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SCHEDULE 14A
(Rule 14A-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6
(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GTE CALIFORNIA INCORPORATED
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee Paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
GTE CALIFORNIA INCORPORATED
ONE GTE PLACE
THOUSAND OAKS, CALIFORNIA 91362-3811
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 8, 1998
Irving, Texas
March 27, 1998
To the Holders of the Cumulative Preferred Stock, $20 Par Value, 4 1/2%
Series, and the Common Stock:
Notice is hereby given that, in accordance with the Bylaws (the Bylaws) of GTE
California Incorporated (the Company), the Annual Meeting of Shareholders of
the Company will be held at the office of GTE Network Services World
Headquarters, 600 Hidden Ridge, Irving, Texas 75038, at 10:00 a.m. on
Wednesday, the 8th day of April, 1998, for the purpose of (1) amending the
Bylaws to provide for a change in the authorized number of directors of the
Company, (2) amending the Articles of Incorporation to delete the references to
two series of cumulative preferred stock which are no longer outstanding, (3)
electing a Board of Directors (the Board) to serve for the ensuing year and
until their successors have been elected and qualified, (4) voting upon the
appointment of Arthur Andersen LLP as the independent public accountants for
the Company, and (5) transacting such other business as may properly come
before the meeting and any adjournment thereof. The nominees for election as
directors are named in the attached Proxy Statement, which is a part of this
notice. The Board does not presently know of any other business to be
considered.
Only shareholders of record at the close of business on Wednesday, March 4,
1998, will be entitled to vote at the meeting.
Please mark, sign and return the enclosed proxy as promptly as possible. If
you are present at the meeting, you may withdraw your proxy and vote your
shares personally.
By order of the Board of Directors,
CHARLES J. SOMES
Secretary
<PAGE> 3
GTE CALIFORNIA INCORPORATED
ONE GTE PLACE
THOUSAND OAKS, CALIFORNIA 91362-3811
PROXY STATEMENT
This Proxy Statement is being mailed on approximately March 27, 1998
to shareholders of GTE California Incorporated (the Company) in connection with
the Annual Meeting of Shareholders of the Company (the Annual Meeting) to be
held on Wednesday, April 8, 1998 at the office of GTE Network Services World
Headquarters, 600 Hidden Ridge, Irving, Texas 75038, at 10:00 a.m., and at any
and all adjournments thereof. The Company's Board of Directors (the Board) is
soliciting proxies to be voted at the Annual Meeting.
RECORD DATE
Only shareholders of record at the close of business on March 4, 1998
are entitled to vote in person or by proxy at the Annual Meeting.
PROXY PROCEDURE
The Board solicits proxies so that each shareholder has the
opportunity to vote on the proposals to be considered at the Annual Meeting.
When a proxy card is returned properly signed and dated, the shares represented
thereby will be voted in accordance with the instructions on the proxy card.
If a shareholder attends the Annual Meeting, he or she may vote by ballot.
If a shareholder does not return a signed proxy card or does not
attend the Annual Meeting and vote in person, his or her shares will not be
voted. Abstentions and broker non-votes are not counted in determining the
number of shares voted for or against any nominee for director or any proposal.
Abstentions are counted toward determining whether a quorum has been obtained;
however, shares represented by broker non-votes are not considered present at
the Annual Meeting and, accordingly, are not counted towards quorum.
If a shareholder returns a signed proxy card but does not mark the
boxes, the shares represented by that proxy card will be voted as recommended
by the Board. Otherwise, the signed proxy card will be voted as indicated on
the card. The proxy card also gives the individuals named as Proxies
discretionary authority to vote the shares represented on any other matter that
is properly presented for action at the Annual Meeting. A shareholder may
revoke his or her proxy at any time before it is voted by: (i) giving notice in
writing to the Secretary of the Company, (ii) granting a subsequent proxy or
(iii) appearing in person and voting at the Annual Meeting.
COST OF SOLICITATION
The Company is responsible for the cost of soliciting proxies.
Proxies may be solicited by directors, officers or regular employees of the
Company in person or by telephone, or by other means. The Company will also
request brokers or nominees who hold shares of Cumulative Preferred Stock, $20
Par Value, 4 1/2% Series, in their names to forward proxy material at the
Company's expense to the beneficial owners of such stock.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Shareholders of record at the close of business on March 4, 1998, of
the 280,312 outstanding shares of Cumulative Preferred Stock, $20 Par Value, 4
1/2% Series and the 70,000,000 outstanding shares of Common Stock are entitled
to notice of and to vote at the Annual Meeting. Shareholders have cumulative
voting rights, as described below, in electing directors. No shareholders
shall be entitled to cumulate votes for any candidate or
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candidates (i.e., cast for any one or more candidates a number of votes greater
than the number of the shareholder's shares) unless such candidate or
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the Annual Meeting, prior to the voting, of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes
for candidates who have been nominated. If voting for directors is conducted
by cumulative voting, each share will be entitled to a number of votes equal to
the number of directors to be elected, which votes may be cast for a single
candidate or may be distributed among two or more candidates in such
proportions as the shareholder may determine. If voting is not conducted by
cumulative voting, each share will be entitled to one vote, and the holders of
a majority of the shares voting at the Annual Meeting will be able to elect all
of the directors if they choose to do so. In such event, the other shareholders
will be unable to elect any director or directors. The candidates receiving
the highest number of votes, up to the number of directors to be elected, shall
be elected. On all other matters, each share is entitled to one vote.
All of the 70,000,000 outstanding shares of Common Stock are owned of
record and beneficially by GTE Corporation (GTE or the Corporation),
representing 99.6% of the outstanding voting securities of the Company.
VOTE REQUIRED
The persons named in the enclosed proxy have advised that they intend
to vote for the election of the nominees listed below as directors of the
Company. If, in the event of an unexpected occurrence, any nominee should not
be available for election, the proxies will be voted for the election of such
substitute nominee, if any, as the Board may propose. Each nominee is at
present available for election. The individuals listed below currently serve
as directors of the Company.
If voting for directors is conducted by cumulative voting, the persons
named on the enclosed form of proxy will have discretionary authority to
cumulate votes among the nominees with respect to which authority was not
withheld or, if the form of proxy either was not marked or was marked for all
nominees, among all nominees. In any case, the proxies may be voted for less
than the entire number of nominees if any situation arises which, in the
opinion of the proxy holders, makes such an action necessary or desirable.
AMENDMENT TO BYLAWS RE: NUMBER OF DIRECTORS
The Company has determined that it can operate efficiently with a
minimum of three directors in light of the decision to have only GTE employees
serve as directors of the Company. The Company's Bylaws currently provide for
a minimum of seven and a maximum of ten directors with the exact number fixed
at seven.
In order to permit the Company to operate with only three directors,
the Company will present at the Annual Meeting a proposal for the adoption by
shareholders of an amendment to its Bylaws to amend Article III, Section 2
thereof to provide for a minimum of three and a maximum of five directors. In
addition, the exact number of authorized directors within the stated minimum
and maximum will be fixed at three until amended by the Board or shareholders.
Shareholder approval of this item will allow the Company to pursue the
efficient management of its operations.
The text of Article III, Section 2 of the Bylaws as proposed to be amended is
as follows:
"Section 2. Number of Directors. The authorized number of
Directors shall be not less than three nor more than five until
changed by amendment of the Articles [of Incorporation] or by a Bylaw
duly adopted by the Shareholders. The exact number of Directors shall
be fixed, within the limits specified, by the Board or the
Shareholders in the same manner provided in these Bylaws for the
amendment hereof. The exact number of Directors shall be THREE (3)
until changed as provided in this Section 2."
The Board recommends a vote FOR the foregoing proposal.
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AMENDMENT TO ARTICLES OF INCORPORATION RE: RETIRED PREFERRED STOCK
At the Annual Meeting, the Company will present a proposal to further
amend its Articles of Incorporation (the Articles) by deleting all references
to two series of cumulative preferred stock of the Company which are no longer
outstanding from the description of the Company's capital stock contained in
Article Sixth of the Articles. The two retired series of preferred stock are
the 7.48% Cumulative Preferred Stock and the 8.375% Cumulative Preferred Stock.
In addition, the remaining subsections of Article Sixth will be renumbered
appropriately.
The Company believes that this amendment will promote the Company's
policy of maintaining accurate and up-to-date corporate records.
The Board recommends a vote FOR the foregoing proposal.
BOARD OF DIRECTORS
The directors of the Company are elected annually. During 1997, all
actions of the Board were by unanimous consent resolutions.
The Board currently consists of four directors with three seats
vacant. The Company has concluded that it can operate efficiently with only
three directors on the Board in light of the decision to have only GTE
employees serve as directors of the Company. If shareholders approve the
amendment to the Company's Bylaws proposed under Amendments to Bylaws Re:
Number of Directors as discussed on page 2, the number of directors of the
Company will be three as provided in the Bylaws. Since GTE controls 99.6% of
the shares entitled to vote at the Annual Meeting and intends to vote its
shares in favor of the adoption of such amendment, adoption of the amendment is
assured. The Company therefore proposes to elect three directors at the Annual
Meeting. One of the four current directors, Mr. William G. Mundy, was elected
effective January 1, 1998, to replace Mr. Richard M. Cahill who resigned as of
December 31, 1997. In anticipation of the proposed reduction of the number of
directors, Mr. Mundy has tendered his resignation effective immediately
following the Annual Meeting.
The three nominees for election to hold office until the next annual
election of directors and until their successors shall be elected and qualified
are listed in the following table. The proxies submitted in response to this
Proxy Statement cannot be voted for a greater number of directors than the
number of nominees named below. Mr. Appel was elected as a director of the
Company at the last Annual Meeting. Messrs. Keith and Whitman were appointed
directors of the Company, effective September 1, 1997, following the
resignations from the Board of Messrs. Michael B. Esstman, Gerald K. Dinsmore
and Thomas W. White effective August 31, 1997. Also shown on the table are the
nominees' ages and principal occupations or employment during the last five
years. All of the nominees are executives of GTE Network Services, consisting
of all of GTE's incumbent local-exchange carriers in the United States,
including the Company, except Mr. Whitman, who is an officer of Business
Development and Integration (a separate business unit of GTE).
The Board recommends a vote FOR all nominees.
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<TABLE>
<CAPTION>
Name Age Director Since Business Experience
- ------------- --- -------------- ------------------------------------------------------
<S> <C> <C> <C>
John C. Appel 49 1996 President, GTE Network Services, 1997; Executive Vice
President - Network Operations, GTE Telephone
Operations, 1996; Executive Vice President - Network
Operations, all GTE domestic telephone subsidiaries of
which he is not President, 1996; Director, all GTE
domestic telephone subsidiaries, 1996; President, GTE
South Incorporated and GTE North Incorporated, 1995;
Senior Vice President - Regulatory Operations, GTE
Telephone Operations, 1994; President, GTE Southwest
Incorporated, 1994; State President - Texas/New Mexico,
1993.
Mateland L. Keith, Jr. 55 1997 Senior Vice President - Regional Operations, GTE Network
Services, 1997; President, GTE California Incorporated,
1995; Assistant Vice President - Engineering, GTE
Telephone Operations, 1995; Area Vice President -
Sales, GTE North Incorporated, 1993.
Lawrence R. Whitman 46 1997 Vice President - Finance and Planning, Business
Development and Integration, 1997; Controller, GTE
Corporation, 1995; Vice President - Finance, TP&S,
1993.
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company does not have any standing audit, nominating or
compensation committees of the Board. In light of the decision to have only
GTE employees serve on the Board, the Board concluded that such committees are
not necessary.
DIRECTORS' COMPENSATION
The current directors, all of whom are employees of GTE, are not paid
any fees or remuneration, as such, for service on the Board.
EXECUTIVE COMPENSATION
Report on Executive Compensation
The Board has reviewed and approved the annual compensation paid to
David R. Bowman, who has served as the Company's President since July 1997, and
Mateland L. Keith, Jr., who served as the Company's President until July 1997,
and each of the other executive officers of the Company during 1997 listed in
the Summary Compensation Table on page 9 (collectively, the Named Executive
Officers). Several of the executive officers are also executive officers of
affiliates of the Company. The Company's pro rata share of salaries, bonuses and
other cash compensation for such executive officers is discussed in Note 1 to
the table on page 10.
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The compensation of Messrs. Bowman and Keith and the other six
Named Executive Officers are recommended to and approved by the Executive
Compensation and Organizational Structure Committee of the Board of Directors of
GTE Corporation (the Committee). The Committee also administers GTE's executive
incentive plans including the approval of awards under those plans. In the
opinion of the Board, the compensation paid to the Named Executive Officers of
the Company is reasonable.
Compensation Philosophy
The compensation philosophy of GTE, in which the Board concurs, is
that the compensation for the executive officers of the Company as a group
should be set at a level so that it attracts superior individuals, rewards
sustained performance and maximizes shareholder value. The Board also believes
that because the Company is a majority-owned subsidiary of GTE, and because
most of the Named Executive Officers are also executive officers of other GTE
affiliates, their compensation should closely resemble the compensation paid to
other similarly situated employees of other GTE subsidiaries. The Board
further believes that the Company benefits from the policy of compensating its
employees on a similar basis to other employees with similar responsibilities
within GTE because it facilitates the ability of GTE to transfer employees
between companies, thereby providing the Company with a large group of skilled
and knowledgeable individuals from which to draw to fill key vacancies. This
policy also serves to attract talented people to the Company because they will
have an opportunity for additional experience and promotion throughout all of
GTE.
Executive Compensation
The base salary of the Named Executive Officers is determined by
reviewing the individual's performance as well as the duties and
responsibilities of the respective executive management position. Each
management position is given a grade level with an attendant salary range. The
grade levels are determined using the Hay Job Evaluation System (the Hay
System), an orderly and widely recognized system to establish job levels. The
Hay System emphasizes employee relations, staffing/retention and equal
opportunity considerations. The individual's performance, years of experience
and prior salary increase history determine where within the salary range the
individual's base salary falls. The grade levels of the executive officers are
generally comparable to other similar management positions within GTE.
The base compensation of the Named Executive Officers, whether or not
specifically allocated to the Company, increased during 1997 based on their
performance and the date of their last increase. The percentage increases ranged
from 1.7% to 21.7%. The percentage increases for Messrs. Bowman and Keith were
based on the performance of GTE Network Services and the Company and each
individual's performance, including his performance with respect to changes in
executive responsibilities. The percentage increases for Messrs. Appel, White
and Dinsmore were based on the total performance of GTE Network Services and
each individual's performance, including his performance with respect to changes
in executive responsibilities. The percentage increases for Messrs. Sparrow,
Paulson and Krall were based on the performance of GTE Network Services and each
individual's performance. The base salaries paid by GTE Network Services to the
Named Executive Officers are included under the "Salary" column of the Summary
Compensation Table on page 9.
Incentive Compensation
Certain executives are also eligible to receive payments under two
incentive plans in addition to their base salary. Under the Executive Incentive
Plan (the EIP), awards are made based upon the individual participant's
achievement of certain goals for his business unit and other individual
objectives. The awards for the Named Executive Officers are based on the total
performance of GTE and GTE Network Services during the last fiscal year and each
individual's performance. The awards for Messrs. Bowman and Keith are also
based on the Company's performance during the last fiscal year.
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No awards under the EIP are made for any year in which GTE's return on
equity (ROE) does not exceed 8%. However, under the terms of the EIP, the
Committee shall also take into consideration unusual or extraordinary items or
circumstances affecting GTE's financial performance, such as the impact of
mandated accounting changes or unusual charges related to acquisitions or
divestitures. GTE's 1997 ROE exceeded 8%, and awards under the EIP were made.
The awards to Messrs. Bowman and Keith under the GTE EIP for 1997 were
based on the performance of GTE as a whole, as well as each individual's
performance with respect to critical pre-established qualitative and
quantitative objectives related to the Company, established and approved by the
Chief Executive Officer of GTE Network Services and the Committee. The
quantitative objectives included targets for net income, free cash flow, total
revenue, customer value of service and employee development, including
recruiting, training and affirmative action. Other objectives included new
product revenues, product price and positioning, network reliability, employee
safety and community leadership. Particular emphasis was given to the
financial performance of the Company and the quality of service provided to
customers of the Company in determining Mr. Keith's and Mr. Bowman's awards for
1997.
The cash portion of EIP awards for the Named Executive Officers paid
by GTE Network Services are included in the "Bonus" column of the Summary
Compensation Table on page 9.
Selected GTE employees also have an opportunity to earn incentive
payments under the GTE Corporation 1997 Long-Term Incentive Plan (the LTIP).
The primary purpose of the LTIP is to help assure superior long-term financial
and operating performance by offering participants an incentive to cause GTE to
achieve those results. Under the provisions of the LTIP, two types of grants
are currently used: performance bonuses and stock options.
Senior executives of GTE, including the eight Named Executive
Officers, are eligible to receive annual grants of performance bonuses which
are earned during a performance cycle that is typically three years in duration
(a Cycle). Awards for the 3-year performance Cycle ending in 1997 were based
on GTE's actual financial performance during the relevant Cycle, as measured by
GTE's average ROE and operating cash flow margin (OCFM), in comparison with
pre-established target levels.
Based on requirements imposed by Section 162(m) of the Internal
Revenue Code of 1986 (the Code), no awards are made for any Cycle in which
GTE's cumulative consolidated net income (CCNI) for the Cycle does not exceed
$5 billion. In calculating CCNI under the terms of the LTIP, the Committee
shall exclude losses from unusual or extraordinary items, such as the impact of
accounting changes or unusual charges relating to business combinations or
discontinued operations. For the Cycles beginning in 1996 and later, the
Committee established a limitation on the aggregate amount available for
performance bonus awards. If the CCNI exceeds $5 billion, then an amount equal
to 3% of the CCNI is available for awards to participants (the LTIP Award
Pool). Amounts of CCNI in excess of $15 billion are not counted in determining
the size of the LTIP Award Pool. In addition, the Committee established
individual award limits with respect to performance bonuses. For Cycles
beginning in 1996 and later, the individual award limit is a percentage of the
LTIP Award Pool. The applicable percentage depends on the individual's base
salary at the end of the Cycle and, in all cases, may not exceed 3.5% of the
LTIP Award Pool.
For Cycles beginning in 1996 and later, the Committee also approved
the adoption of key measures of financial performance (the Guideline Factors).
The Guideline Factors are: revenue growth; earnings per share (EPS) growth;
earnings before interest, taxes, depreciation and amortization (EBITDA) growth;
relative total shareholder return (TSR) and return on investment (ROI).
In establishing the targeted performance levels for the five Guideline
Factors, the Committee considered GTE's past performance, the performance of
its principal competitors, its strategic goals and its plans for implementing
those goals. The targets established by the Committee with respect to the
Guideline Factors are designed to facilitate implementing GTE's strategic plans
and to improve GTE's performance relative to its peers.
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At the time the targeted performance bonus levels for each Cycle under
the LTIP were established, a common stock equivalent unit (Equivalent Unit)
account was set up for each participant in the LTIP. Each Equivalent Unit
account represents an initial dollar amount for each account (the Target Award)
based on the competitive performance bonus grant practices of the market
comparator group. The value of the account was increased or decreased based on
the market price of the GTE Common Stock. Each time a dividend was paid on GTE
Common Stock, an amount equal to the dividends paid on an equivalent number of
shares of GTE Common Stock was added to the account. This amount was then
converted into a number of Equivalent Units, obtained by dividing the amount of
the dividend by the average of the high and low price of GTE Common Stock on
the composite tape of the New York Stock Exchange (NYSE) on the dividend
payment date. The resulting number of Equivalent Units was then credited to
the account.
The value of the Equivalent Unit account is then adjusted by the
Guideline Performance Percentage (as defined below). Under the performance
criteria approved for the 1996-1998 and 1997-1999 Cycles, the Committee
established the minimum acceptable level of attainment with respect to each of
the Guideline Factors (the Threshold). If this Threshold is not attained for a
particular Guideline Factor, no award is paid for that specific factor. If the
Threshold for the Guideline Factor is achieved, participants receive a payment
of 20% of the award for that Guideline Factor. However, if GTE attains the
Threshold for the TSR Guideline Factor, a payment of 50% of the award is made
due to the exceptionally demanding goal for TSR. If the target for the
Guideline Factor is attained, the participants will receive the full value
associated with the Guideline Factor. If GTE's performance exceeds the target,
the award for that Guideline Factor will exceed the performance target,
resulting in a payment in excess of 100% of the Target Award, based upon the
formula explained in footnote 4 under the Long-Term Incentive Plan - Awards in
Last Fiscal Year table on page 14. The formula is applied separately for each
Guideline Factor. The Committee anticipates that performance bonus awards will
be based in equal proportion on the attainment of the target established for
each of the five Guideline Factors. The cumulative attainment level is called
the "Guideline Performance Percentage."
Payments to the Named Executive Officers for the 1995-1997 Cycle were
based on the previously applied ROE and OCFM measures and are shown in the
Summary Compensation Table on page 9. The awards for the 1995-1997 Cycle
included in the table reflect the following combinations of performance
measures: the ROE goal was surpassed by a significant margin, and the OCFM goal
fell short by 1.4%.
Grants for the 1997-1999 Cycle are shown in the Long-Term Incentive
Plan - Awards in Last Fiscal Year table on page 13.
Under the LTIP, the Committee normally approves grants of stock
options. These options are granted to the eight Named Executive Officers and
to a substantially larger group of executives than those who are eligible to
receive performance bonuses under the LTIP.
In approving the number of executive options awarded under the LTIP,
the Committee compares GTE's grant levels to competitive practices in the
comparator group. GTE's comparator group includes other major companies,
both in the telecommunications and general industries, that have a reputation
for excellence, are comparable to GTE in terms of such quantitative measures as
revenues, net income, assets and market value, and are viewed as direct
competitors for executive talent in the overall labor market. In line with
GTE's objective to relate an increasing amount of compensation to long-term
performance, GTE's philosophy is to be 10-15% above a median grant posture of
the comparator group of companies. The Committee did not take into account the
number of options currently held by any individual participant in determining
individual grants for 1997. Messrs. Bowman and Keith and the other six Named
Executive Officers received the grants shown in the Summary Compensation Table
on page 9.
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INTERNAL REVENUE SERVICE RULES RELATING TO DEDUCTIBILITY OF COMPENSATION
In late December 1995, the Internal Revenue Service (IRS) issued final
regulations that apply to the provision in Section 162(m) of the Code limiting
the tax deduction a publicly held corporation may take for compensation paid to
its chief executive officer and its other Named Executive Officers (Covered
Executives). The IRS regulations limit the annual amount that a company may
deduct to $1,000,000 per Covered Executive unless the compensation constitutes
"performance-based" compensation. The regulations contained transition rules
that companies generally could rely on until the first shareholder meeting in
1997.
In order to comply with the IRS regulations, management presented
proposals at GTE's 1997 annual meeting of shareholders for the approval of the
EIP and the LTIP. GTE's shareholders approved both plans which include
provisions to provide for the deductibility of future amounts received under
these plans. The provisions include, but are not limited to, limiting positive
discretion and establishing maximum aggregate awards payable limitations on the
number of options that may be granted to any one individual and limitations on
the maximum awards that may be paid to Covered Executives under the EIP and
LTIP.
OTHER COMPENSATION PLANS
The Company also participates in various broad-based GTE employee
benefit plans. Executives participate in these plans on the same terms as
eligible, non-executive employees, subject to any legal limits on the amounts
that may be contributed or paid to executives under the plans. The GTE Savings
Plan and the GTE Hourly Savings Plan (the Savings Plans), pursuant to the
provisions of Section 401(k) of the Code, permit employees to invest in a
variety of funds on a pre-tax or after-tax basis. Matching contributions under
the Savings Plans are made in GTE Common Stock.
The Company also maintains pension, insurance and other benefit plans
for its employees.
John C. Appel
Mateland L. Keith, Jr.
Lawrence R. Whitman
William G. Mundy
March 27, 1998
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EXECUTIVE COMPENSATION TABLES
The following tables provide information about executive compensation.
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation of
the two individuals who served as Principal Executive Officer of the Company in
1997, each of the other four most highly compensated executive officers of the
Company (other than the Chief Executive Officer) who served as such and were
compensated by the Company or GTE Network Services at the end of 1997 and the
two additional individuals who served as executive officers of the Company or
GTE Network Services in 1997 but did not serve as such or were not being
compensated by the Company or GTE Network Services at the end of 1997
(collectively, the Named Executive Officers). The information in this table
under the caption "Annual Compensation" sets forth all compensation paid to the
Named Executive Officers by the Company and GTE Network Services. The caption
"Long-Term Compensation" sets forth all long-term compensation paid to the
Named Executive Officers under employee benefit plans administered by GTE
Corporation or GTE Service Corporation. Footnote 1 to this table sets forth
the actual 1997 annual compensation for each of the Named Executive Officers
that was allocated to the Company.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------------------
Annual Compensation (2) Awards Payouts
------------------------------- ---------------------- ---------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Awards Options/ Payouts Compensation
Position in Group (1) Year ($) (3) ($) (4) ($) ($) (5) SARs (#) ($) ($) (6)
- -------------------------- ---- -------- ------- ------------ --------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David R. Bowman (7) 1997 146,739 83,400 -- 6,606 15,200 22,300 5,366
President
Mateland L. Keith, Jr. (8) 1997 250,413 157,100 -- 16,025 32,700 163,400 10,376
Senior Vice President- 1996 217,762 117,300 -- 5,118 15,200 87,600 9,799
Regional Operations 1995 204,308 104,000 -- -- 12,500 -- 9,111
GTE Network Services
John C. Appel 1997 348,365 399,386 -- 59,881 76,000 548,700 11,320
President 1996 295,977 380,700 -- 51,229 124,400 439,200 10,572
GTE Network Services 1995 239,600 258,100 -- -- 63,500 162,800 10,194
Larry J. Sparrow 1997 315,565 256,400 -- 39,481 40,700 375,300 11,320
President- 1996 294,812 260,800 -- 41,561 81,400 404,100 10,613
Wholesale Markets 1995 261,866 255,600 -- -- 36,400 211,300 10,613
GTE Network Services
Barry W. Paulson 1997 197,538 141,900 -- 14,706 19,900 93,400 7,200
Vice President - 1996 191,945 112,800 -- 9,231 19,900 34,900 6,750
Network Operations 1995 156,027 73,100 -- -- 6,500 -- 6,750
Planning and Support
GTE Network Services
Brad M. Krall 1997 205,608 107,200 -- 15,956 15,200 148,100 9,252
Vice President - 1996 200,205 113,900 -- -- 15,200 159,600 8,840
Centralized Operations 1995 184,336 106,000 -- -- 12,500 75,600 7,945
GTE Network Services
Thomas W. White (9) 1997 470,776 520,646 -- 84,756 91,700 822,400 11,320
Senior Executive 1996 463,115 533,700 -- 81,511 183,400 770,000 10,613
Vice President- 1995 418,884 443,800 -- -- 98,800 331,800 10,613
Market Operations
GTE Service Corporation
Gerald K. Dinsmore (10) 1997 302,532 314,807 -- 45,906 62,200 411,800 11,320
Senior Vice President- 1996 288,619 263,700 -- 41,751 81,400 404,100 10,613
Finance and Planning 1995 265,125 255,600 -- -- 36,400 211,300 10,613
</TABLE>
9
<PAGE> 12
(1) All persons named in the table are officers of the Company except as
otherwise noted.
(2) Annual Compensation represents the total annual cash compensation of
salaries, bonuses and other compensation. The Company's allocated share for
Messrs. Bowman, Keith, Appel, Sparrow, Paulson, Krall, White and Dinsmore,
for whom total annual amounts are shown above, is $230,139, $292,131,
$182,082, $154,265, $91,550, $84,367, $241,998 and $150,952, respectively.
(3) The data in the table includes fees of $7,280, $15,692 and $16,607 received
by Mr. White for serving as director of BC TEL during 1997, 1996, and 1995.
BC TEL, a Canadian company, is an indirectly-owned subsidiary of GTE
Corporation. Mr. White also received BC TEL deferred stock units valued at
$10,695, which amount is included in this column.
(4) The data in this column represents the annual bonus received in 1997 by
each of the Named Executive Officers under the GTE Corporation 1997
Executive Incentive Plan (the EIP) and a similar predecessor plan (the
Executive Incentive Plan). In connection with GTE's Equity Participation
Program (the EPP), a portion of this amount has been deferred into
restricted stock units payable at maturity (generally, a minimum of three
years) in GTE Common Stock (Restricted Stock Units). The number of
Restricted Stock Units received was calculated by dividing the amount of
the annual bonus deferred by the average closing price of GTE Common Stock
on the NYSE composite tape for the 20 consecutive trading days following
the release to the public of GTE's financial results for the fiscal year in
which the bonus was earned (the Average Closing Price). Additional
Restricted Stock Units are received on each dividend payment date based
upon the amount of the dividend paid and the closing price of GTE Common
Stock on the composite tape of NYSE issues on the dividend declaration
date.
(5) The data in this column represents the dollar value of the matching
Restricted Stock Units based upon the Average Closing Price. Matching
Restricted Stock Units are received on the basis of one additional
Restricted Stock Unit for every four Restricted Stock Units deferred
through annual bonus deferrals described in footnote 4 above. The matching
Restricted Stock Units were designed as an inducement to encourage full
participation in the EPP and to compensate the executives for their
agreement not to realize the economic value associated with the Restricted
Stock Units representing deferred annual bonus for a minimum of three
years. Additional Restricted Stock Units are received on each dividend
payment date based upon the amount of the dividend paid and the closing
price of GTE Common Stock on the composite tape of NYSE issues on the
dividend declaration date. Messrs. Bowman, Keith, Appel, Sparrow, Paulson,
Krall, White and Dinsmore hold a total of 607, 2,025, 11,024, 8,106, 2,346,
1,467, 16,568 and 8,716 Restricted Stock Units, respectively, which had a
dollar value of $31,731, $105,801, $576,025, $423,517, $122,591, $76,641,
$865,678 and $455,397, respectively, based solely upon the closing price
of GTE Common Stock on December 31, 1997.
(6) The column "All Other Compensation" includes, for 1997, Company
contributions to the GTE Savings Plan of $5,319 for Mr. Bowman, $6,731 for
Mr. Keith and $7,200 for each of Messrs. Appel, Sparrow, Paulson, Krall,
White and Dinsmore. This column also includes Company contributions to the
GTE Executive Salary Deferral Plan of $47 for Mr. Bowman, $3,645 for Mr.
Keith, $2,052 for Mr. Krall and $4,120 for each of Messrs. Appel, Sparrow,
White and Dinsmore.
(7) Mr. Bowman was elected President of the Company in July 1997, replacing Mr.
Keith. Prior to his election as President, Mr. Bowman served as Director -
Remote Operations Support of GTE Telephone Operations since August 1996.
(8) Mr. Keith served as President of the Company until July 1997, at which time
he was elected Senior Vice President - Regional Operations of GTE Network
Services.
(9) Mr. White was elected Senior Executive Vice President - Market Operations
of GTE Service Corporation in June 1997. He served as President of GTE
Telephone Operations from July 1995 until June 1997, and before that as an
Executive Vice President of GTE Telephone Operations from 1991.
10
<PAGE> 13
(10) Mr. Dinsmore was appointed President, Business Development and Integration
(a separate business unit of GTE) in June 1997. Mr. Dinsmore has served
as Senior Vice President - Finance and Planning of the Company since
1993. Although Mr. Dinsmore has retained his title with the Company, since
June 1997 he has been compensated solely through his new position.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the Named Executive
Officers of the Company in 1997, whether or not specifically allocated to the
Company. The options were granted under the GTE Corporation 1997 Long-Term
Incentive Plan (the 1997 LTIP) and the GTE Corporation 1991 Long-Term Incentive
Plan (the 1991 LTIP). Pursuant to Securities and Exchange Commission rules,
the table also shows the value of the options granted at the end of the option
terms (ten years) if the stock price were to appreciate annually by 5% and 10%,
respectively. There is no assurance that the stock price will appreciate at
the rates shown in the table. The table also indicates that if the stock price
does not appreciate, the potential realizable value of the options granted will
be zero.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rate of Stock
Price Appreciation for
Individual Grants Option Term
------------------------------------------------------ ------------------------------
Number of Percent of
Securities Total Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (1) Fiscal Year ($/SH) Date 0% 5% 10%
- ---------------------- ----------- ------------- --------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Bowman 5,000 .02% 48.6250 2/16/07 -- $152,900 $387,479
10,200 .05% 44.1875 8/28/07 -- 283,451 718,320
Mateland L. Keith, Jr. 15,200 .07% 48.6250 2/16/07 -- 464,816 1,177,935
17,500 .08% 44.1250 6/04/07 -- 485,625 1,230,668
John C. Appel 62,200 .29% 48.6250 2/16/07 -- 1,902,076 4,820,234
13,800 .06% 44.1250 6/04/07 -- 382,950 970,470
Larry J. Sparrow 40,700 .19% 48.6250 2/16/07 -- 1,244,606 3,154,076
Barry W. Paulson 19,900 .09% 48.6250 2/16/07 -- 608,542 1,542,165
Brad M. Krall 15,200 .07% 48.6250 2/16/07 -- 464,816 1,177,935
Thomas W. White 91,700 .43% 48.6250 2/16/07 -- 2,804,186 7,106,358
Gerald K. Dinsmore 40,700 .19% 48.6250 2/16/07 -- 1,244,606 3,154,076
21,500 .10% 44.1250 6/04/07 -- 596,624 1,511,964
</TABLE>
(1) Each option granted may be exercised with respect to one-third of the
aggregate number of shares subject to the grant each year, commencing one
year after the date of grant. No stock appreciation rights (SARs) were
granted to the Named Executive Officers of the Company in 1997.
11
<PAGE> 14
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table provides information as to options and SARs
exercised by each of the Named Executive Officers of the Company during 1997.
The table sets forth the value of options and SARs held by such officers at
year-end measured in terms of the closing price of GTE Corporation (GTE)
Common Stock on December 31, 1997.
<TABLE>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Shares Options/SARs at FY-End at FY-End ($)
Acquired Value --------------------------- ----------------------------
Name On Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- --------------- ------------ ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
David R. Bowman 1,700 26,488 1,166 18,134 9,365 123,027
Mateland L. Keith, Jr. 26,533 450,092 5,066 47,001 40,687 338,674
John C. Appel 56,567 600,134 -- 200,834 -- 1,539,141
Larry J. Sparrow -- -- 73,566 120,668 1,234,142 924,580
Barry W. Paulson 6,700 117,281 10,966 35,334 130,074 203,344
Brad M. Krall 17,034 249,251 5,066 29,501 40,687 206,064
Thomas W. White 69,300 1,055,056 132,232 277,468 2,094,451 2,158,179
Gerald K. Dinsmore -- -- 35,999 142,168 531,517 1,089,190
</TABLE>
12
<PAGE> 15
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
The 1997 LTIP and 1991 LTIP provide for awards to participating
employees, including stock options, SARs, performance bonuses and other
stock-based awards. The stock options awarded under the 1997 LTIP and 1991
LTIP to the Named Executive Officers in 1997 are shown in the table on page 11.
The 1997 LTIP and 1991 LTIP are described in more detail on pages 6 and 7.
<TABLE>
<CAPTION>
Estimated Future Payouts
Performance Under Non-Stock Price Based Plans (1)
Number of Or Other Period ----------------------------------------------
Shares, Units Until Maturation Threshold (2) Target (3)
Name Or Other Rights Or Payout (# of Units) (# of Units) Maximum (4)
- ------------------------ --------------- ---------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
David R. Bowman (5) 250 29 Months 52 258
950 17 Months 264 1,014
1,585 5 Months 455 1,750
Mateland L. Keith, Jr. (6) 1,900 3 Years 551 2,119
1,720 30 Months 494 1,899
1,055 18 Months 293 1,126
310 6 Months 64 319
John C. Appel (7) 7,400 3 Years 2,146 8,254
1,380 30 Months 396 1,524
845 18 Months 235 902
290 6 Months 60 299
Larry J. Sparrow 4,900 3 Years 1,421 5,466
Barry W. Paulson 2,400 3 Years 696 2,677
Brad M. Krall 1,900 3 Years 551 2,119
Thomas W. White 10,900 3 Years 3,161 12,158
Gerald K. Dinsmore (8) 4,900 3 Years 1,421 5,466
2,155 30 Months 619 2,379
1,320 18 Months 366 1,409
410 6 Months 84 422
</TABLE>
(1) An individual's award may not exceed the applicable individual award limit
(the Award Limit), which is expressed as a percentage of the LTIP Award
Pool described on page 6. The Award Limit depends on the individual's base
salary at the end of the award cycle, and may not exceed 3.5% of the LTIP
Award Pool. The amounts described in footnotes 2 through 4 below are
subject to and cannot exceed the Award Limit. An individual is initially
granted a specified number of GTE Common Stock equivalent units (Equivalent
Units) at the beginning of an award cycle. During the award cycle,
additional Equivalent Units are added based upon the price of GTE Common
Stock and the amount of the per share dividend paid on each dividend
payment date. It is not possible to predict future dividends and,
accordingly, estimated Equivalent Unit accruals in this table are
calculated for illustrative purposes only and are based upon the dividend
rate and price of GTE Common Stock at the close of business on December 31,
1997. The "Target" award or future payout is the dollar amount derived by
multiplying the Equivalent Unit balance credited to the participant at the
end of the award cycle by the average closing price of GTE Common Stock, as
reported on the composite tape of NYSE issues, during the last 20 business
days of the award cycle. The Target award measures performance attainment
as described in footnote 3.
13
<PAGE> 16
(2) The Threshold represents attainment of minimum acceptable levels of
performance (the Threshold Levels) with respect to the five Long-Term
Performance Bonus Measures (the Measures) adopted for the 1997-1999
Performance Bonus award cycle -- revenue growth; earnings per share (EPS)
growth; earnings before interest, taxes, depreciation and amortization
(EBITDA) growth; average return on investment (ROI) and relative total
shareholder return (TSR). If the Threshold Level is attained with respect
to each of the Measures, the award will be equal to approximately 25% of
the combined Target award (the TSR Threshold is set at 50%, while the
Threshold for the other four Measures is set at 20%). Because performance
is measured separately for each Measure, it is possible to receive an award
if the Threshold Level is achieved with respect to at least one but not all
of the Measures. If the actual results for all Measures are below the
Threshold Levels, no award will be paid.
(3) The Target represents attainment of levels of three-year revenue growth,
EPS growth, EBITDA growth, ROI and TSR established at the beginning of an
award cycle (the Target Levels). If GTE's actual results for each of the
Measures are equivalent to the Target Levels, this would represent
outstanding performance, and the award will be equal to 100% of the
combined Target award. GTE's performance is measured separately for each
Measure. Accordingly, if the actual result for any Measure is at the
applicable Target Levels, the portion of the award determined by that
Measure will be at 100% of the Target award for that Measure. Similarly,
the portion of the award determined by any Measure performing at less than
the applicable Target Level, but above the Threshold, will be less than the
Target award for that Measure.
(4) This column has intentionally been left blank because it is not possible to
determine the maximum number of Equivalent Units until the award cycle has
been completed. Subject to the Award Limit discussed in footnote 1 above,
the maximum amount of the award is limited by the extent to which GTE's
actual results for the five Measures exceed the Target Levels. If GTE's
actual results during the cycle for the five Measures exceed the respective
Target Levels, additional awards may be paid, based on a linear
interpolation. For example, for revenue growth, the schedule is as
follows:
Performance Increment Above
Revenue Performance Target Added Percentage to Combined Awards
----------------------------------- -----------------------------------
Each 0.1% improvement in cumulative +2%
revenue growth
Thus, if the revenue growth Measure exceeds its Target Level by .5% while
the remaining four Measures are precisely at their respective Target
Levels, then the performance bonus will equal 110% of the combined Target
award.
(5) The awards to Mr. Bowman represent incremental, prorated awards for the
1997-1999, 1996-1998 and 1995-1997 performance periods made when he was
appointed President of the Company.
(6) The award of 1,900 units to Mr. Keith represents the grant for the 1997-1999
performance period made while he was President of the Company. Pursuant to
GTE's compensation policies, the other grants shown are incremental,
prorated awards made when he was promoted to Senior Vice President-Regional
Operations of GTE Network Services in June 1997. The incremental units
apply to the 1997-1999, 1996-1998 and 1995-1997 performance periods.
(7) The award of 7,400 units to Mr. Appel represents the grant for the 1997-1999
performance period made while he was Executive Vice President of GTE
Telephone Operations. Pursuant to GTE's compensation policies, the other
grants shown are incremental, prorated awards made when he was promoted to
President of GTE Network Services in June 1997. The incremental units apply
to the 1997-1999, 1996-1998 and 1995-1997 performance periods.
14
<PAGE> 17
(8) The award of 4,900 units to Mr. Dinsmore represents the grant for the
1997-1999 performance period made while he was Senior Vice President -
Finance and Planning of the Company. Pursuant to GTE's compensation
policies, the other grants shown are incremental, prorated
awards made when he was promoted to President of Business Development
and Integration, a separate business unit of GTE, in June 1997. The
incremental units apply to the 1997-1999, 1996-1998 and 1995-1997
performance periods.
EXECUTIVE AGREEMENTS
GTE has entered into agreements (the Agreements) with Messrs. Appel,
Sparrow, White and Dinsmore regarding benefits to be paid in the event of a
change in control of GTE (a Change in Control).
A Change in Control is deemed to have occurred if (a) any person or group
of persons acquires, other than from GTE or as described below, 20% (or under
certain circumstances, a lower percentage, not less than 10%) of GTE's voting
power, (b) three or more directors are elected in any twelve-month period
without the approval of a majority of the members of GTE's Incumbent Board (as
defined in the Agreements) then serving as members of the Board, (c) the
members of the Incumbent Board no longer constitute a majority of the Board or
(d) GTE's shareholders approve (i) a merger, consolidation or reorganization
involving GTE, (ii) a complete liquidation or dissolution of GTE or (iii) an
agreement for the sale or other disposition of all or substantially all of the
assets of the Corporation to any person other than a subsidiary of GTE. An
individual whose initial assumption of office occurred pursuant to an agreement
to avoid or settle a proxy or other election contest is not considered a member
of the Incumbent Board. In addition, a director who is elected pursuant to
such a settlement agreement will not be deemed a director who is elected or
nominated by the Incumbent Board for purposes of determining whether a Change
in Control has occurred. Notwithstanding the foregoing, a Change in Control
will not occur in the following situations: (1) certain merger transactions in
which there is at least 50% GTE shareholder continuity in the surviving
corporation, at least a majority of the members of the board of directors of
the surviving corporation consists of members of the Board and no person owns
more than 20% (or under certain circumstances, a lower percentage, not less
than 10%) of the voting power of the surviving corporation following the
transaction, and (2) transactions in which GTE's securities are acquired
directly from GTE.
The Agreements provide for benefits to be paid in the event these
individuals separate from service and have a "good reason" for leaving or are
terminated without "cause" within two years after a Change in Control of GTE.
Good reason for leaving includes, but is not limited to, the following events:
demotion, relocation or a reduction in total compensation or benefits, or the
new entity's failure to expressly assume obligations under the Agreements.
Termination for cause includes certain unlawful acts on the part of the
executive or a material violation of his or her responsibilities to the
Corporation resulting in material injury to the Corporation.
An executive who experiences a qualifying separation from service will be
entitled to receive up to two times the sum of (i) base salary and (ii) the
average of his percentage awards under the EIP for the previous three years.
The executive will also continue to receive medical and life insurance coverage
for up to two years and will be provided with financial and outplacement
counseling.
In addition, each executive covered under an Agreement will be considered
to have not less than 76 points and 15 years of accredited service for the
purpose of determining his eligibility for early retirement benefits. The
Agreements provide that there will be no duplication of benefits.
Each of the Agreements remains in effect until July 1, 1999 unless
terminated earlier pursuant to its terms. The Agreements will be automatically
renewed on each successive July 1 unless, not later than December 31 of the
preceding year, one of the parties notifies the other that he does not wish to
extend his respective Agreement. If a Change in Control occurs, the Agreements
will remain in effect until the obligations of GTE (or its successor) under the
Agreements have been satisfied.
15
<PAGE> 18
RETIREMENT PROGRAMS
Pension Plans
The estimated annual benefits payable, calculated on a single life annuity
basis, under GTE's defined benefit pension plans at normal retirement at age
65, based upon final average earnings (integrated with social security as
described below) and years of service, is illustrated in the following table:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Final Average -----------------------------------------------------------------------------
Earnings 15 20 25 30 35
- -------------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 42,182 $ 56,242 $ 70,303 $ 84,363 $ 98,424
300,000 63,932 85,242 106,553 127,863 149,174
400,000 85,682 114,242 142,803 171,363 199,924
500,000 107,432 143,242 179,053 214,863 250,674
600,000 129,182 172,242 215,303 258,363 301,424
700,000 150,932 201,242 251,553 301,863 352,174
800,000 172,682 230,242 287,803 345,363 402,924
900,000 194,432 259,242 324,053 388,863 453,674
1,000,000 216,182 288,242 360,303 432,363 504,424
1,200,000 259,682 346,242 432,803 519,363 605,924
1,500,000 324,932 433,242 541,553 649,863 758,174
2,000,000 433,682 578,242 722,803 867,363 1,011,924
</TABLE>
GTE Service Corporation, a wholly-owned subsidiary of GTE, maintains
the GTE Service Corporation Plan for Employees' Pensions (the Service
Corporation Plan), a noncontributory pension plan for the benefit of all GTE
employees who are not covered by collective bargaining agreements. It provides
a benefit based on a participant's years of service and earnings. Pension
benefits to be paid from the Service Corporation Plan and contributions to the
Service Corporation Plan are related to basic salary and incentive payments
exclusive of overtime, differentials, certain incentive compensation and other
similar types of payments. Under the Service Corporation Plan, pensions are
computed on a two-rate formula basis of 1.15% and 1.45% for each year of
service, with the 1.15% service credit being applied to that portion of the
average annual salary for the five highest consecutive years that does not
exceed the Social Security Integration Level (the portion of salary subject to
the Federal Social Security Act), and the 1.45% service credit being applied to
that portion of the average annual salary for the five highest consecutive
years that exceeds said level up to the statutory limit on compensation. As of
December 31, 1997, the credited years of service under the Service Corporation
Plan for Messrs. Bowman, Keith, Appel, Sparrow, Paulson, Krall, White and
Dinsmore are 34, 31, 26, 30, 24, 31, 29 and 22, respectively.
Under Federal law, an employee's benefits under a qualified pension
plan, such as the Service Corporation Plan, are limited to certain maximum
amounts. GTE maintains the GTE Excess Pension Plan (the Excess Plan), which
supplements the benefits of any participant in the Service Corporation Plan in
an amount by which any participant's benefits under the Service Corporation
Plan are limited by law. In addition, the Supplemental Executive Retirement
Plan (SERP) includes a provision permitting the payment of additional
retirement benefits determined in a similar manner as under the Service
Corporation Plan on remuneration accrued under management incentive plans as
determined by the Committee. SERP and Excess Plan benefits are payable in a
lump sum or an annuity.
Executive Retired Life Insurance Plan
The GTE Corporation Executive Retired Life Insurance Plan (ERLIP)
provides Messrs. Keith, Appel, Sparrow, Paulson, White and Dinsmore a
postretirement life insurance benefit of three times final base salary and
provides Messrs. Bowman and Krall a postretirement life insurance benefit of
two and one-half times final base
16
<PAGE> 19
salary. Upon retirement, ERLIP benefits may be paid as life insurance or,
alternatively, an equivalent amount equal to the present value of the life
insurance amount (based on actuarial factors and the interest rate then in
effect), may be paid as a lump sum payment, as an annuity or as installment
payments.
OWNERSHIP OF STOCK BY DIRECTORS, NOMINEES FOR DIRECTORS, EXECUTIVE OFFICERS AND
CERTAIN BENEFICIAL OWNERS
The table below sets forth the shares of GTE's Common Stock
beneficially owned by each director, nominee for director, the Chief Executive
Officer and the other Named Executive Officers and by all directors and
executive officers as a group. Unless otherwise indicated, all persons named
in the table have sole voting and investment power with respect to the shares
shown in the table.
<TABLE>
<CAPTION>
Shares Beneficially
Owned as of
Title of Class Name of Director or Nominee (1) (2) (3) December 31, 1997
------------------- ------------------------------------------------------------
<S> <C> <C>
Common Stock of GTE John C. Appel 48,159
Corporation Mateland L. Keith, Jr. 21,678
William G. Mundy 8,859
Lawrence R. Whitman 15,211
-------
93,907
=======
Executive Officers (1) (2) (3)
--------------------------------------------------------
David R. Bowman 7,850
Mateland L. Keith, Jr. 21,678
John C. Appel 48,159
Larry J. Sparrow 127,612
Barry W. Paulson 19,814
Brad M. Krall 25,150
Thomas W. White 228,845
Gerald K. Dinsmore 55,636
-------
534,744
=======
All directors and executive
officers as a group (1) (2) (3) 711,223
=======
</TABLE>
(1) Includes shares acquired through participation in the GTE Savings Plan.
(2) Included in the number of shares beneficially owned by Messrs. Bowman,
Keith, Appel, Sparrow, Paulson, Krall, White, Dinsmore, Mundy and Whitman
and all directors and executive officers as a group, are 4,599, 17,366,
41,466, 112,833, 11,800, 19,366, 214,532, 52,833, 7,366 and 10,900 shares,
respectively, which such persons have the right to acquire within 60 days
pursuant to stock options.
(3) No director, nominee for director or executive officer owns as much as
one-tenth of one percent of the total outstanding shares of GTE Common
Stock, and all directors and executive officers as a group own less than
one-fifth of one percent of the total outstanding shares of GTE Common
Stock.
CERTAIN TRANSACTIONS
GTE Supply (100% owned by GTE) provides construction and maintenance
equipment, supplies and electronic repair services to the Company. These
purchases and services amounted to $176.9 million, $119.5 million, and $104.6
million for the years 1997-1995, respectively. Such purchases and services are
recorded in the accounts of the Company, at cost, which includes a normal
return realized by GTE Supply.
17
<PAGE> 20
The Company is billed for certain printing and other costs associated with
telephone directories, data processing services and equipment rentals, and
receives management, consulting, research and development, and pension
management services from other affiliated companies. These charges amounted to
$184.4 million, $194 million, and $228.5 million for the years 1997-1995,
respectively. The amounts charged for these affiliated transactions are based
on a proportional cost allocation method.
The Company's consolidated financial statements include allocated expenses
based on the sharing of certain executive, administrative, financial,
accounting, marketing, personnel, engineering, and other support services being
performed at consolidated work centers among GTE's domestic telephone operating
subsidiaries. The amounts charged for these affiliated transactions are based
on a proportional cost allocation method as filed with the Federal
Communications Commission.
GTE Funding Incorporated (an affiliate of the Company) provides short-term
financing and investment vehicles and cash management services for the Company.
The Company is contractually obligated to repay all amounts borrowed on its
behalf by GTE Funding Incorporated. Interest expense on these borrowings
amounted to approximately $15.3 million in 1997.
The Company has an agreement with GTE Directories Corporation (Directories)
(100% owned by GTE), whereby the Company provides its subscriber lists, billing
and collection and other services to Directories. Revenues from these
activities amounted to $128.5 million, $130.6 million, and $122.6 million for
the years 1997-1995, respectively.
INDEPENDENT PUBLIC ACCOUNTANTS
A proposal will be presented at the meeting that the selection by the Board
of Arthur Andersen LLP as the independent public accountants of the Company be
approved by the shareholders of the Company. An affirmative vote of the
holders of a majority of the shares represented at the meeting will be required
for such approval. In the event such approval is not obtained, selection of
the accountants will be reconsidered by the Board. Proxies solicited by the
Board will be voted for the proposal unless marked to the contrary.
The Board recommends a vote FOR the foregoing proposal.
A representative of Arthur Andersen LLP will not attend the shareholders'
meeting.
OTHER MATTERS
The Board does not intend to bring any matters before the Annual Meeting
other than those specifically set forth in the notice of the Annual Meeting and
knows of no matters to be brought before the Annual Meeting by others. If any
other matters properly come before the meeting, it is the intention of the
person named in the proxy to vote such proxy or proxies in accordance with the
judgment of the Board.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposal which a shareholder intends to present at the next Annual
Meeting of Shareholders, to be held in April 1999, must be received at the
office of the Company by November 27, 1998, if such proposal is to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
18
<PAGE> 21
A copy of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available free of charge by written
request to:
GTE Network Services
Financial Reporting
1420 East Rochelle Blvd.
Suite 300, Building 6
MC: HQC03F29
Irving, TX 75039
By order of the Board of Directors,
Charles J. Somes
Secretary
Dated: March 27, 1998
19
<PAGE> 22
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
GTE CALIFORNIA INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William G. Mundy, Charles J. Somes and
Londa Perrett, and each of them, proxies, with power of substitution, to vote,
as designated on the reverse side, all shares of the undersigned at the annual
meeting of shareholders of GTE California Incorporated to be held at 600 Hidden
Ridge, Irving, Texas 75038, on Wednesday, April 8, 1998, at 10 a.m., and all
adjournments.
PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF DIRECTORS THAN THE
NOMINEES NAMED.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 23
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL BE
VOTED FOR PROPOSALS 1,2,3 AND 4.
1. Proposal to amend the Bylaws to provide for a change in the authorized
number of directors of the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Proposal to amend the Articles of Incorporation to delete the references
to 7.48% Cumulative Preferred Stock and 8.375% Cumulative Preferred
Stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Election of Directors.
Nominees: John C. Appel, Mateland L. Keith, Jr. and Lawrence R. Whitman.
FOR ALL WITHHELD
NOMINEES FROM ALL
NOMINEES
[ ] [ ]
[ ]
--------------------------------------
For all nominees except as noted above
4. Proposal to approve the appointment of Arthur Andersen LLP as the
independent public accountant for the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Please sign your name(s) as printed hereon, if co-owner, both parties should
sign.)
Signature: Date:
------------------------------- -----------------
Signature: Date:
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