 ======== ======== ======== ======== ======== FIXED CHARGES Interest expense........ $ 505 $ 514 $ 469 $ 435 $ 453 Preferred dividends of subsidiaries (3).... 29 13 9 2 -- Capitalized interest.... 25 28 20 13 11 Portion of rent expense representing interest.. 73 73 67 64 65 -------- -------- -------- -------- -------- Total fixed charges... $ 632 $ 628 $ 565 $ 514 $ 529 ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES.................. 6.74 6.14 6.45 4.40 5.29 ======== ======== ======== ======== ======== (1) The results for 1995 reflect a $134 million pretax credit primarily from settlement gains resulting from lump sum pension payments from the pension plan to former employees who left the business in the nonmanagement work force restructuring. Results for 1994 reflect a $728 million pretax charge associated with the nonmanagement work force restructuring. Costs of the work force restructuring program were largely funded from the Ameritech Pension Plan. (2) Earnings are income before income taxes and fixed charges. Since the Michigan Single Business Tax ("the Tax") and rental expense have been deducted, the Tax and the one-third portion of rental expense considered to be fixed charges are added back. (3) For purposes of above computation, the preferred stock dividend requirement of subsidiaries have been increased to an amount representing the pretax earnings which would be required to cover the dividend requirements. EX-13 14 Selected Financial and Operating Data Ameritech Corporation and Subsidiaries As of December 31 or for the year ended (dollars in millions, except per share amounts)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 ------------------------------------------------------------------------------------------------- Revenues $15,998 $14,917 $13,428 $12,569 $11,865 $11,285 $10,983 $10,773 $10,316 $10,014 $ 9,623 ================================================================================================= Operating expenses/1/ 12,199 11,412 10,125 10,540 9,307 8,941 9,001 8,584 8,161 7,882 7,358 ------------------------------------------------------------------------------------------------- Operating income 3,799 3,505 3,303 2,029 2,558 2,344 1,982 2,189 2,155 2,132 2,265 Interest expense 505 514 469 435 453 495 545 454 384 366 351 Other income (expense), net 390 326 260 147 117 125 219 76 14 52 (8) Income taxes 1,388 1,183 1,086 571 709 628 491 557 547 581 718 ------------------------------------------------------------------------------------------------- Income before special accounting items/2/ 2,296 2,134 2,008 1,170 1,513 1,346 1,165 1,254 1,238 1,237 1,188 Special accounting items/2/ -- -- -- (2,234) -- (1,746) -- -- -- -- -- ------------------------------------------------------------------------------------------------- Net income (loss) $ 2,296 $ 2,134 $ 2,008 $(1,064) $ 1,513 $ (400) $ 1,165 $ 1,254 $ 1,238 $ 1,237 $ 1,188 ================================================================================================= Earnings (loss) per share/3/ Income before special accounting items/2/ Basic $ 2.09 $ 1.93 $ 1.81 $ 1.06 $ 1.39 $ 1.25 $ 1.10 $ 1.18 $ 1.15 $ 1.14 $ 1.06 Diluted 2.08 1.92 1.81 1.06 1.39 1.25 1.10 1.18 1.15 1.14 1.06 Special accounting items/2/ Basic -- -- -- (2.03) -- (1.62) -- -- -- -- -- Diluted -- -- -- (2.03) -- (1.62) -- -- -- -- -- ------------------------------------------------------------------------------------------------- Net income (loss) Basic $ 2.09 $ 1.93 $ 1.81 $ (0.97) $ 1.39 $ (0.37) $ 1.10 $ 1.18 $ 1.15 $ 1.14 $ 1.06 Diluted 2.08 1.92 1.81 (0.97) 1.39 (0.37) 1.10 1.18 1.15 1.14 1.06 ================================================================================================= Dividends declared per share/3/ $ 1.148 $ 1.078 $ 1.015 $ 0.97 $ 0.93 $ 0.89 $ 0.86 $ 0.81 $ 0.75 $ 0.69 $ 0.64 ================================================================================================= Average common shares outstanding (millions)/3/ 1,098.7 1,103.8 1,107.2 1,098.5 1,088.2 1,073.1 1,062.1 1,061.2 1,078.9 1,088.8 1,122.2 Total assets/4/ $25,339 $23,707 $21,942 $19,947 $23,428 $22,818 $22,290 $21,715 $19,833 $19,163 $18,780 Property, plant and equipment, net/4/ $13,873 $13,507 $13,457 $13,455 $17,366 $17,335 $16,986 $16,652 $16,296 $16,078 $15,962 Capital expenditures $ 2,651 $ 2,476 $ 2,176 $ 1,955 $ 2,108 $ 2,267 $ 2,200 $ 2,154 $ 2,015 $ 1,895 $ 1,956 Long-term debt $ 4,610 $ 4,437 $ 4,513 $ 4,448 $ 4,090 $ 4,586 $ 4,964 $ 5,074 $ 5,069 $ 4,487 $ 4,388 Total debt/6/ $ 7,646 $ 7,592 $ 6,651 $ 6,346 $ 6,692 $ 6,704 $ 6,938 $ 6,769 $ 5,582 $ 4,942 $ 4,843 Debt ratio 47.9% 49.7% 48.7% 51.2% 46.0% 48.9% 46.1% 46.7% 42.1% 38.7% 38.9% Return on average equity/5/ 28.5% 28.7% 29.5% (13.6)% 20.1% (5.9)% 14.5% 16.3% 15.8% 15.8% 15.5% Return on average total capital/5/ 18.1% 17.1% 18.2% (4.6)% 13.1% 0.2% 10.6% 11.8% 11.9% 12.0% 11.7% Market price per common share/3/ $ 40.25 $ 30.31 $ 29.44 $ 20.19 $ 19.19 $ 17.81 $ 15.88 $ 16.69 $ 17.00 $ 11.94 $ 10.56 Access lines (000s) 20,544 19,704 19,057 18,239 17,560 17,001 16,584 16,278 15,899 15,469 15,094 Cellular subscribers (000s) 3,177 2,512 1,891 1,299 860 586 483 326 242 146 87 Employees 74,359 66,128 65,345 63,594 67,192 71,300 73,967 75,780 77,326 77,334 78,510 ===================================================================================================================================
/1/ Increase in operating expenses in 1994 was due to nonmanagement work force restructuring charges of $728 million, while operating expenses in 1995 decreased due to a restructuring credit of $134 million. /2/ Special accounting items represent an extraordinary item for the discontinuation of FAS 71 (accounting in a regulatory environment) in 1994 and the cumulative effect of changes in accounting principles in 1992 for FAS 106 ($1,644 million) and FAS 112 ($102 million). /3/ Gives retroactive effect to all stock splits. /4/ Substantial reduction in total assets and property, plant and equipment, net in 1994 was due principally to the discontinuance of FAS 71. /5/ Return on average equity and return on average total capital are calculated using weighted average monthly amounts. /6/ Total debt excludes preferred stock issued by subsidiaries of $250 million in 1997, $60 million in 1995 and $85 million in 1994. The 1997 and 1994 issues are subject to mandatory redemption. 22 Management's Discussion and Analysis of Results of Operations and Financial Condition (Discussion that follows gives retroactive effect to the two-for-one stock split effective December 31, 1997; dollars in millions, except per share amounts) Ameritech is a global, diversified, full-service communications company providing wireline and cellular telephone service, paging, cable TV and security services, directory publishing and online services. Our five domestic landline communications subsidiaries provide local telephone service, network access and public telephone service to more than 12 million customers in Illinois, Indiana, Michigan, Ohio and Wisconsin. These subsidiaries are subject to regulation by the respective state utility commissions and the Federal Communications Commission (FCC). In addition, we provide cellular service primarily in our five-state region and Missouri; paging services in our five-state region, Missouri and Minnesota; and security and related services throughout North America. In 1996, we began offering cable TV service to customers in Illinois, Michigan and Ohio. These and other services are offered through nonregulated subsidiaries of Ameritech. The telecommunications industry continued to experience unprecedented change in 1997. As the impacts of the Telecommunications Act of 1996 (the 1996 Act) became more clear, firms in the industry continued to refine their strategies in order to compete effectively in new and existing markets. As a result, we have experienced greater levels of competition in our markets, while at the same time we have expanded the array of products and services that we offer to our customers. Although regulatory reform has brought increased competition, it also has brought a tremendous opportunity for growth in a market that is rapidly expanding. We are capitalizing on this growth by adhering to our three basic strategies: speed growth in our core business, introduce new services for customers and connect customers around the world. In the international arena, we continued to follow our strategy of expansion in developed, economically stable foreign markets. In January 1998, we invested $3.1 billion for a 34% stake in Tele Danmark A/S, the national telecommunications provider in Denmark. In conjunction with our investment, Tele Danmark will repurchase and retire all remaining shares held by the Danish government, which will ultimately increase our stake to approximately 42%. Tele Danmark is scheduled to complete this repurchase by April 1998. The Danish market fits our criteria of solid growth, a well-educated population and stable political and economic conditions, and we expect this venture to provide a platform for further expansion in northern Europe. The European communications industry is poised for a period of strong growth as markets deregulate and governments continue to privatize their communications sectors. Our investment in Tele Danmark has made Ameritech the largest American investor in the European communications industry, complementing our existing investments in Belgacom S.A., the national communications provider in Belgium; MATAV, the Hungarian telecommunications company; NetCom, a cellular venture in Norway; and WLW, our wholly owned subsidiary and a provider of business directories throughout central Europe. Prior to our investment in Tele Danmark, we had followed a strategy internationally of teaming with partners and forming alliances to develop synergies, share expertise and mitigate risk. When we own less than a controlling interest, we record our allocable share of the operating results from international investments. Such results are included in other income, net in the consolidated statements of income on page 36. International investments had a significant impact on earnings growth in 1997, and we estimate that our pro rata share of revenues from international investments was approximately $1.8 billion in 1997. Our international equity-method investments represented 6.6% of our assets as of December 31, 1997. In addition to our international growth, we continued to build on expanded service offerings in our home market, such as security services and cable TV. In 1997 our wholly owned subsidiary, SecurityLink from Ameritech, acquired assets from several security companies, including Republic Security Company Holdings and Rollins Protective Services. Through these acquisitions, we solidified our position as the second-largest provider of security services in North America and expanded our customer base to more than 1 million homes and businesses. A clear benefit of our expansion in this industry is economies of scale, enabling us to increase our customer base while at the same time decreasing the number of monitoring centers that we operate. In 1997 we began consolidating the number of our monitoring centers. We anticipate going from 24 centers in 1997 to four centers by 1999. We offer cable TV services through our wholly owned subsidiary, Ameritech New Media, Inc. In 1997 New Media added franchise agreements in 34 communities in Illinois, Michigan and Ohio, bringing the total to 65. Negotiations continue in numerous other municipalities, including the city of Chicago, to obtain additional franchise agreements. We continued our construction of a modern, cost-efficient cable network, and now offer cable TV service in a total of 40 communities. Using a combination of effective marketing, a wide selection of channels and quality customer service, we have achieved solid customer take rates in these communities. Our introduction of a competing cable TV service has clearly increased customer demand. One area of potential future growth is interLATA long distance service. As part of our plan to realize the full potential of the communications industry and following the supporting provisions of the 1996 Act, we have taken the steps set out in the Act to create a fully competitive market. We have made our unbundled network available for use by Ameritech's competitors at cost-based prices and at prices representing discounts from established retail levels. Additionally, we have entered into more than 150 interconnection agreements with other communications carriers, reflecting a growing wholesale business. These efforts and the presence of facilities-based competitors in our region provided the basis for 23 Management's Discussion and Analysis (dollars in millions, except per share amounts) our request for authority to enter the interLATA long distance market in Michigan. In August 1997, the FCC denied our application to provide long distance service in Michigan. We are working with the courts, the FCC and state commissions toward full long distance entry consistent with the 1996 Act and under terms and conditions that make economic sense for the company. In addition, several industry participants, including Ameritech, have challenged the FCC's orders implementing portions of the 1996 Act. In two separate rulings the Federal Circuit Court of Appeals in St. Louis struck down several provisions of an August 1996 FCC order designed to implement the interconnection provisions of the 1996 Act and an FCC order that required Ameritech and other incumbent local exchange carriers to resell bundled network services at unbundled discounted rates. These rulings, along with other related rulings, are scheduled to be reviewed by the United States Supreme Court in October 1998, with a decision expected late this year or the beginning of next year. Results of operations Several one-time items impacted reported income in 1997 and in 1996. Results of operations for 1997 compared with the prior year were as follows:
Increase Percent 1997 1996 (Decrease) Change - --------------------------------------------------------------------- Income before one-time items $ 2,346 $ 2,116 $ 230 10.9 One-time items (50) 18 (68) n/a Net income 2,296 2,134 162 7.6 EPS before one-time items Basic $ 2.14 $ 1.91 $0.23 12.0 Diluted 2.12 1.91 0.21 11.0 Earnings per share Basic $ 2.09 $ 1.93 $0.16 8.3 Diluted 2.08 1.92 0.16 8.3 Average common shares (millions) 1,098.7 1,103.8 (5.1) (0.5) - ---------------------------------------------------------------------
One-time items and basic per-share amounts in 1997 included: . an after-tax charge of $87 million, or $0.08 a share, related to our share of the costs of a work force restructuring at Belgacom, the telecommunications provider in Belgium; . a pretax gain of $52 million ($37 million after-tax, or $0.03 a share) resulting from the sale of our 12.5% interest in Sky Network Television of New Zealand Limited; . a pretax charge of $69 million ($42 million after-tax, or $0.04 a share) resulting from our agreement to settle lawsuits related to our inside wire maintenance services; . a pretax gain of $42 million ($25 million after-tax, or $0.02 a share) resulting from the sale of our 14.3% share of Bell Communications Research (Bellcore); . a pretax gain of $43 million ($27 million after-tax, or $0.03 a share) resulting from the sale in an initial public offering of a portion of our stake in MATAV, the telecommunications provider in Hungary; and . a pretax charge of $16 million ($10 million after-tax or $0.01 a share) resulting from a currency-related fair-value adjustment in connection with our investment in Tele Danmark. Results in 1996 included an after-tax gain of $18 million, or $0.02 a share, resulting from the sale of our interest in Centertel, a cellular telephone company in Poland. Excluding the effects of these one-time items, 1997 net income increased $230 million, or 10.9%, and basic earnings per share increased $0.23, or 12.0% over the comparable prior year period. [BAR GRAPH APPEARS HERE] 92 $11.3 93 $11.9 94 $12.6 95 $13.4 96 $14.9 97 $16.0
Revenues (in billions) Revenues grew to a record $16 billion in 1997, up from $14.9 billion in 1996. Reported income for 1996 was $2,134 million, or $1.93 per share. Excluding the effects of the gain on the sale of our interest in Centertel, income was $2,116 million or $1.91 per share. Normalized income for 1996 represents an increase of $228 million, or 12.1%, over normalized 1995 earnings and an increase in basic earnings per share of $0.21, or 12.3%. The following sections provide a more detailed discussion of our results of operations and financial condition over the past three years. Revenues Total revenues increased by 7.2% to $16.0 billion in 1997. Overall growth in the communications market continued, driven by increased demand for a wide array of voice and data transmission services. Cellular, paging and security services revenues continued to grow at a solid pace, fueled by increases in the number of subscribers to these services. Telephone network revenues also increased, due to increases in network access lines and network usage volumes, as well as higher sales of call management features and increased usage of pay-per-use services. Rate reductions resulting from various federal and state regulatory agreements for landline communications services partially offset these increases. Total revenues increased by 11.1% to $14.9 billion in 1996. This increase was primarily attributable to increases 24 in the number of cellular and paging subscribers, growth in access lines and call management services, higher network usage volumes and increased security services revenues. Rate reductions partially offset these increases. Increase Percent 1997 1996 (Decrease) Change - ------------------------------------------------------------------ Local service $6,413 $6,068 $345 5.7 ==================================================================
Local service Local service revenues include basic monthly service fees and usage charges, fees for call management services, public phone revenues and installation and connection charges. Local service rates generally have been regulated by the state public service commissions. In each state of our five- state region, we entered into price cap plans, beginning in 1994 and fully reflected in revenues for the three-year period. Local service revenues increased in 1997 due largely to increased sales of call management services. These increases resulted from growth in the number of features in service, which users subscribe to on a monthly basis, as well as higher usage of pay-per-use services, under which users pay a fee for each activation of a call management feature. Higher network usage volumes, resulting primarily from access line growth, also contributed to the increase. Second line additions by residential and small business customers contributed to access line growth, due to continuing demand for Internet access and data transport capabilities. We had 20,544,000 access lines in service as of December 31, 1997, compared with 19,704,000 as of December 31, 1996. Our 4.3% access line growth was enhanced by 133,000 lines added on November 1, 1997, from the acquisition of certain assets from Sprint (discussed on page 29). Excluding the assets acquired from Sprint, access line growth was 3.6%. In 1996, local service revenues increased $482 million, or 8.6%, due to increased calling volumes, which resulted primarily from 3.4% growth in the number of access lines in service, attributable to residential second line additions as well as increased business usage. Greater demand for call management services also contributed to the increase. These increases were partially offset by rate reductions agreed to under price regulation, as discussed above.
Increase Percent 1997 1996 (Decrease) Change - ------------------------------------------------------------------ Network access Interstate access $2,485 $2,365 $120 5.1 Intrastate access 619 573 46 8.0 ==================================================================
Network access Network access revenues are fees charged to interexchange carriers, such as AT&T and MCI, that use our local landline communications network to connect customers to their long distance networks. In addition, end users pay flat rate access fees to connect to the long distance networks. These revenues are generated from both interstate and intrastate services. Interstate network access revenues increased in 1997 due primarily to higher network usage volumes. The volume of calls that we handled for interexchange carriers increased, and demand for dedicated services grew as Internet service providers and other high-capacity users increased their utilization of our network. Rate reductions partially offset these revenue increases. Minutes of use related to interstate calls increased by 6.1% in 1997. Interstate network access revenues increased $111 million, or 4.9%, in 1996, due primarily to increases in network minutes of use. This increase was partially offset by rate reductions resulting primarily from the FCC's approval in 1995 of our request for price regulation without sharing of earnings. Minutes of use related to interstate calls increased by 7.1% in 1996. Intrastate network access revenues increased in 1997 reflecting greater use of our network by alternative providers of intraLATA toll service in Illinois, Michigan and Wisconsin. Rate reductions partially offset these volume increases. Minutes of use related to intrastate calls increased by 15.4%. +12% Increase in Earnings Per Share - ------------------------------------------------------------------------------- Basic earnings per share before one-time items rose 12% to $2.14. Intrastate network access revenues increased $11 million, or 2.0%, in 1996 due primarily to volume increases resulting from overall growth in call volume. This increase was partially offset by rate reductions, largely resulting from regulatory proceedings as discussed above. In addition, revenues were reduced by a refund to interexchange carriers in Illinois related to certain pay phone use fees and a reclassification in Michigan of certain revenues from the intrastate access category to the long distance service category. Minutes of use related to intrastate access increased by 15.0% in 1996.
Increase Percent 1997 1996 (Decrease) Change - --------------------------------------------------------------------- Long distance $ 1,384 $ 1,491 $(107) (7.2) ==================================================================
Long distance Our current long distance service revenues are derived from customer calls to locations outside of the customer's local calling areas but within the same local access and transport area (LATA). 25 Management's Discussion and Analysis (dollars in millions, except per share amounts) Long distance service revenues decreased in 1997 because of a decrease in the volume of intraLATA toll calls completed. Implementation of Dial-1-plus capability in Illinois, Michigan and Wisconsin, which introduced competition to these markets, was the primary reason for the volume decrease. In these markets, customers may now use an alternative provider of their choice for intraLATA calls without dialing a special access code when placing the call. In addition, other carriers began to record revenue from their customers' use of intraLATA toll calling services, where previously they had allowed us to provide these services and record these revenues in exchange for access charge payments. Although we are no longer recording these revenues, we are no longer incurring the corresponding access charge expenses. 586 860 1,299 1,891 2,512 3,177 92 93 94 95 96 97 Cellular Customers (in thousands) We added a record 665,000 cellular subscribers in 1997, raising our total to almost 3.2 million. In 1996, long distance service revenues increased $34 million, or 2.3%, due primarily to increased surcharges collected for third-party credit card calls, as well as a reclassification of certain revenues in Michigan from the intrastate access category to the long distance service category, as discussed above. Higher calling volumes also contributed to the revenue increase, as did rate increases. Increase Percent 1997 1996 (Decrease) Change - ------------------------------------------------------------------------------ Cellular, directory and other $ 5,097 $ 4,420 $ 677 15.3 ============================================================================== Cellular, directory and other Cellular, directory and other revenues include revenues derived from cellular communications, paging services, telephone directory publishing, lease financing, billing and collection services, telephone equipment sales and security installations and services. Cellular, directory and other revenues increased in 1997 primarily because of strong growth in the number of cellular, security and paging subscribers. Cellular subscribers increased by 26.5% over the prior year period to 3,177,000 subscribers as of December 31, 1997. Strong demand, driven by price competition and expanded service offerings, contributed to the increase. We introduced our ClearPath/TM/ digital cellular service in the Chicago and Detroit markets in 1997, offering customers enhanced call clarity, longer battery life and better call security. Our consistently high customer retention rate also contributed to the growth in the subscriber base. Pagers in service increased by 31.1% over the prior year period to 1,495,000 subscribers as of December 31, 1997, due to increased marketing efforts and customer demand for added convenience. Revenues from security services also increased, due primarily to our acquisitions in 1997 of assets of several companies engaged in security services. These acquisitions and internal growth increased our security services customer base to more than 1 million. Higher revenues from directory advertising, lease financing services, cable TV and other nonregulated services, such as equipment sales and inside wire installation and maintenance, also contributed to the increase. Cellular, directory and other revenues increased $851 million, or 23.8%, in 1996, due primarily to increases in cellular and paging subscribers. Higher revenues from security services, lease financing services, equipment sales and other nonregulated services, such as inside wire installation and maintenance and advanced data services, also contributed to the increase. Security revenues increased primarily from the acquisition of The National Guardian Corporation. Operating expenses Total operating expenses in 1997 increased $787 million or 6.9%. Overall business growth resulted in increases in employee- related and other operating expenses. Depreciation and amortization expenses also increased, due primarily to network expansion and asset acquisitions, primarily in security services. Total operating expenses in 1996 increased $1,287 million or 12.7%. The increase was largely attributable to increased cost of sales in growth-related businesses, such as cellular and security monitoring services, and to increases in other operating expenses related to emerging businesses, such as long distance, personal communications services (PCS) and cable TV. Operating expenses also increased in 1996 due to the effects of pretax credits in 1995 of $134 million ($79 million after-tax) primarily related to settlement gains associated with lump-sum pension payments to former employees. Increase Percent 1997 1996 (Decrease) Change - -------------------------------------------------------------------------------- Employee-related expenses $ 3,959 $ 3,711 $ 248 6.7 ================================================================================ Employee-related expenses Employee-related expenses increased in 1997 because of growth in several sectors of our business, including cellular, security services and cable TV, resulting in increased employee levels. Higher wages at the landline communications subsidiaries also contributed 26 to the increase. Lower force levels and overtime expenses at these companies, resulting from productivity improvements, partially offset the wage increases. Employee-related expenses increased $88 million, or 2.4%, in 1996, primarily due to increased employee levels at the cellular, security monitoring, long distance and cable TV businesses that resulted in increased salaries and wages. Also contributing to the increase were higher wages and salaries at the landline communications subsidiaries, partially offset by productivity improvements. +20% Growth in Call Management Revenues ........................................ Revenues from call management services increased 20% in 1997. Approximately 42,500 of our employees are represented by either the International Brotherhood of Electrical Workers (IBEW) or the Communications Workers of America (CWA). In September 1995, memberships of the two unions ratified three-year contracts with Ameritech, expiring on June 28, 1998 for the IBEW and August 8, 1998 for the CWA. The contracts include basic wage increases and signing bonuses, and address issues such as wages, benefits, employment security, training and retraining and other conditions of employment. In addition, under the contracts, union employees receive their annual bonuses in the form of Ameritech stock instead of cash. There were 74,359 employees as of December 31, 1997 compared with 66,128 as of December 31, 1996. Approximately 70% of the increase is attributable to expansion of our security services subsidiary. Increase Percent 1997 1996 (Decrease) Change - -------------------------------------------------------- Depreciation and amortization $ 2,521 $ 2,365 $ 156 6.6 ======================================================== Depreciation and amortization Depreciation and amortization expenses increased in 1997 due primarily to higher overall plant balances, resulting from greater demand for network services, and an increase in intangible assets, resulting from several asset acquisitions in the security services industry. Depreciation rates are increasing due to the shorter lives adopted in the landline business in 1994. Depreciation and amortization expense increased $188 million, or 8.6%, in 1996, due primarily to higher plant balances, as well as higher depreciation rates on certain asset categories resulting from shorter depreciable lives. Greater amortization of intangibles, resulting from acquisitions, also contributed to the increase. Increase Percent 1997 1996 (Decrease) Change - -------------------------------------------------------- Other operating expenses $ 5,140 $ 4,743 $ 397 8.4 ======================================================== Other operating expenses Other operating expenses increased in 1997 due to the following factors: . higher costs in the emerging cable TV and long distance businesses; . growth-related cost of sales and customer increases at the cellular and security operations; . increased costs for systems development and data center management; . higher advertising expenses related to increased marketing and sales efforts; . cost of sales increases due to higher sales of customer premises equipment; and . a one-time pretax charge of $69 million resulting from our agreement to settle lawsuits related to our inside wire maintenance and Linebacker services. Other operating expenses increased $832 million, or 21.3%, in 1996, due primarily to growth-related cost of sales and other expense increases at the cellular and security operations, as well as higher costs in the emerging long distance and PCS businesses. Contract services costs for systems development and data center management also increased, as did uncollectibles and advertising expenses due to increased revenues and sales efforts, respectively. In May 1996, we commenced a ten-year agreement with IBM Global Services (IBM) to perform certain information technology services previously performed by Ameritech and to assume responsibility for the consolidation of the company's data centers. This agreement is resulting in increased contract services costs as services are provided by IBM. However, employee-related costs are decreasing from what otherwise would have been incurred and depreciation expense associated with computer assets is moderating as IBM replaces hardware, at its cost, required to manage our extensive data processing needs. Restructuring credits As announced in March 1994, we significantly reduced our nonmanagement work force in 1994 and 1995. We recorded noncash settlement gains of $302 million in 1995, associated primarily with lump-sum pension payments to former employees. These gains were partially offset by $110 million in increased force costs related to the restructuring started in 1994 and estimated work force reductions due to information technology restructuring. In connection with this restructuring, we recorded a charge of $58 million in 1995 to write down certain data processing equipment to net realizable value. 27 Increase Percent 1997 1996 (Decrease) Change - ------------------------------------------------------------ Taxes other than income taxes $ 579 $ 593 $ (14) (2.4) ============================================================ Taxes other than income taxes Taxes other than income taxes consist of property taxes, gross receipts taxes and other taxes not directly related to earnings. Taxes other than income taxes decreased in 1997 primarily because of lower property taxes in Illinois and Ohio, as well as lower capital stock taxes in Illinois resulting from tax reforms. Higher gross receipts taxes resulting from business growth partially offset these decreases. +27% Increase in Cellular Customers ----------------------------------- Ameritech's cellular customers grew 27% in 1997 to 3.2 million. Taxes other than income taxes increased $45 million or 8.2% in 1996, largely due to increases in gross receipts and capital stock taxes, resulting primarily from business growth and the acquisition of National Guardian. These increases were partially offset by a decrease in property taxes, largely resulting from favorable tax legislation, primarily in Ohio. Other income and expense Increase Percent 1997 1996 (Decrease) Change - ---------------------------------------------------------------- Interest expense $505 $514 $ (9) (1.8) ================================================================ Interest expense Interest expense decreased due primarily to increased cash flow from operations, resulting in lower average debt balances. This decrease was partially offset by higher short-term interest rates. Increased interest on long-term debt, due to higher average long-term debt balances, also partially offset this decrease. Interest expense increased $45 million or 9.6% in 1996, due primarily to funding of our investment in Belgacom, partially offset by the effect of lower average short-term interest rates. Short-term debt also increased in order to meet working capital needs resulting from revenue growth, increased capital expenditures and higher costs related to new and emerging businesses and to fund the company's stock buyback program. Increase Percent 1997 1996 (Decrease) Change - ------------------------------------------------------------- Other income, net $390 $326 $ 64 19.6 ============================================================= Other income, net Other income, net includes earnings related to Ameritech's investments (when the equity method of accounting is followed), interest income and other nonoperating items. Other income, net increased primarily because of several one-time gains resulting from the sale of our investments in: . Sky Network Television of New Zealand ($52 million pretax gain); . Bellcore ($42 million pretax gain); and . the sale of a portion of our stake in MATAV ($43 million pretax gain). These gains were partially offset by a $16 million pretax charge resulting from a currency fair-value adjustment related to our investment in Tele Danmark. Earnings from investments, accounted for using the equity method, also increased, due primarily to stronger results at Belgacom and MATAV. We acquired our 17.5% interest in Belgacom in March 1996. The increase was offset by the effects of a one-time after-tax charge of $87 million related to our share of the costs of a restructuring at Belgacom. In May 1997, Belgacom offered certain of its 27,000 employees financial incentives to voluntarily leave the work force by the end of 1998. Approximately 6,300 employees accepted the offer. We derive a large portion of our equity earnings from overseas investments. Although these investments continue to generate strong earnings, the effects of a stronger U.S. dollar in relation to foreign currencies moderated their impact on earnings in 1997. Other income, net increased 25.4% to $326 million in 1996, due primarily to strong growth in equity earnings from international investments, including Belgacom, Telecom Corporation of New Zealand Limited (New Zealand Telecom) and MATAV in Hungary, as well as a gain from the sale of the company's interest in Centertel in December 1996. These increases were partially offset by the effects of a gain of $66 million ($41 million after-tax) recorded in 1995 from the exchange of minority interests in certain cellular partnerships. Increase Percent 1997 1996 (Decrease) Change - ----------------------------------------------------- Income taxes $1,388 $1,183 $ 205 17.3 ===================================================== Income taxes Income taxes increased in 1997 primarily because of an increase in pretax earnings, as discussed above. Our effective tax rate increased over the same period last year, largely due to the Belgacom restructuring discussed above, as well as a decrease in the amortization of investment tax credits relative to pretax income and a change in tax law in New Zealand that subjects us to a withholding tax on distributions. The increase in income taxes in 1996 was impacted by 28 the tax effects associated with the work force restructuring credits and the gain on the exchange of minority interests in certain cellular partnerships in 1995. These items increased 1995 income tax expense by $81 million. Excluding the effects of these items, income taxes increased in line with the earnings of the business. Liquidity and capital resources Cash flows from operating activities Cash flow from operations was $4,510 million in 1997, an increase of $767 million from 1996, primarily reflecting stronger earnings, as well as improved working capital levels. Cash flows from investing activities Capital expenditures continue to represent the single largest use of company funds. We believe that investment in the core communications business will facilitate introduction of new products and services, enhance responsiveness to ever-increasing competitive challenges and increase the operating efficiency and productivity of our network. $3,288 $3,189 $3,430 $3,556 $3,743 $4,510 92 93 94 95 96 97 Cash Flow from Operations (in millions) Cash flow from operations increased 20% in 1997 to more than $4.5 billion. We are deploying capital based on customer demands, our business plans and regulatory commitments. We place a high priority on technologies that will enable us to provide customers with new products and services. Capital spending increased in 1997 primarily because of expansion and enhancement of the cellular network, including the continuing development of digital ClearPath and PCS networks and continued buildout of the cable TV network. Capital spending increased by $300 million in 1996 due primarily to increased spending at the landline communications subsidiaries resulting from access line growth and strong demand for custom calling and private line services. Modernization of the landline communications network continued throughout 1997, as demonstrated by the following year-end information.
1997 1996 - ------------------------------------------------------ Lines served by digital switching 86% 83% Lines with ISDN accessibility 76% 72% Fiber-optic strand miles (000s) 1,556 1,289 ======================================================
In addition to our increased capital spending, investments in new businesses also increased in 1997, with acquisitions totaling over $1 billion for the year. Much of our investing activity was in the security services industry, where we reached critical scale to facilitate significant efficiencies. In April and June 1997, we acquired assets of three companies engaged in security services. Consideration for these assets consisted of approximately $82 million in cash and the issuance of a total of 3,009,602 common shares with a dollar value of approximately $100 million. In October 1997, we acquired security assets of Rollins Protective Services, a division of Rollins, Inc., and security assets of Republic Security Company Holdings, a subsidiary of Republic Industries, Inc. We used approximately $800 million in cash to make these purchases. Investing activities in 1997 also included an expansion of our core telephone network through acquisition. In November 1997, we acquired from Sprint Corporation (Sprint) the assets of Sprint's local exchange business in suburban Chicago, formerly known as Central Telephone Company of Illinois, or Centel. We paid $160 million in cash. Other investing activities in 1997 included proceeds from our sales of investments, including our stake in Bellcore, our investment in Sky Network Television of New Zealand Limited and a portion of our stake in MATAV through an initial public offering. In addition to these sales, we also received proceeds from a stock repurchase program at New Zealand Telecom. We received proceeds of approximately $152 million in 1997 as a result of this repurchase program, without materially changing our percentage ownership in New Zealand Telecom. Investing activities in 1996 consisted primarily of our investment with several partners in Belgacom, the national telecommunications provider in Belgium. In March 1996, a consortium led by Ameritech purchased a 49.9% stake in Belgacom from the Belgian government, with Ameritech acquiring a 35% consortium share. The purchase price was approximately $2.5 billion, with Ameritech investing approximately $865 million for its 35% share, or approximately 17.5% of Belgacom. Investing activities in 1996 also included additional investments in security services assets. Investing activities in 1995 included investments of $895 million to acquire additional MATAV shares ($405 million), newly issued licenses, principally for PCS ($161 million) and all other investments ($329 million), including National Guardian. Proceeds of $61 million were received in connection with the exchange of certain cellular minority interests. Cash flows from financing and other activities Financing activities consist primarily of debt issuances and retirements, issuance and repurchase of common stock, and dividend payments to shareowners. In 1997 we issued long-term debt to fund the investing activities previously discussed. We also put in place additional financing alternatives to fund our investments in 29 Management's Discussion and Analysis (dollars in millions, except per share amounts) Tele Danmark and other acquisition opportunities, as well as an anticipated repurchase of our own stock during 1998. We issued $650 million of long-term debt through our financing subsidiary, primarily to fund our acquisitions of security assets from Rollins and Republic, and one of our subsidiaries issued $250 million of preferred stock in June 1997 in a private placement. Financing activities in 1996 consisted primarily of debt issuances by two landline telephone subsidiaries (Indiana Bell Telephone Company, Incorporated and Wisconsin Bell, Inc.) aggregating $275 million. Financing activities in 1995 included issuance of $192 million of long-term debentures through our financing subsidiary. Stock repurchase program Our board of directors has periodically authorized management to repurchase shares of Ameritech common stock in the open market or through private transactions. During 1997, we repurchased, in the open market, 19.0 million shares of common stock for an aggregate purchase price of $602 million. During 1996, we repurchased in the open market 17.4 million shares of common stock for an aggregate price of $492 million. In December 1997, our board authorized further repurchases up to $2.0 billion. +6.2% Increase in Dividends - ------------ Our quarterly dividend increase was the largest in our industry for the third straight year. Dividends The company paid dividends of $1.24 billion in 1997. This was an increase of $71 million or 6.1% over 1996. In December 1997, Ameritech's board of directors approved a 6.2% increase in the quarterly dividend payable February 2, 1998. The dividend policy is consistent with the need to balance returns to shareowners and investments of capital necessary in a competitive environment. Financing options As of December 31, 1997, we maintained available lines of credit totaling $1.67 billion, a committed credit facility of $2.0 billion and shelf registrations for issuance of up to $2.95 billion in unsecured debt securities. In January 1998, we sold $1.75 billion of long-term unsecured debt securities to help fund our acquisition of Tele Danmark. The debt has coupon rates ranging from 5.65% to 6.55%. Following these issuances, we had $1.2 billion remaining available for issuance under shelf registration statements. We have also arranged our first debt financing outside the U.S. with a $750 million Eurodollar offering scheduled to close in February 1998. In October 1997, two rating agencies initiated reviews of our financial results and credit position to determine the appropriateness of our current credit ratings. Such reviews resulted from the announcement of our agreement to invest $3.1 billion in Tele Danmark. One agency adjusted its ratings of our long-term debt and preferred stock to Aa3 from Aa2, while the other reaffirmed its rating at AA+. We do not believe that these reviews will have a material impact on our future borrowing costs or our ability to meet our financing needs. In 1997, we registered 14,279,340 shares of our common stock with the SEC for future issuance. We may issue these shares from time to time for the completion of acquisitions or for other corporate purposes. Management believes that we have adequate internal and external resources available to finance our business development, network expansion, dividends, acquisitions and investments. Other matters Competitive and regulatory environment We face competition in every aspect of our business. In pursuing business opportunities both inside and outside of the United States, we compete against other large local service providers, long distance service providers, cable TV companies, wireless service providers and other entrants from closely related industries. The 1996 Act establishes a national policy that calls for competition and open markets, not regulatory management, as the basic business environment. This public policy change opens a wealth of business opportunities for providers of all forms of communications, enabling them to become full-service providers of voice, video, data, local and long distance services for their customers. As a result of the new law, consumers can expect to see more choices and receive greater value for these and other services. Building on our strengths, we will continue to branch into new services that are logical extensions of our business and to export our expertise to customers around the world. Our competitive strategy includes positioning ourselves to take advantage of future opportunities by refining our processes to continue to be the most efficient communications provider in the market. With the passage of the 1996 Act and earlier regulatory initiatives, our local service markets have been opened to competition from interexchange carriers, cable TV providers and other local service providers. Interconnection agreements with these providers require us to allow access to unbundled network elements at cost-based rates or services at discounted, wholesale rates. These agreements may result in some downward pressure on local service revenues, as a portion of the company's revenue shifts from local service at retail prices to network access at lower rates. 30 It is impossible to predict the specific impact of the 1996 Act on our business or financial condition. Notwithstanding the potential for an adverse effect on certain of our revenue streams, we expect to acquire a significant portion of the expected growth in the communications marketplace, including interLATA long distance. In 1996, we were required to implement Dial-1-plus capability in our local toll markets in Illinois and Wisconsin and in portions of our local toll market in Michigan. Dial-1-plus gives customers the ability to choose an alternate long distance carrier for intraLATA toll calls by dialing 1 before the phone number. Competition for toll service revenues has intensified in these areas. The increased competition, however, should stimulate growth in overall demand for toll calls and corresponding network access services. Until 1996, the U.S. cellular market was largely a series of duopolies: the local telephone company and one other provider for each cellular market. With PCS, each market will add at least two new wireless service providers. Each PCS provider will offer digital cellular service with features such as longer battery life, increased account security and enhanced services such as voice mail, Caller ID and paging capabilities. We introduced digital cellular service in our Chicago and Detroit markets in mid-1997, and we will introduce this service in several other markets in 1998. Paging, invigorated by the popularity of cellular service, is a highly competitive business with at least five to seven providers in each market. Competitors of our telephone directory publishing business are traditional advertising media, including television, radio, direct mail, magazines and newspapers, as well as providers of new technologies such as online services, including the Internet. We believe competition in all segments of our business, within each unique industry segment, will accelerate growth. As we expand and diversify, the number, variety and size of competitors will shift to challenge our evolving business interests. Much of the competition will be from companies with substantial capital, technological and marketing resources and wide-ranging service offerings. Regulatory developments In July 1997, the Eighth Circuit Court of Appeals in St. Louis struck down several provisions of an August 1996 FCC order regarding the interconnection provisions of the 1996 Act. The Court ruled, among other things, that the FCC's pricing guidelines intrude upon the rights of state commissions to implement key elements of the 1996 Act and that the FCC lacks jurisdiction to review state commission decisions regarding interconnection agreements between incumbent local exchange carriers (LECs) and their competitors. The Court also ruled that the FCC's requirement allowing requesting carriers to pick and choose among individual provisions of other interconnection agreements does not promote negotiated agreements and is unreasonable. The Court also ruled, and clarified in a subsequent October rehearing order, that if new entrants to the local exchange market wish to purchase network elements at cost-based prices, they must combine the elements themselves. The United States Supreme Court is scheduled to review these and related rulings in October 1998, with a decision expected late this year or the beginning of next year. On May 7, 1997, the FCC issued three closely-related orders addressing revisions to the price cap plan for LECs, interstate access charge reform and funding for universal service. In its access charge reform order, the FCC adopted changes to its tariff structure requiring LECs to use rates that reflect the type of costs incurred. $6 billion In European Investments - ----------------------- Ameritech's investments in Europe grew in value to $6 billion following our January 1998 investment in Tele Danmark. The new price cap rules are reducing access charges by increasing the price cap productivity offset factor to 6.5% from the current 5.3% and by applying this factor uniformly to all access providers. The new rates were effective July 1, 1997, and LECs were required to compute the new rates as if the 6.5% productivity factor had been in effect since July 1, 1996. The new rules also create a multi-billion-dollar interstate universal service fund for linking schools and libraries to the Internet and subsidizing low-income consumers and rural health care providers. Telecommunications service providers began paying into the universal service fund starting January 1, 1998. Subsidies to low-income and rural customers became available January 1, 1998, and funds for linking schools and libraries to the Internet will be available as needed. We do not expect these reforms to have a material impact on our revenue streams. However, the nature and timing of these reforms may evolve as the FCC considers input from state commissions, potential legal challenges and the ongoing implementation of other provisions of the 1996 Act. On December 30, 1997, the United States Court of Appeals for the District of Columbia Circuit (the D.C. Circuit Court) remanded to the FCC a case involving a claim that the purchase of security services assets of another company by SecurityLink, our security services subsidiary, violated a 31 Management's Discussion and Analysis (dollars in millions, except per share amounts) provision of the 1996 Act. The FCC had previously ruled that the transaction was permissible under the 1996 Act. On remand, the D.C. Circuit Court directed the FCC to resolve an ambiguity in the statute. In addition to this case, three similar challenges to transactions involving subsequent purchases of security monitoring assets by SecurityLink are pending before the FCC. Disclosures about market risk We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. To manage our exposure to these fluctuations, we occasionally enter into various hedging transactions that have been authorized according to documented policies and procedures. We do not use derivatives for trading purposes, or to generate income or to engage in speculative activity, and we never use leveraged derivatives. $153 $172 $190 $215 $227 $235 92 93 94 95 96 97 Revenues per Employee (in thousands) Employee productivity continued to rise, with revenues per employee reaching $235,000 in 1997. Our exposure to interest rate fluctuations results primarily from floating- rate short-term debt in the form of commercial paper, as well as floating-rate long-term notes tied to the London Interbank Offer Rate (LIBOR). In addition, we have issued through two of our wholly owned subsidiaries preferred stock that pays dividends at fixed rates or at LIBOR-based rates. With respect to short- term and long-term debt, we measure the duration of the overall debt portfolio to determine its exposure to interest rate fluctuations. We then use derivatives, including interest rate swaps and swaptions, to manage the duration of the portfolio. In December 1997, our board of directors authorized the issuance of long- term debt to fund our investment in Tele Danmark. Following this authorization, we entered into several derivative contracts in 1998, consisting primarily of treasury locks, to protect against a rise in interest rates prior to our issuance of the debt. Our exposure to foreign exchange rate fluctuations results from our net investments in foreign ventures in Belgium, Hungary, New Zealand and Norway, and from our share of the earnings of these operations, which are denominated in the respective local currency. We are exposed to fluctuations in several other European currencies and the Canadian dollar related to the operations of wholly owned subsidiaries doing business throughout central Europe and in Canada. We typically do not use derivatives to hedge the value of our net investments in these foreign operations. We use foreign currency forward contracts on a discretionary basis to manage the risk associated with dividend payments from these foreign affiliates. We also use forward contracts from time to time to hedge anticipated transactions with our investments in foreign entities. In December 1997 we entered into several forward contracts and a foreign currency collar to manage the foreign currency risk associated with our anticipated investment in Tele Danmark. We used these contracts to hedge most of the $3.1 billion purchase price, which was denominated in German marks. Because current accounting rules do not permit "hedge accounting" for pending acquisitions, we recorded pretax losses of $16 million in 1997 and $54 million in 1998 resulting primarily from the forward contracts. The amounts shown below represent the estimated potential loss that we could incur from adverse changes in either interest rates or foreign exchange rates using the value-at-risk estimation model. The value-at-risk model uses historical foreign exchange rates and interest rates to estimate the volatility and correlation of these rates in future periods. It estimates a loss in fair market value using statistical modeling techniques and including substantially all market risk exposures, specifically excluding equity-method investments. The fair value losses shown in the table below have no impact on our results of operations or financial condition.
Time Confidence Risk Category Amount Period Level - ---------------------------------------------- Interest rates $25 1 day 95% Foreign exchange -- 1 day 95% ==============================================
The 95% confidence interval signifies our degree of confidence that actual losses would not exceed the estimated losses shown above. The amounts shown here disregard the possibility that interest rates and foreign currency exchange rates could move in our favor. The value-at-risk model assumes that all movements in these rates will be adverse. Actual experience has shown that gains and losses tend to offset each other over time, and it is highly unlikely that we could experience losses such as these over an extended period of time. These amounts should not be considered projections of future losses, since actual results may differ significantly depending upon activity in the global financial markets. New accounting pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and requires that all components of comprehensive 32 income be reported in a financial statement having the same prominence as other financial statements. For us, FAS 130 is effective in 1998, and it requires reclassification of prior period financial statements for comparative purposes. Adoption of this standard should have little effect on our financial statements, since the new requirements primarily involve modifications to the way that existing information is displayed. +31% Growth in Pagers ---------------------------------------------- Pagers in service increased 31% in 1997 to 1.5 million. Also in June 1997, the FASB issued FAS 131, "Disclosures about Segments of an Enterprise and Related Information." This statement supersedes FAS 14, "Financial Reporting of Segments of a Business Enterprise," by establishing new standards for the way that a public business enterprise reports operating segment information in its annual and interim financial statements. In general, FAS 131 requires reporting of financial information as it is used by senior company management for evaluating performance and deciding how to allocate resources. The statement is effective for 1998, but need not be applied to interim financial statements in that year. Comparative information for earlier years must be restated. Effects of foreign currency fluctuations Our foreign operations and investments in international ventures are subject to certain risks related to fluctuation in foreign currency exchange rates. In 1997, due to a strengthening U.S. dollar, we recognized some foreign exchange transaction losses and currency translation adjustments related to these investments. Foreign exchange transaction losses incurred by wholly owned subsidiaries adversely impacted operating income. Transaction losses incurred by other international ventures (primarily equity method investments) had a negative impact on other income, net. Translation adjustments resulted in a decrease in the investment balance and a corresponding reduction in shareowners' equity in the consolidated balance sheet. While future fluctuations in currency exchange rates could impact results of operations or financial position, foreign operations continue to provide strong financial results and earnings growth. Year 2000 costs We currently operate numerous date-sensitive computer applications and network systems throughout our business. As the century change approaches, it is essential for us to ensure that these systems properly recognize the year 2000 and continue to process operational and financial information. In May 1996, we began our internal assessment of our requirements and made appropriate inquiries of vendors and consultants. We believe that we have identified most application software and systems issues and we are making changes to allow for almost a full year of additional testing in 1999. During the next two years we anticipate incurring additional costs in this effort of approximately $200 million, and we expect to incur these costs ratably during this time frame. Management believes we can incur these costs without adversely affecting future operating results. However, because of the complexity of the issue and possible unidentified risks, actual costs may vary from our estimate. Management has discussed its assessment and plans with the board of directors. Business units We have organized our business into separate units, and each customer is assigned to a business unit that is best positioned to serve that customer's specific needs. Revenues by business unit are as follows:
1997 1996 - -------------------------------------------------------------------------------- Consumer 31% 32% Custom, enhanced and small business 27 27 Long distance 13 13 Cellular, including paging 11 9 Advertising 7 7 All other 11 12 --------------- Total 100% 100% ================================================================================
Adoption of FAS 131 in 1998 may result in disclosure of operating segments that differ from those listed above. Private securities litigation reform act safe harbor statement The above discussion contains certain forward-looking statements that involve potential risks and uncertainties. Ameritech's future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include: . changes in economic and market conditions; . effects of state and federal regulation; . risks inherent in international operations; and . the impact of new technologies. You should not place undue reliance on these forward-looking statements, which are applicable only as of the date hereof. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof or to reflect the occurrence of unanticipated events. 33 Report of Management Shareowners, Ameritech Corporation The consolidated financial statements were prepared in accordance with generally accepted accounting principles, which required the use of estimates and judgment. Management prepared these statements and other information in the annual report and is responsible for their integrity and objectivity. Our consolidated financial statements have been audited by Arthur Andersen LLP. Management has made available to Arthur Andersen LLP all of our financial records and related data, as well as the minutes of meetings of shareowners and directors. We believe that all representations made to Arthur Andersen LLP were valid and appropriate. Management maintains a system of internal control over the preparation of our published financial statements that provides reasonable assurance as to the integrity and reliability of the consolidated financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The internal control system provides appropriate division of responsibility, and written policies and procedures are communicated to employees and updated as necessary. Management is responsible for proactively fostering a strong ethical climate so that the company's affairs are conducted according to the highest standards of personal and corporate conduct. The company maintains a strong internal auditing program to assess the effectiveness of internal controls and recommend possible improvements. As part of their audit of the consolidated financial statements, Arthur Andersen LLP considered the internal control system to determine the nature, timing and extent of necessary audit tests. Management has considered the recommendations of our internal auditors and Arthur Andersen LLP concerning the company's system of internal control, and has responded appropriately. Management assessed the company's internal control system in relation to criteria for effective internal control. These criteria consist of five interrelated components, which are: control environment, risk assessment, control activities, information and communication and monitoring. Based on its assessment, management believes that, as of December 31, 1997, our system of internal control has met these criteria. The board of directors, through its audit committee which consists solely of outside directors, serves in an oversight capacity to assure the integrity and objectivity of the financial reporting process. The role of the committee includes monitoring accounting and financial controls and assuring the independence of Arthur Andersen LLP. Both the internal auditors and the independent public accountants have complete access to the committee and periodically meet with the committee, with and without management present. Sincerely, /s/ Richard C. Notebaert /s/ Oren G. Shaffer - ------------------------ ------------------- Richard C. Notebaert Oren G. Shaffer Chairman and Chief Executive Officer Executive Vice President and Chief Financial Officer January 13, 1998 34 Report of Independent Public Accountants Board of Directors, Ameritech Corporation We have audited the accompanying consolidated balance sheets of Ameritech Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareowners' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ameritech Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP - ----------------------- Arthur Andersen LLP Chicago, Illinois January 13, 1998 35 Consolidated Statements of Income Ameritech Corporation and Subsidiaries
For the year ended December 31 ------------------------------ (dollars in millions, except per share amounts) 1997 1996 1995 - -------------------------------------------------------------------------------- Revenues Local service $ 6,413 $ 6,068 $ 5,586 Interstate network access 2,485 2,365 2,254 Intrastate network access 619 573 562 Long distance service 1,384 1,491 1,457 Cellular, directory and other 5,097 4,420 3,569 ----------------------------- 15,998 14,917 13,428 ----------------------------- Operating expenses Employee-related expenses 3,959 3,711 3,623 Depreciation and amortization 2,521 2,365 2,177 Other operating expenses 5,140 4,743 3,911 Restructuring credits -- -- (134) Taxes other than income taxes 579 593 548 ----------------------------- 12,199 11,412 10,125 ----------------------------- Operating income 3,799 3,505 3,303 Interest expense 505 514 469 Other income, net 390 326 260 ----------------------------- Income before income taxes 3,684 3,317 3,094 Income taxes 1,388 1,183 1,086 ----------------------------- Net income $ 2,296 $ 2,134 $ 2,008 ----------------------------- Earnings per common share* Basic $ 2.09 $ 1.93 $ 1.81 ----------------------------- Diluted $ 2.08 $ 1.92 $ 1.81 ----------------------------- Average common shares outstanding (millions)* 1,098.7 1,103.8 1,107.2 ================================================================================
*Gives retroactive effect for the two-for-one stock split effective December 31, 1997. The accompanying notes are an integral part of the financial statements. 36
Consolidated Balance Sheets Ameritech Corporation and Subsidiaries As of December 31 ----------------- (dollars in millions) 1997 1996 - --------------------------------------------------------------------------------------------------------- Assets Current assets Cash and temporary cash investments $ 239 $ 145 Receivables, less allowance for uncollectibles of $308 and $320, respectively 3,078 3,070 Material and supplies 290 231 Prepaid and other 942 353 ------------------ 4,549 3,799 ------------------ Property, plant and equipment In service 34,020 31,951 Under construction 371 341 ------------------ 34,391 32,292 Less, accumulated depreciation 20,518 18,785 ------------------ 13,873 13,507 ------------------ Investments, primarily international 1,751 2,323 ------------------ Other assets and deferred charges 5,166 4,078 ------------------ Total assets $25,339 $23,707 ================== Liabilities and shareowners' equity Current liabilities Debt maturing within one year $ 3,036 $ 3,155 Accounts payable 1,955 1,836 Other 2,250 1,841 ------------------ 7,241 6,832 ------------------ Long-term debt 4,610 4,437 ------------------ Deferred credits and other long-term liabilities Accumulated deferred income taxes 1,150 900 Unamortized investment tax credits 140 172 Postretirement benefits other than pensions 2,965 2,984 Other 925 695 ------------------ 5,180 4,751 ------------------ Shareowners' equity Common stock, par value $1; 2.4 billion shares authorized; 1,177 million issued in 1997, 1,176 million issued in 1996 1,177 1,176 Proceeds in excess of par value 5,313 5,144 Reinvested earnings 4,190 3,154 Treasury stock, at cost (79 million shares in 1997 and 76 million shares in 1996) (1,645) (1,344) Deferred compensation (190) (259) Currency translation adjustments (538) (188) Other, net 1 4 ------------------ 8,308 7,687 ------------------ Total liabilities and shareowners' equity $25,339 $23,707 ========================================================================================================= The accompanying notes are an integral part of the financial statements.
37 Consolidated Statements of Shareowners' Equity Ameritech Corporation and Subsidiaries
Shareowners' Equity ---------------------------------------------------------------------------------- Common Treasury Proceeds in Currency Shares Common (dollars in millions, Common Excess of Reinvested Treasury Deferred Translation Other, Issued Shares except per share amounts) Total Stock Par Value Earnings Stock Compensation Adjustments net (millions)(millions) - ------------------------------------------------------------------------------------------------------------------------------------ Balances, December 31, 1994 $6,055 $1,175 $4,934 $1,325 $(977) $(396) $(16) $10 1,175 72 Net income 2,008 2,008 Dividends declared ($1.015 per share) (1,124) (1,124) Treasury stock activity Purchases (162) (162) 6 Issuances Employee benefit plans 82 13 69 (5) Dividend reinvestment and optional stock purchases 145 61 84 (6) Reduction of LESOP debt 67 67 Other 13 18 (5) Translation adjustments (69) (69) ------------------------------------------------------------------------------------------------------- Balances, December 31, 1995 7,015 1,175 5,026 2,209 (986) (329) (85) 5 1,175 67 Net income 2,134 2,134 Dividends declared ($1.078 per share) (1,189) (1,189) Stock issued to nonmanagement employees 29 1 28 1 Treasury stock activity Purchases (492) (492) 17 Issuances Employee benefit plans 85 15 70 (4) Dividend reinvestment and optional stock purchases 115 51 64 (4) Reduction of LESOP debt 70 70 Other 23 24 (1) Translation adjustments (103) (103) ------------------------------------------------------------------------------------------------------- Balances, December 31, 1996 7,687 1,176 5,144 3,154 (1,344) (259) (188) 4 1,176 76 Net income 2,296 2,296 Dividends declared ($1.148 per share) (1,260) (1,260) Stock issued to nonmanagement employees 12 1 11 1 Treasury stock activity Purchases (602) (602) 19 Issuances Employee benefit plans 163 10 153 (8) Dividend reinvestment and optional stock purchases 155 62 93 (5) Acquisitions of businesses 98 43 55 (3) Reduction of LESOP debt 69 69 Other 40 43 (3) Translation adjustments (350) (350) ------------------------------------------------------------------------------------------------------- Balances, December 31, 1997 $8,308 $1,177 $5,313 $ 4,190 $(1,645) $(190) $(538) $ 1 1,177 79 ====================================================================================================================================
The accompanying notes are an integral part of the financial statements. 38 Consolidated Statements of Cash Flows Ameritech Corporation and Subsidiaries
For the year ended December 31 ------------------------------------------ (dollars in millions) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 2,296 $ 2,134 $ 2,008 Adjustments to net income Restructuring credits, net of tax - - (79) Depreciation and amortization 2,521 2,365 2,177 Deferred income taxes, net 235 122 149 Investment tax credits, net (32) (36) (48) Capitalized interest (25) (28) (20) Change in accounts receivable, net (8) (296) (474) Change in material and supplies (97) (61) (15) Change in other current assets (116) (11) (8) Change in accounts payable 119 44 246 Change in certain other current liabilities 391 86 (119) Change in certain noncurrent assets and liabilities (622) (482) (154) Gain on exchange of cellular minority interests - - (66) Gain on sale of shares in MATAV (43) - - Gain on sale of Bellcore (42) - - Gain on sale of Sky Network Television of New Zealand (52) - - Other operating activities, net (15) (94) (41) ------------------------------------------ Net cash from operating activities 4,510 3,743 3,556 ------------------------------------------ Cash flows from investing activities Capital expenditures, net (2,641) (2,440) (2,120) Additional investments, including acquisition of new companies (1,074) (922) (895) Net proceeds from exchange of cellular minority interests - - 61 Proceeds from New Zealand Telecom Share repurchase 152 - - Proceeds from sale of shares in MATAV 146 - - Proceeds from sale of Bellcore 64 - - Proceeds from sale of Sky Network Television of New Zealand 52 - - Other investing activities, net (14) 51 72 ------------------------------------------ Net cash from investing activities (3,315) (3,311) (2,882) ------------------------------------------ Cash flows from financing activities Net change in short-term debt (195) 815 217 Issuance of long-term debt 650 273 195 Retirement of long-term debt (320) (92) (84) Dividend payments (1,242) (1,171) (1,107) Repurchase of common stock (602) (492) (162) Proceeds from reissuance of treasury stock 330 196 226 Issuance of preferred stock in subsidiaries 250 - 60 Other financing activities, net 28 53 38 ------------------------------------------ Net cash from financing activities (1,101) (418) (617) ------------------------------------------ Net increase in cash and temporary cash investments 94 14 57 Cash and temporary cash investments, beginning of year 145 131 74 ------------------------------------------ Cash and temporary cash investments, end of year $ 239 $ 145 $ 131 ======================================================================================================================
The accompanying notes are an integral part of the financial statements. 39 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) 1. Significant accounting policies Nature of operations Ameritech Corporation is one of the world's largest communications companies, providing a wide array of local phone, data, directory and other services to more than 12 million customers (primarily in Illinois, Indiana, Michigan, Ohio and Wisconsin). We serve more than 3 million cellular customers, more than 1.5 million paging customers and more than 1 million security services customers. The security services business is conducted throughout the United States and Canada. We have cellular interests in Norway as well as interests in communications companies in Belgium, New Zealand and Hungary. We also publish business directories in Germany and other European countries. In January 1998, we acquired a 34% interest as a strategic partner in Tele Danmark A/S, the Danish telecommunications company. See discussion of competition and regulatory matters in Other Matters in Management's Discussion and Analysis of Results of Operations and Financial Condition on pages 30 to 32. Consolidation The consolidated financial statements include all of our majority-owned subsidiaries. We have eliminated all significant intercompany transactions. Basis of accounting We have prepared the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material and supplies We have stated inventories of new and reusable material and supplies at the lower of cost or market, with cost generally determined on an average-cost basis. Income taxes We file a consolidated federal income tax return. At the end of each period, we determine deferred tax assets and liabilities based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. We measure deferred income tax expense as the change in the net deferred income tax asset or liability during the year. We also recognize deferred income taxes on undistributed equity earnings from foreign investments when we do not control the dividend flow back to the United States. Property, plant and equipment We have stated property, plant and equipment primarily at original cost. The provision for depreciation is based principally on straight-line remaining life and straight-line equal life group methods of depreciation applied to individual categories of plant with like characteristics. The following is a summary of average lives used to determine the provision for depreciation.
Asset category Years -------------------------------------------------------- Central office equipment Digital switching 7 Circuit accounts 7 Copper and fiber cable and wire facilities 15 All other various ========================================================
Generally, when depreciable assets are retired, the amount at which such assets are carried in property, plant and equipment is charged to accumulated depreciation. The cost of maintenance and repair of assets are charged to expense. Most of our property, plant and equipment is located in Illinois, Indiana, Michigan, Ohio and Wisconsin. Temporary cash investments We have stated temporary cash investments at cost, which approximates market value. We consider all highly liquid, short-term investments with an original maturity of three months or less to be cash equivalents. Derivative financial instruments We occasionally enter into forward contracts and swap agreements to hedge exposures to foreign currency exchange and interest rate risks. We include gains and losses on foreign currency forward contracts used for hedging purposes in net income in the period in which the gain or loss arises. We record gains and losses that hedge an investment in a foreign company as a component of shareowners' equity until such time as we reduce our interest in the company. Gains and losses on interest rate swaps or interest rate "locks" are recorded as adjustments to interest expense. We use derivatives in a limited way for the following purposes: . to manage financial risk; . to hedge assets and obligations that we already hold; and . to protect our cash flows. We do not use derivatives to generate income or engage in speculative activity and we never use leveraged derivatives. Advertising costs We charge advertising costs to expense as incurred. Earnings per share We compute basic earnings per common share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by including all dilutive potential common shares such as stock options. Dilutive potential common shares were 5,375,302 in 1997, 4,448,568 in 1996 and 3,433,501 in 1995. No adjustment to reported net income is required when computing diluted earnings per share. 40 Stock options We account for our stock option plans in accordance with Accounting Principles Board (APB) Opinion 25, under which no compensation expense is recognized in the financial statements except where the plan is determined to be variable in nature. Revenue recognition We generally recognize revenues as we provide services or deliver products to customers. We bill certain local telephone and wireless and security service revenues in advance, resulting in deferred revenues. We account for our directory advertising revenues generally as billed over the term of the related directory (usually one year) and amortize production costs, which are deferred when incurred, to match the related revenues. Intangibles We amortize intangibles, including goodwill arising from business combinations, on a straight-line basis over the anticipated period of benefit, not to exceed 40 years. We review amounts recorded as intangible assets for impairment periodically using expected undiscounted future cash flows. Translation adjustments We translate the assets and liabilities relating to our share of significant foreign operations to U.S. dollars at year-end exchange rates. We translate revenues and expenses to U.S. dollars using average exchange rates for the year. Translation adjustments are accumulated and recorded as a separate component of shareowners' equity. 2. Investments Belgacom In March 1996, a consortium led by Ameritech finalized its agreement to acquire an interest in Belgacom S.A., the national telecommunications operator of Belgium. The consortium purchased from the Belgian government a 49.9% stake in Belgacom. The consortium's purchase price was approximately 74 billion Belgian francs, or approximately $2.5 billion. We have invested approximately $865 million for our 35% allocable consortium share, which results in about a 17.5% investment in Belgacom. We account for our Belgacom investment using the equity method of accounting because we exercise significant operating influence. After giving effect to Belgacom's unfunded pension obligation and other adjustments to conform to U.S. GAAP, our share of goodwill from this transaction is approximately $845 million, which we are amortizing on a straight-line basis over 40 years. MATAV As of December 31, 1996, a holding company (MagyarCom), owned equally by Ameritech and Deutsche Telekom AG, held a 67% share in the Hungarian telecommunications company, MATAV. We paid $843 million for our 33.5% share of MATAV. We account for our stake in MATAV using the equity method of accounting. On November 14, 1997, MATAV sold approximately 27% of its shares, including 11.5% of our share holdings, in an initial public offering (IPO) on both the New York and Budapest stock exchanges. We realized cash proceeds of $146 million and recorded a pretax gain of $43 million related to the sale of our shares. Following this sale, we hold 309,029,700 shares, or approximately 30% of MATAV. Based on the year-end closing price of individual MATAV shares, which are thinly traded, the aggregate value of our remaining shares is $1.6 billion. We are amortizing goodwill of approximately $385 million, adjusted for the share sale, over a period of 40 years. Telecom Corporation of New Zealand Limited In September 1990, Ameritech and Bell Atlantic Corporation purchased all of the shares of Telecom Corporation of New Zealand Limited (New Zealand Telecom), the state-owned telephone company in New Zealand. Our share of the purchase price was approximately $1.2 billion. 1 million Security Service Customers -------------------------------------------- Security service customers more than doubled in 1997 to more than 1 million. After stock sales required by the New Zealand government in the purchase agreement, which were completed in 1993, our share of ownership was 24.8%. Such sales resulted in gains with cash proceeds to the company of $676 million. In November 1996, New Zealand Telecom announced plans to repurchase a portion of its stock during 1997. The New Zealand government prohibits foreign companies from owning more than 49.9% of New Zealand Telecom's stock. As a result, Ameritech and Bell Atlantic Corporation (which owns an equal interest), were required to sell a pro rata portion of their shares to New Zealand Telecom in the open market. In 1997, we received proceeds of approximately $152 million as a result of this repurchase program. This repurchase program increased our percentage ownership in New Zealand Telecom to 24.95%. We account for our investment in New Zealand Telecom using the equity method of accounting. Goodwill from this investment is approximately $290 million, which we are amortizing on a straight-line basis over 40 years. We owned 437,080,670 shares of New Zealand Telecom as of December 31, 1997 and 469,060,000 shares as of December 31, 1996. Shares of New Zealand Telecom are publicly traded. Based on the year-end closing price of individual New Zealand Telecom shares, the aggregate value of the company's shares was about $2.1 billion in 1997 and $2.4 billion in 1996. However, New Zealand Telecom shares are thinly traded with 41 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) approximately 50% of the shares of that company owned by Ameritech and Bell Atlantic Corporation. In December 1997, we announced our intention to sell our stake in New Zealand Telecom in a public sale of shares during the first half of 1998. +20% Increase in Cash From Operations ------------------------------------------ Total cash flows from operations increased 20% in 1997 to $4.5 billion. Summary of nonconsolidated investments A summary of the company's investments, which have not been consolidated, follows:
1997 1996 - ---------------------------------------------------- Belgacom $ 742 $ 890 MATAV 506 655 New Zealand Telecom 417 670 Other international investments 4 5 ------ ------ Total international investments 1,669 2,220 Domestic investments 82 103 ------ ------ Total investments $1,751 $2,323 ====================================================
In accordance with the equity method of accounting, we increase our recorded investment for our allocable share of earnings (adhering to purchase accounting and U.S. GAAP), reduce the investment for distributions (dividends) received and give effect to any currency translation adjustments. We received dividends on such investments of $164 million in 1997, $152 million in 1996 and $110 million in 1995. The following unaudited summary presents our proportional (pro rata) interest in the summarized financial information of investments accounted for using the equity method of accounting:
Year ended December 31 1997 1996 1995 - ----------------------------------------------------- Revenues $1,818 $1,726 $ 745 Costs and expenses 1,612 1,490 651 ------ ------ ----- Net income+ $ 206 $ 236 $ 94 ------ ------ ----- As of December 31 1997 1996 ------ ------ Assets* $3,911 $4,634 Liabilities 2,226 2,398 ====== ====== Net equity $1,685 $2,236 =====================================================
+ Includes $87 million charge for restructuring at Belgacom in 1997. * Includes goodwill associated with Ameritech's investments. Other investments In 1997 we acquired assets of several companies engaged in security services through our wholly owned subsidiary, SecurityLink from Ameritech. In April and June we purchased assets of three companies for $82 million cash and 3,009,602 common shares with a dollar value of approximately $100 million. In October 1997, we acquired the security services assets of Rollins Protective Services, a division of Rollins, Inc., and the security services assets of Republic Security Company Holdings, a subsidiary of Republic Industries, Inc. The total purchase price for these two transactions was approximately $800 million. We have accounted for these transactions using the purchase method of accounting. We have allocated our purchase price to individual assets and liabilities based on preliminary estimates of fair value. Revenues of all of the above-mentioned security businesses in 1996 were approximately $195 million. Other transactions In 1995, in a Federal Communications Commission auction, we purchased broadband personal communications services (PCS) licenses in the Indianapolis and Cleveland markets for $158 million. This is in addition to the narrowband licenses we obtained in 1994 to offer two-way paging in the Midwest. We have classified these licenses in other assets and deferred charges in the accompanying consolidated balance sheets. We will begin to amortize these licenses when we begin operations in these areas. In May 1994, we invested $473 million in a subsidiary of General Electric Company (GE). The subsidiary, GE Information Services, Inc. (GEIS), provides electronic data interchange and electronic commerce. Our investment is in the form of a four-year interest bearing convertible debenture, which was to convert to equity upon the lifting of legal restrictions. In early 1998, because of ongoing restrictions, this agreement was suspended and GE repaid the note. Accordingly, the note was reclassified in 1997 from other noncurrent assets to other current assets in the consolidated balance sheet. In January 1998, we purchased a 34% interest in Tele Danmark, the national communications provider in Denmark, from the Kingdom of Denmark for approximately $3.1 billion. As part of our investment agreement, Tele Danmark is in the process of buying back and retiring the remaining shares owned by the Danish government. When this repurchase is completed in April 1998, we will hold approximately 42% of Tele Danmark's outstanding capital stock. We funded this investment in part by issuing $1.75 billion of long-term debt issued in the United States and $750 million of additional, unsecured Eurodollar notes (scheduled to close in February 1998), as described in Note 6. The audited 1996 financial statements of Tele Danmark reflect, on a U.S. GAAP basis, total assets of $6.8 billion and revenues of $3.4 billion. We will account for this investment using the equity method of accounting. 42 3. Property, plant and equipment The components of property, plant and equipment were as follows as of December 31:
1997 1996 - ------------------------------------------------------------------------------ Land $ 152 $ 150 Buildings 3,123 3,115 Central office equipment 13,335 12,345 Cable, wiring and conduit 13,960 13,061 Other 3,450 3,280 ---------------- 34,020 31,951 Under construction 371 341 ---------------- 34,391 32,292 Less, accumulated depreciation 20,518 18,785 ---------------- Total property, net $13,873 $13,507 ==============================================================================
Depreciation expense on property, plant and equipment was $2,313 million, $2,216 million and $2,090 million in 1997, 1996 and 1995, respectively. 4. Income taxes The components of income tax expense follow:
1997 1996 1995 - ------------------------------------------------------------------------------ Federal Current $ 994 $ 959 $ 821 Deferred, net 217 115 181 Investment tax credits, net (32) (36) (48) ---------------------- Total 1,179 1,038 954 ---------------------- State, local and foreign Current 191 138 109 Deferred, net 18 7 23 ---------------------- Total 209 145 132 ---------------------- Total income tax expense $1,388 $1,183 $1,086 ==============================================================================
Total income taxes paid were $1,151 million, $1,075 million and $890 million in 1997, 1996 and 1995, respectively. The following is a reconciliation of the statutory federal income tax rate for each of the past three years to our effective tax rate (computed by dividing total income tax expense by income before income taxes):
1997 1996 1995 - ------------------------------------------------------------------------------ Statutory tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 2.9 2.8 2.8 Foreign withholding taxes 1.1 -- -- Amortization of investment tax credits (0.6) (0.7) (1.0) Other (0.7) (1.4) (1.7) -------------------- Effective tax rate 37.7% 35.7% 35.1% ==============================================================================
Income tax expense was reduced by $12 million and $16 million in 1996 and 1995, respectively, as a result of a portion of the beginning of year valuation allowances no longer being required. As of December 31, 1997 and 1996, the components of long-term accumulated deferred income taxes were as follows:
1997 1996 - ------------------------------------------------------------------------------ Deferred tax assets Postretirement and postemployment benefits $1,127 $1,151 Other 291 353 -------------- 1,418 1,504 -------------- Deferred tax liabilities Accelerated depreciation 1,729 1,656 Prepaid pension cost 530 451 Other 309 297 -------------- 2,568 2,404 -------------- Net deferred tax liability $1,150 $ 900 ==============================================================================
We had valuation allowances against certain deferred tax assets aggregating $72 million and $55 million as of December 31, 1997 and 1996, respectively. We do not separately disclose deferred income taxes in current assets and liabilities as they are not significant. 5. Debt maturing within one year We include debt maturing within one year as debt in the computation of debt ratios. Debt maturing within one year consisted of the following as of December 31:
1997 1996 - ------------------------------------------------------------------------------ Notes payable Commercial paper $2,584 $2,777 Bank loans 9 11 Other 38 11 Long-term debt maturing within one year 405 356 --------------- Total $3,036 $3,155 =============== Weighted average interest rate on notes payable, year-end 5.8% 5.4% ==============================================================================
We have a committed revolving credit facility of $2.0 billion. The fee for this facility is 0.035% per annum. We did not use this facility during the three years ended December 31, 1997. In addition, we have entered into uncommitted agreements with a number of banks for lines of credit totaling $1.72 billion. The interest rates on these lines are negotiable at the time of borrowing. No amounts were outstanding under these agreements as of December 31, 1997. There are no significant commitment fees or material compensating balance requirements associated with any of these lines of credit. These lines, as well as the revolving credit facility, are available for support of commercial paper borrowing and to meet short-term cash needs. 6. Long-term financing Long-term debt consists principally of debentures issued by our landline communications subsidiaries and our financing subsidiary, Ameritech Capital Funding Corporation (ACF). 43 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) The following table sets forth interest rates and other information on long-term debt outstanding as of December 31:
Interest Rates Maturities 1997 1996 - ---------------------------------------------- 4.375%-6.0% 1999-2007 $ 640 $ 865 6.125%-8.0% 2001-2027 3,462 2,812 8.125%-9.0% 1999-2026 326 330 9.1%-10.0% 2006-2016 96 196 ---------------- 4,524 4,203 LESOP (Note 8) 114 190 Capital lease obligations 9 77 Other 1 5 Unamortized discount, net (38) (38) ---------------- Total $4,610 $4,437
Scheduled maturities of long-term debt, including principal payments on LESOP debt (see Note 8), are $405 million due in 1998, $232 million due in 1999, $147 million due in 2000, $206 million due in 2001 and $127 million due in 2002. Approximately $9,586 million of total gross property, plant and equipment are subject to liens under mortgage bonds with outstanding balances of $250 million. As of December 31, 1997, we had available for issuance through our financing subsidiary, ACF, $2 billion in unsecured debt securities through shelf registration statements with the Securities and Exchange Commission (SEC). Through our landline communications subsidiaries, we had $950 million in unsecured debt securities available for issuance through shelf registration statements as of December 31, 1997. In January 1998, we issued $1.75 billion of long-term debt in five separate tranches through ACF. Details of the issuances are as follows: . $400 million of 5.65% notes due January 15, 2001; . $400 million of 6.15% notes due January 15, 2008; . $300 million of 6.45% debentures due January 15, 2018; . $400 million of 6.55% debentures due January 15, 2028; and . $250 million of 5.95%, debentures due January 15, 2038 (includes a put option by holder in 2005). Interest on the above notes and debentures is due semiannually on January 15 and July 15, and payment of interest and principal is unconditionally guaranteed by Ameritech Corporation. Proceeds from the issuances were used for the acquisition of Tele Danmark discussed in Note 2 and other corporate purposes. Following these issuances, we had $250 million remaining available for issuance of unsecured debt securities under shelf registration statements filed with the SEC by ACF. We are also arranging additional unsecured Eurodollar debt financing of $750 million scheduled to close in February 1998. This financing will bear interest at 5.88% and will be due in 2003. Preferred stock issuances by subsidiaries In June 1997, one of our subsidiaries issued $250 million of preferred stock in a private placement. This subsidiary may redeem the stock at any time, but we will have to pay certain call premiums if we redeem the preferred stock before December 31, 2002. The holders of the preferred stock may require our subsidiary to redeem the shares at any time after May 20, 2004. Holders of the preferred shares receive quarterly dividends based on a rolling three-month London Interbank Offer Rate (LIBOR). The dividend rate for the December 31, 1997 payment was 6.85%. As of December 31, 1997, Ameritech New Zealand Funding Corporation, another wholly owned subsidiary, has outstanding $85 million of Series A Preferred Stock (7.04%, subject to mandatory redemption in 2001) and $60 million of Series B Preferred Stock (variable rate, 4.31% as of December 31, 1997, not subject to mandatory redemption). All preferred stock issued by subsidiaries is included in other long-term liabilities. 7. Other assets and deferred charges The components of other assets and deferred charges are as follows:
1997 1996 - --------------------------------------------- Goodwill $ 980 $ 347 Acquired security services subscribers 555 179 Other intangibles 347 346 --------------- Total intangibles, net 1,882 872 Prepaid pension asset 1,394 1,187 GEIS investment (Note 2) - 473 Other 1,890 1,546 --------------- $5,166 $4,078 =============================================
Costs of acquiring security services subscribers are generally being amortized over 10 years, the expected life of a subscriber when acquired from a third party. Reported goodwill is generally amortized over 40 years. Accumulated amortization of intangibles was $328 million in 1997 and $269 million in 1996. 8. Employee benefit plans Pension and retiree health and life plans We maintain noncontributory defined benefit pension plans for substantially all employees, as well as postretirement health care and life insurance plans to substantially all retirees and their dependents. We accrue the cost of postretirement benefits granted to employees as expense over the period in which the employee renders services and becomes eligible to receive benefits. The costs of these plans for current and future retirees is determined using the projected unit credit actuarial method. The pension plans were amended in 1996 to provide a 4.5% pension increase, effective February 1, 1997, to retirees who retired prior to April 1, 1994 and are receiving annuity pension benefits. More recent retirees receive lower rates of increase. Our funding policy is to contribute an amount up to the maximum that can be deducted for federal income tax purposes. Due to the funded status of the plans, we have made contributions only to the nonqualified plan for the years shown. 44 We have provided for part of the cost of the postretirement plans by making contributions for health care benefits to voluntary employee benefit association trust funds (VEBAs) and maintaining retirement funding accounts (RFAs) to provide life insurance benefits. We intend to continue to fund the nonmanagement VEBA. The nonmanagement VEBA and the RFAs earn income without tax. Plan assets consist principally of corporate securities and bonds. The Financial Accounting Standards Board (FASB) issued FAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," in February 1998. The new standard does not change the measurement or recognition of costs for pension or other postretirement plans. It standardizes disclosures and eliminates those that are no longer useful. The following tables, prepared in accordance with the new standard, set forth pension and postretirement obligations and plan assets as of December 31:
Pension Benefits Retiree Health and Life ------------------ ----------------------- 1997 1996 1997 1996 - ------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation as of January 1 $ 7,622 $ 7,620 $ 5,057 $ 5,150 Service cost 183 167 80 88 Interest cost 556 493 360 345 Plan amendment -- 162 -- -- Effect of settlements (35) (95) -- -- Actuarial loss (gain) 416 (45) 228 (260) Benefits paid (748) (680) (271) (266) ------------------ ----------------------- Benefit obligation as of December 31 $ 7,994 $ 7,622 $ 5,454 $ 5,057 ========================================================================= Change in plan assets: Fair value as of January 1 $12,121 $10,974 $ 1,491 $ 1,368 Actual return 2,268 1,921 205 72 Company contribution 9 9 83 77 Effect of settlements (39) (103) -- -- Benefits paid (748) (680) (24) (26) ------------------ ----------------------- Fair value as of December 31 $13,611 $12,121 $ 1,755 $ 1,491 ========================================================================= Funded status: As of December 31 $ 5,617 $ 4,499 $(3,699) $(3,566) Unrecognized cost: Actuarial and investment (gains) losses, net (3,996) (3,008) 732 580 Prior service cost 431 468 2 2 Transition obligation (658) (772) -- -- ------------------ ----------------------- Prepaid (accrued) benefit cost $ 1,394 $ 1,187 $(2,965) $(2,984) =========================================================================
The components of pension cost (credits) are as follows:
Pension Benefits ---------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------- Benefits earned during the year $ 183 $ 167 $ 139 Interest cost on projected benefit obligation 556 493 494 Expected return on plan assets (822) (765) (667) Net amortization and deferral Transition obligation (110) (112) (117) Other 19 22 10 ---------------------------------- Net pension credits $ (174) $ (195) $ (141) =============================================================================
The components of postretirement benefit costs follow:
Retiree Health and Life Benefits --------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------- Benefits earned during the year $ 80 $ 88 $ 54 Interest cost on accumulated benefit obligation 360 345 340 Expected return on plan assets (127) (110) (91) Net (gain) or loss -- 16 -- --------------------------------- Total postretirement benefit cost $ 313 $ 339 $ 303 ============================================================================
Assumptions as of December 31:
Pension Benefits Retiree Health and Life ---------------- ----------------------- 1997 1996 1997 1996 - ---------------------------------------------------------------------------- Discount rate 7.0% 7.5% 7.0% 7.5% Expected return Pension plans 8.4% 8.0% -- -- VEBAs -- -- 8.4% 8.0% RFAs -- -- 8.4% 8.0% Compensation increase rate 4.1% 4.2% 4.1% 4.2% =============================================================================
The assumed health care cost trend rate for 1997 was 8.0% and 8.4% in 1996 and is assumed to decrease by 0.4% per year to 4.0% in 2007 and remain at that level. A one percentage-point change in the assumed health care cost trend rate would have the following effects:
One Percentage One Percentage Point Increase Point Decrease - ----------------------------------------------------------------------------- Effect on total of service and interest cost components $ 67 $ (54) Effect on postretirement benefit obligation $643 $(530) =============================================================================
Leveraged employee stock ownership plans In 1989, we created leveraged employee stock ownership plans (LESOPs) within our existing employee savings plans. To fund the LESOPs, the Trustee for the savings plans issued $665 million of debt, at 8.03% interest, payable in semiannual installments 45 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) through 2001, which we guaranteed. The Trustee used the proceeds to purchase at fair market value 45,132,552 shares of Ameritech common stock from our treasury. These shares are considered to be outstanding for earnings per share purposes. The Trustee repays the notes, including interest, with funds from our contributions to the savings plans, from dividends paid on the shares of our common stock held by the Trustee and with new loans from Ameritech. As a result of our unconditional guarantee, we have recorded the notes of the Trusts as long-term debt and as deferred compensation in the accompanying consolidated balance sheets. Deferred compensation represents a reduction of shareowners' equity. Debt and deferred compensation decrease as the Trustee makes principal payments. As of December 31, 1997, we had $114 million included in long-term debt and $76 million included in long-term debt maturing within one year with respect to the LESOP. We maintain savings plans that cover substantially all of our employees. Under these plans, we match a certain percentage of eligible contributions made by the employees. The LESOP provisions of the savings plans became effective January 1, 1990. Under these provisions, our matching contributions are allocated to employees in company stock from the LESOP Trusts. We release Ameritech stock for allocation to employees in the proportion that principal and interest paid in a year bears to the total principal and interest due over the life of debt outstanding in the Trusts. We record our matching contributions to the plans as compensation expense. Any change in the required contribution as a result of leveraging this obligation is recorded as a gain or loss in other income. The amount expensed and contributed to the LESOPs for 1997, 1996 and 1995 totaled $29 million, $34 million and $38 million, respectively. Interest expense incurred by the savings plans for 1997, 1996 and 1995 was $13 million, $21 million and $28 million, respectively. Dividends paid on shares of stock held by the Trustee used to partially satisfy debt repayment requirements were $41 million, $41 million and $42 million for 1997, 1996 and 1995, respectively. As of December 31, 1997, we had allocated or committed 32,154,838 shares to employee accounts, leaving 12,977,714 shares unallocated. As of December 31, 1996, we had allocated or committed 29,186,014 shares to employee accounts, leaving 15,946,538 shares unallocated. We have entered into agreements to lend up to $123 million to one of the Trusts through December 1, 2004. As of December 31, 1997, the Trustee has borrowed $73 million from the company at rates ranging from 6.1% to 8.4%. An additional $21 million was borrowed in January 1998 at 6.3%. Work force and other restructuring In March 1994, we announced a plan to reduce our existing nonmanagement work force. As of December 31, 1995, 11,500 employees had left the company as a result of this restructuring. The cumulative gross program cost through December 31, 1995 totaled $1,238 million, partially offset by settlement gains of $644 million, for an aggregate pretax net program cost of $594 million, or $377 million after-tax. We recorded a pretax charge of $728 million, or $456 million after-tax, in 1994 and a credit of $134 million, or $79 million after-tax in 1995 as a result of this restructuring. Management work force reductions Effective January 1, 1995, management employees who are asked to leave the company under certain conditions will receive a severance payment under the Management Separation Benefit Program (MSBP). We account for this benefit in accordance with FAS 112, "Employers, Accounting for Postemployment Benefits," accruing the separation cost when incurred. The number of employees leaving Ameritech under the MSBP was 273 in 1997, 618 in 1996 and 460 in 1995. Settlement gains result from the payment of lump-sum distributions from the pension plan to former employees and are recorded as a credit to other operating expense. Settlement gains, net of termination costs, under the plans were $20 million, $33 million and $27 million in 1997, 1996 and 1995, respectively. We fund the involuntary plans from our operations and made cash payments of $5 million, $17 million and $10 million in 1997, 1996 and 1995, respectively. 9. Commitments We lease certain facilities and equipment used in our operations under both operating and capital leases. Rental expense under operating leases was $220 million, $219 million and $200 million in 1997, 1996 and 1995, respectively. As of December 31, 1997, the aggregate minimum rental commitments under noncancelable leases were as follows:
Years Operating Capital - ------------------------------------------------------------- 1998 $ 115 $ 27 1999 103 4 2000 89 2 2001 73 3 2002 55 1 Thereafter 212 2 --------------- Total minimum rental commitments $ 647 39 ===== Less: executory costs 1 interest costs 4 ----- Present value of minimum lease payments 34 ============================================================
Effective May 1, 1996, we commenced a ten-year agreement with IBM Global Services (IBM), to perform certain information technology services previously performed by Ameritech. IBM is also responsible for the consolidation of our data centers. Initially, IBM is using existing computers owned or leased by us to perform these services, but over time IBM may utilize any data processing equipment it acquires or leases, as long as they meet the criteria specified in the agreement. The terms of the agreement and subsequent amendments specify payments to IBM that do not exceed about $200 million in any year. Actual charges from IBM may increase or decrease 46 based in part on usage, growth and other data processing requirements. During the initial years, scheduled payments to IBM include reimbursement of lease payments on existing computers that we lease. We may terminate the entire agreement upon payment of a predetermined fee, which varies based on the reason for termination and the year terminated. In November 1997, we reached an agreement in principle to settle class action lawsuits regarding our inside wire maintenance and Linebacker services, subject to court approval. Those customers who subscribe to these services pay a monthly fee to cover repairs to inside telephone wiring and jacks. They thereby avoid charges for labor and material at the time of repair. The lawsuits charged unfair sales practices and violations of the antitrust laws allegedly arising from our sales and marketing practices. The settlement consists of, among other things, free calling card and pay-per-use services over specified time periods, as well as billing credits. Although the value to class members is much greater, we recorded a pretax charge of $69 million ($42 million after-tax) in 1997 based on the cost of the negotiated settlement terms. 10. Financial instruments and derivatives The following table presents the estimated fair value of our financial instruments as of December 31:
1997 1996 ------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - ------------------------------------------------------------- Cash and temporary cash investments $ 239 $ 239 $ 145 $ 145 Debt 7,749 8,037 7,604 7,572 Other assets 907 888 798 765 Other liabilities 476 509 183 196 =============================================================
We used the following methods and assumptions to estimate the fair value of financial instruments: Cash and temporary cash investments The carrying value approximates fair value because of the short-term maturity of these instruments. Debt The carrying amount (including accrued interest) of our debt maturing within one year approximates fair value because of the short-term maturities involved. We estimated the fair value of our long-term debt based on the year- end quoted market price for the same or similar issues. Other assets and liabilities These financial instruments consist primarily of long-term receivables, other investments, financial contracts, customer deposits and preferred stock of subsidiaries. We based the fair values of these items on expected cash flows, available market prices or market comparables. Fair value of other liabilities includes the effect of interest rate swaps and forwards discussed below. Financial contracts, including derivatives We occasionally enter into foreign currency forward contracts to hedge exposure to adverse exchange risk. Also, we use interest rate swaps to manage interest rate exposure. Related gains and losses are reflected in net income. As of December 31, 1997, we had contracts giving us the right to deliver foreign currency valued at $3.0 billion (none in 1996). As of December 31, 1997 and 1996, we had also entered into interest rate swap agreements to change the interest rate on notional amounts of $674 million and $582 million, respectively. We adjust interest expense to give effect to obligations under the swaps. We are exposed to credit risk in the unlikely event of nonperformance by counterparties and the fair value of the swaps exceeds their carrying value. As of December 31, 1997, the fair value of these interest rate swaps was $15 million less than carrying value. As of December 31, 1996, the fair value of the interest rate swaps was $9 million less than carrying value. 11. Other income, net The components of other income, net are as follows:
Income (expense) 1997 1996 1995 - ------------------------------------------------------------------------------------------ Equity earnings of affiliates, primarily New Zealand Telecom and Belgacom* $ 206 $ 236 $ 94 Interest on company-owned life insurance and related programs 46 55 52 Gain on LESOP 44 35 27 Gain on sale of Sky Network Television of New Zealand 52 -- -- Gain on sale of shares in MATAV 43 -- -- Gain on sale of Bellcore 42 -- -- Gain on exchange of cellular minority interests -- -- 66 Gain on sale of investment in Polish venture, Centertel -- 11 -- Loss on forward contract related to Tele Danmark acquisition (16) -- -- Other, net (27) (11) 21 --------------------- Total $ 390 $ 326 $ 260 =========================================================================================
* Includes 1997 restructuring charge at Belgacom of $87 million. 12. Shareowners' equity Stock split On December 17, 1997, our board of directors approved a two-for-one stock split, by declaring a 100% stock dividend, effective December 31, 1997. The split shares were distributed in January 1998. All share and per share data in the consolidated financial statements and notes have been restated for all periods presented to reflect this stock split. Other stock information We amended our certificate of incorporation in 1996 to increase the number of authorized common shares from 1.2 billion to 2.4 billion. The certificate also allows 30 million shares of preferred stock (par value $1 47 Notes to Consolidated Financial Statements (dollars in millions, except per share amounts) per share) and 30 million shares of preference stock (par value $1 per share). In October 1997, we registered 14,279,340 shares of our common stock with the SEC for future issuance. We may issue these shares from time to time for the completion of acquisitions, for the payment of dividends or for other corporate purposes. Shareowners' rights One preference stock purchase right is attached to each share of the company's common stock. Under certain circumstances shareowners may exercise each right to purchase one one-hundredth of a share of Series A Junior Participating Preference Stock, $1 par value, at a price of $62.50. If a person acquires, or announces a tender offer for, 20% or more of our common stock, shareowners may exercise the rights to purchase Ameritech common stock having a market value of two times the exercise price. If Ameritech is acquired in a merger or similar transaction that is not approved by our board of directors, shareowners may exercise the rights to purchase common stock of the surviving company having a market value of two times the exercise price. The rights, which are nonvoting, are redeemable by Ameritech for $0.01 per right and expire on December 31, 1998, or upon consummation of certain merger transactions. Until the occurrence of certain events, the rights are attached to and trade with shares of our common stock. As of December 31, 1997, 1,097,188,276 rights were outstanding, after adjusting for the stock split. Stock plans In April 1997, shareowners approved a long term stock incentive plan. Through our 1989 and 1997 plans, we grant incentive compensation to our officers and other employees in the form of stock options, stock appreciation rights, restricted stock and performance awards. The incentives granted are based upon terms and conditions, and are subject to certain limitations, determined by a committee of the board of directors, which administers the plan. The plans authorize the issuance of up to 120,000,000 shares of common stock over a 10-year period. All future grants will be made under the 1997 plan. We may grant stock options under the plan as either incentive stock options or nonqualified stock options. We have not granted any options at less than fair market value as of the date of grant. Under the 1997 plan, stock option and stock appreciation rights may not be granted at less than the fair market value on the date of grant except in the case of awards to newly hired or promoted employees when the fair market value on the date of hire or promotion may be used. Additionally, under the 1997 plan, the per share exercise price may not be repriced or surrendered as consideration in exchange for a new award with a lower per share exercise price. The options have a maximum life of 10 years and one day from the date of grant. We may grant stock appreciation rights independently or together with stock options. Stock appreciation rights permit the optionee to receive stock, cash or a combination thereof equal to the amount by which the fair market value on the exercise date exceeds the option price. Substantially all stock options granted on or following December 16, 1987, are exercisable after one year in equal increments over the following three years. Beginning in 1994, we awarded grants of nonqualified stock options with dividend equivalents to certain employees. Information regarding options granted under a long term incentive plan which expired in 1994 and under the 1989 and 1997 plans are as follows:
Incentive Nonqualified Stock Options Stock Options --------------------- ---------------------- Shares Price* Shares Price* - -------------------------------------------------------------------------------------------------------------- December 31, 1994 22,136 $10.29 22,437,010 $ 17.32 Granted -- -- 13,001,960 $ 20.99 Exercised (10,800) $10.29 (5,107,184) $ 16.04 Canceled or expired -- -- (2,380,352) $ 19.98 - --------------------------------------------------------------------------------------------------------------- December 31, 1995 11,336 $10.29 27,951,434 $ 19.03 Granted -- -- 13,760,832 $ 29.15 Exercised (11,336) $10.29 (4,393,874) $ 18.08 Canceled or expired -- -- (1,666,368) $ 24.99 - --------------------------------------------------------------------------------------------------------------- December 31, 1996 -- -- 35,652,024 $ 22.78 Granted -- -- 17,226,368 $ 30.15 Exercised -- -- (7,859,530) $ 19.83 Canceled or expired -- -- (4,369,148) $ 27.53 - --------------------------------------------------------------------------------------------------------------- December 31, 1997 -- -- 40,649,714 $ 25.96 ===============================================================================================================
*weighted average The above stock options have the following characteristics as of December 31, 1997:
Shares Remaining Life Shares Grant Year Outstanding Price* (in years)* Exercisable - ---------------------------------------------------------------------------------------------------------------------- 1988-90 67,484 $15.25 1.6 67,484 1991-93 3,335,426 16.22 3.4 3,335,426 1994 4,328,334 19.27 6.1 4,328,334 1995 7,164,110 20.84 7.1 4,326,504 1996 10,190,874 29.14 8.1 3,028,950 1997 15,563,486 30.22 9.1 -- ---------- ---------- 40,649,714 15,086,698 ========== ==========
*weighted average As of December 31, 1997, 1996 and 1995, 1,006,992, 713,820 and 349,592 additional shares, respectively, were available as dividend equivalents. All stock appreciation rights granted under the plans have been issued in tandem with nonqualified stock options. Stock appreciation rights granted prior to 1987 have been capped at $14.969. The exercise of a nonqualified option or a stock appreciation right cancels the related right or option. We have not issued any stock appreciation rights after December 31, 1990. Under the long term incentive plan, which expired in 1994, 13,332 shares of nonperformance based restricted stock remained outstanding as of December 31, 1997, and 26,000 shares of nonperformance based restricted stock are outstanding under the plans. Shareowners' equity reflects deferred compensation for the unvested stock awarded. This amount is reduced and charged against operations (together with any change in market 48 price) as the employees vest in the stock. In 1995, the FASB issued FAS 123, "Accounting for Stock-Based Compensation." This pronouncement requires us to calculate the value of stock options at the date of grant using an option pricing model. We have elected the "pro forma, disclosure only" option permitted under FAS 123, instead of recording a charge to operations, as shown below:
1997 1996 1995 - ------------------------------------------------------------------ Net income As reported $2,296 $2,134 $2,008 Pro forma 2,262 2,107 1,992 Earnings per share As reported basic 2.09 1.93 1.81 As reported diluted 2.08 1.92 1.81 Pro forma basic 2.06 1.91 1.80 Pro forma diluted 2.05 1.91 1.79 ==================================================================
Because the FAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. We adjusted pro forma net income for dividend equivalents expensed as a variable plan. Our weighted-average assumptions used in the pricing model and resulting fair values were as follows:
1997 1996 1995 - --------------------------------------------------------------- Risk free rate 6.22% 5.37% 7.55% Expected dividend yield* 3.74% 3.50% 4.17% Expected option life (in years) (without dividend equivalents) 3.25 3.25 3.25 Expected option life (in years) (with dividend equivalents) 5.00 5.00 5.00 Expected stock price volatility 23.67% 20.74% 19.42% Grant date value (without dividend equivalents) $10.98 $ 8.95 $ 6.44 Grant date value (with dividend equivalents) $20.61 $17.99 $14.94 ===============================================================
*The options granted with dividend equivalents (about 24% of total options granted in 1997, 28% in 1996 and 34% in 1995) were priced assuming the dividends would accrue to the optionee over the expected life of the option. 13. Additional financial information
December 31 --------------------- 1997 1996 - ------------------------------------------------------------------------------ Other current liabilities Accrued payroll $ 284 $ 216 Accrued taxes 478 454 Advance billings and customer deposits 378 366 Dividends payable 330 313 Accrued interest 127 131 Other 653 361 --------------------- Total $2,250 $1,841 ==============================================================================
Interest paid was $534 million, $544 million and $465 million in 1997, 1996 and 1995, respectively. Advertising expense was $354 million, $270 million and $236 million in 1997, 1996 and 1995, respectively.
14. Quarterly financial information (unaudited) Basic Operating Net Earnings Revenues Income Income Per Share - ------------------------------------------------------------ 1997 1st Quarter $ 3,859 $ 912 $ 536 $ 0.49 2nd Quarter 3,986 1,041 537 $0.49 3rd Quarter 4,006 962 613 0.56 4th Quarter 4,147 884 610 0.56 ---------------------------------------- Total $15,998 $3,799 $2,296 $2.09 ============================================================ 1996 1st Quarter $ 3,567 $ 822 $ 478 $0.43 2nd Quarter 3,744 946 567 0.51 3rd Quarter 3,722 873 519 0.47 4th Quarter 3,884 864 570 0.52 ---------------------------------------- Total $14,917 $3,505 $2,134 $1.93 ============================================================
The second quarter of 1997 includes a one-time after-tax charge of $87 million related to our share of the costs of a work force restructuring at Belgacom. The third quarter of 1997 includes a one-time pretax gain of $52 million ($37 million after-tax) resulting from the sale of our interest in Sky Network Television of New Zealand. The fourth quarter of 1997 includes a one-time pretax charge of $69 million ($42 million after-tax) related to the previously discussed Linebacker settlement, and one-time gains of $43 million ($27 million after-tax) and $42 million ($25 million after-tax) related to a sale of shares in MATAV and the sale of our interest in Bellcore, respectively. One-time charges in the fourth quarter of 1997 also include a pretax charge of $16 million ($10 million after-tax) resulting from a mark-to-market adjustment for forward contracts to help fund the Tele Danmark acquisition. Current SEC accounting interpretations do not permit hedge accounting for planned acquisitions. The fourth quarter of 1996 includes an after-tax gain of $18 million from the sale of an interest in Centertel, a Polish cellular telephone company. Several other significant income and expense items were reported in the fourth quarter of both years. However, the net result was not material to the respective quarters or years. We calculated earnings per share on a quarter-by-quarter basis in accordance with GAAP. Quarterly EPS figures may not total EPS for the year due to the fluctuation of shares outstanding. We have included all adjustments necessary for a fair statement of results for each period. 49 Information for Our Investors Trading and dividend information (restated to reflect stock split) Dividends High Low Close Declared - -------------------------------------------------------------- 1997 1st Quarter $ 32.50 $ 28.31 $ 30.63 $ .2825 2nd Quarter 35.88 27.63 33.97 .2825 3rd Quarter 35.31 30.66 33.25 .2825 4th Quarter 43.13 30.13 40.25 .30 ------------------------------------------- 1996 1st Quarter $ 33.44 $ 26.13 $ 27.25 $ .265 2nd Quarter 30.00 26.31 29.69 .265 3rd Quarter 29.81 24.81 26.31 .265 4th Quarter 31.69 26.00 30.31 .2825 - -------------------------------------------------------------- 53 EX-21 15 2 Exhibit 21 AMERITECH CORPORATION SUBSIDIARIES as of March 6, 1998 AMERITECH CORPORATION Delaware Illinois Bell Telephone Company (d/b/a Ameritech Illinois) Illinois Ameritech Illinois Metro, Inc. Delaware Indiana Bell Telephone Company, Incorporated (d/b/a Ameritech Indiana) Indiana Michigan Bell Telephone Company (d/b/a Ameritech Michigan) Michigan The Ohio Bell Telephone Company (d/b/a Ameritech Ohio) Ohio Wisconsin Bell, Inc. (d/b/a Ameritech Wisconsin) Wisconsin Ameritech Services, Inc. (Jointly owned by the Bell companies) Delaware Ameritech Center Phase I, Inc. (Jointly owned by AIT and ASI) Delaware Ameritech Intellectual Properties, Inc. Delaware Ameritech Advanced Data Services of Illinois, Inc. Delaware Ameritech Advanced Data Services of Indiana, Inc. Delaware Ameritech Advanced Data Services of Michigan, Inc. Delaware Ameritech Advanced Data Services of Ohio, Inc. Delaware Ameritech Advanced Data Services of Wisconsin, Inc. Delaware Ameritech Capital Funding Corporation Delaware Ameritech Communications, Inc. Delaware Ameritech Cayman Islands Investments, Inc. Delaware Ameritech Communications of Illinois, Inc. Delaware Ameritech Communications of Wisconsin, Inc. Delaware Ameritech Communications International, Inc. Delaware Ameritech Global Gateway Services, Inc. Delaware Ameritech Credit Corporation (d/b/a Ameritech Capital Services) Delaware Ameritech Belgium Leasing, Inc. Delaware Ameritech Belgium Assets, L.L.C. Delaware Ameritech Development Corporation Delaware Ameritech Information Industries Services, Inc. Delaware Quantum Control Systems, LLC Delaware CIRCAD Holdings, Inc. Delaware Ameritech Information Systems, Inc. Delaware Ameritech EGA, Inc. Delaware Ameritech Information Access LLC Delaware Ameritech Health Connections, Inc. Delaware Ameritech Kidsoft Holdings, Inc. Delaware Ameritech Knowledge Data, Inc. Delaware Ameritech Health Information Management Corporation of Tennessee Delaware Ameritech Health Information Management Corporation of Ohio Delaware Ameritech Management Corporation Delaware Ameritech Management Services Company LLC Delaware Dynix Corporation Delaware Ameritech Library Services, Inc. Delaware DMI Promark, Inc. Delaware Dynix Library Systems, Inc. (Canada) Canada Dynix Library Systems (UK), Ltd. U.K. Dynix Library Systems (Ireland), Ltd. Ireland Dynix (France), S.A. France Dynix (Nederland), B.V. Netherlands Dynix Chrysalis, Ltd. (Canada) Canada Ameritech Mobile Communications, Inc. Delaware Ameritech Mobile Communications of Wisconsin, Inc. Wisconsin Ameritech Mobile Phone Service of Chicago, Inc. Illinois Ameritech Mobile Phone Service of Cincinnati, Inc. Delaware Ameritech Mobile Phone Service of Detroit, Inc. Delaware Ameritech Mobile Phone Service of Illinois, Inc. Illinois Ameritech Mobile Services, Inc. Delaware Ameritech Mobile Services of Wisconsin, Inc. Delaware Metrocom Communications, Inc. Delaware AMCI Partnership Holdings, Inc. Delaware Ameritech Mobile Data, Inc. Delaware CyberTel Financial Corporation Delaware CyberTel Cellular Telephone Company Delaware CyberTel Corporation Delaware CyberTel Minneapolis Paging Corporation Delaware CyberTel Cellular Management Corporation Delaware CyberTel St. Louis Paging Corporation Delaware GSAA, Inc. Delaware Gensub, Inc. Delaware Hawaiian Cellular Properties, Inc. Delaware Ohio Paging Units, Inc. Delaware SecurityLink from Ameritech, Inc. Delaware National Guardian Electronic Services S.A. de C.V. Mexico National Guardian Security Services Corp. of Puerto Rico Puerto Rico Ameritech New Media, Inc. Delaware Ameritech Media Ventures, Inc. Delaware Ameritech New Zealand Funding Corporation Delaware Ameritech New Zealand Investments, Inc. Delaware Ameritech International Belgium, LLC Delaware Ameritech International Belgium, LLC Delaware Ameritech Holdings, Ltd. New Zealand Ameritech Publishing, Inc. Delaware DonTech Publishing Company, LLC Delaware Ameritech Interactive Media Services, Inc. Delaware Ameritech Publishing of Illinois, Inc. Illinois Ameritech International, Inc. Delaware Wer Liefert Was? BV Netherlands Wer Liefert Was? SA Belgium Wer Liefert Was? Ges.m.b.H. Germany Ameritech Denmark, Inc. Delaware Ameritech International Denmark Corporation Delaware Ameritech International Holdings Company Delaware Ameritech International China, LLC Delaware Ameritech International Business Development Corporation Delaware Starline Insurance Company Vermont Ameritech Wireless Communications, Inc. Delaware Ameritech Telecommunications Services Company Delaware Ameritech Payphone Services, Inc. Delaware Ameritech Payphone Services of Illinois, Inc. Illinois Ameritech Payphone Services of Indiana, Inc. Indiana Ameritech Payphone Services Ohio, Inc. Ohio Ameritech Payphone Services of Michigan, Inc. Michigan Ameritech Payphone Services of Wisconsin, Inc. Wisconsin EX-23 16 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated January 13, 1998, included or incorporated by reference in this Form 10-K for the year ended December 31, 1997, into Ameritech Corporation's previously filed Registration Statement File Nos. 33-26366, 2-97037, 33-30593, 33-32705, 33-34006, 33-49036, 33-51771, 33-51773, 33-00897, 33-02591, 33-43179 and 33-29569. ARTHUR ANDERSEN LLP Chicago, Illinois March 12, 1998 EX-24 17 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is an Officer and Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O. G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as an Officer and a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 3td day of March, 1998. /s/ Richard C, Notebaert Richard C. Notebaert Chairman and Chief Executive Officer STATE OF ILLINOIS ) COUNTY OF COOK ) On the 3rd day of March, 1998, personally appeared before me Richard C Notebaert to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 3rd day of March, 1998. /s/ Judi L. Anker Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is an Officer of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS R.C. NOTEBAERT, B. A. KLEIN AND R. W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as an Officer of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 3rd day of March, 1998. /s/ Oren G. Shaffer Oren G. Shaffer Executive Vice President and Chief Financial Officer STATE OF ILLINOIS ) COUNTY OF COOK ) On the 3rd day of March, 1998, personally appeared before me Oren G. Shaffer to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 3rd day of March, 1998. /s/ Judi L. Anker Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 2nd day of March, 1998. /s/ Donald C. Clark Donald C. Clark STATE OF ILLINOIS ) COUNTY OF COOK ) On the 2nd day of March, 1998, personally appeared before me Donald C. Clark to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 2nd day of March, 1998. /s/ Judi L. Anker Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th day of February, 1998. /s/ Melvin R. Goodes Melvin R. Goodes STATE OF NEW JERSEY ) COUNTY OF MORRIS ) On the 27th day of February, 1998, personally appeared before me Melvin R. Goodes to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 27th day of February, 1998. /s/ Athena E. Leonard Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 2nd day of March, 1998. /s/ Hanna Holborn Gray Hanna Holborn Gray STATE OF ILLINOIS ) COUNTY OF COOK ) On the 2nd day of March, 1998, personally appeared before me Hanna Holborn Gray to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 2nd day of March, 1998. /s/ Judi L. Anker Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 2nd day of March, 1998. /s/ James A. Henderson James A. Henderson STATE OF ILLINOIS ) COUNTY OF COOK ) On the 2nd day of March, 1998, personally appeared before me James A. Henderson to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 2nd day of March, 1998. /s/ Judi L. Anker Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 2nd day of March, 1998. /s/ Sheldon B. Lubar Sheldon B. Lubar STATE OF WISCONSIN ) COUNTY OF MILWAUKEE ) On the 2nd day of March, 1998, personally appeared before me Sheldon B. Lubar to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 2nd day of March, 1998. /s/ Mary Beth Wisniewski Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 2nd day of March, 1998. /s/ Arthur C. Martinez Arthur C. Martinez STATE OF ILLINOIS ) COUNTY OF COOK ) On the 2nd day of March, 1998, personally appeared before me Arthur C. Martinez to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 2nd day of March, 1998. /s/ Judi L. Anker Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th day of February, 1998. /s/ John B. McCoy John B. McCoy STATE OF OHIO ) COUNTY OF FRANKLIN ) On the 25th day of February, 1998, personally appeared before me John B. McCoy to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 25th day of February, 1998. /s/ Carolyn J. Rich Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. N WITNESS WHEREOF, the undersigned has hereunto set his hand this 27th of February, 1998. /s/ John D. Ong John D. Ong STATE OF OHIO ) COUNTY OF SUMMIT ) On the 27th of February, 1998, personally appeared before me John D. Ong to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 27th of February, 1998. /s/ Virginia M. Huggins Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 2nd day of March, 1998. /s/ A. Barry Rand A. Barry Rand STATE OF ILLINOIS ) COUNTY OF COOK ) On the 2nd day of March, 1998, personally appeared before me A. Barry Rand to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 2nd day of March, 1998. /s/ Judi L. Anker Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS O.G. SHAFFER, B. A. KLEIN AND R.W.PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as a Director of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th day of February, 1998. /s/ James A. Unruh James A. Unruh STATE OF PENNSYLVANIA ) COUNTY OF MONTGOMERY ) On the 25th day of February, 1998, personally appeared before me James A. Unruh to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 25th day of February, 1998. /s/ Linda M. Fantini Notary Public Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AMERITECH CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual Report"); and WHEREAS, the undersigned is a Director of the Company; NOW, THEREFORE, THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS R.C. NOTEBAERT, O.G. SHAFFER and R.W. PEHLKE, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead as an Officer of the Company, to execute and file the Annual Report, and thereafter to execute and file any amendment or amendments thereto on Form 10-K/A, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 3rd day of March, 1998. /s/ Laura D'Andrea Tyson Laura D'Andrea Tyson STATE OF CALIFORNIA ) COUNTY OF ALAMEDA ) On the 3rd day of March, 1998, personally appeared before me Laura D'Andrea Tyson to me known and known to be the person described in and who executed the foregoing instrument and such person duly acknowledged that such person executed and delivered the same for the purpose therein expressed. WITNESS my hand and official seal this 3rd day of March, 1998. /s/ Carlos M. Trillo Notary Public EX-27.YEAR97 18
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S DECEMBER 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 DEC-31-1997 239,000 0 3,386,000 308,000 290,000 4,549,000 34,391,000 20,518,000 25,339,000 7,241,000 4,610,000 0 0 1,177,000 7,131,000 25,339,000 0 15,998,000 0 12,199,000 (390,000) 0 505,000 3,684,000 1,388,000 2,296,000 0 0 0 2,296,000 2.09 2.08 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.YEAR96 19
5 *** RESTATED FINANCIAL DATA SCHEDULE*** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S DECEMBER 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 145,000 0 3,390,000 (320,000) 231,000 3,799,000 32,292,000 18,785,000 23,707,000 6,832,000 4,437,000 0 0 588,000 7,099,000 23,707,000 0 14,917,000 0 11,412,000 (326,000) 0 514,000 3,317,000 1,388,000 2,134,000 0 0 0 2,134,000 1.93 1.92 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.YEAR95 20
5 *** RESTATED FINANCIAL DATA SCHEDULE *** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S DECEMBER 31, 1995 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 DEC-31-1995 131,000 0 2,940,500 166,200 204,900 3,452,400 30,873,700 17,416,900 21,942,600 5,761,900 4,513,200 0 0 587,600 6,426,900 21,942,600 0 13,427,800 0 10,124,800 (260,000) 209,500 468,900 3,094,100 1,086,500 2,007,600 0 0 0 2,007,600 1.81 1.81 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.1Q97 21
5 *** RESTATED FINANCIAL SCHEDULE *** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S MARCH 31, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1997 175,000 0 3,290,000 (314,000) 200,000 3,680,000 32,589,000 19,145,000 23,435,000 6,527,000 4,296,000 0 0 588,000 7,282,000 23,435,000 0 3,859,000 0 2,947,000 (65,000) 0 125,000 852,000 316,000 536,000 0 0 0 536,000 0.49 0.48 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.2Q97 22
5 *** RESTATED FINANCIAL DATA SCHEDULES *** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S JUNE 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 308,000 0 3,334,000 (302,000) 220,000 3,887,000 33,100,000 19,598,000 23,761,000 6,624,000 4,065,000 0 0 588,000 7,437,000 23,761,000 0 7,845,000 0 5,892,000 (51,000) 0 248,000 1,756,000 683,000 1,073,000 0 0 0 1,073,000 0.98 0.97 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.3Q97 23
5 *** RESTATED FINANCIAL DATA SCHEDULE *** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 SEP-30-1997 848,000 0 3,295,000 (320,000) 266,000 4,525,000 33,578,000 19,992,000 24,566,000 7,436,000 4,065,000 0 0 588,000 7,410,000 24,566,000 0 11,851,000 0 8,936,000 (178,000) 0 371,000 2,722,000 1,036,000 1,686,000 0 0 0 1,686,000 1.53 1.53 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.1Q96 24
5 *** RESTATED FINANCIAL DATA SCHEDULE *** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S MARCH 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 MAR-31-1996 164,000 0 2,992,200 210,300 207,400 3,481,200 30,948,500 17,770,300 22,782,900 6,419,300 4,439,100 0 0 588,100 6,694,100 22,782,900 0 3,567,400 0 2,745,300 (50,500) 80,100 123,700 748,900 270,600 478,300 0 0 0 478,300 0.43 0.43 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.2Q96 25
5 *** RESTATED FINANCIAL DATA SCHEDULE *** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S JUNE 30, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 248,000 0 3,056,000 0 208,000 3,836,000 31,357,000 18,132,000 23,167,000 6,950,000 4,216,000 0 0 588,000 6,808,000 23,167,000 0 7,311,000 0 5,543,000 (124,000) 167,000 252,000 1,640,000 595,000 1,045,000 0 0 0 1,045,000 0.94 0.94 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
EX-27.3Q96 26
5 *** RESTATED FINANCIAL DATA SCHEDULE *** THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERITECH CORPORATION'S SEPTEMBER 30, 1996 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 214,000 0 3,366,000 (239,000) 217,000 3,903,000 31,767,000 18,494,000 23,434,000 7,045,000 4,309,000 0 0 588,000 6,834,000 23,434,000 0 11,033,000 0 8,392,000 (198,000) 250,000 382,000 2,457,000 893,000 1,564,000 0 0 0 1,564,000 1.41 1.41 WE HAVE NOT STATED SECURITIES SEPARATELY IN THE FINANCIAL STATEMENTS BECAUSE THEY ARE NOT MATERIAL. WE HAVE INCLUDED THEM IN THE "CASH" TAG. NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING REVENUES. WE THEREFORE HAVE NOT STATED THESE SALES SEPARATELY IN THE FINANCIAL STATEMENTS, PER REGULATION S-X, RULE 5-03(B). WE HAVE INCLUDED THESE SALES IN THE "TOTAL REVENUE" TAG. WE HAVE INCLUDED COST OF TANGIBLE GOODS SOLD IN OTHER OPERATING EXPENSES IN OUR FINANCIAL STATEMENTS AND THE "TOTAL COST" TAG, PER REGULATION S-X, RULE 5-03(B). WE HAVE CALCULATED EARNINGS PER SHARE AMOUNTS IN ACCORDANCE WITH FAS 128 "EARNINGS PER SHARE." WE HAVE ENTERED BASIC AND DILUTED AMOUNTS IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY, AND REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTIVE DECEMBER 31, 1997.
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