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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, 1994
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, 1995, the aggregate
market value of all voting stock held by nonaffiliates was $12,719,083,260.
At February 28, 1995, 424,065,165 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Pacific Telesis Group's 1995 Proxy Statement, including Pacific
Telesis Group's 1994 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 ................................................... 17
3. Legal Proceedings ............................................ 17
4. Submission of Matters to a Vote of Security Holders .......... 17
PART II
Description
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5. Market for Registrant's Common Equity and Related Stockholder
Matters ...................................................... 18
6. Selected Financial Data ...................................... 18
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 19
8. Financial Statements and Supplementary Data .................. 19
9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure..................................... 19
PART III
Description
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10. Directors and Executive Officers of Registrant ............... 20
11. Executive Compensation ....................................... 20
12. Security Ownership of Certain Beneficial Owners
and Management................................................ 20
13. Certain Relationships and Related Transactions ............... 20
PART IV
Description
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14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K .................................................. 21
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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 AT&T Corp. ("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 interpretation and enforcement of the
Consent Decree.
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 THEIR SUBSIDIARIES
Pacific Bell and its wholly-owned subsidiaries, Pacific Bell Directory,
Pacific Bell Information Services and Pacific Bell Mobile Services, and
Nevada Bell provide a variety of communications and information services in
California and Nevada. These services include: (1) dialtone 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 within a service area, 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; (7) directory publishing; and (8) selected
information services, such as voice mail and electronic mail. Pacific Bell
Mobile Services was formed in 1994 to offer personal communications and other
mobile telecommunications services.
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Pacific Bell Directory ("Directory") is the publisher of the Pacific Bell
SMART Yellow Pages(R). It is the oldest and largest publisher of Yellow Pages
in California, and is among the largest Yellow Pages publishers in the United
States. Directory has recently introduced four-color, knock-out and menu ads;
and has added two new features - California Tourist Guide and CD Sampler - to
its "Local Talk(SM)" section which contains interactive guides on a range of
topics accessible via telephone. As part of its ongoing small business
advocacy efforts, Directory produces an award-winning publication in
partnership with the U.S. Small Business Administration. "Small Business
Success", now in its eighth year, addresses topics of importance to
entrepreneurs.
Pacific Bell Information Services ("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 databases to answer routine customer questions.
Pacific Bell Mobile Services ("PBMS") was formed in July 1994 to pursue
opportunities in personal communications services ("PCS"), a new generation of
wireless services geared to the business and consumer markets. In March 1995,
Pacific Telesis Mobile Services ("PTMS"), a wholly-owned subsidiary of the
Corporation, was the high bidder for two licenses to offer PCS services in
California and Nevada at the close of Federal Communications Commission
("FCC") auctions. It is intended that PBMS and PTMS will work together to
construct, manage and market services for the licensed wireless network.
OTHER SUBSIDIARIES AND TELESIS FOUNDATION
Pacific Telesis Enterprises was formed to be the holding company for certain
other subsidiaries and work groups that are pursuing entry into competitive
and/or emerging markets such as wireless, traditional and interactive video,
electronic publishing and international ventures.
Pacific Telesis Enhanced Services was formed to provide support functions to
certain other subsidiaries thereby allowing these subsidiaries to focus on
service and customer development. These support functions include strategic
planning, finance, human resources, external affairs and legal services.
Pacific Telesis Electronic Publishing Services, Inc. ("PTEPS") was formed to
develop and offer electronic publishing services.
Pacific Telesis Video Services ("PTVS") was formed to provide interactive
video services.
Pacific Telesis Wireless Broadband Services ("PTWBS") has filed applications
with the FCC which propose to provide wireless access to certain schools in
California. PTWBS, in conjunction with Telesis Technologies Laboratory Inc.
("TTL"), another wholly-owned subsidiary of the Corporation, is currently
conducting a technology test of wireless video-distribution under an FCC
experimental license in Riverside County, California. The Corporation
anticipates the trials to be completed by mid-1995.
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PacTel Finance, formerly a subsidiary of the former PacTel Corporation (now
AirTouch Communications, Inc. ("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. ("TC Cable") 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. PacTel Capital Funding ("PTCF") has
guaranteed bank financing used by TC Cable and its parent corporation to
acquire this interest.
CalFront Associates held a portfolio of real estate assets, substantially all
of which were sold by the Corporation in December 1994. (See the 1995 Proxy
Statement under the heading "Status of Reserves" on pages F-21 through F-23
and in Note C to the 1994 Consolidated Financial Statements on page F-48 for a
discussion of the related restructuring reserve which is incorporated herein
by reference.)
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 and other
forms of financial support for its other affiliates.
PTCF was formed to facilitate funding for the former PacTel Corporation and
its subsidiaries and third parties engaged in business with those companies,
primarily through guaranteeing debt financing. In the future, PTCF may 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. As of December 31, 1994,
Telesis Foundation had total assets with an estimated market value of
$46 million.
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SPIN-OFF OF THE CORPORATION'S WIRELESS OPERATIONS
Effective April 1, 1994, the Corporation spun off to shareowners its domestic
and international cellular, paging and other wireless operations in a one-for-
one stock distribution of its 86 percent interest in AirTouch. The stock
distribution was recorded as a stock dividend from paid-in capital at the
carrying amount of the net assets of spun-off operations. As a result, the
Corporation's total assets and shareowners' equity were each reduced by
$2.9 billion in 1994. With the spin-off, the Corporation's responsibilities
terminate in connection with any future obligations under AirTouch's joint
venture agreement with Cellular Communications, Inc. and under various
financial instrument contracts.
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.
The RHCs or their BOCs continually assess their relationship with Bellcore and
how Bellcore can best serve them in the industry.
In addition, the Corporation conducts research and development through
Pacific Bell and through TTL. The Corporation, excluding spun-off operations,
spent approximately $52 million, $30 million and $30 million in 1994, 1993 and
1992, respectively, on research and development activities.
FINANCING ACTIVITIES OF THE CORPORATION
As of December 31, 1994, Pacific Bell had remaining authority from the
California Public Utilities Commission ("CPUC") to issue up to $1.25 billion
of long- and intermediate-term debt. The proceeds may be used only to redeem
maturing debt and to refinance other debt issues. As of December 31, 1994,
Pacific Bell had the ability to issue up to $650 million of long- and
intermediate-term debt through a shelf registration filed with the Securities
and Exchange Commission ("SEC") in April 1993. In addition, PTCR may issue up
to $192 million of medium-term notes pursuant to a shelf registration on file
with the SEC.
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, 1994. The holding company itself has no publicly held debt
issues outstanding.
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The following are bond and commercial paper ratings for the Corporation and
its subsidiaries:
| Long- and
|Intermediate-Term
Commercial Paper | Debt
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Pacific |
Telesis Pacific | Pacific
Group PTCR Bell | PTCR Bell
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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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The above ratings reflect the views of the rating agencies and are subject to
change. The ratings should be evaluated independently and are not
recommendations to buy, sell or hold the securities of the Corporation.
See the 1995 Proxy Statement under the heading "Liquidity and Financial
Condition" on pages F-24 through F-27 and in Notes H and I to the 1994
Consolidated Financial Statements on pages F-59 through F-61 for additional
discussion of the Corporation's financing activities which in incorporated
herein by reference.
PRINCIPAL SERVICES
The operations of AirTouch have been classified separately within the
Corporation's financial statements as "spun-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 1994, 1993 and 1992.
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 1995 Proxy
Statement by reference in "Item 8. Financial Statements and Supplementary
Data" below.
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Significant components of the Corporation's operating revenues are depicted in
the chart below:
% of Total Operating Revenues*
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Revenues by Major Category 1994 1993 1992
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Local Service
Recurring .............................. 22% 22% 21%
Other Local ............................ 15% 16% 16%
Network Access
Carrier Access Charges ................. 18% 18% 18%
End User & Other ....................... 7% 7% 7%
Toll Service**
Message Toll Service ................... 21% 20% 19%
Other .................................. 1% 2% 4%
Other Service Revenues
Directory Advertising .................. 11% 11% 11%
Other .................................. 5% 4% 4%
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TOTAL ...................................... 100% 100% 100%
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The percentages of the Corporation's operating revenues attributable to
interstate and intrastate telephone operations are displayed below:
% of Total Operating Revenues*
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1994 1993 1992
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Interstate telephone operations ............ 17% 18% 18%
Intrastate telephone operations ............ 83% 82% 82%
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TOTAL ...................................... 100% 100% 100%
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* Excludes revenues of spun-off operations.
** Percentages for 1994 and 1993 are not comparable to percentages for 1992
due to reclassifications in the presentation.
MAJOR CUSTOMER
Payments from AT&T for access charges and other services accounted for
approximately 11 percent of the Corporation's operating revenues during 1994.
No other customer accounted for more than 10 percent of the Corporation's
operating revenues in 1994.
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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 Consent Decree provides that the RHCs shall not engage in certain lines of
business. 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.
Under the Consent Decree, 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. In March 1995, the Court granted a Waiver that allows
the RHCs to provide telecommunications equipment to unaffiliated parties. In
March 1995, the Court also granted a Waiver to allow the Corporation to own
and operate certain facilities to receive video programming and to provide
limited interexchange video services.
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 gateway services and electronic
publishing services. In November 1993, the U.S. Supreme Court declined to
review the Appeals Court decision.
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* The terms of the Consent Decree, with certain exceptions, apply generally
to all the BOCs and their affiliates.
** "Exchange telecommunications" includes toll services within a service area
as well as local service.
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In January 1995, the Corporation asked the U.S. Department of Justice to
support a Waiver of the provisions of the Consent Decree which prohibit the
Corporation from providing long-distance services. Long-distance calls are
calls between service areas. The Waiver requests permission for the
Corporation to provide long-distance service for calls originating in
California that terminate either in or outside of California and 800 services
for calls originating in or outside of California that terminate in
California. This filing is consistent with the CPUC and California
Legislature's goal of having full competition for telecommunications services
in California. The final decision to grant a Waiver must be made by the
Court. The waiver process could take two or more years. See the 1995 Proxy
Statement under the heading "Telecommunications Legislation" on page F-10 for
additional information on the regulation of the provision of long-distance
services which is incorporated herein by reference.
STATE REGULATION
As a provider of telecommunications services in California, Pacific Bell is
subject to regulation by the CPUC with respect to intrastate prices and
services, intrastate depreciation rates, 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 ("NRF"), which is a form of "price
cap" regulation, for Pacific Bell in October 1989. In June 1994, the CPUC
issued a decision in its scheduled review of the NRF. The decision increased
the productivity factor and reduced Pacific Bell's benchmark rate of return
from 13.0 percent to 11.5 percent. Earnings between 11.5 percent and
15.0 percent will be shared equally between Pacific Bell and its customers.
Earnings above 15.0 percent will be shared 70.0 percent and 30.0 percent
between Pacific Bell and its customers, respectively.
Under "price cap" 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 Domestic Product Price Index ("GDP-PI") less the productivity factor.
The CPUC increased the productivity factor from 4.5 percent to 5.0 percent
effective July 1994. The annual price adjustments also reflect the effects
on Pacific Bell's costs of exogenous events beyond its control. In December
1994, the CPUC ordered a $232 million revenue reduction* for 1995 as a result
of Pacific Bell's annual price cap filing. The ordered reduction includes a
decrease of $161 million because the 5.0 percent productivity factor of the
price cap formula exceeded the growth in the GDP-PI by 2.4 percent. The order
also included several other items that will decrease revenues by an additional
$71 million.
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* Unless otherwise indicated, revenue changes from the CPUC price cap order
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 Nevada, the PSCN authorized an Alternative Plan for 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 1994 based upon 1993
results of operations resulted in no sharing due to an ROE under 13 percent.
See the 1995 Proxy Statement under the headings "Toll Services Competition,"
"Local Services Competition" and "Intrastate Access Services Competition" on
pages F-6 through F-9 and "CPUC Regulatory Framework Review" and "PSCN
Regulatory Framework Review" on pages F-10 through F-11 for additional
information on the regulation of the Telephone Companies by the CPUC and PSCN
which is incorporated herein by reference.
See the 1995 Proxy Statement under the headings "Postretirement Benefits Other
Than Pensions" and "Information Services Subsidiary" on page F-28, "Change in
Accounting for Postretirement and Postemployment Costs" in Note A to the 1994
Consolidated Financial Statements on page F-46 and "Revenues Subject to
Refund" in Note L to the 1994 Consolidated Financial Statements on page F-65
for a discussion of other CPUC proceedings, including regulatory and
ratemaking treatment for postretirement benefits in connection with the
adoption of Statement of Financial Accounting Standards No. 106 and the
reduction of Pacific Bell's revenue due to its transfer of assets to PBIS
which is incorporated herein by reference.
FEDERAL REGULATION
The Telephone Companies are subject to the jurisdiction of the FCC with
respect to interstate access charges and other matters. The FCC prescribes a
Uniform System of Accounts and 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 Gross National Product Price Index, 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.
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The FCC's price cap plan allows the Telephone Companies to choose between two
productivity offset factors of 3.3 percent 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 fourth annual access
filing, Pacific Bell again chose the productivity factor of 3.3 percent, which
the FCC approved in June 1994. 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 sets the sharing threshold at 13.25 percent. If earnings
for 1994 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 prices became effective
July 1, 1994. As a result, the Telephone Companies' interstate network access
revenues will be reduced about $30 million annually beginning July 1, 1994.
Pacific Bell's decrease reflects the application of the price cap formula,
increased support payments to the National Exchange Carrier Association and an
$8 million price reduction to help it remain competitive with other access
providers.
In 1994, the FCC began a comprehensive review of the Local Exchange Carrier
price cap framework. See the 1995 Proxy Statement under the headings
"Interstate Access Services Competition" on page F-8 and "FCC Regulatory
Framework Review" on page F-11 for additional information on the regulation of
the Telephone Companies by the FCC which is incorporated herein by reference.
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.
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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. Telecommunications policy reform has been, and will continue to
be, the subject of much debate in Congress, the California Legislature, the
courts, the FCC, the CPUC and the PSCN. The Corporation supports public
policy reforms that promote fair competition and ensure the responsibility for
universal service is shared by all who seek to provide telecommunications
services. The Corporation continues to believe it should be allowed the
opportunity to compete in other markets, such as long-distance, cable
television programming and manufacturing. Competition could bring great
benefits to customers by giving them the opportunity to choose among service
providers, for everything from dialtone to long-distance.
Investing in the Core Networks
In order to offer the products and services customers want, now and in the
future, the Telephone Companies continue to invest heavily in improvements to
their core telephone networks. The Telephone Companies spent a total of
$1.7 billion on the networks during 1994. See the 1995 Proxy Statement under
the heading "Investing in the Core Networks" on pages F-2 through F-3 for
additional information on the Telephone Companies' core networks which is
incorporated herein by reference.
Video Services
In October 1994, the Corporation, Bell Atlantic Corporation and NYNEX
Corporation formed two new ventures to deliver the next generation of
nationally branded home entertainment, information and interactive services.
A media venture was formed to develop a portfolio of branded programming and
services. A technology venture was formed to provide the systems needed to
drive the delivery of this programming over the telephone companies' proposed
new video dialtone networks. The media venture formed a strategic
relationship with Creative Artists Agency, Inc., which will provide various
advisory and consulting services. Upon FCC approval, the media venture
anticipates delivering video services to customers through the partners'
retail affiliates over the video dialtone networks in 1996.
As an enhancement to the broadband network the Corporation is exploring
wireless cable and video-distribution technologies. (See description of PTWBS
above.)
PTVS is working with Hewlett-Packard Company to build an interactive video
system that will offer consumers movies and other programs "on demand" in
early 1995. Hewlett-Packard will provide 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.
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See the 1995 Proxy Statement under the headings "Investing in the Core
Networks" on pages F-2 through F-3 and "Court Decision on Video Programming"
and "Telecommunications Legislation" on pages F-9 through F-10 for additional
information on the regulation of the provision of video services which is
incorporated herein by reference.
Electronic Publishing Services
To develop new markets in home shopping and information services, PTEPS and
the Los Angeles Times, a division of Times Mirror Corporation, formed an
equally-owned partnership. Services are expected to be provided in late 1995
to customers in the Los Angeles area. The partners plan to combine business
information, classified and display advertisements, editorial and promotional
material and other information into a single database. Initially, shopping
assistants will provide facts about products and services and recommendations
about accessing the wide array of information. In 1996, customers are
expected to be able to obtain services by accessing the database directly via
computer.
See the 1995 Proxy Statement under the heading "Structural Separations
Requirements" on page F-28 for information on the regulation of the offering
of telephone enhanced services which is incorporated herein by reference.
Personal Communications Services
In June 1994, 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 for PCS: 51 large areas
referred to as Major Trading Areas ("MTAs") and 493 smaller areas. The MTA
licenses are for 30 megahertz of spectrum. In any given area, there will be
as many as six licenses, including two MTA licenses.
PCS will be a digital wireless service offering mobility for both voice and
data communications. The Corporation's PCS network will be designed to
connect seamlessly to the wired network to provide an integrated system. PCS
technology should allow customers to be reachable, wherever they are, with a
single telephone number. In December 1994, PBMS contracted with a wireless
system design company to perform all the radio frequency design work for the
Corporation's PCS network.
In March 1995, PTMS was high bidder for two licenses to offer PCS services in
California and Nevada at the close of FCC auctions, with bids totalling $696
million. The Corporation must still apply to the FCC for authority to offer
PCS and will be required to meet certain network completion schedules.
Management anticipates introducing PCS services in early 1997. Including the
costs of the PCS licenses and building the PCS network, total capital
expenditures for the Corporation in 1995 are expected to be approximately $2.8
billion. The Corporation intends to use a combination of internally generated
funds and external financing to initially fund PCS licenses and the PCS
network.
14
<PAGE>
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 an
effect on the Telephone Companies' earnings. An increasing amount of this
competition is from large companies with substantial capital, technological
and marketing resources. Currently, competitors primarily consist of
interexchange carriers, competitive access providers and wireless companies.
Soon the Telephone Companies will also face competition from cable television
companies and others. Management supports the simultaneous entry of all
telecommunications competitors into each others' markets.
Telephone Services Competition
See the 1995 Proxy Statement under the heading "Competition" on pages F-6
through F-9 for information on current developments in toll services, local
services, interstate access services and intrastate access services
competition which is incorporated herein by reference.
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 other printed directories, 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.
PCS
The Corporation will face competition in the provision of PCS services from
the holders of the other licenses in such areas. In addition, the Corporation
must compete with established providers of cellular service. Although the
Corporation anticipates significant competition in PCS, management believes
that its reputation for superior services will be a competitive advantage.
EMPLOYEES
As of December 31, 1994, the Corporation and its subsidiaries employed
51,590 persons. About 70 percent of the employees of the Corporation are
represented by unions. In September 1992, the unions which represent these
employees ratified labor contracts for a three-year term. The agreements
provided 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 included incentives for early retirement, enhanced employment
security, improvements in work and family life benefits and increases in
health and dental care coverage. These contracts will expire in August 1995
and will be renegotiated.
As a result of its efforts to restructure and reengineer its processes,
Pacific Bell reduced net force by about 3,800 employees during 1994.
15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The list below gives the names of executive officers as of February 28, 1995,
their present titles and the dates they were elected to these positions.
Name Age Title Since
P. J. Quigley*.......... 52 Chairman of the Board, President and
Chief Executive Officer .......... 4/94
D. W. Dorman* .......... 41 President and Chief Executive Officer
- Pacific Bell..................... 7/94
W. E. Downing*......... 55 Executive Vice President, Chief
Financial Officer and Treasurer... 4/94
M. J. Fitzpatrick*...... 46 President and Chief Executive Officer
- Pacific Telesis Enterprises..... 7/94
J. R. Moberg* ......... 59 Executive Vice President, Human
Resources ........................ 9/87
R. W. Odgers* ......... 58 Executive Vice President, General
Counsel, External Affairs
and Secretary..................... 3/88
R. L. Barada .......... 50 Vice President - Corporate Strategy
and Development.................... 1/95
Messrs. Quigley, Downing, Moberg, Odgers and Barada have held responsible
managerial positions with the Corporation or one of its subsidiaries for at
least the past five years.
Mr. Dorman joined the Corporation as Group President and Pacific Bell as
President and Chief Executive Officer in July 1994. Prior to joining the
Corporation, Mr. Dorman was employed at Sprint Corporation since 1981.
Beginning in 1984, he held a series of leadership positions at Sprint
Corporation, culminating as President, Business Services from 1993 to 1994.
Mr. Fitzpatrick joined Pacific Bell as Executive Vice President in August
1993. In July 1994, Mr. Fitzpatrick became an Executive Vice President of the
Corporation. Prior to joining Pacific Bell, Mr. Fitzpatrick was at Network
Systems Corporation, a computer networking firm, where he became President in
October 1991 and Chief Executive Officer in April 1992.
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. Messrs. Dorman and
Fitzpatrick are Group President and Executive Vice President,
respectively, of the Corporation.
16
<PAGE>
Item 2. Properties.
As of December 31, 1994, the properties of the Telephone Companies represented
substantially all plant, property and equipment of the Corporation.
The properties of the Telephone Companies do not lend themselves to
description by character and location of principal units. At
December 31, 1994, the percentage distribution of total telephone plant by
major category for the Telephone Companies were as follows:
Pacific Nevada
Telephone Property, Plant and Equipment Bell Bell
----------------------------------------------------------------------------
Land and buildings (occupied principally
by central offices) ............................ 10% 8%
Cable and conduit ................................... 40% 54%
Central office equipment ............................ 36% 32%
Other ............................................... 14% 6%
------- -------
Total ............................................... 100% 100%
============================================================================
At December 31, 1994, the percent utilization of central office equipment
capacity for Pacific Bell and Nevada Bell was approximately 92 percent and
94 percent, respectively.
Substantially all of the installations of central office equipment and
administrative offices are in buildings and on land owned by the Corporation.
Many garages, business offices and telephone service centers are in rented
quarters.
As of December 31, 1994, about 26 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 70 percent of Nevada Bell's
network access lines were in Reno and vicinity. The Telephone Companies
provided approximately 77 percent and 29 percent of the total access lines in
California and Nevada, respectively, on December 31, 1994. The Telephone
Companies do not furnish local service in certain sizeable areas of California
and Nevada which are served by nonaffiliated telephone companies.
Item 3. Legal Proceedings.
Not Applicable.
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.
17
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
DESCRIPTION OF COMMON STOCK, DIVIDEND AND MARKET INFORMATION
All shares of common stock, par value $0.10 per share ("Common Stock"), 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, 1995, there were 759,310 holders of record of the
Corporation's Common Stock. At February 28, 1995, the high and low sales
price for the Corporation's Common Stock based on New York Stock Exchange
Composite Transactions was $30.00 and $29.50, respectively.
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 1994 and 1993 and
the quarterly high and low sales prices of the Common Stock during 1994 and
1993 are included in the 1995 Proxy Statement under the heading "Stock Trading
Activity and Dividends Paid" on page F-71, which is 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.
Item 6. Selected Financial Data.
The information required by this Item is included in the 1995 Proxy Statement
under the heading "Selected Financial and Operating Data" on pages F-30
through F-31, which is incorporated herein by reference pursuant to General
Instruction G(2).
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information required by this Item is included in the 1995 Proxy Statement
under the heading "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages F-1 through F-29, which is
incorporated herein by reference pursuant to General Instruction G(2).
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-34 of the 1995 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 schedule listed in Item 14
on page 21 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 23, 1995
All other information required by this Item is included in the 1995 Proxy
Statement on pages F-32 and F-33 (entire text under the heading "Report of
Management"), and on pages F-35 through F-70 (all text and data through Note N
on such pages, comprising the Corporation's consolidated financial
statements), which is incorporated herein by reference pursuant to General
Instruction G(2).
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
No disagreements with the Corporation's independent accountants on any
accounting or financial disclosure occurred during the period covered by this
report.
19
<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,
which is incorporated herein by reference. For information with respect to
the directors of the Corporation, see "Election of Directors" on pages 3
through 6 of the 1995 Proxy Statement, which is incorporated herein by
reference pursuant to General Instruction G(3).
Item 11. Executive Compensation.
For information with respect to executive compensation, see "Report of the
Compensation and Personnel Committee," "Compensation and Personnel Committee
Interlocks and Insider Participating," "Executive Compensation," "Pension
Plans" and "Employment Contracts and Termination of Employment or Change in
Control Arrangements" on pages 10 through 23 of the 1995 Proxy Statement,
which is incorporated herein by reference pursuant to General Instruction
G(3). For information with respect to director compensation, see "Director
Compensation and Related Transactions" on pages 7 through 9 of the 1995 Proxy
Statement, which is incorporated herein by reference pursuant to General
Instruction G(3).
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 "Stock Ownership" on page 9 of the 1995 Proxy
Statement, which is incorporated herein by reference pursuant to General
Instruction G(3).
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 7
through 9 and "Compensation and Personnel Committee Interlocks and Insider
Participation" on page 13 of the 1995 Proxy Statement, which is incorporated
herein by reference pursuant to General Instruction G(3).
20
<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 Schedule:
II - Valuation and Qualifying Accounts ............ 29
Financial statement schedules other than 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 1995
Proxy Statement (File No. 1-8609). (See Part II.)
21
<PAGE>
(3) Exhibits:
Exhibits identified in parentheses below as 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. All management contracts or compensatory plans
or arrangements required to be filed as exhibits to this Form 10-K
pursuant to Item 14(c) are filed as Exhibits 10aa through 10yy.
Exhibit
Number Description
------- -----------
3a Articles of Incorporation of Pacific Telesis Group, as
amended to June 17, 1988 (Exhibit 3a 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).
4a 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).
4b 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.
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 (Exhibit 10e to Form
10-K for 1993).
10e(i) Amendment No. 3 to Separation Agreement effective
as of April 1, 1994.
10aa Pacific Telesis Group Senior Management Short Term
Incentive Plan (Attachment A to Pacific Telesis Group's
1995 Proxy Statement, including Pacific Telesis Group's
1994 Consolidated Financial Statements filed
March 13, 1995).
22
<PAGE>
10bb Pacific Telesis Group Senior Management Long Term Incentive
Plan (Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, including Pacific Telesis Group's 1994
Consolidated Financial Statements filed March 13, 1995).
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 (Exhibit 10cc(i) to Form 10-K for 1993).
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).
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 (Exhibit 10gg(ii) to Form 10-K for 1993).
10hh Description of Pacific Telesis Group Directors' and
Officers' Liability Insurance Program (Exhibit 10hh to
Form 10-K for 1993).
23
<PAGE>
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).
10jj(i) Resolutions amending the Plan, effective
January 1, 1995 (Attachment A to Pacific Telesis
Group's 1995 Proxy Statement including Pacific
Telesis Group 1994 Consolidated Financial
Statements filed March 13, 1995).
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 date
April 1, 1994 (Exhibit 10kk(iii) to Form 10-K for
1993).
10kk(iv) Trust Agreement No. 3 between Pacific Telesis
Group and Bankers Trust Company in connection
with the Corporation's executive supplemental
pension benefits (Exhibit 10kk(iv) to Form 10-K
for 1993).
10ll Pacific Telesis Group Executive Deferral Plan.
10mm Description of Pacific Telesis Group Personal Umbrella
Liability Insurance.
24
<PAGE>
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 Form 10-K for
1993).
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
Form 10-K for 1993).
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 (Exhibit 10pp(ii) to
Form 10-K for 1993).
10pp(ii) Employment contracts for certain senior officers
of Pacific Telesis Group (Exhibit 10pp(ii) to
Form 10-K for 1993).
10pp(iii) Employment contract for senior officer of Pacific
Telesis Group (Exhibit 10pp(iii) to Form 10-Q for
the quarter ended September 30, 1994).
10pp(iv) Employment contract for certain senior officers
of Pacific Telesis Group.
10rr Executive supplemental benefit agreement (Exhibit 10rr to
Form 10-K for 1993).
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).
25
<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 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 (Exhibit 10uu(ii) to Form 10-K for
1993).
10uu(iii) Amendment to Trust Agreement No. 1, effective
November 15, 1993 (Exhibit 10uu(iii) to Form 10-K
for 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, 1993 (Exhibit 10vv(ii) to Form 10-K for
1993).
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).
26
<PAGE>
10yy(ii) Resolutions amending the Plan, effective April 1,
1994 (Filed as Exhibit 10kk(iii) to Form 10-K for
1993).
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
Form 10-K for 1993).
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Pacific Telesis Group.
23 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney executed by Directors and Officers who
signed this Form 10-K.
27 Financial Data Schedule.
99a Pacific Telesis Group's 1995 Proxy Statement, including
Pacific Telesis Group's 1994 Consolidated Financial
Statements (Filed March 13, 1995).
99b Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Salaried
Employees for the year 1994 (To be filed as an amendment
within 180 days).
99c Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Nonsalaried
Employees for the year 1994 (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:
No reports on Form 8-K have been filed during the last quarter of
period covered by this report.
27
<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/ William E. Downing
-------------------------
William E. Downing, Executive Vice President, Chief Financial Officer and
Treasurer (Principal Accounting Officer)
DATE: March 24, 1995
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.
Philip J. Quigley* Chairman of the Board, President and Chief Executive
Officer
William E. Downing, Executive Vice President, Chief Financial Officer and
Treasurer
William P. Clark,* Director Mary S. Metz,* Director
Herman E. Gallegos,* Director Lewis E. Platt,* Director
Donald E. Guinn, Director Toni Rembe,* Director
Frank C. Herringer,* Director S. Donley Ritchey,* Director
Ivan J. Houston,* Director Richard M. Rosenberg,* Director
*BY /s/ William E. Downing
------------------------------------
William E. Downing, attorney-in-fact
DATE: March 24, 1995
28
<PAGE>
Sheet 1 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE II - 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 1994 $138 $151 $143 $298 $134
Year 1993 $130 $163 $140 $295 $138
Year 1992* $ 98 $160 $165 $293 $130
===========================================================================
Reserve for Discontinuing 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 1994 $338 $ 0 $0 $287 $ 51
Year 1993 $ 33 $347 $0 $ 42 $338
Year 1992 $ 75 $ 0 $0 $ 42 $ 33
===========================================================================
See accompanying notes on Sheet 3 of 3.
29
<PAGE>
Sheet 2 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE II - 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 Deductions End of
Period (e) (f) (g) Period
---------------------------------------------------------------------------
Year 1994 $1,097 $ 0 $ 0 $278 $ 819
Year 1993 $ 101 $977 $43 $ 24 $1,097
Year 1992 $ 165 $ 0 $ 0 $ 64 $ 101
===========================================================================
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 1994 $90 $ 0 $0 $22 $68
Year 1993 $27 $107 $0 $44 $90
Year 1992 $ 9 $ 18 $0 $ 0 $27
===========================================================================
See accompanying notes on Sheet 3 of 3.
30
<PAGE>
Sheet 3 of 3
PACIFIC TELESIS GROUP AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
--------------------
* Restated to reflect the 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.
(e) 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.
(g) The 1994 amount reflects $62 million of costs for enhanced retirement
benefits paid from pension fund assets which do not require current
outlays of the Corporation's funds. Pension plan gains offsetting the
1994 loss are expected in 1995 through 1997 as more force reductions
occur under nonpension related offerings.
--------------------
31
<PAGE>
TELESIS(R) is a registered trademark of Pacific Telesis Group.
32
<PAGE>
EXHIBIT INDEX
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. All
management contracts or compensatory plans or arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 14(c) are filed as
Exhibits 10aa through 10zz inclusive.
Exhibit
Number Description
------- -----------
3a Articles of Incorporation of Pacific Telesis Group, as amended to
June 17, 1988 (Exhibit 3a 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).
4a 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).
4b 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.
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 (Exhibit 10e to Form 10-K for 1993).
10e(i) Amendment No. 3 to Separation Agreement effective as of
April 1, 1994.
10aa Pacific Telesis Group Senior Management Short Term Incentive Plan
(Attachment A to Pacific Telesis Group's 1995 Proxy Statement,
including Pacific Telesis Group's 1994 Consolidated Financial
Statements filed March 13, 1995).
10bb Pacific Telesis Group Senior Management Long Term Incentive Plan
(Attachment A to Pacific Telesis Group's 1995 Proxy Statement,
including Pacific Telesis Group's 1994 Consolidated Financial
Statements filed March 13, 1995).
33
<PAGE>
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
(Exhibit 10cc(i) to Form 10-K for 1993).
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).
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
(Exhibit 10gg(ii) to Form 10-K for 1993).
10hh Description of Pacific Telesis Group Directors' and Officers'
Liability Insurance Program (Exhibit 10hh to Form 10-K for 1993).
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).
10jj(i) Resolutions amending the Plan, effective January 1, 1995
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement including Pacific Telesis Group 1994 Consolidated
Financial Statements filed March 13, 1995).
34
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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 date
April 1, 1994 (Exhibit 10kk(iii) to Form 10-K for
1993).
10kk(iv) Trust Agreement No. 3 between Pacific Telesis
Group and Bankers Trust Company in connection
with the Corporation's executive supplemental
pension benefits (Exhibit 10kk(iv) to Form 10-K
for 1993).
10ll Pacific Telesis Group Deferral Plan.
10mm Description of Pacific Telesis Group Personal Umbrella Liability
Insurance.
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 Form 10-K for
1993).
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
Form 10-K for 1993).
35
<PAGE>
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 (Exhibit 10pp(ii) to
Form 10-K for 1993).
10pp(ii) Employment contracts for certain senior officers
of Pacific Telesis Group (Exhibit 10pp(ii) to
Form 10-K for 1993).
10pp(iii) Employment contract for senior officer of Pacific
Telesis Group (Exhibit 10pp(iii) to Form 10-Q for
the quarter ended September 30, 1994).
10pp(iv) Employment contract for certain senior officers
of Pacific Telesis Group.
10rr Executive supplemental benefit agreement (Exhibit 10rr to Form 10-K
for 1993).
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 (Exhibit 10uu(ii) to Form 10-K for
1993).
10uu(iii) Amendment to Trust Agreement No. 1, effective
November 15, 1993 (Exhibit 10uu(iii) to Form 10-K
for 1993).
36
<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
(Exhibit 10vv(ii) to Form 10-K for 1993).
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 Form 10-K for
1993).
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
Form 10-K for 1993).
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Pacific Telesis Group.
23 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney executed by Directors and Officers who signed
this Form 10-K.
27 Financial Data Schedule.
99a Pacific Telesis Group's 1995 Proxy Statement, including Pacific
Telesis Group's 1994 Consolidated Financial Statements (Filed
March 13, 1995).
99b Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Salaried Employees for
the year 1994 (To be filed as an amendment within 180 days).
37
<PAGE>
99c Annual Report on Form 11-K for the Pacific Telesis Group
Supplemental Retirement and Savings Plan for Nonsalaried Employees
for the year 1994 (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.
38
<PAGE>
Exhibit 10e(i)
--------------
AMENDMENT NO. 3
TO
SEPARATION AGREEMENT
THIS AMENDMENT NO. 3, is between PACIFIC TELESIS GROUP ("Telesis") and
AIRTOUCH COMMUNICATIONS ("AirTouch") and is effective as of April 1, 1994.
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 form of
payment of certain amounts payable under the Parties long-term incentive
plans described in Appendix A (Employee Benefits Allocation) of the Agreement;
THEREFORE, the Parties agree that the Agreement is hereby amended as
follows:
1. Section 10.2 of Appendix A is hereby amended by replacing the words
"restricted shares" wherever they appear with the words "restricted
shares or stock units."
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 3 to be
executed by their duly authorized representatives.
PACIFIC TELESIS GROUP AIRTOUCH COMMUNICATIONS
By: /s/ Phil Quigley By: /s/ Sam Ginn
----------------- -------------
Title: Chairman, President and Title: Chairman of the Board
and Chief Executive Officer Chief Executive Officer
Date Signed: July 22, 1994 Date Signed: July 21, 1994
<PAGE>
Exhibit 10.ll
-------------
PACIFIC TELESIS GROUP
EXECUTIVE DEFERRAL PLAN
(Restated as of November 1, 1994)
SECTION 1. PURPOSE.
The Pacific Telesis Group Executive Deferral Plan (the "Plan") provides
certain Officers of the Company with an opportunity to defer compensation and
accrue earnings on a pre-tax basis and with an opportunity to receive employer
matching contributions that cannot be provided to them under the Pacific
Telesis Group Supplemental Retirement and Savings Plan for Salaried Employees
("the Savings Plan") because of the limitations imposed by section 401(a)(17)
of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 2. ELIGIBILITY TO PARTICIPATE.
The following employees are eligible to participate in the Plan:
(A) Officers of Pacific Telesis Group and/or Pacific Bell;
(B) The Officers of any corporate Affiliate of Pacific Telesis Group
who are specifically designated to participate by the Board of Directors
of Pacific Telesis Group and the Board of Directors of such corporate
Affiliate.
Prior to April 1, 1994, certain employees of AirTouch Communications
(formerly "PacTel Corporation") were eligible to participate in the Plan, and
they retain certain rights to benefits as provided under the Plan.
SECTION 3. PLAN ACCOUNTS.
3.1 ESTABLISHMENT OF ACCOUNT. An account shall be established for each
eligible employee who elects to become a participant in the Plan in accordance
with the procedures set forth in Section 4 of the Plan. The account shall be
credited with allocations and earnings under Sections 4, 5 and 6 and debited
with distributions under Section 7 of the Plan.
3.2 PREDECESSOR PLAN ACCOUNTS. An employee's account under the Pacific
Telesis Group Senior Management Incentive Award Deferral Plan (the
"Predecessor Plan") was transferred to this Plan as of January 1, 1985 (the
"Effective Date" of this Plan), if the employee was then an eligible employee
as provided in Section 2. In such a case, the employee's account under this
Plan was credited as of the Effective Date with the amount credited to the
employee's account under the Predecessor Plan as of December 31, 1984, and
such amount shall bear interest from the Effective Date in accordance with
Section 6. Elections regarding distribution made under the Predecessor Plan
shall not be affected by the transfer of an employee's account to this Plan.
1
<PAGE>
3.3 NO FUNDING OR ASSIGNMENT. For income tax purposes under the Code
and for purposes of Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), it is intended that this Plan constitute an
unfunded deferred compensation arrangement. The amounts credited to Plan
accounts for employees of each participating Company shall be held in the
general funds of such participating Company. All amounts in such accounts,
including all Compensation deferred by an employee, shall remain an asset of
the participating Company. A participating Company shall not be required to
reserve or otherwise set aside funds for the payment of amounts credited to
Plan accounts. The obligation of a participating Company to pay benefits
under the Plan constitutes a mere promise to make benefit payments in the
future, and shall be unfunded as to the employee, whose rights shall be those
of a general unsecured creditor. Title to and beneficial ownership of any
assets which a participating Company may set aside or otherwise designate to
make payments under the Plan shall at all times remain in the participating
Company, and the employee shall not have any property interest in any specific
assets of a participating Company. The rights of an employee or his or her
beneficiary to benefit payments under the Plan are not subject in any manner
to assignment, alienation, pledge or garnishment by creditors.
SECTION 4. DEFERRED COMPENSATION.
4.1 ANNUAL DEFERRAL AND DISTRIBUTION ELECTION. An eligible employee
may elect to participate in the Plan prior to the beginning of any calendar
year or within 30 days of first becoming eligible to participate in the Plan
or a feature of the Plan (with respect to such Plan feature). An employee's
election shall direct that compensation in one or more of the following
categories (collectively "Compensation") be deferred and credited to an
account under the Plan, subject to the limitations and effectiveness
prescribed for each category of Compensation, and shall direct that such
Compensation, together with all other amounts credited under the Plan with
respect to such Compensation under Section 5 (Company Match) and Section 6
(Earnings), shall be distributed in accordance with a distribution option set
forth in Section 7.
(A) SALARY. An employee may elect to defer part of his or her
salary otherwise payable for services performed in a calendar year,
but not less than $2,500 nor more than 80% of salary. Such
election shall become effective for salary otherwise payable for
services performed in the payroll period beginning (i) immediately
subsequent to the election, in the case of an employee who makes an
election within 30 days of first becoming eligible to participate
in the Plan, or (ii) on or after the first day of the calendar year
to which the election applies in all other cases. An election
related to salary otherwise payable for services performed in any
calendar year shall become irrevocable on the last day prior to the
beginning of such calendar year (or the applicable payroll period
for which the election becomes effective, in the case of an
election made within 30 days of first becoming eligible to
participate in the Plan).
2
<PAGE>
(B) STIP. An employee may elect to defer all or part, but not
less than $5,000, of his or her awards under the Short-Term
Incentive Plan or Short-Term Incentive Compensation Plan of Pacific
Telesis Group or an Affiliate, or a similar or successor plan or
program ("STIP"), for services performed in a calendar year and
otherwise payable in the calendar year following such calendar
year. An election related to the STIP award for services performed
in a calendar year shall become irrevocable on the last day prior
to the year in which the services are performed.
(C) LTIP. An employee may elect to defer all or part, but not
less than $5,000, of his or her awards under the Pacific Telesis
Group Senior Management Long-Term Incentive Plan or the similar
plan of an Affiliate ("LTIP"), for services performed in a three-
year performance period and otherwise payable in the calendar year
following such three-year performance period. An election related
to the LTIP award otherwise payable for services performed in a
three-year performance period shall become irrevocable on the last
day prior to the beginning of the three-year performance period
applicable to that LTIP award.
(D) OTHER AWARDS. An employee may elect to defer all or part of
his or her awards under any other bonus, special award, or any
other similar form of compensation ("Other Awards") otherwise
payable to him or her by a participating Company with respect to
services performed in a calendar year. An election related to
Other Awards otherwise payable in a calendar year shall become
irrevocable on the last day prior to the beginning of such calendar
year.
Notwithstanding the foregoing, in no event shall deferrals under the
Plan include that portion of Compensation required for all applicable tax,
Social Security and employee benefit plan withholding, whether or not such
withholding requirement is related to this Plan.
4.2 FORM OF ELECTION, MODIFICATION OR TERMINATION. An employee s
election or written notice of modification or termination shall be made in
accordance with procedures established by the Plan Administrator, in the form
of a document approved by the Plan Administrator, executed by the employee and
filed with the Plan Administrator or his or her designee. The Plan
Administrator may permit an employee to make a series of annual elections to
be effective in future years, in which case such elections shall become
irrevocable as provided in Section 4.1. An election which has not become
irrevocable may be modified, terminated or reinstated by the employee prior to
the time such election would have become irrevocable as provided in Section
4.1. An election with respect to salary, STIP or Other Awards for services
performed in a calendar year and/or with respect to LTIP for services
performed in a three-year performance period shall be deemed irrevocably
terminated when the employee, whether by transfer or termination of
employment, ceases to be eligible to participate in the Plan during such
calendar year and/or such three-year performance period (as applicable).
3
<PAGE>
4.3 MODIFICATION OF IRREVOCABLE ELECTION BY THE COMMITTEE. Upon
receipt of a written request made by or on behalf of an employee, the
Committee in its sole discretion may modify or terminate the employee's
election with respect to Compensation otherwise payable in a calendar year as
it deems necessary to prevent extreme financial hardship to the employee,
notwithstanding that the election has become effective and irrevocable as
provided in Section 4.1.
4.4 ALLOCATION TO ACCOUNTS. Deferred amounts related to Compensation
which would otherwise have been paid by a participating Company shall be
credited to the employee's account as of the date the Compensation would
otherwise have been paid. Deferred amounts related to Compensation which
would otherwise have been distributed in Pacific Telesis Group common shares
shall be credited to the employee's account as deferred Pacific Telesis Group
shares as of the date such Pacific Telesis Group shares would otherwise have
been transferred to the employee.
SECTION 5. COMPANY MATCH.
5.1 ELIGIBILITY FOR COMPANY MATCH. An employee who (A) elects to defer
Compensation under the Plan for a calendar year, and (B) has made the maximum
elective deferral under the Savings Plan permitted by section 402(g) of the
Code for such calendar year (except to the extent that a further limitation is
required by section 401(k)(3) of the Code), shall be eligible to have
additional amounts based on Compensation deferred pursuant to this Plan
("Company Match") credited to his or her account hereunder.
5.2 AMOUNT OF COMPANY MATCH. The Company Match credited to an
employee s account under this Plan with respect to Compensation deferred
during a calendar year shall be equal to
(A) the amount of Compensation deferred into the employee s Plan
account, multiplied by
(B) the percentage in effect for that calendar year at which the
employee's Basic Contributions to the Savings Plan are matched by
employing Company contributions; provided, however, that the
maximum Company Match credited to the employee s account shall not
exceed
(C) 6% of the employee's Savings Plan Salary, multiplied by
(D) the percentage in effect for that calendar year at which the
employee's Basic Contributions to the Savings Plan are matched by
employing Company contributions, reduced by
(E) the total amount of matching Company contributions credited to
the employee's account under the Savings Plan.
4
<PAGE>
For purposes of determining the amount of Compensation deferred into the
employee's Plan account, deferred Pacific Telesis Group shares shall be valued
by multiplying the number of shares deferred by the Price of Pacific Telesis
Group common shares on the deferral date.
5.3 ALLOCATION TO ACCOUNT. Until fully credited for the calendar year,
and subject to the delay provided in Section 5.4, Company Match shall be
credited to an employee's account under this Plan as of each date that
deferred Compensation is credited to the employee s account under this Plan.
5.4 MAXIMUM PRE-TAX SAVINGS PLAN DEFERRALS REQUIRED. No Company Match
shall be credited to an employee s account for a calendar year until the
employee has made before-tax contributions under the Savings Plan equal to the
maximum elective deferrals permitted under section 402(g) of the Code, as
further limited by section 401(k)(3) of the Code. Thereafter, the employee's
account shall immediately be credited with an amount equal to the Company
Match that would otherwise have been previously credited under Section 5.3.
5.5 SAVINGS PLAN PROVISIONS PREVAIL. The provisions of this Section 5
shall not limit or affect the application of the provisions regarding matching
Company contributions in the Savings Plan, which shall take precedence over
the provisions of this Section 5.
SECTION 6. EARNINGS ON ACCOUNTS.
6.1 INTEREST ALLOCATIONS TO ACCOUNTS. Deferred amounts related to
Compensation which would otherwise have been paid in cash shall bear interest
from the date the Compensation would otherwise have been paid. Interest shall
be applied to Company Match credited to an employee s account as if such
Company Match had been credited to the employee s account at the same time
that the related amounts of Compensation deferred hereunder were credited to
the employee s account. The interest credited to an account shall be
compounded annually at the end of each calendar year.
6.2 RATE OF INTEREST. The rate of interest to be applied to account
balances for a calendar year shall be determined by the Committee from time to
time, and promptly communicated to eligible employees in advance of its
application, but in no event shall (A) the interest rate be decreased below
the average 10-Year Treasury note rate, (B) any reduction apply to interest
already credited to Plan accounts for periods prior to the Committee's action,
or (C) any interest rate previously guaranteed for a given period and
communicated to eligible employees be reduced during such period except as may
be equitable in light of any change in applicable law which substantially
increases the burden to the participating Companies of paying such guaranteed
interest.
6.3 RETROACTIVE LIMITATION OF INTEREST ACCRUAL IN CASE OF EARLY
SEPARATION. Notwithstanding Section 6.2, an employee whose Separation occurs
before he or she attains age 55 will receive interest on all deferred cash
Compensation and Company Match based on the average 10-Year Treasury note rate
for all years of participation in this Plan, rather than the rate of interest
established by the Committee for any particular calendar year.
5
<PAGE>
6.4 DIVIDENDS AND ADJUSTMENTS FOR PACIFIC TELESIS GROUP SHARES. An
employee's account credited with deferred Pacific Telesis Group shares shall
be credited on each subsequent dividend payment date for Pacific Telesis Group
shares with an amount equivalent to the dividend payable on the number of
Pacific Telesis Group common shares equal to the number of deferred Pacific
Telesis Group shares in the employee's account on the record date for such
dividend. Such amount shall then be converted to a number of additional
deferred Pacific Telesis Group shares, determined by dividing such amount by
the price of Pacific Telesis Group common shares on the dividend payment date.
For purposes of the preceding sentence, the price of Pacific Telesis Group
common shares as of a particular date shall be the average of the daily high
and low sale prices of Pacific Telesis Group common shares on the New York
Stock Exchange ("NYSE") for the period of five trading days ending on such
date, or the period of five trading days immediately preceding such date if
the NYSE is closed on the date. In the event of any change in outstanding
Pacific Telesis Group common shares by reason of any stock dividend or split,
recapitalization, merger, consolidation, combination or exchange of shares or
other similar corporate change, the Committee shall make such adjustments, if
any, that it deems appropriate in the number of deferred Pacific Telesis Group
shares then credited to an employee s account. Any and all such adjustments
shall be conclusive and binding upon all parties concerned.
SECTION 7. DISTRIBUTION.
7.1 DISTRIBUTION ELECTIONS. At the time an eligible employee makes an
election to defer Compensation otherwise payable for services performed in a
calendar year, the employee also shall make an election with respect to the
distribution (during the employee's lifetime and in the event of the
employee's death) of such deferred Compensation and Company Match and earnings
credited to the employee's Plan account with respect to such deferred
Compensation. Subject to the provisions on Hardship distributions in Section
7.6.3, distribution elections shall become effective and irrevocable at the
same times the election to defer such Compensation becomes effective and
irrevocable under Section 4.1.
7.2 OPTIONS FOR DISTRIBUTION DURING LIFE. An employee may elect to
receive the amounts credited to the employee's account in one payment or in a
number of monthly or annual installments (over a period not exceeding 15
years) calculated in accordance with procedures established by the Plan
Administrator. As specified by the employee, distributions shall commence as
soon as practicable after the first day of the calendar quarter next following
the employee s
(A) Separation;
(B) attainment of a specified age between 59 1/2 and 70;
(C) the earlier of attainment of a specified age not less than age
59 1/2 or Separation; or
(D) the earlier of age 70 or a specified number of years (maximum
of 5) after Separation.
6
<PAGE>
7.3 OPTIONS FOR DISTRIBUTION IN THE EVENT OF DEATH. An employee may
elect that, in the event the employee should die before full payment of all
amounts credited to the employee's account, the balance of the deferred
account shall be distributed to the beneficiary or beneficiaries designated by
the employee
(A) in one payment;
(B) in a number of monthly or annual installments (over a period
not exceeding 10 years), calculated in accordance with procedures
established by the Plan Administrator; or
(C) by a continuation of the monthly or annual installment
distributions elected under Section 7.2.
A single payment or first installment elected under paragraphs (A) or
(B) of this Section shall be paid as soon as practicable after the first day
of the next calendar quarter beginning after the employee's death. If an
employee who has elected to continue installment distributions under paragraph
(C) of this Section dies before commencement of such distributions, the
distributions shall commence in accordance with the employee's election under
Section 7.2, using as any specified age the date the employee would have
attained that age if he or she had continued to live. If no election has been
made under this Section 7.3, the balance of the deferred account shall be
distributed in one payment. If no beneficiary designation has been made,
distribution shall be made to the estate of the employee.
7.4 FORM OF ELECTIONS. Distribution elections and beneficiary
designations shall be made in writing in the form of a document or documents
approved by the Plan Administrator, executed by the employee and filed with
the Plan Administrator or his or her designee. An employee may designate one
or more individuals or a trust as his or her beneficiary, and may change the
beneficiary designation at any time, effective upon receipt by the Plan
Administrator or his or her designee.
7.5 FORM AND TIMING OF DISTRIBUTION. Amounts credited to an employee's
Plan account as cash plus accumulated interest, less applicable withholding
taxes, shall be distributed in cash. Amounts credited as deferred Pacific
Telesis Group shares, less applicable withholding taxes, shall be distributed
in the form of whole Pacific Telesis Group common shares, plus cash for any
fractional share. Installment distributions subsequent to the first
installment shall be paid on or about the anniversary date of the first annual
installment or on or about the first day of each succeeding month, whichever
is applicable, until the entire balance of the employee's Plan account is
paid. Account balances held pending distribution shall continue to be
credited with interest or additional deferred Pacific Telesis Group shares, as
applicable, determined in accordance with Section 6. Monthly distribution
payments within a single calendar year will be uniform, but the total amount
paid each year will vary with changes in the yield on the account during the
prior year.
7.6 DISTRIBUTION NOT IN ACCORDANCE WITH ELECTIONS.
7
<PAGE>
7.6.1 POSTPONEMENT OF PAYMENT. With respect to Plan account balances
accrued pursuant to elections filed after February 17, 1993, the Committee may
postpone payment of Plan benefits to an employee (A) who, in the year Plan
benefits would otherwise be payable, 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.
7.6.2 IMMEDIATE SINGLE PAYMENT. Notwithstanding an election pursuant
to Section 7.2, at the sole discretion of the Committee the entire amount then
credited to the employee's account shall be paid as soon as practicable in a
single payment if an employee is involuntarily terminated by his or her
Company or becomes employed by a governmental agency having jurisdiction over
the activities of Pacific Telesis Group or any of its Affiliates.
7.6.3 HARDSHIP DISTRIBUTION. Upon receipt of a written request made by
or on behalf of an employee, the Committee in its sole discretion may
authorize a Hardship distribution from the employee's Plan account. For
purposes of the Plan, "Hardship" means an unanticipated emergency that is
caused by an event beyond the control of the employee and that would result in
severe financial hardship if early distribution were not permitted. As
determined by the Committee in its sole discretion, Hardship may include one
or more of the following:
(A) A sudden and unexpected illness or accident of the employee;
(B) Extraordinary and unreimbursed medical or hospital expenses
incurred by the employee or a member of his or her family or a
relative;
(C) The loss of the employee s property due to casualty; or
(D) Any other similar unforeseeable emergency that is caused by
and event beyond the control of the employee and would impose a
severe financial hardship if early distribution were not permitted.
A distribution based on Hardship cannot exceed the amount required to
meet the immediate financial need created by the Hardship and not reasonably
available from other resources of the employee, including reimbursement or
compensation by insurance or otherwise. However, an employee shall not be
required to request a hardship distribution from the Savings Plan in order to
receive a Hardship distribution under this Plan.
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7.7 PAYMENT OBLIGATION. The obligation to distribute benefits under
the Plan shall be borne primarily by the last Company to employ an employee in
a position eligible to participate in the Plan immediately prior to the
distribution. A Company's withdrawal from participation in the Plan shall not
affect that Company's liability hereunder. If for any reason the primarily
liable Company fails to make timely payment of a amount due under the Plan,
Pacific Telesis Group shall be secondarily liable for the obligation.
Notwithstanding the foregoing, Pacific Telesis Group shall be solely and
exclusively responsible for providing the benefits accrued under the Plan by a
Post-Separation AirTouch Employee.
SECTION 8. ADMINISTRATION; CLAIMS AND REVIEW PROCEDURES.
8.1 PLAN ADMINISTRATOR. The Plan Administrator shall be the Executive
Vice President, Human Resources Department of Pacific Telesis Group. The Plan
Administrator shall have the authority to administer and interpret the Plan,
including sole discretion to determine the rights of an employee or
beneficiary under the Plan, and to authorize disbursements under the Plan,
except for decisions expressly reserved by the Plan for the Committee or for
the Board of Directors of Pacific Telesis Group or of an Affiliate.
8.2 INITIAL CLAIM UNNECESSARY. No claim for benefits shall be required
for commencement of distributions in accordance with an employee's election
under Sections 7.2 and 7.3 of the Plan. The obligation of a Company to make
distributions under the Plan shall not be affected by any action or inaction
(on the part of an employee, his beneficiaries or any Company) with respect to
amounts owed, including but not limited to the failure to make timely demand,
the granting of extensions of time or other indulgences, the failure to make
timely payment or the failure to give notices other than those prescribed in
Section 8.3.
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8.3 REVIEW OF ADVERSE DECISIONS. An employee or beneficiary who
disagrees with a decision by the Plan Administrator relating to the payment of
benefits under the Plan may submit a claim requesting Plan benefits in writing
to the Committee, which shall respond in writing. A claim shall be deemed
denied unless the response is sent within 90 days (or within 180 days, if the
Committee extends the time to respond by notifying the claimant in writing of
the special circumstances requiring an extension and the date by which the
response is expected). If the claim is denied in whole or part, the response
shall state (A) the specific reasons, making specific reference to pertinent
provisions of the Plan; (B) what additional information, if any, would help
perfect the claim for benefits; and (C) what steps the claimant must take to
submit the claim for review. Within 60 days after the date of a denial, a
claimant may file a written request for the Pacific Telesis Group Board of
Directors to review the denial. Notwithstanding Section 8.2 of the Plan, such
request for review must be made in a timely manner for the purpose of seeking
any further review of a decision or determining any entitlement to a benefit
under the Plan. The Board of Directors shall notify the claimant in writing
of the review decision, specifying the reasons for the decision and the Plan
provisions on which it is based. A claim shall be deemed denied unless the
decision on appeal is sent within 60 days (or within 120 days, if the Board
extends the time to respond by notifying the claimant in writing). The Plan
Administrator, Committee and Board shall retain such right, authority and
discretion as are provided or not expressly limited in section 503 of ERISA
and the regulations thereunder and, if the Committee denies a claim upon
review, the claimant shall have such further rights of review as are provided
therein.
SECTION 9. AMENDMENT AND TERMINATION.
The Pacific Telesis Group Board of Directors may at any time make
changes in the Plan or terminate the Plan, but such changes or termination
shall have prospective effect only and shall not adversely affect the rights
of any employee, without his or her consent, to any benefit under the Plan to
which such employee was entitled prior to the effective date of such change or
termination. Any termination of the Plan shall not terminate the deferral of
Compensation previously deferred into a Plan account, but may prevent the
deferral of Compensation not yet earned and the crediting of Company Match
thereon, notwithstanding the employee's prior election to defer such
Compensation. Changes in the interest rate applied to account balances which
are made by the Committee in accordance with Section 6.2 of the Plan shall not
be deemed to be Plan amendments, notwithstanding that they apply to
Compensation previously earned and deferred. The Executive Vice President,
Human Resources Department of Pacific Telesis Group, with the approval of the
Executive Vice President and General Counsel of Pacific Telesis Group, shall
be authorized to make minor or administrative changes to the Plan.
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SECTION 10. DEFINITIONS.
For purposes of this Plan, the following words shall have the meaning so
defined unless the context clearly indicates otherwise:
10.1 "AFFILIATES" as the term relates to Pacific Telesis Group or to
AirTouch Communications (formerly PacTel Corporation ), means subsidiaries of
or other entities that control, are controlled by, or are under common control
with Pacific Telesis Group or AirTouch Communications, 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.
10.2 "AIRTOUCH GROUP" means AirTouch Communications (or its successor)
and its Affiliates immediately after the total and complete separation of
AirTouch Communications from Pacific Telesis Group.
10.3 "COMMITTEE" shall mean the Compensation and Personnel Committee of
the Board of Directors of Pacific Telesis Group.
10.4 "COMPANY" shall mean Pacific Telesis Group, Pacific Bell or any
other corporation which is an Affiliate of Pacific Telesis Group. Prior to
April 1, 1994, Company also included PacTel Corporation (now "AirTouch
Communications") and any other corporation which was an Affiliate of PacTel
Corporation.
10.5 "EFFECTIVE DATE" means January 1, 1985, the effective date of the
Plan.
10.6 "OFFICER" means an officer of a Company, as determined by the Plan
Administrator, but the term shall not include Assistant Secretary, Assistant
Treasurer, Assistant Comptroller or any other assistant officer.
10.7 "POST-SEPARATION AIRTOUCH EMPLOYEES" means an employee who,
immediately after the total and complete separation of PacTel Corporation from
Pacific Telesis Group, was employed by a member of the AirTouch Group.
10.8 "SAVINGS PLAN" means the Pacific Telesis Group Supplemental
Retirement and Savings Plan for Salaried Employees. Prior to April 1, 1994,
"Savings Plan" also means the PacTel Corporation Retirement Plan (for
employees who were eligible to participate therein).
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10.9 "SAVINGS PLAN SALARY" means "Salary" as defined in the Pacific
Telesis Group Supplemental Retirement and Savings Plan for Salaried Employees
and, prior to April 1, 1994, "Compensation" as defined in the PacTel
Corporation Retirement Plan, whichever is applicable to the employee, without
reduction for deferrals of salary under this Plan and without regard to the
limit on compensation under section 401(a)(17) of the Code. If an eligible
employee is employed by a participating Company for only a portion of a
calendar year or is on a leave of absence for a portion of a calendar year,
the employee's Savings Plan Salary is prorated to reflect only the period
during which the employee was actively employed by a participating Company.
10.10 "SEPARATIONS" means retirement or termination from all employment
with Pacific Telesis Group or its Affiliates. With respect to a Post-
Separation AirTouch Employee, "Separation" means retirement or termination
from all employment with the AirTouch Group without employment by Pacific
Telesis Group or its Affiliates.
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Exhibit 10.mm
-------------
DESCRIPTION OF PACIFIC TELESIS GROUP
GROUP PERSONAL UMBRELLA LIABILITY INSURANCE PROGRAM
Coverage: Group Personal Umbrella Liability
Insured: All members of insured groups as stated on the policy,
1) All Telesis Executive Management Group ("TEMG") members,
2) All Board of Directors, 3) All Non-Officer Business Unit
Heads and 4) All other groups as stated in the policy.
Limits: $5,000,000 Per occurrence, excess of Required
Underlying Limits of Automobile & UM/UIM
$250,000/$500,000 BI & $50,000 PD or $300,000
CSL per occurrence. Homeowners, watercraft
and Employers Liability $100,000 per
occurrence.
Additional
Limits: $5,000,000 Per occurrence. Each member, at their option,
excess of may purchase an additional $5,000,000 of
$5,000,000 coverage in excess of the primary umbrella
policy making their total umbrella l i m i t s
$10,000,000.
Deductibles: None, but Coverage applies excess of Required
Required Underlying Limits or $35,000 Retained
Underlying Limit if there is no Required Underlying
Limits or Limit.
Retained
Limit
applies
Description: The program provides liability limits for all members of the
groups insured in excess of what is provided by the member's
basic homeowner's and automobile policies. The Group
Personal Umbrella Program provides additional limits of
coverage for liability arising out of member's homes, rental
properties, personal activities, personal injury exposures
resulting from non-profit directorship and officership,
automobiles, watercraft and recreational vehicles. (Some
items are subject to specified limitations.)
Exclusions: Exclusions include: Intentionally caused injuries, aircraft,
some watercraft, damage caused by cars or boats in
prearranged races, providing or failure to provide
professional services, business activities, transmission of
communicable diseases, property damage to owned property.
Refer to policy for complete list of exclusions
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Exhibit-10pp(iv)
----------------
P. J. QUIGLEY
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective the first day of April, 1994, by and
between P. J. Quigley (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 employ or continue
to employ the Employee as Chairman and Chief Executive Officer; and
WHEREAS the Employee is willing to accept or 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 employment of Employee by the
Corporation or an affiliate, the parties agree as follows:
SECTION 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 employment by giving the Corporation 30 days' advance notice in
writing. If the Employee terminates 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, as defined in Section 12(n), 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.
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<PAGE>
(c) DEATH. The Employee's employment shall terminate in the event of
death. The Corporation shall have no obligation to pay or provide any
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 or
her 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 or her duties under this Agreement for a period
of not less than six consecutive months as the result of incapacity due to
physical or mental illness. In the event that the Employee resumes the
performance of substantially all of his or her duties hereunder before the
termination of 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.
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<PAGE>
(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
three years' 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. This Agreement shall terminate
in any event on the Employee's Normal Retirement Date, as defined in
Section 12(n).
SECTION 2. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION. The Corporation agrees to employ the Employee as Chairman
of the Board and Chief Executive Officer for the term of the employee s
employment under this Agreement. The Employee shall be responsible solely
to the Corporation s Board of Directors and shall not be required to report
or be answerable to any other person or persons.
(b) OBLIGATIONS. During the term of employment under this Agreement,
the Employee shall devote the Employee's full business efforts and time to
the Corporation and its affiliates. 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 the
Employee's responsibilities to the Corporation and its affiliates.
SECTION 3. BASE COMPENSATION.
During the term of the Employee's employment under this Agreement, the
Corporation agrees to pay the Employee as compensation for services a base
salary at the annual rate of $575,000, 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 affiliates 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.")
3
<PAGE>
SECTION 4. EMPLOYEE BENEFITS.
During the term of employment under this Agreement, the Employee shall be
eligible to participate in the employee benefit plans and executive
compensation programs maintained by the Corporation or its affiliates, as
applicable, 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.
SECTION 5. BUSINESS EXPENSES AND TRAVEL.
During the term of employment under this Agreement, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with the Employee's 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.
SECTION 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
4
<PAGE>
(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 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 in Section
12(i), 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.
5
<PAGE>
(c) AMOUNT. The Amount of the Severance Payment shall be equal to the
following:
(i) an amount equal to 200 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
(ii) 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, the Employee's dependents) shall be entitled to
continue participation for a period of three 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
or its affiliates, as if the Employee were still an employee of the
Corporation or its affiliates. Where applicable, the Employee's salary for
purposes of such plans shall be deemed to be equal to the Employee's 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 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.
6
<PAGE>
(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 (as defined in Section
12(i)), 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.
SECTION 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, an amount equal to whichever of the following
amounts is applicable:
(i) if three or more years remain between the date of employment
termination and the Normal Retirement Date, an amount equal to
three times the Employee's Base Compensation in effect on the date
of employment termination; or
(ii) if less than three years remain 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.
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(c) LIFE INSURANCE AND HEALTH PLAN COVERAGE. During the Continuation
Period, the Employee (and, where applicable, the Employee's dependents)
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 or its affiliates, as if the
Employee were still an employee of the Corporation or its affiliates. Where
applicable, the Employee's salary for purposes of such plans shall be deemed
to be equal to the Employee's 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 the Employee's 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 canceled 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 under the
Pacific Telesis Group Stock Option and Stock Appreciation Rights Plan or the
Pacific Telesis Group 1994 Stock Incentive Plan (the "Stock Option Plans")
shall be determined by the provisions of the Stock Option Plans 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 and nonvested stock options (other than Incentive Stock
Options) and vested and 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 canceled under their own terms when the related stock option is
exercised shall not be compensated by the Corporation.
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(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.
SECTION 8. LIMITATION ON PAYMENTS.
(a) BASIC RULE. Any provision of this Agreement to the contrary
notwithstanding, in the event that the independent auditors retained by
Pacific Telesis Group most recently prior to a Change in Control (the
"Auditors") determine 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 the Employee's 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 or her election within 30 days of
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.
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(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 the Employee 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.
SECTION 9. SUCCESSORS.
(a) CORPORATION'S SUCCESSORS. The Corporation shall require any
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
the Employee would have been entitled hereunder if the Corporation had
involuntarily terminated the Employee's 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.
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SECTION 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.
SECTION 11. TRADE SECRETS.
(a) PROTECTED INFORMATION. The Employee agrees not to disclose to
others, or take or use for the Employee's own purposes or the purposes of
others, during or after the Employee's employment, any Information owned or
controlled by the Corporation or by any affiliate. (The Corporation and its
affiliates will be collectively referred to as the "Corporation" for
purposes of this Section). The Employee agrees that these restrictions
shall also apply to all (i) Information in the Corporation's possession
belonging to third parties, and (ii) Information conceived, originated,
discovered or developed, in whole or in part, by the Employee within the
scope of Employee s employment. As used herein, "Information" includes
trade secrets and other confidential or proprietary business, technical,
personnel or financial information or data, whether or not the 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 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 the Corporation advises the Employee otherwise in writing.
(b) TERMINATION OF EMPLOYMENT. The Employee agrees that on
termination of employment, the Employee will return to the Corporation all
property belonging to Corporation, including all documents or other media in
the Employee's possession or control which in any way incorporate or reflect
any Information.
SECTION 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.
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(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.
(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 Control, of Pacific Telesis Group's 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 any of its affiliates one year prior
to the Change in Control.
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(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 seventy (70), except as
otherwise provided by applicable state law, and except for those employees
referred to in Section 12(c)(l) of the Age Discrimination in Employment Act
of 1967 as amended from time to time ("ADEA") for whom the Normal Retirement
Date shall be the date the Employee attains age sixty-five (65), or at such
later time before age seventy (70) as may be permissible under such section
of the ADEA, and except for those employees for whom age is a bonafide
occupational qualification within the meaning of Section 4(f)(l) of the ADEA
for whom the Normal Retirement Date shall be the date the employee attains
the age applicable under the ADEA.
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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 first above written.
PACIFIC TELESIS GROUP
By: /s/ S. Donley Ritchey
------------------------------
Title: Chairman, C&P Committee
---------------------------
/s/ P. J. Quigley
----------------------------------
Employee
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CONFIDENTIAL
July 16, 1993
Michael J. Fitzpatrick
160 Spur Circle
Wayzata, Minnesota 55391
Dear Michael:
This letter is intended to confirm an offer of employment as an Executive
Vice President of Pacific Bell under the terms and conditions outlined in
this letter, subject to confirmation by the Compensation and Personnel
Committee of the Board of Directors of Pacific Telesis Group. As a
condition of employment, you will be required to execute the attached
employment agreement, which is a standard contract approved by the Pacific
Telesis Group Board of Directors to apply to all Executive Vice Presidents
in Telesis companies. In applying the terms of the employment agreement, we
have discussed the following items with respect to your employment:
EMPLOYMENT EFFECTIVE DATE
We understand that you would begin employment effective September 3, 1993.
BASE SALARY
Your base salary for 1993 would be $360,000 per annum. The level of your
base salary for 1994 would be subject to review as a part of the normal
review process by the Compensation and Personnel Committee at the end of the
year for officer salary schedules to be effective January 1, 1994.
SHORT TERM INCENTIVE PLAN AWARDS
Provided you commence employment on or before September 3, 1993, you would
be eligible for a prorated (4 months) standard award for 1993 under the
Pacific Telesis Group Short Term Incentive Plan ( STIP ) of $50,000. In
addition, for 1994 you would receive a minimum STIP award of 95% of the
standard award for your position rate (i.e., Executive Vice-President
level). Standard awards are established by the Compensation and Personnel
Committee during the end of year process immediately prior to 1994.
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STOCK OPTION GRANT
We would recommend to the Compensation and Personnel Committee that a grant
of 15,000 options be made to you effective as of your employment date under
the Pacific Telesis Group Stock Option and Stock Appreciation Rights Plan.
The purchase price of the option will be the closing price of Pacific
Telesis Group stock on the day prior to the option grant. The options would
become exercisable after one year.
SPECIAL COMPENSATION PAYMENTS
We have also agreed that if you continued to be employed by Pacific Telesis
Group or any of its subsidiaries on December 31, 1994, you would be eligible
to receive a special compensation payment of $50,000, less applicable
withholding, to be paid as soon as practicable during January 1995. If you
continued to be employed by Pacific Telesis Group or any of its subsidiaries
on December 31, 1995, you would be eligible to receive an additional special
compensation payment of $50,000, less applicable withholding, to be paid as
soon as practicable during January 1996. At your option, you may execute a
full recourse promissory note with Pacific Telesis Group for an amount equal
to the expected payments and receive such payment in advance of its
scheduled payout. Said note will bear interest at a rate to be agreed upon
by you and Pacific Telesis Group. The principal amount of the debt
evidenced by the promissory note will be forgiven in accordance with the
payment schedule for the schedule compensation payments described above
(i.e., $50,000 if you are still employed on December 31, 1994 and $50,000 if
you are still employed on December 31, 1995). You understand that you will
be responsible for any withholding and tax consequences that may arise at
the time the debt is extinguished.
SPECIAL TERMINATION BENEFITS
If your employment with any of the Telesis companies is terminated such that
you are entitled to the payments and benefit coverage provided under Section
7 of the employment agreement, Pacific Telesis Group will provide you with
an office, within commutable distance of your residence, the location of
which is solely in Pacific Telesis Group s discretion, and with voicemail
service, for up to one-year period following your termination.
RELOCATION EXPENSES
The specific terms of the relocation expenses that would be provided to you
are described in the attached document entitled "Addendum to Employment
Agreement-Relocation Benefits".
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OTHER EMPLOYMENT BENEFITS
You will be eligible to participate in Pacific Telesis Group s other
executive compensation and benefit programs, including the Pacific Telesis
Group Senior Management Long Term Incentive Plan, under the standard terms
and conditions of these plans. A summary of the provisions of these plans
has been provided to you previously.
We hope this information will be helpful to you. If you have further
questions, please let me know. If you agree that the above accurately
describes your understanding of our agreement regarding your employment and
you are willing to accept these terms, please so indicate by signing in the
space provided below.
Sincerely,
/s/ J.R. Moberg
J.R. Moberg
Executive Vice President - Human Resources
Acceptance: /s/ Michael J. Fitzpatrick Date: 7/21/93
--------------------------
Michael J. Fitzpatrick
Enclosures: Employment Agreement
Relocation Expense Addendum
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ADDENDUM TO EMPLOYMENT AGREEMENT
RELOCATION BENEFITS
This is an addendum to the offer of employment made by Pacific Telesis
Group ("PTG") to Michael J. Fitzpatrick ( Fitzpatrick ) on July 16, 1993 and
the accompanying Employment Agreement between PTG and Fitzpatrick. This
addendum sets forth the understanding and agreement between PTG and
Fitzpatrick regarding the relocation benefits Fitzpatrick will be entitled
to receive upon his acceptance of PTG s offer of employment. This addendum
is supplemental to the Employment Agreement between PTG and Fitzpatrick and
shall be considered as part of that Employment Agreement. This addendum
shall have no force or effect unless and until the Employment Agreement is
fully executed by the parties, at which time this addendum shall become
fully effective as part of that Employment Agreement without separate
execution. This addendum shall be governed and construed in accordance with
the terms of the Employment Agreement. To the extent any term or provision
of this addendum is contradictory of or in conflict with any term or
provision of the Employment Agreement, the Employment Agreement shall
control and the contradictory or conflicting term or provision of this
addendum shall be void to the extent, but only to the extent, of such
contradiction or conflict.
As used in this addendum relocation benefits refers to 1) the
assistance PTG will provide Fitzpatrick in the sale of his current residence
in Minneapolis, Minnesota, 2) the assistance PTG will provide Fitzpatrick
in the purchase of a residence in or around San Francisco, California ("the
Bay Area"), and 3) the expenses and allowance PTG will pay Fitzpatrick
associated with the cost of his move from Minneapolis to the Bay Area.
1. ASSISTANCE IN SALE OF MINNEAPOLIS RESIDENCE.
(a) APPRAISAL OF VALUE OF MINNEAPOLIS RESIDENCE. In preparation for
the sale of Fitzpatrick s Minneapolis residence, PTG will arrange for two
appraisals of the value of the residence by appraisers mutually agreed to by
Fitzpatrick and PTG. The parties agree that the average of those two
appraised values shall be used as the basis of the value of the residence
for purposes of this addendum (the "full appraised value"). If, however,
the difference between the two appraisals is greater than five percent (5%),
the parties agree that PTG shall arrange for a third appraisal by an
appraiser mutually agreed to by the parties and that the "full appraised
value" for purposes of this addendum shall be the average of all three
appraisals. Fitzpatrick agrees to allow all appraisers full access to the
Minneapolis residence for the purpose of conducting the appraisals
referenced in this paragraph on or after July 29, 1993.
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(b) HOME SALE LISTING. PTG agrees that it will designate either Edina
Realty or Burnette Realty as its agent and said agent shall be granted and
have the exclusive right to list and sell the Minneapolis residence.
Following the listing of the residence by the designated realtor, the
parties agree that both PTG and Fitzpatrick must agree to accept or reject
any offer for the residence. In the event the parties cannot agree to
accept or reject any offer for the residence, the parties agree that PTG
shall have the exclusive right to reject any such offer. In exchange for
the agreement embodied in this paragraph, PTG guarantees to reimburse
Fitzpatrick up to one hundred percent (100%) of the difference between the
full appraised value of the residence and the final purchase price for the
residence if said purchase price is less than the full appraised value. If
the amount PTG would reimburse Fitzpatrick under this agreement is
considered income to Fitzpatrick for income tax purposes, PTG will reimburse
Fitzpatrick an amount necessary to receive the net amount of the difference
between the full appraised value and the final purchase price after the
payment of income taxes. For example, if the full appraised value of the
residence is $900,000, but the final purchase price is $800,000, PTG will
reimburse Fitzpatrick $100,000, plus the amount necessary to receive the net
amount of $100,000 after the payment of any income taxes. If at the end of
one year from the date of Employment, no offer has been accepted, PTG agrees
to buy the residence at the full appraised value.
(c) BROKER SALES FEES. In addition to the guarantee in the preceding
paragraph, PTG will reimburse Fitzpatrick up to a maximum of six percent
(6%) of the final purchase price for the fee charged to him by a real estate
broker to sell the Minneapolis residence, including the fee charged by PTG s
designated listing agent and reasonable and customary legal fees directly
associated with the sale of the Minneapolis residence.
(d) RESIDENCE EXPENSES PENDING SALE. Fitzpatrick agrees that he will
continue to pay any and all expenses associated with the Minneapolis
residence, including but not limited to any mortgage, tax, or maintenance
payments, until the residence is sold.
(e) TEMPORARY ASSISTANCE WITH COSTS OF MAINTAINING TWO HOMES. For the
lesser of one year or until the Minneapolis residence is sold or otherwise
disposed of, PTG will compensate Fitzpatrick for fifty percent (50%) of the
additional expenses incurred in owning two homes. Fifty percent of these
expenses, which are in the nature of mortgage interest, taxes and utilities,
will be paid by PTG for that residence maintained by Fitzpatrick which has
the lowest such expenses.
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2. ASSISTANCE IN PURCHASE OF BAY AREA RESIDENCE.
(a) EQUITY LOAN. Following the execution of the Employment Agreement,
PTG will provide Fitzpatrick with a loan on the equity in his Minneapolis
residence as determined by this addendum for the purpose of purchasing a new
residence in the Bay Area. Fitzpatrick agrees that such loan shall be used
solely for the purpose of purchasing a new residence in the Bay Area. The
term of such loan shall be one (1) year or until escrow closes on the sale
of Fitzpatrick s Minneapolis residence, whichever is earlier, at the
expiration of which term Fitzpatrick agrees to repay PTG the entire amount
of the loan in one lump sum payment. The rate of interest on such loan
shall be the difference between the full appraised value of the Minneapolis
residence and the amount, if any, owed to the lender(s) or lien holder(s) on
the residence as of the date of the execution of the Employment Agreement,
less any amount needed to perform any necessary repairs on the Minneapolis
residence as certified by home inspection prior to the sale. For example,
if the full appraised value of the residence is $900,000 and the outstanding
debt is $600,000, and the residence requires $30,000 in repairs prior to
sale, the amount of equity loan will be $270,000.
(b) RESIDENCE PURCHASE. PTG will reimburse Fitzpatrick for certain
non-recurring fees associated with the purchase of the new residence, i.e.,
the origination loan fee not to exceed two percent (2%) of the loan, the
title insurance fees, the fees for two (2) home inspections reasonable and
customary legal fees directly associated with the purchase of the new
residence and other such non-recurring fees.
(c) RESIDENCE PURCHASE SEARCH TRIPS. PTG will provide Fitzpatrick
with two (2) trips to and from the Bay Area for a period of up to five (5)
days each for the purpose of locating a new residence in the Bay Area in
accordance with its existing relocation program at pages 9-13, copies of
which pages are attached to this addendum and incorporated herein by
reference.
3. MOVING EXPENSES.
(a) MOVING SERVICE. PTG will pay for moving services for
Fitzpatrick's household and personal property from his Minneapolis residence
to his new Bay Area residence in accordance with the provisions of its
existing relocation program at pages 49-54, copies of which pages are
attached to this addendum and incorporated herein by reference.
(b) TEMPORARY LIVING EXPENSES. For the lesser of one year, or until
the Minneapolis residence is sold or otherwise disposed of PT G will provide
Fitzpatrick with temporary living expenses following his relocation to the
Bay Area in accordance with the provisions of its existing relocation
program at pages 9-13, copies of which pages are attached to this addendum
and incorporated herein by reference, except that the maximum reimbursable
allowance for lodging shall be $200 per night including family members.
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(c) MISCELLANEOUS ALLOWANCE. PTG will further provide Fitzpatrick
with an allowance of up to Two Thousand, Five Hundred Dollars ($2,500) to
assist in any additional expenses associated with moving his household and
personal property from Minneapolis to the Bay Area.
4. SENIOR MANAGEMENT TRANSFER PROGRAM.
Fitzpatrick will be eligible for payments under the Senior Management
Transfer Program. Said payments shall be equal to $36,000 in the first
year, $28,000 in the second year, and $21,600 in the third year and shall be
payable monthly provided employment continues.
The parties agree and understand that the foregoing constitutes their
complete and final agreement with regard to the relocation benefits
Fitzpatrick will be entitled to receive, and that despite the incorporation
by reference of selected and limited portions of PTG s existing relocation
program, Fitzpatrick is not entitled to any other benefits under that
program.
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TRAVEL AND LIVING EXPENSES
The travel and living expenses incurred when moving are typically a big
concern to employees and their families. we make it easier for you by
outlining the expense benefits available to you.
CASH ADVANCE AND RELOCATION REIMBURSEMENTS
The Company will issue your relocation advance. This advance is to be used
to cover all your relocation-approved expenses and will be deducted from
your final relocation reimbursement.
Do NOT voucher any of your expenses against this advance. Contact the
Relocation Office if additional funds are required.
Reimbursement for relocation expenses will be paid by the Relocation Office
only after your move is completed or you have chosen one of the alternate
options. (See Expense Reimbursement Section.)
Copies of receipts will be required for all expenses (except meals) in
excess of $25.00. Retain original receipts for your records in the page
pocket provided in this section.
NOTE: Due to Accounting and Payroll limitations, relocation expense
reimbursements will be made within the current calendar year.
ONLY IF your expenses are received in the Relocation Office
by the second week of November.
EXPENSES RECEIVED AFTER THIS DATE WILL BE PROCESSED THE FOLLOWING YEAR
AND REPORTED AS INCOME FOR THAT YEAR.
EXPLORATORY (HOUSE-HUNTING) EXPENSES
Exploratory trips may be taken prior to or after reporting to your new job.
Expenses will be paid for you and ONE additional member of your household
for a maximum of ten nights.
Expenses include transportation, meals, lodging, local travel and child OR
pet care expenses (not both).
Child care or pet care expenses must be documented. A maximum of $25.00 per
day will be reimbursed not to exceed $250.00. RECEIPTS ARE REQUIRED.
For moves from Central, Southern, or Eastern seaboard states, ONE round trip
for each person is covered.
For moves within California, or from Nevada or the Pacific Northwest,
generally THREE round trips for each person are covered.
See the Schedule of Allowances at the back of this section for dollar
limits.
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TEMPORARY LIVING ALLOWANCES - EMPLOYEE ONLY
TEMPORARY COMMUTE EXPENSE
EN ROUTE TRIP (FAMILY MOVE)
The Company will pay the cost of transporting you and your family from your
old home to your new permanent living accommodations. An example of covered
expenses for you and your family is as follows:
A. One Day of Packing Meals
B. Pack and Load Day Meals and Lodging
C. Travel Days Meals, Lodging and Transportation
D. Delivery Days Meals
Expenses while waiting for delivery of your furniture will be reimbursed,
not to exceed eight days. See the Schedule of Allowances for dollar limits.
TIME OFF
It is expected that you will incorporate your relocation activities as much
as possible into weekends, but the Company recognizes that time off from
work may be required. SUCH TIME OFF SHOULD BE ARRANGED THROUGH YOUR
SUPERVISOR AND BE CODED APX.
HOTEL/AIRLINE RESERVATIONS
Travel arrangements may be made through the Company-contracted travel
agencies. Expenses should be paid from your relocation advance funds or
charged to your Corporate Charge Card AND THE BILL THEN PAID FROM YOUR
ADVANCE FUNDS.
THE EXPENSES ARE NOT CONSIDERED BUSINESS EXPENSE AND MUST NOT BE VOUCHERED
BY YOUR DEPARTMENT OR CHARGED TO THE COMPANY.
CAR RENTAL
A car rental at the new location will be authorized DURING EXPLORATORY
(HOUSE-HUNTING) TRIPS(S) ONLY - A MAXIMUM OF TEN NIGHTS. Gasoline expense
will also be covered during this period.
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A car rental at the old location will be authorized only if the following
conditions are met:
A. You have only one car and have already brought that car to the new
job location.
B. You limit your rentals to weekend trips home during your temporary
living period.
NOTE: Gasoline expense WILL NOT be covered for car rental at the old
location.
The Company has corporate rate contracts with several rental car agencies.
Present your Company I.D. card when you pick up your rental car to take
advantage of these rates. Please attempt to rent a compact car.
Since the Company insurance policy will cover you, decline the insurance
offered by the rental company.
TELEPHONE CALLS
You will receive an automatic flat allowance of $100.00 to cover your
telephone calls. no receipts are required.
PERSONAL AUTOMOBILES
If you use your personal automobile for relocation purposes, you will be
reimbursed at our standard Company rate. COMMUTE EXPENSES FROM YOUR
TEMPORARY LODGING LOCATION TO YOUR NEW WORK LOCATION ARE NOT REIMBURSABLE.
It is suggested that you bring your car to your new work location at the
time you report to your new job or soon thereafter.
For moves within or between California and Nevada, the Company will cover
the cost of driving two cars to your new location.
INTERSTATE MOVES
On Interstate moves (except within and/or between California and Nevada) you
may ship one or both cars. If possible, arrange to have one car shipped
early for your use at your new job location. Contact the Relocation Office
to make shipping arrangements.
You may rent a car at the new location while awaiting the arrival of your
car. It may also be necessary to rent a car at the old location for a day
or two after your car has been loaded on the van, prior to your leaving.
You may elect to sell one or both cars in lieu of shipping. If so, the
Company will pay you one-half the estimated shipping cost. The sale(s) must
be documented.
24
<PAGE>
SCHEDULE OF ALLOWANCES
Lodging Per Diem in Lieu
Receipt Required Receipted Lodging Meals
------------------------------------------------------------------
Employee Maximum $80.00 plus tax $25.00 $25.00
per night
Maximum $95.00 plus tax
per night
(downtown metropolitan
location)
2nd
Member Up to $10.00 per day in $5.00 per day $25.00*
of addition to the above addition to the
Household allowance for double allowance*
rate*
Children**12
and older *** $25.00
under 12 *** $12.00
* Applicable only to Exploratory (House-Hunting) and Family Move days (En
Route Trip).
** Applicable only to Family Move days (En Route Trip) and days awaiting
occupancy.
*** One additional room may be authorized for more than two family members.
25
<PAGE>
MOVERS AND MISCELLANEOUS ALLOWANCE
WE BELIEVE WE HAVE INCLUDED IN THIS SECTION, EVERYTHING YOU WILL NEED TO
KNOW ABOUT YOUR MOVERS. FROM INITIAL CONTACT WITH A MOVING FIRM TO ANY
CLAIMS NECESSARY, WE'VE COVERED IT ALL TO MAKE IT EASIER FOR YOU.
INITIAL CONTACT WITH THE MOVERS MUST BE MADE THROUGH YOUR RELOCATION OFFICE.
The Relocation Office will arrange for the movers and will provide company
with instructions and requirements for billing. You and the mover will
arrange for packing and loading dates agreeable to you.
Your furniture should be moved directly into new quarters when possible to
avoid unnecessary furniture handling and additional cost of storage.
Once you have established firm dates with a mover, try not to change them.
MOVERS DON'T CHANGE SCHEDULES BECAUSE THEY LIKE TO. THE CHANGE SCHEDULES
BECAUSE SOMEONE ELSE HAS CHANGED THEIR PLANS AT THE LAST MINUTE, CREATING A
DOMINO EFFECT ON SEVERAL OTHER SHIPMENTS. Have latitude in your plans so
that if a change is necessary you and the movers can work things out. Don t
make irreversible plans to leave the night the movers are supposed to finish
loading.
Expenses incurred by the mover because you failed to notify them of changes
will be charged to your department. Should you have any last minute
disruption of plans, make sure you notify your mover.
It is recommended that you have a member of your family present during the
packing and loading to make sure that a complete inventory is made. Upon
delivery inspect your belongings when they are unloaded and unpacked to make
sure all items on the inventory are delivered. Claims for lost items not on
the inventory will be denied by the moving company.
THE MOVERS ARE REQUIRED TO KEEP IN TOUCH WITH YOU DURING THE MOVE; WE EXPECT
YOU TO DO THE SAME FOR THEM.
The following expenses are paid by the Company directly to the mover:
- Cost of packing, moving, and unpacking your household goods.
- Storage and insurance of your household goods for the first 90
days. Storage and insurance in excess of 90 days will be billed
directly to you.
- Cost of moving your household goods from storage into your new
home.
26
<PAGE>
NOTE: Movers will accept items such as refrigerators, televisions,
stereos, personal computers, recording equipment, amateur radio
equipment and similar items for shipment. However, they will not
accept liability for internal damage to this equipment caused by
moving, vibrations or other normal handling required to move this
type of equipment unless there is visual external damage caused by
maltreatment and the condition of the item is noted at the time of
delivery.
============================================================================
This list reflects whose responsibility it is to pay for other services.
Each moving company receives a copy of this list in their instructions.
Authorized Bill COD/Employee Can use
to Company Misc. Allowance
--------------- --------------------
Storage - Up to 90 days
including warehouse handling
into storage x
Delivery out of storage x
Storage - over 90 days x
Extra stop(s) x
Extra pick-up and/or delivery x
Washers/dryers - normal service x
Refrigerators/freezers - normal service x
Icemaker hookups or disconnects x
Gas/electrical hookups,venting,
plumbing for icemakers x
Stereo turntables tightening x
Assembly/disassembly adjustments x
Pool tables - assembly or disassembly x
Grandfather/grandmother clocks -
assembly or disassembly x
Carpeting/drapery removal x
House cleaning at either end x
Disassembly/reassembly of playhouses,
swing set, swimming pools,
tool sheds, bookshelves,
wall units, etc. x
Draining or refilling of waterbeds x
Shipment of automobiles
- less than 600 miles x
- more than 600 miles (up to two cars) x
Boats and trailer - Up to 20 feet x
- Over 20 feet Call
Pets - transportation costs x
Shuttle x
============================================================================
27
<PAGE>
ITEMS NOT AUTHORIZED TO BE MOVED
The following items are not authorized either due to Company policy or legal
restrictions placed on the movers.
- Building materials - bricks, rocks, gravel and/or lumber.
- Combustible items - paint, lighter fluid, aerosols and/or firewood.
- Tractors or farm implements other than those required for normal
garden use.
- Live plants, shrubs and/or trees. (Houseplants O.K. at own risk).
- Perishable foodstuffs and/or frozen foods. (Under certain
conditions frozen foods maybe moved short distances. Contact your
Coordinator.)
- Farm animals - horses, cattle, fowl, etc.
- Boats with trailer, boats over 20 feet within California or to and
from Nevada.
- Valuable jewelry, precious stones, stamp, gun and/or coin
collections.
- Valuable papers, securities, money and/or furs.
- Furniture from temporary location.
- Ammunition and/or explosives.
INSURANCE
The Company has arranged for insurance coverage for personal property
shipped and stored (for up to 90 days) by established carriers of household
goods. The maximum coverage is $150,000. This coverage is in addition to
the moving company s initial liability of $.60 per pound per article shipped
as required by the Interstate Commerce Commission.
It is not necessary to take out any additional insurance coverage available
through the moving company. If your household goods are valued in excess of
$150,000, contact your Relocation Office. Our policy can be amended for
additional coverage if needed. A written estimate is required by the
insurance company for additional coverage prior to the move date. It is a
good idea to have your Homeowners or Tenants Insurance policy in effect
through the moving period.
28
<PAGE>
Coverage is provided for actual cash value of your property. THE DEFINITION
of actual cash value IS THE COST OF REPLACEMENT LESS DEPRECIATION OF THE
ITEM. For example, a washer may have cost $300.00 when purchased five years
ago. The adjustment will consider the cost of a like kind and quality
machine, then will subtract a percentage of that cost for the use or the
wear of the machine. This concept is common to most Homeowner s or Tenant s
policies. It is not unique to this program. Other insurance coverage you
may wish should be handled through your own insurance company.
It is important that you understand the limits of the insurance coverage
because certain items and types of losses are not covered:
- Important papers, securities, money, gems, stamps, etc.
- Boats over 20 feet in length.
- Jewelry and furs valued in excess of $50.00 per item.
- Live plants, animals, and perishable foodstuffs.
- Automobiles while being driven.
- Loss due to war or civil action.
- Loss due to ordinary wear and tear, gradual deterioration, dampness,
extremes of temperature, insects, moths, vermin, etc.
- Loss due to dishonesty of persons other than the moving company
personnel to whom the property was entrusted.
CLAIMS
In the event of loss or damage you should take the following steps:
- If the driver is present, have him/her make a specific notation on
the inventory and on the delivery receipt.
- Call the moving company and explain that you have a claim. They
will send you a claim form which will cover their minimal insurance
liability.
The moving company will have their claims representative contact you and
settle the claim. In some cases where your claim exceeds the movers
liability it will be forwarded to our insurance adjusters:
William H. McGee & Co.
351 California Street, Room 900
San Francisco, CA 94104
29
<PAGE>
ALL CLAIMS FOR BREAKAGE OR MISSING ITEMS MUST BE FILED WITH THE MOVING
COMPANY WITHIN THE FIRST MONTH AFTER THE FURNITURE IS DELIVERED.
Contact your Relocation Counselor if you have any questions.
MISCELLANEOUS EXPENSE ALLOWANCE
The Miscellaneous Expense Allowance is intended to help with all other
expenses associated with moving. These expenses vary according to each
individual and do not require receipts. Typically they include, but are not
limited to:
- Utility connections.
- Television realignment, cable or antenna installation.
- Electrical wiring, gas connections or hook-ups.
- Piano tuning or clock adjustment.
- Cleaning, extermination or trash removal.
- Alterations of carpets or draperies.
- Automobile registration fees, licenses or smog control installation.
- Losses on membership, safe deposit box fee, or school fee.
- Spouse's employment costs.
- Draining and refilling of waterbeds.
- Laundry and dry cleaning.
- Disassembly/reassembly of work benches.
- Income tax advice/preparation.
This Allowance will be made as follows:
- $1,250 for rental at the new location.
- $2,500 for home purchase at the new location.
NOTE: This Allowance is per purchase or rental. It is not PER PERSON. If
two relocating employees rent or purchase together, only one
allowance will be provided.
30
<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
1994 1993 1992
----------------------------------
Net income (loss) ........................ $1,159 $(1,504) $1,142
====== ======== ======
Weighted average number of common
shares outstanding .................... 423,969 414,171 402,977
Common stock equivalent shares
applicable to stock options ........... 818 1,172 652
-------- -------- -------
Total number of shares for computing
primary earnings per share ............ 424,787 415,343 403,629
Incremental shares for computing fully
diluted earnings per share ............ 0 538 59
-------- -------- -------
Total number of shares for computing
fully diluted earnings per share ...... 424,787 415,881 403,688
======== ======== =======
Earnings (loss) per common share
(as reported).......................... $2.73 $(3.63) $ 2.83
Primary earnings (loss) per share ........ $2.73 $(3.62) $ 2.83
Fully diluted earnings (loss) per share .. $2.73 $(3.62) $ 2.83
Earnings per share amounts for the three-years ended December 31, 1994, 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) 1994 1993 1992* 1991* 1990*
------- ------- ------- ------- -------
1. Earnings
--------
Adjusted income from
continuing operations
before income taxes $1,793 $201 $1,782 $1,514 $1,558
Interest expense 455 509 506 588 644
Interest in operating
rental expense (a) 43 40 44 36 35
------- ------- ------- ------- -------
Total earnings -
continuing operations $2,291 $750 $2,332 $2,138 $2,237
------- ------- ------- ------- -------
2. Fixed Charges
-------------
Interest expense (b) 455 $509 $ 510 $ 590 $ 649
Interest in operating
rental expense (a) 43 40 44 36 35
------- ------- ------- ------- -------
Total fixed charges -
continuing operations $ 498 $549 $ 554 $ 626 $ 684
------- ------- ------- ------- -------
RATIO OF EARNINGS TO FIXED
CHARGES (1 divided by 2) 4.60 1.37** 4.21 3.42** 3.27**
======= ======= ======= ======= =======
(a) Computed as 1/3 of operating rental expense.
(b) Includes capitalized interest.
* Restated to reflect the 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
Telesis Technologies Laboratory, Inc. California
PacTel Capital Funding California
PacTel Capital Resources California
PacTel Re Insurance Company, Inc. Hawaii
Pacific Telesis - Washington California
<PAGE>
SIGNATURE
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our reports dated February
23, 1995 on our audits of the consolidated financial statements and the
financial statement schedules of Pacific Telesis Group and Subsidiaries as
of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994, which reports are included, or incorporated by
reference, in the Pacific Telesis Group Annual Report on Form 10-K and 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 Employ-
ees
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
Form S-8: Stock Incentive Plan
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
March 24, 1995
<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
P. J. Quigley, W. E. Downing 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 effecting the filing of the Annual Report on Form
10-K.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his/her hand
this 24th day of March, 1995.
/s/ William P. Clark /s/ Mary S. Metz
Director Director
/s/ Herman E. Gallegos /s/ Lewis E. Platt
Director Director
/s/ Toni Rembe
Director
/s/ Frank C. Herringer /s/ S. Donley Ritchey
Director Director
/s/ Ivan J. Houston /s/ Richard M. Rosenberg
Director 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
P. J. Quigley, W. E. Downing 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
24th day of March, 1995.
/s/ Philip J. Quigley /s/ William E. Downing
----------------------------------- -----------------------------------
Philip J. Quigley William E. Downing
Chairman of the Board, Executive Vice President, Chief
President and Chief Financial Officer and Treasurer
Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> 12-MOS
<CASH> 135
<SECURITIES> 0
<RECEIVABLES> 1,691
<ALLOWANCES> 134
<INVENTORY> 60
<CURRENT-ASSETS> 2,898
<PP&E> 26,565
<DEPRECIATION> 10,451
<TOTAL-ASSETS> 20,139
<CURRENT-LIABILITIES> 3,483
<BONDS> 0
<COMMON> 43
0
0
<OTHER-SE> 5,190
<TOTAL-LIABILITY-AND-EQUITY> 20,139
<SALES> 0
<TOTAL-REVENUES> 9,235
<CGS> 0
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<NET-INCOME> 1,159
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.73
<PAGE>
