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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For The Fiscal Year Ended December 31, 1993
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8609
PACIFIC TELESIS GROUP
A Nevada Corporation I.R.S. Employer Number 94-2919931
130 Kearny Street, San Francisco, California 94108
Telephone - Area Code (415) 394-3000
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Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) (Name of Each Exchange on which
Common Stock, $.10 Par Value Registered)
with New York Stock Exchange
Preferred Stock Purchase Rights Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. | X |
Based on the composite closing sales price on February 28, 1994, the aggregate
market value of all voting stock held by nonaffiliates was $23,108,000,000.
At February 28, 1994, 424,000,000 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Pacific Telesis Group's 1994 Proxy Statement, including Pacific
Telesis Group's 1993 Consolidated Financial Statements, are incorporated by
reference in Parts I, II and III hereof.
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TABLE OF CONTENTS
PART I
Description
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Item Page
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1. Business ..................................................... 3
2. Properties ................................................... 28
3. Legal Proceedings ............................................ 28
4. Submission of Matters to a Vote of Security Holders .......... 29
PART II
Description
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5. Market for Registrant's Common Equity and Related Stockholder
Matters ...................................................... 29
6. Selected Financial Data ...................................... 31
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 31
8. Financial Statements and Supplementary Data .................. 32
9. Changes in and Disagreements on Accounting and Financial
Disclosure ................................................... 32
PART III
Description
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10. Directors and Executive Officers of Registrant ............... 33
11. Executive Compensation ....................................... 33
12. Security Ownership of Certain Beneficial Owners and Management 33
13. Certain Relationships and Related Transactions ............... 33
PART IV
Description
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14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K .................................................. 34
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PART I
Item 1. Business.
GENERAL
Pacific Telesis Group (the "Corporation") was incorporated in 1983 under the
laws of the State of Nevada and has its principal executive offices at 130
Kearny Street, San Francisco, California 94108 (telephone number (415)
394-3000).
The Corporation is one of seven regional holding companies ("RHCs") formed in
connection with the 1984 divestiture by American Telephone and Telegraph
Company ("AT&T") of its 22 wholly owned operating telephone companies ("BOCs")
pursuant to a consent decree settling antitrust litigation (the "Consent
Decree") approved by the United States District Court for the District of
Columbia (the "Court"), which has retained jurisdiction over the interpreta-
tion and enforcement of the Consent Decree.
Under the terms of the Consent Decree, all territory served by the BOCs was
divided into geographical areas called "Local Access and Transport Areas"
("LATAs", also referred to as "service areas"). The Consent Decree generally
prohibits BOCs and their affiliates* from providing communications services
that cross service area boundaries; however, the networks of the BOCs
interconnect with carriers that provide such services (commonly referred to as
"interexchange carriers").
The Corporation includes a holding company, Pacific Telesis; two BOCs, Pacific
Bell and Nevada Bell (the "Telephone Companies"); and certain diversified
subsidiaries, all described more fully below. The holding company provides
financial, strategic planning, legal and general administrative functions on
its own behalf and on behalf of its subsidiaries.
THE TELEPHONE COMPANIES AND LINE OF BUSINESS RESTRICTIONS
Pacific Bell and its wholly-owned subsidiaries, Pacific Bell Directory and
Pacific Bell Information Services, and Nevada Bell provide a variety of
communications services in California and Nevada. These services include:
(1) dial tone and usage services, including local service (both exchange and
private line), message toll services within a service area, Wide Area Toll
Service (WATS)/800 services, Centrex service (a central office-based switching
service) and various special and custom calling services; (2) exchange access
to interexchange carriers and information service providers for the
origination and termination of switched and non-switched (private line) voice
and data traffic; (3) billing services for interexchange carriers and
information service providers; (4) various operator services; (5) installation
and maintenance of customer premises wiring; (6) public communications
services (including service for coin telephones); (7) directory publishing;
and (8) selected information services, such as voice mail and electronic mail
(See also "Pacific Bell Information Services," below). Efforts to develop
additional advanced services are described below.
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* The terms of the Consent Decree, with certain exceptions, apply generally
to all the BOCs and their affiliates.
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The Consent Decree provides that the RHCs shall not engage in certain lines of
business. The principal restrictions initially prohibited the provision of
interexchange telecommunications, information services and telecommunications
equipment. As described below, the information services prohibition was
lifted in 1991. The telecommunications businesses permitted by the Consent
Decree include the provision of exchange telecommunications* and exchange
access services, customer premises equipment ("CPE") and printed directory
advertising. The RHCs are prohibited from manufacturing telecommunications
equipment and CPE. On December 3, 1987, the Court interpreted the
manufacturing restriction to mean that the RHCs are prohibited from designing
and developing telecommunications equipment and CPE as well as from
fabricating them. The Consent Decree provides that the Court may waive the
line of business restrictions (i.e., grant a "Waiver") upon a showing that
there is no substantial possibility that the RHCs could use their monopoly
power to impede competition in the market they seek to enter. The Court has
placed certain conditions on the Waivers it has granted and may do so again on
future Waivers.
In May 1993, the U.S. Court of Appeals for the District of Columbia affirmed
the Court's removal of the ban on the provision of information services by the
Corporation. The removal of this ban in July 1991 allowed the Telephone
Companies to offer a variety of new information services, subject to
regulatory approvals, such as enhanced voice mail and electronic yellow pages.
In November 1993, the U.S. Supreme Court declined to review the Appeals Court
decision.
In November 1993, legislation was introduced in Congress that would simplify
the procedures under which BOCs seek relief from provisions of the Consent
Decree that prohibit the Telephone Companies from manufacturing telephone
equipment or providing long-distance service. The legislation would set
conditions and establish waiting periods of up to five years before the RHCs
could seek authority to enter all aspects of these businesses. One of the
bills would also impose stringent separate subsidiary requirements on RHC
electronic publishing ventures.
SPIN-OFF OF THE CORPORATION'S WIRELESS OPERATIONS
In December 1992, Pacific Telesis' Board of Directors approved a plan to spin
off the Corporation's wireless operations. In connection with the separation,
AirTouch Communications ("AirTouch"), formerly PacTel Corporation, completed
an initial public offering of common stock in December 1993.
The Corporation will spin off AirTouch and its domestic and international
wireless operations as a separate entity. These wireless operations
principally include cellular, paging, radiolocation and other wireless
telecommunications services in the United States, Europe and Asia. (See
"AirTouch Communications," below.) The Corporation will continue to own the
Telephone Companies, Pacific Bell's directory publishing and information
services subsidiaries, and several smaller diversified entities, including
real estate assets.
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* "Exchange telecommunications" includes toll or long-distance services
within a service area as well as local service.
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In February 1993, the California Public Utilities Commission ("CPUC")
instituted an investigation of the proposed spin-off of the Corporation's
wireless businesses for the purpose of assessing any effects it might have on
telephone customers of Pacific Bell and regulated cellular and paging firms in
California. On November 2, 1993, the CPUC adopted a decision permitting the
spin-off to proceed. The CPUC further ordered a refund by the Corporation of
approximately $50 million (including interest) of cellular pre-operational and
development expenses. Further proceedings will determine how the refund will
be disbursed. The CPUC decision was effective immediately. The Public
Services Commission of Nevada (the "PSCN") approved the spin-off in August
1993.
Two parties to the CPUC investigation filed Applications for Rehearing by the
CPUC of its treatment of the claims for compensation owed to Pacific Bell
customers. The CPUC's Division of Ratepayer Advocates filed a Petition for
Modification of the CPUC's decision. In March 1994 the CPUC denied these
requests. One of these parties further stated that if it were unsuccessful
with the CPUC it would seek review by the California Supreme Court. In the
event the California Supreme Court were to review and reverse the CPUC's
decision, no assurance can be given that the CPUC might not reach a new
decision materially less favorable to the Corporation or AirTouch with respect
to the compensation issues. In addition, a substantial period of time could
elapse before final resolution of these issues should a review be granted.
The Corporation believes that the California Supreme Court will deny a review.
On March 10, 1994, the Board gave final approval to the spinoff of AirTouch.
The spin-off will be effected April 1, 1994. The remaining 86 percent of
AirTouch's common shares currently owned by the Corporation will be
distributed to the Corporation's shareowners of record on March 21, 1994 in
proportion to their shares in the Corporation. The distribution has been
ruled as qualifying as a tax-free transaction to shareowners by the Internal
Revenue Service. The distribution will be accounted for as a stock dividend
by the Corporation when made.
Upon the spin-off of AirTouch, the Corporation and AirTouch will have no
common directors, officers or employees. Philip J. Quigley will become
Chairman and Chief Executive Officer of the Corporation and will remain as
President and Chief Executive Officer of Pacific Bell. Sam Ginn, currently
Chairman and Chief Executive Officer of the Corporation, will leave Pacific
Telesis Group but will continue as Chairman and Chief Executive Officer of
AirTouch. C. Lee Cox, currently Group President of the PacTel Companies, will
also leave Pacific Telesis Group and will continue as President and Chief
Operating Officer of AirTouch.
The Corporation and AirTouch have entered into a separation agreement that
provides for the disengagement of the two corporations' affairs in an orderly
manner and their complete separation after the spin-off. For example, the
agreement provides for the allocation of procedural and financial
responsibility with respect to contingent liabilities that become certain
after the spin-off and for the exchange of information necessary for
governmental reporting requirements.
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Pacific Bell Directory
Pacific Bell Directory ("Directory") is a publisher of the Pacific Bell SMART
Yellow Pages(R). Directory is the oldest and largest publisher of directory
information products in California and is among the largest Yellow Pages
publishers in the United States. Directory has enhanced the content,
organization and visual appeal of the local information in its directories and
improved other features to make the SMART Yellow Pages even more helpful and
easier to use. Most recently, a "Government Officials" section was added that
contains the names, address, telephone numbers and photographs of elected
officials, along with a map identifying congressional and state representative
boundaries. An audiotext feature called "Local Talk" is planned for
60 markets statewide by the end of 1994. In addition, government, business
and residential listings have been divided into separate sections in the White
Pages for faster accessibility, with colored tabs on the outer edges of the
pages identifying each section. As part of its ongoing small business
advocacy efforts, Directory also produces Small Business Success in
partnership with the U.S. Small Business Administration. Small Business
Success is an annual publication now in its seventh year that addresses
subjects of critical importance to entrepreneurs.
Pacific Bell Information Services
Effective January 1, 1993, Pacific Bell transferred its Information Services
Group to Pacific Bell Information Services ("PBIS"). PBIS provides business
and residential voice mail and other selected information services. Current
products include The Message Center for home use, Pacific Bell Voice Mail for
businesses, and Pacific Bell Call Management, a service that routes incoming
business calls and connects computer data bases to answer routine customer
questions. (See page F-23 of 1994 Proxy Statement* for discussion of CPUC
proceeding concerning PBIS.)
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* All references herein to the 1994 Proxy Statement shall be deemed to
incorporate the specific pages or notes into the section of this
Form 10-K where the reference appears.
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OTHER SUBSIDIARIES AND TELESIS FOUNDATION
PacTel Finance, formerly a subsidiary of AirTouch, is now directly owned by
the Corporation. Among subsidiaries held by PacTel Finance are PacTel Cable
and CalFront Associates (formerly PacTel Properties).
PacTel Cable has sold all of its wholly-owned subsidiaries which owned cable
franchises in the United Kingdom. The final sales were made to a subsidiary
of Jones InterCable, Inc. in January 1994. PacTel Cable retains options to
purchase from TC Cable, Inc. up to a 75 percent interest in Prime Cable of
Chicago, Inc., which acquired certain Chicago cable television properties in
June 1990 for $213 million. Under the terms of the current agreements, PacTel
Cable would be required to exercise its minority option (for 18.8 percent
ownership) if it receives the necessary regulatory approvals, including a
Waiver to provide interLATA services. If PacTel Cable does not obtain the
necessary regulatory approvals, it will be prohibited from exercising this
option but it has guaranteed TC Cable a minimum price for a sale to another
party. (See discussion of related loan guarantees on page F-57 in Note L to
the Consolidated Financial Statements contained in the 1994 Proxy Statement.)
PacTel Cable's majority option (for 56.2 percent ownership) is exercisable at
its sole discretion.
CalFront Associates holds a portfolio of real estate assets which the
Corporation plans to sell over the next three to five years. As of
December 31, 1993, the balance of the reserves taken for real estate losses
totaled $338 million. (See discussion of restructuring reserve on page F-13
of the 1994 Proxy Statement.)
PacTel Capital Resources ("PTCR") was formed to provide funding for the former
PacTel Corporation and its subsidiaries, primarily through the sale of debt
securities in the United States and other markets. PTCR has issued
commercial paper and medium-term notes guaranteed by the Corporation from time
to time since 1987. In the future, PTCR may also provide funding or issue
guarantees and other forms of financial support for its other affiliates.
PacTel Capital Funding ("PTCF") was formed to provide funding for the former
PacTel Corporation and its subsidiaries and third parties engaged in business
with those companies, primarily through the nonpublic sale of debt securities.
In the future, PTCF may provide funding or issue guarantees and other forms of
financial support for its other affiliates and third parties.
PacTel Re Insurance Company, Inc. reinsures policies of outside insurance
companies covering workers' compensation, general liability and auto liability
exposures of the Corporation and its subsidiaries and affiliates. The
subsidiary also issues policies of property insurance directly to the
Corporation's subsidiaries and engages in property reinsurance transactions in
insurance markets worldwide.
Pacific Telesis Group - Washington represents the Corporation's interests in
Washington, D.C. before the three branches of the federal government. It also
acts as a liaison with other telecommunications companies, trade associations
and a wide variety of interest groups.
Telesis Foundation, a private foundation organized under section 501(c)(3) of
the Internal Revenue Code, makes grants in the areas of education, health and
welfare, cultural, community and civic activities. Telesis Foundation is a
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newly formed foundation, replacing Pacific Telesis Foundation. Pacific
Telesis Foundation is being terminated and its assets distributed to two new
foundations, Telesis Foundation and PacTel Foundation. As of December 31,
1993, Pacific Telesis Foundation had total assets with an estimated market
value of $68 million.
RESEARCH AND DEVELOPMENT
Bell Communications Research, Inc. ("Bellcore") furnishes the BOCs, including
the Telephone Companies, with technical and consulting assistance to support
their provision of exchange telecommunications and exchange access services.
Each of the other six RHCs or their BOCs, including Pacific Bell, holds
one-seventh of the voting stock of Bellcore, which serves as a central point
of contact for coordinating the efforts of the RHCs in meeting the national
security and emergency preparedness requirements of the federal government.
In addition, the Corporation conducts research and development through Pacific
Bell and through Telesis Technologies Laboratory, Inc., a wholly-owned
subsidiary of the Corporation. The Corporation, excluding spin-off
operations, spent approximately $30 million, $30 million and $31 million in
1993, 1992 and 1991, respectively, on research and development activities.
FINANCING ACTIVITIES OF THE CORPORATION
In 1993, the Corporation redeemed $2.62 billion and issued $2.65 billion of
long-term debt. As of December 31, 1993, Pacific Bell had remaining authority
to issue up to $1.25 billion in long- and intermediate-term debt pursuant to a
CPUC order issued in September 1993. As of December 31, 1993, Pacific Bell
had authority to issue up to $650 million in long- and intermediate-term debt
through a shelf registration statement on file with the Securities and
Exchange Commission (the "SEC"). Proceeds from debt issuances in 1993 and
future issuances will be used to refund maturing debt and to refinance other
debt issues. Effective April 23, 1993, AT&T redeemed $300 million in long-
term debt for which Pacific Bell was a secondary obligor. This debt was
assumed by AT&T at divestiture.
Pursuant to a shelf registration on file with the SEC, PTCR has authority to
issue up to $192 million of medium-term notes, guaranteed by the Corporation
as to payment of principal and interest.
The following are bond and commercial paper ratings for the Corporation and
its subsidiaries:
| Long- and
|Intermediate-Term
Commercial Paper | Debt
- ----------------------------------------------------------|-----------------
Pacific |
Telesis Pacific | Pacific
Group PTCR Bell | PTCR Bell
- ----------------------------------------------------------|-----------------
Moody's Investors Service, Inc. Prime-1 Prime-1 Prime-1 | A1 Aa3
Standard & Poor's Corporation A-1 A-1 A-1+ | A+ AA-
Duff and Phelps, Inc. - - Duff 1+ | - AA
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Pacific Bell and PTCR are the only subsidiaries of the Corporation with any
long- or intermediate-term publicly held debt issues outstanding as of
December 31, 1993. The holding company itself has no publicly held debt
issues outstanding.
No recapitalization of Pacific Bell is planned as a result of the
Corporation's spin-off of AirTouch. After the announcement of the Board's
decision in December 1992 to spin off AirTouch and its wireless operations,
Duff and Phelps, Inc. ("D&P") reaffirmed its rating of Pacific Bell's debt.
Standard & Poor's ("S&P") affirmed its rating on the outstanding long-term
debt of PTCR and Pacific Bell, and on the commercial paper programs of Pacific
Bell, PTCR and the Corporation. S&P also revised its ratings outlook for the
long-term debt of PTCR and Pacific Bell from "stable" to "positive."
Additionally, Moody's stated that the debt ratings of all three entities are
unlikely to be affected by the spin-off.
The Corporation expects that each of the separate businesses will continue
upon separation to have access to the public and private markets for debt,
although the terms are likely to be less favorable for AirTouch. S&P has
assigned an implied senior debt rating of BBB+ to the post-spin AirTouch.
AirTouch has been capitalized through an initial public offering of stock in
December 1993.
The ratings noted above reflect the views of the rating agencies; they should
be evaluated independently of one another and are not recommendations to buy,
sell or hold the securities of the Corporation. There is no assurance that
such ratings will continue for any period of time or that they will not be
changed or withdrawn.
Additional discussion of the Corporation's financing activities is on pages
F-19 through F-21 and in Notes H and I to the 1993 Consolidated Financial
Statements contained in the 1994 Proxy Statement.
PRINCIPAL SERVICES
Due to the impending spin-off, the operations of AirTouch have been classified
separately within the Corporation's financial statements as "spin-off
operations" and are excluded from the amounts of revenues and expenses of the
Corporation's "continuing operations." Under this presentation, the Telephone
Companies accounted for almost all of the Corporation's operating revenues in
1993. For these reasons, the following discussion focuses on selected
operating information for the Telephone Companies. Additional information
regarding revenues, operating profit or loss and assets of the Corporation,
relating primarily to the Telephone Companies, is incorporated from the 1994
Proxy Statement by reference in "Item 8. Financial Statements and
Supplementary Data" below.
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Significant components of Pacific Telesis Group's operating revenues are
depicted in the chart below:
% of Total Operating Revenues*
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Revenues by Major Category 1993 1992 1991
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Local Service
Recurring .............................. 22% 21% 20%
Other Local ............................ 16% 16% 16%
Network Access
Carrier Access Charges ................. 18% 18% 18%
End User & Other ....................... 7% 7% 7%
Toll Service**
Message Toll Service ................... 20% 19% 19%
Other .................................. 2% 4% 5%
Other Service Revenues
Directory Advertising .................. 11% 11% 11%
Other .................................. 4% 4% 4%
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TOTAL ...................................... 100% 100% 100%
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* Excludes revenues of spin-off operations.
** Percentages for 1993 are not comparable to prior years' percentages due to
reclassifications in the current presentation.
The percentages of Pacific Telesis Group's operating revenues attributable to
interstate and intrastate telephone operations are displayed below:
% of Total Operating Revenues*
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1993 1992 1991
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Interstate telephone operations ............ 18% 18% 17%
Intrastate telephone operations ............ 82% 82% 83%
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TOTAL ...................................... 100% 100% 100%
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* Excludes revenues of spin-off operations.
As of December 31, 1993 about 33 percent of the network access lines of
Pacific Bell were in Los Angeles and vicinity and about 25 percent were in San
Francisco and vicinity. On that date, about 64 percent of Nevada Bell's
network access lines were in Reno and vicinity. The Telephone Companies
provided approximately 77 percent and 30 percent of the total access lines in
California and Nevada, respectively, on December 31, 1993. The Telephone
Companies do not furnish local service in certain sizeable areas of California
and Nevada which are served by nonaffiliated telephone companies.
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MAJOR CUSTOMER
Payments from AT&T for access charges and other services accounted for
11 percent of the Corporation's operating revenues during 1993. No other
customer accounted for more than 10 percent of the Corporation's operating
revenues in 1993.
STATE REGULATION
As a provider of telecommunications services in California, Pacific Bell is
subject to regulation by the CPUC with respect to intrastate rates and
services, the issuance of securities and other matters. The Public Service
Commission of Nevada ("PSCN") regulates Nevada Bell on similar issues.
The CPUC adopted a new regulatory framework, which is a form of "price cap" or
"incentive" regulation, for Pacific Bell and one other large local exchange
carrier in California in October 1989. The authorized market-based rate of
return under the CPUC's new regulatory framework is 11.5 percent. If Pacific
Bell's rate of return exceeds 13 percent, earnings above the 13 percent
benchmark must be shared 50-50 with customers. Earnings above 16.5 percent
must be returned 100 percent to customers. The third phase of the CPUC's
ongoing investigation into alternative regulatory frameworks has addressed
competition for intra-service area toll and related services. The CPUC's
formal authorization of competition into Pacific Bell's intra-service area
toll market is expected in 1994. (See "Toll Services Competition" below.)
Under incentive-based regulation, the CPUC requires Pacific Bell to submit an
annual price cap filing to determine prices for categories of services for
each new year. Price adjustments reflect the effects of any change in the
Gross National Product Price Index ("GNPPI") less 4.5 percent, the
productivity factor established by the CPUC under the new incentive
regulation. The annual price adjustments also reflect the effects on Pacific
Bell's costs of exogenous events beyond its control. In December 1993, the
CPUC approved Pacific Bell's annual price cap filing for 1994 in which Pacific
Bell had proposed a $105 million rate reduction. This reduction includes a
decrease of $85 million because the 4.5 percent productivity factor of the
price cap formula exceeded the increase in the GNPPI by 1.3 percent. The
filing also included several additional factors which will decrease revenues*
by an additional $20 million.
In 1992, the CPUC began its scheduled review of the current incentive-based
regulatory framework. Among other issues, this review has examined elements
of the price cap formula, including the productivity factor and the benchmark
rate of return on investment adopted in the 1989 New Regulatory Framework
("NRF") order. Pacific Bell proposed no significant changes to the new
framework because the Corporation's experience to date suggests that it is
working as intended.
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* Unless otherwise indicated, revenue changes from CPUC price cap orders are
estimated on an annual basis and may be more or less than the amount
ordered, due to later changes in volumes of business.
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In March 1994, a CPUC Administrative Law Judge issued a proposed decision in
the NRF review. The proposed decision would eliminate an element of the
regulatory framework which requires equal sharing with customers of earnings
exceeding a benchmark rate of return. Earnings above a rate of return of
16.5 percent would continue to be returned to customers. The proposed
decision also recommends increasing the productivity factor of the price cap
formula from 4.5 percent to 6.0 percent for the period 1994 through 1996. If
adopted by the CPUC, the change in the productivity factor would reduce
annualized revenues by approximately $100 million each year through 1996.
Pacific Bell plans to file comments objecting to the proposed increase in
productivity factor. The Corporation is unable to predict the final outcome
of these proceedings or the effective date of any rate reductions.
In August 1993, the CPUC issued a proposal to allow competition in the
provision of intrastate switched transport services. The CPUC proposes to
allow competitors to locate transmission facilities in Pacific Bell's central
offices; adopt a new transport rate structure that includes pricing
flexibility for dedicated traffic; and authorize competition for switched
transport services within the state. Revenues from intrastate switched
transport services represent approximately four percent of Pacific Bell's
total revenues. The Corporation is unable to predict the outcome of this
proceeding.
In April 1993, the CPUC initiated an investigation to establish a framework to
govern open network access i.e., access to so-called "bottleneck" services.
The CPUC proposes to adopt specific requirements for the unbundling and
nondiscriminatory provision of functions underlying services provided by
dominant telecommunications providers. Functions considered bottleneck and
subject to open access for competitive telecommunications providers include
all transport switching, call processing and call management. In comments
filed in February 1994, Pacific Bell urged the CPUC to recognize that
widespread competition exists throughout the telecommunications industry and
asked the CPUC to consider rules for local competition immediately.
Pacific Bell's proposal calls for the separation of the loop (the telephone
line between a customer's location and the telephone company's central office)
from the switch (the central office equipment that selects the paths to be
used for transmission of information.) Pacific Bell has filed an application
for authority to conduct tests and trials with a variety of industry
participants to test the feasibility of unbundling the loop from the switch
and of various points of interconnection. The trials would allow competitors
to connect to Pacific Bell's network to carry calls. Eventually, customers
would be able to decide whether they want Pacific Bell to provide all of their
telecommunications services, including local service, or if they want to
subscribe to another provider for dialtone and other services. Pacific Bell
also believes it should be given the opportunity to compete in other markets,
such as long-distance, cable television programming and manufacturing. The
Corporation's entry into these markets would benefit consumers by providing
them alternatives to existing sources of products and services. The
Corporation is unable to predict the outcome of this proceeding.
In December 1993, the CPUC released a report to the Governor of California
proposing streamlined regulation of telecommunications companies. The report
states that the benefits of deregulation and fostering advanced
telecommunications in California would be substantial. It predicts that
expanded use of telecommunications will create new products, services and job
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opportunities and could increase the productivity of the state's businesses.
The CPUC proposes that within the next year California should: streamline
regulation where markets are workably competitive; continue the CPUC's focus
on consumer protection in all markets; develop policies and partnerships that
encourage consumer demand and the increased use of advanced telecommunications
networks; and establish a grant program to enhance development and use of
advanced telecommunications in schools and libraries. The report recommends
that disincentives to investments (such as the current cap on earnings and
sharing mechanisms) be removed, that restrictions on Pacific Bell's ability to
provide certain services be removed and that interconnection and
interoperability among competing networks be required to expand customer
choice.
Additionally, the CPUC proposed that within three years California open all
markets to all competitors, thereby making the state an "open competition
zone." It would also restructure universal service funding, and gradually
redefine the concept of basic service to ensure that all residents benefit
from advanced telecommunications technologies. In addition, it would make
digital access to networks available as a prelude to making switched video and
mobile services available throughout the state by the end of the decade.
By opening markets to competition, the policies proposed by the CPUC would
increase demand for and stimulate the private development of new types of
telecommunications and video services, bringing innovative new products into
businesses, homes, and communities. Various elements of these proposals
require consideration by the California Legislature as well as formal review
by the CPUC.
Discussion of other CPUC proceedings, including regulatory and ratemaking
treatment for postretirement benefits in connection with the adoption of
Financial Accounting Standard No. 106, and the limited rehearing of a decision
involving certain erroneous late payment charges, is on pages F-22 through F-
24 of the 1994 Proxy Statement.
In Nevada, the PSCN authorized an Alternative Plan of Regulation for telephone
companies, including Nevada Bell, beginning in 1991. Nevada Bell was awarded
an equity-based rate of return ("ROE") of 13 percent and a sharing formula
allows Nevada Bell to share in any earnings above the benchmark ROE of
13 percent. The new incentive-based framework places a five-year cap on basic
rates. The earnings and sharing review conducted in 1993 based upon 12 months
of results of operations resulted in no sharing due to an ROE under 13
percent.
The PSCN has also recently opened a proceeding to consider revising existing
regulations for telecommunications providers; we hope this proceeding will
streamline regulation in Nevada.
The Corporation continues to support changes in public policy and regulation
that will allow it to offer the products and services that customers want.
FEDERAL REGULATION
The Telephone Companies are subject to the jurisdiction of the Federal
Communications Commission (the "FCC") with respect to interstate access
charges and other matters. The FCC prescribes a Uniform System of Accounts and
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interstate depreciation rates for operating telephone companies. The FCC also
prescribes "separations procedures," which are the principles and standard
procedures used to separate plant investment, expenses, taxes and reserves
between those applicable to interstate services under the jurisdiction of the
FCC, and intrastate services under the jurisdiction of state regulatory
authorities. The Telephone Companies are also required to file tariffs with
the FCC for the services they provide. In addition, the FCC establishes
procedures for allocating costs and revenues between regulated and unregulated
activities.
Beginning in 1991, the FCC adopted a price cap system of incentive-based
regulation for local exchange carriers. Pacific Bell's access rates were
retargeted to a new 11.25 percent rate of return on rate base assets. The
FCC's price cap system provides a formula for adjusting rates annually for
changes in the GNPPI, less a productivity factor and changes in certain costs
that are triggered by administrative, legislative or judicial action beyond
the control of the local exchange carriers.
The FCC's price cap plan allows the Telephone Companies to choose between two
productivity offset factors of 3.3 or 4.3 percent on an annual basis. This
choice affects both the sharing threshold and the threshold above which all
earnings must be returned to customers. In its third annual access filing,
Pacific Bell again chose the productivity factor of 3.3 percent, which the FCC
approved in June 1993. Nevada Bell elected the productivity factor of 4.3
percent. For Pacific Bell, the 3.3 percent factor sets the benchmark rate of
return for sharing of earnings at 12.25 percent. For Nevada Bell, the 4.3
percent factor changes the sharing threshold to 13.25 percent. If earnings
for 1993 are determined to exceed their respective sharing thresholds, Pacific
Bell and Nevada Bell must share the excess earnings equally with customers.
Pacific Bell's earnings above 16.25 percent must be returned entirely to
customers. For Nevada Bell, all earnings above 17.25 percent must be returned
to customers. New interstate access rates became effective July 1, 1993.
Pacific Bell and Nevada Bell's annual interstate access rates were decreased
by $17 and $3.7 million, respectively, for the 12 months July 1993 through
June 1994. The reductions reflect the net effects of inflation, productivity
gains and other required cost adjustments.
In February 1994, the FCC issued a notice of proposed rulemaking to review its
price cap alternative regulatory framework. Parties, including the Telephone
Companies, will file comments with the FCC in April 1994. The FCC is looking
for comments on three main sets of issues: (1) refining the goals of price
caps to better meet the public interest and the purposes of the Communications
Act; (2) whether to revise the current plan (which became effective January 1,
1991) to help it better meet the FCC's goals, or to adjust the plan to changes
in circumstances; and (3) possible transition from the baseline price cap plan
toward reduced or streamlined regulation of services provided by local
exchange carriers ("LECs") as competition grows.
The FCC released a Notice of Inquiry in December 1991 "to open public debate
on the interrelationship of Open Network Architecture with emerging network
design" and to gather information on future network capabilities. The FCC
stated that its goal is to encourage development of future local exchange
networks that are as open, responsive and procompetitive as possible,
consistent with the FCC's other public interest goals. The Telephone
Companies filed comments on March 3, 1993, stating that market forces must
drive network evolution. In August 1993, the FCC issued a notice of proposed
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rulemaking to require Tier I local telephone companies implementing
intelligent networks to offer third party mediated access to their networks.
In comments filed with the FCC, the Telephone Companies asserted that access
to intelligent networks should not be mandated because market forces are
sufficient to bring about open access.
Effective in June 1993, the FCC ordered expanded network interconnection for
interstate special access services. Special access services are used
primarily by large businesses to connect to their branch offices or to
interexchange carriers. The decision requires large LECs, including the
Telephone Companies, to offer expanded interconnection to customers, including
other access providers. The decision permits these customers to locate their
transmission facilities in the LECs central offices. The FCC granted
additional, but limited, pricing flexibility to the LECs to respond to the
increased competition that will result. Along with other LECs, the Telephone
Companies have filed a petition for review of this FCC decision with the U.S.
Court of Appeals for the D.C. Circuit. We are unable to predict the outcome
of this appeal. Pacific Bell currently has orders from Competitive Access
Providers to locate facilities in more than 20 of its central offices, with
more requests expected to follow. Interstate special access revenues subject
to increased competition represent less than three percent of the Telephone
Companies' total revenues.
Effective in February 1994, the FCC ordered LECs, including the Telephone
Companies, to provide all interested customers, including competitors, with
expanded interconnection for interstate switched transport services. The LECs
must allow interconnectors to physically locate their transmission facilities
in the LECs' central offices and certain other LEC locations, in order to
terminate their own switched transport facilities. Switched transport
services help connect a business or residential customer with an interexchange
carrier. One of the FCC's goals is to promote increased competition for these
services. The FCC granted additional, but limited, pricing flexibility for
these services so that the LECs can better respond to the competition that
will result. Along with other LECs, the Telephone Companies have filed a
petition for review of this FCC decision with the U.S. Court of Appeals for
the D.C. Circuit. The Court has held this case in abeyance pending the
Court's decision in the appeal of the FCC's special access collocation order.
Revenues from interstate switched transport services represent approximately
three percent of the Telephone Companies' total revenues. Rates reflecting
the new rules became effective in early 1994.
To facilitate expanded interconnection for switched transport services, the
FCC ordered a new interim rate structure effective December 1993. Under the
new structure, interexchange carriers pay different rates based on volume,
distance and other factors. The FCC intends these interim rates to be revenue
neutral. Pacific Bell and others have petitioned the FCC for reconsideration
of this decision, contending that the interim rate structure will cause
revenue losses. The Corporation is unable to predict the outcome of this
proceeding.
In August 1992, the FCC modified its rules to permit LECs, including the
Telephone Companies, to provide a tariffed basic platform ("video dialtone")
that will deliver video programming developed by others on a nondiscriminatory
basis. (See "Video Services," below, for a discussion of Pacific Bell's four
applications to provide video dialtone services.) The FCC's order has been
appealed but the appeals are stayed pending the FCC's reconsideration
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decision. The FCC also recommended that Congress repeal the statutory cross-
ownership restriction imposed on cable and telephone companies. Until
Congress acts, additional services authorized by the FCC rules include video
gateways, interactive enhanced services, video transport, video customer
premises equipment, and billing and collection.
In July 1993, five of the RHCs, including the Corporation, filed a petition
with the FCC asking for new rules governing the provision of long-distance
services. The RHCs are currently prohibited from providing long-distance
services by the terms of the Consent Decree. Even with a favorable ruling
from the FCC, the RHCs must still obtain relief from the Consent Decree from
Congress, or the courts, before providing long-distance services. During
1993, Pacific Bell joined other members of the United States Telephone
Association ("USTA") in a petition to the FCC to establish a rulemaking for
the purpose of reforming regulation of interstate access services. USTA urges
the FCC to address several major matters needing reform including existing
subsidy funding and recovery mechanisms, the need for greater pricing
flexibility as competition increases and the need to revise current price cap
rules.
NEW TECHNOLOGY AND ADVANCED SERVICES
The Telephone Companies continue to modernize and expand their telephone
networks to meet customer demands for faster and more reliable services as
well as demands for new products and services. New technologies being
deployed include optical fiber, digital switches and Signaling System 7 ("SS-
7"). Digital switches and optical fiber, a technology using thin filaments of
glass or other transparent materials to transmit coded light pulses, greatly
increase the capacity and reliability of transmitted data while reducing
maintenance costs. SS-7 permits faster call setup and new custom calling
features. Investments in key technologies are summarized on pages F-8 and F-9
of the 1994 Proxy Statement.
SS-7 has made it possible for Pacific Bell to offer many new custom calling
features, subject to regulatory approvals. New custom calling features
include call return, priority ringing, call trace and other Custom Local Area
Signaling Services ("CLASS"). Pacific Bell began offering priority ringing,
repeat dialing and select call forwarding services in selected areas in 1992.
Pacific Bell introduced call trace, call screen and call return services in
1993. Over half a million customers subscribed to these new services in 1993.
Pacific Bell will introduce additional features and expand the availability of
the "CLASS" Services in 1994. However, as a result of a CPUC decision in
November 1992, Pacific Bell has decided not to offer caller identification
("Caller ID"). The stringent number blocking requirements placed on the
service by the CPUC prevent Pacific Bell from offering customers a viable
service at a reasonable price. Pacific Bell continues to work with the CPUC
in this area, with the goal of providing California customers the benefits of
Caller ID service. In March 1994, the FCC adopted free per call blocking as
the national standard for the offering of Caller ID on interstate calls,
effective April, 1995.
Pacific Bell, either directly or through its subsidiary, Pacific Bell
Information Services, also offers voice mail, electronic messaging and
interactive voice response services. (See "Pacific Bell Information
Services," above.) Other enhanced services may be offered in the future. The
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Corporation does not expect revenues from enhanced services to have a material
effect on reported earnings in 1994 but the new services are expected to
increase the use of the networks of the Telephone Companies.
In November 1993, Pacific Bell announced a capital investment plan totaling
$16 billion over the next seven years to upgrade its core network
infrastructure and to begin building California's "communications
superhighway." This will be an integrated telecommunications, information and
entertainment network providing advanced voice, data and video services.
Using a combination of fiber optics and coaxial cable, Pacific Bell expects to
provide broadband services to more than 1.5 million homes by the end of 1996
and more than 5.0 million homes by the end of the decade. As part of its
current plan, Pacific Bell has made purchase commitments totaling nearly $600
million in accordance with its previously announced $1 billion program for
deploying an all digital switching platform with ISDN (Integrated Services
Digital Network) and SS-7 capabilities. The advanced network will make
possible capital and operational cost savings, service quality improvements
and new revenues from the array of new service possibilities. The offering of
any new advanced services will depend upon their economic and technological
feasibility. Construction of the portions of the network that are not video-
specific will begin early in the second quarter of 1994. (See "Video
Services," below.) The network should be capable of offering fully
interactive digital telephone services by the end of 1996.
In order to offer the new products and services customers want, the Telephone
Companies have been making substantial investments to improve the telephone
networks. During 1993, the Telephone Companies invested $1.9 billion in their
networks.
Capital expenditures in 1994 for the Telephone Companies are forecast to be
$1.9 billion including $1,136 million for projects designed to generate
revenues and $589 million for projects designed to reduce costs. Capital
expenditures under Pacific Bell's seven year investment plan are not expected
to increase until 1996 due to the timing of capital expenditures associated
with the construction of the broadband network.
The PSCN has approved CLASS services for Nevada Bell. Effective August 1,
1992, Nevada Bell began offering Caller ID, call return, priority ringing,
call tracing, repeat dialing, call screening and select call forwarding.
Nevada Bell offers two free blocking options to Caller ID -- per call and per
line blocking. Nevada Bell is also working with the Nevada Telephone
Association on a major contract to provide a digital telecommunications system
for the State of Nevada. This digital microwave network will provide an
advanced infrastracture for all communications in the public sector,
permitting both video conferencing and high-speed data applications.
CHANGING INDUSTRY ENVIRONMENT
One of the challenges facing the Telephone Companies is the accelerating
convergence of the telecommunications, computer and video industries. The new
information services industry is being shaped by advances in digital and
fiber-optic technologies that will make possible the provision of interactive
broadband services by the Telephone Companies as well as others. Although
this convergence will bring further competition, it also should mean
unprecedented reasons to enter new businesses from which we have been barred
historically. The Clinton administration has indicated it will support
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legislation to remove many of the legal restrictions that have prevented
telephone companies from offering video services. The administration has also
indicated it will support the removal of restrictions which prevent the RHCs
from providing long-distance services. Similar proposals have been made by
the CPUC to the Governor of California. The public policy initiatives
discussed below will determine the terms and conditions under which the
Telephone Companies may offer new services in this dynamic marketplace.
Video Services
As described above, the FCC currently permits LECs, including the Telephone
Companies, to provide a tariffed basic platform that will deliver video
programming developed by others ("video dialtone") and to provide certain
other services to customers of this basic platform. In December 1993, Pacific
Bell filed an application with the FCC seeking authority to offer video
dialtone services in specific locations in four of its service areas: the San
Francisco Bay Area; Los Angeles; San Diego; and Orange County. The advanced
integrated broadband telecommunications network which Pacific Bell plans to
build over the next seven years will be capable of delivering an array of
services including traditional voice, data and video services. Once FCC
approval is obtained, Pacific will deploy the video exclusive components of
the advanced network.
In addition to providing advanced telecommunications services, the new network
will also serve as a platform for other information providers, and will offer
customers an alternative to existing cable television providers. The
integrated network is also expected to spur the development of new interactive
consumer services in education, entertainment, government and health care.
In November 1993, the Corporation sued to overturn the 1984 Cable Act
provision barring telephone companies from providing video programming in
their service areas. The Cable Act bars telephone companies from having more
than a de minimis ownership stake in video programming services, although it
permits them to carry other companies' programs. The Corporation believes
that video programming is a form of speech protected by the First Amendment of
the United States Constitution. If the suit is successful, the Corporation
plans to begin providing programming in California as soon as its video
dialtone network is deployed.
In November 1993, legislation was introduced in Congress that would permit
LECs, including the Telephone Companies, to provide video programming to
subscribers in their own service areas, subject to separate subsidiary
requirements and other safeguards. The legislation would also permit
competition in the provision of local telephone service and allow access to
LEC facilities by competitors.
In January 1994, Pacific Telesis Video Services, a newly created Pacific
Telesis subsidiary, announced an advanced interactive television services
trial with AT&T that will test consumer acceptance of sophisticated services
such as multi-player games, interactive home shopping and educational
programs, movies-on-demand and time-shifted television programs. PTVS will
purchase transport from Pacific Bell when video dialtone tariffs are approved.
Pacific Telesis Video Services is also working with Hewlett-Packard Company to
build an interactive video system that will offer consumers movies and other
programs "on demand" by late 1994 or early 1995. Hewlett-Packard will provide
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large video servers to distribute digital video "streams" to individual
subscribers' homes. The servers will be built around a new technology, or
"video transfer engine," that is flexible, reliable and upgradeable.
Electronic Publishing Services
In November 1993, legislation was introduced in Congress that would simplify
the procedures under which BOCs may seek relief from provisions of the Consent
Decree. (See "The Telephone Companies and Line of Business Restrictions"
above.) However, the bill would also impose stringent separate subsidiary
requirements on RHC electronic publishing ventures. In November 1993, Pacific
Bell filed an application with the CPUC stating its intent to enter the
electronic publishing business, either by itself or through an affiliate.
In January 1994, the Los Angeles Times and Pacific Telesis Electronic
Publishing Services, a newly created Pacific Telesis Group subsidiary,
announced a plan to form a joint venture to design and offer electronic
shopping information and transaction services beginning in late 1994. A
combination of business listings, classified and display advertising, consumer
ratings, and editorial and promotional material will form a comprehensive
electronic resource that will give consumers the product, service and business
information they want from one convenient, integrated source. The joint
venture will also offer consumers in-depth information on a wide variety of
topics, including home repair and maintenance, real estate rental and sales,
and auto, travel and entertainment services.
Personal Communications Services
In October 1993, the FCC issued an order allocating radio spectrum and
setting forth licensing requirements to provide PCS. PCS relies on a network
of transceivers that may be placed throughout a neighborhood, business complex
or community to provide customers with mobile voice and data communications.
The FCC established two different sizes of service areas nationwide for PCS:
47 large areas referred to as Major Trading Areas ("MTAs") and 487 smaller
areas. The MTA licenses are for 30 megahertz of spectrum. In any given area,
there will be as many as seven licenses, including two MTA licenses. Most of
the licenses will be awarded by competitive bidding in auctions expected in
late 1994 or early 1995. The Corporation plans to aggressively pursue PCS
licenses at these auctions and is well-placed to be part of the expected
multi-billion dollar market for PCS.
On December 23, 1993, the FCC awarded a "pioneer preference" to another
company for one of the two larger MTA licenses covering the Los Angeles, San
Diego, and Las Vegas market area. That company will receive the license
without charge. This is expected to place the successful bidder for the
remaining MTA license in that area at a significant competitive disadvantage
because of its higher cost structure. Winning bids in major PCS markets are
expected to require large capital expenditures. The Corporation has filed
petitions for review of the FCC decisions that granted pioneer preferences for
PCS licenses without charge with the U.S. Court of Appeals for the D.C.
Circuit. We are unable to predict the outcome of these appeals.
The Corporation's wholly-owned subsidiary, Telesis Technologies Laboratory,
Inc. ("TTL"), has been conducting PCS experiments and investigating various
technological issues under an experimental license granted by the FCC. With a
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spin-off of the Corporation's wireless operations, the Corporation will be
eligible to bid on PCS licenses in the service areas of the Telephone
Companies. The Corporation also believes that AirTouch will be eligible to
bid on the larger MTA licenses in areas where it does not provide cellular
service after the spin-off.
Some of the assets that have been engaged in PCS research and development work
were transferred to AirTouch in late 1993 in accordance with the terms of the
Separation Agreement between the Corporation and AirTouch. TTL employees
originally employed by AirTouch will transfer back to AirTouch before the
spin-off. Pacific Bell will form a new subsidiary to receive remaining assets
of TTL that have been engaged in PCS research and development work and it will
provide PCS services if the Corporation wins a license at auction. Future TTL
research will assess wireless broadband technologies, the effects of consumer
electronics on telecommunications networks, and continued work in the area of
PCS.
COMPETITION
Regulatory, legislative and judicial actions since the Consent Decree, as well
as advances in technology, have expanded the types of available communications
services and products and the number of companies offering such services.
Various forms of competition are growing steadily and are already having a
significant effect on the Telephone Companies' earnings, primarily Pacific
Bell's. An increasing amount of this competition is from large companies with
substantial capital, technological and marketing resources. There is also
increased competition among existing and new common carriers, including
subsidiaries of the RHCs and AT&T, for the provision of voice and data
communications services.
Toll Services Competition
In 1993, the CPUC continued Phase III of its ongoing investigation into
alternative regulatory frameworks (See "State Regulation" above). In
Phase III, the CPUC is considering how to lift its current ban on intra-
service area competition for toll and toll-related services and how to
rebalance Pacific Bell's rates.
In September 1993, the CPUC announced a decision providing that, beginning in
1994, long-distance and other telecommunications companies would be allowed to
compete with Pacific Bell and other local telephone companies in providing
toll service, among other services. The decision would have also lowered
local exchange company toll and switched access rates, while increasing basic
rates, bringing each closer to cost. Other rates would have also changed.
Overall, the CPUC's order was intended to be revenue neutral; that is, the
effect of rate decreases would be offset by the effect of rate increases.
In October 1993, the CPUC rescinded its September decision after questions
were raised about its decision-making process. The CPUC has requested
additional comments on its original decision. The Corporation expects a final
decision in 1994, but is unable to predict the revenue impacts of the decision
and the increased competition that will follow. In a future proceeding, the
CPUC intends to address whether to require LECs to provide a way for customers
to presubscribe to their carrier of choice for intra-service area toll
services.
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In 1993, Pacific Bell experienced a decline in revenues from services subject
to competition, while revenues from other services continued to grow. The
total impact of competition on revenues, however, cannot be quantified
separately from the effects of the recession in California. (See "California
Economy" on page F-7 of the 1994 Proxy Statement.)
In Nevada, the PSCN adopted a rule change effective October 1993 that permits
limited intra-service area competition. Interexchange carriers may complete
intra-service area calls either through dedicated special access or if the
customer initiates the call with certain designated prefixes.
Interstate Special Access Competition
Expanded interconnection for interstate special access services became
effective on June 16, 1993. Special access services are used primarily by
large businesses to connect their branch offices or to connect directly to
interexchange carriers. Expanded interconnection allows customers, including
other access providers, to locate their transmission facilities in an LEC
central office. This allows interexchange carriers ("IECs") to choose among
competing providers for transport into the LECs' central offices. (See
"Federal Regulation" above.)
Switched Transport Competition
Effective February 15, 1994, expanded interconnection became available for the
transport portion of interstate switched access services under similar price,
terms and conditions as for special access services. Switched access services
link IECs with most residential and business customers.
In recognition of the local transport competition which exists today and the
increased competition that will result from expanded interconnection, the FCC
has approved limited rate deaveraging by zones of central offices and volume
and term discounts for LEC access transport services, once certain conditions
are met.
In August 1993, the CPUC also issued a proposal to allow competition in the
provision of intrastate switched transport services. The CPUC proposes to
allow competitors to locate transmission facilities in Pacific Bell's central
offices; adopt a new transport rate structure that includes pricing
flexibility for dedicated traffic; and authorize competition for switched
transport services within the state. (See "State Regulation" and "Federal
Regulation" above.)
Open Network Access/Local Competition
Early in 1993, the CPUC initiated a rulemaking proceeding and set forth a
number of proposed policies, rules and issues for comment on ways to establish
a receptive environment for competitive providers of telecommunications
services. The rulemaking focuses on one approach: Requiring local exchange
carriers to unbundle "bottleneck" elements of their network and make those
elements available to unaffiliated providers on an open and nondiscriminatory
basis.
Pacific Bell's response to this rulemaking urges the CPUC to examine the full
set of issues that result from a competitive local exchange market. Among
such issues are: the need to establish a new universal service mechanism that
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spreads the subsidy burden to all telecommunications providers, to reform
pricing rules to be consistent with increasing competition, to remove entry
barriers including current in-state long distance restrictions on Pacific
Bell, to remove investment disincentives such as sharing and to establish
standards for interconnection, interoperability and unbundling of essential
facilities that apply to all competing networks and not just those of the
LECs. (See "State Regulation" above.)
Bypass
Artificially high prices for toll and access services create an economic
incentive for large business users (and IECs) to use alternative
communications systems capable of originating and/or terminating calls and
thus bypass the local exchange network. This bypass reduces the revenues that
the Telephone Companies collect from toll and access services to support the
total costs of the local exchange network and increases the amounts the
Telephone Companies have to recover from other services, notably basic
exchange services. The Telephone Companies are unable to determine precisely
to what extent bypass has occurred and may continue to occur in the future.
(See preceding sections, from "Toll Services Competition" through "Open
Network Access/Local Competition" above.)
To reduce the threat of bypass of the local networks, the Telephone Companies
have strongly supported the use of cost-based pricing policies before both
their state regulatory commissions and the FCC. (See "State Regulation" and
"Federal Regulation" above.)
Centrex
The Telephone Companies provide Centrex service to business customers in
California and Nevada. Centrex is a central office-based switching system for
customers who require sophisticated call transport and management capabilities
as part of their business communication systems. Businesses not using Centrex
service generally use Private Branch Exchange ("PBX") and other systems
provided by other companies. The Telephone Companies offer Centrex by
contract, as approved by the CPUC for Pacific Bell, as well as pursuant to
tariff. The ability to offer Centrex by contract gives the Telephone
Companies pricing flexibility as well as the opportunity to tailor the
specific features and conditions of a given transaction. The market for
multi-line business telephone products is very competitive and includes large
well-financed competitors.
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Directory Publishing
Other producers of printed directories offer products that compete with
certain Pacific Bell Directory SMART Yellow Pages products. Competitors
include large companies that have significant resources. Competition is not
limited to directory publishers, but includes newspapers, radio, television
and increasingly, direct mail. In addition, new advertising and information
products may compete directly or indirectly with the SMART Yellow Pages. The
Corporation is unable to predict the extent to which these competitors may
affect future revenues of the Corporation.
AIRTOUCH COMMUNICATIONS (SPIN-OFF OPERATIONS)
AirTouch Communications (formerly PacTel Corporation) and its wireless
operations will be spun off to the Corporation's shareholders in a one-for-one
stock distribution effective April 1, 1994.
The wireless operations of AirTouch Communications ("AirTouch") include
cellular, paging, vehicle location and other wireless telecommunications
services in the United States, Europe and Asia. AirTouch's worldwide cellular
interests represented 75.3 million POPs* and more than 1.2 million
proportionate subscribers at December 31, 1993. In the United States,
AirTouch has 34.9 million POPs** and controls or shares control over cellular
systems in ten of the thirty largest markets, including Los Angeles, San
Francisco, San Diego, Detroit and Atlanta. Internationally, AirTouch has
40.4 million POPs and holds significant ownership interests, with board
representation and substantial operating influence, in national cellular
systems operating in Germany, Portugal and Sweden and in cellular systems
under construction in three major metropolitan areas in Japan, including Tokyo
and Osaka. AirTouch is also the fourth largest provider of paging services in
the United States, with approximately 1.2 million units in service at
December 31, 1993.
- --------------------
* POPs are the estimated market population multiplied by AirTouch's
ownership interest in the cellular licensee for the market. International
cellular information reflects networks under construction. Domestic
cellular subscriber information reflects subscribers to cellular systems
over which AirTouch has or shares operational control.
** POPs and proportionate subscribers for the Michigan/Ohio region reflect
both AirTouch's 50% interest in a joint venture between AirTouch and
Cellular Communications, Inc. ("CCI") and AirTouch's ownership of
approximately 12% of the equity in CCI at December 31, 1993.
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Principal AirTouch operations are discussed below.
AirTouch Cellular
AirTouch Cellular is one of the largest providers of cellular services in the
United States, with interests in some of the most attractive cellular markets
based upon total population and demographic characteristics. AirTouch's
United States cellular interests represented 34.9 million POPs and more than
1 million proportionate subscribers at December 31, 1993. AirTouch has or
shares operational control over cellular systems in Los Angeles, San
Francisco, San Diego, Atlanta, Detroit, Cleveland, San Jose, Sacramento,
Cincinnati and Kansas City. These cities represent ten of the thirty largest
cellular markets in the United States. AirTouch also has or shares
operational control over cellular systems in 34 additional markets, including
Columbus, Dayton and Toledo, Ohio, and owns minority interests in cellular
systems serving 10 other markets, including Dallas/Forth Worth, Tucson and
Las Vegas.
AirTouch has formed six regional networks, in Southern California, the San
Francisco Bay Area, the Sacramento Valley, Michigan/Ohio, Georgia and
Kansas/Missouri. Regional networks permit AirTouch to meet customers' needs
for broad areas of uninterrupted service, to carry out coordinated marketing
efforts and to reduce capital expenditures and administrative expenses.
Through its participation in marketing alliances such as MobiLink and Cellular
One, AirTouch provides national cellular service to its customers.
AirTouch's transactions with CCI and McCaw Cellular Communications, Inc.
("McCaw") are examples of the implementation of AirTouch's regional network
strategy. AirTouch's cellular network in Michigan/Ohio was created in 1991
through New Par, an equally owned joint venture between AirTouch and CCI
("New Par"), in which AirTouch's interests in Michigan and northwestern Ohio
were combined with CCI's interests in Cleveland, Cincinnati, Columbus and
elsewhere throughout Ohio to create one of the largest regional cellular
systems in the United States, covering an area with a total population of over
15 million. In connection with the formation of New Par, AirTouch acquired 5%
of the equity of CCI, agreed to purchase up to 12.44 million shares (including
shares underlying certain stock options) of CCI's stock in October 1995 at $60
per share (less the exercise price in the case of stock options) and obtained
the right to acquire all of CCI's remaining equity in stages over the next
several years. (See "Spin-off Operations" on page F-57 in Note L to the 1993
Consolidated Financial Statements contained in the 1994 Proxy Statement.)
AirTouch currently owns approximately 12% of CCI. In September 1993, AirTouch
formed an equally owned joint venture with McCaw ("CMT Partners") that holds
controlling interests in cellular systems serving markets in and around San
Francisco, San Jose and Kansas City, thereby permitting AirTouch to broaden
its coverage of the San Francisco Bay Area and providing it with shared
control over an additional regional network in Kansas/Missouri.
International Operations
AirTouch has been highly successful in obtaining significant interests in
cellular licenses in some of the world's most attractive markets.
In 1990, Mannesmann Mobilfunk GmbH ("MMO"), in which AirTouch currently holds
a 29.15% interest and is the second largest shareholder, won the second
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national digital cellular license in Germany. AirTouch's interest in MMO
includes a 2.25% interest which, under the terms of MMO's license, AirTouch is
under a current obligation to sell to small or medium-sized German businesses.
MMO began commercial operations in June 1992 and at December 31, 1993 had
approximately 493,000 subscribers. The system presently covers approximately
94% of the population, including all of the major cities and highways.
In 1991, Telecel Communicacoes Pessoais. S.A. ("Telecel"), in which AirTouch
holds a 23% interest, was chosen to construct and operate one of two national
digital cellular systems in Portugal. Telecel initiated service in October
1992 and at December 31, 1993 had approximately 40,000 subscribers. Telecel
currently covers all of Portugal's major cities and highways and approximately
92% of the population and is required under the terms of its license to cover
99% by October 1996.
In 1992, AirTouch's consortia were selected to construct and operate digital
cellular systems in the Tokyo, Kansai (Western) and Tokai (Central) regions of
Japan. AirTouch has a 15% interest in Tokyo Digital Phone Company and 13%
interests in each of Kansai Digital Phone Company and Tokai Digital Phone
Company. The three systems are expected to be operational by the end of 1994.
Such systems are expected to be able to offer service to approximately 74
million people, or 60% of the Japanese population, by 1997.
In February 1994, AirTouch agreed to acquire a 4.5% interest in a fourth
company, which plans to build a digital cellular system that will reach about
70% of the population of the Kyushu/Okinawa region when it begins offering
service in 1996. There are approximately 15 million people in the region,
which is the fourth most populous of Japan's 11 cellular regions.
In October 1993, AirTouch acquired a 51% interest in NordicTel Holdings AB
("NordicTel"), which owns and operates one of three national digital cellular
systems in Sweden, for $153 million. NordicTel's cellular system began
commercial operations in late 1992 and currently covers approximately 80% of
Sweden's population and all of the major cities.
Paging Operations
AirTouch had approximately 1.2 million paging units in service at December 31,
1993 in 100 markets throughout the United States, including Atlanta,
Dallas/Fort Worth, Detroit, Houston, Los Angeles, Phoenix, St. Louis, San
Diego, the San Francisco Bay Area, Seattle and Tampa/St. Petersburg. AirTouch
became one of the first paging companies in the United States to offer paging
service through retail outlets and the success of AirTouch's retail marketing
efforts has contributed significantly to the growth of its paging business.
AirTouch also owns significant interests in paging companies in Portugal,
Spain and Thailand. In September 1993, a joint venture in which AirTouch has
an 18.5% interest was awarded one of three national digital paging licenses in
France.
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Other Operations
AirTouch owns a majority interest in a provider of vehicle location services
("Teletrac") in six markets in the United States. Teletrac is in the start-up
phase of its operations and to date its services have not achieved a
significant degree of commercial acceptance. In February 1994, AirTouch
reduced Teletrac's workforce by 30%, to approximately 200 employees. In
addition, AirTouch provides air-to-ground telephone service in four domestic
cities. AirTouch also owns interests in a long distance telephone company in
Japan and a credit card verification business in South Korea.
EMPLOYEES
As of December 31, 1993, the Corporation and its subsidiaries employed 55,355
persons. This number does not include employees who will continue to be
employed by AirTouch Communications after the spin-off. About 70 percent of
the employees of the Corporation's continuing operations are represented by
unions. In September 1992, the unions which represent these employees
ratified labor contracts for a three-year term. The agreements provide for a
12 percent increase in wages, including job upgrades and a 13 percent increase
in pensions over the three-year term. In addition, the contracts include
incentives for early retirement, enhanced employment security, improvements in
work and family life benefits and increases in health and dental care
coverage. In 1993, Pacific Bell reduced the number of employees by 1,516,
leaving a total of 54,026 employees at year-end.
Looking ahead, Pacific Bell has begun a major effort to reengineer its
internal business processes. This effort confronts an increasingly
competitive and complex telecommunications environment by streamlining and
consolidating operations, including business offices, network, installation
and collection centers, as well as other facilities. As a result, Pacific
Bell has announced a force reduction program that will result in a net
reduction of 10,000 positions from 1994 through 1997. (See page F-13 of the
1994 Proxy Statement for discussion of related 1993 restructuring charge.)
The Pacific Telesis holding company and Pacific Bell deferred salary increases
for all managers, including officers, for an indefinite period of time pending
a review of 1994 business needs.
At Nevada Bell, an early retirement program was offered during November 1993
under which approximately 70 employees elected early retirement.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The list below gives the names of executive officers as of March 28, 1994,
their present titles and the dates they were elected to these positions.
Name Age Title Since
S. L. Ginn* ........... 56 Chairman of the Board, President and
Chief Executive Officer .......... 4/88
P. J. Quigley* ........ 51 Group President .................... 1/88
C. L. Cox ............. 52 Group President .................... 1/88
R. W. Odgers* ......... 57 Executive Vice President - General
Counsel, External Affairs** and
Secretary......................... 3/88
L. L. Christensen* .... 59 Executive Vice President and
Chief Financial Officer .......... 5/92
J. R. Moberg* ......... 58 Executive Vice President - Human
Resources ........................ 9/87
W. E. Downing* ........ 54 Vice President ..................... 3/93
F. E. Miller .......... 41 Vice President-Corporate Strategy***
and Development ................... 3/93
A. Sarin .............. 39 Vice President-Organization Design . 3/93
M. S. Gyani ........... 42 Vice President and Treasurer ....... 3/93
Effective upon the spin-off of AirTouch Communications, the executive officers
and their titles will be as follows:
Name Age Title
P. J. Quigley* ........ 51 Chairman of the Board, President and
Chief Executive Officer
R. W. Odgers* ......... 57 Executive Vice President - General
Counsel, External Affairs and
Secretary
J. R. Moberg* ......... 58 Executive Vice President - Human Resources
W. E. Downing* ........ 54 Executive Vice President,
Chief Financial Officer and Treasurer
F. E. Miller .......... 41 Vice President - Corporate Strategy and
Development
All of the officers have held responsible managerial positions with the
Corporation or one of its subsidiaries for at least the past five years.
Officers are not elected for a fixed term, but serve at the discretion of the
Corporation's Board of Directors.
- ------------------
* Also executive officers of Pacific Bell.
** Executive Vice President - External Affairs since 11/92.
*** Vice President - Corporate Strategy since 3/94.
27
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Item 2. Properties.
As of December 31, 1993 the properties of the Telephone Companies represented
approximately 98 percent of all plant, property and equipment of the
Corporation, excluding spin-off operations.
The properties of the Telephone Companies do not lend themselves to
description by character and location of principal units. At December 31,
1993, the percentage distribution of total telephone plant by major category
for the Telephone Companies was as follows:
Pacific Nevada
Telephone Property, Plant, and Equipment Bell Bell
-------------------------------------------------------------------------
Land and buildings (occupied principally
by central offices) ............................ 10% 7%
Cable and conduit ................................ 40% 53%
Central office equipment ......................... 37% 32%
Other ............................................ 13% 8%
------- -------
Total ............................................ 100% 100%
=========================================================================
At December 31, 1993, the percent utilization of central office equipment
capacity for Pacific Bell and Nevada Bell was approximately 90 percent and
95 percent, respectively.
Substantially all of the installations of central office equipment and
administrative offices are in owned buildings on land held in fee. Many
garages, business offices and telephone service centers are in rented
quarters.
Item 3. Legal Proceedings.
Contingent Liabilities Related to Predivestiture Events
The Plan of Reorganization ("Plan") approved by the Court in connection with
the Consent Decree provides for the recognition and payment of liabilities of
the BOCs and AT&T (collectively, the former "Bell System") that are
attributable to predivestiture events (including transactions to implement the
divestiture), which were not certain and hence not recorded in the books of
account until after divestiture. These contingent liabilities relate
principally to litigation and other claims with respect to the Bell System's
rates, taxes, contracts and torts (including business torts, such as alleged
violations of the antitrust laws).
The Plan provides various rules for the sharing of such contingent liabilities
among the BOCs and AT&T which have been followed since divestiture.
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<PAGE>
AT&T, its subsidiaries and the BOCs, including the Telephone Companies, may
have liability under the contingent liabilities provisions of the Plan in a
number of tax matters relating to the audit by various taxing authorities of
predivestiture periods and in a number of tort, contract and environmental
proceedings relating to predivestiture Bell System operations. While complete
assurance cannot be given as to the outcome of any litigation, with respect to
such tax matters and tort, contract and environmental proceedings, in the
opinion of the Corporation, the likelihood is remote that any liability
resulting from them under the contingent liabilities provisions of the Plan
would have a material effect on the reported earnings of the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted for a vote of security holders during the fourth
quarter of the year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
DESCRIPTION OF COMMON STOCK AND DIVIDEND AND MARKET INFORMATION
All shares of Common Stock (par value $0.10 per share) (See "Articles of
Incorporation and By-Laws - Common Shares" below) of the Corporation are
entitled to participate equally in dividends. Each shareowner has one vote
for each share registered in the shareowner's name. All shares of Common
Stock would rank equally on liquidation. Owners of shares of Common Stock
have no preemptive or cumulative voting rights.
At February 28, 1994, there were 798,771 holders of record of the
Corporation's Common Stock.
The markets for trading in the Common Stock are the New York, Pacific,
Chicago, Swiss and London Stock Exchanges.
The Corporation from time to time purchases shares of its Common Stock on the
open market or through privately negotiated purchases and holds these shares
as treasury stock.
All shares of Common Stock are fully paid and nonassessable.
Information regarding dividends paid on the Common Stock for 1993 and 1992 and
the quarterly high and low sales prices of the Common Stock during 1993 and
1992 are included in the 1994 Proxy Statement on page F-64 thereof under the
heading "Stock Trading Activity and Dividends Paid," incorporated herein by
reference pursuant to General Instruction G(2).
The declaration and timing of all dividends are at the discretion of the
Corporation's Board of Directors and are dependent upon the Corporation's
earnings and financial requirements, general business conditions and other
factors; there can be no assurances as to the amount or frequency of any
future dividends on the Common Stock.
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<PAGE>
SHAREOWNER RIGHTS PLAN
The Board of Directors of the Corporation adopted a Shareowner Rights Plan in
1989. Under the terms of the plan, shareowners of record as of October 10,
1989 received one right for each share of the Corporation's Common Stock held
on that date. Initially, the rights are not exercisable and trade
automatically with the Corporation's Common Stock. The rights become
exercisable, originally for a 1/100 share of Preferred Stock of the
Corporation, upon the earlier of (i) a person ("Acquiring Person") becoming
the beneficial owner of securities having 20 percent or more of the voting
power of the Corporation, (ii) ten days following the commencement of a tender
or exchange offer which would result in a person becoming an Acquiring Person
or (iii) ten days after the date on which the Board of Directors of the
Corporation declares a person to be an Adverse Person, as defined in the Plan.
Once a person becomes an Acquiring or Adverse Person all rights held by such
person become void. If a person becomes an Adverse Person or Acquiring
Person, the rights will be adjusted so that upon exercise a holder will
receive a number of shares of Common Stock of the Corporation having a market
value of two times the exercise price of the right. If a person becomes an
Acquiring Person and thereafter the Corporation is involved in a merger or
other business combination, or 50 percent or more of the Corporation's assets
or earning power are sold, then each holder of a right will have the right to
receive, on exercise of the right, a number of shares of Common Stock of the
surviving corporation having a market value of two times the exercise price of
the right. At any time prior to the time a person becomes an Acquiring Person
or Adverse Person, the Corporation may redeem the rights at a price of
$.01 per right. After a person becomes an Acquiring Person or an Adverse
Person, the Board of Directors may exchange each outstanding and exercisable
right for one share of Common Stock. The rights do not have any voting
rights, may be redeemed under certain circumstances at $0.01 per right, and
expire on October 10, 1999.
ARTICLES OF INCORPORATION AND BY-LAWS
Set forth below is a brief description of some of the important provisions of
the Corporation's Articles of Incorporation (the "Articles") and By-Laws.
Board of Directors
The Articles provide for a Board of Directors which is divided into three
approximately equal classes of directors serving staggered three-year terms.
As a result, approximately one-third of the Board of Directors are elected at
each annual meeting.
The Articles also provide that the number of directors may be increased or
decreased by resolution of the Board of Directors, provided that the number of
directors shall not be reduced to less than three. All directors serve until
their term of office expires and their successor is elected and qualified, or
until their earlier resignation, removal from office, death or incapacity.
No director may be removed from office before the end of the term for which
such director has been elected except by the affirmative vote of 66-2/3
percent of the voting power of the shares entitled to vote thereon.
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<PAGE>
Common Shares
The Articles provide for the issuance of up to 1.1 billion common shares (par
value $.10 per share) in one or more series. The authorized number of the
first series of common shares is 1,095,000,000 shares, and that series is
designated the "Common Stock." (See "Description of Common Stock and Dividend
and Market Information" above.) The remaining five million common shares may
be issued from time to time as one or more additional series of common shares
with such full or limited rights with respect to voting, dividends or
distributions upon liquidation, and such other designations, preferences and
rights as the Board of Directors may determine.
Preferred Shares
The Articles include a provision for the issuance of up to 50 million
preferred shares (par value $.10 per share) in one or more series with full or
limited voting powers or without voting powers, and with such designations,
preferences and rights as the Board of Directors may determine.
Shareowner Meetings
The Corporation has held Annual Meetings of Shareowners each year in April
since 1985. Shareowner proposals intended for inclusion in the proxy
statement for the 1995 Annual Meeting should be sent to the Corporation's
Secretary at 130 Kearny Street, Room 3609, San Francisco, California 94108 no
later than November 12, 1994. The Corporation's By-Laws also provide that
special meetings of shareowners may be called by certain corporate officers,
and that special meetings shall be called at the request in writing of a
majority of the Board of Directors or the holders of 66-2/3 percent of the
voting power of the shares entitled to vote at such meetings.
Amendment of By-Laws
The By-Laws further provide that such By-Laws may be amended or repealed at
any time by action of the Board of Directors and that they may also be amended
or repealed at a meeting of the shareowners by a vote of at least 66-2/3
percent of the voting power of the shares entitled to vote in the election of
directors.
Item 6. Selected Financial Data.
The information required by this Item is included in the 1994 Proxy Statement
on pages F-25 and F-26 under the heading "Selected Financial and Operating
Data," and is incorporated by reference pursuant to General Instruction G(2).
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item is included in the 1994 Proxy Statement
on pages F-1 through F-24 and is incorporated by reference pursuant to General
Instruction G(2).
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<PAGE>
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Pacific Telesis Group
and Subsidiaries has been incorporated by reference in this Form 10-K from
page F-29 of the 1994 Proxy Statement of Pacific Telesis Group and
Subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial statement schedules listed in Item 14
on page 34 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
San Francisco, California
March 3, 1994
All other information required by this Item is included in the 1994 Proxy
Statement on pages F-27 and F-28 (entire text under the heading "Report of
Management"), and on pages F-37 through F-63 thereof (all text and data
through Note N on such pages, comprising the Corporation's consolidated
financial statements) and is incorporated herein by reference pursuant to
General Instruction G(2).
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
No disagreements with accountants on any accounting or financial disclosure
occurred during the period covered by this report.
32
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant.
For information with respect to executive officers of the Corporation, see
"Executive Officers of the Registrant" at the end of Part I of this report.
For information with respect to the directors of the Corporation, see
"Election of Directors" on pages 4 through 6 of the 1994 Proxy Statement.
Item 11. Executive Compensation.
For information with respect to executive compensation, see "Report of the
Compensation and Personnel Committee" through "Executive Compensation" on
pages 10 through 12 of the 1994 Proxy Statement. For information with respect
to director compensation, see "Director Compensation and Related Transactions"
on pages 6 through 8 of the 1994 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
For information with respect to the security ownership of the directors and
officers of the Corporation, see page 9 of the 1994 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
For information with respect to certain relationships and related
transactions, see "Director Compensation and Related Transactions" on pages 6
through 8 of the 1994 Proxy Statement.
33
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of the report:
(1) Financial Statements: Page
Report of Management .............................. *
Report of Independent Accountants ................. *
Financial Statements:
Consolidated Statements of Income ............. *
Consolidated Balance Sheets ................... *
Consolidated Statements of Shareowners'
Equity ...................................... *
Consolidated Statements of Cash Flows ......... *
Notes to Consolidated Financial
Statements .................................. *
Quarterly Financial Data ...................... *
(2) Financial Statement Schedules:
II - Amounts Receivable From Related Parties and
Underwriters, Promoters, and Employees Other
Than Related Parties ........................ 44
V - Property, Plant and Equipment ............... 45
VI - Accumulated Depreciation .................... 49
VIII - Valuation and Qualifying Accounts ........... 52
IX - Short-term Borrowings ....................... 55
Financial statement schedules other than those listed above have
been omitted either because the required information is contained
in the Consolidated Financial Statements and the notes thereto or
because such schedules are not required or applicable.
* Incorporated herein by reference to the appropriate portions of the 1994
Proxy Statement (File No. 1-8609). (See Part II.)
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<PAGE>
(3) Exhibits:
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto. Unless
otherwise indicated, all exhibits so incorporated are from File
No. 1-8609.
Exhibit
Number Description
------- -----------
2a Modification of Final Judgment (Exhibit (28) to Form 8-K,
date of report August 24, 1982, File No. 1-1105).
2b Plan of Reorganization (Exhibit (2) to Form 8-K, date of
report December 16, 1982, File No. 1-1105).
2c March 14, 1983 Motion to Approve Amended Plan of
Reorganization (Exhibit (2)a to Form 8-K, date of report
March 14, 1983, File No. 1-1105).
2d March 25, 1983 Motion to Approve Plan of Reorganization as
Further Amended (Exhibit (2)b to Form 8-K, date of report
March 14, 1983, File No. 1-1105).
2e April 7, 1983 Motion to Approve Plan of Reorganization as
Further Amended (Exhibit (2)c to Form 8-K, date of report
March 14, 1983, File No. 1-1105).
2f Order issued April 20, 1983 in "U.S. v. Western Electric
Company, Incorporated et al.," by the United States
District Court for the District of Columbia, Civil Action
No. 82-0192 (Exhibit (2) to Form 8-K, date of report
April 20, 1983, File No. 1-1105).
2g August 5, 1983 Memorandum and Order of United States
District Court for the District of Columbia approving Plan
of Reorganization as Amended (Exhibit (2) to Form 8-K,
date of report July 8, 1983, File No. 1-1105).
2h September 10, 1987 Opinion and Order of the United States
District Court for the District of Columbia in "U.S. v.
Western Electric Company, Incorporated, et. al.," Civil
Action No. 82-0192 (Exhibit 2h to Form SE filed
November 10, 1987 in connection with the Corporation's Form
10-Q for the quarter ended September 30, 1987).
2i March 7, 1988 Opinion and Order of the United States
District Court for the District of Columbia in "U.S. v.
Western Electric Company, Incorporated et al.," Civil
Action No. 82-0192 (Exhibit 2h to Form SE filed March 29,
1988 in connection with the Corporation's Form 10-K for
1987).
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<PAGE>
2j April 3, 1990 Opinion of the United States Court of
Appeals, District of Columbia in "U.S. v. Western Electric
Company, Incorporated, et al., "Case Nos. 87-5388 et al.
(Exhibit 2j to Form SE filed May 11, 1990 in connection
with the Corporation's Form 10-Q for the quarter ended
March 31, 1990).
2k July 25, 1991 Opinion & Order of the United States District
Court for the District of Columbia in "U.S. v. Western
Electric Company, Incorporated, et al.," Civil Action No.
82-0192 (Exhibit 2k to Form SE filed August 12, 1991 in
connection with the Corporation's Form 10-Q for the quarter
ended June 30, 1991).
2l October 7, 1991 Order of the United States Court of
Appeals, District of Columbia in "U.S. v. Western Electric
Company, Incorporated, et al.," Case Nos. 91-5263, et al.
(Exhibit 2l to Form SE filed March 26, 1992 in
connection with the Corporation's Form 10-K for 1991).
2m May 28, 1993 Order of the United States Court of Appeals,
District of Columbia in "U.S. v. Western Electric Company,
Incorporated, et al., and National Assn. of Broadcasters,
et al.," Case Nos. 91-5263, et al. (Exhibit 2m filed
August 12, 1993, in connection with the Corporation's Form
10-Q for the quarter ended June 30, 1993).
2n December 28, 1993 Order of the United States Court of
Appeals, District of Columbia in "U.S. v. Western Electric
Company, Incorporated, et al.," Case Nos. 92-5111, et al.
3a Articles of Incorporation of Pacific Telesis Group, as
amended to June 17, 1988 (Exhibit 2b to Registration
Statement No. 33-24765).
3b By-Laws of Pacific Telesis Group, as amended to
September 24, 1993 (Exhibit 3b to Registration Statement
No. 33-50897, filed November 2, 1993, File No. 1-8609).
4a No instrument which defines the rights of holders of long-
and intermediate-term debt of Pacific Telesis Group and its
subsidiaries is filed herewith pursuant to Regulation S-K,
Item 601(b)(4)(iii)(A). Pursuant to this regulation,
Pacific Telesis Group hereby agrees to furnish a copy of
any such instrument to the SEC upon request.
4b Rights Agreement, dated as of September 22, 1989, between
Pacific Telesis Group and The First National Bank of
Boston, as successor Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate (Exhibits
1 and 2 to Form SE filed September 25, 1989 as part of Form
8-A, File No. 1-8609).
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<PAGE>
10a Reorganization and Divestiture Agreement dated as of
November 1, 1983 between American Telephone and Telegraph
Company, Pacific Telesis Group and its affiliates (Exhibit
(10)a to Form 10-K for 1983).
10b Agreement Concerning Patents, Technical Information and
Copyrights dated as of November 1, 1983 between American
Telephone and Telegraph Company and Pacific Telesis Group
(Exhibit (10)g to Form 10-K for 1983).
10c Agreement Concerning Contingent Liabilities, Tax Matters
and Termination of Certain Agreements dated as of November
1, 1983 among American Telephone and Telegraph Company,
Bell System Operating Companies and Regional Holding
Companies (including Pacific Telesis Group and affiliates)
(Exhibit (10)j to Form 10-K for 1983).
10d Agreement Regarding Allocation of Contingent Liabilities
dated as of January 28, 1985 between American Telephone and
Telegraph Company, American Information Technologies
Corporation, Bell Atlantic Corporation, BellSouth
Corporation, NYNEX Corporation, Pacific Telesis Group and
Southwestern Bell Corporation (Exhibit 10c to Form SE filed
March 26, 1986 in connection with the Corporation's Form
10-K for 1985).
10e Separation Agreement by and between the Corporation and
PacTel Corporation dated as of October 7, 1993, and amended
November 2, 1993 and March 25, 1994.
10aa Pacific Telesis Group Senior Management Short Term
Incentive Plan (Exhibit 10aa to Registration Statement
No. 2-87852).
10aa(i) Resolutions amending the Plan, effective
August 28, 1987 (Exhibit 10aa(i) Form SE filed
March 26, 1992 in connection with the
Corporation's Form 10-K for 1991).
10bb Pacific Telesis Group Senior Management Long Term Incentive
Plan (Exhibit 10bb to Form SE filed March 26, 1986 in
connection with the Corporation's Form 10-K for 1985).
10cc Pacific Telesis Group Executive Life Insurance Plan
(Exhibit 10cc to Form SE filed March 27, 1987 in connection
with the Corporation's Form 10-K for 1986).
10cc(i) Resolutions amending the Plan, effective April 1,
1994.
10dd Pacific Telesis Group Senior Management Long Term
Disability and Survivor Protection Plan (Exhibit 10dd to
Form SE filed March 23, 1989 in connection with the
Corporation's Form 10-K for 1988).
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<PAGE>
10dd(i) Resolutions amending the Plan effective May 22,
1992 and November 20, 1992 (Exhibit 10dd(i) to
Form SE filed March 26, 1993 in connection with
the Corporation's Form 10-K for 1992).
10ee Pacific Telesis Group Senior Management Transfer Program
(Exhibit 10ee to Registration Statement No. 2-87852).
10ff Pacific Telesis Group Senior Management Financial
Counseling Program (Exhibit 10ff to Registration Statement
No. 2-87852).
10gg Pacific Telesis Group Deferred Compensation Plan for
Nonemployee Directors (Exhibit 10gg to Form SE filed
April 1, 1991 in connection with the Corporation's
Form 10-K for 1990).
10gg(i) Resolutions amending the Plan effective
December 21, 1990, November 20, 1992 and
December 18, 1992 (Exhibit 10gg(i) to Form SE
filed March 26, 1993 in connection with the
Corporation's Form 10-K for 1992).
10gg(ii) Resolutions amending the Plan, effective April 1,
1994.
10hh Description of Pacific Telesis Group Directors' and
Officers' Liability Insurance Program.
10ii Description of Pacific Telesis Group Plan for Nonemployee
Directors' Travel Accident Insurance (Exhibit 10ii to
Form SE filed March 26, 1990 in connection with the
Corporation's Form 10-K for 1989).
10jj Pacific Telesis Group 1994 Stock Incentive Plan
(Attachment A to Pacific Telesis Group's 1994 Proxy
Statement, including Pacific Telesis Group's 1993
Consolidated Financial Statements (Filed March 11, 1994,
and amended March 14 and March 25, 1994, File No. 1-8609)).
10kk Pacific Telesis Group Executive Non-Qualified Pension Plan
(Exhibit 10kk to Form SE filed April 1, 1991 in connection
with the Corporation's Form 10-K for 1990).
10kk(i) Resolutions amending the Plan, effective as of
June 28, 1991. (Exhibit 10kk(i) to Form SE filed
March 26, 1992 in connection with the
Corporation's Form 10-K for 1991).
10kk(ii) Resolutions amending the Plan effective May 22,
1992 and November 20, 1992 (Exhibit 10kk(ii) to
Form SE filed March 26, 1993 in connection with
the Corporation's Form 10-K for 1992).
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<PAGE>
10kk(iii) Resolutions amending the Plan, effective date
April 1, 1994.
10kk(iv) Trust Agreement No. 3 between Pacific Telesis
Group and Bankers Trust Company in connection
with the Corporation's executive supplemental
pension benefits.
10ll Pacific Telesis Group Executive Deferral Plan (Exhibit 10ll
to Form SE filed March 26, 1990 in connection with the
Corporation's Form 10-K for 1989).
10ll(i) Resolutions amending the Plan effective
November 20, 1992 and December 23, 1992
(Exhibit 10ll(i) to Form SE filed March 26, 1993
in connection with the Corporation's Form 10-K
for 1992).
10ll(ii) Resolutions amending the Plan, effective November
15, 1993 and January 1, 1994.
10ll(iii) Resolutions amending the Plan, effective April 1,
1994.
10mm Pacific Telesis Group Mid-Career Hire Program (Exhibit 10mm
to Form SE filed March 23, 1989 in connection with the
Corporation's Form 10-K for 1988).
10nn Pacific Telesis Group Mid-Career Pension Plan (Exhibit 10nn
to Form SE filed March 27, 1987 in connection with the
Corporation's Form 10-K for 1986).
10nn(i) Resolutions amending the Plan effective May 22,
1992 and November 20, 1992 (Exhibit 10nn(i) to
Form SE filed March 26, 1993 in connection with
the Corporation's Form 10-K for 1992).
10nn(ii) Resolutions amending the Plan, effective April 1,
1994 (Filed as exhibit 10kk(iii) to this Form 10-
K).
10nn(iii) Trust Agreement No. 3 between Pacific Telesis
Group and Bankers Trust Company in connection
with the Corporation's executive supplemental
pension benefits (Filed as Exhibit 10kk(iv) to
this Form 10-K).
10oo Pacific Telesis Group Stock Option and Stock Appreciation
Rights Plan (Plan Text, Sections 1-17, in Registration
Statement No. 33-15391).
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<PAGE>
10oo(i) Resolutions amending the Plan effective
November 17, 1989 and June 26, 1992 (Exhibit
10oo(i) to Form SE filed March 26, 1993 in
connection with the Corporation's Form 10-K for
1992).
10oo(ii) Resolutions amending the Plan, effective April 1,
1994.
10pp Employment Contracts for Certain Senior Officers of Pacific
Telesis Group (Exhibit 10pp to Form SE filed March 23, 1989
in connection with the Corporation's Form 10-K for 1988).
10pp(i) Schedule to Exhibit 10pp.
10pp(ii) Employment contracts for certain senior officers
of Pacific Telesis Group.
10qq Reserved.
10rr Executive supplemental benefit agreement.
10ss Pacific Telesis Group Outside Directors' Retirement Plan
(Exhibit 10ss to Form SE filed March 15, 1985 in connection
with the Corporation's Form 10-K for 1984).
10ss(i) Resolution amending the Plan effective May 25,
1990 (Exhibit 10ss(i) to Form SE filed March 26,
1993 in connection with the Corporation's Form
10-K for 1992).
10tt Representative Indemnity Agreement between Pacific Telesis
Group and certain of its officers and each of its directors
(Exhibit 10tt to Form SE filed March 29, 1988 in connection
with the Corporation's Form 10-K for 1987).
10uu Trust Agreement between Pacific Telesis Group and Bankers
Trust Company, as successor Trustee, in connection with the
Pacific Telesis Group Executive Deferral Plan (Exhibit 10uu
to Form SE filed March 23, 1989 in connection with the
Corporation's Form 10-K for 1988).
10uu(i) Amendment to Trust Agreement No. 1 effective
December 11, 1992 (Exhibit 10uu(i) to Form SE
filed March 26, 1993 in connection with the
Corporation's Form 10-K for 1992).
10uu(ii) Amendment to Trust Agreement No. 1, effective May
28, 1993.
10uu(iii) Amendment to Trust Agreement No. 1, effective
November 15, 1993.
40
<PAGE>
10vv Trust Agreement between Pacific Telesis Group and Bankers
Trust Company, as successor Trustee, in connection with the
Pacific Telesis Group Deferred Compensation Plan for the
Nonemployee Directors (Exhibit 10vv to Form SE filed
March 23, 1989 in connection with the Corporation's Form
10-K for 1988).
10vv(i) Amendment to Trust Agreement No. 2 effective
December 11, 1992 (Exhibit 10vv(i) to Form SE
filed March 26, 1993 in connection with the
Corporation's Form 10-K for 1992).
10vv(ii) Amendment to Trust Agreement No. 2, effective May
28, 1993.
10ww Pacific Telesis Group Long Term Incentive Award Deferral
Plan (Exhibit 10ww to Form SE filed March 27, 1990 in
connection with the Corporation's Form 10-K for 1989).
10ww(i) Resolutions merging the Plan with the Executive
Deferral Plan effective May 22, 1992 (Exhibit
10ww(i) to Form SE filed March 26, 1993 in
connection with the Corporation's Form 10-K for
1992).
10xx Pacific Telesis Group Nonemployee Director Stock Option
Plan (Exhibit A to Pacific Telesis Group's 1990 Proxy
Statement filed February 26, 1990).
10xx(i) Resolutions amending the Plan, effective April 1,
1994.
10xx(ii) Provisions of 1994 Stock Incentive Plan
terminating the Plan, contingent upon approval of
the 1994 Stock Incentive Plan by the
Corporation's shareowners on April 29, 1994.
(Exhibit 10jj to this Form 10-K).
10yy Pacific Telesis Group Supplemental Executive Retirement
Plan (Exhibit 10yy to Form SE filed April 1, 1991 in
connection with the Corporation's Form 10-K for 1990).
10yy(i) Resolutions amending the Plan effective November
20, 1992 (Exhibit 10yy(i) to Form SE filed
March 26, 1993 in connection with the
Corporation's Form 10-K for 1992).
10yy(ii) Resolutions amending the Plan, effective April 1,
1994 (Filed as Exhibit 10kk(iii) to this Form 10-
K).
10yy(iii) Trust Agreement No. 3 between Pacific Telesis
Group and Bankers Trust Company in connection
with the Corporation's executive supplemental
pension benefits (Filed as Exhibit 10kk(iv) to
this Form 10-K).
41
<PAGE>
10zz Pacific Telesis Group Nonemployee Director Stock Grant Plan
(Exhibit 10zz to Form SE filed March 26, 1992 in connection
with the Corporation's Form 10-K for 1991).
10zz(i) Provisions of 1994 Stock Incentive Plan
terminating the Plan, contingent upon approval of
the 1994 Stock Incentive Plan by the
Corporation's shareowners on April 29, 1994.
(Exhibit 10jj to this Form 10-K).
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Pacific Telesis Group's 1994 Proxy Statement, including
Pacific Telesis Group's 1993 Consolidated Financial
Statements (Filed March 11, 1994, and amended March 14 and
March 25, 1994, File No. 1-8609).
21 Subsidiaries of Pacific Telesis Group.
23 Consent of Coopers & Lybrand.
24 Powers of Attorney executed by Directors and Officers who
signed this Form 10-K.
99a Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Salaried
Employees for the year 1993 (To be filed as an amendment
within 180 days).
99b Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Nonsalaried
Employees for the year 1993 (To be filed as an amendment
within 180 days).
99c Annual Report on Form 11-K for the AirTouch Communications
Retirement Plan for the year 1993 (To be filed as an
amendment within 180 days).
The Corporation will furnish to a security holder upon request a
copy of any exhibit at cost.
(b) Reports on Form 8-K:
Form 8-K, date of report November 2, 1993 was filed with the SEC with
the Corporation's two press releases, both issued November 2, 1993
with the following titles: "Pacific Telesis Encouraged by Spin off
Decision" and "Pacific Telesis Board Approves Public Stock Offering."
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PACIFIC TELESIS GROUP
BY /s/ Lydell L. Christensen
-------------------------
Lydell L. Christensen, Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
DATE: March 29, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Sam Ginn,* Chairman of the Board, President and Chief Executive Officer
L. L. Christensen,* Executive Vice President and Chief Financial Officer
P. J. Quigley,* Group President and Director
C. L. Cox,* Group President and Director
William Clark,* Director Ivan J. Houston,* Director
Herman E. Gallegos,* Director Mary S. Metz,* Director
Donald E. Guinn,* Director Lewis E. Platt,* Director
J. R. Harvey,* Director Toni Rembe,* Director
P. Hazen,* Director S. Donley Ritchey,* Director
F. C. Herringer,* Director
*BY /s/ Richard W. Odgers
---------------------------------
Richard W. Odgers, attorney-in-fact
DATE: March 29, 1994
43
<PAGE>
Sheet 1 of 1
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(Dollars in millions)
- -----------------------------------------------------------------------------
COL. A COL. B COL. C
COL. D COL. E
- -----------------------------------------------------------------------------
Balance
Deductions
at End of
--------------------- Balance
Prior Amounts | Amounts at End of
Name of Debtor Period Additions Collected|Written-off Period
- -----------------------------------------------------------------------------
AirTouch Communications (a)
- -----------------------
1993 $858 $874 $1,732 - $ -
1992 $523 $971 $ 636 - $858
1991 $244 $765 $ 486 - $523
- ---------------
(a) Amounts presented herein reflect intercompany borrowings by AirTouch
from PacTel Capital Resources ("PTCR"), a wholly owned subsidiary of
Pacific Telesis Group. These borrowings, less certain amounts payable
to AirTouch, are reflected as current assets within the Corporation's
balance sheets as net receivables due from spin-off operations. The
borrowings from PTCR were primarily in the form of promissory notes
bearing interest at variable rates which averaged 6.1, 5.7, and 8.1
percent, respectively, during 1993, 1992, and 1991. (See also Note J to
the 1993 Consolidated Financial Statements contained in the 1994 Proxy
Statement.)
44
<PAGE>
Sheet 1 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------
Balance at Balance at
End of Prior Additions Other End of
Period at Cost Retirements Changes Period
Classification 12/31/92 (a) (b) (c) 12/31/93
- ---------------------------------------------------------------------------
Year 1993*
Land and buildings.. $ 2,960 $ 108 $ 88 $ - $ 2,980
Cable, conduit, and
connections....... 10,111 506 123 - 10,494
Central office
equipment......... 9,493 794 748 3 9,542
Furniture, equipment,
and other ........ 3,028 383 405 (1) 3,005
Construction in
progress.......... 529 63 6 - 586
-------------------------------------------------------
Total Property,
Plant, and
Equipment ........ $26,121 $1,854 $1,370 $ 2 $26,607
===========================================================================
See accompanying notes on Sheet 4 of 4.
45
<PAGE>
Sheet 2 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------
Balance at Balance at
End of Prior Additions Other End of
Period at Cost Retirements Changes Period
Classification 12/31/91 (a) (b) (c) 12/31/92
- ---------------------------------------------------------------------------
Year 1992**
Land and buildings.. $ 2,784 $ 221 $ 45 $ - $ 2,960
Cable, conduit, and
connections....... 9,724 490 103 - 10,111
Central office
equipment......... 9,256 645 406 (2) 9,493
Furniture, equipment,
and other ........ 2,922 426 320 - 3,028
Construction in
progress.......... 469 62 2 - 529
-------------------------------------------------------
Total Property,
Plant, and
Equipment ........ $25,155 $1,844 $876 $(2) $26,121
===========================================================================
See accompanying notes on Sheet 4 of 4.
46
<PAGE>
Sheet 3 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------
Balance at Balance at
End of Prior Additions Other End of
Period at Cost Retirements Changes Period
Classification 12/31/90 (a) (b) (c) 12/31/91
- ---------------------------------------------------------------------------
Year 1991**
Land and buildings.. $ 2,628 $ 196 $ 40 $ - $ 2,784
Cable, conduit, and
connections....... 10,905 494 1,675 - 9,724
Central office
equipment......... 8,802 793 339 - 9,256
Furniture, equipment,
and other ........ 2,902 306 283 (3) 2,922
Construction in
progress.......... 507 (34) 4 - 469
-------------------------------------------------------
Total Property,
Plant, and
Equipment ........ $25,744 $1,755 $2,341 $(3) $25,155
===========================================================================
See accompanying notes on Sheet 4 of 4.
47
<PAGE>
Sheet 4 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
- --------------------
* Excludes amounts for spin-off operations.
** Restated to reflect the planned spin-off of the Corporation's wireless
operations, which are excluded from amounts for continuing operations
in the current financial statement presentation of Pacific Telesis
Group.
(a) Property, plant, and equipment (which consists primarily of telephone
plant dedicated to providing telecommunications services) is carried at
cost. The cost of self-constructed plant includes employee wages and
benefits, materials, and other costs. Regulators allow the Telephone
Companies to accrue an allowance for funds used during construction as
a cost of constructing certain plant and as an item of miscellaneous
income. Additions to property, plant, and equipment under construction
are reported net of amounts transferred to in-service classifications
upon completion and, as a result, may be negative.
(b) When the Telephone Companies retire or sell property, plant, and
equipment, the original cost is credited to the corresponding plant
accounts and charged to accumulated depreciation. When the
Corporation's holding company and its diversified subsidiaries sell or
otherwise dispose of property, plant, and equipment, the original cost
is credited to the corresponding asset account, the related accumulated
depreciation is debited, and any gain or loss realized is included in
miscellaneous income (see Consolidated Statements of Income in "Item 8.
Financial Statements and Supplementary Data").
(c) Primarily reflects the reclassification of amounts within asset
categories.
- -------------------
The Telephone Companies' provision for depreciation is computed primarily
using the remaining-life method, essentially a form of straight-line
depreciation, using depreciation rates prescribed by state and federal
regulatory agencies. The remaining-life method provides for the full
recovery of the investment in telephone plant. For the years 1993, 1992,
and 1991 depreciation expressed as a percentage of average depreciable plant
was 6.9%, 6.9%, and 7.0%, respectively.
- --------------------
48
<PAGE>
Sheet 1 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------
Balance at Additions
Balance at
End of Prior Charged to Other End of
Period Costs and Retire- Changes Period
Classification 12/31/92 Expenses ments (a) 12/31/93
- ---------------------------------------------------------------------------
Year 1993*
Land and buildings.. $ 456 $ 82 $ 26 $(12) $ 500
Cable, conduit, and
connections....... 3,458 495 122 (34) 3,797
Central office
equipment......... 4,043 797 748 36 4,128
Furniture, equipment,
and other ........ 1,554 363 365 (16) 1,536
-------------------------------------------------------
Total Property,
Plant, and
Equipment ........ $9,511 $1,737 $1,261 $(26) $9,961
===========================================================================
* Excludes amounts for spin-off operations.
(a) Other changes for 1993 primarily reflects Pacific Bell salvage, cost of
removal and reclassifications of amounts within asset categories,
offset, in part, by $12 million depreciation charged by the
Corporation's real estate subsidiary to a restructuring reserve.
49
<PAGE>
Sheet 2 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------
Balance at Additions
Balance at
End of Prior Charged to Other End of
Period Costs and Retire- Changes Period
Classification 12/31/91 Expenses ments (a) 12/31/92
- ---------------------------------------------------------------------------
Year 1992*
Land and buildings.. $ 401 $ 76 $ 23 $ 2 $ 456
Cable, conduit, and
connections....... 3,119 459 101 (19) 3,458
Central office
equipment......... 3,683 810 404 (46) 4,043
Furniture, equipment,
and other ........ 1,458 364 329 61 1,554
-------------------------------------------------------
Total Property,
Plant, and
Equipment ........ $8,661 $1,709 $857 $ (2) $9,511
===========================================================================
* Restated to reflect the planned spin-off of the Corporation's wireless
operations, which are excluded from amounts for continuing operations
in the current financial statement presentation of Pacific Telesis
Group.
(a) Other changes for 1992 primarily reflects Pacific Bell salvage, cost of
removal and reclassifications of amounts within asset categories, the
effects of which are significantly offset by $12 million depreciation
charged by the Corporation's real estate subsidiary to a restructuring
reserve.
50
<PAGE>
Sheet 3 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------
Balance at Additions
Balance at
End of Prior Charged to Other End of
Period Costs and Retire- Changes Period
Classification 12/31/90 Expenses ments (a) 12/31/91
- ---------------------------------------------------------------------------
Year 1991*
Land and buildings.. $ 355 $ 63 $ 25 $ 8 $ 401
Cable, conduit, and
connections....... 4,272 502 1,656 1 3,119
Central office
equipment......... 3,186 806 352 43 3,683
Furniture, equipment,
and other ........ 1,361 365 276 8 1,458
-------------------------------------------------------
Total Property,
Plant, and
Equipment ........ $9,174 $1,736 $2,309 $60 $8,661
===========================================================================
* Restated to reflect the planned spin-off of the Corporation's wireless
operations, which are excluded from amounts for continuing operations
in the current financial statement presentation of Pacific Telesis
Group.
(a) Other Changes for 1991 consists of:
Pacific Bell - primarily includes salvage, and
amortization deferred to 1992 relating to a
depreciation reserve deficiency per FCC order $46
Real estate subsidiary - depreciation charged
to a restructuring reserve 11
Other 3
----
$60
====
51
<PAGE>
Sheet 1 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------
Allowance for Doubtful Accounts
- -------------------------------
Additions
--------------------
(1) (2)
Charged to Charged
Balance at Costs and to Other Balance at
End of Prior Expenses Accounts Deductions End of
Period (a) (b) (c) Period
- ---------------------------------------------------------------------------
Year 1993 $130 $163 $140 $295 $138
Year 1992* $ 98 $160 $165 $293 $130
Year 1991* $ 85 $124 $126 $237 $ 98
===========================================================================
Reserve for Discontinuance of Real Estate Operations
- ----------------------------------------------------
Additions
--------------------
(1) (2)
Charged to Charged
Balance at Costs and to Other Balance at
End of Prior Expenses Accounts Deductions End of
Period (d) Period
- ---------------------------------------------------------------------------
Year 1993 $ 33 $347 $0 $42 $338
Year 1992 $ 75 $ 0 $0 $42 $ 33
Year 1991 $100 $ 0 $0 $25 $ 75
===========================================================================
See accompanying notes on Sheet 3 of 3.
52
<PAGE>
Sheet 2 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
- ---------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------
Reserve for Restructuring-Pacific Bell
- --------------------------------------
Additions
--------------------
(1) (2)
Charged to Charged
Balance at Costs and to Other Balance at
End of Prior Expenses Accounts End of
Period (e) (f) Deductions Period
- ---------------------------------------------------------------------------
Year 1993 $101 $977 $43 $ 24 $1,097
Year 1992 $165 $ 0 $ 0 $ 64 $ 101
Year 1991 $ 0 $166 $21 $ 22 $ 165
===========================================================================
Various Other Reserves
- ----------------------
Additions
--------------------
(1) (2)
Balance at Charged to Charged Balance at
End of Prior Costs and to Other End of
Period Expenses Accounts Deductions Period
- ---------------------------------------------------------------------------
Year 1993 $27 $107 $0 $44 $90
Year 1992 $ 9 $ 18 $0 $ 0 $27
Year 1991 $ 9 $ 0 $0 $ 0 $ 9
===========================================================================
See accompanying notes on Sheet 3 of 3.
53
<PAGE>
Sheet 3 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
- --------------------
* Restated to reflect the planned spin-off of the Corporation's wireless
operations, which are excluded from amounts for continuing operations in
the current financial statement presentation of Pacific Telesis Group.
(a) Provision for uncollectibles includes certain direct write-off items
which are not reflected in this account.
(b) Amounts in this column reflect items of uncollectible interstate and
intrastate accounts receivable purchased from and billed for AT&T and
other interexchange carriers under contract arrangements.
(c) Amounts in this column reflect items written off, net of amounts
previously written off but subsequently recovered.
(d) Costs and expenses for 1993 reflect an additional pre-tax loss reserve
of $347 million to cover potential future losses on real estate sales
and estimated operating losses of the Corporation's wholly owned real
estate subsidiary during the planned sales period. An earlier reserve
of $100 million had been recorded in 1990.
(e) In 1993 and 1991, respectively, Pacific Bell recorded pre-tax
restructuring charges to recognize the incremental cost of force
reductions.
(f) Amounts in this column reflect items capitalized to construction.
- --------------------
54
<PAGE>
Sheet 1 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Dollars in millions)
- ---------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ---------------------------------------------------------------------------
Weighted
Average
Weighted Average Interest
Average Maximum Amount Rate
Interest Amount Outstanding During
Balance Rate at Outstanding During the the
at End End of at any Period Period
Description of Period Period Month-End (a) (b)
- ---------------------------------------------------------------------------
Year 1993*
Notes Payable to
Banks (c)...... $ 4 6.12% $ 168 $ 45 5.06%
Commercial
Paper (d)...... 586 3.23% $1,002 $567 3.20%
------
Total ........... $590
======
===========================================================================
See accompanying notes on Sheet 4 of 4.
55
<PAGE>
Sheet 2 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Dollars in millions)
- ---------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ---------------------------------------------------------------------------
Weighted
Average
Weighted Average Interest
Average Maximum Amount Rate
Interest Amount Outstanding During
Balance Rate at Outstanding During the the
at End End of at any Period Period
Description of Period Period Month-End (a) (b)
- ---------------------------------------------------------------------------
Year 1992**
Notes Payable to
Banks (c)...... $ 183 4.44% $283 $212 6.81%
Commercial
Paper (d)...... 880 3.48% $880 $707 3.74%
------
Total ........... $1,063
======
===========================================================================
See accompanying notes on Sheet 4 of 4.
56
<PAGE>
Sheet 3 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Dollars in millions)
- ---------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E Col. F
- ---------------------------------------------------------------------------
Weighted
Average
Weighted Average Interest
Average Maximum Amount Rate
Interest Amount Outstanding During
Balance Rate at Outstanding During the the
at End End of at any Period Period
Description of Period Period Month-End (a) (b)
- ---------------------------------------------------------------------------
Year 1991**
Notes Payable to
Banks (c)....... $204 5.34% $ 215 $201 7.33%
Commercial
Paper (d)....... 707 4.94% $1,143 $752 5.97%
----
Total ............ $911
====
===========================================================================
See accompanying notes on Sheet 4 of 4.
57
<PAGE>
Sheet 4 of 4
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
- --------------------------
* Excludes amounts for spin-off operations.
** Restated to reflect the planned spin-off of the Corporation's wireless
operations, which are excluded from amounts for continuing operations in
the current financial statement presentation of Pacific Telesis Group.
(a) Computed by dividing the aggregate daily amount outstanding by the
number of days in the year.
(b) Computed by dividing the aggregate related interest expense by the
average amount outstanding during the year.
(c) Comprised primarily of borrowings under informal lines of credit with
original maturities of 360 days or less.
(d) Original maturities of 120 days or less.
- --------------------------
58
<PAGE>
TELESIS(R) is a registered trademark of Pacific Telesis Group.
<PAGE>
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the SEC, are
incorporated herein by reference as exhibits hereto. All other exhibits are
provided as part of the electronic transmission. Unless otherwise indicated,
all exhibits so incorporated are from File No. 1-8609.
Exhibit
Number Description
------- -----------
2a Modification of Final Judgment (Exhibit (28) to Form 8-K, date of
report August 24, 1982, File No. 1-1105).
2b Plan of Reorganization (Exhibit (2) to Form 8-K, date of report
December 16, 1982, File No. 1-1105).
2c March 14, 1983 Motion to Approve Amended Plan of Reorganization
(Exhibit (2)a to Form 8-K, date of report March 14, 1983, File No.
1-1105).
2d March 25, 1983 Motion to Approve Plan of Reorganization as Further
Amended (Exhibit (2)b to Form 8-K, date of report March 14, 1983,
File No. 1-1105).
2e April 7, 1983 Motion to Approve Plan of Reorganization as Further
Amended (Exhibit (2)c to Form 8-K, date of report March 14, 1983,
File No. 1-1105).
2f Order issued April 20, 1983 in "U.S. v. Western Electric Company,
Incorporated et al.," by the United States District Court for the
District of Columbia, Civil Action No. 82-0192 (Exhibit (2) to Form
8-K, date of report April 20, 1983, File No. 1-1105).
2g August 5, 1983 Memorandum and Order of United States District Court
for the District of Columbia approving Plan of Reorganization as
Amended (Exhibit (2) to Form 8-K, date of report July 8, 1983, File
No. 1-1105).
2h September 10, 1987 Opinion and Order of the United States District
Court for the District of Columbia in "U.S. v. Western Electric
Company, Incorporated, et. al.," Civil Action No. 82-0192.
(Exhibit 2h to Form SE filed November 10, 1987 in connection with
the Corporation's Form 10-Q for the quarter ended September 30,
1987).
2i March 7, 1988 Opinion and Order of the United States District Court
for the District of Columbia in "U.S. v. Western Electric Company,
Incorporated et al.," Civil Action No. 82-0192 (Exhibit 2h to Form
SE filed March 29, 1988 in connection with the Corporation's Form
10-K for 1987).
60
<PAGE>
2j April 3, 1990 Opinion of the United States Court of Appeals,
District of Columbia in "U.S. v. Western Electric Company,
Incorporated, et al., "Case Nos. 87-5388 et al. (Exhibit 2j to Form
SE filed May 11, 1990 in connection with the Corporation's Form 10-Q
for the quarter ended March 31, 1990).
2k July 25, 1991 Opinion & Order of the United States District Court
for the District of Columbia in "U.S. v. Western Electric Company,
Incorporated, et al.," Civil Action No. 82-0192 (Exhibit 2k to Form
SE filed August 12, 1991 in connection with the Corporation's Form
10-Q for the quarter ended June 30, 1991).
2l October 7, 1991 Order of the United States Court of Appeals,
District of Columbia in "U.S. v. Western Electric Company,
Incorporated, et al.," Case Nos. 91-5263, et al. (Exhibit 2l to
Form SE filed March 26, 1992 in connection with the Corporation's
Form 10-K for 1991).
2m May 28, 1993 Order of the United States Court of Appeals, District
of Columbia in "U.S. v. Western Electric Company, Incorporated, et
al., and National Assn. of Broadcasters, et al.," Case Nos. 91-5263,
et al. (Exhibit 2m filed August 12, 1993, in connection with the
Corporation's Form 10-Q for the quarter ended June 30, 1993).
2n December 28, 1993 Order of the United States Court of Appeals,
District of Columbia in "U.S. v. Western Electric Company,
Incorporated, et al.," Case Nos. 92-5111, et al.
3a Articles of Incorporation of Pacific Telesis Group, as amended to
June 17, 1988 (Exhibit 2b to Registration Statement No. 33-24765).
3b By-Laws of Pacific Telesis Group, as amended to September 24, 1993
(Exhibit 3b to Registration Statement No. 33-50897, filed November
2, 1993, File No. 1-8609).
4a No instrument which defines the rights of holders of long- and
intermediate-term debt of Pacific Telesis Group and its subsidiaries
is filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this regulation, Pacific Telesis
Group hereby agrees to furnish a copy of any such instrument to the
SEC upon request.
4b Rights Agreement, dated as of September 22, 1989, between Pacific
Telesis Group and The First National Bank of Boston, as successor
Rights Agent, which includes as Exhibit B thereto the form of Rights
Certificate (Exhibits 1 and 2 to Form SE filed September 25, 1989 as
part of Form 8-A, File No. 1-8609).
10a Reorganization and Divestiture Agreement dated as of November 1,
1983 between American Telephone and Telegraph Company, Pacific
Telesis Group and its affiliates (Exhibit (10)a to Form 10-K for
1983).
61
<PAGE>
10b Agreement Concerning Patents, Technical Information and Copyrights
dated as of November 1, 1983 between American Telephone and
Telegraph Company and Pacific Telesis Group (Exhibit (10)g to Form
10-K for 1983).
10c Agreement Concerning Contingent Liabilities, Tax Matters and
Termination of Certain Agreements dated as of November 1, 1983 among
American Telephone and Telegraph Company, Bell System Operating
Companies and Regional Holding Companies (including Pacific Telesis
Group and affiliates) (Exhibit (10)j to Form 10-K for 1983).
10d Agreement Regarding Allocation of Contingent Liabilities dated as of
January 28, 1985 between American Telephone and Telegraph Company,
American Information Technologies Corporation, Bell Atlantic
Corporation, BellSouth Corporation, NYNEX Corporation, Pacific
Telesis Group and Southwestern Bell Corporation (Exhibit 10c to
Form SE filed March 26, 1986 in connection with the Corporation's
Form 10-K for 1985).
10e Separation Agreement by and between the Corporation and PacTel
Corporation dated as of October 7, 1993, and amended November 2,
1993 and March 25, 1993.
10aa Pacific Telesis Group Senior Management Short Term Incentive Plan
(Exhibit 10aa to Registration Statement No. 2-87852).
10aa(i) Resolutions amending the Plan, effective August 28, 1987
(Exhibit 10aa(i) Form SE filed March 26, 1992 in
connection with the Corporation's Form 10-K for 1991).
10bb Pacific Telesis Group Senior Management Long Term Incentive Plan
(Exhibit 10bb to Form SE filed March 26, 1986 in connection with the
Corporation's Form 10-K for 1985).
10cc Pacific Telesis Group Executive Life Insurance Plan (Exhibit 10cc to
Form SE filed March 27, 1987 in connection with the Corporation's
Form 10-K for 1986).
10cc(i) Resolutions amending the Plan, effective April 1, 1994.
10dd Pacific Telesis Group Senior Management Long Term Disability and
Survivor Protection Plan (Exhibit 10dd to Form SE filed March 23,
1989 in connection with the Corporation's Form 10-K for 1988).
10dd(i) Resolutions amending the Plan effective May 22, 1992 and
November 20, 1992 (Exhibit 10dd(i) to Form SE filed March
26, 1993 in connection with the Corporation's Form 10-K
for 1992).
10ee Pacific Telesis Group Senior Management Transfer Program (Exhibit
10ee to Registration Statement No. 2-87852).
10ff Pacific Telesis Group Senior Management Financial Counseling Program
(Exhibit 10ff to Registration Statement No. 2-87852).
62
<PAGE>
10gg Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors (Exhibit 10gg to Form SE filed April 1, 1991 in connection
with the Corporation's Form 10-K for 1990).
10gg(i) Resolutions amending the Plan effective December 21, 1990,
November 20, 1992 and December 18, 1992 (Exhibit 10gg(i)
to Form SE filed March 26, 1993 in connection with the
Corporation's Form 10-K for 1992).
10gg(ii) Resolutions amending the Plan, effective April 1, 1994.
10hh Description of Pacific Telesis Group Directors' and Officers'
Liability Insurance Program.
10ii Description of Pacific Telesis Group Plan for Nonemployee Directors'
Travel Accident Insurance (Exhibit 10ii to Form SE filed March 26,
1990 in connection with the Corporation's Form 10-K for 1989).
10jj Pacific Telesis Group 1994 Stock Incentive Plan (Attachment A to
Pacific Telesis Group's 1994 Proxy Statement, including Pacific
Telesis Group's 1993 Consolidated Financial Statements (Filed
March 11, 1994, and amended March 14 and March 25, 1994, File No.
1-8609)).
10kk Pacific Telesis Group Executive Non-Qualified Pension Plan
(Exhibit 10kk to Form SE filed April 1, 1991 in connection with the
Corporation's Form 10-K for 1990).
10kk(i) Resolutions amending the Plan, effective as of June 28,
1991. (Exhibit 10kk(i) to Form SE filed March 26, 1992 in
connection with the Corporation's Form 10-K for 1991).
10kk(ii) Resolutions amending the Plan effective May 22, 1992 and
November 20, 1992 (Exhibit 10kk(ii) to Form SE filed March
26, 1993 in connection with the Corporation's Form 10-K
for 1992).
10kk(iii) Resolutions amending the Plan, effective April 1, 1994.
10kk(iv) Trust Agreement No. 3 between Pacific Telesis Group and
Bankers Trust Company in connection with Pacific Telesis
Group executive supplemental pension benefits.
10ll Pacific Telesis Group Executive Deferral Plan (Exhibit 10ll to Form
SE filed March 26, 1990 in connection with the Corporation's Form
10-K for 1989).
10ll(i) Resolutions amending the Plan effective November 20, 1992
and December 23, 1992 (Exhibit 10ll(i) to Form SE filed
March 26, 1993 in connection with the Corporation's Form
10-K for 1992).
10ll(ii) Resolutions amending the Plan, effective November 15, 1993
and January 1, 1994.
63
<PAGE>
10ll(iii) Resolutions amending the Plan, effective April 1, 1994.
10mm Pacific Telesis Group Mid-Career Hire Program (Exhibit 10mm to Form
SE filed March 23, 1989 in connection with the Corporation's Form
10-K for 1988).
10nn Pacific Telesis Group Mid-Career Pension Plan (Exhibit 10nn to Form
SE filed March 27, 1987 in connection with the Corporation's Form
10-K for 1986).
10nn(i) Resolutions amending the Plan effective May 22, 1992 and
November 20, 1992 (Exhibit 10nn(i) to Form SE filed
March 26, 1993 in connection with the Corporation's
Form 10-K for 1992).
10nn(ii) Resolutions amending the Plan, effective April 1, 1994
(Filed as exhibit 10kk(iii) to this Form 10-K).
10nn(iii) Trust Agreement No. 3 between Pacific Telesis Group and
Bankers Trust Company in connection with the Corporation's
executive supplemental pension benefits (Filed as
Exhibit 10kk(iv) to this Form 10-K).
10oo Pacific Telesis Group Stock Option and Stock Appreciation Rights
Plan (Plan Text, Sections 1-17, in Registration Statement No.
33-15391).
10oo(i) Resolutions amending the Plan effective November 17, 1989
and June 26, 1992 (Exhibit 10oo(i) to Form SE filed March
26, 1993 in connection with the Corporation's Form 10-K
for 1992).
10oo(ii) Resolutions amending the Plan, effective April 1, 1994.
10pp Employment Contracts for Certain Senior Officers of Pacific Telesis
Group (Exhibit 10pp to Form SE filed March 23, 1989 in connection
with the Corporation's Form 10-K for 1988).
10pp(i) Schedule to Exhibit 10pp.
10pp(ii) Employment contracts for certain senior officers of
Pacific Telesis Group.
10qq Reserved.
10rr Executive supplemental benefit agreement.
10ss Pacific Telesis Group Outside Directors' Retirement Plan (Exhibit
10ss to Form SE filed March 15, 1985 in connection with the
Corporation's Form 10-K for 1984).
10ss(i) Resolution amending the Plan effective May 25, 1990
(Exhibit 10ss(i) to Form SE filed March 26, 1993 in
connection with the Corporation's Form 10-K for 1992).
64
<PAGE>
10tt Representative Indemnity Agreement between Pacific Telesis Group and
certain of its officers and each of its directors (Exhibit 10tt to
Form SE filed March 29, 1988 in connection with the Corporation's
Form 10-K for 1987).
10uu Trust Agreement between Pacific Telesis Group and and Bankers Trust
Company, as successor Trustee, in connection with the Pacific
Telesis Group Executive Deferral Plan (Exhibit 10uu to Form SE filed
March 23, 1989 in connection with the Corporation's Form 10-K for
1988).
10uu(i) Amendment to Trust Agreement No. 1 effective December 11,
1992 (Exhibit 10uu(i) to Form SE filed March 26, 1993 in
connection with the Corporation's Form 10-K for 1992).
10uu(ii) Amendment to Trust Agreement No. 1, effective May 28,
1993.
10uu(iii) Amendment to Trust Agreement No. 1, effective November 15,
1993.
10vv Trust Agreement between Pacific Telesis Group and Bankers Trust
Company, as successor Trustee, in connection with the Pacific
Telesis Group Deferred Compensation Plan for the Nonemployee
Directors (Exhibit 10vv to Form SE filed March 23, 1989 in
connection with the Corporation's Form 10-K for 1988).
10vv(i) Amendment to Trust Agreement No. 2 effective December 11,
1992 (Exhibit 10vv(i) to Form SE filed March 26, 1993 in
connection with the Corporation's Form 10-K for 1992).
10vv(ii) Amendment to Trust Agreement No. 2, effective May 28,
1994.
10ww Pacific Telesis Group Long Term Incentive Award Deferral Plan
(Exhibit 10ww to Form SE filed March 27, 1990 in connection with the
Corporation's Form 10-K for 1989).
10ww(i) Resolutions merging the Plan with the Executive Deferral
Plan effective May 22, 1992 (Exhibit 10ww(i) to Form SE
filed March 26, 1993 in connection with the Corporation's
Form 10-K for 1992).
10xx Pacific Telesis Group Nonemployee Director Stock Option Plan
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990).
10xx(i) Resolutions amending the Plan, effective April 1, 1994.
10xx(ii) Provisions of 1994 Stock Incentive Plan terminating the
Plan, contingent upon approval of the 1994 Stock Incentive
Plan by the Corporation's shareowners on April 29, 1994.
(Exhibit 10jj to this Form 10-K).
65
<PAGE>
10yy Pacific Telesis Group Supplemental Executive Retirement Plan
(Exhibit 10yy to Form SE filed April 1, 1991 in connection with the
Corporation's Form 10-K for 1990).
10yy(i) Resolutions amending the Plan effective November 20, 1992
(Exhibit 10yy(i) to Form SE filed March 26, 1993 in
connection with the Corporation's Form 10-K for 1992).
10yy(ii) Resolutions amending the Plan, effective April 1, 1994
(Filed as Exhibit 10kk(iii) to this Form 10-K).
10yy(iii) Trust Agreement No. 3 between Pacific Telesis Group and
Bankers Trust Company in connection with the Corporation's
executive supplemental pension benefits (Filed as Exhibit
10kk(iv) to this Form 10-K).
10zz Pacific Telesis Group Nonemployee Director Stock Grant Plan (Exhibit
10zz to Form SE filed March 26, 1992 in connection with the
Corporation's Form 10-K for 1991).
10zz(i) Provisions of 1994 Stock Incentive Plan terminating the
Plan, contingent upon approval of the 1994 Stock Incentive
Plan by the Corporation's shareowners on April 29, 1994.
(Exhibit 10jj to Form 10-K).
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Pacific Telesis Group's 1994 Proxy Statement, including Pacific
Telesis Group's 1993 Consolidated Financial Statements (Filed
March 11, 1994, and amended March 14 and March 25, 1994, File No.
1-8609).
21 Subsidiaries of Pacific Telesis Group.
23 Consent of Coopers & Lybrand.
24 Powers of Attorney executed by Directors and Officers who signed
this Form 10-K.
99a Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Salaried Employees for
the year 1993 (To be filed as an amendment within 180 days).
99b Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Nonsalaried Employees
for the year 1993 (To be filed as an amendment within 180 days).
99c Annual Report on Form 11-K for the AirTouch Communications
Retirement Plan for the year 1993 (To be filed as an amendment
within 180 days).
66
<PAGE>
Exhibit 2n
----------
UNITED STATES OF America
v.
WESTERN ELECTRIC COMPANY,
INC., et al.,
Bell Atlantic Corporation, Appellant.
Nos. 92-5079, 92-5111 to 92-5113,
92-5167 and 92-5168.
United States Court of Appeals
District of Columbia Circuit.
Argued April 14, 1993.
Decided December 28, 1993.
<PAGE>
Department of Justice (DOJ) filed motion for declaratory judgment that
proposed funding/royalty arrangement between regional holding company and
another company did not constitute manufacturing directly or through
"affiliated enterprise" within meaning of antitrust consent decree prohibiting
AT&T's former local exchange subsidiaries from engaging in manufacture of
telecommunications products. The United States District Court for the
District of Columbia denied DOJ's motion and holding company's motion for
reconsideration, and appeal was taken. The Court of Appeals, Buckley, Circuit
Judge, held that: (1) "affiliated enterprise" within meaning of antitrust
consent decree, covers all arrangements, contractual or otherwise, in which
AT&T's former subsidiaries have direct and continuing share in revenues of
entities engaged in prohibited businesses, and (2) remand was required to
determine whether regional holding company was entitled to waiver of consent
decree's restrictions.
Affirmed and remanded.
Stephen F. Williams, Circuit Judge, filed dissenting opinion.
1. Federal Courts - 776
District court's construction of antitrust consent decree providing for
divestiture of AT&T is subject to de novo review; in interpreting decree,
Court of Appeals applies ordinary principles of contract law.
2. Federal Civil Procedure - 2397.5
"Affiliated enterprise" within meaning of antitrust consent decree prohibiting
AT&T's former local exchange subsidiaries from manufacturing
telecommunications products, either directly or through any affiliated
enterprise, covers all arrangements, contractual or otherwise, in which former
subsidiaries have direct and continuing share in revenues of entities engaged
in prohibited businesses.
See publication Words and Phrases for other judicial constructions and
definitions.
3. Federal Courts - 776, 856
In evaluating district court's waiver ruling under provision of antitrust
consent decree requiring district court to grant waiver of provisions
prohibiting AT&T's former local exchange subsidiaries from manufacturing
telecommunications products if there is no substantial possibility that
petitioning subsidiary could use its monopoly power to impede competition in
market it seeks to enter, Court of Appeals reviews de novo district court's
interpretation, but gives deference to its factual determinations under
clearly erroneous standard.
4. Federal Civil Procedure - 2397.6
Regional holding company's requests for waiver under antitrust consent decree
provision prohibiting AT&T's former subsidiaries from manufacturing
telecommunications products was properly before district court in Department
of Justice's (DOJ's) declaratory judgment action seeking to deny request based
on alternative theory, where other parties to proceeding argued matter at
length.
2
<PAGE>
5. Federal Civil Procedure - 2397.5
Under provision of antitrust consent decree prohibiting AT&T's former local
exchange subsidiaries from manufacturing telecommunications products and
requiring waiver if there is no substantial possibility that petitioning
subsidiary could use its monopoly of power to impede competition in market it
seeks to enter, proper inquiry under market power test is not whether
subsidiary may favor particular manufacturer; it is whether such favoritism is
likely to result in reduced output or higher prices in particular product or
service market.
6. Federal Courts - 937
Remand was required to determine whether regional holding company was entitled
to waiver of antitrust consent decree's prohibition of AT&T's former local
exchange subsidiaries from engaging in manufacture of telecommunications
products, where holding company wished to provide funds to independent company
for product development in exchange for royalties on sales of product to third
parties; proposed funding/royalty arrangement appeared likely to limit
potential for holding company to engage in forms of anticompetitive conduct
that decree's manufacturing restrictions were designed to prevent.
Appeals from the United States District Court for the District of Columbia
(D.C. Civil No. 82-0192).
Nancy C. Garrison, Atty., U. S. Dept. of Justice, argued the cause, for
appellant United States of America in No. 92-5168. With her on the brief were
J. Mark Gidley, Acting Asst. Atty. Gen., and Catherine G. O'Sullivan, Atty.,
U. S. Dept. of Justice.
Michael W. McConnell, argued the cause for the Bell Co. appellants. With him
on the joint brief were Stephen M. Shapiro, Michael K. Kellogg, and Lawrence
S. Robbins (for the Bell Companies), James R. Young, John Thorne, and John M.
Goodman (for Bell Atlantic Corp.), Walter H. Alford, Mark D. Hallenbeck, and
Frederick W. Johnson (for BellSouth Corp.), Richard W. Odgers, Margaret DeB.
Brown, and James L. Wurtz (for Pacific Telesis Group), Raymond F. Burke and
Gerald E. Murray (for NYNEX Corp.), James D. Ellis, Liam S. Coonan, and Martin
E. Grambow (for Southwestern Bell Corp.), and Jeffrey S. Bork (for US West,
Inc.): Clifford Sloan filed an appearance, for appellant Ameritech Corp.
David Carpenter, argued the cause for appellee American Tel. & Tel. Co.
("AT&T"). With him on the brief were Francine J. Berry and Howard J.
Trienens. Mark C. Rosenblum filed an appearance, for AT&T.
Anthony C. Epstein argued the cause, for intervenors Independent Data
Communications Mfrs. Ass'n, Telecommunications Industry Ass'n, Tandy Corp.,
and MCI Communications Corp. With him on the brief were Chester T. Kamin,
Michael H. Salisbury, and Carl S. Nadler, Herbert E. Marks, James L. Casserly,
John L. McGrew, John W. Petit, and Neal M. Goldberg. Thomas K. Crowe filed an
appearance, for intervenor Tandy Corp. David A Nall filed an appearance, for
intervenor Independent Data Communications Mfrs. Ass'n, Inc. Albert H. Kramer
and Robert F. Aldrich filed the brief, for intervenor North American
Telecommunications Ass'n.
3
<PAGE>
Albert Halprin filed the brief for amicus curiae Northern Telecom, Inc.
Before WALD, BUCKLEY, and WILLIAMS, Circuit Judges.
Opinion for the court filed by Circuit Judge BUCKLEY.
Dissenting opinion filed by Circuit Judge STEPHEN F. WILLIAMS.
BUCKLEY, Circuit Judge:
The 1982 antitrust consent decree providing for divestiture of the American
Telephone and Telegraph Company ("AT&T") prohibits its former local exchange
subsidiaries, the Bell Operating Companies ("BOCs"), from engaging in certain
lines of business, including the manufacture of telecommunications products,
either "directly or through any affiliated enterprise." The question
presented is whether a contractual relationship under which American
Information Technologies Corporation ("Ameritech") would provide funds to an
independent company for product development in exchange for royalties on sales
of the product to third parties may render the independent company an
"affiliated enterprise." The district court answered this question in the
affirmative by denying the Department of Justice's ("DOJ") motion for a
declaratory judgement that the term "affiliated enterprise" covers only those
concerns in which a BOC has either more than a de minimis equity interest or
operational control. The court also denied Ameritech's request for a waiver
from the consent decree's line-of-business restrictions to permit it to enter
such funding/royalty arrangements.
We hold that the term "affiliated enterprise" was intended to cover all
arrangements in which the BOCs share directly in the revenues of entities
engaged in prohibited businesses, and hence that the district court acted
properly by denying the DOJ's motion for a declaratory judgment. We remand,
however, to permit a fuller exploration of the question whether Ameritech is
entitled to a waiver.
I. BACKGROUND
The AT&T consent decree ("Decree") imposes restrictions on the product and
service markets that the BOCs may enter. The restrictions were intended to
ensure that the BOCs would not use their monopoly control over local telephone
exchanges to impede competition in other markets. See United States. v.
American Tel. & Tel. Co., 552 F.Supp. 131, 186-94 (D.D.C. 1982) ("Decree
Opinion"), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct.
1240, 75 L.Ed.2d 472 (1983). Section II (D) of the Decree provides:
After completion of the reorganization... no BOC shall, directly or through
any affiliated enterprise:
1. provide interexchange telecommunications services or information
services;
2. manufacture or provide telecommunications products or customer
premises equipment (except for provision of customer premises
equipment for emergency services); or
3. provide any other product or service except, exchange
4
<PAGE>
telecommunications and exchange access service, that is not a
natural monopoly service actually regulated by tariff.
Id. at 227-28 (emphasis added). The district court has subsequently modified
the decree by eliminating the prohibitions on non-telecommunications
businesses, United States v. Western Elec, Co., 673 F.Supp. 525,597-99 (D.D.C.
1987), and on providing information services. United States v. Western Elec.
Co., 767 F.Supp. 308, 332 (D.D.C. 1991), aff'd, 993 F.2d 1572 (D.C. Cir.
1993). The manufacturing and interexchange restrictions, however, remain in
force. See generally United States v. Western Elec. Co., 900 F.2d 283, 300-05
(D.C. Cir. 1990) ("Triennial Review")(declining to lift these restrictions).
The Decree does make it possible for a BOC to obtain a "waiver" of the line-
of-business restrictions under certain conditions. Specifically, under
section VIII(C))
[t]he restrictions imposed upon the separated BOCs by virtue of section
II(D) shall be removed upon a showing by the petitioning BOC that there is
no substantial possibility that it could use its monopoly power to impede
competition in the market it seeks to enter.
Decree Opinion, 552 F.Supp. at 231. Under procedures established by the
district court, a BOC seeking a section VIII(C) waiver must first submit its
request to the DOJ, which reviews the request and then presents its
conclusions to the court. See United States v. Western Elec. Co. 592 F.Supp.
846, 873-74 (D.D.C. 1984).
Ameritech is a regional holding company ("RHC") that is subject to the same
restrictions as the BOCs. See United States v. Western Elec. Co., 797 F.2d
1082, 1087-89 (D.C. Cir. 1986) ("Line of Business Restrictions"). On June 16,
1988, Ameritech asked the DOJ to move for a waiver permitting it to enter
certain "funding/royalty arrangements" with companies that design, develop,
and manufacture telecommunications products. Under the arrangements,
Ameritech would provide financial support to "facilitate these companies'
efforts to bring their ideas to market," but "[t]he role of designing,
developing and manufacturing the products [would] lie exclusively with the
funded company." Joint Appendix ("J.A.") at 393. In return for its financial
commitment, Ameritech would "receive royalties on the sales of the product to
third parties if it is successfully developed." Id. Ameritech further
represented that all funding/royalty arrangements would include "a 'most-
favored nation' pricing clause" ensuring that the price of the product to
Ameritech would be "no higher than that paid by third-parties." Id. at 397
n. 3. Finally in response to a DOJ request, Ameritech agreed that "either the
regulated or unregulated side of its business may provide funding for product
development but only the side of the business providing the funding would
receive any royalties." Id. at 490.
On January 4, 1989, the DOJ responded to Ameritech's request by filing a
motion for a declaratory judgment that the proposed funding/royalty
arrangements did not constitute manufacturing "directly or through an
affiliated enterprise." Specifically, the DOJ urged the court to declare that
the term "affiliated enterprise refers only to entities in which a BOC has a
more than de minimus [sic] equity interest (5% or more) or exercises
operational influence." Id. at 434 (internal quotation marks omitted).
Because the funding/royalty arrangement satisfied neither of these criteria,
the DOJ claimed that they were not prohibited by section II(D).
5
<PAGE>
In the alternative, the DOJ argued in a footnote that if the court found that
the funding/royalty arrangements did implicate section II(D), "a waiver
pursuant to section VIII(C) should be granted" because there was "no
substantial possibility that Ameritech could use its monopoly power to impede
competition in the markets it seeks to enter..." Id. at 429 n. 4. The DOJ
supported this conclusion with a scant three sentences of analysis but added
that it "would be willing to address in a more detailed fashion the waiver
issues, if such elaboration would be of assistance to the court." Id. at 429-
30 n. 4.
More than three years later, on January 31, 1992, the district court denied
the DOJ's motion for a declaratory judgment. See United States v. Western
Elec. Co., No. 82-0192, mem. op. at 6, 1992 WL 26683 (D.D.C. Jan. 31, 1992)
("Ameritech Decision"). The court stated that it had already "considered and
rejected the Department's contention that 'affiliated enterprise' be narrowly
construed to apply only to those enterprise[s] in which a Regional Company has
an equity interest." Id. at 3. In particular, the court relied on United
States v. Western Elec. Co., No. 82-0192, 1986 WL 11238 (D.D.C. Aug 7, 1986),
rev'd on other grounds, 894 F.2d 430 (D.C. Cir. 1990), in which it held that
no waiver was necessary for NYNEX's purchase of a conditional right to acquire
a company engaged in the provision of interexchange service, see id. at 6-8,
but that such conditional interests would in some cases trigger the need for a
waiver, see id. at 3-4. Quoting from that case, the court determined that a
waiver is required for a funding/royalty arrangement, and by implication there
is an "affiliated enterprise" under section II(D), whenever "a Regional
Company would have 'a substantial incentive and ability unfairly to impede
competition by use of its monopoly position in the market it is entering.'"
Ameritech Decision, mem. op. at 4. The court then emphasized that the DOJ's
interpretation "would not alleviate the incentive and ability of the Regional
Companies to engage in anticompetitive conduct," id., and would as a result
"undercut the purposes of the manufacturing restrictions" Id. at 6. The court
illustrated this point in the following fashion:
It is beyond dispute...that a Regional Company that funds in large part
the activities of a small manufacturer, and that has the option of funding
its activities in the future, exercises a great deal of influence over the
decisions of that company regardless of whether or not it has an equity
interest in the company. Nor can it be doubted that a company that stands
to earn substantial royalties on the sale of a product has an incentive to
discriminate in favor of the product. There is the risk a company would
cross-subsidize the price of the product and pass on artificially high
prices to its ratepayers. There is therefore no rational basis under the
decree for distinguishing the risks posed by such a royalty arrangement
from those posed by an equity investment in a manufacturer.
Id. at 5-6. Finally, the court rejected the suggestion that the DOJ's
approach was preferable because it would promote greater certainty for those
in the telecommunications industry. The court noted that the concept of
"operational influence" in the DOJ's interpretation "is hardly a clear-cut
term," and that in any event "perceived difficulty of resolving issues under
the decree is not a basis for ignoring decree restrictions." Id. at 6 n. 2.
6
<PAGE>
On March 3, 1992, the court denied Ameritech's motion for reconsideration.
Shortly therefore, the court issued a further Memorandum and Order intended to
"clarify] the status of Ameritech's waiver request," United States v. Western
Elec. Co., No. 82-0192, mem. op. at 2, 1992 WL 71395 (D.D.C. Mar. 24, 1992)
("Ameritech Waiver Ruling"), as this request had not been explicitly
considered in the court's previous pronouncements. At the outset, the court
determined that "the request for a waiver was never properly before this
Court" because (1) "[t]he Department did not specifically request a waiver,"
(2) the DOJ discussed the waiver only in one footnote of an eighteen-page
submission, and (3) the "casual discussion" contained in that footnote "does
not constitute a sufficient or appropriate request to this Court for a
waiver." Id. Notwithstanding this procedural problem, the court announced
that "out of an abundance of caution and to ensure that all interested parties
are sufficiently clear as to the posture of this issue, the Court hereby
specifically declines to grant Ameritech a waiver." Id. According to the
court, "the conditions Ameritech suggests for its funding/royalty arrangement
would not sufficiently minimize its incentives and its ability to favor a
funded manufacturer"; and they "would...require such detailed supervision as
might be appropriate for a regulatory agency, not the Court." Id. at 2-3
(footnote omitted).
The DOJ and the seven RHCs (collectively, "appellants") now appeal the
district court's rulings. They are opposed by AT&T and a coalition comprised
of the Independent Data Communications Manufacturers Association, the North
American Telecommunications Association, the Telecommunications Industry
Association, Tandy Corporation, and MCI Communications Corporation
(collectively, "appellees").
II. DISCUSSION
Appellants argue that (1) the district court erred by rejecting the DOJ's
purely structural definition of the term "affiliated enterprise"; and (2)
even if the district court correctly construed that term, it should have
granted Ameritech's waiver request. We affirm the district court's ruling on
the definitional issue, although we do so on the basis of an interpretation of
"affiliated enterprise" that covers all revenue sharing arrangements between
the BOCs and entities engaged in prohibited businesses. We remand, however,
for further consideration of the waiver request.
A. The Definition of "Affiliated Enterprise"
[1] The district court's construction of the Decree is subject to de novo
review. See Triennial Review, 900 F.2d at 293; United States v. Western Elec.
Co., 894 F.2d 1387, 1390 (D.C.Cir.1990) ("Manufacturing Appeal"); Line of
Business Restrictions, 797 F.2d at 1089. In interpreting the Decree, we apply
ordinary principles of contract law. United States v. ITT Continental Banking
Co., 420 U.S. 223, 236-37, 95 S.Ct, 926, 934-35, 43 L.Ed.2d 148 (1975);
United States v. Western Elec. Co., 894 F.2d, 430 ,434 (D.C.Cir.1990)
("Conditional Interest Appeal"). This implies that the meaning of the Decree
"must be discerned within its four corners," United States v. Armour & Co.,
402 U.S. 673, 682, 91, S.Ct. 1752, 1757-58, 29 L.Ed.2d 256 (1971), although we
may also consult certain "aids to construction," including "the circumstances
surrounding the formation of the consent order, any technical meaning words
used may have had to the parties, and any other documents expressly
7
<PAGE>
incorporated in the decree." ITT, 420 U.S. at 238, 95 S.Ct. at 935; see also
Manufacturing Appeal, 894 F.2d at 1390; Conditional Interest Appeal, 894 F.2d
at 434.
Our inquiry begins, of course, with the text of the Decree. Unfortunately, it
is not dispositive. At no point does the Decree define the term "affiliated
enterprise," see Conditional Interest Appeal, 894, F.2d at 433; and scrutiny
of sections of the Decree other than section II(D) offers little help.
Section IV(A) of the Decree defines the word "affiliate" in terms of ownership
and control. It states:
"Affiliate" means any organization or entity, including defendant Western
Electric Company, Incorporated, and Bell Telephone Laboratories,
Incorporated, that is under direct or indirect common ownership with or
control by AT&T or is owned or controlled by another affiliate.
Decree Opinion, 552 F.Supp. at 228. But that section explicitly applies only
for the purpose of identifying affiliates of AT&T. Moreover, section IV(C) of
the Decree suggest that "affiliated enterprise" has a broader meaning. That
section defines "Bell Operating Companies' and 'BOCs'" to include "any entity
directly or indirectly owned or controlled by a BOC or affiliated through
substantial common ownership." Id. As "owned," "controlled," and "common
ownership" are all subsumed within the definition of a BOC, section II(D)'s
reference to "affiliated enterprise" would appear to embrace entities that are
related to a BOC in other ways. Cf. Brinderson-Newburg Joint Venture v.
Pacific Erectors, Inc., 971 F.2d 272, 279 (9th Cir.1992) (stating that "a
contract should be interpreted so as to give meaning to each of its
provisions"), cert. denied, __ U.S.___, 113 S.Ct. 1267, 122 L. Ed.2d 663
(1993); Restatement (Second) of Contracts Section 203(a) & cmt. b (1981).
Because the text of the Decree is not dispositive as to the meaning of
"affiliated enterprise," the DOJ would have us adopt the usual corporate
understanding of affiliation as a relationship involving ownership or control.
See, e.g., Black's Law Dictionary 54 (5th ed. 1979) ("affiliate company"
defined as a "[c]ompany effectively controlled by another company"). Our
task, however, is to apply the Decree as it was written and understood by the
parties. To this end, we must "ground[][our interpretation] in
the...contemporaneous understandings of its purposes, not in our own
conception of wise policy." Conditional Interest Appeal, 894 F.2d at 434.
Statements made by the parties at the time the Decree was entered and
implemented clearly indicate that the term was intended to cover certain
contractual relationships not involving ownership or control. Most notably,
the DOJ, the "principal proponent" of the line-of-business restrictions, see
Decree, Opinion, 552 F.Supp. at 186 n. 227, stated on several occasions that
it viewed section II(D) as proscribing contractual arrangements under which
the BOCs, as in the proposed funding/royalty arrangements, would share
expenses and revenues with entities engaged in prohibited businesses.
Although the DOJ's comments refer specifically only to arrangements between
the BOCs and interexchange carriers, there is no sound reason to construe
"affiliated enterprise" differently for purposes of the manufacturing
restriction as BOC involvement in both activities is proscribed by section
II(D).
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For example, during the Tunney Act proceedings that preceded entry of the
Decree, the DOJ addressed the issue of capacity sharing arrangements between
the BOCs and interexchange carriers. According to the DOJ, such arrangements
would run afoul of the line-of-business restrictions "to the extent that, as a
practical matter, such agreements amount to a joint venture with the sharing
enterprise, or otherwise give the BOC a stake in its financial success, e.g.,
payments on a per-unit-of-traffic basis..." See Response to Public Comments on
Proposed Modification of Final Judgment, 47 Fed.Reg. 23,320, 23,347 (May 27,
1982). Appellants seek to discount the significance of this statement by
claiming that it "concerned a draft of the decree that the district court did
not enter." Reply Brief for Appellants at 10 (emphasis in original). It is
true that subsequent to these comments, the district court added section
VIII(A) of the Decree, which permits the BOCs to market customer premises
equipment. See Decree Opinion, 552 F.Supp. at 191-93, 231. We are not
persuaded, however, that this change substantially implicates the meaning to
be attributed to the term "affiliated enterprise" in section II(D).
Similarly, immediately prior to divestiture, the question arose whether AT&T
could, on an interim basis, maintain "division of revenue" arrangements with
the BOCs as a means of compensating them for exchange access services. See
United States v. Western Elec. Co., 578 F.Supp. 653, 654 (D.D.C. 1983). When
the Bell Atlantic Telephone Companies objected to these arrangements, the DOJ
filed a response supporting their position. In its response, the DOJ clearly
stated its view that the division of revenue arrangements violated section
II(D), notwithstanding the absence of ownership or control. According to the
DOJ:
Section II(D)(1) of the Decree provides, inter alia, that following
divestiture no BOC shall provide interexchange telecommunications. That
prohibition clearly extends to any arrangement, including one based on
division of revenues, between a BOC and an interexchange carrier that
gives the BOC a direct financial stake in the success or failure of the
interexchange carrier.
J.A. at 273 n. *. The district court subsequently endorsed this view by
finding that the division of revenue proposal was "violative of the decree in
that it continues Operating Company participation in interexchange
telecommunications prohibited by section II(D)(1) of the decree." United
States v. Western Elec. Co., 578 F.Supp at 655.
In other contexts, furthermore, the term "affiliate" encompasses relations
beyond ownership or control. See, e.g., 15 U.S.C. section 79b(a)(11)
(defining a company's affiliate[s]" to include not only entities connected
through ownership and control, but also those that "stand in such relation to
[the] specific company that there is liable to be... an absence of arm's-
length bargaining..."). One particularly pertinent example is the FCC's
longstanding "cross-ownership" rule. This rule was developed to prevent local
telephone companies from using their control over essential facilities to
impede competition in the cable television market, see National Cable
Television Ass'n, Inc. v. FCC, 914 F.2d, 285, 287 (D.C.Cir.1990), and hence
are directly analogous to section II(D). At the time the Decree was entered,
the cross-ownership rule provided that "[n]o telephone common carrier...shall
engage in the furnishing of cable television service to the viewing public in
its telephone service area, either directly, or indirectly through an
affiliate owned by, operated by, controlled by, or under common control with
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the telephone common carrier." 47 C.F.R. section 63.54 (1982). The
regulation further explained that "the terms 'control' and 'affiliate' bar any
financial or business relationship whatsoever by contract or otherwise,
directly or indirectly between the carrier and the customer, except only the
carrier-user relationship." Id. Note 1(a) (emphasis added). Under this
definition, which remains substantially unchanged in the current version of
the cross-ownership rule, see 47 C.F.R. section 63.54(c) 1992, a wide variety
of contractual arrangements suffice to create an affiliation. See, e.g.,
National Cable Television Ass'n, 914 F.2d at 287-88 (illustrating that the FCC
may, under that rule, find affiliation to exist based on a financing
arrangement between a telephone company and a corporation engaged in the
provision of cable television services).
More broadly, to the extent that the terms of the Decree are ambiguous, we are
obliged by our precedent "to read the Decree's line-of-business restrictions
in light of the parties' jointly intended purpose to stymie efforts by a local
monopoly to use its stranglehold on essential facilities and services to
thwart effective competition in areas where its monopoly position was not
protected by the Decree." Manufacturing Appeal, 894, F.2d at 1394 (internal
quotation marks, brackets, and citation omitted; emphasis in original); see
also Line of Business Restrictions, 797, F.2d at 1088. A definition of
"affiliated enterprise" that turns entirely on ownership or control would
frustrate this purpose.
As this court has explained, the line-of-business restrictions were intended
to preclude three different types of anticompetitive conduct that were
associated with AT&T's predivestiture business practices:
The first was AT&T's alleged efforts to impede independent manufacturers
by affording Western Electric, AT&T's manufacturer subsidiary, privileged
access to the technical specifications of AT&T's exchange systems. The
second was AT&T's alleged policy of "cross-subsidizing" Western Electric's
development efforts through funds derived from AT&T's local exchange
monopoly, permitting Western Electric to undercut its competitors while
passing on its losses to AT&T's service customers. And the third was
AT&T's alleged "favoritism" its willingness to buy Western Electric
products instead of cheaper, better products manufactured by Western
Electric's, competitors.
Manufacturing Appeal, 894 F.2d at 1391-92 (citations omitted); see also
Triennial Review, 900 F.2d at 290; Decree Opinion, 552 F.Supp. at 190-92. If
an RHC provided a manufacturer with research and development funds in exchange
for a continuing share in that manufacturer's future sales, it could have a
significant incentive to pursue each of the designated strategies in an
attempt to protect its stake and enhance its earnings. First, the RHC could
grant the manufacturer privileged access to its technical requirements or even
adopt standards preferentially beneficial to that manufacture. Such practices
could enhance the manufacturer's competitive position by giving it a
substantial advantage in making sales both to the RHC and to third parties
within the RHC's operating region. Second, an RHC might engage in cross-
subsidization by paying inflated equipment prices to that manufacturer in
order to enable it to undersell its competitors and gain power in other
markets. Third, an RHC might purchase its equipment exclusively from a
manufacturer in which it has a stake, even if that manufacturer produced a
higher-priced or lower-quality product. The existence of such a guaranteed
market might enable the manufacturer to achieve economies of scale that would
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permit lower prices to third-party buyers, thereby increasing the RHC's
royalties, while foreclosing a significant share of the market from
independent manufacturers.
Finally, it is noteworthy that at the outset of these proceedings, Ameritech
itself apparently believed that its proposed funding/royalty arrangements
implicated the line-of-business restrictions. When Ameritech approached the
DOJ about these arrangements, Ameritech did not contend that they fell beyond
the ambit of section II(D). Instead, it argued only that a waiver should be
granted under section VIII(C). Thus, Ameritech clearly understood that,
whatever its meaning in other contexts, the term "affiliated enterprise" as
used in the Decree was intended to encompass more than ownership and control
relationships.
[2] In light of these considerations, we hold that the district court properly
rejected the DOJ's definition of the term "affiliated enterprise." At the
same time, however, we decline to endorse the district court's test, under
which an affiliated enterprise exists if a BOC has a "substantial incentive
and ability unfairly to impede competition by use of its monopoly position in
the market it is entering." Ameritech Decision, mem. op. at 4 (quotation
marks, ellipsis, and citation omitted). Instead, we find that the term
"affiliated enterprise" covers all arrangements, contractual or otherwise, in
which the BOCs have a direct and continuing share in the revenues of entities
engaged in prohibited businesses. We adopt this position for several reasons.
As an initial matter, the district court's interpretation is necessarily
flawed because it overlaps with and renders inoperative the standard for
granting waivers under section VIII(C). The critical consideration in
determining whether a waiver is available is whether a BOC has the power - and
hence the "ability"-to adversely affect competition in the market it seeks to
enter. See United States v. Western Elec. Co., 969 f.2d 1231, 1241 (D.C.
Cir.1992) ("CCS Waiver Opinion"); United States v. Western Elec. Co., 907 F.2d
1205, 1209 (D.C.Cir.1990) ("Distribution Waiver Opinion"); Triennial Review,
900 F.2d at 296. If, however, the "ability to unfairly impede competition" is
taken into account in assessing whether an "affiliated enterprise" exists, the
waiver provision will never come into play: Those arrangements rising to the
level of an affiliated enterprise could not qualify for a waiver, while
arrangements not constituting an affiliated enterprise could qualify for a
waiver but would have no need for one.
Moreover, even in the absence of this structural defect, the district court's
test generates substantial uncertainty as to which contractual arrangements do
and do not create an affiliated enterprise. The district court's approach
turns on the court's own assessment of the competitive risks of particular
arrangements. As a result, it is difficult for actors in the
telecommunications industry to know ex ante which agreements they may entire
without invoking the waiver process. To compound the difficulty, the district
court's test is potentially applicable to a wide variety of contractual
arrangements that do no involve revenue sharing, including exclusive marketing
agreements and extended supply contracts. Accordingly, the test may
improperly chill arrangements that promise substantial economic benefits
without meaningful risk of anticompetitive effects.
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By contrast with these problems, an interpretation of affiliated enterprise
that covers all revenue sharing arrangements is simple and easily
administered. More to the point, however, such a reading comports with the
parties' contemporaneous understandings of the line-of-business restrictions,
as reflected in the DOJ's comments and the district court's ruling on revenue-
sharing arrangements between the BOCs and interexchange carriers. It is also
faithful to our obligation to construe ambiguous terms in such a way as to
effectuate the purposes of the Decree.
Among the most important of these was to "sharply limit[] the ability of
businesses with bottleneck control of local telephone service to utilize their
monopoly advantages to affect competition in competitive markets." Line of
Business Restrictions, 797 F.2d at 1088. That objective would not be served
if the reach of section II(D) were limited to BOCs and entities they own or
control, as "anything that can be accomplished by ownership of two [firms in
vertical markets] also can be accomplished by a properly drawn contract"
between them. Richard A. Posner & Frank H. Easterbrook, Antitrust 869 (2d ed.
1981).
B. The Waiver Request
[3] Section VIII(C) of the Decree does not merely authorize a waiver; it
requires the district court to grant a waiver if "there is no substantial
possibility that [the petitioning BOC] could use its monopoly power to impede
competition in the market it seeks to enter." Decree Opinion, 552 F.Supp. at
231. Under the standard established in Triennial Review, a BOC (and hence an
RHC) cannot "impede competition," as that phrase is used in section VIII(C),
unless it has market power; that is, "the ability to raise prices or restrict
output in the market it seeks to enter." 900 F.2d at 296; see also CCS Waiver
Opinion, 969 F.2d at 1241; Distribution Waiver Opinion, 907 F.2d at 1209. The
burden of demonstrating that a waiver is appropriate rests with the
petitioning BOC. Triennial Review, 900F.2d at 296. In evaluating the district
courts waiver ruling, we review de novo the court's interpretation of section
VIII(C), but we give deference to this factual determinations under the
clearly erroneous standard. See id. at 293-94.
[4] At the outset, we reject the district court's position that Ameritech's
"request for a waiver was never properly before [it]." Ameritech Waiver
Ruling, mem. op. at 2. The DOJ did relegate discussion of a waiver to a mere
footnote in its declaratory judgment motion, choosing instead to focus almost
exclusively on its preferred definition of the term "affiliated enterprise."
But other parties to the proceeding - most prominently Ameritech itself -
argued the matter at length. Moreover, Ameritech carefully followed the
procedures prescribed by the district court as part of a four-year effort to
obtain a wavier for its proposed funding/royalty arrangements. To hold that
Ameritech was not entitled to an adjudication of its request after running
this obstacle course, simply because the DOJ elected to emphasize an
alternative legal theory, is rather unfair.
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It is true that, because the DOJ failed to address the waiver issue in a
meaningful way, the district court did to have the benefit of the type of
"predictive economic analysis" from the DOJ that this court has emphasized as
being critical to making waiver decisions. See CCS Waiver Opinion, 969 F.2d
at 1241; Distribution Waiver Opinion, 907 F.2d at 1209; Triennial Review, 900
F.2d at 297-98. At least in the circumstances of this case, however, the
appropriate remedy for the deficiency was not to erect a procedural bar to
consideration of Ameritech's request; rather, it was to take advantage of the
Department's representation that it would "address in a more detailed fashion
the waiver issues, if such elaboration would be of assistance to the court."
J.A. at 429-30 n. 4. Significantly, at oral argument, the DOJ renewed its
offer to provide an economic analysis by requesting that, if its
interpretation of affiliated enterprise were rejected, the case be remanded to
enable it to "address the competitive effects question in light of current
market conditions and under the standard of [the] Triennial Review decision."
Transcript at 10. Our decision today will provide it with that opportunity.
[5] Moving to the district court's substantive ruling that Ameritech was not
entitled to a waiver, we agree with appellants that this ruling is flawed
because the district court failed to apply the "market power" test elaborated
in Triennial Review. The district court's cursory opinion states only that
"the conditions Ameritech suggests for its funding/royalty arrangement would
not sufficiently minimize its incentives and ability to favor a funded
manufacturer." Ameritech Waiver Ruling, mem. op. at 2. The proper inquiry
under the market power test, however, is not whether a BOC may "favor"
particular manufacturers; it is whether such favoritism is likely to result in
reduced output or higher prices in a particular product or service market. As
our dissenting colleague points out in his excellent analysis of current
realities in the field of telecommunications, there may be good reason to
believe that in this case it would not.
[6] Appellees contend that even if we were to remand this case for
consideration under the proper standard, denial of Ameritech's waiver request
would follow directly from Triennial Review. In that case, we declined to
lift the manufacturing restriction on the ground that, at least in the market
for telecommunications equipment (i.e., transmission equipment and central
office switches), the BOCs continued to possess sufficient market power to
enable them to reduce output and raise prices by purchasing equipment
exclusively from their "manufacturing affiliates" and cross-subsidizing those
affiliates. See Triennial Review, 900 F.2d at 303. Appellees appear to claim
that this conclusion applies equally well to entities that are linked to a BOC
through funding/royalty arrangements as it does to those that are owned or
controlled by one.
We find that Triennial Review does not foreclose Ameritech's waiver request.
The questions presented in that case was whether there should be a "complete
removal of the manufacturing restriction." Id. at 304 (emphasis in original).
Accordingly, there is not even a hint that we considered the different ways in
which a BOC might be affiliated with a manufacturer, or the effects that
various forms of affiliation might have on a BOC's ability to exercise market
power in telecommunications product markets. Moreover, at least on their
face, the proposed funding/royalty arrangements appear likely to limit the
potential for Ameritech to engage in the forms of anticompetitive conduct that
the manufacturing restrictions were designed to prevent. As the district
court observed in modifying the Decree to permit the BOCs to market customer
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premises equipment ("CPE"), "[a]nticompetitive activities undertaken by two
separate corporations rather than by two components of the same corporation
are likely to be far more difficult to accomplish because of increased
problems of coordination and the greater possibility of detection." Decree
Opinion, 552 F. Supp. at 191; see also United States v. Western Elec. Co., 569
F.Sup. 1057, 1089 (D.D.C. 1983) (permitting the BOCs to sublicense consumer
premises equipment patents to independent manufacturers on essentially the
same grounds). Ameritech's proposal also includes a series of conditions that
further diminish the likelihood of anticompetitive activity. In light of
Triennial Review's apparent view that the rationale for continuing the
manufacturing restrictions was less than overwhelming, particularly with
respect to the CPE market, see 900 F.2d at 304-05 (upholding the district
court's refusal to modify the Decree largely on burden of proof grounds), it
may well be that Ameritech's diminished ability to pursue anticompetitive
practices through funding/royalty arrangements is sufficient to warrant some
form of waiver.
Turning first to the matter of cross-subsidization, Ameritech's proposal
includes several safeguards designed to minimize the possibility that it could
cross-subsidize the funded manufacturer with revenues from its local exchange
monopoly. "Cross-subsidization may take a variety of forms." United States
v. Western Elec. Co., 592 F.Supp. at 853. Perhaps the most common approach is
for the price-regulated firm to invest in an activity (e.g., research and
development) that is necessary for its regulated business, but which also
contributes to a good or service to be sold in unregulated markets. By
allocating the joint costs disproportionately to the regulated side of the
business and passing them on to ratepayers, the firm obtains a cost advantage
in the unregulated market, which it can exploit either by reaping supra-
competitive profits or by engaging in predatory pricing against its
competitors. See id. This form of cross-subsidization, however, is
effectively impossible under Ameritech's proposal. Because Ameritech's role
would be limited to providing financial assistance to a manufacturer who bore
sole responsibility for designing, developing, and manufacturing the products,
there would be no incurring of joint costs, and hence no possibility that the
costs could be misallocated. Moreover, Ameritech has agreed that royalties
would be paid only to the side of the business providing the funding, thereby
ensuring that ratepayer money would not bankroll telecommunications products
investments that would yield returns to the unregulated side of the business.
An alternative form of cross-subsidization postulated by appellees is for the
regulated firm to purchase products from a manufacturing affiliate at inflated
prices. The firm then passes the costs on to ratepayers, while the affiliate
may exploit its excess profits by underselling competitors to gain power in
the product market. The risk of this form of cross-subsidization, however, is
limited in the first instance by Ameritech's most favored nation clause, which
would ensure that the price paid to a funded manufacturer would be no greater
than the market price paid by third parties. Even if the most favored nation
clause proved unenforceable, however, this type of cross-subsidization seems
unlikely. Ameritech would receive no direct benefit from the purchase of
equipment at inflated prices, as the proposed arrangements provide for the
payment of royalties only on sales to third parties. Instead, Ameritech would
benefit only if the manufacturer used the proceeds of the sales to reduce the
price of its product to third parties, thereby increasing sales volume and
hence Ameritech's royalties. This possibility strikes us as highly
speculative, especially in light of the manufacturer's independence from
Ameritech control. Moreover, if a manufacturer were to engage in such a
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scheme, it would run the risk of detection by either its competitors or
Ameritech's regulators. Cf. Decree Opinion, 552 F. Supp. at 192 (observing
that "the participation of a second company would probably make cross-
subsidization far easier to detect").
Moving to the question of discriminatory interconnection, Ameritech's proposal
does not entirely eliminate the risk that it would provide a funded
manufacturer with privileged access to its technical requirements or adopt
standards preferentially beneficial to that manufacturer. Nevertheless, it is
likely that interconnection standards that systematically favor funded
manufacturers would be highly conspicuous. Cf. id. at 191 (noting that "it
would be quite difficult for an Operating Company to conspire successfully
with a manufacturer to provide advance information about revised network
standards or to impose interconnection restrictions which favored that
manufacturer's products and no one else's"); see also id. at 191-92 n. 246.
Moreover, appellants claim that such preferential standards would be
counterproductive in that they would make manufacturer's product less
compatible with other systems, hence less attractive to buyers outside of
Ameritech's region, on whom its royalties largely depend. This argument has
some force, but we note at least two reservations that are worth exploring on
remand. First, it might be possible for a product to include certain
"optional" features that would enable it to meet Ameritech's technical
requirements without diminishing its attractiveness in other regions. Second,
in the case of CPE, Ameritech's region may by itself constitute a sufficiently
large market for sales to third parties that it would be profitable for
Ameritech to develop discriminatory standards favoring a funded manufacturer.
Finally, as appellees point out, the funding/royalty arrangements might result
in Ameritech purchasing equipment solely from its funded manufacturer,
regardless of whether that manufacturer's product represents the best
price/quality combination. Accordingly, there would likely he some
foreclosure of the relevant markets to independent manufacturers. Still,
Triennial Review found that this foreclosure would not, by itself, lead to the
exercise of power in the CPE market "[s]ince the BOCs purchase only a minute
percentage of the nation's CPE output." 900 F.2d at 304. The risks posed by
foreclosure in the telecommunications equipment market are more substantial,
although it is worth noting that Triennial Review relied on both cross-
subsidization and foreclosure in deciding not to lift the manufacturing
restriction. See id. at 303. To the extent that the funding/royalty
arrangements reduce the risk of cross-subsidization, a waiver might still be
appropriate.
Before closing, it is important to address the district court's concern that
the conditions included in Ameritech's proposal would be difficult to enforce.
We agree that it is entirely proper for the district court to consider the
enforceability of proposed Decree modifications. We also recognize that the
broad, prophylactic line-of-business restrictions were necessitated in part by
AT&Ts ability to evade regulatory constraints, see Decree Opinion, 552 F.Supp.
at 167-68, a pattern of activity that could well be replicated by the BOCs,
see United States v. Western Elec. Co. 673 F. Supp 525, 566-67 (D.D.C.1987)
(discussing several examples of discriminatory interconnection and cross-
subsidization by the BOCs), aff'd in part, Triennial Review, 900 F.2d 283
(D.C.Cir. 1990). We must insist however, that if the district court is to
rely on enforceability concerns in denying waiver request, it must do so on a
consistent basis.
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In the present case, the district court's concern for enforceability may be
well-founded with respect to Ameritech's most favored nation pricing clause,
as price comparisons may be inhibited by the heterogeneous, highly customized
nature of many telecommunication products. But cf. Distribution Waiver
Opinion, 907 F.2d at 1210 (encouraging the grant of a waiver to enable on
RHC's subsidiary to distribute telecommunications products, in part on the
ground that sales to third parties could "provide benchmarks that would ease
detection of ... overcharges" on sales to the RHC). Still, the remaining
conditions--the requirement that royalties be paid only on sales to third
parties and Ameritech's representation that only the side of the business
providing the funding would receive the royalties-- do not appear to be
significantly different from conditions imposed in other waivers that the
district court has approved. For example, in United States v. Western Elec.
Co., Civ.A. No. 82-0192, 1987 WL 10108 (D.D.C. 1987), the court granted a
waiver to allow NYNEX to enter the advertising business on the conditions that
(1) the business would be conducted through a separate corporate entity, (2)
the business would obtain its own debt financing without NYNEX's assistance,
(3) the total revenues of the advertising business would not exceed ten
percent of NYNEX's total net revenues, and (4) there would be no joint
marketing with NYNEX's operating telephone company. See id. at *1-*2; see
also United States v. Western Elec. Co., Civ.A No. 82-0192, 1989 WL 13378, at
*6 (D.D.C Feb.13, 1989) (permitting Pacific Telesis to acquire an interest in
a company providing interexchange telecommunications between Japan and North
America as long as the business was conducted through a separate corporate
entity and Pacific Telesis would not discriminate against competing
interexchange carriers); United States v. Western Elec. Co. 592 F.Supp. at
871-72 (indicating that the court would consider waiver request to permit the
RHC's to engage in nontelecommunications businesses, but that the waivers
would require that those businesses (1) be conducted through a separate
subsidiary, (2) obtain their own debt financing without the BOC's assistance,
(3) not exceed ten percent of a BOC's net revenues, and (4) agree to certain
monitoring requirements). Accordingly, if the district court is to rely on
enforceability concerns with respect to these of Ameritech's request, further
explanation is required.
III. CONCLUSION
Throughout their arguments to this court, appellants have emphasized that, in
the absence of ownership and control, a funding/royalty arrangement between an
RHC and a manufacturer poses few competitive risks. In light of the realities
of today's telecommunications product markets, they may well be right. Scores
of new companies are competing vigorously in virtually every area of the
market, and the stringent prophylactic measures adopted in 1982 by the parties
to the Consent Decree may no longer be necessary in order to forestall
potential abuses of monopoly power by the BOCs. It is for this reason that
the Decree permits any BOC to seek adjustment to changed economic
circumstances by either applying to the district court for a modification of
its provisions under section VII or for a waiver under section VIII(C). Our
task, however, is to apply the Decree as it was written and understood by the
parties, and not as it might have been written if they had the benefit of
hindsight. We therefore affirm the district court's denial of the DOJ's
declaratory judgment motion, and we remand the case for further exploration of
the waiver request as it is under the waiver provision that the potential for
anticompetitive abuses is properly considered.
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So ordered.
STEPHEN F. WILLIAMS, Circuit Judge, dissenting:
The AT&T modified Final Judgment dismantled the old Bell System. See United
States v. AT&T, 552 F.Supp. 131, 226-34 (D.D.C.1982) ("MFJ Opinion"), aff'd
without opinion sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct.
1240, 75 L.Ed.2d 472 (1983). Section II(D) of the decree bars one set of the
resulting offspring-- the Bell Operating Companies or BOCs-- from entering
into various lines of business, such as provision of interexchange
Telecommunications services and manufacturer of "telecommunications products"
(subject to various exceptions). Id. at 227-28. Section II(d) explicitly
applies the restriction to the BOCs' affiliates: "N[o] BOC shall, directly or
through any affiliated enterprise" provide the forbidden goods and services.
Id. The majority here concludes that, as a result of this reference to
affiliation, the Section II(D) restriction bans "all arrangements, contractual
or otherwise, in which the BOCs have a direct and continuing share in the
revenues of entities engaged in prohibited businesses." Major.Op. at 232
(emphasis in original). The direct result of the ruling is to scotch the
transaction that gave rise to this litigation, under which a BOC, Ameritech,
advanced money enabling David Systems to apply an innovative technology to a
telecommunications product, with David Systems in return obliged to pay
Ameritech a share of its revenues from sales of the product.
The indirect results are far more serious. In adopting this sweeping idea of
affiliation, the court looses the concept from its core meaning of control,
characteristically exercised through some kind of ownership. The court
substitutes an amorphous notions that seems likely to obstruct a wide range of
BOC efforts to advance entry into telecommunications by firms that, by any
ordinary standard, would be viewed as independent. Although the court's
interpretation has modest support in some parol evidence, it has none in the
language of the decree itself and is sharply contradicted by the behavior of
the parties to the MFJ-- especially that of AT&T, which now appears as the
interpretation's major champion. Ironically, the court's construction of
Section II(D) will--in the name of competition-- actually inhibit competition
in the lines of business from which the BOCs were excluded; it will thereby
facilitate AT&T's overwhelming dominance in some of those lines-- represented,
for example, by its 49% of sales of central office switches. See Appellants'
Brief at 34 n.40 (citing NATA, 1992 Telecommunications Market Review &
Forecast 78 (1992).
This dissent will first consider some specific clues to the meaning of
"affiliated enterprise" in Section II(D) of the consent decree: the language
of Section II(D) in relation to other references to affiliation in the MFJ,
uses of the concept of affiliation in the other antitrust consent decrees of
substantially the MFJ's vintage, parol evidence as to the parties' intent at
the time the decree was agreed to, and the later behavior of the parties.
Then it will consider whether the majority's expansive interpretation can be
justified in terms of the anti-competitive risks that drove adoption of the
decree.
* * *
Decree references to affiliation, Section II(D)'s use of the term "affiliated
entity" is not the decree's only reference of affiliation. Section IV(A)
defines as an affiliate of AT&T "any organization or entity ... that is under
17
<PAGE>
direct or indirect common ownership with or control by AT&T or is owned or
controlled by another affiliate." MFJ Opinion, 552 F.Supp. at 228. It goes
on to say, "For the purposes of this paragraph, the terms 'ownership' and
'owned' mean a direct or indirect equity interest (or the equivalent thereof)
of more than fifty (50) percent of an entity." Id. While directed
specifically to AT&T itself, the definition suggests that drafters of the
decree thought of affiliation in conventional terms--control, typically via
ownership.
The decree also defines the BOCs so as to explicitly encompass affiliates
under the usual understanding of the term; Section IV(C) states that "the BOCs
mean [any corporation listed on an attached appendix] and any entity directly
or indirectly owned or controlled by a BOC or affiliated through substantial
common ownership." Id. The definition indicates an intent to reach entities
either owned or controlled by BOCs, or affiliated with the BOC through a
common parent with substantial ownership in both entities. Again, affiliation
appears to depend on ownership or control.
As the panel properly notes, however, Section II(D) also referees to
affiliation. Thus, although "BOCs" by definition under Section IV(C) include
affiliates under the usual understanding of the term, Section II(D) explicitly
applies the band not only to BOCs but also to any "affiliated enterprise."
The majority, invoking the maxim that contracts should be interpreted so as to
give meaning to every provision, concludes that the Section II(D) reference
must somehow encompass more than Section IV(C). Maj. Op. at 230.
Like so many constructional maxims, this one seems questionable. An
alternative view is that the seemingly redundant definition arose either from
neglect, or, more likely in the intensely lawyered atmosphere surrounding this
decree, to make assurance doubly sure. Cf. Fort Stewart Schools v. FLRA, 495
U.S. 641, 646, 110 S.Ct. 2043, 2047, 109 L.Ed.2d 659 (1990) (drafting
redundancy may have been inserted "out of an abundance of caution--a drafting
imprecision venerable enough to have left its mark on legal Latin (ex
abundanti cautela)").
The decree's pervasive tendency to repeat references to affiliation supports
the abundance-of-caution view. In referring to AT&T in Sections I(A)1, II(B),
VIII(B) and VIII(D), the decree in each case adds mention of its "affiliates",
which is redundant because Section IV(B) has already defined AT&T as including
its affiliates. In addition, Sections III and V refer to the defendants, the
BOCs and their affiliates, again redundantly in light of the definitions of
AT&T and the BOCs. Under the majority's interpretive method, evidently,
supplementary meanings must be found for each of these seemingly redundant
usages. While the pattern convinces me that the drafters emphatically
intended to cover affiliates, I see no support for the view that they meant to
send the courts off to hunt for special meanings for every repetitious use.
18
<PAGE>
References to affiliate in other antitrust consent decrees. The question of
affiliation is obviously posed in antitrust settlements generally, so we may
look to such consent decrees for some sign of their meaning in that context.
In a sample of 70 consent decrees from July 1980 to the present,1/ 23 of which
were published prior to the AT&T Modified Final Judgment (Aug. 24, 1992), the
term "affiliate" generally appears in two places in the competitive impact
statements and final judgments: (1) the definition of a shorthand company
name, which usually adds a term such as "and any ... affiliate thereof" to the
full name of the defendant, see, e.g., U.S. v. Merck & Co., Inc., 45 Fed. Reg.
60,044, 60,045 (Sept. 11, 1980); and (2) a boilerplate "applicability" clause,
which is identical in virtually all of the searched decrees:
The provisions of this Final Judgment applicable to Revco shall also apply
to each of its officers, directors, agents, employees, affiliates,
subsidiaries, successors and assigns, and to all other persons in active
concert or participation with any of them who receive actual notice of
this Final Judgment by personal service or otherwise.
See, e.g., United States v. Revco D.S., Inc., and Zale Corp., Proposed Final
Judgment and Competitive Impact Statement, 46 Fed. Reg. 13,418, 13,419
(Feb. 20, 1981).
While these decrees typically do not bother to define "affiliates", the
applicability clause--which lumps affiliates in with "officers, directors,
agents, employees, ..., subsidiaries, successors and assigns"--suggests a
narrow meaning. Affiliates area grouped with entities that the defendant
(or a parent) is entitled to commit to the consent decree by virtue of
ownership or control, in contrast to "all other persons in active concert
or participation", seemingly a catch-all for persons who may actively
assist the defendant in violating the decree.
Only five of the consent decrees reviewed explicitly define affiliation. All
of these definitions include some form of ownership or substantial control.
In United States v. Gillette Co., Proposed Final Judgment and Competitive
Impact Statement, 55 Fed. Reg. 12,567, 12,571 (April 4, 1990), the decree
defined an "'Affiliate' of a legal entity" as "a person controlled, directly
or indirectly by a common parent of that legal entity." A decree in the
telecommunications context uses a similar definition:
"Affiliate" or "affiliates" means any organization or entity in which,
directly or indirectly, the named person has control or substantial
ownership. For purposes hereof, "substantial ownership" means a direct or
indirect equity interest (or the equivalent thereof) of fifty percent
(50%) or more of an entity. Any parent company of a named person shall
also be deemed its affiliate.
- ------------------
1/ LEXIS Library: Genfed, File: Fedreg, Search Request: "competitive impact
statement" and affiliat!
19
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United States v. Pacific Telesis Group, Proposed Final Judgment and
Competitive Impact Statement, 51 Fed. Reg. 9277, 9278 (March 18, 1986). What
"the equivalent thereof" means in the above definition is not clear, but it
seems to require an interest somehow comparable to the specified equity share-
- -50%.
Another telecommunications decree, United States v. GTE Corp., Proposed Final
Judgment and Competitive Impact Statement, 48 Fed. Reg. 22,020, 22,021 (May
16, 1983), published nine months after the MFJ Opinion, states that affiliate
"means any organization or entity in which, directly or indirectly, GTE has
any ownership or equity interest or control." GTE also defines "BOC" as
including the corporations' "successors and assigns, and any entity directly
or indirectly owned or controlled by a BOC or affiliated through substantial
common ownership.' Id.
One decree spells out not only the concept of affiliation but the idea of
"control" embedded therein:
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person ... For purposes of this definition 'control' (including
'controlling', 'controlled by' and 'under common control with') shall mean
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
the ownership of voting securities or by contract or otherwise.
United States v. Alcan Aluminum Ltd., Proposed Final Judgment and Competitive
Impact Statement, 49 Fed. Reg. 40,454, 40459 (Oct. 16, 1984). Though broad,
the definition of control here seems to depend on legal or contractual power
over the other firm's management and policies. There is no hint that it would
reach links that merely afford one firm an incentive to influence or favor the
other.
Finally, one decree defines "subsidiary" and "affiliate" together, with the
former defined as "a company of which the parent owns more than 50% of capital
stock", while the latter implies "an entity of which the defendant has more
than 50% nonstock ownership interest or has less than 50% interest and
exercises or has the right to exercise control." United States v. Hercules
Incorporated, Proposed Final Judgment and Competitive Impact Statement, 45
Fed.Reg. 85,840, 85,841, (Dec. 30, 1980).
The decrees,then, are united by a theme of genuine control. They represent
the product of the Antitrust Division's lawyers, many of them in the period in
which those same lawyers negotiated the MFJ. If those lawyers wanted some
drastically broader coverage, one would expect them to say so.
Pre- and post-decree statements by the Department of Justice. The majority
places considerable weight on certain assertions by the Department of Justice-
- -before and after adoption of the decree--as to the reach of the affiliation
concept of Section II(D). See Maj. Op. at 230-31. First a general caution.
Parol evidence may be used to clarify an ambiguity, and I am ready to assume
arguendo that Section II(D)'s redundant reference to affiliation creates an
ambiguity. But there is nothing within the decree, or within standard usage
of the affiliation concept in antitrust decrees, remotely suggesting a stretch
beyond the twin ideas of ownership and control. While I can well imagine
20
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parol evidence helping us to work out the exact line within the zone framed by
those basic ideas, I doubt the validity of its use to substitute a completely
new concept. Cf. Tataranowicz v. Sullivan 959 F.2d 268, 276 (D.C.Cir.1992)
(When statute contains ambiguity that is readily resolved, the ambiguity force
is spent and does not create ambiguity on every other interpretive issue).
In any event, the pre-decree history yields a Justice Department reference to
possible capacity-sharing arrangements between the future BOCs and
interexchange carriers and information providers:
First, to the extent that, as a practical matter, such [capacity-sharing]
agreements amount to a joint venture with the sharing enterprise, or
otherwise give the BOC a stake in its financial success, e.g., payments on
a per-unit-of-traffic basis (exclusive of tariffed access charges), the
modification's prohibition against the BOC's reintegration into
interexchange or information services markets would be violated.
Response to Public Comments on Proposed Modification of Final Judgment, 47
Fed.Reg. 23,320, 23,347 (May 27, 1982) (emphasis added) (cited at Maj.Op. at
230-31).
The remark seems strikingly discursive. It referees first to joint ventures,
suggesting a focus on highly integrated activities. Then it suggests that any
BOC "stake in [the other firm's] financial success" would be fatal--a test
that if taken seriously would doom a whole range of relations with suppliers
and customers whose financial collapse would injure a BOC. Then it refers to
"payments on a per-unit-of-traffic basis", a phrase possibly suggestive of
some revenue-sharing arrangement, but without much precision.2/ Taken as a
whole, the passage does not seem carefully worded, although it is, to be sure,
vaguely suggestive of a very expansive interpretation of Section II(D).
In assigning weight to this remark, one must also look at the overall context.
The Department was, of course, the initiator of the underlying antitrust suit,
and presumably a prime mover behind the line-of-business restrictions; that it
should have sought to work expansive notions into the parol evidence is not
surprising. The significance (if any) of its pre-decree statements depends
not so much on Justice's assertions but on AT&T's apparent failure to respond
(appellants have not called our attention to any responses).
- ----------------
2/ The AT&T brief goes on to quote a remark that the decree prevents "the
reemergence of any division of revenues procedures to supplant the
exchange access tariff provisions." Competitive Impact Statement in
Connection with Proposed Modification of Final Judgment, 47 Fed.Reg.
7170,7178 (Feb 17, 1982) (cited in AT&T Br. at 11-12). Because of the
statement's focus on supplanting access pursuant to tariffs, it evidently
rests on Section II(A) of the MFJ, requiring that such access be "on an
unbundled, tariffed basis", see 552 F.Supp. at 227, and the majority does
not rely on it.
21
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Yet the significance even of AT&T's silence is questionable. First, we do not
have a grasp of the total volume of contentions floated at the time; other
claims may have seemed more egregious and therefore more demanding of
refutation. Second, who was around to do any rebutting? The BOCs were mere
embryos within AT&T. To the extent that AT&T managers may have anticipated
more of a future with the new AT&T than with the BOCs, they would not have
been inclined to attack understandings that would protect the new AT&T from
later competition. At a minimum, the AT&T management faced, as we have noted
before, "a significant inherent conflict of interest" with respect to these
restrictions. See United States v. Western Electric Co., 969 F.2d 1231,1239
(D.C.Cir. 1992). With the context borne in mind, the Justice Department
remark seems wholly inadequate to overthrow conventional understandings of the
phrase the parties actually used.
The majority then turns to an assertion of the Department of Justice made
November 10, 1983, after the decree was adopted (August 24, 1982) and even
after the Supreme Court had affirmed the judgment (February 28, 1983). The
remark broadly attacks a division of revenues arrangement between a BOC and
AT&T, an arrangement proposed by AT&T and resisted by the BOC in question,
Bell Atlantic. See Maj.Op. at 11. It is hard to know what to make of this,
but since the BOC was objecting to something AT&T wished to foist upon it, the
context is hardly one where BOCs can be said to have "acquiesced" in a
particular DOJ claim. At most, we seem to have evidence of the practice of
the parties under the contract--evidence overwhelmed by AT&T"s own conduct in
matters far closer to home, namely its agreement to pay royalties to BOCs as a
method of reimbursement for development funding. I now turn to that conduct.
AT&T Conduct. AT&T concedes that since adoption of the MFJ there have been
what it calls "a few instances" in which it agreed to undertake development
work for a BOC if the BOC paid the expenses, in exchange for a reduced
purchase price or royalties on sales to other buyers. See J.A. 558-59. So
far as appears, these were all entered into without any request for waivers
under Section VIII(C). One gets some idea of what "a few" means to AT&T when
one goes on to read that there were six such agreements (evidently a trivial
fraction in AT&T's eyes) in which the royalty pay-out was not capped at the
initial development expenses Id. at 559.
AT&T leans heavily on this distinction--the cap on royalties--to dismiss the
significance of its own conduct. See id. But even for the capped agreements,
the BOC must have had--until the cap was reached--the financial stake in sales
of the product that AT&T now claims is absolutely forbidden under the MFJ.
Further, even if we zeroed in only on the six uncapped transactions, six seems
like a substantial run of the parties' course of conduct. "'[S]how me what
the parties did under the contract and I will show you what the contract
means.'" Thompson v. Fairleigh, 300 Ky. 144, 187 S.W.2d 812, 816 (1945)
(quoting unidentified English judge) (cited in E. Allan Farnsworth, Contracts
Section 7.13, n. 28 at 535 (2d ed. 1990)). These actions of AT&T, flatly
contradicting its current claims, seem far more convincing than a sprawling
sentence once uttered by the Department of Justice to address a hypothetical
transaction marginally relevant to the present issue.
Finally, AT&T's urges us to disregard the six uncapped transactions on the
basis of a claim that "after AT&T's management and counsel became aware of the
form of these agreements, a memorandum was sent to AT&T sales personnel in
December, 1987," directing that all such future arrangements should be of the
22
<PAGE>
capped variety. J.A. 559. Again, the cap only diminishes the scale of AT&T's
violation of the principle that AT&T and the majority find in the decree.
Further, the implicit excuse that AT&T's "management and counsel" were wholly
unaware of these transactions is no help. If the contracts were binding (and
there is no assertion to the contrary), they must have been entered into by
persons with adequate authority. They are acts of AT&T.
* * *
Although there seems only the weakest formal case for reading "affiliated
enterprise" to encompass any firm sharing revenue with a BOC, it makes sense
to see whether such arrangements so clearly impinge on the pro-competitive
purposes of the MFJ that the wrench of the language deserves serious
consideration.
The majority identifies three ways in which a royalty arrangement of this kind
agreed upon by Ameritech and David Systems might imperil the antitrust
objectives of the decree. As a result of the agreement the BOC could (1)
grant the funded manufacturer privileged access to its technical requirements
or adopt preferential standards; (2) engage in cross-subsidization, paying
inflated prices on its own purchases, thus enabling the funded manufacturer to
"undersell its competitors and gain power in other markets"; and (3) buy from
the funded manufacturer even if the price/quality relationship of the
manufacturer's product was inferior to its competitors'. Major.Op. at 232-33.
Of course it is true that a BOC could act in these ways with respect to a
funded manufacturer. That alone is surely not enough--a BOC could act that
way towards any firm. The question would seem to be whether the
funding/royalty relationship is likely to create such strong incentives to
engage in this behavior, and with such serious likelihood of anticompetitive
impacts, that we should regard the funding relationship as substantially akin
to garden-variety affiliation.
Let us first take cross-subsidization, the most concrete of the hazards, and,
in fact, the template for the other two. The feared result--"gain[ing] power
in the other markets"--of course cannot inflict an antitrust injury unless the
BOC and funded company can overcome all the conventional hazards to successful
predatory pricing; the prospects of driving competitors out, and the hurdles
to any new entry, must be so great that the present discounted value of the
hypothetical future monopoly over charges exceeds the present discounted value
of the guaranteed upfront losses. See Brook Group v. Brown & Williamson
Tobacco Corp., -- U.S.--,--,--, 113 S.Ct. 2578, 2588-89, 125 L.Ed.2d 168
(1993). As a result, "predatory pricing schemes are rarely tried, and even
more rarely successful". Id. at --, 113 S.Ct. at 2589 (citations omitted).
We must assume, of course, that a BOC may be able to pass the cost of
overpayments to its "affiliate" forward to customers as a cost of business
under its regulated rates, see National Rural Telecom Ass'n v. FCC, 988 F.2d
174, 178, 179-80 (D.C.Cir.1993), and that therefore the BOC could fund the
predation at a lower real cost than could a firm in an unregulated market--
could fund it with, as it were, "free" money. Thus, the price--regulated
environment makes the prospect of cross-subsidization and predation far more
plausible than normally.
The question, though, is how conducting such an operation through a funded
independent manufacturer, which simply owes the BOC a royalty on sales of the
funded product, compares with doing so through a genuine affiliate. The
23
<PAGE>
answer is that it is a rather feeble substitute. Although overpayments to the
funded may be "free" to the BOC, the money is by no means free to the funded
entity firm. Once in the fundee's hands, the money is its own, so that
investing it in a scheme of predation is just as costly for the fundee as for
any firm in any ordinary market not subject to price regulation. The absence
of either BOC ownership or control, or the ownership or control of both
entities by a common parent, thus severs precisely the link that made cross-
subsidization and predation more serious risks in this economic environment.
Of course the BOC could seek to enter into side agreements with the fundee,
committing it to use the funds for predation. But the absence of control,
which we must assume under the majority analysis, clearly increases hazards of
such a conspiracy; the number of people necessarily brought in increases, and
there are at least two chains of command to be silenced rather than one. The
district court recognized this distinction at the time it approved the decree:
"Anticompetitive activities undertaken by two separate corporations rather
than by two components of the same corporation are likely to be far more
difficult to accomplish because of increased problems of coordination and the
greater possibility of detection." MFJ Opinion, 552 F.Supp. at 191. Further,
as a competitor can probably survive in these fields only by selling to
several operating companies,3/ the funded entity will likely have many
customers other than the funding BOC, making it harder for the BOC to inflict
effective punishment for "cheating".
The two other concerns identified by the majority suffer from the same basic
problem. Preferring the fundee despite an inferior price/quality relation
seems just an intricate way of overpaying it. Again, the absence of ownership
or control of the fundee, or ownership of both entities by a common parent,
deprives the BOC of the ability to assure that these overpayments, perhaps
"free" from its perspective but surely not from that of the fundee, will be
applied in accordance with its purpose rather than the fundee's. Similarly,
favoring the fundee with advance technical information or with discriminatory
technical standards also appears to be simply a complicated way of shifting
value to the fundee at the expense of the BOC (or, by the assumptions we are
indulging here, the BOC's customers). Without control over the fundee's use
of the profits that derive from this advantage, the BOC is in a weak position
to achieve its goals.
- -----------------
3/ See Peter Huber, The Geodesic Network: 1987 Report on Competition in the
Telephone Industry, 14.8 (1987) (reporting very large economies of scale
in development of switches, with prospect the 18 firms manufacturing
digital switches worldwide in 1984 will likely to fall to fewer than a
dozen); see also Comments of David Systems, Inc., in Support of
Ameritech's Revised Request for a Waiver to Allow the receipt of Royalties
on Third-Party Sales of Telecommunications Products, 5 (DOJ June 30, 1988)
(Joint Appendix 408) ("no one buyer has a large enough share of the market
to make it economically attractive to produce a product for that one buyer
alone").
24
<PAGE>
Again, I cannot argue that the funding-and-royalty arrangement is absolutely
without antitrust risk; probably nothing is without such risk. What seems
plain to me is that whatever risks exist in that context are trivial compared
with those that the drafters assumed applicable to entry by a BOC into the
forbidden lines of business via a conventional affiliate.
In fact, funding/royalty arrangements are likely to enhance competition in
telecommunications products by providing a new source of funding for smaller
companies with innovative ideas. BOCs have a comparative advantage in judging
the prospects for investments in research the development of products
complementary to their business, and an obvious interest in ensuring that such
innovation occurs. They thus can diminish the imperfection of financial
markets due to normal lenders' lack of information about the market and the
technology. The funding/royalty arrangement increases the likelihood of such
financial assistance, for it enables the BOC to commit capital in a form that
entitles it to share in the high returns on very successful projects, just as
a wildcatter arranges to share in the rare success among exploratory oil and
gas wells. Similarly, just as a wildcatter assembles leases in the area of
intended exploration so as to capture as much as possible of the value of the
information that a successful well will yield (and to prevent free riding by
others), so a BOC taking substantial risk on a new technology would want to
diminish free-riding by other buyers, which is precisely what the royalty
arrangement permits.
The BOC's investment, to be sure, carries a marginal anticompetitive risk. A
BOC may persist in dealing with a funded firm longer than it would with a
totally disconnected one; as with any lender, the hope that a little more
indulgence will save the project will weigh against the advantages of cutting
its losses. This is a far cry, however, from the deliberate cross-
subsidization and predation, which, as I argued above, is pertinent in the
case of a genuine affiliate but is rendered highly unlikely here by the
fundee's independent interest in any revenues once it has received them from
the BOC.
* * *
The majority's methodology is somewhat unclear to me. Once it abandons what
it correctly identifies as the "usual" understanding of affiliation, see
Maj.Op. at 230-31, it turns, unguided by any contract language, to parol
evidence and postdecree assertions of the Department of Justice. These
include, as we have seen, direct or indirect references (1) to revenue-
sharing with a firm in a forbidden line of business and (2) to arrangements
giving a BOC "any stake" in the success of such a firm. The majority does not
commit itself as between these two formulae. If revenue-sharing is forbidden
because it involves a BOC "stake" in the funded enterprise, or because of the
anticompetitive hazards sketched by the majority, then any loan is equally
forbidden, and a variety of long-term arrangements such as requirements
contracts are at risk. A decision embracing so radical an interpretation
should confront its implications. On the other hand, if revenue-sharing is
singled out from other arrangements by which a BOC might have a stake in a
funded entity's success in a forbidden line of business, them we should learn
just what the analytic distinction is.
For purposes of this case, all that is needed is that we recognize that
section II(D)'s reference to "affiliated entity" is within the conventional
25
<PAGE>
range of affiliation, and thus requires ownership or control by the BOC, or
the ownership of both entities by a common parent. As the David systems
transaction is outside that range, we need not settle the narrow dispute as to
whether Section II(D)'s reference to affiliation simply incorporates Section
IV(C)'s definition or calls for a slightly broader one such as that advanced
by the Department of Justice4/, which appears here in support of Ameritech's
view that the transaction is outside Section II(D).
This case is full of ironies. The first, of course, is that AT&T is hereby
enabled to use the line-of-business restrictions, adopted in the name of pro-
competitive purposes, to stifle competition from small firms that might enter
the telecommunications products markets as a result of BOC funding, thus
protecting, for example, its 49% share of sales of central office switches.
Further, it is only because of AT&T's role as a successor party to the MFJ
that it is able to press its claim here. United States v. Western Elec. Co.,
969 F.2d 1231, 1237-41 (D.C. Cir. 1992). As AT&T would gain in higher prices
from any reduction in competition, unless it were driven from the field, it
would have "antitrust standing" only if it were able to make a showing that
the feared predation has some likelihood of eradicating AT&T itself as a
competitor, see Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475
U.S. 574, 588-93, 106 S.Ct. 1348, 1356-59, 89 L.Ed.2d 538 (1986), a laughably
implausible scenario.
A second irony is that it is now seriously asserted in some quarters that the
nature of the long distance and local telephone markets may be precisely the
opposite of what was assumed at the adoption of the MFJ. That assumption, of
course, was that the technology of the long distance market would be radio,
that its unit costs would not decline with volume, and that it therefore would
be competitive; the assumption for local changes was that their technology
would be wire, that unit costs would decline throughout the relevant market,
and that therefore it would be a natural monopoly. To the extent that glass
fiber is replacing radio for long distance, and cellular radio emerges as the
optimal technology in the local loop, these premises are reversed. See Peter
W. Huber, "Telephones, Competition, and the Candice-Coated Monopoly",
Regulation (1993 No. 2) 34-43. Of course no record has been made as to any
such matters and no attempt to amend the decree is before us. Such
contentions tend, however, to undermine the majority's implicit assumption
that there is some overwhelming economic need to reach out and expand the
decree's line-of-business restrictions.
In any event, our job is to construe the agreement as written. As I can find
no basis at all for conceiving "affiliated enterprises" to include funded
royalty payors, either in the decree's language, the tradition of antitrust
consent decrees, the skimpy parol evidence, the practice of the parties, or
the overall purposes of the MFJ, I respectfully dissent.
- --------------------
4/ The Department of Justice urges us to read "affiliated enterprise" in
Section II(D) to include entities in which a BOC has a more than de
minimis equity interest (5% or more) or exercises substantial management
control. Brief for Appellant United States of America at 2.
26
<PAGE>
Exhibit 10e
-----------
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
OCTOBER 7, 1993
<PAGE>
SEPARATION AGREEMENT
--------------------
TABLE OF CONTENTS
----------------
Page
----
PREAMBLE .................................. 3
ARTICLE I - DEFINITIONS ............................... 4
ARTICLE II - SEPARATION ................................ 6
ARTICLE III - EXCHANGE OF INFORMATION ................... 7
ARTICLE IV - PROTECTION OF PROPRIETARY INFORMATION ..... 8
ARTICLE V - MUTUAL RELEASES ........................... 9
ARTICLE VI - COMPENSATION .............................. 10
ARTICLE VII - ARBITRATION ............................... 11
ARTICLE VIII - POST-SEPARATION TRUE-UPS .................. 12
ARTICLE IX - MISCELLANEOUS ............................. 13
APPENDIX A - EMPLOYEE BENEFITS ALLOCATION
APPENDIX B - TAX SHARING
APPENDIX C - INTELLECTUAL PROPERTY
APPENDIX D - CONTINGENT LIABILITIES
APPENDIX E - TELESIS TECHNOLOGIES LABORATORY, INC.
APPENDIX F - ADMINISTRATIVE SERVICES
APPENDIX G - ASSIGNMENT OF ASSETS AND LIABILITIES
APPENDIX H - TERMINATION OF AGREEMENTS
APPENDIX I - INSURANCE
APPENDIX J - CORPORATE BUSINESS OPPORTUNITIES
29
<PAGE>
SEPARATION AGREEMENT
--------------------
THIS SEPARATION AGREEMENT, effective October 7, 1993, is between PACIFIC
TELESIS GROUP, a Nevada corporation ("Telesis"), on behalf of the Telesis
Group (defined below) and PACTEL CORPORATION, a California corporation
("PacTel"), on behalf of the PacTel Group (defined below).
WHEREAS, Telesis, a publicly held corporation whose stock is traded on the New
York Stock Exchange, owns 100% of the common stock of each of its three
principal first tier subsidiaries, Pacific Bell, Nevada Bell and PacTel; and
WHEREAS, the Telesis Board of Directors has unanimously determined, by a
resolution dated December 11, 1992, that Telesis' shareholders will benefit by
the separation of the ownership of PacTel's wireless cellular, paging and
vehicle location businesses from Telesis' other businesses; and
WHEREAS, in accordance with that resolution, Telesis will distribute to
Telesis' shareholders all of the outstanding stock of PacTel owned by Telesis
and thereby sever the ownership relationship that currently exists between
Telesis and PacTel in an effort to (1) improve the regulatory conditions under
which both Telesis and PacTel and their respective affiliates currently
operate as a result of their common ownership, (2) provide both Telesis and
PacTel with greater access to capital markets, and (3) enhance the aggregate
value of the investment of Telesis' current shareholders in Telesis by
separating the two principal lines of Telesis' business (i.e., the wireline
businesses operated by Pacific Bell and Nevada Bell and the wireless
businesses operated by PacTel) into two separate and independent publicly
traded corporations, each offering investors a clear opportunity to invest in
a different segment of the telecommunications business that matches their
investment objectives; and
WHEREAS, it is necessary and appropriate that certain rights and obligations
of the Parties related to employee benefits, tax sharing, intellectual
property, contingent liabilities, administrative services, assets and
liabilities, termination of agreements, insurance, corporate business
opportunities and other matters affected by the separation of the ownership of
PacTel from Telesis be established by written contract between the Parties;
THEREFORE, the Parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms and other terms defined in this Agreement have the
meanings set forth herein unless the context indicates otherwise. Words
importing persons include corporations. Words importing only the singular
include the plural and vice versa where the context requires.
1.1 AFFILIATE TRANSACTIONS POLICY means Telesis' "Affiliate
Transactions - Policies, Guidelines and Reporting Requirements" as effective
January 1988 and as amended from time to time.
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1.2 AFFILIATES means any subsidiaries or other entities that
control, are controlled by, or are under common control with either Telesis or
PacTel, respectively. As used herein, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such entity, whether through ownership of voting
securities or other interests, by contract or otherwise.
1.3 AGREEMENT means this Separation Agreement, including all of the
Appendixes hereto.
1.4 APPENDIXES means Appendix A (Employee Benefits Allocation),
Appendix B (Tax Sharing), Appendix C (Intellectual Property), Appendix D
(Contingent Liabilities), Appendix E (Telesis Technologies Laboratory, Inc.),
Appendix F (Administrative Services), Appendix G (Assignment of Assets and
Liabilities), Appendix H (Termination of Agreements), Appendix I (Insurance)
and Appendix J (Corporate Business Opportunities) which are a part of this
Agreement. The provisions of this Agreement shall apply to each of the
Appendixes as if fully set forth in such Appendix.
1.5 DISTRIBUTION means the distribution by Telesis to its
shareholders of all of the outstanding stock of PacTel owned by Telesis on the
Separation Date.
1.6 HOLDING COMPANY COST ALLOCATION POLICIES AND GUIDELINES means
Telesis' methodology for allocating costs to its subsidiaries as of the date
of this Agreement and as amended from time to time.
1.7 INFORMATION means information, whether patentable or
copyrightable, in written, oral or other tangible or intangible forms,
including but not limited to studies, reports, surveys, discoveries, ideas,
concepts, know-how, techniques, designs, specifications, drawings, blueprints,
diagrams, models, prototypes, samples, flow charts, data, disks, diskettes,
tapes, computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under
their direction (including attorney work product), and other technical,
financial, employee or business information.
1.8 PACTEL GROUP means PacTel Corporation (or its successor) and its
Affiliates immediately after the Separation (including but not limited to the
entities which have been known prior to the Separation as PacTel Cellular,
PacTel Paging, Pacific Telesis International and PacTel Services, including
PacTel Services' subsidiaries Location Technologies, Inc., PacTel Teletrac
International and PacTel Teletrac).
1.9 PARTY collectively means the entities which are members of
either the PacTel Group or the Telesis Group, as the case may be.
1.10 PROPRIETARY INFORMATION means any Information which is a "trade
secret" as defined in California Civil Code Section 3426.1(d), as it may be
amended from time to time, and which if in a tangible form is clearly marked
or otherwise indicated as being confidential or proprietary.
1.11 RECORD RETENTION POLICY means Telesis' "Record Retention
Policy," as effective August 1, 1988, and as amended from time to time.
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<PAGE>
1.12 Separation means the total and complete separation of the
ownership of PacTel from Telesis that will occur at the Distribution.
1.13 SEPARATION DATE means the date on which the Distribution and the
Separation occur.
1.14 SUBSIDIARY means any entity that is controlled by the entity in
question. As used herein, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such entity, whether through ownership of voting securities or
other interests, by contract or otherwise.
1.15 TELESIS GROUP means Pacific Telesis Group (or its successor) and
its Affiliates immediately after the Separation (including but not limited to
the entities which have been known prior to the Separation as Pacific Bell,
Nevada Bell, Pacific Bell Directory, Pacific Bell Information Services, PacTel
Capital Resources, PacTel Capital Funding, PacTel Re Insurance Company, Inc.,
Pacific Telesis Group - Washington, Telesis Technologies Laboratory, Inc.,
PacTel Finance, PacTel Communications, PacTel Properties and PacTel Cable).
ARTICLE II
SEPARATION
----------
2.1 SEPARATION. The Separation shall be accomplished by the
Distribution to Telesis' shareholders of all of the outstanding stock of
PacTel owned by Telesis on the Separation Date. The Separation is contingent
on Telesis' (a) obtaining all necessary regulatory and tax reviews in a form
satisfactory to Telesis and (b) determining that adequate equity financing is
available for PacTel. If Telesis either (a) has not obtained such reviews or
(b) determines that such adequate equity financing is not available for
PacTel, the Parties may, by mutual agreement, terminate this Agreement.
2.2 COOPERATION. Each Party agrees to cooperate with the other
Party, both before and after the Separation Date, to enable both Parties to
implement the Separation, including but not limited to performing the
obligations undertaken by the Parties under this Agreement. Such cooperation
will include but is not limited to preparing and submitting required financial
reports after the Separation Date which may relate to periods either before or
after the Separation Date and executing such documents and doing such other
acts or things as may be necessary to carry out the intent of this Agreement.
2.3 CORPORATE AUTHORITY. Each Party represents, warrants and
covenants that it has taken or will take, as appropriate, all necessary
corporate actions to approve all actions required on its part to implement the
Separation, including but not limited to (a) the approval by its Board of
Directors of the terms of this Agreement, (b) the performance of such Party's
obligations under this Agreement, and (c) the making of all registrations and
filings and the undertaking of any other actions, whether before or after the
Separation Date.
2.4 EFFECTIVE DATE. When executed by both Telesis and PacTel, this
Agreement shall be effective and binding on the Parties. The Separation shall
32
<PAGE>
be effective on the Separation Date.
2.5 CONFLICT WITH OTHER AGREEMENTS. Each Party represents and
warrants that none of the actions that it has taken or will take, including
but not limited to the declaration and payment of dividends or other
distributions in connection with the implementation of the Separation and the
performance of its obligations under this Agreement, will violate either (a)
the terms, conditions or provisions of its articles or certificate of
incorporation or by-laws or of any agreement, indenture or other instrument to
which it is a party or by which any of its assets are bound, or (b) the
applicable legal requirements of any governmental authority having
jurisdiction over such Party.
ARTICLE III
EXCHANGE OF INFORMATION
-----------------------
3.1 AGREEMENT FOR EXCHANGE OF INFORMATION. Each Party agrees to
provide to the other Party, at any time before or after the Separation Date,
on written request and on a reasonable schedule to be agreed on by the
Parties, any Information in the possession or under the control of a Party
which the requesting Party reasonably needs (a) to comply with reporting,
filing or other requirements imposed on the requesting Party by a federal,
state or local judicial, regulatory, administrative or taxing authority having
jurisdiction over the requesting Party, (b) for use in any other judicial,
regulatory, administrative or tax proceeding in which the requesting Party is
involved, or (c) to enable the requesting Party to implement the Separation,
including but not limited to performing its obligations under this Agreement.
3.2 OWNERSHIP OF INFORMATION. Any Information owned by the Party
that is provided to the requesting Party pursuant to Section 3.1 shall be
deemed to remain the property of the providing Party. Nothing contained in
this Agreement shall be construed as granting or conferring rights of license
or otherwise in any such Information.
3.3 COMPENSATION FOR PROVIDING INFORMATION. The Party requesting
such Information agrees to reimburse the other Party for the reasonable costs,
if any, of creating, gathering and copying such Information, to the extent
that such costs are incurred for the benefit of the requesting Party. Except
as may be otherwise specifically provided elsewhere in this Agreement or in
any other agreement between the Parties, such costs shall be computed in
accordance with the providing Party's standard methodology and procedures.
3.4 RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Article III and other provisions of this
Agreement after the Separation Date, the Parties agree to use their best
efforts to comply with Telesis' Record Retention Policy with respect to all
Information in their respective possession or control on the Separation Date.
Neither Party will destroy any Information which the other Party may have the
right to obtain pursuant to this Agreement prior to the expiration of the
applicable retention period specified in such Record Retention Policy without
first using its best efforts to notify the other Party of the proposed
destruction and giving the other Party the opportunity to take possession of
33
<PAGE>
such Information prior to such destruction.
3.5 LIMITATION OF LIABILITY. No Party shall have any liability to
the other Party in the event that any Information exchanged or provided
pursuant to this Agreement which is an estimate or forecast, or which is based
on an estimate or forecast, is found to be inaccurate, in the absence of
willful misconduct by the Party providing such Information.
3.6 OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The
rights and obligations granted under this Article III are in addition to, and
do not supersede, abridge or modify, any rights and obligations relating to
the exchange of Information which are set forth elsewhere in this Agreement.
ARTICLE IV
PROTECTION OF PROPRIETARY INFORMATION
-------------------------------------
4.1 GENERAL. The provisions of this Article IV shall apply to any
Proprietary Information of one Party (the "Disclosing Party"), that is
provided pursuant to this Agreement or otherwise disclosed to the other Party
(the "Receiving Party") in connection with the implementation of the
Separation, whether before or after the Separation Date; provided, however,
that notwithstanding any other provision of this Article IV, there shall be
excluded from Information subject to this Article IV any information that is
more specifically covered elsewhere in this Agreement or in any other
agreement between the Parties that is specifically intended to survive the
Separation (including any agreement entered into after the date of this
Agreement).
4.2 OBLIGATIONS OF RECEIVING PARTY. With respect to such
Proprietary Information, the Receiving Party shall:
a. hold such Information in confidence with the same degree of
care with which the Receiving Party protects its own confidential and
proprietary information;
b. restrict disclosure of the Information solely to its
employees, agents and contractors with a need to know such Information and
advise those persons of their obligations hereunder with respect to such
Information;
c. use the Information only as needed for the purposes
contemplated by this Agreement;
d. except for the purposes contemplated by this Agreement, not
copy or otherwise duplicate such Information or knowingly allow anyone else to
copy or otherwise duplicate such Information; and
e. on request and when such Information is no longer needed
for purposes of this Agreement, promptly either return to the other Party all
Information in a tangible form or certify to the Disclosing Party that it has
destroyed such Information.
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4.3 LIMITATIONS ON OBLIGATIONS OF RECEIVING PARTY. The Receiving
Party shall have no obligation to preserve the confidential or proprietary
nature of any Information which:
a. was previously known to the Receiving Party free of any
obligation to keep it confidential at the time of its disclosure as evidenced
by the Receiving Party's written records prepared prior to such disclosure; or
b. is or becomes publicly known through no wrongful act of the
Receiving Party; or
c. is rightfully received from a third person having no direct
or indirect secrecy or confidentiality obligation to the Disclosing Party with
respect to such Information; or
d. is independently developed by an employee, agent or
contractor of the Receiving Party who did not have any direct or indirect
access to the Information; or
e. is disclosed to a third person by the Disclosing Party
without similar restrictions on such third person's rights; or
f. is approved for release by written authorization of the
Disclosing Party.
4.4 PROTECTIVE ARRANGEMENTS. The Receiving Party agrees to notify
the Disclosing Party of any demands to disclose or provide Proprietary
Information of the Disclosing Party under lawful process prior to disclosing
or providing such Information and agrees to cooperate in seeking any
reasonable protective arrangements requested by the Disclosing Party. The
Receiving Party may disclose or provide Proprietary Information of the
Disclosing Party requested by a judicial, administrative or regulatory
authority having jurisdiction over the Receiving Party, provided that (a) the
Receiving Party uses its best efforts to obtain protective arrangements
satisfactory to the Disclosing Party, and (b) the Disclosing Party may not
unreasonably withhold approval of such protective arrangements.
4.5 DURATION OF OBLIGATIONS. All obligations under this Agreement
with respect to Proprietary Information shall survive the Separation.
ARTICLE V
MUTUAL RELEASES
---------------
5.1 RELEASE OF PRE-SEPARATION LIABILITIES. Each Party does hereby
for itself, its Affiliates, successors and assigns, remise, release and
forever discharge the other Party, its Affiliates, successors and assigns and
all persons who at any time prior to the Separation Date have been
shareholders, directors, officers, agents or employees of the other Party or
its Affiliates, and their heirs, executors, administrators and assigns, from
any and all claims, debts, demands, actions, causes of action, suits, sum or
sums of money, accounts, reckonings, bonds, specialties, indemnities,
exonerations, covenants, contracts, controversies, agreements, promises,
35
<PAGE>
doings, omissions, variances, damages, executions and liabilities whatsoever
(collectively, "Liability"), both at law and in equity, arising from any
events on or before the Separation Date, including the transactions and all
other activities to implement the Separation; provided, however, that nothing
in this Section 5.1 shall release any Party from (a) any Liability, contingent
or otherwise, transferred, assigned or allocated in accordance with this
Agreement including but not limited to the liabilities covered by Appendix A
(Employee Benefits Allocation), Appendix B (Tax Sharing), Appendix D
(Contingent Liabilities) and Appendix G (Assignment of Assets and
Liabilities), or (b) any Liability provided in or resulting from this
Agreement or any agreement between the Parties not terminated pursuant to this
Agreement or any other agreement between the Parties that is specifically
intended to survive the Separation, or (c) any Liability for unpaid amounts
for the sale, lease, construction or receipt of goods, property or services
purchased, obtained or used by it in the ordinary course of business prior to
the Separation Date, or (d) any Liability for unpaid amounts for products or
services or refunds owing on products or services due on a value-received
basis for work done at any Party's request or done on such Party's behalf, or
(e) any Liability that the Parties may have with respect to indemnification or
contribution for claims brought against the Parties by third persons, which
Liability shall be governed by the provisions of Appendix A (Employee Benefits
Allocation), Appendix B (Tax Sharing) and Appendix C (Contingent Liabilities),
or (f) any Liability the release of which would result in the release of any
person other than a person released pursuant to this Section 5.1; provided,
however, that the Parties agree not to bring suit against any person with
respect to any Liability that would be released by this Section 5.1 but for
the provisions of this clause (f).
5.2 CIVIL CODE SECTION 1542. Each Party expressly waives any right
or benefit available to it in any capacity under the provisions of Section
1542 of the California Civil Code, which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must be materially affected his
settlement with the debtor.
ARTICLE VI
COMPENSATION
------------
Unless otherwise expressly provided elsewhere in this Agreement or by
another written agreement between the Parties, all compensation payable by one
Party to the other Party under this Agreement shall be computed in accordance
with either Telesis' Affiliate Transactions - Policies, Guidelines and
Reporting Requirements or the Holding Company Cost Allocation Methodology,
whichever is applicable.
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ARTICLE VII
ARBITRATION
-----------
7.1 AGREEMENT TO ARBITRATE. The Parties will use their
respective best efforts to resolve by informal means any claim or controversy
(collectively, "Dispute"), whether arising before or after the Separation
Date, that relates to the Separation, including but not limited to any
Disputes concerning the interpretation of this Agreement. If despite such
best efforts the Parties are unable to resolve a Dispute by such informal
means, the Parties agree to submit the Dispute to arbitration under the
provisions of this Article VII.
7.2 ARBITRATION. In the case of any Dispute subject to arbitration
under this Article VII, a Party may demand in writing that the Dispute be
resolved by binding arbitration. On such demand, the Dispute shall be decided
by arbitrators in accordance with the rules set forth in this Article VII and
the provisions of any applicable agreement between the Parties, including
provisions relating to the choice of applicable law. The award rendered by
the arbitrators shall be final, and judgment may be entered on it in
accordance with applicable law in any court having jurisdiction over this
Agreement. It is understood that the arbitration provisions of this Article
VII shall be the sole remedies of the Parties under this Agreement with
respect to Disputes relating to the Separation, including but not limited to
any Disputes concerning the interpretation of this Agreement.
7.3 DEMAND FOR ARBITRATION. The Party demanding the arbitration
shall give notice of the demand for arbitration to the other Party. The
demand for arbitration must be made within one year after the date on which
the Party making the demand for arbitration became aware of the event which
gave rise to the Dispute, and in no event may a claim be asserted if such a
demand has not been filed within such one year period.
7.4 ARBITRATORS. Unless otherwise agreed to in writing by the
Parties, each Party shall designate an arbitrator within twenty business days
after the demand for arbitration. If either Party fails to appoint an
arbitrator within such time period, the other Party may apply to any court
having jurisdiction over this Agreement to compel arbitration, and that court
shall be empowered to select the failing Party's arbitrator. The two
designated arbitrators shall then select a third arbitrator to complete the
full arbitration panel within ten business days, or as otherwise agreed. If
the arbitrators selected by each Party cannot agree on a third arbitrator
within the applicable time limits, either Party may apply to any court having
jurisdiction over this Agreement to select the third arbitrator, and that
court shall be empowered to select the third arbitrator.
7.5 DISCOVERY. A Party may submit a reasonable number of document
production requests to the other Party in connection with an arbitration. In
addition, a Party may take a reasonable number of depositions of the other
Party in connection with an arbitration. Disputes concerning the scope and
enforcement of the discovery requests shall be subject to agreement by the
Parties or may be resolved by the arbitrators. All discovery requests shall
be subject to the proprietary rights and rights of privilege of the Parties,
and the arbitrators shall adopt reasonable procedures to protect such rights.
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7.6 HEARINGS. The arbitration panel shall commence hearings within
60 days after the selection of the panel, unless the Parties or the
arbitration panel agree on a delayed schedule of hearings. Except where
contrary to the provisions set forth in this Agreement, the rules of the
American Arbitration Association ("AAA") for commercial arbitration shall be
applied to all matters of procedure, including discovery; provided, however,
that the arbitration shall not be conducted under the auspices of the AAA and
the fee schedule of the AAA shall not necessarily apply. The arbitrators may
obtain independent legal counsel to aid in their resolution of legal questions
presented in the course of arbitration to the extent they consider that such
counsel is necessary to the fair resolution of the Dispute and to the extent
that it is economical to do so considering the financial consequences of the
Dispute. If any Party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the arbitration panel may hear and
determine the controversy on evidence produced by the appearing Party.
7.7 ARBITRATION COSTS. The arbitration costs shall be borne equally
by each Party, except that each Party shall be responsible for its own
expenses and the costs of the arbitrator selected by it.
7.8 CONTINUING PERFORMANCE. Unless otherwise agreed in writing, the
Parties shall continue to perform all obligations and make all payments due
under this Agreement in accordance with this Agreement during the course of
any arbitration pursuant to the provisions of this Article VII. The
obligations of the Parties to continue performance and make payments despite
the existence of a Dispute shall be enforceable by any Party by application to
any court having jurisdiction over this Agreement for an injunctive order
requiring the immediate performance of such obligations as provided in the
preceding sentence until such time as the Dispute is resolved as provided in
this Article VII.
ARTICLE VIII
POST-SEPARATION TRUE-UPS
------------------------
8.1 The Parties recognize that it may be necessary to estimate
the value as of the Separation Date of some Assets or liabilities being
assigned or transferred under this Agreement. When these amounts become
certain, the Parties will make a true-up of the original assignment or
transfer. The Parties also recognize that errors or omissions may be made in
the initial assignment or transfer of Assets and liabilities. When any such
errors are discovered, the Parties will make a true-up of the original
assignment or transfer.
8.2 In addition, the Parties agree that after the Separation Date it
will be necessary to settle certain accounts or other financial transactions
between the Parties which relate to periods prior to the Separation Date and
which are not specifically addressed elsewhere in this Agreement. As the
amount of such settlements become known, the Parties will, at appropriate
times, make true-ups of such accounts or other financial transactions.
8.3 Except as the Parties may otherwise agree, the true-ups
described in Sections 8.1 and 8.2 will be limited to items as to which the
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Party requesting the true-up notifies the other Party in writing within one
year after the Separation Date. True-ups made after the Separation Date will
be settled in cash.
8.4 Following one year after the Separation Date, any additional
true-ups may be negotiated by the Parties.
ARTICLE IX
MISCELLANEOUS
9.1 PUBLICITY. Neither Party shall refer to the post-Separation
plans or business activities of the other Party in publicity releases, or in
any similar external communications, without first securing the prior written
approval of such other Party. After the Separation, neither Party shall
express or imply the other Party's sponsorship or endorsement of a particular
position or view in any external communication without first securing the
prior written approval of such other Party.
9.2 GOVERNING LAW. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of
California, irrespective of the choice of laws principles of the State of
California.
9.3 ASSIGNABILITY. Neither Party shall assign its rights or
delegate its duties under this Agreement without the written consent of the
other Party. Any attempted assignment or delegation in contravention of this
provision shall be void.
9.4 THIRD PARTY BENEFICIARIES. Except as otherwise expressly
provided in this Agreement, the provisions of this Agreement are for the
benefit of the Parties and not for any other person. This Agreement shall not
provide any third person with any remedy, claim, liability, reimbursement,
claim of action or other right in excess of those existing without reference
to this Agreement.
9.5 NOTICES. All notices or other communications under this
Agreement shall be in writing and shall be deemed to be duly given when (a)
delivered in person, or (b) sent by FAX, cable, telegram or telex, or (c)
deposited in the United States mail or private express mail, postage prepaid,
addressed as follows:
If to TELESIS, to: General Counsel
Pacific Telesis Group
130 Kearny Street, Room 3713
San Francisco, CA 94108
If to PACTEL, to: General Counsel
PacTel Corporation
2999 Oak Road, MS 800
Walnut Creek, CA 94596
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Either Party may, by notice to the other Party, change the address to which
such notices are to be given.
9.6 SEVERABILITY. Any provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining provisions of this Agreement
or affecting the validity or enforceability of any of the provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
9.7 FORCE MAJEURE. Neither Party shall be deemed in default of this
Agreement to the extent that any delay or failure in the performance of its
obligations under this Agreement results from any cause beyond its reasonable
control and without its fault or negligence, such as acts of God, acts of
civil or military authority, embargoes, epidemics, war, riots, insurrections,
fires, explosions, earthquakes, floods, unusually severe weather conditions or
labor problems. In the event of any such excused delay, the time for
performance shall be extended for a period equal to the time lost by reason of
the delay.
9.8 HEADINGS. The article, section and paragraph headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
9.9 SURVIVAL OF COVENANTS. The covenants and representations
contained in this Agreement, and liability for the breach of any obligations
contained herein, shall survive the Separation.
9.10 WAIVERS OF DEFAULT. Waiver by any Party of any default by the
other Party shall not be deemed a waiver by the waiving Party of any other
default, nor shall it prejudice the rights of the other Party.
9.11 BINDING NATURE. This Agreement shall be binding on, and inure
to the benefit of, the Parties and their respective Affiliates, successors and
assigns.
9.12 Authority. Each Party represents and warrants that the officer
executing this Agreement on its behalf is duly authorized to so execute this
Agreement on behalf of the Telesis Group or the PacTel Group, as the case may
be.
9.13 AMENDMENTS. No provisions of this Agreement shall be deemed
waived, amended, supplemented or modified by either Party, unless such waiver,
amendment, supplement or modification is in writing and signed by the
authorized representative of the Party against whom it is sought to enforce
such waiver, amendment, supplement or modification.
9.14 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the Parties with respect to the subject matter thereof and
supersedes all prior agreements, writings, communications, negotiations,
discussions and understandings.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives.
PACIFIC TELESIS GROUP PACTEL CORPORATION
By: /s/ P. J. Quigley By: /s/ C. L. Cox
__________________ _________________
Title: Group President Title: President & CEO
---------------- ----------------
Date Signed: October 7, 1993 Date Signed: September 27, 1993
Appendix A Follows)
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APPENDIX A
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
EMPLOYEE BENEFITS ALLOCATION
----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . .. . . . . A-4
SECTION 2 - PARTICIPATION, SERVICE AND
COMPENSATION RECORDS . . . . . . . . . . . . . A-7
SECTION 3 - ANNUAL REPORTS AND OTHER COMPLIANCE MATTERS. . . A-7
SECTION 4 - TRANSFER OF QUALIFIED PENSION ASSETS AND
LIABILITIES FROM TELESIS PLAN. . . . . . . . . A-8
SECTION 5 - TRANSFER OF QUALIFIED PENSION ASSETS AND
LIABILITIES FROM PACTEL PLAN . . . . . . . . . A-9
SECTION 6 - TELESIS SUPPLEMENTAL PENSION PLANS . . . . . . . A-9
SECTION 7 - TELESIS EXECUTIVE DEFERRAL PLAN . . . . . . . . A-11
SECTION 8 - TELESIS DIRECTORS' DEFERRAL PLAN . . . . . . . . A-12
SECTION 9 - PACTEL DEFERRAL PLAN . . . . . . . . . . . . . . A-12
SECTION 10 - LONG TERM INCENTIVE PLANS . . . . . . . . . . . A-13
SECTION 11 - TELESIS STOCK OPTIONS AND SARS. . . . . . . . . A-14
SECTION 12 - TELESIS DIRECTORS' RETIREMENT PLAN. . . . . . . A-17
SECTION 13 - LIABILITY FOR RETIREE LIFE INSURANCE. . . . . . A-18
SECTION 14 - LIABILITY FOR RETIREE MEDICAL AND
DENTAL BENEFITS . . . . . . . . . . . . . . . A-18
SECTION 15 - LIABILITY FOR ACCRUED COMPENSATED ABSENCES. . . A-19
SECTION 16 - TRANSFERRED EMPLOYEES ON UNPAID LEAVES
OR SHORT TERM DISABILITY . . . . .. . . . . . A-19
SECTION 17 - LIABILITY FOR CERTAIN OTHER BENEFITS. . . . . . A-20
SECTION 18 - DEFINED-CONTRIBUTION PLANS. . . . . . . . . . . A-21
SECTION 19 - DEFINED-BENEFIT PLAN. . . . . . . . . . . . . . A-21
SECTION 20 - INDEMNIFICATION . . . . . . . . . . . . . . . . A-22
SECTION 21 - NO THIRD PERSON BENEFICIARIES . . . . . . . . . A-23
SECTION 22 - PLAN AND TRUST DOCUMENTS. . . . . . . . . . . . A-23
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TABLE OF CONTENTS
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Page
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EXHIBIT A-6.5 - METHODOLOGY AND ACTUARIAL
ASSUMPTIONS - TELESIS SUPPLEMENTAL
PENSION PLANS . . . . . . . . . . . . . A-24
EXHIBIT A-7.3 - METHODOLOGY AND ACTUARIAL
ASSUMPTIONS - TELESIS EXECUTIVE
DEFERRAL PLAN . . . . . . . . . . . . . A-26
EXHIBIT A-12.2 - METHODOLOGY AND ACTUARIAL
ASSUMPTIONS - TELESIS DIRECTORS'
DEFERRAL PLAN . . . . . . . . . . . . . A-28
EXHIBIT A-13.2 - METHODOLOGY AND ACTUARIAL
ASSUMPTIONS - RETIREE LIFE
INSURANCE . . . . . . . . . . . . . . . A-30
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EMPLOYEE BENEFITS ALLOCATION
SECTION 1 - DEFINITIONS
- -----------------------
The following terms, and other terms defined in this Appendix and elsewhere in
this Agreement, have the meanings set forth herein unless the context
indicates otherwise. Words importing persons include corporations. Words
importing only the singular include the plural and vice versa where the
context requires.
1.1 CODE means the Internal Revenue Code of 1986, as amended.
1.2 COMMITTEE means the Compensation and Personnel Committee of
Telesis' Board of Directors.
1.3 DIRECTORS' DEFERRAL PLAN means the Pacific Telesis Group
Deferred Compensation Plan for Non-Employee Directors, as amended from time to
time prior to the Separation Date.
1.4 DIRECTORS' DEFERRAL PLAN TRUST means the grantor trust
established pursuant to Trust Agreement No. 2, dated as of June 27, 1988,
between Telesis and Bank of America National Trust and Savings Association,
and between Telesis and Bankers Trust Company as successor Trustee as of
September 1, 1993.
1.5 DIRECTORS' RETIREMENT PLAN means the Pacific Telesis Group
Outside Directors' Retirement Plan, as amended from time to time prior to the
Separation Date.
1.6 ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
1.7 EXCHANGE RATIO means a fraction. The numerator of such fraction
shall be the arithmetic mean of the closing prices of Telesis Common reported
on the New York Stock Exchange Composite Transactions Tape for the Valuation
Period. The denominator of such fraction shall be the arithmetic mean of the
closing prices of PacTel Common reported on the New York Stock Exchange
Composite Transactions Tape for the Valuation Period.
1.8 MANDATORY PORTABILITY AGREEMENT means the Mandatory Portability
Agreement, dated as of January 1, 1985, among Ameritech Corporation, American
Telephone and Telegraph Company, Bell Atlantic Corporation, Bell
Communications Research, Inc., BellSouth Corporation, Cincinnati Bell
Telephone Company, NYNEX Corporation, Pacific Telesis Group, The Southern New
England Telephone Company, Southwestern Bell Corporation and U S West, Inc.,
as amended from time to time.
1.9 MASTER PENSION TRUSTS means the tax-exempt trust funds in which
the assets of the PacTel Pension Plan and the Telesis Pension Plans are held
and invested on a commingled basis.
1.10 PACTEL ACTUARY means an actuary selected by PacTel.
1.11 PACTEL COMMON means the common stock of PacTel.
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<PAGE>
1.12 PACTEL DEFERRAL PLAN means the PacTel Corporation Deferred
Compensation Plan, as amended from time to time prior to the Separation Date.
1.13 PACTEL GRANTOR TRUST means a grantor trust established pursuant
to a trust agreement between PacTel and a corporate trustee selected by
PacTel.
1.14 PACTEL INDEMNITEES means (a) all members of the PacTel Group and
all of their shareholders, directors, officers, employees and agents and
(b) all employee benefit plans maintained by any member of the PacTel Group
and all of their fiduciaries and agents.
1.15 PACTEL LTIP means the PacTel Corporation Long-Term Incentive
Plan, as amended from time to time prior to the Separation Date.
1.16 PACTEL OPTION means an option that entitles the holder to
purchase PacTel Common. A PacTel Option may, but need not, include SARs
pertaining to an equal number of shares of PacTel Common.
1.17 PACTEL OPTIONEE/TELESIS OPTION means an option which entitles
the holder to purchase Telesis Common and which Telesis has issued before the
Separation to (a) an individual who was a member of Telesis' Board of
Directors at the time of grant and who is a member of PacTel's Board of
Directors immediately after the Separation, (b) a Post-Separation PacTel
Employee or (c) a Post-Separation PacTel Retiree. A PacTel Optionee/Telesis
Option may, but need not, include SARs pertaining to an equal number of shares
of Telesis Common.
1.18 PACTEL PENSION PLAN means the PacTel Corporation Employees
Pension Plan, as amended from time to time prior to the Separation Date.
1.19 PACTEL VEBA means a voluntary employees' beneficiary association
which PacTel causes to be formed and which is intended to be tax-exempt under
section 501(c)(9) of the Code.
1.20 POST-SEPARATION PACTEL EMPLOYEE means an employee, including but
not limited to an employee on a company-approved leave or on short term
disability benefits, who (a) immediately before the Separation is employed
either by a member of the Telesis Group or by a member of the PacTel Group and
(b) immediately after the Separation is employed by a member of the PacTel
Group.
1.21 POST-SEPARATION PACTEL RETIREE means a former employee who
immediately after the Separation is receiving or is eligible to receive
service pension benefits under the PacTel Pension Plan.
1.22 POST-SEPARATION TELESIS EMPLOYEE means an employee, including
but not limited to an employee on a company-approved leave or on short term
disability benefits, who (a) immediately before the Separation is employed
either by a member of the Telesis Group or by a member of the PacTel Group and
(b) immediately after the Separation is employed by a member of the Telesis
Group.
1.23 POST-SEPARATION TELESIS RETIREE means a former employee who
immediately after the Separation is receiving or is eligible to receive
service pension benefits under a Telesis Pension Plan.
A-5
<PAGE>
1.24 SAR means the right to receive cash or shares of stock (or a
combination of both) with an aggregate value equal to the difference between
the exercise price specified in the applicable stock option agreement and the
fair market value of one share of the underlying stock at the time of
exercise.
1.25 SEC means the Securities and Exchange Commission.
1.26 SUPPLEMENTAL PENSION PLAN TRUST means a grantor trust
established pursuant to a trust agreement between Telesis and a corporate
trustee selected by Telesis.
1.27 TELESIS ACTUARY means an actuary selected by Telesis.
1.28 TELESIS COMMON means the common stock of Telesis.
1.29 TELESIS EXECUTIVE DEFERRAL PLAN means the Pacific Telesis Group
Executive Deferral Plan, as amended from time to time prior to the Separation
Date.
1.30 TELESIS EXECUTIVE DEFERRAL PLAN TRUST means the grantor trust
established pursuant to Trust Agreement No. 1, dated as of June 27, 1988,
between Telesis and Bank of America National Trust and Savings Association,
and between Telesis and Bankers Trust Company as successor Trustee as of
September 1, 1993.
1.31 TELESIS INDEMNITEES means (a) all members of the Telesis Group
and all of their shareholders, directors, officers, employees and agents and
(b) all employee benefit plans maintained by any member of the Telesis Group
and all of their fiduciaries and agents.
1.32 TELESIS LTIP means the Pacific Telesis Group Senior Management
Long Term Incentive Plan, as amended from time to time prior to the Separation
Date.
1.33 TELESIS NONSALARIED PENSION PLAN means the Pacific Telesis Group
Pension Plan, as amended from time to time prior to the Separation Date, other
than the component thereof that provides benefits not intended to qualify
under section 401(a) of the Code.
1.34 TELESIS OPTIONEE/TELESIS OPTION means an option which entitles
the holder to purchase Telesis Common and which Telesis has issued before the
Separation to (a) an individual who was a member of Telesis' Board of
Directors at the time of grant and who is not a member of PacTel's Board of
Directors immediately after the Separation, (b) a Post-Separation Telesis
Employee or (c) a Post-Separation Telesis Retiree. A Telesis Optionee/Telesis
Option may, but need not, include SARs pertaining to an equal number of shares
of Telesis Common.
1.35 TELESIS PENSION PLANS means the Telesis Salaried Pension Plan
and the Telesis Nonsalaried Pension Plan.
1.36 TELESIS SALARIED PENSION PLAN means the Pacific Telesis Group
Pension Plan for Salaried Employees, as amended from time to time prior to the
Separation Date, other than the components thereof that provide benefits not
intended to qualify under section 401(a) of the Code.
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<PAGE>
1.37 TELESIS SUPPLEMENTAL PLANS means the Pacific Telesis Group
Executive Nonqualified Pension Plan, the Pacific Telesis Group Mid-Career
Pension Plan and the Pacific Telesis Group Supplemental Executive Retirement
Plan, all as amended from time to time prior to the Separation Date.
1.38 VALUATION PERIOD means the last 10 trading days on which Telesis
Common is still traded with the right to receive shares of PacTel Common in
the Distribution.
1.39 VEBA I means the Pacific Telesis Group Basic and Supplementary
Death Benefit Trust, established under an agreement dated as of April 1, 1988,
between Telesis and The Northern Trust Company, as amended from time to time,
and intended to be a voluntary employees' beneficiary association under
section 501(c)(9) of the Code.
SECTION 2 - PARTICIPATION, SERVICE AND COMPENSATION RECORDS
- -----------------------------------------------------------
2.1 RECORDS PROVIDED UPON REQUEST. Within a reasonable time after a
Party has made a written request, the other Party shall provide to the Party
making the request copies of such participation, service, compensation and
other records and files as the Party making the request reasonably requires
(a) to administer any employee benefit plan for whose administration it is
responsible or (b) to satisfy any reporting, disclosure or other requirements
imposed by law or regulation. Such requirements include but are not limited
to the reporting and disclosure requirements of ERISA, the benefit or
contribution limitations of section 415 of the Code, and the identification of
"highly compensated employees" under section 414(q) of the Code and "leased
employees" under section 414(n) of the Code.
2.2 RECORDS PROVIDED AUTOMATICALLY. Not later than 90 days after
the Separation Date, each Party shall provide to the other Party copies of
complete and accurate participation, service and compensation records
pertaining to all active or former employees of the first Party who,
immediately after the Separation Date, participate as active employees in any
employee benefit plan maintained by the second Party. In addition, not later
than 90 days after the Separation Date, Telesis shall provide PacTel with
copies of annual reports, its legal files and its other office files that are
necessary or related to the design or administration of PacTel benefit plans.
2.3 INFORMATION HELD BY THIRD PERSONS. To the extent that any
information required to be provided by a Party under this Section 2 is in the
possession of a third person independent of such Party, the Party making the
request for such information and the other Party shall cooperate and jointly
use their best efforts to obtain such information from the third person. A
Party shall not be responsible for the third person's failure to make such
information available if such Party has used its best efforts to obtain such
information.
SECTION 3 - ANNUAL REPORTS AND OTHER COMPLIANCE MATTERS
- -------------------------------------------------------
3.1 REPORTING REQUIREMENTS. For calendar years commencing before
the Separation Date, Telesis shall prepare and file (or cause to be prepared
and filed) all Form 5500 annual reports and related schedules, all PBGC Forms
ES-1 or 1, all notices of asset transfers and actuarial certifications, and
A-7
<PAGE>
any other forms required to be filed for the employee benefit plans maintained
by members of the PacTel Group before the Separation. Telesis shall prepare
and distribute to participants (or cause to be prepared and distributed) all
summary annual reports required to be distributed for calendar years
commencing before the Separation Date for the employee benefit plans
maintained by members of the Telesis Group or the PacTel Group before the
Separation. PacTel shall furnish to Telesis in a timely manner such
information as Telesis may reasonably request in order to prepare and file or
distribute the reports and forms described in this Section 3.1. For calendar
years commencing on or after the Separation Date, each Party shall be
responsible for the preparation and filing or distribution of all required
reports and forms for the employee benefit plans it sponsors.
3.2 NONDISCRIMINATION TESTING. Telesis shall perform all tests
required to be performed in order to determine whether the qualified
retirement plans maintained by members of the PacTel Group before the
Separation satisfy the nondiscrimination standards of the Code for calendar
years commencing before the Separation Date. Such standards include but are
not limited to the standards set forth in sections 105(h), 125, 401(a)(4),
410(b), 401(k) and 401(m) of the Code. PacTel shall furnish to Telesis in a
timely manner such information as Telesis may reasonably request in order to
perform such tests. For calendar years commencing on or after the Separation
Date, each Party shall perform all nondiscrimination tests for the employee
benefit plans it sponsors.
SECTION 4 - TRANSFER OF QUALIFIED PENSION ASSETS AND LIABILITIES
- ----------------------------------------------------------------
FROM TELESIS PLAN
-----------------
4.1 TRANSFER OF ASSETS. In the case of each Post-Separation PacTel
Employee for whom assets have not already been transferred from the applicable
Telesis Pension Plan to the PacTel Pension Plan as of the Separation Date
pursuant to the provisions of section 8.4 of such Telesis Pension Plan, such
provisions shall apply and Telesis shall cause the trustee of such Telesis
Pension Plan to transfer an amount determined pursuant to section 414(l)(2) of
the Code to the trustee of the PacTel Pension Plan. Such transfer shall be
made effective as of a time immediately prior to the Separation in the manner
prescribed by the applicable Telesis Pension Plan and section 414(l)(2) of the
Code (without regard to the exception in section 414(l)(2)(D)(ii) of the
Code). Once such transfer has been made, the sole and exclusive respon-
sibility for providing the benefits accrued by Post-Separation PacTel
Employees under the Telesis Pension Plans as of the Separation Date shall be
that of the PacTel Pension Plan and the PacTel Group.
4.2 OTHER TELESIS EMPLOYEES WHO BECOME PACTEL EMPLOYEES POST
SEPARATION. The foregoing provisions of this Section 4 shall apply only to
Post-Separation PacTel Employees. In the case of employees who are not
covered by the Mandatory Portability Agreement, and who become employed by a
member of the PacTel Group after the Separation, no assets or liabilities
shall be transferred from a Telesis Pension Plan to the PacTel Pension Plan.
In the case of any employees who are covered by the Mandatory Portability
Agreement, and who become employed by a member of the PacTel Group after the
Separation, the provisions of the Mandatory Portability Agreement shall apply.
A-8
<PAGE>
SECTION 5 - TRANSFER OF QUALIFIED PENSION ASSETS AND LIABILITIES
- ----------------------------------------------------------------
FROM PACTEL PLAN
----------------
5.1 TRANSFER OF ASSETS. In the case of each Post-Separation Telesis
Employee for whom assets have not already been transferred from the PacTel
Pension Plan to the applicable Telesis Pension Plan as of the Separation Date
pursuant to the provisions of section 8.01(a) of the PacTel Pension Plan, such
provisions shall apply and PacTel shall cause the trustee of the PacTel
Pension Plan to transfer an amount determined pursuant to section 414(l)(2) of
the Code to the trustee of the applicable Telesis Pension Plan. Such transfer
shall be made effective as of a time immediately prior to the Separation in
the manner prescribed by the PacTel Pension Plan and section 414(l)(2) of the
Code (without regard to the exception in section 414(l)(2)(D)(ii) of the
Code). Once such transfer has been made, the sole and exclusive responsibi-
lity for providing the benefits accrued by Post-Separation Telesis Employees
under the PacTel Pension Plan as of the Separation Date shall be that of the
applicable Telesis Pension Plan and the Telesis Group.
5.2 OTHER PACTEL EMPLOYEES WHO BECOME TELESIS EMPLOYEES POST
SEPARATION. The foregoing provisions of this Section 5 shall apply only to
Post-Separation Telesis Employees. In the case of employees who are not
covered by the Mandatory Portability Agreement, and who become employed by a
member of the Telesis Group after the Separation, no assets or liabilities
shall be transferred from the PacTel Pension Plan to a Telesis Pension Plan.
The applicable Telesis Pension Plan shall recognize the service completed by
such employees with members of the PacTel Group before the Separation for
eligibility for participation and vesting, but only to the extent required by
the terms of such Telesis Pension Plan at the time of such employment or by
the Code or ERISA. In the case of any employees who are covered by the
Mandatory Portability Agreement, and who become employed by a member of the
Telesis Group after the Separation, the provisions of the Mandatory Porta-
bility Agreement shall apply.
5.3 PACTEL EMPLOYEES COVERED BY MPA. If a Post-Separation PacTel
Employee who is covered by the Mandatory Portability Agreement becomes
employed by another employer which is not a member of the PacTel Group but
which is covered by the Mandatory Portability Agreement, then PacTel shall
cause the PacTel Pension Plan to transfer assets and liabilities to such other
employer's pension plan as required by the Mandatory Portability Agreement.
5.4 MERIDIAN. In the case of PacTel Meridian Systems
employees who are participating in the PacTel Pension Plan, PacTel and Telesis
shall take any action deemed necessary to meet the Parties' obligations under
any current or future agreement with Northern Telecom Inc.
SECTION 6 - TELESIS SUPPLEMENTAL PENSION PLANS
- ----------------------------------------------
6.1 PACTEL PLANS AND TRUST. Effective as of the Separation Date,
PacTel shall establish one or more nonqualified supplemental pension plans.
Such plans, collectively, shall provide supplemental benefits for each Post-
Separation PacTel Employee which are not less than the supplemental benefits
(if any) accrued by such Post-Separation PacTel Employee who has not
terminated under the Telesis Supplemental Plans as of the Separation Date.
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Not later than the Separation Date, PacTel shall establish a PacTel Grantor
Trust. Such PacTel Grantor Trust shall have a corporate trustee independent
of PacTel and shall be designed to constitute a grantor trust under the Code.
6.2 BENEFIT PAYMENTS PENDING TRANSFERS OF ASSETS. The appropriate
member of the Telesis Group shall make current benefit payments to Post-
Separation PacTel Employees, if required by the provisions of the Telesis
Supplemental Plans, between the Separation Date and the date of the final
asset transfer described in Section 6.6 below.
6.3 INTEREST ADJUSTMENTS. Prior to each asset transfer described in
Sections 6.4 and 6.6 below, the amount of assets to be transferred shall be
credited with interest, at a rate to be determined mutually by the Telesis
Actuary and the PacTel Actuary, from the Separation Date to the date of such
asset transfer and shall be reduced by any benefit payments made pursuant to
Section 6.2 above (adjusted for interest from the date of payment to the date
of asset transfer).
6.4 PARTIAL TRANSFER OF ASSETS. Not later than 30 days after the
Separation Date, Telesis shall request the Telesis Actuary to estimate the
present value of the accrued benefits of the Post-Separation PacTel Employees
who have not terminated under the Telesis Supplemental Plans as of the
Separation Date. As soon as practicable after the estimate is determined,
assets equal to at least 75% of such estimate (as adjusted for interest
pursuant to Section 6.3 above) shall be transferred by Telesis or by the
trustee of the Supplemental Pension Plan Trust (as Telesis shall direct) to
PacTel or to the trustee of the corresponding PacTel Grantor Trust (as PacTel
shall direct). Such transfer shall be made in the form of (a) corporate-owned
life insurance policies, (b) marketable securities, (c) cash in good funds or
(d) any combination of the foregoing, as Telesis shall direct.
6.5 ACTUARIAL VALUATION. As soon as reasonably practicable after
the Separation Date, Telesis shall request the Telesis Actuary to determine
and certify as correct the present value of the accrued benefits of the Post-
Separation PacTel Employees under the Telesis Supplemental Plans as of the
Separation Date. Such present value shall be calculated based on the
actuarial assumptions and methodology set forth in the attached Exhibit A-6.5,
and on the Post-Separation PacTel Employees' compensation and service prior to
the Separation Date. PacTel shall have the right to request the PacTel
Actuary to verify the accuracy of the calculation of such present value. The
amount of such present value, as certified by the Telesis Actuary, shall be
final, conclusive and binding on Telesis and PacTel unless within 30 days
after delivery by the Telesis Actuary to the PacTel Actuary of the
certification, together with supporting information reasonably requested by
the PacTel Actuary, PacTel notifies Telesis that it disagrees with the
valuation. If PacTel's disagreement is not resolved to the mutual
satisfaction of the Parties within 30 days after Telesis received written
notification of the disagreement (or within such longer period as the Parties
may mutually agree to), either Party may elect to have the calculation
submitted for resolution to a third, independent actuary appointed mutually by
the Parties. The determination of such independent actuary shall be final,
conclusive and binding. The fees and expenses of any independent actuary so
appointed shall be shared equally by the Parties.
6.6 FINAL TRANSFER OF ASSETS. As soon as reasonably practicable
after the final determination of the present value of the accrued benefits of
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<PAGE>
the Post-Separation PacTel Employees who have not terminated under the Telesis
Supplemental Plans as of the Separation Date pursuant to Section 6.5 above, an
amount of assets equal to the excess of such present value over the amounts
already transferred pursuant to Section 6.4 above or paid as benefits under
Section 6.2 above (all as adjusted for interest pursuant to Section 6.3 above)
shall be transferred by Telesis or by the trustee of the Supplemental Pension
Plan Trust (as Telesis shall direct) to PacTel or to the trustee of the
corresponding PacTel Grantor Trust (as PacTel shall direct). Such transfer
shall be made in the form of (a) corporate-owned life insurance policies, (b)
marketable securities, (c) cash in good funds or (d) any combination of the
foregoing, as Telesis shall direct. Once such transfer has been made, the
sole and exclusive responsibility for providing the benefits accrued by the
Post-Separation PacTel Employees who have not terminated under the Telesis
Supplemental Plans as of the Separation Date shall be that of the PacTel
Group.
SECTION 7 - TELESIS EXECUTIVE DEFERRAL PLAN
- -------------------------------------------
7.1 LIABILITY FOR PAYMENT OF DEFERRED COMPENSATION. Telesis shall
be solely and exclusively responsible for providing the benefits accrued as of
the Separation Date under the Telesis Executive Deferral Plan by all Post-
Separation PacTel Employees who are participants in such plan. To the extent
that members of the PacTel Group are found responsible for any such benefits
by a court of competent jurisdiction, Section 20.2 below shall apply.
7.2 TRUST. After the Separation, the members of the PacTel Group
that participated in the Telesis Executive Deferral Plan before the Separation
shall be deemed to have withdrawn from participation in, and shall be treated
as "Former Employers" under, the Telesis Executive Deferral Plan Trust. Not
later than 90 days after the Separation Date, the Committee shall promulgate
written directions to the trustee of such trust pertaining to the disposition
of the percentage interests in the assets of such trust which are attributable
to members of the PacTel Group, in accordance with the provisions of the
Telesis Executive Deferral Plan Trust and this Appendix.
7.3 PAYMENT BY PACTEL TO TELESIS. Not later than 90 days after the
Separation Date, PacTel shall pay to Telesis in cash an amount equal to the
present value of all unpaid benefits under the Telesis Executive Deferral Plan
that are attributable to service with members of the PacTel Group prior to the
Separation Date, reduced by the present value of all amounts previously paid
to Telesis or to the Telesis Executive Deferral Plan Trust by members of the
PacTel Group on account of such benefits, and increased by the present value
of any amount paid (or by the value of any assets transferred) to members of
the PacTel Group by the Telesis Executive Deferral Plan Trust under Sec-
tion 7.2 above. Such present values, including interest on payments made
after the Separation Date, shall be calculated based on the interest
assumptions and methodology set forth in the attached Exhibit A-7.3.
7.4 EMPLOYEE TERMINATIONS. A Post-Separation PacTel Employee shall
not be entitled to a distribution from the Telesis Executive Deferral Plan on
account of termination of employment until he or she separates from employment
with the PacTel Group. If a Post-Separation PacTel Employee duly filed a
distribution election under the Telesis Executive Deferral Plan that refers to
his or her termination of employment, then such election shall be construed to
refer to the termination of his or her employment with the PacTel Group.
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PacTel shall promptly notify Telesis of any termination of employment by such
Post-Separation PacTel Employee. In all other respects, a Post-Separation
PacTel Employee shall be treated under the Telesis Executive Deferral Plan as
a former employee of Telesis. Not later than 60 days after the Separation
Date, Telesis shall provide to PacTel a complete list of all Post-Separation
PacTel Employees who have benefits accrued under the Telesis Executive
Deferral Plan.
SECTION 8 - TELESIS DIRECTORS' DEFERRAL PLAN
- --------------------------------------------
8.1 LIABILITY FOR PAYMENT OF DEFERRED COMPENSATION. Telesis shall
be solely and exclusively responsible for providing the benefits accrued as of
the Separation Date under the Directors' Deferral Plan by all individuals who
are participants in such plan.
8.2 DIRECTOR TERMINATIONS. A member of Telesis' Board of Directors
who becomes a member of PacTel's Board of Directors on or before the
Separation Date shall not be entitled to a distribution from the Directors'
Deferral Plan on account of termination of service until his or her service on
PacTel's Board of Directors ends. If such an individual duly filed a
distribution election under the Directors' Deferral Plan that refers to his or
her termination of service, then such election shall be construed to refer to
the termination of his or her service as a member of PacTel's Board of
Directors. PacTel shall promptly notify Telesis of any termination of service
by such individual. In all other respects, such individual shall be treated
under the Directors' Deferral Plan as a former member of Telesis' Board of
Directors.
SECTION 9 - PACTEL DEFERRAL PLAN
- --------------------------------
9.1 LIABILITY FOR PAYMENT OF DEFERRED COMPENSATION. PacTel shall be
solely and exclusively responsible for providing the benefits accrued as of
the Separation Date under the PacTel Deferral Plan by all PacTel Group
employees, former PacTel Group employees and Post-Separation Telesis Employees
who were participants in such plan prior to Separation. To the extent that
members of the Telesis Group are found responsible for any such benefits by a
court of competent jurisdiction, Section 20.1 below shall apply.
9.2 EMPLOYEE TERMINATIONS. A Post-Separation Telesis Employee shall
not be entitled to a distribution from the PacTel Deferral Plan on account of
termination of employment until he or she separates from employment with the
Telesis Group. If a Post-Separation Telesis Employee duly filed a
distribution election under the PacTel Deferral Plan that refers to his or her
termination of employment, then such election shall be construed to refer to
the termination of his or her employment with the Telesis Group. Telesis
shall promptly notify PacTel of any termination of employment by such Post-
Separation Telesis Employee. In all other respects, such Post-Separation
Telesis Employee shall be treated under the PacTel Deferral Plan as a former
employee of PacTel. Not later than 60 days after the Separation Date, PacTel
shall provide to Telesis a complete list of all Post-Separation Telesis
Employees who have benefits accrued under the PacTel Deferral Plan.
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SECTION 10 - LONG TERM INCENTIVE PLANS
- --------------------------------------
10.1 TERMINATION OF OLD PACTEL INCENTIVE PLANS. Effective as of the
Separation Date, PacTel shall terminate the PacTel LTIP. The awards accrued
under such plan as of the termination date shall be canceled, except as
provided in Section 10.2 below.
10.2 TREATMENT OF LTIP AWARDS OF PACTEL EMPLOYEES. The awards made
to Post-Separation PacTel Employees under the Telesis LTIP and the PacTel LTIP
for the three-year performance cycles that have not ended on or before the
Separation Date (the "Open Cycles") shall be converted into awards relating to
PacTel Common. The awards for those portions of the Open Cycles which are
completed as of the Separation Date shall be settled on the basis of the
actual results achieved under the applicable performance measures as of the
last day of the month or calendar quarter (as Telesis shall determine at the
time of Separation) coinciding with or next preceding the Separation Date.
Settlement shall be made in the form of equivalent restricted shares of PacTel
Common granted by PacTel. Restricted shares granted in lieu of awards for the
Open Cycles shall vest when such awards would have been paid absent conversion
under this Section 10.2; provided that restricted shares shall vest at such
earlier times as may be provided under the applicable plan for the units or
awards that were replaced by such restricted shares. Awards for the
uncompleted portions of the Open Cycles, and the dividend equivalents that
would have been paid with respect to such awards, shall be replaced by
equivalent options to purchase PacTel Common, which shall become exercisable
when such awards would have been paid absent conversion under this
Section 10.2. The number of options to be granted shall be calculated as
determined mutually by the Parties. All grants under this Section 10.2 shall
be made as of the Separation Date.
10.3 PAYMENT BY TELESIS TO PACTEL. Not later than 60 days after the
Separation Date, Telesis shall pay to PacTel an amount equal to the cost of
awards earned for those portions of the Open Cycles which are completed under
the Telesis LTIP as of the Separation Date for Post-Separation PacTel
Employees who transferred from the Telesis Group to the PacTel Group on or
before the Separation Date.
10.4 TRANSFER OF INFORMATION CONCERNING ACCRUED TELESIS AWARDS. Not
later than 60 days after the Separation Date, Telesis shall provide to PacTel
a complete list of all Post-Separation PacTel Employees who hold awards under
the Telesis LTIP, showing for each holder of such an award (a) such holder's
name and Social Security number, (b) the number of restricted shares of PacTel
Common to be granted to such holder under Section 10.2 above, (c) the number
of options to purchase shares of PacTel Common to be granted to such holder
under Section 10.2 above, and (d) the vesting dates of such restricted shares
and options.
10.5 DOCUMENTATION OF SUBSTITUTED SHARES AND OPTIONS. Within a
reasonable period after the Separation Date, PacTel shall issue to each Post-
Separation PacTel Employee who held an award under the Telesis LTIP the
appropriate documents evidencing the substitution of restricted shares of
PacTel Common and PacTel Options for such award, as provided in Section 10.2
above.
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10.6 REGISTRATION OF SUBSTITUTED SHARES AND OPTIONS. PacTel shall
file with the SEC a registration statement on SEC Form S-8 prior to the
Separation Date. Such registration statement shall cover the restricted
shares of PacTel Common granted under Section 10.2 above and the shares of
PacTel Common issuable upon the exercise of the PacTel Options granted under
Section 10.2 above. PacTel shall take any additional actions required to
cause such shares to be registered under the Securities Act of 1933 and to
maintain such registration in effect, through post-effective amendments or
otherwise, until the exercise or expiration of all of such PacTel Options.
PacTel shall also take any actions required to cause such shares to be listed
on the New York Stock Exchange and to maintain the listing in effect until the
issuance of all of such shares.
10.7 TREATMENT OF TELESIS LTIP AWARDS OF TELESIS EMPLOYEES. The
awards made to Post-Separation Telesis Employees under the Telesis LTIP for
the Open Cycles shall be administered pursuant to the Telesis LTIP. To the
extent that the amount of such awards depends on the financial results of
members of the PacTel Group, such results shall be determined as of the
Separation Date. PacTel shall provide to Telesis such information as Telesis
reasonably requires to determine such results and administer such awards.
10.8 PAYMENT BY PACTEL TO TELESIS. Not later than 60 days after the
Separation Date, PacTel shall pay to Telesis an amount equal to the cost of
Telesis LTIP awards earned as of the Separation Date for those portions of the
Open Cycles which are completed as of the Separation Date for Post-Separation
Telesis Employees who, during the applicable Open Cycle, were employed by a
member of the PacTel Group.
10.9 PACTEL LTIP. PacTel shall be solely and exclusively responsible
for awards under the PacTel LTIP.
SECTION 11 - TELESIS STOCK OPTIONS AND SARS
- -------------------------------------------
11.1 TRANSFER OF INFORMATION CONCERNING PACTEL OPTIONEE/ TELESIS
OPTIONS. No later than 30 days before the then scheduled Separation Date,
Telesis shall provide to PacTel a complete list of all holders of unexercised
PacTel Optionee/Telesis Options, showing for each holder of an unexercised
PacTel Optionee/Telesis Option (a) such holder's name and Social Security
number, (b) the date of grant of such option, (c) the number of shares of
Telesis Common still subject to such option, (d) the exercise price under such
option, (e) the vesting schedule and expiration date of such option, and
(f) all other material terms and conditions of such option. Not later than 30
days after the Separation Date, Telesis shall provide to PacTel the
information specified in clauses (a), (b), (c) and (d) of the preceding
sentence with respect to PacTel Optionee/Telesis Options exercised within the
30-day period before the Separation Date.
11.2 SUBSTITUTION OF PACTEL OPTIONEE/TELESIS OPTIONS BY PACTEL. As
of the Separation Date, PacTel shall substitute an option to purchase PacTel
Common for each PacTel Optionee/Telesis Option. Each PacTel Option
substituted by PacTel under this Section 11.2 shall continue to be subject to
substantially the same terms and conditions set forth in such PacTel
Optionee/Telesis Option, except that:
(a) Such substituted PacTel Option shall cover a number of
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whole shares of PacTel Common equal to the product of the
number of shares of Telesis Common that were subject to
such PacTel Optionee/Telesis Option multiplied by the
Exchange Ratio, rounded up to the nearest whole number of
shares of PacTel Common; and
(b) The exercise price per share for the shares of PacTel
Common issuable on the exercise of such substituted PacTel
Option shall be equal to:
(i) The arithmetic mean of the per share closing
prices of PacTel Common reported on the New York
Stock Exchange Composite Transactions Tape for
the Valuation Period; minus
(ii) The quotient determined by dividing (A) the
aggregate pre-Distribution option spread by (B)
the number of whole shares of PacTel Common
calculated under Subsection (a) above.
Such aggregate pre-Distribution option spread shall be equal to the excess of
the aggregate fair market value of all shares of Telesis Common subject to
such PacTel Optionee/Telesis Option over the aggregate exercise price under
such PacTel Optionee/Telesis Option. Such aggregate fair market value shall
be determined on the basis of the arithmetic mean of the closing prices of
Telesis Common reported on the New York Stock Exchange Composite Transactions
Tape for the Valuation Period.
Each PacTel Option substituted by PacTel under this Section 11.2 shall include
SARs if the original PacTel Optionee/Telesis Option included SARs.
11.3 DOCUMENTATION OF SUBSTITUTED OPTIONS. Within a reasonable
period after the Separation Date, PacTel shall issue to each holder of an out-
standing PacTel Optionee/Telesis Option a document evidencing the substitution
of a PacTel Option for such PacTel Optionee/Telesis Option, as provided in
Section 11.2 above.
11.4 REGISTRATION REQUIREMENTS FOR SUBSTITUTED OPTIONS. PacTel shall
file with the SEC a registration statement on SEC Form S-8 prior to the
Separation Date. Such registration statement shall cover the shares of PacTel
Common issuable upon the exercise of the substituted PacTel Options. PacTel
shall take any additional actions required to cause such shares to be
registered under the Securities Act of 1933 and to maintain such registration
in effect, through post-effective amendments or otherwise, until the exercise
or expiration of all such PacTel Options. PacTel shall also take any actions
required to cause such shares to be listed on the New York Stock Exchange and
to maintain the listing in effect until the exercise or expiration of all of
the substituted PacTel Options.
11.5 ENHANCEMENT OF TELESIS OPTIONEE/TELESIS OPTIONS BY TELESIS.
Prior to the Separation Date, and effective as of the Separation Date, Telesis
shall supplement each Telesis Optionee/ Telesis Option with an option to
purchase PacTel Common from Telesis (or a trust established by Telesis). Each
PacTel Option granted by Telesis under this Section 11.5 shall cover the same
number of PacTel shares that would have been distributed with respect to
Telesis Common had the Telesis Optionee/Telesis Option been exercised prior to
the Valuation Period, and shall be subject to substantially the same terms and
conditions set forth in such Telesis Optionee/Telesis Option, except that the
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per share exercise price for the shares of PacTel Common issuable on the
exercise of such PacTel Option shall be equal to the quotient determined by
dividing the exercise price per share of Telesis Common at which such Telesis
Optionee/Telesis Option was exercisable before the Separation Date by the
Exchange Ratio. Each PacTel Option granted by Telesis under this Section 11.5
shall include SARs if the original Telesis Optionee/Telesis Option included
SARs.
11.6 DOCUMENTATION AND ADMINISTRATION OF ADD-ON OPTIONS. Within a
reasonable period after the Separation Date, Telesis shall issue to each
holder of an outstanding Telesis Optionee/Telesis Option a document evidencing
the addition of a PacTel Option to such Telesis Optionee/Telesis Option, as
provided in Section 11.5 above. Except as provided in Section 11.7 below with
respect to securities law requirements, Telesis shall be solely responsible
for the administration of the PacTel Options granted to the holders of Telesis
Optionee/Telesis Options, including but not limited to the acquisition of
shares of PacTel Common and the transfer of such shares upon the exercise of
such options.
11.7 REGISTRATION AND BLUE SKY REQUIREMENTS FOR ADD-ON OPTIONS.
PacTel shall file with the SEC a registration statement on SEC Form S-8 prior
to the Separation Date. Such registration statement shall cover the shares of
PacTel Common to be transferred by Telesis (or a trust established by Telesis)
upon the exercise of the PacTel Options granted by Telesis to the holders of
Telesis Optionee/Telesis Options. PacTel shall take any additional actions
required to cause such shares to be registered under the Securities Act of
1933 and to maintain such registration in effect, through post-effective
amendments or otherwise, until the exercise or expiration of all such PacTel
Options. PacTel shall be solely responsible for complying with the
requirements of Rule 428 of the SEC with respect to the shares of PacTel
Common registered on SEC Form S-8 pursuant to this Section 11.7, except to the
extent that Telesis agrees in writing to assume the responsibility for meeting
one or more of such requirements. PacTel shall take any actions required to
cause such shares to be listed on the New York Stock Exchange and to maintain
the listing in effect until the exercise or expiration of all of the PacTel
Options. PacTel shall also take any actions required by state "Blue Sky" laws
with respect the PacTel Options granted to the holders of Telesis Optionee/Te-
lesis Options and the shares of PacTel Common to be transferred upon the
exercise of such PacTel Options, except to the extent that Telesis agrees in
writing to assume the responsibility for complying with one or more of such
laws. Telesis shall pay, or reimburse PacTel, at fair market value for
services performed for Telesis by PacTel after the Separation Date under this
Section 11.7. The Parties agree that the fair market value of services
performed for Telesis will be equal to costs that would not otherwise have
been incurred by PacTel absent the requirements of this Section 11.7, plus
10%. This Section 11.7 shall not apply to the extent that Telesis, in its
sole judgment, determines that the registration requirements of the Securities
Exchange Act of 1933, the New York Stock Exchange listing requirements or the
state "Blue Sky" laws do not apply to the shares of PacTel Common to be
transferred upon the exercise of the PacTel Options granted to the holders of
Telesis Optionee/Telesis Options. Telesis shall notify PacTel in writing of
such determination.
11.8 TRANSFER OF INFORMATION CONCERNING ADD-ON OPTIONS. Telesis
shall provide to PacTel a complete list of all holders of unexercised PacTel
Options granted by Telesis under Section 11.5 above whenever PacTel reasonably
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requires such list in order to comply with the requirements of Rule 428 of the
SEC or other applicable requirements of law. Such list shall show for each
holder of an unexercised PacTel Option such holder's name, Social Security
number and address and shall include such other information as PacTel may
reasonably require in order to comply with the requirements of Rule 428 of the
SEC or other applicable requirements of law.
11.9 TAX DEDUCTION FOR ADD-ON OPTIONS. PacTel shall not claim
a deduction for federal, state or local income tax purposes with respect to
the transfer of shares of PacTel Common upon the exercise of the PacTel
Options granted to the holders of Telesis Optionee/Telesis Options (to the
extent Telesis is able to claim any such deduction).
11.10 SAR ACCOUNTING PROCEDURES FOR TRANSFERRING EMPLOYEES. SARs
with respect to employees who transfer between any member of the Telesis Group
and the PacTel Group on or before the Separation Date shall be handled, for
purposes of accounting and compensation to the receiving company, under the
procedures customarily followed prior to the Separation Date (which included
transfer of liability and corresponding assets), provided that any such
payments shall be made no later than 90 days after the Separation Date.
SECTION 12 - TELESIS DIRECTORS' RETIREMENT PLAN
- -----------------------------------------------
12.1 PACTEL PLAN. Effective as of the Separation Date, PacTel shall
establish a directors' retirement plan. Such plan shall provide retirement
benefits for each individual who participated in the Directors' Retirement
Plan before the Separation Date and who is a non-employee member of PacTel's
Board of Directors immediately after the Separation Date. Such plan shall
provide retirement benefits which are not less than the retirement benefits
accrued by such individual under the Directors' Retirement Plan as of the
Separation Date.
12.2 ACTUARIAL VALUATION. As soon as reasonably practicable
after the Separation Date, Telesis shall request the Telesis Actuary to
determine and certify as correct the present value of the accrued benefits of
the individuals who are members of PacTel's Board of Directors immediately
after the Separation Date and who have accrued benefits under the Directors'
Retirement Plan as of the Separation Date. Such present value shall be
calculated based on the assumptions and methodology set forth in the attached
Exhibit A-12.2. The provisions of Section 6.5 above shall apply in the event
that PacTel requests a review of the Telesis Actuary's determination.
12.3 ASSET TRANSFER. As soon as reasonably practicable after the
determination of the present value of the accrued benefits of the PacTel
directors under the Directors' Retirement Plan as of the Separation Date
pursuant to Section 12.2 above, an amount of assets equal to such present
value (as adjusted for interest pursuant to Section 6.3 above) shall be
transferred by Telesis to PacTel or to the trustee of any corresponding PacTel
Grantor Trust, as PacTel shall direct. Such transfer shall be made in any
form permitted under Section 6.6 above. Once such transfer has been made, the
sole and exclusive responsibility for providing the benefits accrued by PacTel
directors under the Directors' Retirement Plan as of the Separation Date shall
be that of the PacTel Group.
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SECTION 13 - LIABILITY FOR RETIREE LIFE INSURANCE
- -------------------------------------------------
13.1 PACTEL VEBA. Not later than the Separation Date, PacTel shall
establish the PacTel VEBA. The PacTel VEBA shall have a corporate trustee
independent of PacTel and shall be designed to constitute a tax-exempt
voluntary employees' beneficiary association under section 501(c)(9) of the
Code.
13.2 TRANSFER OF ASSETS. Effective as of a time immediately prior to
the Separation, or, if later, as of such date the PacTel VEBA is issued a
favorable determination by the Internal Revenue Service of its status as an
exempt trust under Code section 501(c)(9), Telesis shall cause an amount of
assets to be transferred by the trustee of VEBA I to the trustee of the PacTel
VEBA. Such amount shall be equal to a portion of the total value of the
assets of VEBA I attributable to the Retirement Funding Account under Group
Policy 6336 as of the Separation Date. Such portion shall represent those
liabilities for post-retirement death benefits under the plan associated with
VEBA I (as of the Separation Date) which are attributable to Post-Separation
PacTel Employees who transferred from the Telesis Group to the PacTel Group as
a result of the Separation (as designated by Telesis), reduced by those
liabilities for post-retirement death benefits (as of the Separation Date)
which are attributable to Post-Separation Telesis Employees who transferred
from the PacTel Group to the Telesis Group as a result of the Separation (as
designated by PacTel). The amount of assets to be transferred shall be deter-
mined jointly by the Telesis Actuary and the PacTel Actuary, based on the
actuarial assumptions and methodology set forth in the attached
Exhibit A-13.2. If any disagreement between the Telesis Actuary and the
PacTel Actuary is not resolved to the mutual satisfaction of the Parties
within 30 days after written notification of such disagreement was given by
one Party to the other Party (or within such longer period as the Parties may
mutually agree to), either Party may elect to have the calculation submitted
for resolution to a third, independent actuary appointed mutually by the
Parties. The determination of such independent actuary shall be final,
conclusive and binding. The fees and expenses of any independent actuary so
appointed shall be shared equally by the Parties. Prior to the asset transfer
described in this Section 13.2, the amount of assets to be transferred shall
be credited with interest, at a rate determined jointly by the Telesis Actuary
and the PacTel Actuary, from the Separation Date to the date of such asset
transfer. Such asset transfer shall be made in the form of (a) marketable
securities, (b) cash in good funds or (c) any combination of the foregoing,
as Telesis and PacTel shall jointly determine. Once such asset transfer has
been made, the sole and exclusive responsibility for providing post-retirement
group life insurance benefits to Post-Separation PacTel Employees shall be
that of the PacTel Group and the PacTel VEBA.
SECTION 14 - LIABILITY FOR RETIREE MEDICAL AND DENTAL BENEFITS
- --------------------------------------------------------------
In the case of an employee who transfers between any member of the
Telesis Group and any member of the PacTel Group on or before the Separation
Date, the new employer shall have the sole and exclusive responsibility for
the employee's retiree medical and dental benefits (if any).
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SECTION 15 - LIABILITY FOR ACCRUED COMPENSATED ABSENCES
- -------------------------------------------------------
In the case of an employee who transfers between any member of the
Telesis Group and any member of the PacTel Group on or before the Separation
Date, the earned but unused days of compensated absence to which the employee
is entitled at the time of the transfer shall be assumed by his or her new
employer to the extent that such earned but unused days are recognized under
the new employer's compensated-absence policy. To the extent that such earned
but unused days are not recognized under the new employer's compensated-
absence policy, such days shall be canceled as of the date of the transfer and
the employee shall be compensated therefor in cash by his or her old employer.
Within 90 days after the Separation Date, the old employer shall reimburse the
new employer in cash for the liability of all days of compensated absence that
the new employer assumes from the old employer. The liability shall be
determined by multiplying the employee's daily basic rate of pay at the date
of transfer by the number of compensated absence days assumed by the new
employer.
SECTION 16 - TRANSFERRED EMPLOYEES ON UNPAID LEAVES OR SHORT TERM
- ------------------------------------------------------------------
DISABILITY
----------
16.1 UNPAID LEAVES. In the case of an employee who transfers between
any member of the Telesis Group and any member of the PacTel Group on or
before the Separation Date and while on an unpaid leave of absence, with a
right to return to employment at the expiration of such leave, the employee
shall be entitled to continue the unpaid leave of absence under the new
employer's leave of absence policies for a period up to the maximum duration
established under the new employer's policies for the type of leave that is
most similar to the leave granted by the old employer, provided that the
maximum duration of the leave (counting both the period before the transfer
and the period thereafter) shall not exceed the maximum duration established
for the employee's leave by the old employer. To the extent that continued
welfare benefits are required by law for employees on unpaid leaves of absence
who transfer on or after August 5, 1993, the new employer shall assume any
liability for such benefits remaining as of the date of the transfer, and the
old employer shall reimburse the new employer for the new employer's
assumption of such liability.
16.2 SHORT TERM DISABILITY. In the case of an employee who transfers
between any member of the Telesis Group and any member of the PacTel Group on
or before the Separation Date and while receiving short term disability
benefits under the employer's short term disability benefits plan, the
employee shall be entitled to short term disability benefits under the new
employer's plan as of the date of transfer for a period up to the maximum
duration established for short term disability benefits under the new
employer's plan, provided that the maximum duration of the short term
disability benefits (counting both the period before the transfer and the
period thereafter) shall not exceed the maximum duration established for short
term disability benefits under the old employer's plan.
16.3 PAYMENT. The old employer shall reimburse the new employer in
cash for the estimated present value of short term disability benefits paid or
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expected to be paid by the new employer and for the estimated present value of
welfare benefits provided or expected to be provided to such employee during
the expected period of absence from work after the transfer, as determined by
the plan administrator of the old employer's plan based on a medical
evaluation acceptable to such plan administrator. Payment for such amounts
shall be made in cash within 90 days after the Separation Date.
SECTION 17 - LIABILITY FOR CERTAIN OTHER BENEFITS
- -------------------------------------------------
17.1 TUITION ASSISTANCE. Post-Separation PacTel Employees and Post-
Separation Telesis Employees who received approval for an educational course
pursuant to the old employer's educational assistance or tuition aid plan, but
who have not completed the current semester's course work before transferring
to the new employer, shall be eligible for reimbursement from the new employer
(based on the amount reimbursable under the old employer's plan) if the
following conditions are met:
(a) The employee must request reimbursement from the new
employer.
(b) The employee must have completed the
course and otherwise met the requirements for
reimbursement under the old employer's plan.
Not later than 90 days after the Separation Date, the old employer shall
advise the new employer of those employees who may become eligible for tuition
assistance under this Section 18, and the old employer shall pay the new
employer the estimated dollar amount that would be reimbursable to such
employees if such employees meet the above conditions after Separation. Any
further reimbursement shall be made pursuant to the application procedures and
limitations of the new employer's plan.
17.2 HOME RELOCATION COSTS. Post-Separation PacTel Employees and
Post-Separation Telesis Employees shall be eligible for relocation benefits if
they meet the requirements for receiving benefits under the relocation policy
of the receiving company. Hardship situations shall be considered on a case-
by-case basis.
17.3 TEAM AWARDS, STIP AND OTHER BONUSES. Team awards, short term
incentive plan awards and other bonuses for employees who transfer between any
member of the Telesis Group and any member of the PacTel Group on or before
the Separation Date, earned with respect to any portion of the year before the
employee's transfer, shall be paid on a pro rata basis (based on year end
results) by the new employer. Within 30 days after the close of the year the
Separation occurs, the old employer shall provide the new employer with
information sufficient to determine the amount of such award. Such amounts
shall be paid at the time the award would normally be paid had the employee
not transferred. Within 90 days after the Separation Date, the old employer
shall reimburse the new employer for an amount equal to an estimate of such
awards based on actual results as of the month end immediately preceding the
Separation Date.
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SECTION 18 - DEFINED-CONTRIBUTION PLANS
- ---------------------------------------
18.1 TRANSFER OF PLAN SPONSORSHIP. Effective as of the Separation
Date, Telesis shall transfer to PacTel, and PacTel shall accept, the
sponsorship of the PacTel Corporation Retirement Plan.
18.2 NEW INVESTMENT FUNDS UNDER THE SAVINGS PLANS. Effective as of
the Separation Date, new investment funds shall be added under each of the
PacTel Corporation Retirement Plan, the Pacific Telesis Group Supplemental
Retirement and Savings Plan for Salaried Employees and the Pacific Telesis
Group Supplemental Retirement and Savings Plan for Nonsalaried Employees. The
new investment funds shall consist of the shares of PacTel Common that each
plan receives as of the Separation Date.
18.3 CONVERSION OF NEW PACTEL STOCK IN LESOP AND ESOP. Shares of
PacTel Common received by the Pacific Telesis Group Employee Stock Ownership
Plan or the Pacific Telesis Group Supplemental Retirement and Savings Plan for
Salaried and Nonsalaried Employees (Leveraged ESOP) shall be transferred or
rolled over (as appropriate) to the new investment funds for shares of PacTel
Common under the plan maintained by the employing company or shall be
distributed to the plan participant (as elected by the plan participant) or,
in the absence of such election, shall be converted into Telesis Common to the
extent permitted by applicable law and the terms of the plan.
SECTION 19 - DEFINED-BENEFIT PLAN
- ---------------------------------
19.1 TRANSFER OF PLAN SPONSORSHIP. Effective as of the Separation
Date, Telesis shall transfer to PacTel, and PacTel shall accept, the
sponsorship of the PacTel Pension Plan.
19.2 NEW PENSION TRUST. Not later than the Separation Date, PacTel
shall establish one or more separate tax-exempt trusts for the PacTel Pension
Plan and shall assume full responsibility for acting as "named fiduciary,"
establishing a funding policy and allocating the responsibility for managing
the investment of plan assets among PacTel, the new trustee, any investment
managers appointed by PacTel or any individual or group designated to act on
PacTel's behalf.
19.3 INITIAL PARTITION AND TRANSFER OF ASSETS. Not later than 30
days before the then-scheduled Separation Date, Telesis shall request The
Northern Trust Company and Bank of America N.T.& S.A. to estimate, as of the
close of the calendar quarter next preceding the Separation Date, the portion
of the Master Pension Trusts which is attributable to the PacTel Pension Plan.
As soon as practicable after the estimate is determined, but not earlier than
the Separation Date, assets equal to at least 95% of such estimate (as
adjusted for interest pursuant to Section 19.5 below) shall be transferred by
one or both of the trustees of the Master Pension Trusts, as Telesis shall
direct, to the new trustee or trustees of the PacTel Pension Plan. Such
transfer shall be made in the form of (a) marketable securities, (b) cash in
good funds or (c) any combination of the foregoing, as Telesis and PacTel
shall jointly determine.
19.4 FINAL PARTITION AND TRANSFER OF ASSETS. In the event that the
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Separation Date occurs on a date other than the last day of a plan year,
Telesis shall request an audit of the Master Pension Trusts to be conducted by
an independent auditor for the period between the close of the plan year next
preceding the Separation Date and the Separation Date. Not later than 90 days
after the completion by an independent auditor of the audit of the Master
Pension Trusts for the plan year (or short plan year, if applicable) ending on
the Separation Date, assets equal to the excess of the portion of the Master
Pension Trusts which was attributable to the PacTel Pension Plan as of the
Separation Date over the amount already transferred under Section 19.3 above
(both as adjusted for interest pursuant to Section 19.5 below) shall be
transferred by one or both of the trustees of the Master Pension Trusts, as
Telesis shall direct, to the new trustee or trustees of the PacTel Pension
Plan. In the event that the amount already transferred under Section 19.3
above exceeds the portion of the Master Pension Trusts which was attributable
to the PacTel Pension Plan as of the Separation Date, the excess (as adjusted
for interest pursuant to Section 19.5 below) shall be transferred by the new
trustee or trustees of the PacTel Pension Plan to the trustees of the Master
Pension Trusts not later than 90 days after the completion of such audit of
the Master Pension Trusts. The transfer shall be made in the form of
(a) marketable securities, (b) cash in good funds or (c) any combination of
the foregoing, as Telesis and PacTel shall jointly determine.
19.5 INTEREST ADJUSTMENTS. Prior to each asset transfer described in
Sections 19.3 and 19.4 above, the amount of assets to be transferred shall be
credited with interest, at a rate equal to the FASB discount rate, from the
Separation Date to the date of such asset transfer.
19.6 ADMINISTRATIVE FEES, PENALTIES AND TAXES. Not later than 90
days after the completion by an independent auditor of the first audit of the
Master Pension Trusts after the Separation, PacTel shall pay (or cause the new
trustee or trustees of the PacTel Pension Plan to pay) the PacTel Pension
Plan's pro rata share of the Master Pension Trusts' reasonable administrative
expenses that were incurred but not paid before the Separation Date. The
determination of the PacTel Pension Plan's pro rata share shall be based on
such audit. In addition, PacTel shall pay (or cause the new trustee or
trustees of the PacTel Pension Plan to pay) the PacTel Pension Plan's share of
any income or excise taxes, penalties, premiums or other charges that are
attributable to periods before the Separation Date but were not paid before
the Separation Date. Such payment shall be made by PacTel within 90 days
after Telesis provides notice of an assessment to PacTel. Telesis shall pay
(or cause the trustees of the Master Pension Trusts to pay) to PacTel (or to
the new trustee or trustees of the PacTel Pension Plan) the PacTel Pension
Plan's share of any refunds of income or excise taxes, penalties, premiums or
other charges that are attributable to periods before the Separation Date.
Such payment shall be made by Telesis within 90 days after receipt by Telesis
of a refund.
SECTION 20 - INDEMNIFICATION
- ----------------------------
20.1 PACTEL. PacTel shall indemnify and hold the Telesis
Indemnitees harmless from and against all claims, expenses (including but not
limited to reasonable attorneys' fees), damages, loss and liability arising
out of (a) the employment of any employees with members of the PacTel Group or
with PacTel Meridian Systems before or after the Separation, (b) errors or
omissions in any records, data or information provided by PacTel to Telesis
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under this Appendix, (c) the participation by Post-Separation PacTel Employees
in the Telesis Supplemental Plans, (d) the participation by members of
PacTel's Board of Directors in the Directors' Retirement Plan, and (e) the
participation by Post-Separation Telesis Employees in the PacTel Deferral
Plan.
20.2 TELESIS. Telesis shall indemnify and hold the PacTel
Indemnitees harmless from and against all claims, expenses (including but not
limited to reasonable attorneys' fees), damages, loss and liability arising
out of (a) the employment of any employees by members of the Telesis Group
before or after the Separation, (b) errors or omissions in any records, data
or information provided by Telesis to PacTel under this Appendix, (c) the
participation by former PacTel Group employees who are Post-Separation Telesis
Employees in the Telesis Supplemental Plans, (d) the Telesis Executive
Deferral Plan, and (e) the Directors' Deferral Plan.
SECTION 21 - NO THIRD PERSON BENEFICIARIES
- ------------------------------------------
No Post-Separation PacTel Employee, no Post-Separation Telesis
Employee, no person with a claim derived from a Post-Separation PacTel
Employee or Post-Separation Telesis Employee, no former employee of a member
of the Telesis Group or PacTel Group, and no other person (excluding the
Parties) shall be entitled to assert any claim based on this Appendix against
a member of the Telesis Group or PacTel Group or their respective
shareholders, directors, officers, employees or agents.
SECTION 22 - PLAN AND TRUST DOCUMENTS
- -------------------------------------
The Parties shall amend existing plan texts and trust agreements and
establish new plans and trusts, as necessary to carry out the purposes of this
Appendix.
(Exhibit A-6.5 Follows)
A-23
<PAGE>
EXHIBIT A-6.5
-------------
METHODOLOGY AND ACTUARIAL ASSUMPTIONS
-------------------------------------
TELESIS SUPPLEMENTAL PENSION PLANS
----------------------------------
Methodology:
The participants' total net accrued benefits as of the Separation Date shall
be determined by the Telesis Executive Compensation and Pacific Bell Retiree
Services Departments, in accordance with the Pacific Telesis Group Mid-Career
Pension Plan, Executive Nonqualified Pension Plan, Supplemental Executive
Retirement Plan, and the Pension Plan for Salaried Employees (Qualified Plan).
With three exceptions as indicated below, service and compensation for this
purpose shall be determined as of the Separation Date, as if retirement with a
service pension or termination with a deferred vested pension were occurring
at that time.
The exceptions are as follows: (1) any early retirement reduction factors
shall be ignored, (2) the eligibility requirement under the Minimum Pension
provision of the Executive Nonqualified Pension Plan shall be ignored, and (3)
the Minimum Pension under the Executive Nonqualified Pension Plan shall be
multiplied by years of service as an Officer (not to exceed ten), and then
divided by ten (where years of service shall be defined the same as under the
existing Plan).
Each participant's present value of total net accrued benefits shall be the
product of the total net accrued benefit and the actuarial present value
factor for a deferred annuity, determined for that participant based on whole
age nearest birthday as of the Separation Date and the assumed retirement age
specified in the actuarial assumptions set forth below. Any transfer of
assets occurring after the Separation Date shall be adjusted with interest
which is compounded at the effective annual rate stated below (Interest
Adjustments).
It is assumed that PacTel will record the compensation expense and reflect the
tax deduction for actual benefit payments as they become due under these
plans. Therefore, the present value of total net accrued benefits computed
above shall be multiplied by a factor of .59 (equal to 100% minus the combined
corporate income tax rate of 41%) to adjust such present value to an after-tax
amount.
A-24
<PAGE>
Actuarial Assumptions:
The present value factor shall be based on two sets of assumptions:
Pre-retirement:
- ---------------
Interest:5.9% after-tax expected long-term asset performance, as determined by
PTG Investment Management Department
Termination: None
Disability: None
Mortality: None
Retirement: Age 60 or such other age as specified for each
individual for purposes of determining the
addition of assets to the Supplemental Pension
Plan Trust.
Post-retirement:
---------------
Interest: 5.9% after-tax expected long-term asset
performance, as determined by PTG Investment
Management Department
Mortality: UP84 Table, with age set back two years
Interest Adjustments: The effective annual interest rate to be used for
interest adjustments shall be the FASB discount
rate in effect during the period.
(Exhibit A-7.3 Follows)
A-25
<PAGE>
EXHIBIT A-7.3
-------------
METHODOLOGY AND ACTUARIAL ASSUMPTIONS
-------------------------------------
TELESIS EXECUTIVE DEFERRAL PLAN
-------------------------------
Methodology:
Future cash flows from each participant's deferrals and distribution elections
shall be computed using the Deferral Crediting rates below, and aggregated to
develop the total expected stream of benefit cash flows. This stream of cash
flows shall be discounted over the total benefit payment period at the
Discount Interest rate set forth below to compute the present value of all
unpaid benefits. Interest Adjustments shall be compounded at the effective
annual rate stated below; Deferral Crediting Interest shall be compounded
annually at the rate stated below.
It is assumed that Telesis will record the compensation expense and reflect
the tax deduction for actual benefit payments as they become due under this
plan. Therefore, the present value of all unpaid benefits computed above
shall be multiplied by a factor of .59 (equal to 100% minus the combined
corporate income tax rate of 41%) to adjust such present value to an after-tax
amount.
Actuarial Assumptions:
Deferral
Crediting Interest: FOR EXECUTIVES WHO HAVE TERMINATED FROM EITHER
TELESIS OR PACTEL BEFORE AGE 55 AS OF THE
SEPARATION DATE:
12-Month Average of the 10-Year Treasury Note
Rate in effect each period in which interest is
credited - this rate as of the Separation Date
shall be applied after such date
FOR ALL OTHER EXECUTIVES:
Moody's Average Corporate Bond Rate + 4% in
effect each period in which interest is credited
for Original Deferrals occurring 1/1/85-12/31/91
- this rate as of the Separation Date shall be
applied after such date; 13% in 1990 and 1991,
12% in 1992, 11% in 1993, and 10% thereafter for
Extended Deferrals occurring after 12/31/89
A-26
<PAGE>
Discount Interest: 5.9% after-tax expected long-term asset
performance, as determined by PTG Investment
Management Department
Termination: N/A
Disability: N/A
Mortality: N/A
Receipt Date: As specified by individual irrevocable election,
assuming retirement or termination at age 60, or
such other age as specified for each individual
for purposes of determining the addition of
assets to the Supplemental Pension Plan Trust.
Interest Adjustments: Interest on payments by PacTel to Telesis after
the Separation Date shall be the FASB discount
rate in effect during the period.
(Exhibit A-12.2 Follows)
A-27
<PAGE>
EXHIBIT A-12.2
--------------
METHODOLOGY AND ACTUARIAL ASSUMPTIONS
-------------------------------------
TELESIS DIRECTORS' DEFERRAL PLAN
--------------------------------
Methodology:
Each participant's accrued benefit shall be determined by the Telesis
Corporate Secretary's Group in accordance with the Pacific Telesis Group
Outside Directors' Retirement Plan. The Plan shall be followed, based on
years of service as of the Separation Date.
Each participant's present value of accrued benefits shall be the product of
the accrued benefit and the actuarial present value factor, determined for
that participant based on whole age nearest birthday as of the Separation
Date. Any transfer of assets occurring after the Separation Date shall be
adjusted with Interest which is compounded at the effective annual rate stated
below.
It is assumed that PacTel will record the compensation expense and reflect the
tax deduction for actual benefit payments as they become due under this plan.
Therefore, the present value of accrued benefits computed above shall be
multiplied by a factor of .59 (equal to 100% minus the combined corporate
income tax rate of 41%) to adjust such present value to an after-tax amount.
Actuarial Assumptions:
The present value factor shall be based on two sets of assumptions:
Pre-retirement:
--------------
Interest: 59% of the FASB discount rate in effect as of
the Separation Date
Termination: None
Disability: None
Mortality: None
Retirement: Age 70
A-28
<PAGE>
Post-retirement:
---------------
Interest: 59% of the FASB discount rate in effect as of
the Separation Date
Mortality: UP84 Table, with age set back two years
Interest Adjustments: The interest rate to be used for interest
adjustments shall be the FASB discount rate in
effect during the period.
(Exhibit A-13.2 Follows)
A-29
<PAGE>
EXHIBIT A-13.2
--------------
METHODOLOGY AND ACTUARIAL ASSUMPTIONS
------------------------------------
RETIREE LIFE INSURANCE
----------------------
Methodology:
The present value of accrued benefits in accordance with the American Academy
of Actuaries Interpretation 2 shall be determined by the Telesis Actuarial
Services Division for the following groups of participants as of the December
31 prior to, or coincident with, the Separation Date: (1) Post-Separation
PacTel Employees who transferred from the Telesis Group to the PacTel Group as
a result of the Separation, (2) Post-Separation Telesis Employees who
transferred from the PacTel Group to the Telesis Group as a result of the
Separation, and (3) all participants covered by Group Policy 6336, including
the above groups. A fraction, based on the present values of the groups as
indicated below, shall be applied to the total assets of VEBA I attributable
to the Retirement Funding Account under Group Policy 6336 as of the December
31 prior to, or coincident with the Separation Date:
[ (1) - (2) ] / (3).
The result shall be PacTel's share of VEBA I assets for retiree life insurance
purposes. The asset transfer amount shall be updated with interest, as
defined below, from the December 31 on which the above calculations take place
to the date of actual transfer.
Actuarial Assumptions:
The actuarial assumptions which shall be used to determine the present value
of accrued benefits are those set forth in the 1993 Actuarial Reports for the
Pacific Telesis Group Pension Plan and the Pacific Telesis Group Pension Plan
for Salaried Employees.
The interest rate used to update PacTel's share of VEBA I assets shall be the
FASB discount rate in effect during the period between the time of calculation
and the time of transfer. Interest shall be compounded on an effective annual
basis.
(Appendix B Follows)
A-30
<PAGE>
APPENDIX B
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
TAX SHARING
-----------
<PAGE>
TAX SHARING
-----------
TABLE OF CONTENTS
Page
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . B-3
SECTION 2 - TAX ALLOCATION. . . . . . . . . . . . . . . . . B-3
SECTION 3 - ADJUSTMENTS TO TAX LIABILITY. . . . . . . . . . B-5
SECTION 4 - PREPARATION AND FILING OF RETURNS . . . . . . . B-6
SECTION 5 - AUDITS, ADJUSTMENTS AND REFUND CLAIMS . . . . . B-7
B-2
<PAGE>
TAX SHARING
-----------
SECTION 1 - DEFINITIONS
- -----------------------
The following terms and other terms defined in this Appendix and elsewhere in
this Agreement have the meanings set forth herein unless the context indicates
otherwise. Words importing persons include corporations. Words importing
only the singular include the plural and vice versa where the context
requires.
1.1 CODE means the Internal Revenue Code of 1986, as amended.
1.2 COMBINED RETURN means any combined or consolidated return or
report used in the determination of a state income tax liability.
1.3 IRS means the United States Internal Revenue Service.
1.4 STATE INCOME TAX means any state income tax or franchise tax
determined on the basis of net income.
1.5 TAXABLE YEAR means the year on the basis of which taxable income
is computed.
1.6 TREASURY means the United States Department of the Treasury.
SECTION 2 - TAX ALLOCATION
- --------------------------
2.1 TAX ALLOCATION PRINCIPLES.
2.1.1 ALLOCATION AND PAYMENT. The Parties agree to allocate and
pay their respective shares of federal and state income taxes as provided in
this Appendix. Payments to tax authorities and between the Parties, as the
case may be, shall be made in accordance with such tax allocations.
2.1.2 FEDERAL INCOME TAXES. For each taxable period ending
before or including the Separation Date for which Telesis filed or will file a
consolidated federal income tax return which includes the PacTel Group, the
consolidated return group's federal income tax liability (including refunds
and deficiencies) shall be allocated between the Telesis Group and the PacTel
Group in accordance with Treasury Regulations sections 1.1552-1(a)(1) and
1.1502-33(d)(2)(ii). The fixed percentage under Treasury Regulations section
1.1502-33(d)(2)(ii)(b) shall be 100 percent.
2.1.3 STATE INCOME TAXES. For each taxable period (or portion
thereof) beginning after 1991 and ending before or including the Separation
Date for which the liability of the members of the Telesis Group and the
PacTel Group is determined on a combined return basis which includes members
of both the Telesis Group and the PacTel Group, the Groups' state income tax
liability in a particular state shall be allocated between the Telesis Group
and the PacTel Group as follows:
B-3
<PAGE>
2.1.3.1 Each Group shall be treated as a separate
taxpayer.
2.1.3.2 If both Groups have positive taxable income for a
period, then the actual tax liability of the Groups shall be allocated between
the Groups in proportion to each Group's state taxable income (after
apportionment to the state as if each Group were a separate taxpayer).
2.1.3.3 If one Group has taxable income and the other
Group has a taxable loss for a period in which the combined Groups have a
positive tax liability, then the actual tax liability of the combined Groups
shall be allocated to the profitable Group. In addition, that profitable
Group shall pay to the other Group an amount equal to lesser of (a) the
product of the other Group's taxable loss and the statutory tax rate, or (b)
the excess of the profitable Group's stand-alone tax liability over the actual
combined tax liability of the Groups.
2.1.3.4 Refunds and deficiencies for any year (including
years beginning before 1992) shall be allocated in the same manner as the tax
liability and benefits for that year were allocated. Payments between the
Parties for tax liabilities and benefits shall be made to reflect a
reallocation of tax liabilities or benefits for that year due to payment of a
deficiency or receipt of a refund. Such payments shall be made within 15 days
after payment of a deficiency or receipt of a refund for that taxable year.
2.1.4 Tax Attributes. Tax attributes determined on a
consolidated basis for years ending before or including the Separation Date
shall be allocated to members of the Telesis Group and the PacTel Group in
accordance with the Code and Treasury Regulations (and any applicable state
law or regulation). Telesis and PacTel shall jointly determine the amounts of
such attributes as of the Separation Date and hereby agree to compute their
tax liabilities for taxable years after the Separation Date consistently with
that determination.
2.2 TAXABLE YEAR OF SEPARATION.
2.2.1 FEDERAL TAXES. For the federal taxable year which
includes the Separation Date, PacTel shall timely pay to Telesis an amount
equal to the allocable federal income tax liability of the members of the
PacTel Group determined under Section 2.1.1, including the PacTel Group's
share of estimated taxes. Telesis shall be responsible for the payment to the
IRS of the federal income tax liability of the Telesis consolidated return
group (including both the Telesis Group and the PacTel Group) for the taxable
year which includes the Separation Date. Telesis shall pay to PacTel the net
amount, if any, that would be credited to the earnings and profits of the
members of the PacTel Group under Treasury Regulations section
1.1502-33(d)(2)(ii)(b).
2.2.2 STATE INCOME TAXES. For any taxable period which includes
the Separation Date and for which a state income tax of Telesis or PacTel or
any of their Subsidiaries is determined on the basis of a combined return
which includes members of both Groups, Telesis shall be responsible for the
timely payment of the estimated and total tax liabilities of the combined
group to the appropriate tax authority. PacTel shall timely pay to Telesis
the amount of taxes (including estimated taxes), if any, allocated to PacTel
under Section 2.1.3. Telesis shall pay to PacTel the amount, if any, of the
B-4
<PAGE>
net tax benefit accruing to the Telesis Group from the inclusion of members of
the PacTel Group in the combined return, as determined under Section 2.1.3.
2.2.3 THIRTY DAY ELECTION. In the event that the Separation
Date is after, but within 30 days of, the last day of Telesis' taxable year,
no member of the PacTel Group shall elect under Treasury Regulations section
1.1502-76(b)(5) not to be considered a member of the Telesis consolidated
return group unless Telesis specifically agrees in writing to such an
election.
SECTION 3 - ADJUSTMENTS TO TAX LIABILITY
- ----------------------------------------
3.1 TAX-TIMING ADJUSTMENTS. To the extent that any portion of an
amount allocated under Section 2.1.2 or Section 2.1.3 relates to a tax-timing
adjustment, that portion of the liability (or benefit) shall be allocated to
the entity that will receive the benefit (or detriment) of that tax-timing
adjustment. A "tax-timing adjustment" is any adjustment to income in one
taxable year which will result in an offsetting adjustment or adjustments
(including an adjustment to the basis of an asset not eligible for
depreciation or amortization) in one or more subsequent taxable years. For
purposes of this Appendix, the fact that the period or periods in which
offsetting adjustments will arise is unknown or not determinable shall not be
taken into account.
3.2 CARRYBACKS. The carryback of net operating losses and net
capital losses for any taxable year ending after the Separation Date shall be
in accordance with the provisions of the Code and Treasury Regulations (and
any applicable state laws or regulations).
3.2.1 NET CAPITAL LOSSES. The Parties recognize that either
Group may realize net capital losses in taxable years beginning after the
Separation Date which may be carried back and offset against net capital gains
realized in years ending before or including the Separation Date. If a member
of one Group (the "First Group") realizes a net capital loss in a taxable year
ending after the Separation Date and would be able to realize a tax benefit by
carrying back that loss to a taxable year ending before or including the
Separation Date and offsetting the loss wholly or partially against net
capital gains realized by members of the First Group but for the fact that the
other Group (the "Second Group") had previously used those net capital gains
to offset net capital losses realized by a member of the Second Group after
the Separation Date, then the Second Group shall pay the First Group the
amount of the tax benefit that the First Group would have received.
3.3 PENALTIES, ADDITIONS TO TAX AND INTEREST. Penalties, additions
to tax and interest on any federal or state income tax deficiencies or
overpayments will be allocated as the underlying deficiencies or overpayments
are allocated under this Appendix.
3.4 INDEMNITIES. Notwithstanding any other provision in this
Agreement to the contrary:
B-5
<PAGE>
3.4.1 If, as a result of any event occurring in the 24-month
period commencing on the Separation Date and involving either the stock or
assets (or any combination thereof) of any member of the PacTel Group, any
taxes are imposed on any member of the Telesis Group with respect to any
action taken pursuant to the Plan of Distribution initially adopted by the
Telesis Board of Directors on December 18, 1992 (or as amended thereafter),
then PacTel shall pay those taxes (and interest and penalties, if any) and
shall indemnify and hold harmless each member of the Telesis Group from and
against all such taxes, interest, and penalties, including but not limited to
any such taxes paid at any time by any Telesis Group member. PacTel shall
make such payment and indemnification promptly, but in any event no later than
15 days after written notice from Telesis, which notice shall be accompanied
by a computation of the amounts due.
3.4.2 If any taxes are imposed on any PacTel Group member as a
result of any action taken pursuant to the Plan of Distribution initially
adopted by the Telesis Board of Directors on Demcember 18, 1992 (or as amended
thereafter), then, to the extent those taxes are not related to stock or
assets owned by a PacTel Group member after the Separation and are not a
result of an event occurring in the 24-month period commencing on the
Separation Date and involving either the stock or assets (or any combination
thereof) of any member of the PacTel Group, then Telesis, and not PacTel,
shall pay those taxes (and interest and penalties, if any) and shall indemnify
and hold harmless each member of the PacTel Group from and against all such
taxes, interest, and penalties, including but not limited to any such taxes
paid at any time by any PacTel Group member. Telesis shall make such payment
and indemnification promptly, but in any event no later than 15 days after
written notice from PacTel, which notice shall be accompanied by a computation
of the amounts due.
SECTION 4 - PREPARATION AND FILING OF RETURNS
- ---------------------------------------------
4.1 FEDERAL RETURNS. Each Party agrees to cooperate with the other
Party by making available all instructions, workpapers, records, data and
notes of any kind for the purpose of allowing Telesis, as agent for the
consolidated return group, to complete the filing of the federal consolidated
income tax return for the taxable year which includes the Separation Date.
4.2 STATE RETURNS. Each Party agrees to cooperate with the other
Party by making available all instructions, workpapers, records, data and
notes of any kind for the purpose of allowing Telesis and PacTel to complete
the filing of any state income tax returns which must be filed on the basis of
a combined return for the taxable year which includes the Separation Date.
Any state income tax return required to be filed on a separate entity basis
shall be prepared and filed by the entity required by law to file the return.
B-6
<PAGE>
SECTION 5 - AUDITS, ADJUSTMENTS AND REFUND CLAIMS
- -------------------------------------------------
5.1 FEDERAL AUDITS AND ADJUSTMENTS.
5.1.1 NOTIFICATION OF AUDIT. Telesis shall notify PacTel in
writing of any audit of the federal consolidated income tax return for any
taxable period ending before or including the Separation Date within ten
business days after Telesis' receipt of written notification of such audit
from the IRS. Telesis shall include in its notice to PacTel a copy of the
notification received from the IRS.
5.1.2 STATUTE OF LIMITATIONS. After consultation with PacTel,
Telesis shall have sole authority, as agent for the consolidated return group,
to enter into agreements extending the statute of limitations for any taxable
period ending before or including the Separation Date for which a consolidated
return was or will be filed. Telesis shall notify PacTel within ten business
days after receipt of any request from the IRS for such an agreement.
5.1.3 AUDIT ACTIVITY. Each Party will coordinate its respective
efforts with respect to audits of periods through and including the Separation
Date and will furnish the other Party with all necessary workpapers and
records to respond to audit inquiries. Telesis will be responsible as agent
for the consolidated return group for day-to-day contact with IRS agents
assigned to such audits, but PacTel will be responsible, to the extent
possible, for responding to audit inquiries regarding issues primarily
affecting tax liabilities of the PacTel Group.
5.1.4 ON-SITE AUDITS. Any Party which is audited "on-site" by
the IRS shall provide monthly written reports to the other Party detailing
significant on-site activities, information requests, issues raised or
resolved, and any other relevant information which may affect the other Party.
5.1.5 PROPOSED ADJUSTMENTS. Telesis shall notify PacTel of any
proposed adjustment to Telesis federal consolidated group returns which
include any member of the PacTel Group within ten business days after receipt
of official notification of adjustments (e.g., a notice of proposed adjustment
or statutory notice of deficiency) from the IRS. Telesis shall include in its
notice to PacTel a copy of the notification received from the IRS.
5.1.5.1 AGREED ISSUES. Telesis will not enter into any
agreement as agent for the consolidated return group with the IRS with respect
to any proposed adjustment without the written consent of PacTel if members of
the PacTel Group would collectively be liable for more than 50% of the
proposed tax liability (as allocated under this Appendix) at issue. For
purposes of this paragraph, the determination of more than 50% tax liability
shall be made on an issue-by-issue basis.
5.1.5.2 Unagreed Issues. Telesis, as agent for the
consolidated return group, shall make the initial recommendation regarding the
procedures and preferred forum for contesting tax deficiencies on unagreed
issues. In the event of disagreement between Telesis and PacTel, a written
request by PacTel to pursue a different course than that recommended by
Telesis shall be controlling if the PacTel Group is liable for more than 50%
of the tax liability. For purposes of this paragraph, the determination of
more than 50% of tax liability shall be made on the basis of the cumulative
B-7
<PAGE>
potential liability from all unagreed issues for any taxable year.
5.1.5.3 CONSENT NOT REQUIRED. Notwithstanding any other
provision of this Appendix, if the IRS notifies Telesis that the IRS will deal
directly with a member of the PacTel Group with respect to its liability,
PacTel shall have full authority to act for that member and resolve any issue
affecting only its liability without the consent of Telesis.
5.1.6 FEDERAL REFUND CLAIMS. If any member of the PacTel Group
desires to file a claim for refund with respect to a taxable year for which it
was a member of the Telesis consolidated return group, it shall prepare and
submit to Telesis the claim for refund and a statement specifying the date on
which the statute of limitations for filing the refund claim will expire.
Telesis will file the refund claim prior to the date specified by the member
of the PacTel Group as the last day to claim the refund if such a filing is
feasible after receipt of the member of the PacTel Group's refund claim and
will take any other appropriate action at PacTel's request necessary to secure
the refund. Telesis shall pay the refund to PacTel on receipt of the refund
from the IRS.
5.1.7 LITIGATION. Telesis, as agent for the consolidated return
group, will have nominal responsibility for representing the group before the
IRS Appeals Office or in any court proceeding to determine the group's tax
liability or refund claim. Any matters which must be decided for an entire
case, rather than on an issue-by-issue basis (e.g., preferred forum and case
procedures) shall be decided by the Group that would be allocated more than
50% of the total liability (or refund) in the case. Representatives from the
PacTel Group will have the opportunity to participate in these proceedings
and, to the extent possible, will have the primary responsibility for issues
on which the PacTel Group is liable for more than 50% of the tax liability.
5.2 AUDITS AND ADJUSTMENTS RELATED TO STATE INCOME TAX COMBINED
RETURNS.
5.2.1 Notification of Audit. Each Group shall give written
notice to the other Group of any audit of a state income tax return for any
taxable period ending before or including the Separation Date within ten
business days after written notification of such audit from the appropriate
state agency. Such notices between Telesis and PacTel shall include copies of
relevant notices received from state tax agencies.
5.2.2 STATUTE OF LIMITATIONS. Any member of the Telesis Group
or the PacTel Group shall have the authority to agree to extend the statute of
limitations with respect to that member's return filed for any taxable period
ending before or including the Separation Date. Any member which proposes to
enter into such an agreement shall notify Telesis and PacTel no later than 10
days before such action.
5.2.3 AUDIT ACTIVITY. Telesis shall coordinate efforts with
respect to audits of taxable years involving members of both the Telesis Group
and the PacTel Group, and each Party will furnish the necessary workpapers and
records to respond to audit inquiries.
5.2.3.1 ON-SITE AUDITS. Any Party which is audited
"on-site" by a state tax authority shall provide monthly written reports to
the other Party detailing significant on-site activities, information
B-8
<PAGE>
requests, issues raised or resolved, and any other relevant information which
may affect the other Party.
5.2.4 PROPOSED ADJUSTMENTS. Each Party shall give written
notice to the other Party of proposed adjustments to any item affecting a
combined return on which a filed return was based for any year ending before
or including the Separation Date. Such notices shall include copies of
relevant notices received from state tax agencies.
5.2.4.1 AGREED ISSUES. No member of the Telesis Group or
the PacTel Group will enter into any agreement with respect to any proposed
adjustment without the written consent of the members of the combined group
which would collectively be liable for more than 50% of the proposed tax
liability (as allocated under this Appendix) at issue. For purposes of this
paragraph, the determination of more than 50% tax liability shall be made on
an issue-by-issue basis.
5.2.4.2 UNAGREED ISSUES. Telesis, as agent for the
combined return group, shall make the initial recommendation regarding the
procedures and preferred forum for contesting tax deficiencies on unagreed
issues. In the event of disagreement between Telesis and PacTel, a written
request by PacTel to pursue a different course than that recommended by
Telesis shall be controlling if the PacTel Group is liable for more than 50%
of the tax liability. For purposes of this paragraph, the determination of
more than 50% of tax liability shall be made on the basis of the cumulative
potential liability from all unagreed issues for any taxable year.
5.2.5 STATE REFUND CLAIMS. If any member of the PacTel Group
desires to file a claim for refund with respect to a taxable year for which it
filed a state tax return based on a combined return which included members of
the Telesis Group, it shall prepare and submit to Telesis the claim for refund
and a statement specifying the date on which the statute of limitations for
filing the refund claim will expire. Telesis will file the refund claim prior
to the date specified by the member of the PacTel Group as the last day to
claim the refund if such a filing is feasible after receipt of the member of
the PacTel Group's refund claim. Telesis shall pay the refund to PacTel on
receipt of the refund from the state tax authority.
5.2.6 STATE TAX LITIGATION. With respect to any administrative
or judicial proceeding related to an asserted deficiency (or refund claim) for
an issue in connection with a state income tax based on a combined return, the
Group that would be allocated more than 50% of the deficiency (or refund)
under this Agreement will be responsible for representing the Groups with
respect to that issue. Any matters which must be decided for an entire case,
rather than on an issue-by-issue basis (e.g., preferred forum and case
procedures) shall be decided by the Group that would be allocated more than
50% of the total liability (or refund) in the case. If the other Group would
share in the liability (or refund) for an issue or issues in the case, it may
participate in the administrative and judicial proceedings with respect to
that issue or issues.
5.3 OFFSETTING CLAIMS.
5.3.1 If a refund claimed by a Party with respect to a taxable
year not otherwise open to audit is reduced by an offsetting claim for an
income tax deficiency for a taxable year ending before or including the
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<PAGE>
Separation Date, the amount of the offset shall be applied first to the issues
of the Party or Parties against whom the offset or reduction is asserted to
the extent those issues were allowed in the refund claim(s). To the extent
the offset or reduction exceeds such issues, and subject to the provisions of
Sections 5.3.2 and 5.3.3, the excess shall be applied proportionately to all
other issues allowed in the refund claim(s). Telesis shall remit to PacTel
the amount of any refund allowed by a tax authority with respect to PacTel's
issues, less any offset allocated to PacTel.
5.3.2 If an offset asserted against a Party exceeds the amount
of the refund allowed by the tax authority with respect to the issues of that
Party, the Party shall pay to the other Party the lesser of (a) the amount of
such excess, or (b) the net future benefit (computed by applying the
principles of Section 3.1), if any, resulting from such offset or reduction
that was applied to the other Party pursuant to Section 5.3.1.
5.3.3 Each Party shall be solely responsible for bearing any
reduction by way of offset or otherwise resulting from (a) a non-income tax
deficiency or liability of the Party or (b) any deficiency or liability of the
Party in taxable years beginning after the Separation Date. The amount of
such an offset or reduction shall be applied to any remaining refund due the
Party after application of the offsets and reductions described in Sections
5.3.1 and 5.3.2. If an offset or reduction described in this paragraph
exceeds such remaining refund, the Party against which the offset is asserted
shall pay the excess to the other Party.
5.3.4 Any amount owed by a Party pursuant to Section 5.3.2 or
Section 5.3.3 shall be paid to the other Party within 15 days after the date
the tax authority either pays a refund to which this Appendix applies or
officially notifies Telesis that such a refund has been denied because of a
complete offset or otherwise.
5.3.5 Within 15 days after the date the tax authority either
pays a refund to which this Appendix applies or officially notifies Telesis
that such a refund has been denied due to complete offset or otherwise,
Telesis shall pay PacTel the amounts due, if any, under Sections 5.3.1, 5.3.2
and 5.3.3.
5.4 Payment of Costs. All costs incurred, whether external or
internal (such as in-house tax and legal department salaries and other
personnel), with respect to an audit, administrative appeal, litigation,
refund claim, or other tax controversy, shall be borne by the Party with
respect to which the costs relate. If the matter involves an issue or issues
that concern both Telesis and PacTel, then the costs shall be allocated
between them based on their respective shares of the dollar amount involved in
the matter.
(Appendix C Follows)
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<PAGE>
APPENDIX C
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
INTELLECTUAL PROPERTY
---------------------
<PAGE>
INTELLECTUAL PROPERTY
---------------------
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1 - DEFINITIONS . . . . . . . . . . C-3
SECTION 2 - INFORMATION . . . . . . . . . . C-4
SECTION 3 - COPYRIGHTS. . . . . . . . . . . C-6
SECTION 4 - PATENTS . . . . . . . . . . . . C-7
SECTION 5 - TRADEMARKS AND TRADE NAMES. . . C-8
EXHIBIT C-1 - EMPLOYEE CONFIDENTIALITY AGREEMENT
(TO BE SIGNED BY EMPLOYEES TRANSFERRING
TO THE TELESIS GROUP)
EXHIBIT C-2 - EMPLOYEE CONFIDENTIALITY AGREEMENT
(TO BE SIGNED BY EMPLOYEES TRANSFERRING
TO THE PACTEL GROUP)
EXHIBIT C-3 - TRADEMARKS TO BE ASSIGNED BY TELESIS TO
PACTEL
EXHIBIT C-4 - TRADE NAMES TO BE LICENSED BY TELESIS TO
PACTEL
EXHIBIT C-5 - TRADEMARKS TO BE LICENSED BY TELESIS TO
PACTEL
C-2
<PAGE>
INTELLECTUAL PROPERTY
---------------------
SECTION 1 - DEFINITIONS
- -----------------------
The following terms and other terms defined in this Appendix and
elsewhere in this Agreement have the meanings set forth herein unless the
context indicates otherwise. Words importing persons include corporations.
Words importing only the singular include the plural and vice versa where the
context requires.
1.1 ASSIGNED MARKS means the Trademarks listed in Exhibit C-3
(Trademarks to be Assigned by Telesis to PacTel) to be assigned by Telesis to
PacTel hereunder.
1.2 JOINT INFORMATION means any Information that was developed,
created or acquired prior to the Separation Date for the use of one or more
members of both the Telesis Group and the PacTel Group; provided, however,
that such Joint Information shall not include any Information covered more
specifically by Appendix E (Telesis Technologies Laboratory, Inc.). Joint
Information may be either Proprietary Information or Information which is not
Proprietary Information.
1.3 LICENSED MARKS means the Trademarks and trade names listed in
Exhibit C-4 (Trade Names to be Licensed by Telesis to PacTel) and Exhibit C-5
(Trademarks to be Licensed by Telesis to PacTel) to be licensed by Telesis to
PacTel hereunder.
1.4 PACTEL GROUP INFORMATION means any Proprietary Information that
was developed, created or acquired prior to the Separation Date specifically
and exclusively for a member of the PacTel Group; provided, however, that (a)
except as may be otherwise specifically provided in a separate agreement
between the Parties, such PacTel Group Information shall not include any
Information owned or controlled by either Pacific Bell or Nevada Bell or their
respective Subsidiaries, and (b) such PacTel Group Information shall not
include any Information covered more specifically by Appendix E (Telesis
Technologies Laboratory, Inc.).
1.5 TELESIS GROUP INFORMATION means any Proprietary Information that
was developed, created or acquired prior to the Separation Date specifically
and exclusively for a member of the Telesis Group; provided, however, that
Telesis Group Information shall not include any Information covered more
specifically by Appendix E (Telesis Technologies Laboratory, Inc.).
1.6 TELESIS MARKS means all Trademarks and trade names owned,
controlled or used by any member of the Telesis Group which are not listed in
Exhibit C-3 (Trademarks to be Assigned by Telesis to PacTel), including but
not limited to the Trademarks PACTEL, TELESIS, PACIFIC TELESIS, the TELESIS
SYMBOL, PROGRESS INTELLIGENTLY PLANNED, the STROBE LINE DESIGN, BELL, the BELL
SYMBOL and all Trademarks and trade names derivative of such Trademarks.
1.7 TRADEMARK means both trademarks and service marks.
SECTION 2 - INFORMATION
- -----------------------
C-3
<PAGE>
2.1 GENERAL. Except as otherwise provided in this Agreement, each
Party will retain ownership of its own Information, and no licenses to such
Information are granted to the other Party under this Agreement. Nothing
contained in this Agreement shall be construed to prevent either Party from
entering into licensing arrangements with the other Party for such Information
under separate written agreement.
2.2 JOINT INFORMATION.
a. Each Party will retain an undivided ownership interest in
all Joint Information. If any Joint Information is Proprietary Information,
the Parties will follow their usual practices to preserve the confidential or
proprietary nature of such Information.
b. If only one copy exists of any Joint Information, prior to
the Separation Date the Parties will consult and agree as to (a) which Party
should retain possession of the copy of the Joint Information following the
Separation or (b) whether copies should be made of such Joint Information so
that both Parties may each have a copy of it at Separation. Except as the
Parties may otherwise agree, Joint Information will remain in the possession
of the Party having possession or control of such Joint Information on the
Separation Date; provided, however, that after the Separation Date the other
Party may request copies of any Joint Information of which it does not have
possession. The Party requesting such Joint Information agrees to reimburse
the other Party for the reasonable costs, if any, of creating, gathering and
copying such Joint Information, to the extent that such costs are incurred for
the benefit of the requesting Party. Such costs shall be computed in
accordance with the providing Party's standard methodology and procedures.
2.3 PACTEL GROUP INFORMATION.
a. Effective on and as of the Separation Date, Telesis
conveys to PacTel any rights, title or interest which Telesis may have in all
PacTel Group Information. Following the Separation Date, Telesis shall not
retain any copies in any tangible form whatsoever of such PacTel Group
Information and shall not use it for any purpose other than as requested or
authorized by PacTel in writing.
b. Telesis agrees to use its best efforts to return to
PacTel, within 30 days after the Separation Date, all PacTel Group
Information, in any tangible form whatsoever, that is in the possession or
control of any member of the Telesis Group. If Telesis discovers any PacTel
Group Information in Telesis' possession or control after the date specified
in the prior sentence, Telesis shall promptly return such PacTel Group
Information to PacTel. Telesis agrees not to (1) retain any copies of PacTel
Group Information in any tangible form whatsoever, (2) attempt to recreate
from memory any PacTel Group Information, or (3) use any PacTel Group
Information for any purpose other than as requested or authorized by PacTel in
writing.
c. Employees of members of the Telesis Group who had access
to PacTel Group Information prior to the Separation Date and who remain
employees of members of the Telesis Group after the Separation Date shall not
disclose any PacTel Group Information to anyone other than to PacTel and shall
not use any PacTel Group Information in connection with their employment with
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the Telesis Group after the Separation Date other than as requested or
authorized by PacTel in writing.
d. Employees of members of the PacTel Group prior to the
Separation Date who transfer to a member of the Telesis Group, or whose
employer becomes a member of the Telesis Group in connection with the
Separation, shall not take any PacTel Information in any tangible form
whatsoever with them. Such employees shall not disclose any PacTel Group
Information to anyone other than to PacTel and shall not use such PacTel Group
Information in connection with their employment with the Telesis Group after
the Separation Date other than as requested or authorized by PacTel in
writing. In order to enforce such obligations, Telesis shall require each
such employee to sign a confidentiality agreement in the form of Exhibit C-1
(Employee Confidentiality Agreement) and shall promptly provide a copy of each
such signed agreement to PacTel.
2.4 TELESIS GROUP INFORMATION.
a. PacTel agrees to use its best efforts to return to
Telesis, within 30 days after the Separation Date, all Telesis Group
Information, in any tangible form whatsoever, that is in the possession or
control of any member of the PacTel Group. If PacTel discovers any Telesis
Group Information in PacTel's possession or control after the date specified
in the prior sentence, PacTel shall promptly return such Telesis Group
Information to Telesis. PacTel agrees not to (1) retain any copies of any
Telesis Group Information in any tangible form whatsoever, (2) attempt to
recreate from memory any Telesis Group Information, or (3) use any Telesis
Proprietary Information for any purpose other than as requested or authorized
by Telesis in writing.
b. Employees of members of the PacTel Group who had access to
Telesis Group Information prior to the Separation Date and who remain
employees of members of the PacTel Group after the Separation Date shall not
disclose any Telesis Group Information to anyone other than to Telesis and
shall not use any Telesis Group Information other than as requested or
authorized by Telesis in writing.
c. Employees of members of the Telesis Group prior to the
Separation Date who transfer to a member of the PacTel Group, or whose
employer becomes a member of the PacTel Group in connection with the
Separation, shall not take any Telesis Group Information in any tangible form
whatsoever with them. Such employees shall not disclose any Telesis Group
Information to anyone other than to Telesis and shall not use such Telesis
Group Information in connection with their employment with the PacTel Group
after the Separation Date other than as requested or authorized by Telesis in
writing. In order to enforce such obligations, PacTel shall require each such
employee to sign a confidentiality agreement in the form of Exhibit C-2
(Employee Confidentiality Agreement) and shall promptly provide a copy of each
such signed agreement to Telesis.
2.5 MULTIPLE TYPES OF INFORMATION. If any Information in a tangible
form contains any combination of Joint Information, Telesis Group Information
or PacTel Group Information, the Parties will consult and agree on an
appropriate way to handle such Information consistent with the provisions of
this Appendix. Such agreement may, for example, take the form of copying the
Information and then (a) obliterating or otherwise removing the Proprietary
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<PAGE>
Information of one Party from one of the copies and (b) obliterating or
otherwise removing the Proprietary Information of the other Party from the
other copy.
2.6 LIMITATIONS ON CONFIDENTIALITY OBLIGATIONS.
Neither Party shall have any obligation to return to the other Party or to
preserve the confidential or proprietary nature of any Information belonging
to the other Party, any Joint Information, or any PacTel Group Information or
Telesis Group Information, as the case may be, which:
a. is or becomes publicly known through no wrongful act of
such Party; or
b. is rightfully received from a third person having no
direct or indirect secrecy or confidentiality obligations to the other Party
with respect to such Information; or
c. is independently developed by an employee, contractor or
agent of such Party and who did not have any direct or indirect access to such
Information; or
d. is disclosed to a third person by the other Party without
similar restrictions on such third person's rights; or
e. is approved for release by written authorization of the
other Party.
2.7 OTHER AGREEMENTS. The terms of this Section 2 (Information)
shall apply except when another provision of this Agreement or another
agreement executed by the Parties in connection with the Separation expressly
provides for the handling of specific Information in a manner inconsistent
with this Section 2. In that event, the more specific terms shall govern the
Information in question.
2.8 PROTECTIVE ARRANGEMENTS. Each Party agrees to promptly notify
the other Party of any demands to disclose or provide Proprietary Information
in its possession belonging to the other Party prior to disclosing or
providing such Proprietary Information and agrees to cooperate in seeking any
reasonable protective arrangements requested by the other Party. A Party may
disclose or provide Proprietary Information belonging to the other Party
requested by a judicial, administrative or regulatory authority having
jurisdiction over such Party, provided that (a) such Party uses its best
efforts to obtain protective arrangements satisfactory to the other Party, and
(b) the other Party may not unreasonably withhold approval of such protective
arrangements.
SECTION 3 - COPYRIGHTS
- ----------------------
3.1 GENERAL. Except as otherwise provided in this Agreement, each
Party will retain ownership of its own copyrights and copyrightable works, and
no licenses to such copyrights or copyrightable works are granted to the other
Party under this Agreement. Nothing in this Agreement shall be construed to
prevent either Party from entering into licensing arrangements with the other
Party for such copyrights and copyrightable works under separate agreement.
C-6
<PAGE>
3.2 LICENSE. Effective on and as of the Separation Date, Telesis
grants to PacTel an irrevocable, royalty-free, nonexclusive license for
copyrights owned by or licensed to Pacific Telesis Group for works created
before the Separation Date and intended for use by a member of the PacTel
Group; provided, however, (a) that, except as may be otherwise specifically
provided in a separate agreement between the Parties, such license shall not
include any copyrights owned by or licensed from a third person to either
Pacific Bell or Nevada Bell or their respective Subsidiaries and (b) that the
license to PacTel is subject to any applicable terms, conditions or
limitations of any license or assignment of the copyrights to Telesis. Except
as limited by any license or assignment of any copyrights to Telesis, the
license to PacTel shall be for the life of the copyrights and includes the
right for PacTel and its Subsidiaries (for only so long as they remain
Subsidiaries of PacTel) to (a) make copies of, and derivative works from, such
copyrighted materials for PacTel's use, and (b) publish and distribute copies
of all such copyrighted materials bearing a copyright notice and derivative
works of such materials.
3.3 COPYRIGHT NOTICES. PacTel agrees not to destroy, cover up, or
obliterate any copyright notices placed on copyrighted works by Telesis or by
licensors to Telesis. Derivative works created by PacTel shall bear the
Telesis copyright notice for that portion of the derivative work that belongs
to Telesis.
3.4 NO TRANSFERS, SUBLICENSES OR ASSIGNMENTS. PacTel shall not
transfer, sublicense or assign any rights in the copyright license granted in
Section 3.2 without the written permission of Telesis. Any transfer,
sublicense or assignment pursuant to this Section 3.4 shall comply with the
provisions of Section 3.3.
3.5 INDEMNIFICATION. PacTel agrees to defend, indemnify and hold
Telesis harmless against any claims, suits, costs (including court costs and
reasonable attorneys' fees), damages, judgments and other liabilities which
arise out of PacTel's use or misuse of copyrights licensed to PacTel under
Section 3.2.
SECTION 4 - PATENTS
- -------------------
4.1 TELESIS PATENTS. Except as otherwise provided in this
Agreement, Telesis Group shall retain all rights, title and interest in
patents and patentable inventions owned or controlled prior to the Separation
Date by members of the Telesis Group, including but not limited to those
patents and patentable inventions owned or controlled by Pacific Bell, and no
licenses to such Telesis Group patents or patentable inventions are granted to
PacTel under this Agreement. Nothing in this Agreement shall be construed to
prevent Telesis from entering into licensing arrangements with PacTel for such
Telesis Group patents and patentable inventions under separate written
agreement.
4.2 PACTEL PATENTS. PacTel Group shall retain all rights, title and
interest in the patents and patentable inventions owned or controlled prior to
the Separation Date by members of the PacTel Group, including but not limited
to those patentable inventions developed by PacTel Cellular employees and
those patents or patentable inventions owned or controlled by PacTel, and no
licenses to such PacTel Group patents or patentable inventions are granted to
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<PAGE>
Telesis under this Agreement. Nothing in this Agreement shall be construed to
prevent PacTel from entering into licensing arrangements with Telesis for such
PacTel Group patents and patentable inventions under separate written
agreement.
4.3 AT&T PATENTS. Telesis authorizes PacTel to exercise all rights
granted to Telesis under all patents licensed to Telesis by American Telephone
and Telegraph Company ("AT&T Patents") under Article I (Patents) of the
November 1, 1983, Agreement Concerning Patents, Technical Information and
Copyrights between AT&T and Telesis (the "Patent Agreement"). Such
authorization shall be effective on the date of this Agreement, non-exclusive,
to the full extent and duration permitted under the Patent Agreement, and
subject to any limitations imposed by the Patent Agreement on Telesis' right
to grant such authorization to PacTel. Telesis retains all rights granted to
Telesis under the Patent Agreement and makes no warranty or representation
whatsoever to PacTel as to Telesis' right under the Patent Agreement to grant
such authorization to PacTel. PacTel agrees to defend, indemnify and hold
Telesis harmless against any claims, suits, costs (including court costs and
reasonable attorneys' fees), damages, judgments or other liabilities which
arise out of the grant of such authorization to PacTel. Pursuant to Section
4.02 of the Patent Agreement, as a condition of the grant of such
authorization, PacTel agrees to the terms and conditions of the Patent
Agreement.
SECTION 5 - TRADEMARKS AND TRADE NAMES
- --------------------------------------
5.1 ASSIGNED MARKS.
a. Effective on and as of the Separation Date, Telesis
assigns to PacTel all of Telesis' rights, title and interest, including the
goodwill inherent therein, in the Assigned Marks; provided, however, that
Telesis makes no warranties regarding its ownership of any rights in, or the
validity of, any of the Assigned Marks. After the Separation Date, Telesis
shall not, without the express written permission of PacTel, adopt or use for
any Trademark or trade name purposes either (1) any of the Assigned Marks, or
(2) any other Trademarks or trade names that are confusingly similar to any of
the Assigned Marks.
b. After the Separation Date, PacTel shall have the right (1)
to record relevant portions of this Agreement in the United States Patent and
Trademark Office or in the Office of the Secretary of State or other
appropriate agency of any state or foreign county; (2) to obtain the
appropriate Federal, state or foreign registration of any of the Assigned
Marks; (3) to renew the Federal, state or foreign registration of any of the
Assigned Marks; and (4) to take such other action as may be necessary or
desirable to conform the Federal, state or foreign registration records to
reflect the terms of this Agreement.
c. After the Separation Date, the Parties will cooperate with
each other to effectuate the intent of this Agreement and will promptly take
all additional actions which may be necessary or desirable to that end. Such
cooperation may include but is not limited to Telesis' (1) assigning to PacTel
any appropriate portion, or all if all is appropriate, of Telesis' rights,
title and interest in any Trademark or trade name not listed in Exhibit C-3
(Trademarks to be Assigned by Telesis to PacTel) but which should have been
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<PAGE>
listed in such Exhibit to effect the assignment of those Trademarks and trade
names (exclusive of the PACTEL Trademarks and trade names) to PacTel which
have been used by PacTel Group prior to the Separation Date but which are not
used by Telesis Group as a Trademark or trade name; (2) taking such action as
may be necessary in order for PacTel to obtain appropriate Federal, state or
foreign registration or otherwise conform the Federal, state or foreign
registration records to reflect the terms of this Agreement; (3) identifying
any United States Customs recordation (by number and issue date) and any
United States Customs recordation application (by filing date) covering any of
the Assigned Marks; (4) preserving and providing to PacTel on request a full
and complete copy of each file that has been maintained by Telesis in
connection with the adoption, use, registration, maintenance or enforcement of
the Assigned Marks; (5) cooperating with PacTel in any proceeding in the
United States Patent Trademark Office or in the Office of the Secretary of
State or other appropriate agency of any state or foreign country or in the
courts concerning any of the Assigned Marks; and (6) executing and delivering
to PacTel all appropriate assignments, affidavits and other documents relating
to any of the Assigned Marks that may be reasonably requested by PacTel.
d. Effective on and as of the Separation Date, Telesis
assigns to PacTel all of Telesis' rights to sue and recover for past and
future infringements of any of the Assigned Marks and will permit PacTel to
assume Telesis' role in the prosecution or defense of all pending actions
involving the Assigned Marks. Telesis will cooperate with PacTel to the
extent reasonably requested by PacTel to resolve any claims of, or alleged
infringement by, any third person which might impair PacTel's rights to use or
register any of the Assigned Marks.
e. PacTel will reimburse Telesis for any reasonable expenses
incurred by Telesis at the request of PacTel in connection with any such
cooperation under this Section 5.1.
5.2 TELESIS MARKS. All Telesis Marks will remain the sole and
exclusive property of Telesis, and PacTel shall have no rights, title or
interest in any such Telesis Marks. After the Separation Date, PacTel will
not, without the express written permission of Telesis, adopt or use for any
Trademark or trade name purposes either (a) any of the Telesis Marks (either
alone or in combination with any other terms or in design forms) or (b) any
Trademarks or trade names that are confusingly similar to any of the Telesis
Marks, except that Telesis will license PacTel to use certain Telesis Marks as
set forth in Section 5.4.
5.3 SELECTION OF NEW NAME BY PACTEL
a. In accordance with Section 5.2, prior to the Separation
Date, PacTel will change the corporate name of its subsidiary Pacific Telesis
International to either PacTel International or another name which is not
confusingly similar to any of the Telesis Marks. Similarly, prior the
Separation Date, PacTel will replace the words "Pacific Telesis" in the names
of any of its other direct or indirect subsidiaries which contain such words
and which will be members of the PacTel Group with either "PacTel" or another
name which is not confusingly similar to any of the Telesis Marks. Any such
other name shall be subject to Telesis' prior written concurrence, which
concurrence will not be unreasonably withheld.
b. No later than two years after the Separation Date, PacTel
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will change the corporate names of all of the members of the PacTel Group
which contain the word "PacTel" to names which do not contain "PacTel" and
adopt new trademarks, trade names, logos and trade dress associated with such
new corporate names (collectively, the "New Name"). The New Name shall not be
(1) confusingly similar to any of the Telesis Marks, or (2) derivative of any
of the Telesis Marks. The New Name shall be subject to Telesis' prior written
concurrence, which concurrence will not be unreasonably withheld. Nothing
contained in this Section 5.3 shall be deemed to require PacTel to seek
Telesis' concurrence for any new corporate names, trademarks, trade names,
logos or trade dress which PacTel may adopt after PacTel first adopts a New
Name with which Telesis concurs.
c. At the request of Telesis, PacTel will, at Telesis'
direction, either (1) transfer to Telesis all of PacTel's ownership interest
in any name-holding or inactive direct or indirect subsidiary of PacTel which
contains the words "PacTel" or "Pacific Telesis" in its name, or (2) change
the name of such subsidiary to a name which does not contain "PacTel",
"Pacific Telesis" or any term confusingly similar to any of the Telesis Marks.
5.4 LICENSED MARKS.
a. In recognition of PacTel's valuable contributions as a
related company of Telesis in building the goodwill inherent in the Licensed
Marks and in order to facilitate an orderly transition by PacTel to the New
Name, Telesis grants PacTel a license of the Licensed Marks as further set
forth in this Section 5.4.
b. Effective on and as of the Separation Date, Telesis grants
to PacTel a nonexclusive, nontransferable, royalty-free, revocable license to
use the Licensed Marks throughout the United States and the rest of the world;
provided, however, that Telesis makes no warranties regarding its ownership of
any rights in, or the validity of, any of the Licensed Marks.
c. The license term of the Licensed Marks will expire two
years after the Separation Date; provided, however, that, for a period of one
year after the expiration of the license term or one year after PacTel's
adoption of the New Name, whichever comes first, PacTel will be permitted to
use the taglines "Formerly PacTel Corporation," "Formerly PacTel Cellular,"
"Formerly PacTel Paging," and "Formerly PacTel Teletrac" in connection with
the New Name. PacTel will cease all use of the word "PacTel" in taglines at
the end of one year after the expiration of the license term or one year after
the adoption of the New Name, whichever comes first. Nothing in this
provision shall require PacTel to recover leased equipment from customers in
order to remove the Licensed Marks provided that PacTel uses reasonable
measures to remove the Licensed Marks before leased equipment is re-leased by
PacTel to PacTel's lease customers after PacTel has adopted its New Name.
d. Notwithstanding any other provision of this Section 5.4,
PacTel will not use the TELESIS SYMBOL in the PAC(SYMBOL)TEL Trademark on
promotional or informational materials, letterhead, business cards, business
forms and the like which are printed after the Separation Date, and PacTel
will not use the TELESIS SYMBOL on new product inventory ordered after 30 days
after the Separation Date. PacTel will immediately inform its authorized
agents and other licensees that the TELESIS SYMBOL may not be used on
promotional or informational materials, letterhead, business cards, business
forms and the like which are printed by such authorized agents and licensees
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after 60 days after the Separation Date.
e. Telesis will not use the Licensed Marks during the license
term except that Telesis will have the right to license the PACTEL name and
Trademark to PacTel Meridian Systems and may retain the PACTEL name on Telesis
Group entities such as PacTel Properties and PacTel Finance. In addition,
Telesis will have the right to use the PACTEL name as a stock exchange symbol
or for any other comparable purpose. After the license term, Telesis may use
the PACTEL and PAC(SYMBOL)TEL Trademarks for any nonwireless
telecommunications products or services, including vertical services such as
voice mail or call forwarding services that may be used with wireless voice
and wireless data telecommunications products and services. Telesis may use
the PACTEL and PAC(SYMBOL)TEL Trademarks for wireless voice and wireless data
telecommunications products or services only on written approval from PacTel,
which approval will not be unreasonably withheld. At no time will Telesis
have any obligation to PacTel with respect to any third person who may refer
to Telesis or any of the Telesis Group's products or services by the PACTEL
name.
f. Annually, on January 2 of each calendar year following the
date of this Agreement until the end of the license term, PacTel will certify
to Telesis: (1) that PacTel's use of the Licensed Marks conforms with Section
5.4.h; (2) that PacTel has maintained service quality standards equal to or
higher than those used prior to the Separation Date; (3) that PacTel is in
compliance with the terms of this license.
g. All goods sold and services performed under the Licensed
Marks will at all times be in compliance with the applicable Federal and state
regulations and laws, and the goods sold will be of good quality and
workmanship, and the services performed in a manner so as not to bring
discredit on the Licensed Marks.
h. PacTel agrees that the Licensed Marks will be used only as
set forth below or pursuant to guidelines which Telesis may provide to PacTel
from time-to-time:
(1) The PAC(SYMBOL)TEL mark will appear only in the form
shown in Federal registration number 1365364.
(2) Use of the PAC(SYMBOL)TEL mark will be consistent
with the guidelines set forth in the Telesis Basic
Graphics Standards manual.
i. PacTel acknowledges the value of the Licensed Marks and
the goodwill associated therewith and acknowledges that such goodwill is a
property right belonging to Telesis and that Telesis is the owner of all
trademark and other rights in the Licensed Marks. PacTel recognizes that
nothing contained in this Agreement is intended as an assignment or grant to
PacTel of any rights, title or interest in or to the Licensed Marks or any
other Telesis Marks or the goodwill associated therewith and that the license
is not assignable. PacTel will do nothing inconsistent with Telesis'
ownership of the Licensed Marks, and all use of the Licensed Marks by PacTel
shall inure to the benefit of and be on behalf of Telesis. PacTel will not
adopt, use (other than licensed use provided for herein), register or seek to
register any mark anywhere in the world which is identical to any of the
Licensed Marks or to any mark used by Telesis or which is so similar thereto
C-11
<PAGE>
as to constitute a colorable imitation thereof or to suggest some association,
sponsorship and/or endorsement by Telesis.
j. PacTel may sublicense the Licensed Marks to its authorized
agents provided that:
(i) the term of such sublicenses shall not extend beyond
the term of this license;
(ii) the sublicenses include all necessary provisions to
protect Telesis' interest in the Licensed Marks; and
(iii) all use of the Licensed Marks by such authorized
agents shall terminate on or before the expiration of this license.
k. PacTel agrees to notify Telesis of any unauthorized use of
the Licensed Marks by others promptly as it comes to PacTel's attention.
Telesis will have the sole right to engage in infringement or unfair
competition proceedings involving the Licensed Marks, and PacTel will
cooperate fully in any such proceedings to the extent requested by Telesis.
On prior written agreement of the Parties, PacTel may assume primary
litigation responsibility in an infringement or unfair competition proceeding.
l. During the license term and for five years thereafter,
Telesis will use reasonable efforts to protect the PACTEL Trademark. If,
during the license term, Telesis does not take steps promptly to address a
known infringing use of the PACTEL Trademark, PacTel may, on 60 days notice to
Telesis, take such steps as are necessary to prevent such infringing use.
Telesis will not be required to pursue uses of the PACTEL Trademark which it
reasonably believes are noninfringing uses. Telesis will promptly inform
PacTel of any such reasonable belief.
m. PacTel agrees to defend, indemnify and hold Telesis
harmless against any claims, suits, costs (including court costs and
reasonable attorneys' fees), damages, judgments and other liabilities, whether
for personal injury or otherwise, which arise out of the offering, sale or
providing of the goods and services under the Licensed Marks.
n. Telesis will have the right to terminate this license on
30 days written notice to PacTel in the event of any affirmative act of
insolvency by PacTel, or on the appointment of any receiver or trustee to take
possession of the properties of PacTel or upon the winding-up, sale,
consolidation, merger or any sequestration by government authority of PacTel,
or upon breach of any of the provisions hereof by PacTel which is not cured
within 60 days after written notice to PacTel. This license will terminate
automatically on any assignment or attempted assignment made without the prior
written consent of Telesis.
o. Except as otherwise expressly provided in Section 5.4.b,
at the end of the license term, or on termination of this license under
Section 5.4.n, PacTel agrees to immediately discontinue all use of the
Licensed Marks and any term confusingly similar thereto, and to delete the
same from its corporate or business name, to cooperate with Telesis or its
appointed agent to apply to the appropriate authorities to cancel recording of
this Agreement from all governmental records, to destroy all printed materials
bearing any of the Licensed Marks, and that all rights in the Licensed Marks
C-12
<PAGE>
and the goodwill connected therewith will remain the sole property of Telesis.
After the license term, PacTel will not adopt or use for any Trademark or
trade name purposes either (1) any of the Licensed Marks, or (2) any other
Trademarks or trade names that are confusingly similar to any of the Licensed
Marks.
p. At the end of the license term, the Parties will cooperate
to seek cancellation of all Licensed Marks which use both of the words PACTEL
and TELETRAC as part of a composite mark. The Parties may seek cancellation
of such composite marks at any time prior to the end of the license term.
(Exhibit C-1 Follows)
C-13
<PAGE>
EXHIBIT C-1
-----------
EMPLOYEE CONFIDENTIALITY AGREEMENT
----------------------------------
(To Be Signed by Employees Transferring to the Telesis Group)
-------------------------------------------------------------
Name of Employee: _____________________________
This Agreement relates to the separation of PacTel Corporation and its
post-separation subsidiaries and affiliates (collectively, "PacTel") from
Pacific Telesis Group and its post-separation subsidiaries and affiliates
(collectively, "Telesis") and the transfer of my employment from PacTel to
Telesis:
1. I understand that (a) my employment by PacTel has created a
relationship of confidence and trust between PacTel and me with respect to,
among other things, certain Proprietary Information which has been developed
by me, or disclosed or otherwise made available to me in the course of my
employment with PacTel, and (b) PacTel and Telesis may in the future be actual
or potential competitors in certain areas. As used herein, "Proprietary
Information" includes information, in written, oral, or other tangible or
intangible forms, including but not limited to discoveries, ideas, designs,
specifications, drawings, diagrams, models, samples, flow charts, data,
computer programs or other software, business cases, marketing plans, customer
names, communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under
their direction (including attorney work product), and other technical,
financial, employee or business information. I also understand that PacTel is
the sole owner of all rights relating to this Proprietary Information.
2. I agree not to disclose to others, or take or use for my own
purposes or the purposes of Telesis or others, any Proprietary Information
owned by PacTel or in PacTel's possession, whether or not my work product, and
whether or not known only from memory. I agree that these restrictions shall
also apply to all (a) Proprietary Information in PacTel's possession belonging
to third persons, and (b) Proprietary Information conceived, originated or
developed, in whole or in part, by me in the course of my employment with
PacTel. I will consider any Proprietary Information which is not readily
available to the public to be a PacTel trade secret and confidential and
proprietary, even if it is not specifically marked as such, unless PacTel
advises me otherwise in writing.
3. This Agreement shall not apply to any Proprietary Information
that:
a. was previously known to Telesis free of any obligation to
keep it confidential at the time of its disclosure or use as evidenced by
Telesis' written records prepared prior to such disclosure or use; or
b. is or becomes publicly known through no wrongful act by
Telesis or me; or
C-14
<PAGE>
c. is rightfully received by Telesis from a third person
having no direct or indirect secrecy or confidentiality obligations to the
owner of the Proprietary Information with respect to such Proprietary
Information; or
d. is independently developed by other employees, agents or
contractors of Telesis without any direct or indirect assistance from me; or
e. is approved for release by written authorization of PacTel
or the owner of the Proprietary Information; or
f. is disclosed to a third person by PacTel without similar
restrictions on such third person's rights; or
g. is developed by PacTel on behalf of Telesis and conveyed
to Telesis for Telesis' use pursuant to an agreement between PacTel and
Telesis.
4. I certify that I have returned, or will on my last day of
employment with PacTel return, to PacTel all PacTel Property in my possession
or control and that I will not knowingly retain possession of any PacTel
Property. As used herein, "PacTel Property" includes but is not limited to
any physical items in any tangible form whatsoever containing or constituting
any Proprietary Information, including but not limited to studies, reports,
surveys, proposals, data, disks, diskettes, tapes, computer programs or other
software, runbooks, source codes, object codes, systems documentation and
related materials, notebooks, specifications, drawings, blueprints, diagrams,
models, prototypes, samples, reproductions, sketches, notes or other documents
(or copies of them) belonging to PacTel and materials, tools, equipment or
other items belonging to PacTel).
5. I certify that I have returned, or will on my last day of
employment with PacTel return, all identification cards and credit cards
issued to me by PacTel and all keys to PacTel offices that have been in my
possession.
6. This Agreement shall be governed by the laws of the State of
California, irrespective of California's choice of law principles.
IMPORTANT NOTICE!!
THIS IS A LEGAL DOCUMENT
READ IT CAREFULLY BEFORE SIGNING IT!!
_____________________________________
_____________________________________
(Signature)
Print Name: _________________________
_________________________
Date Signed: _________________ , 1993
__________________
(Exhibit C-2 Follows)
C-15
<PAGE>
EXHIBIT C-2
-----------
EMPLOYEE CONFIDENTIALITY AGREEMENT
----------------------------------
(To Be Signed by Employees Transferring to the PacTel Group)
-----------------------------------------------------------
Name of Employee: _____________________________
This Agreement relates to the separation of PacTel Corporation and its
post-separation subsidiaries and affiliates (collectively, "PacTel") from
Pacific Telesis Group and its post-separation subsidiaries and affiliates
(collectively, "Telesis") and the transfer of my employment from Telesis to
PacTel:
1. I understand that (a) my employment by Telesis has created a
relationship of confidence and trust between Telesis and me with respect to,
among other things, certain Proprietary Information which has been developed
by me, or disclosed or otherwise made available to me in the course of my
employment with Telesis, and (b) Telesis and PacTel may in the future be
actual or potential competitors in certain areas. As used herein,
"Proprietary Information" includes information, in written, oral, or other
tangible or intangible forms, including but not limited to discoveries, ideas,
designs, specifications, drawings, diagrams, models, samples, flow charts,
data, computer programs or other software, business cases, marketing plans,
customer names, communications by or to attorneys (including attorney-client
privileged communications), memos and other materials prepared by attorneys or
under their direction (including attorney work product), and other technical,
financial, employee or business information. I also understand that Telesis
is the sole owner of all rights relating to this Proprietary Information.
2. I agree not to disclose to others, or take or use for my own
purposes or the purposes of PacTel or others, any Proprietary Information
owned by Telesis or in Telesis' possession, whether or not my work product,
and whether or not known only from memory. I agree that these restrictions
shall also apply to all (a) Proprietary Information in Telesis' possession
belonging to third persons, and (b) Proprietary Information conceived,
originated or developed, in whole or in part, by me in the course of my
employment with Telesis. I will consider any Proprietary Information which is
not readily available to the public to be a Telesis trade secret and
confidential and proprietary, even if it is not specifically marked as such,
unless Telesis advises me otherwise in writing.
3. This Agreement shall not apply to any Proprietary Information
that:
a. was previously known to PacTel free of any obligation to
keep it confidential at the time of its disclosure or use as evidenced by
PacTel's written records prepared prior to such disclosure or use; or
b. is or becomes publicly known through no wrongful act by
PacTel or me; or
C-16
<PAGE>
c. is rightfully received by PacTel from a third person
having no direct or indirect secrecy or confidentiality obligations to the
owner of the Proprietary Information with respect to such Proprietary
Information; or
d. is independently developed by other employees, agents or
contractors of PacTel without any direct or indirect assistance from me; or
e. is approved for release by written authorization of
Telesis or the owner of the Proprietary Information; or
f. is disclosed to a third person by Telesis without similar
restrictions on such third person's rights; or
g. is developed by Telesis on behalf of PacTel and conveyed
to PacTel for PacTel's use pursuant to an agreement between Telesis and
PacTel.
4. I certify that I have returned, or will on my last day of
employment with Telesis return, to Telesis all Telesis Property in my
possession or control and that I will not knowingly retain possession of any
Telesis Property. As used herein, "Telesis Property" includes but is not
limited to any physical items in any tangible form whatsoever containing or
constituting any Proprietary Information, including but not limited to
studies, reports, surveys, proposals, data, disks, diskettes, tapes, computer
programs or other software, runbooks, source codes, object codes, systems
documentation and related materials, notebooks, specifications, drawings,
blueprints, diagrams, models, prototypes, samples, reproductions, sketches,
notes or other documents (or copies of them) belonging to Telesis and
materials, tools, equipment or other items belonging to Telesis).
5. I certify that I have returned, or will on my last day of
employment with Telesis return, all identification cards and credit cards
issued to me by Telesis and all keys to Telesis offices that have been in my
possession.
6. This Agreement shall be governed by the laws of the State of
California, irrespective of California's choice of law principles.
IMPORTANT NOTICE!!
THIS IS A LEGAL DOCUMENT
READ IT CAREFULLY BEFORE SIGNING IT!!
_____________________________________
_____________________________________
(Signature)
Print Name: _________________________
_________________________
Date Signed: _________________ , 1993
__________________
(Exhibit C-3 Follows)
C-17
<PAGE>
EXHIBIT C-3
-----------
TRADEMARKS TO BE ASSIGNED TO PACTEL BY TELESIS
----------------------------------------------
REGISTRATIONS
-------------
REGISTRATION INTERNATIONAL
MARK COUNTRY/STATE NUMBER CLASS
- ------------------- ----------------- ------------ -------------
AUTO ACCESS United States 1716536 38
EASY-CHECK Korea, South 161543 09
EVERYTHING ELSE IS
JUST CELLULAR California 040419 38
FULL SPECTRUM &
DESIGN California 0035084 16
FULL SPECTRUM &
DESIGN United States 1647674 38
GENCOM United States 1184142 38
MORE POWER TO YOU Georgia S-10,875 38
PACLINK Thailand 109257 09
PACLINK Thailand 225325/Bor40 38
PACLINK Thailand 225357/Bor12 42
PAGESAVER Texas 052355 38
PREMIER Georgia S-10,723 38
P.R.P. United States 1448843 36
QA DESIGN United States 1733594 37
QA DESIGN United States 1780599 38
RADIO PAGE Indiana 5009-4228 38
RADIO PAGE Kentucky 04825 38
RADIO PAGE Kentucky 04793 09
TELETRAC ONE Korea, South 18716 38
TELETRAC ONE Germany 2 034 737 38,42
TELETRAC ONE Taiwan R.56501 38
THE ANSWER California 20467 38
THE ANSWER Nevada * 38
THE ANSWER FOR A
MOBILE SOCIETY Georgia S-8811 38
THE CLEAR CHOICE
FOR CELLULAR Georgia S-8427 38
THE ONE SOURCE
FOR CELLULAR California 27447 38
TOP BILLING Texas 052357 38
TOUCH LINK United States 1446815 38
VOICE EXPRESS United States 1264483 38
C-18
<PAGE>
APPLICATIONS
------------
REGISTRATION INTERNATIONAL
MARK COUNTRY/STATE NUMBER CLASS
- ------------------- ----------------- ------------ -------------
KIDTRACK United States 74/359406 38
PACLINK Thailand 225525 35
TELETRAC ONE Australia 560448 38
TELETRAC ONE Canada 687,265 38
TELETRAC ONE France TBD 38
TELETRAC ONE Italy F1000716 38
TELETRAC ONE Japan 86726/91 09
TELETRAC ONE Mexico TBD 38
TELETRAC ONE Spain 1666720 38
TELETRAC ONE United Kingdom 1476817 38
Footnote Legend:
- ----------------
* - Nevada does not issue registration numbers.
TBD - To Be Determined
(Exhibit C-4 Follows)
C-19
<PAGE>
EXHIBIT C-4
-----------
TRADE NAMES TO BE LICENSED BY TELESIS TO PACTEL
-----------------------------------------------
PacTel
PacTel Cellular
PacTel Corporation
PacTel Paging
(Exhibit C-5 Follows)
C-20
<PAGE>
EXHIBIT C-5
-----------
TRADEMARKS TO BE LICENSED BY TELESIS TO PACTEL
----------------------------------------------
REGISTRATION INTERNATIONAL
MARK COUNTRY/STATE NUMBER CLASS
- ------------------- ----------------- ------------ -------------
PACTEL United States 1497476 09
PACTEL United States 1446379 16
PACTEL United States 1473437 35,41
PACTEL United States 1464866 37
PACTEL United States 1464841 36,42
PACTEL United States 1678840 38
PACTEL California 27255 35
PACTEL California 27256 37
PACTEL California 81740 09
PACTEL California 81741 16
PACTEL California 17226 38
PACTEL Nevada * 38
PACTEL Nevada * 16
PACTEL Nevada * 35
PACTEL Nevada * 37
PACTEL Oregon S-20506 42
PACTEL Algeria 441454 09,35,38,42
PACTEL Algeria 448565 09,16
PACTEL Argentina 1308960 37
PACTEL Argentina 1308961 38
PACTEL Argentina 1366376 42
PACTEL Austria 448565 09,16
PACTEL Austria 441454 09,35,38,42
PACTEL Benelux 157917 37,38,42
PACTEL Benelux 448565 09,16
PACTEL Brazil 813715296 37
PACTEL Brazil 813715288 38
PACTEL Brazil 813715270 40
PACTEL China 362593 16
PACTEL China 357907 09
PACTEL Denmark 2858-1982 42
PACTEL France 1466161 09,35,38,42
PACTEL France 10840 09,35,38,42
PACTEL France 448565 09,16
PACTEL Germany 448565 09,16
PACTEL Indonesia 231925 09,16
PACTEL Italy 448565 09,16
PACTEL Italy 10843 09,35,38,42
PACTEL Italy 10840 09,35,38,42
PACTEL Japan 2209118 09
PACTEL Korea, South 167105 09
PACTEL Korea, South 161680 16
PACTEL Korea, South 8772 42
PACTEL Korea, South 167105 09
PACTEL Malaysia 580/80 16
C-21
<PAGE>
REGISTRATION INTERNATIONAL
MARK COUNTRY/STATE NUMBER CLASS
- ------------------- ----------------- ------------ -------------
PACTEL Mexico 388671 37
PACTEL Mexico 407267 35
PACTEL New Zealand 174057 09
PACTEL New Zealand 182938 38
PACTEL Philippines 44775 37,38,42
PACTEL Sabah 601/80 16
PACTEL Sarawak 580/80 16
PACTEL Spain 866739 38
PACTEL Spain 866738 35
PACTEL Switzerland 300016 09,16
PACTEL Taiwan 429787 09
PACTEL Taiwan 422461 16
PACTEL Taiwan 33971 35
PACTEL Taiwan 34852 35
PACTEL Taiwan 32704 37
PACTEL Thailand 120555 16
PACTEL United Kingdom 1272113 09
PACTEL United Kingdom 1272114 16
PACTEL United Kingdom 1273502 35
PACTEL United Kingdom 1273503 37
PACTEL United Kingdom 1273504 38
PACTEL United Kingdom 1273506 42
PACTEL Venezuela 141728 09
PACTEL Venezuela 141727 16
PACTEL POWER PACKAGE Georgia S-10,876 38
PACTEL TELETRAC Germany 2018795 38
PACTEL TELETRAC Korea, South 18841 38
PACTEL TELETRAC
INTERNATIONAL Mexico 402384 38
PAC(SYMBOL)TEL United States 1365364 09
PAC(SYMBOL)TEL United States 1446378 16
PAC(SYMBOL)TEL United States 1464818 35,41
PAC(SYMBOL)TEL United States 1464865 37
PAC(SYMBOL)TEL United States 1448907 38
PAC(SYMBOL)TEL United States 1464840 36,42
PAC(SYMBOL)TEL California 76688 09
PAC(SYMBOL)TEL California 81742 16
PAC(SYMBOL)TEL California 27254 38
PAC(SYMBOL)TEL California 27253 37
PAC(SYMBOL)TEL California 27252 35
PAC(SYMBOL)TEL Nevada * 38
PAC(SYMBOL)TEL Nevada * 16
PAC(SYMBOL)TEL Nevada * 37
PAC(SYMBOL)TEL Nevada * 35
PAC(SYMBOL)TEL Oregon 2-20505 42
PAC(SYMBOL)TEL China 357906 09
PAC(SYMBOL)TEL China 357907 16
PAC(SYMBOL)TEL Taiwan 433669 09
PAC(SYMBOL)TEL Taiwan 34029 35
PAC(SYMBOL)TEL Taiwan 34898 35,42
PAC(SYMBOL)TEL Taiwan 32734 37
PAC(SYMBOL)TEL Thailand 131186 16
C-22
<PAGE>
APPLICATIONS
------------
REGISTRATION INTERNATIONAL
MARK COUNTRY/STATE NUMBER CLASS
- ------------------- ----------------- ------------ -------------
PACTEL Australia 543064 42
PACTEL Australia 543063 38
PACTEL Australia 543062 37
PACTEL Australia 543061 36
PACTEL Australia 543060 35
PACTEL Australia 543059 16
PACTEL Australia 543058 09
PACTEL Canada 602784 16,36,37
PACTEL Hong Kong 3935/88 09
PACTEL Hong Kong 3936/88 16
PACTEL India 472458 16
PACTEL India 472457 09
PACTEL Indonesia TBD 38
PACTEL Japan 176447/92 38
PACTEL Korea, South 87-798 35
PACTEL Korea, South 87-799 37
PACTEL Korea, South 87-800 37
PACTEL Korea, South 87-801 38
PACTEL Mexico 95818 38
PACTEL New Zealand 182937 37
PACTEL New Zealand 182939 42
PACTEL Taiwan 77027839 38
PACTEL Thailand 165167 09
PACTEL United Kingdom 1273505 41
PACTEL Viet Nam TBD 38
PACTEL INFOCENTER United States 74/363729 38
PACTEL MICROCELL United States 74/151044 38
PACTEL NEWSCAST United States 74/267626 38
PACTEL TELETRAC Brazil 816174091 38
PACTEL TELETRAC Canada 685394 38
PACTEL TELETRAC France TBD 38
PACTEL TELETRAC Italy F191C/319 38
PACTEL TELETRAC Japan 60818/91 09
PACTEL TELETRAC Spain 1633261 38
PACTEL TELETRAC United Kingdom 1476812 38
PAC(SYMBOL)TEL Hong Kong 3890/88 16
PAC(SYMBOL)TEL Hong Kong 3879/88 09
PAC(SYMBOL)TEL Hong Kong 92-08396 38
PAC(SYMBOL)TEL Hong Kong 92-08397 42
PAC(SYMBOL)TEL Taiwan 77028087 16
PAC(SYMBOL)TEL Taiwan 77028089 38
PAC(SYMBOL)TEL Thailand 177750 09
PAC(SYMBOL)TEL Thailand 225348 38
PAC(SYMBOL)TEL Thailand 225353 42
PAC(SYMBOL)TEL Thailand 225526 35
Footnote Legend:
- ----------------
* - Nevada does not issue registration numbers.
TBD - To Be Determined
(Appendix D Follows)
C-23
<PAGE>
APPENDIX D
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
CONTINGENT LIABILITIES
----------------------
<PAGE>
CONTINGENT LIABILITIES
----------------------
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . .. D-3
SECTION 2 - DEFENSE OF ACTIONS .. . . . . . . . . D-4
SECTION 3 - CONTINGENT LIABILITIES . . . . . . . D-4
EXHIBIT D-1 - SCHEDULE OF ACTIONS . . . . . . . . . D-7
D-2
<PAGE>
CONTINGENT LIABILITIES
----------------------
SECTION 1 - DEFINITIONS
- -----------------------
The following terms and other terms defined in this Appendix and
elsewhere in this Agreement have the meanings set forth herein unless the
context indicates otherwise. Words importing persons include corporations.
Words importing only the singular include the plural and vice versa where the
context requires.
1.1 ACTION means any litigation or other judicial, regulatory or
administrative proceeding (including audits of taxes other than federal or
state income taxes, including state franchise taxes measured by income).
1.2 ACTS OR OMISSIONS means significant active and direct
participation by a Party in the conduct that resulted in the Contingent
Liability; provided, however, that approvals, non-approvals or rejections of
budgets, profit plans, business plans and other corporate plans shall not
constitute Acts or Omissions with respect to any particular conduct.
1.3 BENEFIT means a significant, identifiable financial benefit that
directly flows to a Party from the Acts or Omissions that resulted in the
Contingent Liability; provided, however, that the payment of dividends to
Telesis by one of its Subsidiaries shall not constitute a Benefit to Telesis
or to any of Telesis' other Subsidiaries with respect to any particular Acts
or Omissions of the Subsidiary paying such dividends.
1.4 CONTINGENT LIABILITY means a liability (to the extent not
covered by insurance) of one or both of the Parties which was not booked for
financial reporting purposes prior to the Separation Date that is attributable
to either (a) an event which occurred prior to the Separation Date, (b) a
condition which existed prior to the Separation Date, or (c) an event which
occurred after the Separation Date but which was attributable to the
Separation; provided, however, that in the case of either (a), (b) or (c) the
Action that resulted in the uninsured liability must have been filed or
otherwise commenced within four years after the Separation Date.
1.5 JUDGMENT means any judgment or other determination of liability
entered by a court or regulatory or administrative authority (or any
settlement entered into by both of the Parties) in any contested Action. For
example, the assessment of a tax deficiency (other than a federal or state
income tax deficiency) after the conclusion of an audit and the exhaustion of
the taxpayer's administrative remedies is a Judgment. But a stipulated
judgment or order of dismissal (or equivalent) by which a court approves a
settlement of an Action entered into by only one of the Parties, including
class action settlements, is not a Judgment.
1.6 NAMED PARTY means a Party which has one or more members that are
named as a defendant (or equivalent) in an Action. For example, if PacTel
Cellular is the taxpayer being audited by a taxing authority, PacTel would be
a Named Party in such Action.
D-3
<PAGE>
SECTION 2 - DEFENSE OF ACTIONS
- ------------------------------
2.1 The Parties will cooperate and consult with each other in
connection with the defense of any Action in which both Parties are or
potentially may be involved (even if both Parties are not Named Parties in the
Action), including but not limited to Actions which might result in a
Contingent Liability.
2.2 If only one of the Parties is a Named Party in an Action, such
Named Party shall be responsible for both the defense of the Action (in
cooperation and consultation with the other Party) and all of the costs
associated with such defense until such time as such costs may be subject to
allocation as a Contingent Liability under this Agreement.
2.3 If both Parties are Named Parties in an Action, they shall agree
on the responsibility for both the defense of the Action and the costs
associated with such defense until such time as such costs may be subject to
allocation as a Contingent Liability under this Agreement. Such agreement
shall take into consideration the manner in which any Contingent Liability
resulting from the Action would be allocated under Section 3.3. For example,
if both Telesis and PacTel were Named Parties in an Action which arose out of
PacTel's cellular business, the Parties should agree that PacTel would be
primarily responsible for the defense of the Action and would bear all of the
costs associated with such defense until such time as such costs may be
subject to allocation as a Contingent Liability under this Agreement.
2.4 Each Party shall bear its own internal costs (such as the
salaries of in-house Legal Department and other personnel) incurred in
connection with the defense of any Action until such time as such costs may be
subject to allocation as a Contingent Liability under this Agreement.
SECTION 3 - CONTINGENT LIABILITIES
- ----------------------------------
3.1 The allocation rules set forth in Section 3.3 shall apply to all
Contingent Liabilities of the Parties which result from Judgments, except
those relating to federal and state income taxes, including state franchise
taxes measured by income, which shall be governed by Appendix B (Tax Sharing).
For example, Contingent Liabilities may be based on contract, tort (including
business torts such as alleged violations of the antitrust laws), tax (other
than federal and state income tax), environmental, workers' compensation,
ERISA, securities, regulatory and other common law and statutory claims.
3.2 Except as the Parties may otherwise agree, any Contingent
Liability which results from a settlement (as opposed to a Judgment) entered
into by only one of the Parties will not be subject to allocation under this
Agreement.
3.3 The Parties agree to allocate and pay the costs of Contingent
Liabilities which result from Judgments (and any settlements entered into by
only one of the Parties which the Parties may agree are subject to allocation
under this Agreement) in accordance with the following allocation rules:
a. NAMED PARTY RULE. Except as otherwise provided in
Paragraphs b, c, d and e below, if only one of the Parties is a Named Party in
D-4
<PAGE>
an Action, the Contingent Liability shall be allocated solely to that Party.
b. TELESIS RULE. If the Contingent Liability is attributable
solely to the Acts or Omissions of the Telesis Group and the PacTel Group did
not receive any Benefit from such Acts or Omissions, then the Contingent
Liability shall be allocated solely to the Telesis Group. For example, if
both Telesis and PacTel were Named Parties in an Action which arose out of
Pacific Bell's business, any Contingent Liability would be allocated solely to
the Telesis Group.
c. PACTEL RULE. If the Contingent Liability is attributable
solely to the Acts or Omissions of the PacTel Group and the Telesis Group did
not receive any Benefit from such acts or omissions, then the Contingent
Liability shall be allocated solely to the PacTel Group. For example, if both
Telesis and PacTel were Named Parties in an Action which arose out of PacTel
Paging's business, any Contingent Liability would be allocated solely to the
PacTel Group.
d. JOINT RULE. If either (1) the Contingent Liability is
attributable to the Acts or Omissions of both the Telesis Group and the PacTel
Group, or (2) the Party not responsible for the Acts or Omissions resulting in
the Contingent Liability received a Benefit from such Acts or Omissions, the
Parties will use their best efforts to attempt to agree on an equitable means
of sharing the Contingent Liability which reasonably reflects both (1) the
nature of each Party's Acts or Omissions that resulted in such Contingent
Liability and (2) any Benefit to each Party from the Acts or Omissions that
resulted in such Contingent Liability. If despite their best efforts the
Parties are unable to agree on a means for sharing the Contingent Liability,
then either Party may submit the dispute to arbitration pursuant to Article
VII (Arbitration) of this Agreement.
e. EMPLOYEE RULE. Notwithstanding Paragraphs a, b, c and d
above and except as may be otherwise provided in Section 14 (Indemnification)
of Appendix A (Employee Benefits Allocation), if the Contingent Liability
results from the claim of an employee, or former employee of a member of the
Telesis Group or the PacTel Group and is related to such person's employment,
the Contingent Liability shall be allocated to the Party by whom such person
was employed at the time when the Acts or Omissions that resulted in the
Contingent Liability occurred. For example, if a PacTel Cellular employee who
was injured while working for PacTel Cellular later transferred to Pacific
Bell, any Contingent Liability relating to such injury would be allocated
solely to the PacTel Group.
The applicable allocation rule set forth in Paragraphs b, c, d and e
above shall apply even if a Party to which all or part of the Contingent
Liability is to be allocated is not a Named Party in the Action and regardless
of whether such Party may have been dismissed from the action by virtue of a
motion, settlement or otherwise.
3.4 The amount of a Contingent Liability subject to allocation under
this Agreement shall include the costs of any Judgment entered by a court or
judicial, regulatory or administrative authority in an Action (or the cost of
any settlement entered into by both of the Parties), the costs of defending
the Action (including court costs, sanctions imposed by a court, attorneys'
fees, experts' fees and all other external expenses, as well as any internal
costs of in-house Legal Department and other personnel) and the cost of any
D-5
<PAGE>
interest or penalties with respect to any such Judgment.
3.5 Exhibit D-1 (Schedule of Actions) contains a list of all Actions
pending as of the date of this Agreement, in which the Parties believe that an
adverse Judgment would be reasonably likely to result in a Contingent
Liability to be allocated under this Agreement.
3.6 The Named Party in an Action in which an adverse Judgment would
be reasonably likely to result in a Contingent Liability to be allocated under
this Agreement shall use its best efforts to notify the other Party of the
Action (unless the other Party is also a Named Party in the same Action)
within 90 days after the service of process on, or other initial written
notice of the Action to, such Named Party. The notice shall include the
following information: (a) caption of the Action, including the docket number
and the name of the court or other judicial, regulatory or administrative
authority before which the Action is pending; (b) names of the Parties
involved in the Action, if not disclosed in the caption; (c) brief statement
of the claims alleged; (d) amount of the liability alleged or expected to be
alleged, if known; and (e) which of the allocation rules set forth in Section
3.3 such Party believes would be applicable. The Named Party shall use its
best efforts to give the same notice within 90 days after such Named Party
becomes aware of any event in a pending Action that makes it reasonably likely
that an adverse Judgment in such Action would result in a Contingent Liability
to be allocated under this Agreement.
3.7 Notwithstanding the provisions of Sections 3.5 and 3.6, no Party
shall be relieved of its obligations under this Agreement with respect to a
Contingent Liability unless such Party can demonstrate by a preponderance of
the evidence that it was substantially prejudiced by the failure of the other
Party to either (a) list the Action in Exhibit D-1 (Schedule of Actions)
pursuant to Section 3.5, or (b) give timely notice of the Action pursuant to
Section 3.6.
3.8 Except as the Parties may otherwise agree, any Contingent
Liability resulting from the Actions either (a) listed in Exhibit D-1
(Schedule of Actions) or (b) for which notice is given pursuant to Section 3.6
shall be allocated according to the applicable rule set forth in Section 3.3,
notwithstanding the designation of any other rule in Exhibit D-1 (Schedule of
Actions) or in such notice. If the Parties do not agree on the allocation
rule that applies to a Contingent Liability, either Party may submit the
dispute to arbitration in accordance with Article VII (Arbitration) of this
Agreement.
(Exhibit D-1 Follows)
D-6
<PAGE>
EXHIBIT D-1
-----------
SCHEDULE OF ACTIONS
-------------------
1. KIBBLE V. PACIFIC BELL, San Francisco Superior Court, Case No. 947747
PARTIES: Pacific Bell, Pacific Telesis Group and PacTel Communications
STATEMENT OF CLAIM: Alleged misrepresentations
regarding early retirement offers
AMOUNT OF ALLEGED LIABILITY: Unknown
ALLOCATION RULE: Employee Rule
2. PALLAS V. PACIFIC BELL, U.S.D.C., N.D. CA, Case No. C-89-2373 (DLJ)
PARTIES: Pacific Bell and Pacific Telesis Group
STATEMENT OF CLAIM: Alleged discrimination by failing
to recognize net service credit during maternity
leave for retirement purposes
AMOUNT OF ALLEGED LIABILITY: Unknown
ALLOCATION RULE: Employee Rule
3. MCCAMPHILL V. NYNEX, U.S.D.C., S.D.N.Y., Case No. 92 CIV 0862 (LJF)
PARTIES: Pacific Bell and Pacific Telesis Group
STATEMENT OF CLAIM: Alleged failure to comply with the
Portability Act
AMOUNT OF ALLEGED LIABILITY: Unknown
ALLOCATION RULE: Employee Rule
4. NARUC/FCC AFFILIATE TRANSACTIONS AUDIT [Potential Action]
D-7
<PAGE>
5. GAGNON V. FONG-PESUTI, PACTEL CELLULAR AND PACIFIC TELESIS GROUP, Los
Angeles Municipal Court, Case No. 93E00935
PARTIES: PacTel Cellular and Pacific Telesis Group
STATEMENT OF CLAIM: Motor Vehicle, Property Damage and
Personal Injury
AMOUNT OF ALLEGED LIABILITY: $10,000 - $15,000
ALLOCATION RULE: PacTel Rule
6. KELLER V. NORTHERN TELECOM, INC., PACIFIC TELESIS, PACTEL MERIDIAN
SYSTEMS AND BRYS, San Francisco Superior Court, Case No. 945797
PARTIES: Pacific Telesis Group and PacTel Meridian Systems
STATEMENT OF CLAIM: Damages, Injunctive Relief, Sex and
Age Discrimination, Breach of Implied-in-Fact Contract, Breach
of Good Faith and Fair Dealing, Intentional Infliction of
Emotional Distress, Negligence, Termination in Violation of
Public Policy, Interference with Contractual Relationships
AMOUNT OF ALLEGED LIABILITY: Unknown
ALLOCATION RULE: Employee Rule
7. KISH V. PACIFIC BELL, ET AL., Los Angeles Superior Court, Case No.
YC005527
PARTIES: Pacific Telesis, Pacific Bell, PacTel Systems
STATEMENT OF CLAIM: Personal Injury, Negligence, Loss
of Consortium
AMOUNT OF ALLEGED LIABILITY: Unknown
ALLOCATION RULE: PacTel Rule
8. ODDEN V. PACTEL MERIDIAN SYSTEMS, ET AL., Orange County Superior Court,
Case No. 707831
PARTIES: PacTel Meridian Systems, PacTel Systems, Inc., PacTel
Corporation, Pacific Telesis Group
STATEMENT OF CLAIM: Damages and injunctive relief for
employment discrimination, violation of equal
pay act, breach of contract and breach of
implied contract.
AMOUNT OF ALLEGED LIABILITY: Unknown
D-8
<PAGE>
Allocation Rule : Employee Rule
---------------
9. 111 PINE STREET INVESTMENT CO. V. PACTEL PROPERTIES, ET AL., San
Francisco Superior Court, Case No. 953059
Parties: PacTel Properties, Pacific Telesis Group, PacTel Corporation,
PacTel Properties - California
STATEMENT OF CLAIM: Breach of fiduciary duty, intentional
interference with contractual relationship and declaratory
relief.
AMOUNT OF ALLEGED LIABILITY: Unknown
ALLOCATION RULE: Joint Rule
(Appendix E Follows)
D-9
<PAGE>
APPENDIX E
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
TELESIS TECHNOLOGIES LABORATORY, INC.
-------------------------------------
<PAGE>
TELESIS TECHNOLOGIES LABORATORIES, INC.
--------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . E-3
SECTION 2 - WORK . . . . . . . . . . . . . . . . . E-3
SECTION 3 - ASSETS . . . . . . . . . . . . . . . . E-4
E-2
<PAGE>
TELESIS TECHNOLOGIES LABORATORY, INC.
------------------------------------
SECTION 1 - DEFINITIONS
The following terms and other terms defined in this Appendix and
elsewhere in this Agreement have the meanings set forth herein unless the
context indicates otherwise. Words importing persons include corporations.
Words importing only the singular include the plural and vice versa where the
context requires.
1.1 GENERAL SERVICES AGREEMENT means the Agreement between PacTel
Corporation and Telesis Technologies Laboratory, Inc. for General Services,
dated February 20, 1991, and all Modifications and Schedules executed
thereunder prior to the date of this Agreement, including but not limited to
Modification No. 1, effective February 20, 1991, Schedule No. CS-1-001 (PCS
Experimental License Services - Phase 1), dated February 20, 1991, and
Schedule No. CS-1-002 (PCS Experimental License Services - Phase 2), dated
June 1, 1992.
1.2 TTL means Telesis Technologies Laboratory, Inc., a wholly-owned
subsidiary of Telesis which will continue as a member of the Telesis Group
after the Separation Date.
1.3 WORK means all work relating to wireless services, including
personal communications services ("PCS"), performed by or for TTL prior to the
Separation Date, including but not limited to work performed by PacTel under
the General Services Agreement, by employees of TTL or by other agents or
contractors of TTL (including Pacific Bell), as well as any work performed by
or for TTL after the Separation Date which is necessary to complete the work
performed prior to the Separation Date.
SECTION 2 - WORK
- ----------------
2.1 TERMINATION OF GENERAL SERVICES AGREEMENT. In accordance with
Appendix H (Termination of Agreements), the General Services Agreement is
terminated effective on and as of the Separation Date.
2.2 POST-SEPARATION DATE WORK. The Parties recognize that all of
the Work may not be completed by the Separation Date. If all of the Work is
not completed by the Separation Date, the Parties will agree on the manner in
which such Work will be completed after the Separation Date, including but not
limited to (a) which of their respective employees will participate in such
Work, (b) which of their respective facilities or other assets will be used in
such Work, and (c) any payments or other compensation to each other in
connection with such Work.
2.3 INTELLECTUAL PROPERTY. Notwithstanding the termination of the
General Services Agreement and any other provisions of this Agreement,
including but not limited to Appendix C (Intellectual Property), Paragraphs 9
and 10 and any other applicable provisions of the General Services Agreement,
including Modification No. 1 thereto, shall apply to the ownership of, and
other rights in, all Information, copyrightable or patentable works of
authorship, ideas and inventions and other intellectual property resulting
from the Work, whether or not actually performed under the General Services
E-3
<PAGE>
Agreement and whether completed before or after the Separation Date. In
addition, the Telesis Wireless Strategy Team Non-Disclosure Agreement,
effective April 1, 1992, is not terminated and will continue to apply to all
of the Work, whether completed before or after the Separation Date.
SECTION 3 - ASSETS
- ------------------
3.1 TRANSFER OF ASSETS TO PACTEL. Effective on and as of the
Separation Date, Telesis will transfer, or cause TTL to transfer, to PacTel
the assets used by TTL in the San Diego PCS Trial designed for use in the
cellular frequencies, including but not limited to the following groups of
assets:
Existing switch software enhancements
Microcells (29 units)
SS7 network equipment
Existing switch hardware enhancements
Cellular handsets and accessories
UPS power and miscellaneous
All other TTL assets, including but not limited to TTL's experimental PCS
licenses, shall remain with TTL.
3.2 CONVEYANCE OF ASSETS AND TITLE REPRESENTATIONS. The provisions
of Section 2.3 (Conveyance of Assets and Title Representations) of Appendix G
(Assignment of Assets) shall also apply to the assets transferred pursuant to
this Appendix.
(Appendix F Follows)
E-4
<PAGE>
APPENDIX F
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
ADMINISTRATIVE SERVICES
-----------------------
<PAGE>
ADMINISTRATIVE SERVICES
-----------------------
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . F-3
SECTION 2 - SCOPE OF AGREEMENT. . . . . . . . . . F-4
SECTION 3 - TERM. . . . . . . . . . . . . . . . . F-4
SECTION 4 - COMPENSATION. . . . . . . . . . . . . F-5
F-2
<PAGE>
ADMINISTRATIVE SERVICES
-----------------------
SECTION 1 - DEFINITIONS
- -----------------------
The following terms and other terms defined in this Appendix and
elsewhere in this Agreement have the meanings set forth herein unless the
context indicates otherwise. Words importing persons include corporations.
Words importing only the singular include the plural and vice versa where the
context requires.
1.1 AFFILIATE TRANSACTIONS POLICY means Telesis' "Affiliate
Transactions - Policies, Guidelines and Reporting Requirements," as effective
January 1988 and as amended from time to time.
1.2 HOLDING COMPANY COST ALLOCATION POLICIES AND GUIDELINES means
Telesis' methodology for allocating costs to its subsidiaries as of the date
of this Agreement and as amended from time to time.
1.3 RECORD RETENTION POLICY means Telesis' "Record Retention
Policy," as effective August 1, 1988, and as amended from time to time.
1.4 SERVICES means general administrative services, including but
not limited to corporate tax, internal auditing, accounting, legal, external
affairs, human resources, treasury, investor relations, risk management,
finance and corporate strategy services.
F-3
<PAGE>
SECTION 2 - SCOPE OF AGREEMENT
- ------------------------------
2.1 SERVICES.
a. INITIAL SERVICES.
(1) The Services which Telesis will initially provide to
PacTel are the same Services which Telesis is providing to PacTel as of the
date of this Agreement.
(2) The Services which PacTel will initially provide to
Telesis are the same Services which PacTel is providing to Telesis as of the
date of this Agreement.
b. ADDING SERVICES. The Parties may, by mutual agreement,
add Services to those Services being provided by one Party to the other Party.
c. DELETING SERVICES. The Parties may, by mutual agreement,
delete certain of the Services being provided by one Party to the other Party.
The Parties recognize that certain Services must, for reasons of corporate
uniformity, continue until the Separation Date and cannot be deleted.
d. REGULATORY REQUIREMENTS. Each Party reserves the right,
by notice to the other Party, to immediately discontinue providing or
receiving any or all Services if such discontinuance is deemed by such Party
to be reasonably necessary to comply with the requirements of any regulatory
agency or other legal authority having jurisdiction over the Party. In the
event of such discontinuance, the Parties shall cooperate to minimize any
disruption of the business of either Party during the transition period.
2.2 TRANSFER OF RESPONSIBILITY. In addition to providing the
Services, each Party will, at the request of the other Party and subject to
the availability of necessary resources, assist the requesting Party in
assuming responsibility for some or all of the Services being performed for
the requesting Party. For example, a Party will, at the request of the other
Party, provide on-the-job training for the requesting Party's employees or
agents who will be assigned to assume responsibility for a Service after the
Separation Date. The compensation for such activities will be determined in
accordance with Section 4 (Compensation).
2.3 STANDARD OF CONDUCT. In performing the Services, each Party
shall observe the same standards of care, skill and diligence that such Party
observes when performing the same or similar services for its own account.
SECTION 3 - TERM
- ----------------
3.1 TERM. The term during which the Parties may provide Services
to, or receive Services from, each other under this Appendix shall commence on
the effective date of this Agreement and end on the Separation Date; provided,
however, that the Parties may agree to extend such term to up to 90 days after
the Separation Date in order to provide an orderly transition of
responsibilities following the Separation Date.
3.2 CANCELLATION FOR CAUSE. In the event of a material breach of
F-4
<PAGE>
this Agreement by a Party, the other Party may, at its option and by notice to
the breaching Party, immediately cancel the performance or receipt of any
Services affected by such material breach.
SECTION 4 - COMPENSATION
- ------------------------
4.1 SERVICES PERFORMED BY TELESIS. The compensation for each
Service provided by Telesis to PacTel hereunder shall be the same
compensation, or compensation calculated in the same manner, as the
compensation Telesis was charging PacTel and PacTel was paying for the same
Service before the effective date of this Agreement in accordance with the
Holding Company Cost Allocation Policies and Guidelines.
4.2 SERVICES PERFORMED BY PACTEL. The compensation for each Service
provided by PacTel to Telesis hereunder shall be the same compensation, or
compensation calculated in the same manner, as the compensation PacTel was
charging Telesis and Telesis was paying for the same Service before the date
of this Agreement in accordance with the Affiliate Transaction Policy.
4.3 CHANGES TO COMPENSATION. By written agreement, the Parties may
at any time prospectively change the compensation for any Service.
4.4 RECORDS. Each Party shall maintain accurate records of all
matters which relate to its obligations hereunder in accordance with the
Affiliate Transactions Policy, Holding Company Cost Allocation Policies and
Guidelines and the Record Retention Policy. To the extent that such records
may be relevant in determining if a Party is complying with its obligations
hereunder, the other Party and its authorized representatives shall, on
reasonable prior notice, have access to such records for inspection, copying
and audit during normal business hours.
4.5 INVOICES AND PAYMENT. The Parties shall bill each other for
Services performed hereunder in accordance with the Affiliate Transactions
Policy and the Holding Company Cost Allocation Policies and Guidelines. Both
Parties shall comply with the guidelines for billing and payment, including
the assessment of late charges when appropriate, set forth in the Affiliate
Transactions Policy and the Holding Company Cost Allocation Policies and
Guidelines. Each Party shall maintain the controls, procedures and practices
necessary to ensure the accuracy of the charges and compliance with the
Affiliate Transactions Policy and the Holding Company Cost Allocation Policies
and Guidelines.
(Appendix G Follows)
F-5
<PAGE>
APPENDIX G
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
ASSIGNMENT OF ASSETS AND LIABILITIES
------------------------------------
<PAGE>
ASSIGNMENT OF ASSETS AND LIABILITIES
------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . G-3
SECTION 2 - ASSETS . . . . . . . . . . . . . . . . G-3
SECTION 3 - VALUATION AND PAYMENT . . . . . . . . . G-5
SECTION 4 - POST-SEPARATION TRUE-UPS . . . . . . . G-5
G-2
<PAGE>
ASSIGNMENT OF ASSETS AND LIABILITIES
- ------------------------------------
SECTION 1 - DEFINITIONS
- -----------------------
The following terms and other terms defined in this Appendix and
elsewhere in this Agreement have the meanings set forth herein unless the
context indicates otherwise. Words importing persons include corporations.
Words importing only the singular include the plural and vice versa where the
context requires.
1.1 ASSETS means assets, properties and rights, whether real or
personal, tangible or intangible, that are to be assigned or transferred by
Telesis to PacTel under this Appendix in connection with the Separation.
1.2 LIABILITIES means liabilities which have been booked for
financial accounting purposes on or before the Separation Date and that are to
be transferred from one Party to the other Party. Liabilities do not include
any Contingent Liabilities as defined in Appendix D (Contingent Liabilities).
SECTION 2 - ASSETS
- ------------------
2.1 GENERAL.
a. The provisions of this Section 2 shall apply to the Assets
of Telesis and its subsidiary Pacific Telesis Group - Washington that are to
be assigned or transferred to PacTel in connection with the Separation;
provided, however, that this Section 2 does not apply to any such Assets which
are more specifically covered elsewhere in this Agreement.
b. Telesis agrees to assign or transfer, and PacTel agrees to
accept, the Assets to be assigned or transferred by Telesis to PacTel under
this Section 2.
2.2 TRANSFER OF ASSETS.
a. SPECIFIED ASSET. Telesis will assign or transfer to
PacTel the following specified Asset: One aircraft, BAe800, Serial Number
NA0404, Tail Number 916, Asset Number OTH002.
b. ADDITIONAL ASSETS. In addition to the Asset specified in
Paragraph a (Specified Asset), the Parties will, prior to the Separation Date,
agree on a list of additional Assets to be assigned or transferred by Telesis
to PacTel. In general, Assets to be assigned or transferred by Telesis to
PacTel under this Section 2 will follow the person using, or the function
employing, the Asset prior to the Separation if all three of the following
conditions are met:
(1) Either (a) the person using the Asset is assigned or
transferred from Telesis to PacTel in connection
with the Separation and is not replaced by Telesis
or (b) the function in which the Asset is employed
is moved from Telesis to PacTel in connection with
G-3
<PAGE>
the Separation and is not replaced by Telesis; and
(2) The Asset is usable in the new work environment to
which it would be moved as a result of the
assignment or transfer (e.g., personal computers);
and
(3) The Asset is not an integral part of a larger system
which is not being assigned or transferred (e.g.,
modular furniture or telephone equipment).
Notwithstanding the foregoing, Assets purchased or otherwise acquired for a
particular building which are not economical to move or are not usable
elsewhere will stay with the building (e.g., leasehold improvements).
b. TIMING. All Assets to be assigned or transferred under
this Section 2 which have not been assigned or transferred prior to the
Separation Date shall be assigned or transferred effective on and as of the
Separation Date.
2.3 CONVEYANCE OF ASSETS AND TITLE REPRESENTATIONS.
a. With respect to each Asset that Telesis assigns or
transfers to PacTel under this Section 2, Telesis:
(1) represents and warrants to PacTel that Telesis will
(except as otherwise expressly provided in this Agreement) transfer all of
Telesis' right, title and interest in and to such Asset;
(2) assigns to PacTel all of Telesis' rights, claims and
causes of action against third persons related to such Asset (with the
exception of any rights, claims and causes of action expressly reserved to
Telesis), including but not limited to Telesis' rights, claims and causes of
action arising from (a) express warranties or other provisions in the
contracts by which such Asset was acquired by Telesis; (b) warranties implied
by law; (c) warranties of title and against infringement, and (d) warranties
of merchantability and fitness for a particular purpose; and
(3) agrees to execute, acknowledge and deliver to PacTel
such other instruments, bills of sale, assignments, conveyances, title
registrations, powers of attorney, assurances, applications, certifications
and other documents as shall be required to make effective and confirm the
transfer of such Asset and in aiding and assisting PacTel in collecting or
reducing to possession and evidencing title to, or interest in, such Asset.
b. With respect to each Asset that Telesis assigns or
transfers to PacTel under this Section 2, PacTel agrees (1) that Article 2 of
the Uniform Commercial Code as in effect in the applicable jurisdiction will
not apply to such Asset and waives any rights thereunder, except for those
rights with respect to which such waiver is expressly prohibited; (2) to
accept such Asset in an "as is" condition; (3) that no representations or
warranties have been made by Telesis as to title to, or to the physical
condition, merchantability or fitness for a particular purpose, or state of
repair of such Asset; (4) to be bound by all covenants, terms, conditions or
provisions pertaining to the Asset; and (5) to pay any costs, taxes, fees or
other expenses related to the assignment or transfer of such Asset (including
G-4
<PAGE>
but not limited to any sales or use taxes, registration fees and transfer
taxes).
SECTION 3 - VALUATION AND PAYMENT
- ----------------------------------
3.1 VALUATION. Assets and Liabilities will be assigned or
transferred on the Parties' respective financial accounting records at net
book value, except as may be otherwise provided in another agreement between
the Parties.
3.2 PAYMENT. The assignment or transfer of Assets and Liabilities
will be settled in equity and not in cash, except as may be otherwise provided
in another agreement between the Parties.
SECTION 4 - POST-SEPARATION TRUE-UPS
- ------------------------------------
Any true-ups of matters covered by this Appendix which may be
required after the Separation Date will be handled in accordance with Article
VIII (Post-Separation True-Ups) of this Agreement.
(Appendix H Follows)
G-5
<PAGE>
APPENDIX H
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
TERMINATION OF AGREEMENTS
-------------------------
<PAGE>
TERMINATION OF AGREEMENTS
-------------------------
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - TERMINATION OF AGREEMENTS . . . . . . . . H-3
EXHIBIT H-1 - LIST OF AGREEMENTS TO BE TERMINATED . . . H-4
EXHIBIT H-2 - LIST OF AGREEMENTS NOT TERMINATED . . . . H-8
H-2
<PAGE>
TERMINATION OF AGREEMENTS
-------------------------
SECTION 1 - TERMINATION OF AGREEMENTS
- -------------------------------------
1.1 LIST OF AGREEMENTS TO BE TERMINATED. The Parties agree that all
of the agreements between them listed in Exhibit H-1 (List of Agreements to be
Terminated) will be terminated effective on and as of the Separation Date.
The Parties stipulate that all provisions contained in such agreements
relating to their termination have either been complied with or are hereby
waived.
1.2 OTHER AGREEMENTS TO BE TERMINATED. The Parties agree that any
other agreements between them which are not listed in Exhibit H-1 (List of
Agreements to be Terminated), but which by their nature and subject matter
would not be intended to survive the Separation will also be terminated by
agreement of the Parties; provided, however, that any agreement entered into
between the Parties in contemplation that such agreement would remain in
effect after the Separation shall not be terminated pursuant to this Section
1.2.
1.3 AGREEMENTS NOT TERMINATED. Nothing contained herein is intended
to terminate or modify any other agreements between the Parties not terminated
pursuant to this Appendix, including but not limited to leases, subleases,
rights-of-way, easements, license agreements for the placement of cellular or
other facilities on the property of the other Party and agreements for
telecommunications services provided under tariff. In particular, the
agreements listed in Exhibit H-2 (List of Agreements Not Terminated) are not
terminated by this Appendix.
1.4 SURVIVING OBLIGATIONS. Nothing contained herein shall relieve
the Parties of any obligations which they may have under the agreements
terminated pursuant to this Appendix with respect to obligations incurred
prior to termination or with respect to obligations which the terminated
agreements specifically provide shall survive such termination.
(Exhibit H-1 Follows)
H-3
<PAGE>
EXHIBIT H-1
-----------
LIST OF AGREEMENTS TO BE TERMINATED
-----------------------------------
Pacific Telesis Group Agreements
--------------------------------
1. Agreement between Pacific Telesis Group and PacTel Corporation for
General Administrative Services, dated October 1, 1990
This agreement superseded an agreement between Pacific Telesis Group and
PacTel Services, dated January 1, 1984.
2. Agreement between Pacific Telesis Group - Washington and PacTel
Corporation for General Administrative Services, dated January 1, 1989
3. Agreement between Pacific Telesis Group and PacTel Cellular/PacTel
Cellular, Inc. for General Administrative Services, dated January 1, 1989
4. Agreement between Pacific Telesis Group and PacTel Communications Systems
for General Administrative Services, dated January 1, 1984
5. Agreement between Pacific Telesis Group and PacTel Paging for General
Administrative Services dated January 1, 1989
6. Agreement between Pacific Telesis Group and PacTel Mobile Access for
General Administrative Services dated January 1, 1984
This agreement was modified on January 1, 1985, to assign all rights,
title and interest in and to the agreement from PacTel Mobile Access to
PacTel Mobile Companies. PacTel Mobile Companies has been superseded by
PacTel Corporation.
7. Agreement between Pacific Telesis Group and Pacific Telesis International
for General Administrative Services, dated January 1, 1984
H-4
<PAGE>
Pacific Bell - PacTel Corporation
---------------------------------
8. Agreement between Pacific Bell and PacTel Corporation (formerly known as
PacTel Services) for General Administrative Services, effective January
1, 1984, including Amendments Nos. 1, 2 and 3 thereto, and all of the
Schedules executed under this Agreement, including but not limited to the
following:
Pacific Bell - PacTel Cellular
------------------------------
9. Schedule PC-08-001 for PacTel Employee Benefit Services between Human
Resources, Pacific Bell and PacTel Cellular, effective May 1, 1989,
including Modification No. 1, effective April 1, 1990
10. Schedule PC-08-002 for Benefit Plans - Delivery Services between Pacific
Bell and PacTel Cellular, dated May 1, 1989
11. Schedule PC-08-003 for Relocation Plan Administration Services between
Pacific Bell and PacTel Cellular, dated May 1, 1989
12. Modification No. 2 to Schedule PC-18-008 for Training Delivery Services
between Pacific Bell and PacTel Cellular, effective October 1, 1991
(superseded original Schedule PC-18-008 and Modification No. 1 thereto)
13. Schedule PC-16-009 for Property Management Services (Paved and Unpaved
Land Use) between Real Estate Management, Pacific Bell and PacTel
Cellular, effective April 1, 1984, and Modification Nos. 1 and 2 thereto
14. Schedule PC-17-010 for Security Investigative Services Agreement between
Pacific Bell and PacTel Cellular, dated November 15, 1988
15. Modification No. 1 to Schedule No. PC-44-011 for Informal Customer
Appeals Services (name change of service previously known as Regulatory
Relations Services) between External Affairs Department, Pacific Bell and
PacTel Cellular, effective April 1, 1991 (superseded original Schedule
PC-44-011)
16. Schedule No. PC-38-012 between Pacific Bell and PacTel Cellular for Tax
Services, dated October 1, 1989
17. Schedule No. PC-03-013 between Pacific Bell and PacTel Cellular for Media
Distribution Services, dated January 1, 1989
18. Schedule No. PC-24-014 between Pacific Bell and PacTel Cellular for
Special Payments Processing, dated March 1, 1989
19. Schedule No. PC-03-015 between Pacific Bell and PacTel Cellular for
Pioneer Administration Services, dated January 1, 1990
H-5
<PAGE>
20. Modification No. 1 to Schedule PC-9-017 for Consulting Services between
Product and Technology Support, Pacific Bell and PacTel Cellular,
effective January 1, 1991 (superseded original Schedule PC-9-017)
21. Schedule No. PC-03-018 between Pacific Bell and PacTel Cellular for
Community Liaison Services, dated July 1, 1991
Pacific Bell - PacTel Paging
----------------------------
22. Schedule No. PA-08-001 for PacTel Employee Benefit Services between Human
Resources, Pacific Bell and PacTel Paging, effective May 1, 1989, and
Modification No. 1 thereto, effective April 1, 1990
23. Schedule No. PA-08-003 between Pacific Bell and PacTel Paging for
Relocation Plan Administration Services, dated May 1, 1989
24. Schedule No. PA-03-007 between Pacific Bell and PacTel Paging for Media
Distribution Services, dated January 1, 1989
Pacific Bell - Pacific Telesis International
--------------------------------------------
25. Agreement between Pacific Bell and Pacific Telesis International for
General Administrative Services, effective January 1, 1984, including
Amendments Nos. 1-3, and all of the Schedules executed under this
Agreement, including but not limited to the following:
26. Schedule No. PW-21-008 between Pacific Bell and Pacific Telesis
International for Employees Under Contract Service, dated January 1, 1984
27. Schedule No. PW-14-015 for Corporate Research Services Between Pacific
Bell Planning and Pacific Telesis International, effective August 1,
1984, including Modification Nos. 1 and 2 thereto
28. Schedule No. PW-8-016 between Pacific Bell and Pacific Telesis
International for Relocation Plan Administration Services, dated March 1,
1984
29. Schedule No. PW-l8-020 between Pacific Bell and Pacific Telesis
International for Benefit Plans-Delivery Services, effective February 1,
1985, including the Modification thereto effective June 1, 1986
30. Schedule No. PW-8-021 between Pacific Bell and Pacific Telesis
International for Human Resource Consultant Services, dated September 1,
1984
H-6
<PAGE>
31. Modification No. 4 to Schedule No. PW-18-023 between Pacific Bell and
Pacific Telesis International for Training Delivery Services, effective
June 1, 1992 (superseded original Schedule No. PW-18-023 and Modification
Nos. 1, 2 and 3 thereto)
32. Schedule No. PW-12-033 between Pacific Bell and Pacific Telesis
International for Officers' Vehicle Services, dated January 1, 1986
33. Schedule No. PW-12-035 between Pacific Bell and Pacific Telesis
International for Motor Pool Services, dated January 1, 1986
34. Schedule No. PW-37-037 between Pacific Bell and Pacific Telesis
International for Tours of Central Office and Outside Plant facilities,
dated June 1, 1986
35. Schedule No. PW-37-038 between Pacific Bell and Pacific Telesis
International for Miscellaneous Requests dated January 1, 1987
36. Schedule No. PW-32-041 between Pacific Bell and Pacific Telesis
International for Network Technology Support Services, dated August 16,
1989
37. Schedule No. PW-08-042 between Human Resources, Pacific Bell and Pacific
Telesis International for Employee Benefit Services, effective May 1,
1989, and Modification No. 1 thereto, effective April 1, 1990
38. Schedule No. PW-40-049 between Pacific Bell and Pacific Telesis
International for Miscellaneous Consulting Services, dated May 1, 1990
PacTel Corporation - Telesis Technologies Laboratory, Inc.
----------------------------------------------------------
39. Agreement between PacTel Corporation and Telesis Technologies Laboratory,
Inc. for General Services dated February 20, 1991, including Modification
No. 1 thereto, effective February 20, 1991, and all of the Schedules
executed under this Agreement, including but not limited to the
following:
40. Schedule No. CS-1-001 (PCS Experimental License Services - Phase 1),
dated February 20, 1991
41. Schedule No. CS-1-002 (PCS Experimental License Services - Phase 2),
dated June 1, 1992.
See also Appendix E (Telesis Technologies Laboratory, Inc.).
(Exhibit H-2 Follows)
H-7
<PAGE>
EXHIBIT H-2
-----------
LIST OF AGREEMENTS NOT TERMINATED
---------------------------------
1. Connection and Traffic Interchange Agreement between Pacific Bell and
PacTel Mobile Access (now known as PacTel Cellular) (CTIA-85C) for San
Diego, effective May 1, 1985
2. Interim Connection and Traffic Interchange Agreement between Pacific Bell
and PacTel Mobile Access (now known as PacTel Cellular), effective April
1, 1986
3. Paging Connection and Traffic Interchange Agreement between Pactel Paging
of California and Pacific Bell, dated October 2, 1989
4. Cellular Interconnection Agreement between Pactel Cellular and Pacific
Bell, effective January 1, 1993
5. Lease Agreement between Nevada Bell and Sacramento-Valley Limited
Partnership of which PacTel Cellular is the General Partner, dated
October 15, 1990 (Peavine Mountain Ground Lease).
(Exhibit I Follows)
H-8
<PAGE>
APPENDIX I
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
INSURANCE
---------
<PAGE>
INSURANCE
---------
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . . . . I-3
SECTION 2 - GENERAL . . . . . . . . . . . . . . . . . . . I-3
SECTION 3 - EXISTING INSURANCE PROGRAM . . . . . . . . . I-3
SECTION 4 - NEW PACTEL INSURANCE PROGRAM . . . . . . . . I-3
SECTION 5 - DIRECTORS AND OFFICERS COVERAGE . . . . . . . I-4
SECTION 6 - ALLOCATION OF LIABILITIES . . . . . . . . . . I-4
SECTION 7 - OTHER PROGRAM MANAGEMENT ISSUES . . . . . . . I-5
I-2
<PAGE>
INSURANCE
---------
SECTION 1 - DEFINITIONS
- -----------------------
The following terms and other terms defined in this Appendix and
elsewhere in this Agreement have the meanings set forth herein unless the
context indicates otherwise. Words importing persons include corporations.
Words importing only the singular include the plural and vice versa where the
context requires.
1.1 EXISTING INSURANCE PROGRAM means all insurance policies, bonds
and other forms of property and casualty insurance covering the products,
properties, assets and operations of the members of both the Telesis Group and
the PacTel Group as of the date of this Agreement (but not including any
medical, dental, vision or other employee benefits insurance).
1.2 PACTEL RE INSURANCE means the wholly-owned subsidiary of Telesis
which has provided certain insurance coverage to the Parties. In connection
with the Separation, PacTel Re Insurance will remain a member of the Telesis
Group and may be renamed Pacific Telesis Reinsurance.
SECTION 2 - GENERAL
- -------------------
This Appendix addresses the nature and timing of the separation of
the insurance program and related interests of the Telesis Group and the
PacTel Group. It covers the separation of the existing Telesis insurance
program (excluding employee benefits), the establishment of a new insurance
program for the PacTel Group, the allocation of insurance-related liabilities
of the Telesis Group and the PacTel Group and other insurance program
management issues of joint interest to the Parties.
SECTION 3 - EXISTING INSURANCE PROGRAM
- --------------------------------------
Unless otherwise agreed by the Parties, Telesis shall use its best
efforts to maintain the Existing Insurance Program in effect for the benefit
of the members of both the Telesis Group and the PacTel Group until 12:01 a.m.
on the Separation Date. If despite such best efforts Telesis is not able to
maintain the Existing Insurance Program in effect until 12:01 a.m. on the
Separation Date, Telesis will promptly so advise PacTel, and the Parties will
consult about obtaining alternative insurance coverage.
SECTION 4 - NEW PACTEL INSURANCE PROGRAM
- ----------------------------------------
Prior to the Separation Date, the Parties will consult to determine
the necessary scope, amount and placement of new insurance coverage after the
Separation Date for the members of the PacTel Group; provided, however, that
the PacTel Group shall be solely responsible for determining the scope, amount
and placement of such coverage, and the Telesis Group shall have no
responsibility for any deficiencies in either the scope, amount or placement
of such coverage. The PacTel Group will arrange any new coverage for the
PacTel Group to go into effect at 12:01 a.m. on the Separation Date. The
I-3
<PAGE>
PacTel Group will bear all costs associated with the placement of the new
insurance program for the PacTel Group. Both before and after the Separation
Date, the Parties will cooperate with and assist each other to prevent or
minimize any conflicts or gaps in insurance coverage and/or the collection of
insurance proceeds.
SECTION 5 - DIRECTORS AND OFFICERS COVERAGE
- -------------------------------------------
In addition to the insurance coverage provided by the Existing
Insurance Program and the new PacTel Group insurance program, the Parties will
endeavor to purchase a separate pre-paid directors and officers insurance
policy or increase the limits of the Existing Insurance Program covering acts
and omissions of directors and officers of the Telesis Group and the PacTel
Group in connection with the Separation. Such policy, if available, shall
cover claims relating to acts and omissions in connection with the Separation
which are made against such directors and officers any time prior to six years
after inception of coverage (which will be on a date prior to the then
scheduled Separation Date to be agreed on by the Parties). The cost of this
coverage will be allocated between the Telesis Group and the PacTel Group on
the same exposure basis as prior years' directors and officers insurance
premiums: 97% to the Telesis Group and 3% to the PacTel Group.
SECTION 6 - ALLOCATION OF LIABILITIES
- -------------------------------------
The three categories of potential insurance-related liabilities of
the Parties shall be allocated as follows:
6.1 CLAIMS NOT COVERED BY INSURANCE.
a. CATEGORY: Liabilities for existing or future claims
arising from events occurring in policy years from January 1, 1984, to the
Separation Date which are either (1) not covered by insurance or (2) covered
by insurance but are within applicable deductibles or self-insurance
retentions.
b. Except as may be otherwise provided in Appendix D
(Contingent Liabilities), each Party will be responsible for its own claims in
this category. If both of the Parties are the subject of a claim in this
category, the Parties will agree on an equitable allocation of the cost of the
claim.
6.2 CLAIMS COVERED BY INSURANCE.
a. CATEGORY: Liabilities for existing or future claims
arising from events occurring in policy years from January 1, 1984, to the
Separation Date which are covered by Telesis' purchased insurance portfolio,
not including coverage reinsured by PacTel Re Insurance.
b. Telesis shall be the conduit to and primary interface with
commercial insurers for any insured claims in this category. If more than one
of the Parties is the subject of a claim in this category, the Parties will
agree on the allocation of the recovery. The PacTel Group share will be
distributed by Telesis after the actual receipt of the claim recovery.
I-4
<PAGE>
6.3 CLAIMS COVERED BY PACTEL RE INSURANCE.
a. CATEGORY: Liabilities for existing or future claims
arising from events occurring in policy years from January 1, 1989, to the
Separation Date which are covered by reinsurance programs provided by PacTel
Re Insurance.
b. Because the PacTel Group has purchased a guaranteed cost
insurance program with risk passed to a commercial insurer and ceded to PacTel
Re Insurance, PacTel Re Insurance will, except as the Parties may otherwise
agree, continue to pay out all claims and associated liabilities in this
category until fully resolved and closed.
SECTION 7 - OTHER PROGRAM MANAGEMENT ISSUES
- -------------------------------------------
7.1 HANDLING OF BONDS AND LETTERS OF CREDITS. All outstanding
surety program bonds and/or letters of credit issued in favor of the members
of the PacTel Group will be replaced by PacTel prior to the Separation Date.
Current Telesis indemnity agreements supporting PacTel Group surety bonds
and/or letters of credit will be terminated. The PacTel Group will establish
surety indemnity agreements prior to the Separation Date.
7.2 INSURANCE CARRIER INSOLVENCY. Both before and after the
Separation Date, Telesis will endeavor to advise PacTel of all known instances
of insurance carrier insolvency on applicable historical policies under the
Existing Insurance Program. Telesis will consult with PacTel concerning the
availability and desirability of replacing coverage provided by any insolvent
carriers.
7.3 IMPAIRMENT OF HISTORICAL POLICY AGGREGATES. The terms for
reinstatement of policy aggregate limits will be negotiated by the Parties
prior to the Separation Date. When incurred, the cost of such reinstatement
will be allocated between the Telesis Group and the PacTel Group on the same
exposure basis as prior years' liability premiums: 94% to the Telesis Group
and 6% to the PacTel Group.
7.4 HISTORICAL RECORD/FILE REVIEW. Telesis has provided, or will
provide, copies of relevant insurance policy documentation to PacTel. Prior
to the Separation Date, and as appropriate thereafter, the Parties will review
their mutual records and files to locate and attempt to eliminate or minimize
any significant gaps in insurance records.
(Appendix J Follows)
I-5
<PAGE>
APPENDIX J
----------
to the
SEPARATION AGREEMENT
between
PACIFIC TELESIS GROUP
and
PACTEL CORPORATION
CORPORATE BUSINESS OPPORTUNITIES
--------------------------------
<PAGE>
CORPORATE BUSINESS OPPORTUNITIES
--------------------------------
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . J-3
SECTION 2 - ALLOCATION OF BUSINESS OPPORTUNITIES . . J-3
SECTION 3 - OBLIGATION OF PROMPT DECISION AND
NOTIFICATION . . . . . . . . . . . . J-4
SECTION 4 - LIMITATION OF LIABILITY . . . . . . . . J-4
SECTION 5 - TERMINATION . . . . . . . . . . . . . . J-4
J-2
<PAGE>
CORPORATE BUSINESS OPPORTUNITIES
--------------------------------
SECTION 1 - DEFINITIONS
- -----------------------
The following definitions and other terms defined in this Appendix
and elsewhere in this Agreement have the meanings set forth herein unless the
context indicates otherwise. Words importing persons include corporations.
Words importing only the singular include the plural and vice versa when the
context requires.
1.1 PACTEL COMPANIES means PacTel Corporation (or its successor) and
its Affiliates prior to the Separation Date.
1.2 TELESIS COMPANIES means Pacific Telesis Group (or its successor)
and its Affiliates, other than the PacTel Companies, prior to the Separation
Date.
SECTION 2 - ALLOCATION OF BUSINESS OPPORTUNITIES
- ------------------------------------------------
Telesis may determine, in its sole discretion, what future business
opportunities the Telesis Companies will pursue, in addition to or to the
exclusion of the PacTel Companies, even if such determination excludes the
PacTel Companies from currently existing or future business opportunities that
could be considered logical, natural or beneficial extensions of the PacTel
Companies' business; provided, however, that:
a. The PacTel Companies will have the right to pursue, to the
exclusion of the Telesis Companies, all domestic and
international business opportunities which, in whole or
substantial part, are (1) cellular (i.e., 47 C.F.R. section
22.900 et seq.), (2) paging, or (3) radiolocation opportunities.
b. To the extent that the Federal Communications Commission ("FCC")
does not permit separate applications for Personal
Communications Service ("PCS") licenses (i.e., FCC GEN Docket
No. 90-314) by both the Telesis Companies and the PacTel
Companies, whether by denial of waivers or otherwise, the PacTel
Companies will have the right to pursue, to the exclusion of the
Telesis Companies, all PCS opportunities outside California and
Nevada, and the Telesis Companies will have the right to pursue,
to the exclusion of the PacTel Companies, all PCS opportunities
inside California and Nevada. If (1) the FCC does not permit
separate PCS license applications by both the Telesis Companies
and the PacTel Companies and (2) the territory intended to be
served under a prospective PCS license includes portions of
California or Nevada as well as territories outside California
and Nevada, the Telesis Companies will have the right to pursue,
to the exclusion of the PacTel Companies, such opportunity.
Notwithstanding the preceding sentence, the Telesis Companies
will use their reasonable best efforts to assign (at the expense
J-3
<PAGE>
of the PacTel Companies) all such PCS license opportunities
outside California and Nevada to the PacTel Companies, and if
the board of directors of Telesis determines that the Telesis
Companies would for any reason be unable to accomplish this
assignment, the board of directors of Telesis shall decide, in
its sole discretion, whether such opportunity will be pursued
exclusively by the Telesis Companies or exclusively by the
PacTel Companies.
SECTION 3 - OBLIGATION OF PROMPT DECISION AND NOTIFICATION
- ----------------------------------------------------------
Each Party agrees to use its best efforts to decide whether to pursue
a business opportunity as soon as reasonably possible after first learning of
the opportunity. If such Party decides not to pursue a business opportunity
that it has the right to pursue to the exclusion of the other Party, it must
promptly inform the other Party of any such decision. The other Party is then
free to pursue such opportunity.
SECTION 4 - LIMITATION OF LIABILITY
- -----------------------------------
Neither the PacTel Companies nor any shareholder thereof may assert
any claim against the Telesis Companies or the PacTel Companies, or any
director or officer thereof, for the breach of any duty, including but not
limited to the duty of loyalty or fair dealing, on account of an alleged
diversion of a corporate business opportunity from the PacTel Companies to the
Telesis Companies unless such opportunity related solely to an opportunity
that the PacTel Companies had the right to elect to pursue, to the exclusion
of the Telesis Companies, pursuant to this Appendix. Notwithstanding the
foregoing, no such claim may be made in any event if the members of the board
of directors of PacTel who are not employees of the Telesis Companies
disclaimed the PacTel Companies' right to pursue such opportunity by a
unanimous vote.
SECTION 5 - TERMINATION
- -----------------------
The provisions of Section 2 (Allocation of Business Opportunities)
and Section 3 (Obligation of Prompt Decision and Notification) shall terminate
effective on and as of the Separation Date.
(End of Agreement)
J-4
<PAGE>
AMENDMENT NO. 1
TO
SEPARATION AGREEMENT
--------------------
THIS AMENDMENT NO. 1, dated November 2, 1993, is between PACIFIC
TELESIS GROUP ("Telesis") and PACTEL CORPORATION ("PacTel").
WHEREAS, there is currently in full force and effect between the
Parties a Separation Agreement, effective October 7, 1993 (the "Agreement");
and
WHEREAS, in Decision 93-11-011, dated November 2, 1993, the
California Public Utilities Commission directed the Parties to make certain
changes in the Agreement relating to the "PacTel Name"; and
WHEREAS, the Parties wish to make certain additional clarifications
to the Agreement;
THEREFORE, the Parties agree that the Agreement is hereby amended as
follows:
1. Section 5.4.c of Appendix C (Intellectual Property) is amended to
read as follows:
c. The license term of the Licensed Marks will expire two
years after the Separation Date. If PacTel adopts the New Name prior
to two years after the Separation Date, then until two years after
the Separation Date PacTel will be permitted to use the taglines
"Formerly PacTel Corporation", "Formerly PacTel Cellular", "Formerly
PacTel Paging", and "Formerly PacTel Teletrac" in connection with the
New Name. PacTel will cease all use of the word "PacTel" in taglines
at the end of two years after the Separation Date. Nothing in this
provision shall require PacTel to recover leased equipment from
customers in order to remove the Licensed Marks provided that PacTel
uses reasonable measures to remove the Licensed Marks before leased
equipment is re-leased by PacTel to PacTel's lease customers after
PacTel has adopted its New Name.
2. Section 5.4.e of Appendix C (Intellectual Property) is amended to
read as follows:
e. Telesis will have the unrestricted right to use the
Licensed Marks for any purpose both during and after the license
term.
3. The introductory phrase in Section 5.4.f of Appendix C (Intellectual
Property) is amended to read as follows:
f. One year after the Separation Date and again at the end of
the license term, PacTel will certify to Telesis:
1
<PAGE>
4. In Section 5.4.o of Appendix C (Intellectual Property), the reference
"Section 5.4.b" is changed to "Section 5.4.c".
5. Section 3.1 of Appendix E (Telesis Technologies Laboratory, Inc.) is
amended to read as follows:
3.1 TRANSFER OF ASSETS TO PACTEL. No later than the
Separation Date, Telesis will transfer, or cause TTL to
transfer, to PacTel the assets used by TTL in the San Diego PCS
Trial designed for use in the cellular frequencies, including
but not limited to the following groups of assets:
Existing software switch enhancements
Microcells (29 units)
SS7 network equipment
Existing switch hardware enhancements
Cellular handsets and accessories
UPS power and miscellaneous.
If such assets are transferred to PacTel prior to the Separation
Date, TTL may continue to use such assets in the San Diego PCS
Trial on such reasonable terms as the Parties may agree, but
without any payment to PacTel for such use. All other TTL
assets, including but not limited to TTL's experimental PCS
licenses, shall remain with TTL.
6. Except as expressly amended by this Amendment No. 1, the provisions
of the Agreement shall continue in full force and effect.
(Signature Page Follows)
2
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 1 to be
executed by their duly authorized representatives.
PACIFIC TELESIS GROUP PACTEL CORPORATION
By: /s/ P. J. Quigley By: /s/ C. L. Cox
----------------- -------------------
Title: Group President Title: President & CEO
Date Signed: December 6, 1993 Date Signed: November 23, 1993
3
<PAGE>
AMENDMENT NO. 2
TO
SEPARATION AGREEMENT
--------------------
THIS AMENDMENT NO. 2, Dated March 25, 1994, is between PACIFIC TELESIS GROUP
("Telesis") and AIRTOUCH COMMUNICATIONS("PacTel").
WHEREAS, there is currently in full force and effect between the Parties a
Separation Agreement, effective October 7, 1993 (the "Agreement"); and
WHEREAS, the Parties wish to make certain changes regarding the treatment of
nonemployee director and executive compensation described in Appendix A
(Employee Benefits Allocation) of the Agreement;
THEREFORE, the Parties agree that the Agreement is hereby amended as follows:
1. A new Section 7A is added following Section 7 to read as follows:
SECTION 7A - TELESIS EXECUTIVE LIFE INSURANCE PLAN
--------------------------------------------------
7A.1 EMPLOYEE TERMINATIONS. A Post-Separation PacTel Employee shall
be considered to have terminated his or her employment with Telesis for
reasons other than an "Approved Retirement" as that term is defined in the
Pacific Telesis Group Executive Life Insurance Plan (the "Telesis ELIP"), and
as of the Separation Date shall no longer have any rights or interests in any
benefits under the Telesis ELIP.
7A.2 TRANSFER OF POLICY INTERESTS. Not later than 30 days after the
Separation Date, Telesis shall transfer to PacTel its rights and interests in
such insurance policy or policies jointly owned by Telesis and each
Post-Separation PacTel Employee who was a participant in the Telesis ELIP
immediately prior to the Separation Date.
7A.3 PAYMENT BY PACTEL TO TELESIS. Not later than 30 days after the
Separation Date, PacTel shall pay to Telesis in cash an amount to be mutually
agreed by the parties as compensation for the value of each policy transferred
to PacTel pursuant to Section 7A.2.
2. Section 12 is amended in its entirety to read as follows:
12.1 TERMINATION OF SERVICE AS A DIRECTOR OF TELESIS. Effective as
of the Separation Date, each individual who participated in the Directors'
Retirement Plan before the Separation Date and who is a non-employee member of
PacTel's Board of Directors immediately after the Separation Date shall not be
treated as continuing to serve as a director under the terms of the Directors'
Retirement Plan by reason of his or her service as a member of PacTel's Board
of Directors after the Separation Date.
1
<PAGE>
12.2 NO ASSET TRANSFER. There shall be no transfer of assets from
Telesis to PacTel or to the trustee of a PacTel Grantor Trust in connection
with the accrued benefits of the PacTel directors under the Directors'
Retirement Plan.
12.3 LIABILITY FOR PAYMENT OF DIRECTORS' RETIREMENT PLAN BENEFIT.
Telesis shall be solely and exclusively responsible for providing the benefits
accrued as of the Separation Date under the Directors' Retirement Plan by any
individuals who were participants in such plan prior to Separation.
3. The first sentence of Section 13.2 is amended to read as follows:
"Not later than 90 days after the Separation Date, Telesis shall
cause an amount of assets to be transferred by the trustee of VEBA I
to the trustee of the PacTel VEBA."
4. Except as expressly amended by this Amendment No. 2, the provisions
of the Agreement shall continue in full force and effect.
(Signature Page Follows)
2
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 2 to be
executed by their duly authorized representatives.
PACIFIC TELESIS GROUP AIRTOUCH COMMUNICATIONS
By: __________________________ By: __________________________
Title: _______________________ Title: _______________________
Date Signed: March______, 1994 Date Signed: March______, 1994
3
<PAGE>
Exhibit 10cc(i)
---------------
AMENDMENTS TO PACIFIC TELESIS GROUP
EXECUTIVE LIFE INSURANCE PLAN
RESOLVED that, effective as of the date of separation of PacTel Corporation
from the corporation, the Pacific Telesis Group Executive Life Insurance Plan
(the "Plan") is hereby revised as follows:
A. Section G of the Plan is amended by the addition of the
following sentence to the end thereof:
Notwithstanding the foregoing provisions of this Section G, an
Executive who immediately after Separation is employed by a
member of the PacTel Group shall not be required to make the
transfer described in the preceding sentence if the Company
transfers its rights or interests in such insurance policy or
policies to the PacTel Group not later than 30 days after
Separation.
B. Section J.2 of the Plan is amended by the addition of the
following sentence to the end thereof:
Termination of employment with the Company shall not be
considered an "Approved Retirement" if, immediately after
Separation, the employee is employed by a member of the PacTel
Group.
C. Section J of the Plan is amended by adding the following new
subsections 8, 9 and 10 at the end thereof:
8. "PacTel Group" means PacTel Corporation (or its successor)
and the PacTel Affiliates immediately after the total and
complete separation of PacTel Corporation from Pacific
Telesis Group.
9. "PacTel Affiliates" means any subsidiaries or other
entities that control, are controlled by, or are under
common control with PacTel Corporation (or its successor).
As used herein, "control" means the possession, directly
or indirectly, of the power to direct or cause the
direction of the management and policies of such entity,
whether through ownership of voting securities or other
interests, by contract or otherwise.
10. "Separation" means the complete separation of the
ownership of PacTel Corporation from Pacific Telesis
Group.
1
<PAGE>
and be it
FURTHER RESOLVED that the officers of this corporation, and any one
of them, are authorized and directed, in the name and on behalf of
this corporation, to do any and all other acts and things, to make
any and all other determinations, and to execute any and all other
documents that they deem necessary or advisable to effectuate the
purposes or these resolutions.
Board of Directors
Pacific Telesis Group
February 25, 1994
2
<PAGE>
Exhibit 10gg(ii)
----------------
AMENDMENTS TO DEFERRED COMPENSATION PLAN FOR
NON-EMPLOYEE DIRECTORS
RESOLVED that, in accordance with Section 8 of Appendix A (Employee Benefits
Allocation) of the Separation Agreement between Pacific Telesis Group and
PacTel Corporation, dated October 7, 1993, and effective as of the date of
separation of PacTel Corporation from the corporation, the Pacific Telesis
Group Deferred Compensation Plan for Non-Employee Directors (the "Plan") is
hereby revised as follows:
1. Section 4 of the Plan is amended by the addition of the
following new paragraph (e) at the end thereof:
(e) For purposes of determining when a distribution shall be
made under this Section 4, a member of the Board of
Directors of Pacific Telesis Group who becomes a member of
the Board of Directors of PacTel Corporation on or before
the total and complete separation of PacTel Corporation
from Pacific Telesis Group shall not be considered to have
ceased to be a Director of the Company or any of its
subsidiaries until he or she ceases to be a member of the
Board of Directors of PacTel Corporation;
and be it
FURTHER RESOLVED that the officers of this corporation, and any one
of them, are authorized and directed, in the name and on behalf of
this corporation, to do any and all other acts and things, to make
any and all other determinations, and to execute any and all other
documents that they deem necessary or advisable to effectuate the
purposes or these resolutions.
Board of Directors
Pacific Telesis Group
February 25, 1994
1
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Exhibit 10.hh
-------------
DESCRIPTION OF PACIFIC TELESIS GROUP
DIRECTORS' AND OFFICERS'
LIABILITY INSURANCE PROGRAM
Coverage: Directors and Officers Liability
Insured: Pacific Telesis Group and Subsidiaries subject to policy terms
and conditions.
Limits: $150,000,000 Per incident, Annual Aggregate
Deductible: $ 0 Each Director or Officer Each Loss
$ 0 All Directors and Each Loss
$ 2,500,000 Per Loss of the Corporation
Description: This program is composed of several layers of insurance, with
varying terms and conditions. Each policy is in two parts.
One part covers the Directors and Officers individually for
claims against them for wrongful acts which legally cannot be
reimbursed by the Corporation. The second part reimburses the
Corporation for its losses in indemnifying the Directors and
Officers.
Exclusions: Each insurance policy has its own exclusions; however, there
are several common exclusions. These include, but are not
limited to: libel, slander, bodily injury, pollution, ERISA,
dishonesty or illegal activities.
<PAGE>
Exhibit 10kk(iii)
-----------------
AMENDMENT TO PACIFIC TELESIS GROUP
EXECUTIVE SUPPLEMENTAL PENSION PLANS
RESOLVED that, in accordance with Section 6 of Appendix A (Employee Benefits
Allocation) of the Separation Agreement between Pacific Telesis Group and
PacTel Corporation, dated October 7, 1993, and effective as of the date of
separation of PacTel Corporation from the corporation, the following plans:
1. Pacific Telesis Group Executive Non-Qualified Pension Plan,
2. Pacific Telesis Group Mid-Career Pension Plan, and
3. Pacific Telesis Group Supplemental Executive Retirement Plan,
are amended by the addition of the following paragraph at the end of Section
4, paragraph 3 of each of the plans:
SPECIAL TERMINATION RULE. Notwithstanding the foregoing provisions of
this paragraph 3, any Executive who is a Post-Separation PacTel
Employee (other than an Executive who, as of the effective date of
Separation, is eligible for a nondiscounted service pension under the
Pacific Telesis Group Pension Plan for Salaried Employees or for a
Minimum Pension under the Pacific Telesis Group Non-Qualified
Executive Pension Plan) shall not be eligible for a pension under
this Plan due to the Executive's termination of employment with
Pacific Telesis Group and its subsidiaries at Separation. The
pensions accrued under this Plan as of the effective date of
Separation for all Post-Separation PacTel Employees (other than
pensions of Executives who are eligible for a nondiscounted service
pension under the Pacific Telesis Group Pension Plan for Salaried
Employees or for a Minimum Pension under the Pacific Telesis Group
Non-Qualified Executive Pension Plan) shall be transferred from this
Plan to a plan maintained by PacTel Corporation. A Post-Separation
PacTel Employee who is eligible for a nondiscounted service pension
under the Pacific Telesis Group Pension Plan for Salaried Employees
or for a Minimum Pension under the Pacific Telesis Group Executive
Non-Qualified Pension Plan shall be considered terminated at
Separation for purposes of the Plan. For these purposes, the
following definitions shall apply:
(i) "Post-Separation PacTel Employee" means an employee who
immediately after Separation is employed by a member of the
PacTel Group.
(ii) "Separation" means the complete separation of the ownership
of the PacTel Group from the Company.
(iii) "PacTel Group" means PacTel Corporation (or its successor)
and all subsidiaries or other entities that control, are
controlled by, or are under common control with PacTel
Corporation. As used herein, "control" means the
possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of
such entity, whether through ownership of voting securities
or other interest, by contract or otherwise.
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and be it
FURTHER RESOLVED that the officers of this corporation, and any one of
them, are authorized and directed to do any and all other acts and
things, to make any and all other determinations, and to execute any and
all other documents that they deem necessary or advisable to effectuate
the purposes of this resolution.
Board of Directors
Pacific Telesis Group
February 25, 1994
2
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Exhibit 10kk(iv)
----------------
TRUST AGREEMENT NO. 3
for
PACIFIC TELESIS GROUP
EXECUTIVE SUPPLEMENTAL PENSION PLAN BENEFITS
(Effective January 1, 1994)
1
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TABLE OF CONTENTS
-----------------
Page
----
Section 1. Establishment of Trust ................................. 2
Section 2. Payments to Plan Participants and Their Beneficiaries ... 3
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiaries When a Company is Insolvent 5
Section 4. Payments to the Company ................................. 6
Section 5. Investment Authority .................................... 6
Section 6. Disposition of Income ................................... 9
Section 7. Accounting by Trustee ................................... 9
Section 8. Responsibilities and Authorities of the Trustee and
Investment Manager ...................................... 10
Section 9. Compensation and Expenses of Trustee .................... 13
Section 10. Resignation or Removal of the Trustee ................... 13
Section 11. Appointment of Successor ................................ 14
Section 12. Amendment or Termination ................................ 15
Section 13. Miscellaneous ........................................... 15
Section 14. Effective Date .......................................... 17
APPENDIX A .......................................................... 18
2
<PAGE>
TRUST AGREEMENT
for
PACIFIC TELESIS GROUP
EXECUTIVE SUPPLEMENTAL PENSION PLAN BENEFITS
(Effective January 1, 1994)
This Trust Agreement is made this first day of January, 1994, by and between
Pacific Telesis Group, a Nevada Corporation ("PTG"), and Bankers Trust
Company, a New York banking corporation (the "Trustee").
Any affiliate of PTG which participates in the executive compensation plans
subject to this Trust Agreement may become a party to this Trust Agreement by
indicating its acceptance, in writing, to PTG and the Trustee. The term
"Company" as used in this Trust Agreement shall include PTG and any affiliate
of PTG which participates in this Trust Agreement unless the context requires
otherwise. In the event of a merger, consolidation or liquidation of a
Company into or with any other corporation, or the sale or other transfer of
all or substantially all of a Company's operating assets, the resulting
successor or purchaser corporation shall automatically be substituted for such
Company under this Trust Agreement if such successor or purchaser corporation
is an affiliate of PTG, participates in any of the executive compensation
plans related to this Trust Agreement and indicates its agreement to
participate in this Trust Agreement in writing to PTG and the Trustee. A
successor or purchaser corporation that is not affiliated with PTG or does not
choose to participate in this Trust Agreement shall be known as a "Former
Company." "Former Company" also means a Company which is designated by PTG as
a Former Company for purposes of withdrawal by such Company from the Trust and
disposition of the percentage interest of such Company from the Trust.
WHEREAS, PTG has adopted the executive benefit plans listed in Appendix A (the
"Plans"); and
WHEREAS, PTG wishes to establish a trust (hereinafter called the "Trust") and
to contribute to the Trust assets that shall be held therein, subject to the
claims of the Company's creditors in the event of the Company's Insolvency, as
herein defined, until paid to Plan participants and their beneficiaries in
such manner and at such times as specified in the Plans; and
WHEREAS, it is the intention of the parties that this Trust shall constitute
an unfunded arrangement and shall not affect the status of the Plans as
unfunded plans maintained for the purpose of providing deferred compensation
for a select group of management or highly compensated employees for purposes
of Title I of the Employee Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of the Company to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
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<PAGE>
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust one thousand
dollars ($1000.00), which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Trust
Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes of Plan participants and general
creditors as herein set forth. Plan participants and their beneficiaries
shall have no preferred claim on, or any beneficial ownership interest in, any
assets of the Trust. Any rights created under the Plans and this Trust
Agreement shall be mere unsecured contractual rights of Plan participants and
their beneficiaries against their Company. Any assets held by the Trust will
be subject to the claims of that Company's general creditors under federal and
state law in the event of that Company's Insolvency, as defined in
Section 3(a) herein.
(e) Upon a Change of Control, each Company shall, as soon as possible,
but in no event longer than 60 days following the Change of Control, as
defined herein, make an irrevocable contribution to the Trust in an amount
that is sufficient to pay each Plan participant or beneficiary the benefits to
which Plan participants or their beneficiaries would be entitled from such
Company pursuant to the terms of the Plans as of the date on which the Change
of Control occurred.
(f) For purposes of this Trust Agreement, each Company shall be deemed
to have a "percentage interest" in the Trust assets. The percentage interest
shall be equal to a fraction, the numerator of which shall equal that
Company's contributions and income thereon, less payments and expenses of the
Trust charged to that Company, and the denominator of which shall be the total
amount of Trust assets. The Trustee's determination with respect to the
percentage interest of each Company shall be conclusive and binding upon each
Company. The money or other property attributable to the percentage interest
of any Company shall not be available to satisfy the claims of any other
Company's creditors or the Plan participants of any other Company or their
beneficiaries, unless such Company consents to the use of the money or other
property attributable to its percentage interest in the Trust to pay the
claims of the Plan participants of another Company and their beneficiaries.
(g) Not later than 90 days following the end of each Plan year, each
Company shall be required to make an irrevocable contribution to the Trust in
an amount sufficient to pay each Plan participant or beneficiary the benefits
to which the Plan participant or beneficiary would be entitled from such
Company pursuant to the terms of the Plan as of the close of such Plan year.
If a Company fails to make such contribution for a Plan year, the principal
and income of the Trust shall in no event be used to pay any benefits to which
Plan participants or beneficiaries become entitled from such Company pursuant
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<PAGE>
to the terms of the Plans after the close of such Plan year until such
contribution has been made.
(h) For purposes of Section 1(e) and Section 1(g), the amount of the
benefit to which a participant or beneficiary would be entitled as of the
specified date shall be determined by applying the terms of the applicable
Plan as if the participant's employment with the Company had terminated on
such date.
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) PTG shall deliver to the Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of each Plan participant (and
his or her beneficiaries), that provides a formula or other instructions
acceptable to the Trustee for determining the amounts so payable, the form in
which such amount is to be paid (as provided for or available under the Plans)
and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
The Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with respect
to the payment of benefits pursuant to the terms of the Plans and shall pay
amounts withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by the Company.
(b) Except in the event of a Change of Control and for the 3-year period
following such Change of Control, the Trustee may rely upon, and shall be
under no duty to verify, the formula and other instructions contained in the
Payment Schedule delivered to the Trustee by PTG in accordance with Section
2(a), and may determine that any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to
the terms of the Plans have been reported, withheld and paid by the Company by
receipt of a certification to that effect from the Company.
(c) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plans shall be determined by PTG or such party as it shall
designate under the Plans, and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plans.
(d) The Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plans. The Company shall notify the Trustee of its decision to make payment
of benefits directly prior to the time amounts are payable to participants or
their beneficiaries. In addition, if the principal of the Trust, and any
earnings thereon, are not sufficient to make payments of benefits in
accordance with the terms of the Plans, the Company shall make the balance of
each such payment as it falls due. The Trustee shall notify the Company where
principal and earnings are not sufficient.
(e) In the event the Company makes payment of benefits as permitted in
Section 2(d), the Company shall provide the Trustee with a schedule of all
benefits, and taxes attributable thereto, that have been paid by the Company
within 15 days after the end of the quarter in which such payments have been
made.
5
<PAGE>
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARIES WHEN A COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if their Company is Insolvent. A Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii) the Company is subject
to a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall discontinue payment of
benefits to the Plan participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of a Company's
Insolvency, or has received notice from the Company or a person claiming
to be a creditor alleging that the Company 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
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 solvency.
(3) If at any time the Trustee has determined that a Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or
their beneficiaries and shall hold the assets of the Trust for the
benefit of the Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan participants or
their beneficiaries to pursue their rights as general creditors of the
Company with respect to benefits due under the Plans or otherwise.
(4) The Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined that the Company is
not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof 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 Plans for the
period of such discontinuance, less the aggregate amount of any payments made
to Plan participants or their beneficiaries by any Company in lieu of the
payments provided for hereunder during any such period of discontinuance.
6
<PAGE>
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Sections 3 and 12 hereof, no Company shall have the
right or power to direct the Trustee to return to the Company or to divert to
others any of the Trust assets before all payments of benefits have been made
to Plan participants and their beneficiaries pursuant to the terms of the
Plans.
SECTION 5. INVESTMENT AUTHORITY.
(a) PTG may appoint an individual or organization to invest and reinvest
assets of the Trust (an "Investment Manager"). PTG shall notify the Trustee
of the appointment of any Investment Manager and identify the Trust assets
allocated to such Investment Manager for purposes of investment and
reinvestment. The terms and conditions of appointment, authority and
retention shall be the sole responsibility of PTG. PTG shall cause each
Investment Manager to furnish the Trustee with the names and signatures of
those persons authorized to direct the Trustee on its behalf. The Trustee
shall have the right to assume, in the absence of written notice to the
contrary, that no event constituting a change in the authority of any such
person has occurred. PTG may also direct the Trustee to divide the assets of
the Trust into separate parts for investment purposes and shall have the
power, from time to time, to modify or terminate any existing investment
arrangement as it shall deem appropriate.
(b) The Trust shall be invested and reinvested without distinction
between income and principal. PTG may allocate and reallocate investment
responsibility with respect to any assets of the Trust among PTG, any
Investment Manager and the Trustee. Any such allocations shall be made by PTG
in a written instrument delivered to the Trustee and, if appropriate, the
affected Investment Manager, and shall continue in force and effect until
revoked by PTG in a writing delivered to the Trustee. Any Investment Manager
acting hereunder shall have sole authority and responsibility for the
management, investment and reinvestment of the Trust assets allocated to such
Investment Manager. The portion of the Trust over which PTG or an Investment
Manager shall have investment responsibility is hereinafter referred to as a
"Directed Fund." The Trustee shall be under no duty or obligation to review
or to question any direction of PTG or an Investment Manager, or to review
securities or any other property held in any Directed Fund with respect to
prudence or proper diversification or compliance with any limitation on the
Investment Manager's authority under the terms of any agreement entered into
between PTG and the Investment Manager or imposed by applicable law, or to
make any suggestions or recommendations to PTG or an Investment Manager with
respect to the retention or investment of any assets of any Directed Fund, and
shall have no authority to take any action or to refrain from taking any
action with respect to any asset of a Directed Fund unless and until it is
directed to do so by PTG or an Investment Manager.
(c) The assets of this Trust may be invested and reinvested in such
personal property investments and insurance and annuity contracts as the
individual or organization having investment responsibility, in its sole
discretion, may deem appropriate and consistent with the investment directions
communicated by PTG, including without limiting the generality of the
foregoing: common and preferred stocks; trusts and participation certificates;
7
<PAGE>
bonds; debentures; covered call options; notes secured by personal property;
obligations of governmental bodies, both domestic and foreign; notes,
commercial paper and other evidences of indebtedness, secured or unsecured,
including variable amount notes; convertible securities of all types and
kinds; mutual fund shares; interest-bearing savings or deposit accounts with
any federally-insured bank (including the Trustee) or savings and loan
association; contracts for the immediate or future delivery of financial
instruments of any issuer or of any other property; all forms of options in
any combination; investments commonly known as "synthetic securities" or
"derivative securities" (including, without limitation, investments referred
to as asset swaps, collateralized asset swaps, equity swaps, fixed income
swaps, "pure" and "participating" synthetic securities, and similar
arrangements as may now exist or may be developed in the future); and any
other personal property permitted as investments under applicable law. The
Trustee shall not be responsible under this Agreement, or otherwise, in any
way for the form, terms, payment provisions or issuer of any insurance
contract which it is directed to purchase and/or hold as contractholder, or
for performing any functions under any such insurance contract (other than the
execution of documents incidental thereto and the transfer or receipt of funds
thereunder), on the directions of an Investment Manager or, except in the
event of a Change of Control and for the 3-year period following such Change
of Control, on the directions of PTG.
(d) The assets of this Trust may be invested and reinvested in such
forms of collective investments as may be consistent with the investment
policies developed and communicated by PTG to the Trustee or the appropriate
Investment Manager. To the extent that the Trust is invested in a common or
collective trust, the terms of the agreement or declaration of trust
establishing such common or collective trust fund shall become a part of this
Trust as if set forth in full herein, to the extent of the allocable share of
the Trust therein.
(e) The Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by PTG.
(f) The Trustee may acquire securities issued by PTG directly from PTG
or from any third party, in such manner and upon such terms as the Trustee
deems appropriate and advisable in the Trustee's sole discretion. There shall
be no limitation on the amount or percentage of Trust assets that may be held
in the form of PTG securities. To the extent the Trustee is directed by PTG
or an Investment Manager to invest in PTG securities, the Trustee shall have
no duty or obligation to sell any portion of the assets of the Trust invested
in PTG securities for the purpose of establishing a mixed, balanced or
diversified portfolio of investments and the Trustee shall not be liable for
any loss attributable to the investment of Trust assets in PTG securities.
(g) All rights associated with assets of the Trust shall be exercised by
the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with Plan participants, except that voting rights with
respect to PTG securities will be exercised by PTG.
(h) To the extent any assets of the Trust are held in a Directed Fund,
the Trustee shall exercise the rights associated with such assets only as
directed by PTG or an Investment Manager, as the case may be. Notwithstanding
the preceding sentence of this Section 5(h) and the provisions of Section
5(g), in the event of a Change of Control and for the 3-year period following
8
<PAGE>
such Change of Control, the Trustee shall exercise voting rights with respect
to PTG securities.
(i) PTG shall have the right at any time, and from time to time in its
sole discretion, to substitute assets of equal fair market value for any asset
held by the Trust. This right is exercisable by PTG in a nonfiduciary
capacity without the approval or consent of any person in a fiduciary
capacity.
(j) Except in the event of a Change of Control and for the 3-year period
following such Change of Control, the Trustee shall be under no duty or
obligation to review or to question any direction of any Company pursuant to
Section 5(i), or to review securities so substituted or any other property so
held with respect to prudence or proper diversification, or to make any
suggestions or recommendations to such Company with respect to the retention
or investment of any such substituted assets and shall have no authority to
take any action with respect to such substituted assets unless and until it is
directed to do so by PTG.
(k) The Trustee shall have the following discretionary powers and
authority in the investment of the Trust with respect to the assets of the
Trust under its management and control and, with respect to a Directed Fund,
PTG or the Investment Manager, as the case may be, shall exercise such powers
and authority:
(1) to purchase, sell, exchange, convey, transfer or otherwise
acquire or dispose of any property, by private contract or at public
auction; and
(2) to give general or special proxies or powers of attorney with
or without power of substitution; to exercise any conversion privileges,
subscription rights or other options and to make any payments incidental
thereto; to consent to or otherwise participate in corporate
reorganizations or other changes affecting corporate securities and to
delegate discretionary powers and pay any assessments or charges in
connection therewith; and generally to exercise any of the powers of an
owner with respect to securities or other property held in the Trust; and
(3) to make, execute, acknowledge and deliver any and all documents
of transfer and conveyance and any and all other instruments that may be
necessary or appropriate to carry out the powers herein granted.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such records as shall be necessary to determine each Company's
percentage interest in the Trust and such other specific records as shall be
9
<PAGE>
agreed upon in writing between PTG and the Trustee. The Trustee shall submit
to PTG and each Company such interim valuations, reports or other information
as PTG and the Trustee shall mutually agree. Within 60 days following the
close of each calendar year and within 60 days after the removal or
resignation of the Trustee, the Trustee shall deliver to PTG a written account
of its administration of the Trust during such year or during the period from
the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end
of such year or as of the date of such removal or resignation, as the case may
be. PTG shall review each such accounting provided by the Trustee and within
a reasonable period shall advise the Trustee in writing of any corrections or
specific objections to any transaction reported; provided, however, that
nothing in the preceding clause shall prevent PTG from advising the Trustee of
any corrections later discovered to be necessary for accurate Trust records
and accounting.
SECTION 8. RESPONSIBILITIES AND AUTHORITIES OF THE TRUSTEE AND INVESTMENT
MANAGER.
(a) The Trustee and each Investment Manager appointed pursuant to
Section 5 shall act with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims; provided, however, that the Trustee shall
incur no liability to any person for any action taken pursuant to a written
direction, request or approval given by the Company or an Investment Manager
which is contemplated by, and in conformity with, the terms of this Trust
Agreement or anything omitted to be done in the absence of such direction,
request or approval with respect to a Directed Fund, except that any liability
of the Trustee for fraud, gross negligence or willful misconduct shall
continue. In the event of a dispute between a Company and any party,
including any other Company respecting assets in the Trust, the Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) In the absence of fraud, gross negligence or misconduct on the part
of the Trustee, PTG hereby agrees to indemnify the Trustee for, and hold it
harmless against, any and all liabilities, losses, claims, damages, actions,
costs and expenses (including reasonable counsel fees) which may be incurred
by or assessed against it as a direct or indirect result of anything done in
good faith, or alleged to have been done, by or on behalf of the Trustee, in
reliance upon the written directions of PTG, a Company or an Investment
Manager appointed by PTG, or anything omitted to be done in good faith, or
alleged to have been omitted, in the absence of such directions.
(c) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, PTG agrees to indemnify the Trustee against the
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If PTG does not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee may charge such expenses against the
Trust.
10
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(d) If at any time the Trustee determines (as a result of notice from
the participants or beneficiaries or otherwise) that the Trust assets and
earnings thereon are insufficient to make benefit payments to participants or
beneficiaries that have become due, and if the Trustee has no reasonable
expectation that the Trustee will be able within 30 days to cause all past due
Plan benefits to be paid from Trust assets, and no reasonable expectation that
the Company responsible for such past due benefits will within 30 days cause
all past due Plan benefit payments to be made, and no reasonable expectation
that all past due Plan benefit payments will within 30 days be paid by a
combination of Company payments and payments from Trust assets, the Trustee
shall bring an action or proceeding in a court of competent jurisdiction
against the Company responsible for such past due benefit payments under the
Plan to compel such responsible Company to make contributions to the Trust as
necessary to enable the Trustee to pay all past due Plan benefits and to make
Plan benefit payments as they become due. The Trustee shall determine whether
benefit payments are past due with reference to the provisions for payment set
forth in Section 2 hereof. The Trustee shall also be authorized to apply to a
court of competent jurisdiction for direction at any time it determines (as a
result of notice from the participants or beneficiaries or otherwise) that it
has insufficient information to determine the amounts of benefit payments that
would be consistent with the provisions of the Plans. The Company hereby
agrees to pay all attorneys' fees and expenses incurred by the Trustee in
bringing such a cause of action regardless of its outcome. If the Company
does not pay such attorney's fees and expenses in a reasonably timely manner,
the Trustee may charge such payment against the Trust.
(e) The Trustee may consult with legal counsel (who may also be counsel
for any Company generally) with respect to any of its duties or obligations
hereunder.
(f) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder. If the Company does
not pay the fees of such professionals in a reasonably timely manner, the
Trustee may charge such payment against the Trust.
(g) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.
(h) However, notwithstanding the provisions of Section 8(g) above, the
Trustee shall be obligated to follow the written directions of PTG with
respect to (1) the payment of premiums for life insurance policies held as an
asset of the Trust, (2) the borrowing of part or all of the cash value, or
increase in cash value, of any life insurance policy held as an asset of the
Trust, and (3) except in the event of a Change of Control and for the 3-year
period following such Change of Control, the lending to the Company of the
proceeds of any borrowing against an insurance policy held as an asset of the
Trust.
(i) The Trustee may register any securities held in the Trust in its own
name or in the name of a nominee and hold any securities in bearer form, and
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combine certificates representing such securities with securities of the same
issue held by the Trustee in other fiduciary or representative capacities or
as agents for customers, or deposit or arrange for the deposit of such
securities in any qualified central depository even though when so deposited,
such securities may be merged and held in bulk in the name of the nominee of
such depository with other securities deposited therein by other depositors,
or deposit or arrange for the deposit of any securities issued by the United
States Government, or any agency or instrumentality thereof, with a Federal
Reserve Bank, but the books and records of the Trustee shall at all times show
that all such investments are part of the Trust Fund.
(j) With the consent of PTG, the Trustee may compromise, compound,
submit to arbitration or settle any debt or obligation owing to or from or
otherwise adjust all claims in favor of or against the Trust. In the event of
a Change of Control and for the 3-year period following such Change of
Control, the Trustee may exercise the powers set forth in this Section 8(j)
with or without the consent of PTG.
(k) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Trustee shall be entitled to reasonable compensation for its services
and shall be reimbursed for all reasonable expenses incurred by it in
performing its duties hereunder including, but not limited to, legal and
accounting expenses. Such compensation shall be set forth in a separate
schedule. Such schedule may be modified from time to time as agreed by PTG
and the Trustee. All such compensation and expenses shall be paid by the
Company; provided, however, that such compensation and expenses shall
constitute a charge upon the Trust, and may be withdrawn by the Trustee from
the Trust upon prior written notice to the Company if not otherwise paid by
the Company within 60 days of such prior written notice. Upon written
direction to the Trustee from a Company, any costs or expenses that are
chargeable to the Trust but which for administrative convenience and
efficiency are paid or incurred by a Company shall be fully reimbursed by the
Trust to that Company upon presentation to the Trustee of a copy of the
invoice of the service provider and a certification by the Company that the
invoice has been paid, or, if services are provided by a Company, upon
presentation to the Trustee of an accounting of such costs and expenses
incurred with respect to such services, including any costs and expenses
incurred by a Company in connection with administrative activities for the
Plans. In all cases the Trustee shall be entitled to rely on the Company's
statements and directions concerning the payment of any such expenses and
shall be fully protected in making such payments pursuant to the directions of
the Company.
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SECTION 10. RESIGNATION OR REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to PTG, which
shall be effective 60 days after receipt of such notice unless PTG and the
Trustee agree otherwise.
(b) The Trustee may be removed by PTG on 60 days notice or upon shorter
notice accepted by the Trustee.
(c) Upon a Change of Control, as defined herein, the Trustee may not be
removed by PTG for 3 years.
(d) If the Trustee resigns within 3 years after a Change of Control, as
defined herein, the Trustee shall select a successor Trustee in accordance
with the provisions of Section 11(b) hereof prior to the effective date of the
Trustee's resignation.
(e) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 90 days after
receipt of the notice of resignation, removal or transfer, unless PTG extends
the time limit.
(f) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section. If no
such appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed in accordance with Section
10(a) or (b) hereof, PTG may appoint a bank trust department or other party
that may be granted corporate trustee powers under state law, as a successor
Trustee to replace Trustee upon resignation or removal. The appointment of a
successor Trustee shall be effective when accepted in writing by the new
Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by PTG or the
successor Trustee to evidence the transfer.
(b) If the Trustee resigns pursuant to the provisions of Section 10(d)
hereof and selects a successor Trustee, the Trustee may appoint any third
party such as a bank trust department or other party that may be granted
corporate trustee powers under state law. The appointment of a successor
Trustee shall be effective when accepted in writing by the new Trustee. The
new Trustee shall have all the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by the successor
Trustee to evidence the transfer.
(c) Upon the appointment of any successor Trustee pursuant to this
Section 11 and acceptance of the appointment by such successor Trustee, the
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Trustee shall have no responsibility to the Trust for the acts of such
successor Trustee. In addition, the Trustee shall have no responsibility for
assets of the Trust or for acts taken with respect to assets of the Trust
following their transfer to such successor Trustee.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and PTG. Notwithstanding the foregoing, no such amendment
shall conflict with the terms of the Plans or shall make the Trust revocable
after it has become irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plans. Upon termination of the Trust any assets
remaining in the Trust shall be returned to the Company.
(c) Notwithstanding any other provision of this Trust, upon written
approval of two-thirds (2/3) of the Participants entitled to payment of
benefits pursuant to the terms of the Plans, PTG may terminate this Trust
prior to the time all benefit payments under the Plans have been made.
(d) Upon termination of the Trust pursuant to Section 12(b) or Section
12(c), at the direction of PTG all assets in the Trust at termination shall be
returned to the Companies in proportion to their respective percentage
interests.
(e) Notwithstanding any other provision of this Trust, in the event that
a Company becomes a Former Company, the Trustee shall follow the written
directions of PTG with respect to the disposition of such Former Company's
percentage interest in the Trust.
(f) Sections 1(e), 1(f), 5(h), 8(d), 8(h), 10(c), 10(d) and 12 of this
Trust Agreement may not be amended by PTG for 3 years following a Change of
Control, as defined herein.
SECTION 13. MISCELLANEOUS.
(a) Any provisions of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the state of New York.
(d) For purposes of this Trust Agreement, Change of Control shall mean
the occurrence of any of the following events:
(1) Any "person" (as such term is used in sections 13(d) and 14(d)
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of the Securities Exchange Act of 1934, as amended), other than a trustee
or other fiduciary holding securities under an employee benefit plan of
PTG or a corporation owned directly or indirectly by the shareowners of
PTG in substantially the same proportions as their ownership of stock of
PTG, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of PTG representing 20
percent or more of the total voting power represented by PTG's then
outstanding voting securities; or
(2) A change in the composition of the Board of Directors of PTG,
as a result of which fewer than two-thirds of the incumbent directors are
directors who either (A) had been directors of PTG 24 months prior to
such change or (B) were elected, or nominated for election, to the Board
of Directors of PTG with the affirmative votes of at least a majority of
the directors who had been directors of PTG 24 months prior to such
change and who were still in office at the time of the election or
nomination; or
(3) The shareowners of PTG approve a merger or consolidation of PTG
with any other corporation, other than a merger or consolidation which
would result in the voting securities of PTG outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at
least 80 percent of the total voting power represented by the voting
securities of PTG or such surviving entity outstanding immediately after
such merger or consolidation, or the shareowners of PTG approve a plan of
complete liquidation of PTG or an agreement for the sale or disposition
by PTG of all or substantially all of PTG's assets.
Any other provision of this Section 13 notwithstanding, the term "Change of
Control" shall not include either of the following events undertaken at the
election of PTG:
(i) Any transaction, the sole purpose of which is to change the
state of PTG's incorporation;
(ii) A transaction, the result of which is to sell all or
substantially all of the assets of PTG to another corporation (the "Surviving
Corporation"); provided that the Surviving Corporation is owned directly or
indirectly by the shareholders of PTG immediately following such transaction
in substantially the same proportions as their ownership of PTG's common stock
immediately preceding such transaction; and provided, further, that the
Surviving Corporation expressly assumes this Trust Agreement.
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SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be January 1, 1994.
PTG and the Trustee have caused this Trust Agreement to be executed by
their respective duly authorized officers on the dates set forth below:
PACIFIC TELESIS GROUP
Dated: November 11, 1994 By: /s/ J. R. Moberg
As Its: Executive Vice President -
Human Resources
BANKERS TRUST COMPANY
Dated: March 4, 1994 By: /s/ Frank J. Eipper
As Its: Vice President
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APPENDIX A
EXECUTIVE BENEFIT PLANS
AirTouch Communications Executive Nonqualified Pension Plan
AirTouch Communications Supplemental Executive Retirement Plan
AirTouch Communications Mid-Career Pension Plan(solely with respect to
benefits accrued by participants who are officers of the Company)
Pre-1990 Retiree Supplemental Executive Retirement Benefit Program (providing
certain retirement benefits in excess of the limitations imposed by Internal
Revenue Code section 415 and 401(a)(17) on qualified plans to certain officers
who retired prior to 1990)
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Exhibit 10ll(ii)
----------------
AMENDMENTS TO PACIFIC TELESIS GROUP EXECUTIVE DEFERRAL PLAN
RESOLVED that the provisions of the Pacific Telesis Group Executive Deferral
Plan (the "Plan") are hereby revised as follows:
1. Effective January 1, 1994, the Compensation and Personnel Committee
of the Board of Directors of this corporation shall have
discretionary authority to postpone payment of Plan benefits with
respect to deferral made under deferral elections filed after
February 17, 1993 to an executive (a) who in the year Plan benefits
would otherwise be payable under the Plan to him or her, is a
"covered employee" for purposes of the $1 million limitation on
deductible compensation under Section 162(m) of the Internal Revenue
Code, and (b) whose compensation for the year in which Plan benefits
would otherwise be payable would, but for such postponement, exceed
the $1 million limit on deductibility.
2. Effective November 15, 1993, an eligible employee may elect to defer
all or a portion of any bonus, special award, or any other similar
form of compensation he or she receives from a participating
company;
and be it
FURTHER RESOLVED that the Executive Vice President - Human Resources of
this corporation is authorized and directed, subject to the requirements
and limitations of any applicable law, to make such changes to the plan
document and to do or cause to be done any and all other acts and things,
and to execute and deliver any and all other documents, that he deems
necessary or appropriate to carry out the purposes of the preceding
resolution.
Board of Directors
Pacific Telesis Group
November 19, 1993
<PAGE>
<PAGE>
Exhibit 10ll(iii)
-----------------
AMENDMENTS TO
PACIFIC TELESIS GROUP EXECUTIVE DEFERRAL PLAN
RESOLVED that, in accordance with Section 7 of Appendix A (Employee Benefits
Allocation) of the Separation Agreement between Pacific Telesis Group and
PacTel Corporation, dated October 7, 1993, and effective as of the date of
separation of PacTel Corporation from the corporation, the Pacific Telesis
Group Executive Deferral Plan (the "Plan") is hereby revised as follows:
1. Paragraph (b) of Section 4 of the Plan is amended by the addition of
the following at the end thereof:
For purposes of determining when a distribution following retirement
or termination from a participating Company shall be made pursuant
to an employee's election under this paragraph (b), a
Post-Separation PacTel Employee shall not be considered to have
retired or terminated from a participating Company until he or she
separates from employment with the PacTel Group.
2. The fourth sentence of paragraph (g) of Section 4 of the Plan is
amended in its entirety to read as follows:
Notwithstanding the foregoing provisions of this Section 4(g),
Pacific Telesis Group shall be solely and exclusively responsible
for providing the benefits accrued under the Plan by a
Post-Separation PacTel Employee.
3. Paragraph (c) of Section 6 of the Plan is amended in its entirety to
read as follows:
(c) "Company" means Pacific Telesis Group, Pacific Bell or any
other Pacific Telesis Group Affiliate.
4. Section 6 of the Plan is amended by the addition of the following
new paragraphs (h), (i) and (j) at the end thereof:
(h) "Affiliates", as the term relates to Pacific Telesis Group or
PacTel Corporation, means subsidiaries or other entities that
control, are controlled by, or are under common control with
Pacific Telesis Group or PacTel Corporation, as the case may
be. As used herein, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of
the management and policies of such entity, whether through
ownership of voting securities or other interests, by contract
or otherwise.
(i) "PacTel Group" means PacTel Corporation (or its successor) and
its Affiliates immediately after the total and complete
separation of PacTel Corporation from Pacific Telesis Group.
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(j) "Post-Separation PacTel Employee" means an employee who
immediately after the total and complete separation of the
ownership of the PacTel Group from Pacific Telesis Group is
employed by a member of the PacTel Group.
and be it
FURTHER RESOLVED that, effective as of the date of separation of PacTel
Corporation from the corporation, PacTel Corporation is no longer
designated as a participating company under the Plan;
and be it
FURTHER RESOLVED that the officers of this corporation, and any one of
them, are authorized and directed, in the name and on behalf of this
corporation, to do any and all other acts and things, to make any and all
other determinations, and to execute any and all other documents that
they deem necessary or advisable to effectuate the purposes or these
resolutions.
Board of Directors
Pacific Telesis Group
February 25, 1994
2
Exhibit 10oo(ii)
----------------
DISPOSITION OF STOCK OPTIONS
Pacific Telesis Group Stock Options
and Stock Appreciation Rights Plan
Treatment of Options and Appreciation Rights on Separation
Establishment of Loan Program for Option Exercise
RESOLVED that, effective as of the date of separation of PacTel Corporation
and its wireless subsidiaries from the corporation and its other subsidiaries,
the Compensation and Personnel Committee is authorized and directed, subject
to the requirements and limitations of any applicable law, to make the
following changes to the Pacific Telesis Group Stock Option and Stock
Appreciation Rights Plan (the "Plan"):
1. With the approval of the Board of Directors of PacTel Corporation,
all stock options and stock appreciation rights in the corporation's
common stock outstanding under the Plan as of the date of separation
will be replaced as follows:
a. Outstanding stock option and stock appreciation rights in the
corporation's common stock held by employees of PacTel
Corporation as of the date of separation will be substituted
with stock options and stock appreciation rights in PacTel
Corporation's common stock, the number to be determined at
separation.
b. Outstanding stock options and stock appreciation rights in the
corporation's stock held by employees of the corporation as of
the date of separation will be replaced with a combination of
stock options and stock appreciation rights in both the
corporation's common stock and PacTel Corporation's common
stock in the same ratio to be applied to outstanding shares of
the corporation's common stock at separation.
c. Outstanding stock options and stock appreciation rights in the
corporations's stock held by former employees of the
corporation and its subsidiaries (including PacTel Corporation
and its subsidiaries) who retired before the date of separation
will be replaced with a combination of stock options and stock
appreciation rights in both the corporation's common stock and
PacTel Corporation's common stock in the same ratio to be
applied to outstanding shares of the corporation's common stock
at separation.
d. Outstanding stock options and stock appreciation rights in the
corporation's stock held by non-employee directors of PacTel
Corporation as of the date of separation will be substituted
with stock options and stock appreciation rights in PacTel
Corporation's common stock, the number to be determined at
separation.
<PAGE>
e. Outstanding stock options and stock appreciation rights in the
corporation's stock held by non-employee directors of the
corporation as of the date of separation will be replaced with
a combination of stock options and stock appreciation rights in
both the corporation's common stock and PacTel Corporation's
common stock in the same ratio to be applied to outstanding
shares of the corporation's common stock at separation.
f. The exercise price for all such substituted or replaced stock
options and stock appreciation rights will be adjusted so that
there is not net change in the "spread" between the aggregate
exercise prices of such options and rights and the fair market
value of the underlying common stock immediately before the
date of separation and the aggregate exercise prices of such
options and rights and the fair market value of the underlying
stock as of the date of separation, determined based on an
average of the fair market value of the corporation's and
PacTel Corporation's common stock over a 10-business-day period
preceding the date of separation.
2. With the approval if the PacTel Corporation Board of Directors and
as of the date of separation:
a. PacTel Corporation will assume all obligations with respect to
the substituted stock options and stock appreciation rights in
PacTel Corporation's common stock held by employees of PacTel
corporation under the Plan.
b. The PacTel Corporation Board of Directors or a committee or
such individuals designated by it will administer the stock
options and stock appreciation rights in PacTel Corporation's
common stock held by employees of PacTel Corporation under the
Plan.
3. The Compensation and Personnel Committee will continue to administer
stock options and stock appreciation rights in the corporation's
common stock and in PacTel Corporation's common stock held by
employees of the corporation under the Plan.
4. The corporation will acquire sufficient PacTel Corporation common
stock to meet the obligations of the corporation under the Plan to
employees, retirees and non-employee directors of the corporation as
of the date of separation, as follows:
a. If feasible and appropriate as determined by the Compensation
and Personnel Committee and with final approval by this Board,
as soon as practicable after the date of separation the
corporation will acquire and hold in trust sufficient PacTel
Corporation common stock to meet such obligations.
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b. Alternatively (if the trust mechanism is determined not
feasible or appropriate), at the time an optionee exercises his
or her option the corporation will acquire PacTel Corporation
common stock sufficient to meet such obligations.
and be it
FURTHER RESOLVED that the officers of this corporation, and any one of
them, are authorized and directed, in the name and on behalf of this
corporation, to execute and deliver amendments to the agreements relating
to Options granted under the Plan relating to the replacement of such
Options referred to hereinabove;
and be it
FURTHER RESOLVED that, effective as of July 1, 1993, the Compensation and
Personnel Committee is authorized and directed, subject to the
requirements and limitations of any applicable law, to amend the Plan to
establish a corporate loan program for the purpose of assisting employees
who wish to exercise stock options;
and be it
FURTHER RESOLVED that the officers of this corporation, and any one of
them, are authorized and directed, in the name and on the behalf of this
corporation, to do any and all other acts and things, to make any and all
determinations, and to execute any and all other documents that they deem
necessary or advisable to effectuate the purposes of these resolutions
Board of Directors
Pacific Telesis Group
April 23, 1993
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Exhibit 10pp(i)
---------------
SCHEDULE
--------
The agreements incorporated by reference are representative of employment
agreements between Pacific Telesis Group ("Telesis") and each of the five most
highly compensated officers of Telesis and any Executive Vice President of
Telesis.
<PAGE>
Exhibit 10pp(ii)
---------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective the ___ day of ___________, 19___, by and between
___________________________ (the "Employee") and PACIFIC TELESIS GROUP, a
Nevada corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS the Corporation or an affiliate wishes to continue employing the
Employee in a position no lower than a position within the Telesis Executive
Management Group; and
WHEREAS the Employee is willing to continue such employment upon the terms and
conditions set forth below:
Now, Therefore, in consideration of the mutual covenants herein contained, and
in consideration of the continuing employment of Employee by the Corporation
or an affiliate, the parties agree as follows:
1. TERM OF EMPLOYMENT.
(a) BASIC RULE. The Corporation agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the
Corporation, from the effective date of this Agreement until the date when the
Employee's employment terminates pursuant to the provisions of this Agreement.
(b) EARLY TERMINATION. Subject to sections 6 and 7, the
Corporation may terminate the Employee's employment by giving the Employee 30
days' advance notice in writing. If the Corporation terminates the Employee's
employment within three years after a Change in Control, as defined herein,
the provisions of section 6 shall apply. If the Corporation terminates the
Employee's employment for any reason other than Cause or Disability, both as
defined herein, the provisions of section 7 shall apply. The Employee may
terminate his employment by giving the Corporation 30 days' advance notice in
writing. If the Employee terminates his employment under the preceding
sentence, other than a Constructive Termination, as defined herein, occurring
within three years after a Change in Control, the Corporation shall have no
obligation to pay or provide any compensation or benefits on account of the
Employee's termination of employment, or for periods following such
termination. The Employee's rights under any applicable benefit plans shall
be determined under the provisions of those plans. A termination of
employment effective on or after the Employee's Normal Retirement Date shall
be deemed a voluntary termination. Any waiver of notice shall be valid only
if it is made in writing and expressly refers to the applicable notice
requirement of this section 1.
(c) DEATH. The Employee's employment shall terminate in the event
of his death. The Corporation shall have no obligation to pay or provide any
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compensation or benefits on account of the Employee's death, or for periods
following the Employee's death. The Employee's rights under the benefit plans
of the Corporation shall be determined under the provisions of those plans.
(d) CAUSE. Subject to section 6, the Corporation may terminate the
Employee's employment for Cause by giving the Employee 30 days' advance notice
in writing. For all purposes under this Agreement, "Cause" shall mean (i) a
willful failure by the Employee to substantially perform his duties hereunder,
other than a failure resulting from the Employee's complete or partial
incapacity due to physical or mental illness or impairment,
(ii) a willful act by the Employee which constitutes gross misconduct and
which is injurious to the Corporation, (iii) a willful breach by the Employee
of a material provision of this Agreement, or (iv) a material and willful
violation of a federal or state law or regulation applicable to the business
of the Corporation. No act, or failure to act, by the Employee shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Corporation's best
interest. Unless the termination of employment for Cause occurs within three
years after a Change in Control, no compensation or benefits will be paid or
provided to the Employee on account of a termination for Cause, or for periods
following the date when such a termination of employment is effective. The
Employee's rights under the benefit plans of the Corporation shall be
determined under the provisions of those plans.
(e) DISABILITY. Subject to section 6, the Corporation may
terminate the Employee's employment for Disability by giving the Employee six
months' advance notice in writing. If the Corporation terminates the
Employee's employment for Disability within three years after a Change in
Control, the provisions of section 6 shall apply. For all purposes under this
Agreement, "Disability" shall mean that the Employee, at the time notice is
given, has been unable to perform his duties under this Agreement for a period
of not less than six consecutive months as the result of his incapacity due to
physical or mental illness. In the event that the Employee resumes the
performance of substantially all of his duties hereunder before the
termination of his employment under this subsection (e) becomes effective, the
notice of termination shall automatically be deemed to have been revoked.
Unless the termination of employment for Disability occurs within three years
after a Change in Control, no compensation or benefits will be paid or
provided to the Employee on account of termination for Disability, or for
periods following the date when such a termination of employment is effective.
The Employee's rights under the benefit plans of the Corporation shall be
determined under the provisions of those plans.
(f) TERMINATION OF AGREEMENT. Except as otherwise provided in this
subsection (f), this Agreement shall terminate when all obligations of the
parties hereunder have been satisfied. In addition, either the Corporation or
the Employee can terminate this Agreement for any reason, and without
affecting the Employee's status as an employee, by giving the other party one
year's advance notice in writing. A termination of this Agreement pursuant to
the preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of this Agreement. Finally, this Agreement shall terminate in any
event on the Employee's Normal Retirement Date, as defined herein.
2. DUTIES AND SCOPE OF EMPLOYMENT.
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(a) POSITION. The Corporation agrees to employ the Employee for
the term of his employment under this Agreement in a position no lower than a
position within the Telesis Executive Management Group (TEMG), as such
positions were defined in terms of responsibilities and compensation as of the
effective date of this Agreement.
(b) OBLIGATIONS. During the term of his employment under this
Agreement, the Employee shall devote his full business efforts and time to the
Corporation and its subsidiaries. The foregoing, however, shall not preclude
the Employee from engaging in appropriate civic, charitable or religious
activities or from devoting a reasonable amount of time to private investments
or from serving on the boards of directors of other entities, as long as such
activities and service do not interfere or conflict with his responsibilities
to the Corporation.
3. BASE COMPENSATION.
During the term of his employment under this Agreement, the Corporation agrees
to pay the Employee as compensation for his services a base salary at the
annual rate of $_________, or at such higher rate as the Corporation's Board
of Directors may determine from time to time. Such salary shall be payable in
approximately equal bi-weekly installments. Once the Corporation's Board of
Directors has increased such salary, it thereafter shall not be reduced,
provided that, if a Change in Control has not occurred, such salary, including
any increases, may be reduced by the Corporation if (i) the Employee commits
an act or omission that meets the definition of Cause, as defined in section
1(d), or (ii) the Employee and all other officers of Pacific Telesis Group and
its subsidiaries who are parties to written employment agreements containing a
provision substantially in the form of this provision have their salaries,
including any increases, reduced by the same percentage amount for the same
time period. (The annual compensation specified in this section 3, together
with any increases in such compensation that the Board of Directors may grant
from time to time, and together with any reductions made in accordance with
this section, is referred to in this Agreement as "Base Compensation.")
4. EMPLOYEE BENEFITS.
During the term of his employment under this Agreement, the Employee shall be
eligible to participate in the employee benefit plans and executive
compensation programs maintained by the Corporation, including (without
limitation) pension plans, savings or profit-sharing plans, deferred
compensation plans, supplemental retirement or excess-benefit plans, stock
option, incentive or other bonus plans, life, disability, health, accident and
other insurance programs, paid vacations, and similar plans or programs,
subject in each case to the generally applicable terms and conditions of the
plan or program in question and to the determination of any committee
administering such plan or program.
5. BUSINESS EXPENSES AND TRAVEL.
During the term of his employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Corporation
shall reimburse the Employee for such expenses upon presentation of an
itemized account and appropriate supporting documentation, all in accordance
with the Corporation's generally applicable policies.
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6. CHANGE IN CONTROL.
(a) DEFINITION. For all purposes under this Agreement, "Change in
Control" shall mean the occurrence of any of the following events:
(i) Any "person" (as such term is used in sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other
than a trustee or other fiduciary holding securities under an
employee benefit plan of Pacific Telesis Group or a corporation
owned directly or indirectly by the shareowners of Pacific Telesis
Group in substantially the same proportions as their ownership of
stock of Pacific Telesis Group, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under said Act), directly or indirectly,
of securities of Pacific Telesis Group representing 20 percent or
more of the total voting power represented by Pacific Telesis
Group's then outstanding voting securities; or
(ii) A change in the composition of the Board of Directors of
Pacific Telesis Group, as a result of which fewer than two-thirds of
the incumbent directors are directors who either (A) had been
directors of Pacific Telesis Group 24 months prior to such change or
(B) were elected, or nominated for election, to the Board of
Directors of Pacific Telesis Group with the affirmative votes of at
least a majority of the directors who had been directors of Pacific
Telesis Group 24 months prior to such change and who were still in
office at the time of the election or nomination; or
(iii) The shareowners of Pacific Telesis Group approve a
merger or consolidation of Pacific Telesis Group with any other
corporation, other than a merger or consolidation which would result
in the voting securities of Pacific Telesis Group outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80 percent of the total voting
power represented by the voting securities of Pacific Telesis Group
or such surviving entity outstanding immediately after such merger
or consolidation, or the shareowners of Pacific Telesis Group
approve a plan of complete liquidation of Pacific Telesis Group or
an agreement for the sale or disposition by Pacific Telesis Group of
all or substantially all Pacific Telesis Group's assets.
Any other provision of this section notwithstanding, the term "Change in
Control" shall not include either of the following events undertaken at the
election of Pacific Telesis Group:
(1) Any transaction, the sole purpose of which is to change the
state of Pacific Telesis Group's incorporation;
(2) A transaction, the result of which is to sell all or
substantially all of the assets of Pacific Telesis Group to another
corporation (the "surviving corporation"); provided that the surviving
corporation is owned directly or indirectly by the shareholders of
Pacific Telesis Group immediately following such transaction in
substantially the same proportions as their ownership of Pacific Telesis
Group's common stock immediately preceding such transaction; and
provided, further, that the surviving corporation expressly assumes this
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Agreement.
(b) SEVERANCE PAYMENT. If, during the term of this Agreement and
within three years after the occurrence of a Change in Control, the Employee's
employment is involuntarily terminated for any reason by the Corporation,
including a Constructive Termination, as defined herein, the Employee shall be
entitled to receive a severance payment from the Corporation (the "Severance
Payment"). The Severance Payment shall be made in a lump sum not less than 31
days nor more than 120 days following the date of the employment termination
and shall be in an amount determined under subsection (c) below. The
Severance Payment shall be in lieu of any further payments to the Employee
under section 3 and any further accrual of benefits under section 4 with
respect to periods subsequent to the date of the employment termination. The
Severance Payment shall not reduce or offset any benefits the Employee may be
entitled to under section 7.
(c) AMOUNT. The Amount of the Severance Payment shall be equal to
the following:
(i) an amount equal to 100 percent of the Employee's Base
Compensation in effect on the date of employment termination; plus
(ii) an amount equal to 100 percent of the Standard Award
within the meaning of the Pacific Telesis Group Short Term Incentive
Plan for the Employee's Position Rate as of the date of employment
termination (the "Standard Award"); plus
(iii) an amount equal to the fair market value of a share of
Pacific Telesis Group common stock on the date of employment
termination multiplied by the number of Units within the meaning of
the Pacific Telesis Group Senior Management Long Term Incentive Plan
("LTIP Units") granted to the Employee for the two performance
periods ending with the two calendar years following the year in
which the employment termination occurs.
Notwithstanding any other provision of this Agreement or any provision in the
two above-referenced Incentive Plans, after the amounts in this subsection (c)
are paid to the Employee, the Employee shall have no further interest in the
Pacific Telesis Group Short Term Incentive Plan, or in the LTIP Units granted
for the two performance periods ending with the two calendar years following
the year in which the employment termination occurs.
(d) LIFE INSURANCE, HEALTH PLAN COVERAGE AND FINANCIAL COUNSELING.
If, during the term of this Agreement and within three years after the
occurrence of a Change in Control, the Employee's employment is involuntarily
terminated for any reason by the Corporation, including a Constructive
Termination, in addition to the Severance Payment, the Employee (and, where
applicable, his dependents) shall be entitled to continue participation for a
period of two years following the date of employment termination, or until the
Employee's Normal Retirement Date, if earlier, in the basic and supplemental
group term life insurance plan and in the health care plan for management
employees maintained by the Corporation, as if he were still an employee of
the Corporation. Where applicable, the employee's salary for purposes of such
plans shall be deemed to be equal to his salary immediately prior to
employment termination. To the extent that the Corporation finds it
undesirable to cover the Employee under its group life insurance and health
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plans, the Corporation (at its own expense) shall provide the Employee with
the same level of coverage under individual policies. The Corporation shall
also provide to the Employee for one year after employment termination
professional financial counseling services comparable in scope and value to
the financial counseling services made available to the Employee immediately
prior to the Change in Control.
(e) ADDITIONAL PAYMENT. If, during the term of this Agreement and
within three years after the occurrence of a Change in Control, the Employee's
employment is involuntarily terminated for any reason by the Corporation,
including a Constructive Termination, and if the Corporation refuses or fails
to timely pay or provide the compensation and benefits specified in this
Agreement upon demand as provided in section 12(c), and if such refusal or
failure is not corrected within ten business days after written notice thereof
by the Employee to the Corporation, the Corporation shall pay immediately to
the Employee an additional amount equal to fifty percent (50%) of the
Employee's Base Compensation. This provision shall apply only once.
(f) NO MITIGATION. The Employee shall not be required to mitigate
the amount of any payment contemplated by this section 6 (whether by seeking
new employment or in any other manner), nor shall any such payment be reduced
by any earnings that the Employee may receive from any other source.
7. INVOLUNTARY TERMINATION WITHOUT CAUSE, AS DEFINED IN SECTION 1(D), OR
DISABILITY, AS DEFINED IN SECTION 1(E).
(a) CONTINUATION PERIOD. In the event that, during the term of
this Agreement, the Corporation terminates the Employee's employment for any
reason other than Cause or Disability, the Employee shall be entitled to
receive all of the payments and benefit coverage described in the succeeding
subsections of this section 7. Except as otherwise provided herein, the
benefit coverage described in subsection (c) of this section 7 shall continue
for the period commencing on the date when the employment termination is
effective and ending on the earlier of (A) the first anniversary of the date
when the employment termination is effective, (B) the date of the Employee's
death, or (C) the Employee's Normal Retirement Date (the "Continuation
Period").
(b) CASH PAYMENT. The Corporation shall pay to the Employee, in a
lump sum not less than 31 days nor more than 120 days following the date of
the employment termination whichever of the following amounts is applicable:
(i) if more than one year remains between the date of
employment termination and the Normal Retirement Date, an amount
equal to one times the Employee's Base Compensation in effect on the
date of employment termination; or
(ii) if less than one year remains between the date of
employment termination and the Normal Retirement Date, an amount
equal to one-twelfth of the Employee's Base Compensation in effect
on the date of employment termination, multiplied by the number of
months (rounded to the next higher whole number) remaining between
the date of employment termination and the Normal Retirement Date.
(c) LIFE INSURANCE AND HEALTH PLAN COVERAGE. During the
Continuation Period, the Employee (and, where applicable, his dependents)
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shall be entitled to continue participation in the basic and supplemental
group term life insurance plan and in the health care plan for management
employees maintained by the Corporation, as if he were still an employee of
the Corporation. Where applicable, the Employee's salary for purposes of such
plans shall be deemed to be equal to his Base Compensation in effect on the
date of employment termination. To the extent that the Corporation finds it
undesirable to cover the Employee under its group life insurance and health
plans, the Corporation (at its own expense) shall provide the Employee with
the same level of coverage under individual policies.
(d) INCENTIVE AWARDS. Within sixty days after the date the
employment termination is effective, the Corporation shall pay to the Employee
100% of the Standard Award applicable to the Employee for the calendar year
containing the date of employment termination. Except as otherwise provided
in this Agreement, the Employee's rights and interests under the Pacific
Telesis Group Senior Management Long Term Incentive Plan will be determined
under the provisions of that Plan; provided that the Employee may petition the
Corporation to distribute, in the Corporation's sole discretion, to the
Employee any non-forfeited LTIP Units remaining to his credit at a time
earlier than that specified in the Long Term Incentive Plan; and provided
further that if all LTIP Units granted to the Employee are forfeited and
cancelled under the terms of the Long Term Incentive Plan, the Corporation
shall pay to the Employee, within sixty days after the date the employment
termination is effective, an amount equal to the fair market value of a share
of Pacific Telesis Group common stock on the date of employment termination
multiplied by the number of LTIP Units granted to the Employee for the
performance period ending with the calendar year containing the date of
employment termination.
(e) STOCK OPTIONS. The Employee's rights in stock options and
stock appreciation rights ("SARs") heretofore or hereafter granted to him
under the Pacific Telesis Group Stock Option and Stock Appreciation Rights
Plan (the "Stock Option Plan") shall be determined by the provisions of the
Stock Option Plan and the option and SAR agreements; provided that, the
Employee shall be entitled to be compensated within 60 days after employment
termination for any of the Employee's vested or nonvested stock options (other
than Incentive Stock Options) and vested or nonvested SARs that terminate at
the Employee's termination of employment. For each terminated stock option
(other than Incentive Stock Options), the amount of compensation shall be the
difference between the fair market value of a share of Pacific Telesis Group
common stock on the date the employment termination is effective and the
option price. For each terminated SAR, the amount of compensation shall be
the difference between the fair market value of a share of Pacific Telesis
Group common stock on the date the termination of employment is effective and
the option price at which the stock option related to the SAR was granted.
SARs that are cancelled under their own terms when the related stock option is
exercised shall not be compensated by the Corporation.
(f) NO MITIGATION. The Employee shall not be required to mitigate
the amount of any payment or benefit contemplated by this section 7, nor shall
any such payment or benefit be reduced by any earnings or benefits that the
Employee may receive from any other source.
8. LIMITATION ON PAYMENTS.
(a) BASIC RULE. Any provision of this Agreement to the contrary
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notwithstanding, in the event that Coopers & Lybrand (the "Auditors")
determines that any payment or transfer by the Corporation to or for the
benefit of the Employee, whether paid or payable (or transferred or
transferable) pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be nondeductible by the Corporation for federal income tax
purposes because of section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount. For purposes of this
section 8, the "Reduced Amount" shall be the amount, expressed as a present
value, which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Corporation because of section
280G of the Code.
(b) REDUCTION OF PAYMENTS. If the Auditors determine that any
Payment would be nondeductible by the Corporation because of section 280G of
the Code, then the Corporation, within five business days after being notified
by the Auditors, shall give the Employee notice to that effect and a copy of
the detailed calculation thereof and of the Reduced Amount. The Employee may
then elect, in his sole discretion, which and how much of the Payments shall
be eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall advise the
Corporation in writing of his election within 30 days of his receipt of
notice. If no such election is made by the Employee within such 30-day
period, then the Corporation may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Employee promptly of such election. For purposes of this section 8, present
value shall be determined in accordance with section 280G(d)(4) of the Code.
All determinations made by the Auditors under this section 8 shall be binding
upon the Corporation and the Employee and shall be made within 60 days of the
date of the employment termination.
(c) OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in
the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will
have been made by the Corporation which should not have been made (an
"Overpayment") or that additional Payments which will not have been made by
the Corporation could have been made (an "Underpayment"), consistent in each
case with the calculation of the Reduced Amount hereunder. In the event that
the Auditors, based upon the assertion of a deficiency by the Internal Revenue
Service against the Corporation or the Employee which the Auditors believe has
a high probability of success, determine that an Overpayment has been made,
such Overpayment shall be treated for all purposes as a loan to the Employee
which he shall repay to the Corporation, together with interest at the
applicable federal rate provided for in section 7872(f)(2)(A) of the Code;
provided, however, that no amount shall be payable by the Employee to the
Corporation if and to the extent that such payment would not reduce the amount
which is subject to taxation under section 4999 of the Code. In the event
that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Corporation to or
for the benefit of the Employee, together with interest at the applicable
federal rate provided for in section 7872(f)(2)(A) of the Code.
9. SUCCESSORS.
(a) CORPORATION'S SUCCESSORS. The Corporation shall require any
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successor (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Corporation's business and/or assets, by an agreement in substance and form
satisfactory to the Employee, to assume this Agreement and to agree expressly
to perform this Agreement in the same manner and to the same extent as the
Corporation would be required to perform it in the absence of a succession.
The Corporation's failure to obtain such agreement prior to the effectiveness
of a succession shall be a breach of this Agreement and shall entitle the
Employee to all of the compensation and benefits to which he would have been
entitled hereunder if the Corporation had involuntarily terminated his
employment without Cause or Disability, on the date when such succession
becomes effective. For all purposes under this Agreement, the term
"Corporation" shall include any successor to the Corporation's business and/or
assets which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by this Agreement by operation of law.
(b) EMPLOYEE'S SUCCESSORS. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. NOTICE.
Notices and all other communications contemplated by this Agreement shall be
in writing and shall be deemed to have been duly given when personally
delivered or when mailed by U.S. registered or certified mail, return receipt
requested and postage prepaid. In the case of the Employee, mailed notices
shall be addressed to him at the home address which he most recently
communicated to the Corporation in writing. In the case of the Corporation,
mailed notices shall be addressed to its corporate headquarters, and all
notices shall be directed to the attention of its Secretary.
11. INFORMATION.
(a) Employee agrees not to disclose to others, or take or use for
Employee's own purposes or the purposes of others, during or after Employee's
employment, any Information owned or controlled by Pacific Telesis Group or
any of its subsidiary or affiliated companies (collectively, "Pacific").
Employee agrees that these restrictions shall also apply to all (i)
Information in Pacific's possession belonging to third parties, and (ii)
Information conceived, originated, discovered or developed, in whole or in
part, by Employee. As used herein, "Information" includes trade secrets and
other confidential or proprietary business, technical, personnel or financial
information, whether or not Employee's work product, in written, graphic, oral
or other tangible or intangible forms, including but not limited to
specifications, samples, records, data, computer programs, drawings, diagrams,
models, customer names, business or marketing plans, studies, analyses,
projections and reports, communications by or to attorneys (including
attorney-client privileged communications), memos and other materials prepared
by attorneys or under their direction (including attorney work product), and
software systems and processes. Any Information which is not readily
available to the public shall be considered to be a trade secret and
confidential and proprietary, even if it is not specifically marked as such,
unless Pacific advises Employee otherwise in writing.
(b) Employee agrees that on termination of employment, Employee
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will return to Pacific all property belonging to Pacific, including all
documents or other media in Employee's possession or control which in any way
incorporate or reflect any Information.
12. MISCELLANEOUS PROVISIONS.
(a) WAIVER. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Corporation (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(b) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof.
(c) PRESUMPTION. Subject to the provisions of section 8, the
Corporation shall make a payment described in this Agreement upon receiving
written notice from the Employee describing such payment, referring to the
provision of this Agreement under which such payment is claimed and certifying
that all conditions for such payment, as set forth in this Agreement, have
been satisfied. The information so furnished to the Corporation by the
Employee shall be presumed to be correct, subject to rebuttal by the
Corporation after making payment. After making the payment claimed by the
Employee, the Corporation may seek a refund of such payment in accordance with
subsection (g) below. This subsection shall not be used to cause a payment to
be made at a time earlier than provided in this Agreement.
(d) NO SETOFF. There shall be no right of setoff or counterclaim,
with respect to any claim, debt or obligation, against payments to the
Employee under this Agreement.
(e) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, irrespective of California's choice of law principles.
(f) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(g) ARBITRATION. Except as otherwise provided in section 8, any
dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration in San Francisco, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Punitive damages shall not be awarded. Notwithstanding the
foregoing, a dispute or controversy over whether Cause exists for the
termination of an Employee, when such termination occurred within three years
after a Change in Control, or a dispute or controversy over whether a
Constructive Termination has occurred, shall be arbitrated by a three-member
panel of the outside directors of Pacific Telesis Group, with the selection of
the panel to be made by the Chairman, as of one year prior to the Change in
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Control, of the Pacific Telesis Group Board of Directors. If three such
individuals are unwilling to serve as arbitrators, the preceding sentence
shall be inapplicable, and all disputes and controversies shall be subject to
arbitration in accordance with the rules of the American Arbitration
Association, as provided above in this subsection. For purposes of this
subsection, "outside directors" shall mean members of the Board of Directors
of Pacific Telesis Group, as such Board of Directors was constituted one year
prior to the Change in Control, and who were not employees of Pacific Telesis
Group or a subsidiary one year prior to the Change in Control.
(h) NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option
or assignment, either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection (h)
shall be void.
(i) CONSTRUCTIVE TERMINATION. As used herein, "Constructive
Termination" shall mean a material reduction in salary or benefits, a material
change in responsibilities, or a requirement to relocate, except for office
relocations that would not increase the Employee's one-way commute distance
by more than 40 miles.
(j) FAIR MARKET VALUE. As used herein, "fair market value" of a
share of Pacific Telesis Group common stock shall mean the closing price of
such stock, as reported on the New York Stock Exchange composite transactions
tape for the day preceding the day in question, or if there are no sales on
such day, on the most recent prior date for which sales of such stock have
been reported on such composite transactions tape.
(k) EMPLOYMENT AT WILL; LIMITATION OF REMEDIES. The Corporation
and the Employee acknowledge that the Employee's employment is at will, as
defined under applicable law. If the Employee's employment terminates for any
reason, the Employee shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement.
(l) EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(m) BENEFIT COVERAGE NON-ADDITIVE. In the event that the Employee
is entitled to life insurance and health plan coverage under more than one
provision hereunder, only one provision shall apply, and neither the periods
of coverage nor the amounts of benefits shall be additive.
(n) NORMAL RETIREMENT DATE. As used herein, the Normal Retirement
Date shall mean the date the Employee attains age 65.
(o) ASSIGNMENT OF AGREEMENT BY CORPORATION. Pacific Telesis Group
may assign its rights under this Agreement to an affiliate, and an affiliate
may assign its rights under this Agreement to another affiliate of Pacific
Telesis Group or to Pacific Telesis Group. In the case of any such
assignment, the term "Corporation" when used in a section of this Agreement
shall mean the corporation that actually employs the Employee.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Corporation by its duly authorized officer, as of the day and year
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first above written.
PACIFIC TELESIS GROUP
By: ________________________________
Title: ____________________________
____________________________________
Employee
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SCHEDULE
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The agreement filed as Exhibit 10pp(ii) is representative of agreements
between Pacific Telesis Group ("Telesis") and any executive officer of Telesis
who is a key policy-maker but not an Executive Vice President or one of the
five most highly compensated Telesis officers.
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Exhibit 10rr
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SUPPLEMENTAL BENEFIT AGREEMENT
------------------------------
THIS AGREEMENT, entered into as of October __, 1993, between RICHARD W. ODGERS
(the "Officer") and PACIFIC TELESIS GROUP, a Nevada corporation ("Pacific"),
W I T N E S S E T H:
WHEREAS the Officer and Pacific entered into an Agreement dated October 27,
1987, and effective November 16, 1987 (the "1987 Agreement"), which obligates
Pacific to provide certain supplemental pension benefits and certain health
and welfare benefits to the Officer; and
WHEREAS the Officer and Pacific entered into an Employment Agreement
effective January 1, 1989 (the "1989 Agreement"), which INTER ALIA permits
Pacific to assign its rights thereunder to an affiliate of Pacific; and
WHEREAS the Officer and Pacific entered into an Agreement effective January
1, 1989, and dated February 28, 1990 (the "1990 Agreement), which reconciles
certain possible conflicts between the 1987 Agreement and the 1989 Agreement;
and
WHEREAS the Officer and Pacific wish to replace the 1987 Agreement and the
1990 Agreement with a single agreement in order to clarify certain possible
ambiguities in the benefits to be provided under such Agreements; and
WHEREAS the Officer has assumed increased responsibility, including
assumption of responsibility for regulatory and external affairs; and
WHEREAS the Officer has been designated Chief Compliance Officer for all of
the Pacific Telesis Group companies and it is in the best interests of Pacific
that he express himself freely as to any compliance or ethical issues for
Pacific:
NOW, THEREFORE, the parties agree as follows:
I. PRIOR AGREEMENTS.
A. The 1987 Agreement and the 1990 Agreement are hereby terminated
and replaced by this Agreement. This Agreement shall not supersede or
limit, and shall not be superseded or limited by, the 1989 Agreement.
B. If there is a difference between the health and welfare benefits
provided under the 1989 Agreement and the health and welfare benefits
provided under this Agreement, then the Officer shall designate which of
the two Agreements shall control for this purpose. The Officer shall
not be entitled to health and welfare benefits under more than one of
the two Agreements.
II. Transfer to Affiliate of Pacific.
In the event that Pacific assigns its rights under the 1989 Agreement to
an affiliate of Pacific (the "Successor") pursuant to section 12(o) of
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the 1989 Agreement, the Successor shall also assume all rights and
obligations of Pacific under this Agreement. The Successor shall assume
such rights and obligations in writing in a form reasonably satisfactory
to the Officer. A failure by the Successor to assume such rights and
obligations in accordance with this Section 2 may, at the Officer's
discretion, be treated as an involuntary termination of the Officer's
employment by Pacific (for a reason other than Cause or Disability, as
such terms are defined in the 1989 Agreement) for all purposes under the
1989 Agreement and under this Agreement. After the Successor has
assumed such rights and obligations in accordance with this Section 2,
the term "Pacific" shall be deemed to mean the Successor wherever such
term is used in this Agreement, and any reference to affiliates of
Pacific shall be deemed to refer to affiliates of the Successor.
III. Amount of Supplemental Pension Benefit.
A. In the event that the Officer ceases to be employed by Pacific or
any affiliate of Pacific due to an involuntary termination (for a reason
other than Cause or Disability, as such terms are defined in the 1989
Agreement) or resigns for Good Reason prior to attaining 10 years of
service as an officer, the Officer shall be entitled to a pension paid
by Pacific equal to 45% of his Basic Compensation (assuming such pension
is payable as an individual-life annuity). The term "Good Reason" shall
mean that the Officer without his consent:
1. Has been demoted;
2. Has incurred a reduction in his authority or responsibility,
has incurred a change in the nature of his position resulting
in a reduction in authority or responsibility, or has
incurred a change in his reporting relationship;
3. Has incurred a reduction in his compensation (including,
without limitation, base compensation or eligibility for
benefits under any executive plans or programs);
4. Has been encouraged to resign voluntarily; or
5. Has been required to relocate his principal place of work by
a distance of 25 miles or more.
B. If the Officer ceases to be employed by Pacific or any affiliate of
Pacific due to a voluntary termination that is not a resignation for
Good Reason, as described in Subsection (a) above, then the Officer
shall be entitled to a pension paid by Pacific equal to a percentage of
his Basic Compensation increasing ratably on a monthly basis, beginning
with 35% payable in the event of a termination in November 1993 and
ending with 45% in the event of a termination in or after October 1997
(assuming such pension is payable as an individual-life annuity).
C. For all purposes under this Agreement, the term "Basic
Compensation" shall mean the average annual salary actually received
during the Compensation Period plus the average standard short-term
award for the Compensation Period, before the application of any
deferral elections under plans or programs sponsored by Pacific (or its
affiliates). The term "Compensation Period" shall mean the last 60
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months of employment by Pacific or any affiliate of Pacific.
D. The amount of any pension benefit payable under this Agreement
shall be reduced (not below zero) by the amount of any pension benefits
payable under the Pacific Telesis Group Executive Non-Qualified Pension
Plan, the Pacific Telesis Group Supplemental Executive Retirement Plan,
the Pacific Telesis Group Mid-Career Pension Plan, the pension portion
of the Pacific Telesis Group Senior Management Long Term Disability and
Survivor Protection Plan and the Pacific Telesis Group Pension Plan for
Salaried Employees (the "Pension Plan") or any successors to such plans.
IV. EXECUTIVE NON-QUALIFIED PENSION PLAN.
After 10 years of service as an officer, the Officer may voluntarily retire at
45% (or more) of Basic Compensation in accordance with the terms of the
Pacific Telesis Group Executive Non-Qualified Pension Plan, as it existed on
October 27, 1987 (the "Executive Plan"). The terms of the Executive Plan are
incorporated herein by reference.
V. FORM OF SUPPLEMENTAL PENSION BENEFITS.
A. By filing an election with the Compensation and Personnel
Committee of the Board of Directors of Pacific (the "Committee"), the
Officer may elect to receive the pension described in Section 3 in any
of the forms available for benefits under the Pacific Telesis Group
Executive Non-Qualified Pension Plan in accordance with the rules
established under such Plan; provided, however, that any single-sum
cashout payment of a benefit hereunder is expressly subject to the
Committee's discretion to pay in a form other than a single sum. Unless
the Officer elects otherwise in accordance with the preceding sentence,
the pension described in Section 3 shall be in the form of a joint-and-
survivor annuity. Such annuity shall be payable first to the Officer
and then to his spouse, if she survives him. The amount of the pension
payable as a joint-and-survivor annuity for the Officer's life shall be
equal to 90% of the pension computed in Section 3, and 50% of the
reduced amount shall be payable to his spouse (if she survives him) for
her lifetime.
B. Pension payments under Section 3 or 4 or Subsection (a) above
shall be payable in a manner consistent with the rules concerning the
payment of benefits under the Pension Plan. For this purpose, the
Officer's pension effective date shall be deemed to be the day following
the date when termination of employment with Pacific or any affiliate of
Pacific occurs. Survivor benefits shall be determined in a manner
consistent with the rules concerning the payment of such benefits under
the Pacific Telesis Group Executive Non-Qualified Pension Plan.
VI. HEALTH AND WELFARE BENEFITS.
A. In the event that the Officer ceases to be employed by Pacific, or
any affiliate of Pacific, with eligibility for a "Minimum Pension" under
the Executive Plan, the Officer's right to health and welfare benefits
shall not be less than the following:
1. If the Officer's last employing company participates (at the time
of the employment termination) in the Pension Plan, such company
3
<PAGE>
shall provide the Officer with health and welfare benefits
comparable to the benefits which such company is then providing to
its former employees who are receiving service or disability
pensions under the Pension Plan; or
2. If the Officer's last employing company participates (at the time
of the employment termination) in the PacTel Corporation
Retirement Plan (the "Retirement Plan"), such company shall
provide the Officer with health and welfare benefits comparable to
the benefits which such company is then providing to its former
employees who are considered to have attained "Retirement Status"
under the Retirement Plan.
B. In the event that the Officer ceases to be employed by Pacific, or
any affiliate of Pacific, with eligibility for any pension benefit under
this Agreement or the Executive Plan but before becoming eligible for a
"Minimum Pension" under the Executive Plan, the officer may elect
continuation medical coverage under this Subsection (b) (the
"Continuation Medical Coverage") for himself and any dependents who are
covered dependents at the time of his termination of employment here-
under, in lieu of COBRA continuation coverage or any other federally-
mandated continuation medical coverage, by sending written notice to the
Executive Vice President--Human Resources of Pacific (or the officer
having corresponding responsibility at that time) within 60 days of
termination of employment. Continuation Medical Coverage shall be
equivalent to the medical coverage that would have been provided to the
Officer if the Officer had been eligible for a service pension under the
Pension Plan upon such termination of employment; provided, however,
that the Officer shall be entitled to Continuation Medical Coverage only
if the Officer pays to Pacific (or its affiliate) an amount equal to
100% of the group rate charged by Pacific (or its affiliate) for
equivalent coverage under COBRA (but excluding the 2% administrative
fee). If the Officer elects Continuation Medical Coverage in lieu of
COBRA continuation coverage and fails to pay the required contributions
for such Continuation Medical Coverage in an amount and in the manner
determined by Pacific (or its affiliate), Continuation Medical Coverage
shall terminate effective as of the first day of the month for which
full payment was not received.
C. For purposes of this Agreement, the term "health and welfare
benefits" shall include, but not be limited to, life insurance, medical
and dental benefits.
VII. PLAN AMENDMENTS.
This Agreement shall not limit any right of Pacific or its affiliates to
modify at any time their benefit plans, the benefit plans they participate in
or the health and welfare benefits they provide to employees or former
employees, provided that no modification shall reduce the benefits described
in this Agreement (including, without limitation, the benefits to be provided
under the Executive Plans pursuant to Section 4), except for those changes in
health and welfare benefits applicable to all management employees and former
management employees.
VIII. CONSTRUCTION AND ENFORCEMENT.
4
<PAGE>
A. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision hereof.
B. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California.
C. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration pursuant to
section 12(g) of the 1989 Agreement.
IX. MISCELLANEOUS PROVISIONS.
A. There shall be no right of setoff or counterclaim with respect to
any claim, debt or obligation against payments to the Officer under this
Agreement.
B. The rights of any person to payments or benefits under this
Agreement shall not be made subject to option or assignment, either by
voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this Subsection (b)
shall be void.
C. All payments made pursuant to this Agreement shall be subject to
withholding of applicable taxes.
X. EFFECTIVE DATE.
This Agreement shall be effective upon its execution.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of Pacific by its duly authorized officer, as of the day and year first
above written.
PACIFIC TELESIS GROUP
By:
--------------------------- --------------------------
Richard W. Odgers
Title:
--------------------------- ---------------------------
Date:
--------------------------- __________________________
5
<PAGE>
Exhibit 10uu(ii)
----------------
AMENDMENT TO
TRUST AGREEMENT NO. 1
FOR THE
PACIFIC TELESIS GROUP
EXECUTIVE DEFERRAL PLAN
Effective as of May 28, 1993
THIS AGREEMENT, effective as of May 28, 1993, between PACIFIC TELESIS GROUP, a
corporation organized under the laws of the State of Nevada (hereinafter
referred to as the "Company"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, the Company and the Trustee have maintained a Trust under the terms
of a trust agreement dated as of the 27th day of June, 1988, between the
Company and the Trustee, in connection with the Pacific Telesis Group
Executive Deferral Plan; and
WHEREAS, the Company and the Trustee mutually desire to amend the terms of the
Agreement to permit the appointment of a successor trustee without the
institution of court proceedings; and
NOW, THEREFORE, the Company and the Trustee, intending to be bound, agree as
follows:
1. Section 6.2 is amended in its entirety to read as follows:
6.2 Appointment Of Successor Trustee: Resignation or removal of
the Trustee shall not terminate the Trust. In the event of
the removal of or resignation of the Trustee, a bank trust
department or other party that may be granted corporate
trustee powers under state law shall be appointed as a
successor Trustee. Such appointment shall be made by the
Company, except that such appointment shall be made by the
Trustee in the event the Company fails to make such
appointment within 90 days after the removal or resignation
of the Trustee or in the event the Trustee resigns or is
removed within 3 years after a Change of Control. The
Company shall provide prompt written notice of such
appointment to Plan participants and beneficiaries. The
appointment of a successor Trustee shall be effective when
accepted in writing by the new Trustee, who shall have all of
the rights and powers of the former Trustee, including
ownership rights in the Trust assets, except with respect to
such amount as shall be agreed upon between the Trustee and
the Committee as reasonable compensation and expenses in
connection with the settlement of accounts and the delivery
of the assets to the successor Trustee.
1
<PAGE>
2. Except as hereby amended, the terms of the Agreement shall
continue in effect as expressed in the instrument dated as of
the 27th day of June, 1988, as heretofore amended.
IN WITNESS WHEREOF, PACIFIC TELESIS GROUP has caused this Agreement to be
signed by its Executive Vice President-Human Resources, thereunto duly
authorized, and its corporate seal to be affixed hereunto and the same to be
attested by its Assistant Secretary, all on the date of execution shown below,
but effective as of the date and year first above written; and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION has caused this Agreement to be signed
by two of its officers, thereunto duly authorized, and its association seal to
be affixed hereunto and the same to be attested by one of its Officers, on the
date of execution shown below, but effective as of the date and year first
above written.
Dated: June 14, 1993 PACIFIC TELESIS GROUP
By:/s/ J. R. Moberg
---------------------------
J. R. Moberg
Executive Vice President -
Human Resources
Attest:
/s/ E. K. Roemer
- -----------------------
Assistant Secretary
Dated June 15, 1993 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Trustee
By:/s/ Lauren Upson
-----------------------------
Lauren Upson
Vice President
By:/s/ Frank J. Krisnowich
-----------------------------
FRANK J. KRISNOWICH
VICE PRESIDENT
Attest: /s/ illegible
------------------------
2
<PAGE>
Exhibit 10uu(iii)
-----------------
AMENDMENT TO
TRUST AGREEMENT NO. 1
FOR THE
PACIFIC TELESIS GROUP
EXECUTIVE DEFERRAL PLAN
Effective as of November 15, 1993
THIS AGREEMENT, effective as of November 15, 1993, between PACIFIC TELESIS
GROUP, a corporation organized under the laws of the State of Nevada
(hereinafter referred to as the "Company"), and BANKERS TRUST COMPANY
(hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, the Company has maintained a Trust under the terms of a trust
agreement dated as of June 27, 1988, between the Company and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, and as of September 1, 1993 between
the Company and Trustee, as successor trustee, to serve as a medium for the
investment and administration of certain assets of the Pacific Telesis Group
Executive Deferral Plan; and
WHEREAS, the Company and the Trustee mutually desire to amend the terms of the
Agreement to provide the Committee with the authority to designate an
affiliate of the Company which has become an Employer (as defined in the Trust
Agreement), as a "Former Employer" for purposes of permitting such affiliate
to withdraw from the Trust, and to direct the disposition of the percentage
interest of such affiliate from the Trust;
NOW, THEREFORE, the Company and the Trustee, intending to be bound, agree as
follows:
1. Section 1.8 of the Agreement is amended by adding the following
sentence at the end thereof:
"Former Employer" also means an Employer which is designated by
the Committee as a Former Employer for purposes of withdrawal by
such Employer from the Trust and disposition of the percentage
interest of such Employer from the Trust.
2. Except as hereby amended, the terms of the Agreement shall
continue in effect as expressed in the instrument dated as of the
27th day of June, 1988, as heretofore amended.
1
<PAGE>
IN WITNESS WHEREOF, PACIFIC TELESIS GROUP has caused this Agreement to be
signed by its Executive Vice President-Human Resources, thereunto duly
authorized, and its corporate seal to be affixed hereunto and the same to be
attested by its Assistant Secretary, all on the date of execution shown below,
but effective as of the date and year first above written; and BANKERS TRUST
COMPANY has caused this Agreement to be signed by two of its officers,
thereunto duly authorized, and its association seal to be affixed hereunto and
the same to be attested by one of its Officers, on the date of execution shown
below, but effective as of the date and year first above written.
Dated November 19, 1993 PACIFIC TELESIS GROUP
By: /s/ J. R. Moberg
-------------------------
J. R. Moberg
Executive Vice President -
Human Resources
Attest:
/s/ E. K. Roemer
- --------------------
Assistant Secretary
Dated November 23, 1993 BANKERS TRUST COMPANY,
as Trustee
By: /s/ Frank J. Eipper
-------------------------
Frank J. Eipper
Vice President
Attest:
/s/ illegible
- ---------------------------------
Vice President
2
<PAGE>
Exhibit 10vv(ii)
----------------
AMENDMENT TO
TRUST AGREEMENT NO. 2
FOR THE
PACIFIC TELESIS GROUP
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
Effective as of May 28, 1993
THIS AGREEMENT, effective as of May 28, 1993, between PACIFIC TELESIS GROUP, a
corporation organized under the laws of the State of Nevada (hereinafter
referred to as the "Company"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, the Company and the Trustee have maintained a Trust under the terms
of a trust agreement dated as of the 27th day of June, 1988, between the
Company and the Trustee, in connection with the Pacific Telesis Group Deferred
Compensation Plan for Non-Employee Directors; and
WHEREAS, the Company and the Trustee mutually desire to amend the terms of the
Agreement to permit the appointment of a successor trustee without the
institution of court proceedings; and
NOW, THEREFORE, the Company and the Trustee, intending to be bound, agree as
follows:
1. Section 6.2 is amended in its entirety to read as follows:
6.2 Appointment Of Successor Trustee: Resignation or removal of
the Trustee shall not terminate the Trust. In the event of
the removal of or resignation of the Trustee, a bank trust
department or other party that may be granted corporate
trustee powers under state law shall be appointed as a
successor Trustee. Such appointment shall be made by the
Company, except that such appointment shall be made by the
Trustee in the event the Company fails to make such
appointment within 90 days after the removal or resignation
of the Trustee or in the event the Trustee resigns or is
removed within 3 years after a Change of Control. The
Company shall provide prompt written notice of such
appointment to Plan participants and beneficiaries. The
appointment of a successor Trustee shall be effective when
accepted in writing by the new Trustee, who shall have all of
the rights and powers of the former Trustee, including
ownership rights in the Trust assets, except with respect to
such amount as shall be agreed upon between the Trustee and
the Committee as reasonable compensation and expenses in
connection with the settlement of accounts and the delivery
of the assets to the successor Trustee.
1
<PAGE>
2. Except as hereby amended, the terms of the Agreement shall
continue in effect as expressed in the instrument dated as of the
27th day of June, 1988, as heretofore amended.
IN WITNESS WHEREOF, PACIFIC TELESIS GROUP has caused this Agreement to be
signed by its Executive Vice President-Human Resources, thereunto duly
authorized, and its corporate seal to be affixed hereunto and the same to be
attested by its Assistant Secretary, all on the date of execution shown below,
but effective as of the date and year first above written; and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION has caused this Agreement to be signed
by two of its officers, thereunto duly authorized, and its association seal to
be affixed hereunto and the same to be attested by one of its Officers, on the
date of execution shown below, but effective as of the date and year first
above written.
Dated June 14, 1993 PACIFIC TELESIS GROUP
By:/s/ J. R. Moberg
-------------------
J. R. Moberg
Executive Vice President -
Human Resources
Attest:
/s/ Elizabeth K. Roemer
- ------------------------------
Assistant Secretary
Dated June 15, 1993 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Trustee
By:/s/ Lauren Upson
----------------------------
Lauren Upson
Vice President
By:/s/ Frank J. Krisnowich
----------------------------
Frank J. Krisnowich
Vice President
Attest:
/s/ illegible
--------------------------------
2
<PAGE>
Exhibit 10xx(i)
---------------
AMENDMENTS TO PACIFIC TELESIS GROUP
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
TREATMENT OF OUTSTANDING OPTIONS ON SEPARATION
RESOLVED that, in accordance with Section 11 of Appendix A of the Separation
Agreement between Pacific Telesis Group and PacTel Corporation, effective as
of the date of separation of PacTel Corporation and its wireless subsidiaries
from the corporation and its other subsidiaries, the following changes are
made to the Pacific Telesis Group Nonemployee Director Stock Option Plan the
"Plan"):
1. Outstanding stock options in the corporation's common stock
granted under the Plan and held by optionees who are nonemployee
directors of PacTel Corporation as of the date of separation will
be substituted with stock options in PacTel Corporation's common
stock, the number to be determined at separation.
2. Outstanding stock options in the corporation's common stock
granted under the Plan and held by optionees who are nonemployee
directors of the corporation as of the date of separation or who
are former nonemployee directors of the corporation who retired
before the date of separation will be replaced with a combination
of stock options in both the corporation's common stock and PacTel
Corporation's common stock in the same ratio to be applied to
outstanding shares of the corporation's common stock at
separation.
3. The exercise price for all such substituted or replaced stock
options will be adjusted so that there is no net change in the
"spread" between the aggregate exercise prices of such options and
the fair market value of the underlying common stock immediately
before the date of separation and the aggregate exercise prices of
such options and the fair market value of the underlying stock as
of the date of separation, determined based on an average of the
fair market value of the corporation's and PacTel Corporation's
common stock over a 10-business-day period preceding the date of
separation.
and be it
FURTHER RESOLVED that the officers of this corporation, and any one of
them, are authorized and directed, in the name and on behalf of this
corporation, to execute and deliver amendments to the agreements
relating to options granted under the Plan relating to the replacement
of such options referred to hereinabove;
1
<PAGE>
and be it
FURTHER RESOLVED that the officers of this corporation, and any one of
them, are authorized and directed, in the name and on behalf of this
corporation, to do any and all other acts and things, to make any and
all other determinations, and to execute any and all other documents
that they deem necessary or advisable to effectuate the purposes of
these resolutions.
Board of Directors
Pacific Telesis Group
February 25, 1994
2
<PAGE>
Exhibit 11
----------
PACIFIC TELESIS GROUP AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in millions, except per share amounts; shares in thousands)
For the Year Ended December 31
1993 1992 1991
------------------------------
Net income (loss) ........................ $(1,504) $1,142 $ 1,015
Tax benefit of dividends paid to employee
stock ownership plans * ................ - - 15
-------- -------- --------
Earnings (loss) for per share calculations $(1,504) $1,142 $ 1,030
======== ======== ========
Weighted average number of common
shares outstanding .................... 414,171 402,977 400,023
Common stock equivalent shares
applicable to stock options ........... 1,172 652 889
-------- -------- --------
Total number of shares for computing
primary earnings per share ............ 415,343 403,629 400,912
Incremental shares for computing fully
diluted earnings per share ............ 538 59 108
-------- -------- --------
Total number of shares for computing
fully diluted earnings per share ...... 415,881 403,688 401,020
======== ======== ========
Earnings (loss) per common share
(as reported).......................... $ (3.63) $ 2.83 $ 2.58
Primary earnings (loss) per share ........ $ (3.62) $ 2.83 $ 2.57
Fully diluted earnings (loss) per share .. $ (3.62) $ 2.83 $ 2.57
* The 1991 earnings per share calculations include the tax benefit of the
Corporation's employee stock ownership plans which is primarily derived
from the leveraged employee stock ownership trust formed by the Corpora-
tion in December 1989. The tax benefit is not applicable in 1993 and 1992
due to the Corporation's adoption, effective January 1, 1992, of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Earnings per share amounts for the three-years ended December 31, 1993, as
reported in the Consolidated Statements of Income, were based on the weighted
average number of common shares outstanding for the respective years. Primary
and fully diluted earnings per share amounts were not shown in the
Consolidated Statements of Income, as they differ from the reported earnings
per share amounts by less than three percent.
<PAGE>
Exhibit 12
PACIFIC TELESIS GROUP AND SUBSIDIARIES ----------
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions) 1993 1992* 1991* 1990* 1989*
------- ------- ------- ------- -------
1. Earnings
--------
Adjusted income from
continuing operations
before income taxes $201 $1,782 $1,514 $1,558 $1,930
Interest expense 509 506 588 644 543
Interest in operating
rental expense (a) 40 44 36 35 32
------- ------- ------- ------- -------
Total earnings -
continuing operations $750 $2,332 $2,138 $2,237 $2,505
------- ------- ------- ------- -------
2. Fixed Charges
-------------
Interest expense (b) $509 $ 510 $ 590 $ 649 $ 543
Interest in operating
rental expense (a) 40 44 36 35 32
------- ------- ------- ------- -------
Total fixed charges -
continuing operations $549 $ 554 $ 626 $ 684 $ 575
------- ------- ------- ------- -------
RATIO OF EARNINGS TO FIXED
CHARGES (1 divided by 2) 1.37** 4.21 3.42** 3.27** 4.36
======= ======= ======= ======= =======
(a) Computed as 1/3 of operating rental expense.
(b) Includes capitalized interest.
* Restated to reflect the planned spin-off of the Corporation's wireless
operations which are excluded from amounts for the "continuing
operations" of Pacific Telesis Group.
** Results for 1993, 1991, and 1990 reflect restructuring charges which
reduced income from continuing operations before income taxes by $1,431,
$203, and $109 million for each respective year.
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF PACIFIC TELESIS GROUP
Name State of Incorporation
---- ----------------------
Pacific Bell California
Pacific Bell Information Services California
Pacific Bell Directory California
Nevada Bell Nevada
Location Technologies, Inc. * California
Telesis Technologies Laboratory, Inc. California
PacTel Capital Funding California
PacTel Capital Resources California
AirTouch Communications * California
AirTouch Cellular * California
AirTouch Cellular of Nevada * Nevada
AirTouch International * California
AirTouch Paging * Nevada
CalFront Associates California
PacTel Re Insurance Company, Inc. Hawaii
Pacific Telesis - Washington California
* These subsidiaries will be separated from the Corporation effective
April 1, 1994 when the common stock of AirTouch Communications, which
holds the subsidiaries marked by asterisks, is distributed to the
Corporation's shareowners in a one-for-one stock distribution.
<PAGE>
SIGNATURE
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our reports dated March 3,
1994 on our audits of the consolidated financial statements and the financial
statement schedules of Pacific Telesis Group and Subsidiaries as of
December 31, 1993 and 1992 and for each of the three years in the period ended
December 31, 1993, which reports are included, or incorporated by reference,
in the Pacific Telesis Group Annual Report on Form 10-K, in the Corporation's
registration statements as follows:
Form S-3: PacTel Capital Resources $500,000,000 debt securities and
guarantee thereof by Pacific Telesis Group
Form S-3: Secondary Offering of 137,504 shares of Pacific Telesis Group
Common Stock
Form S-3: Shareowner Dividend Reinvestment and Stock Purchase Plan
Form S-4: ABI American Businessphones, Inc. Merger
Form S-8 Nonemployee Director Stock Option Plan
Form S-8: Supplemental Retirement and Savings Plan for Salaried Employees
Form S-8: Supplemental Retirement and Savings Plan for Nonsalaried
Employees
Form S-8: Stock Option and Stock Appreciation Rights Plan
Form S-8: PacTel Corporation Retirement Plan
/s/ COOPERS & LYBRAND
San Francisco, California
March 29, 1994
<PAGE>
SIGNATURE
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, PACIFIC TELESIS GROUP, a Nevada corporation (the "Corporation"),
proposes to file with the Securities and Exchange Commission (the "SEC"),
under the provisions of the Securities Act of 1934, as amended, an Annual
Report on Form 10-K; and
WHEREAS, each of the undersigned is a director of the Corporation;
NOW, THEREFORE, each of the undersigned, hereby constitutes and appoints
S. Ginn, C. L. Cox, P. J. Quigley, L. L. Christensen, and R. W. Odgers, and
each of them, his/her attorney for him/her in his stead, in his/her capacity
as a director of the Corporation, to execute and file such Annual Report on
Form 10-K, and any and all amendments, modifications or supplements thereto,
and any exhibits thereto, and granting to each of said attorneys full power
and authority to sign and file any and all other documents and to perform and
do all and every act and thing whatsoever requisite and necessary to be done
as fully, to all intents and purposes, as he/she might or could do if
personally present at the doing thereof, and hereby ratifying and confirming
all that said attorneys may or shall lawfully do, or cause to be done, by
virtue hereof in connection with affecting the filing of the Annual Report on
Form 10-K.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his/her hand this
25nd day of March, 1994.
/s/ William Clark /s/ Frank C. Herringer
Director Director
/s/ Herman E. Gallegos /s/ Ivan J. Houston
Director Director
/s/ Donald E. Guinn /s/ Mary S. Metz
Director Director
/s/ James R. Harvey /s/ Lewis E. Platt
Director Director
/s/ Paul Hazen /s/ Toni Rembe
Director Director
/s/ S. Donley Ritchey
Director
<PAGE>
SIGNATURE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, PACIFIC TELESIS GROUP, a Nevada corporation (the "Corporation"),
proposes to file with the Securities and Exchange Commission (the "SEC"),
under the provisions of the Securities Act of 1934, as amended, an Annual
Report on Form 10-K; and
WHEREAS, each of the undersigned is an officer or director, or both, of the
Corporation, as indicated below under his name;
NOW, THEREFORE, each of the undersigned, hereby constitutes and appoints
S. Ginn, C. L. Cox, P. J. Quigley, L. L. Christensen and R. W. Odgers, and
each of them, his attorney for him in his stead, in his capacity as an officer
or director, or both, of the Corporation, to execute and file such Annual
Report on Form 10-K, and any and all amendments, modifications, or supplements
thereto, and any exhibits thereto, and granting to each of said attorneys full
power and authority to sign and file any and all other documents and to
perform and do all and every act and thing whatsoever requisite and necessary
to be done as fully, to all intents and purposes, as he might or could do if
personally present at the doing thereof, and hereby ratifying and confirming
all that said attorneys may or shall lawfully do, or cause to be done, by
virtue hereof in connection with effecting the filing of the Annual Report on
Form 10-K.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this
25th day of March, 1994.
/s/ Sam Ginn /s/ Philip J. Quigley
- ----------------------------------- -----------------------------------
Sam Ginn Philip J. Quigley
Chairman of the Board, Group President and Director
President and Chief
Executive Officer
/s/ L. L. Christensen /s/ C. Lee Cox
- ----------------------------------- ---------------------------------
L. L. Christensen C. Lee Cox
Executive Vice President, Group President and Director
Chief Financial Officer
(Chief Accounting Officer)
<TABLE>
<PAGE>
RESTATEMENT
DATA STATED IN MILLIONS, EXCEPT PER SHARE AMOUNTS
VOLUNTARY SCHEDULE - CERTAIN FINANCIAL INFORMATION
<CAPTION>
- ---------Column A-------- ----------------Column B---------------- --Column C--- --Column D--- --Column E---
Regulation Number Statement Caption 1993 1992 1991*
- ------------------------- ---------------------------------------- ------------- ------------- -------------
<S> <S> <C> <C> <C>
5-02(1) Cash and cash equivalents $ 69 $ 74 $ 70
5-02(3)(a)(1) Accounts receivable - trade 1,686 1,606 1,637
5-02(4) Allowances for uncollectibles 138 130 99
5-02(9) Total current assets 2,646 3,221 2,801
5-02(18) Total assets 23,437 21,849 21,226
5-02(21) Total current liabilities 3,408 3,594 3,339
5-02(22) Long-term obligations 5,129 5,207 5,395
5-02(26) Total deferred credits 7,114 4,797 4,763
5-02(30) Common stock 43 43 43
5-02(31)(a)(1) Additional paid-in capital 6,372 5,220 5,217
5-02(31)(a)(2) Other additional capital (669) (1,471) (1,728)
5-02(31)(a)(3)(ii) Reinvested earnings 2,040 4,459 4,197
5-03(b)(1)(b) Total operating revenues 9,244 9,108 9,168
5-03(b)(2)(b) Total operating expenses 8,582 7,025 7,217
5-03(b)(8) Interest expense 509 506 588
5-03(b)(10) Income before income taxes 201 1,779 1,507
5-03(b)(11) Income taxes 10 606 576
5-03(b)(14) Income from continuing operations 191 1,173 931
5-03(b)(15) Income (loss) from spin-off operations 29 (31) 84
5-03(b)(18) Cumulative effect of accounting changes (1,724) - -
5-03(b)(19) Net income(loss) (1,504) 1,142 1,015
5-03(b)(20) Earnings per share (3.63) 2.83 2.58
* Restated balance sheet information for 1991 is unaudited.
</TABLE>
