-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J29e+p3u7sinkmXZVHEhQZdXn7DgQE6z2b6/Q0z5X6u5PNxirR/DOD99milD49sV ceE2H2tO9ok/rqaAAEfSiQ== 0000950109-99-001134.txt : 19990331 0000950109-99-001134.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950109-99-001134 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL ATLANTIC CORP CENTRAL INDEX KEY: 0000732712 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 232259884 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08606 FILM NUMBER: 99579166 BUSINESS ADDRESS: STREET 1: 1095 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2123952121 MAIL ADDRESS: STREET 1: 1717 ARCH ST 47TH FL STREET 2: 1717 ARCH ST 47TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19103 10-K 1 BELL ATLANTIC CORPORATION FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8606 BELL ATLANTIC CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 23-2259884 (State of incorporation) (I.R.S. Employer Identification No.) 1095 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10036 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 395-2121 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ---------------- Common Stock, $.10 par value.............. New York, Philadelphia, Boston, Chicago and Pacific Stock Exchanges 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. __ At January 31, 1999, the aggregate market value of the registrant's voting stock held by nonaffiliates was approximately $93,149,000,000. At January 31, 1999, 1,553,258,804 shares of the registrant's Common Stock were outstanding, after deducting 22,987,521 shares held in treasury. Documents incorporated by reference: Portions of the registrant's Proxy Statement prepared in connection with the 1999 Annual Meeting of Shareowners (Part III). ================================================================================ TABLE OF CONTENTS ITEM NO. PAGE - -------- ---- PART I 1. Business .............................................................. 1 2. Properties ............................................................ 14 3. Legal Proceedings ..................................................... 15 4. Submission of Matters to a Vote of Security Holders ................... 15 Executive Officers of the Registrant ...................................... 15 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters ............................................................. 16 6. Selected Financial Data ............................................... 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 16 7A. Quantitative and Qualitative Disclosures About Market Risk ............ 16 8. Financial Statements and Supplementary Data ........................... 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................. 16 PART III 10. Directors and Executive Officers of the Registrant .................... 17 11. Executive Compensation ................................................ 17 12. Security Ownership of Certain Beneficial Owners and Management ........ 17 13. Certain Relationships and Related Transactions ........................ 17 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...... 18 UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 29, 1999 PART I Item 1. Business GENERAL Bell Atlantic Corporation was incorporated in 1983 under the laws of the State of Delaware and completed a merger with NYNEX Corporation on August 14, 1997. Our principal executive offices are located at 1095 Avenue of the Americas, New York, New York 10036 (telephone number 212-395-2121). Bell Atlantic is a telecommunications company that operates in a region stretching from Maine to Virginia. Our principal operating subsidiaries are: New York Telephone Company, Bell Atlantic - New Jersey, Inc., Bell Atlantic - Pennsylvania, Inc., New England Telephone and Telegraph Company, Bell Atlantic - Maryland, Inc., Bell Atlantic - Virginia, Inc., Bell Atlantic - West Virginia, Inc., Bell Atlantic - Delaware, Inc., Bell Atlantic - Washington, D.C., Inc. and Bell Atlantic Mobile. We have four reportable segments, which we operate and manage as strategic business units and we organize by products and services. Our segments and their principal activities consist of the following: - -------------------------------------------------------------------------------- Domestic Telecom Domestic wireline telecommunications services - primarily our nine operating telephone subsidiaries that provide local telephone services from Maine to Virginia, including voice and data transport, enhanced and custom calling features, network access, directory assistance, private lines and public telephones. This segment also provides customer premises equipment distribution, systems integration, billing and collections, and Internet access services. - -------------------------------------------------------------------------------- Global Wireless Wireless telecommunications services to customers in 24 states in the United States and foreign wireless investments servicing customers in Latin America, Europe and the Pacific Rim. - -------------------------------------------------------------------------------- Directory Domestic and international publishing businesses, including print directories and Internet-based shopping guides, as well as website creation and hosting and other electronic commerce services. This segment has operations principally in the United States and Central Europe. - -------------------------------------------------------------------------------- Other Businesses International wireline telecommunications investments primarily in Europe and the Pacific Rim and lease financing and other businesses. - -------------------------------------------------------------------------------- You can find financial information with respect to our segments in Note 17 to the consolidated financial statements. PROPOSED BELL ATLANTIC-GTE MERGER Bell Atlantic and GTE Corporation (GTE) have announced a proposed merger of equals under a definitive merger agreement dated as of July 27, 1998. Under the terms of the agreement, GTE shareholders will receive 1.22 shares of Bell Atlantic common stock for each share of GTE common stock that they own. Bell Atlantic shareholders will continue to own their existing shares after the merger. We expect the merger to qualify as a pooling of interests, which means that for accounting and financial purposes, the companies will be treated as if they had always been combined. The completion of the merger is subject to a number of conditions, including certain regulatory approvals, receipt of opinions that the merger will be tax-free, and the approval of the shareholders of both Bell Atlantic and GTE. We believe that the merger will result in significant opportunities for cost savings, revenue growth, technological development and other benefits. The combined company will achieve synergies through economies of scope and scale, the elimination of duplicative expenditures and the consistent use of the best practices of Bell Atlantic and GTE in cost control and product offerings. 1 Based on anticipated revenue and expense synergies, we expect that the merger will improve earnings per share, excluding merger-related charges, in the first year following the completion. We estimate that the merger will also generate significant capital synergies, producing higher capital efficiency and higher cash flow and margin growth. By the third year following the completion of the merger, we expect: . annual revenue synergies of approximately $2 billion, primarily from improved market penetration for value-added services and faster development of our data and long distance businesses, which, at an estimated operating margin of 25%, will produce $500 million in incremental operating income; . annual expense savings of approximately $2 billion, with savings generated from operating and procurement synergies, reduced corporate overheads, the migration of long distance traffic onto GTE's network, and greater efficiency in wireless operations; and . annual capital synergies of approximately $500 million through volume purchasing and the elimination of certain capital costs associated with building a data network in our current territory. We are targeting revenue growth of 8-10% and earnings per share growth of 13-15% (excluding merger-related charges) in each of the first two years following the completion of the merger. By the third year after the completion of the merger, we are targeting revenue growth in excess of 10% and earnings per share growth in excess of 15% (excluding merger-related charges). As a result of the merger, the combined company will incur direct incremental and transition costs currently estimated at $1.6 billion to $2.0 billion (pre-tax) in connection with completing the transaction and integrating the operations of GTE and Bell Atlantic. These costs consist principally of systems modification costs, costs associated with the elimination and consolidation of duplicate facilities, employee severance and relocation resulting from the merger, branding, compensation arrangements, and professional and registration fees. While the exact timing, nature and amount of these costs is subject to change, we anticipate that the combined company will record a charge of approximately $375 million (pre-tax) for direct incremental costs in the quarter in which the merger is completed. Transition costs of approximately $1.2 billion to $1.6 billion (pre-tax) will be incurred over the three years following completion of the merger. DOMESTIC TELECOM OPERATIONS Our Domestic Telecom segment, primarily comprised of our nine operating telephone subsidiaries, provided approximately 81% of 1998 operating revenues. The operating telephone subsidiaries presently serve a territory consisting of 31 LATAs, or local access and transport areas, and provide mainly two types of telecommunications services: exchange telecommunications and exchange access. . Exchange telecommunications service is the transmission of telecommunications among customers located within a local calling area within a LATA. Examples of exchange telecommunications services include switched local residential and business services, local private line voice and data services, and Centrex services. We also provide toll services within a LATA, including Wide Area Telecommunications Service and intraLATA toll (long distance) service. . Exchange access service links a customer's premises and the transmission facilities of other telecommunications carriers, generally interLATA (long distance) carriers. Examples of exchange access services include switched access and special access services. We have organized our Domestic Telecom segment into business units operating across our telephone subsidiaries. The business units focus on specific market segments. We are not dependent on any single customer. The telephone subsidiaries remain responsible within their respective service areas for the provision of telephone services, financial performance and regulatory matters. The Consumer unit markets communications services to residential customers, as -------- well as operator services, within our territory (22 million households and 63 million people). 1998 revenues were approximately $10 billion, representing approximately 39% of Domestic Telecom's aggregate revenues. These revenues were derived primarily from the provision of telephone services to residential users. 2 The General Business unit markets communications and information services to ---------------- small and medium-sized businesses, as well as pay telephone services, within our territory. The General Business unit has approximately 2.1 million customers in our territory and generated approximately $5 billion in revenues in 1998, representing approximately 19% of Domestic Telecom's aggregate revenues. The Enterprise Business unit markets communications and information technology ------------------- and services to large businesses and to departments, agencies and offices of the executive, judicial and legislative branches of the federal and state government. These services include voice switching/processing services (e.g., dedicated private lines, custom Centrex, call management and voice messaging), end-user networking (e.g., credit and debit card transactions, and personal computer-based conferencing, including data and video), internetworking (establishing links between the geographically disparate networks of two or more companies or within the same company), network optimization (disaster avoidance, 911 service, intelligent vehicle highway systems), video services (distance learning, telemedicine, videoconferencing) and interactive multimedia applications services. The Enterprises Business unit also includes the Data Solutions Group which provides data transmission and network integration services (integrating multiple geographically disparate networks into one system), as well as IP based solutions (communications using internet protocol and internet services, including high-speed internet access and web hosting). Global Networks, a unit of Data Solutions Group, is building a next generation long distance network using ATM (asynchronous transfer mode) technology. 1998 revenues were approximately $5 billion, representing approximately 19% of Domestic Telecom's aggregate revenues. The Network Services unit markets (i) switched and special access to the ---------------- telephone subsidiaries' local exchange networks, and (ii) billing and collection services, including recording, rating, bill processing and bill rendering. 1998 revenues were approximately $6 billion, representing approximately 23% of Domestic Telecom's aggregate revenues. Approximately 75% of total Network Services revenues were derived from interexchange carriers. Most of the remaining revenues came from business customers and government agencies with their own special access network connections, wireless companies and other local exchange carriers which resell network connections to their own customers. TELECOMMUNICATIONS ACT OF 1996 The Telecommunications Act of 1996 (the "1996 Act") became effective on February 8, 1996, and replaced the Modification of Final Judgment (the "MFJ"), a consent decree that arose out of an antitrust action brought by the United States Department of Justice against AT&T. In general, the 1996 Act includes provisions that open local exchange markets to competition and permit Bell Operating Companies (BOC), including ours, to engage in manufacturing and to provide long distance service under certain conditions. First, the 1996 Act permitted us to apply immediately for state approval to offer long distance services originating outside of the states where our operating telephone subsidiaries operate as local exchange carriers. Our wireless businesses also were permitted to immediately offer long distance services without having to comply with the conditions imposed in waivers granted under the MFJ. Second, the 1996 Act permits us to offer in-region long distance services (that is, services originating in the states where our telephone subsidiaries operate as local exchange carriers), once we have demonstrated to the Federal Communications Commission ("FCC") that we have satisfied certain requirements. The requirements include a 14-point "competitive checklist" of steps which we must take to help competitors offer local services through resale, through purchase of unbundled network elements, or through their own networks. We must also demonstrate to the FCC that our entry into the in-region long distance market would be in the public interest. The U.S. Court of Appeals rejected a constitutional challenge to these provisions, and the Supreme Court recently declined to review that decision. During the period that the case was pending, we continued to work through the regulatory process at both the state and federal levels in order to be in a position to demonstrate compliance with the challenged provisions. The U. S. Supreme Court recently reversed a U.S. Court of Appeals decision that had invalidated certain aspects of the FCC rules implementing provisions of the 1996 Act. In particular, the Supreme Court reinstated the FCC's authority to adopt rules governing the methodology to be used by state commissions in setting prices for local interconnection and resale arrangements, and reinstated rules that allow competitors to choose individual terms out of negotiated interconnection agreements and that prohibit incumbent local telephone companies from separating network elements that already are combined in the incumbent's own network. 3 The U. S. Supreme Court also decided that the FCC had applied the wrong standard in determining what elements of their networks incumbent local telephone companies are obligated to make available to competitors on an unbundled basis. Among other things, the FCC failed to account for the fact that some elements are available from other sources. As a result of the decision, the FCC must conduct a new proceeding to apply the correct standard. Pending that proceeding, we have informally agreed to continue offering the FCC's previously specified list of unbundled elements. In addition, a challenge to the substantive merits of the FCC's pricing rules remains pending in the U.S. Court of Appeals. In April 1998, our operating telephone subsidiary in New York filed with the New York State Public Service Commission a statement setting forth additional commitments that we will make to the FCC in connection with our anticipated application for permission to enter the in-region long distance market in New York. Those commitments include terms under which we will offer combinations of unbundled network elements and an unbundled network element platform (UNE-P) to competitors wishing to provide basic local and ISDN-BRI service to business or residential customers. We will offer UNE-P for basic local and ISDN-BRI service throughout our New York operating area, but UNE-P will not be available to competitors for other services, or for service to business customers in those parts of New York City where there is a defined level of local competition from two or more competitive local exchange carriers. Our commitment to offer UNE-P will be for four years in New York City and other major urban areas and for six years in the rest of the state. We believe that the terms of these commitments generally are consistent with the recent Supreme Court decision. We expect to file in the second quarter of 1999 an application with the FCC for permission to enter the in-region long distance market in New York. We hope to begin offering this service in the third quarter of 1999. Following our application for New York, we expect next to file applications with the FCC for Pennsylvania, Massachusetts, New Jersey, Virginia and Maryland and, subsequently, for the remaining states in our territory. The timing of our long distance entry in each of our 14 jurisdictions depends on the receipt of FCC approval. We are unable to predict definitively the impact that the 1996 Act will ultimately have on our business, results of operations or financial condition. The financial impact will depend on several factors, including the timing, extent and success of competition in our markets, the timing and outcome of various regulatory proceedings and any appeals, and the timing, extent and success of our pursuit of new opportunities resulting from the 1996 Act. FCC REGULATION AND INTERSTATE RATES The operating telephone subsidiaries are subject to the jurisdiction of the FCC with respect to interstate services and certain related matters. In 1998, the FCC continued to implement reforms to the interstate access charge system and to implement the "universal service" and other requirements of the 1996 Act. Access Charges Interstate access charges are the rates long distance carriers pay for use and availability of our operating telephone subsidiaries' facilities for the origination and termination of interstate service. The FCC required a phased restructuring of access charges, which began in January 1998, so that the telephone subsidiaries' nonusage-sensitive costs will be recovered from long distance carriers and end-users through flat rate charges, and usage-sensitive costs will be recovered from long distance carriers through usage-based rates. In addition, the FCC has required that different levels of usage-based charges for originating and for terminating interstate traffic be established. Price Caps Under the FCC price cap rules that apply to interstate access rates, each year our price cap index is adjusted downward by a fixed percentage intended to reflect increases in productivity (the productivity factor) and adjusted upward by an allowance for inflation (the GDP-PI). The current productivity factor is 6.5 percent. These changes will be reflected in tariff changes that will be filed to take effect on July 1, 1999. 4 In October 1998, the FCC initiated a proceeding with respect to its price cap rules to determine whether a change in the current productivity factor is warranted, whether to continue its "market based" approach of allowing market forces (supplemented by its price cap rules) to determine access charge levels, and whether to afford additional pricing flexibility for access services. In addition, we have petitioned the FCC to remove our special access services from price cap regulation on the grounds that customers of these services have competitive alternatives available, and a challenge to the FCC order establishing the 6.5 percent productivity factor is pending in the U.S. Court of Appeals. We are unable to predict the results of these further proceedings. Universal Service The FCC has adopted rules implementing the "universal service" provision of the 1996 Act. As of January 1, 1999, the rules require each of our operating telephone subsidiaries to contribute approximately 2% of its interstate retail revenues for high-cost and low-income subsidies. Each of our operating telephone subsidiaries are also required to contribute a portion of their total retail revenues for schools, libraries and not-for-profit health care. Our operating telephone subsidiaries will recover these contributions through interstate charges to long distance carriers and end-users. Our domestic wireless company is required to contribute to these universal service programs and will recover the cost of its contributions from end-users. A new federal high-cost universal service support mechanism for nonrural carriers and an increase in the funding level for schools and libraries are expected to become effective in 1999. The FCC currently is considering, in conjunction with a recommendation from a joint board of federal and state regulators, a number of issues that could affect the size of the universal service fund for high cost areas and the amount of universal service costs that are assessed against our operating telephone subsidiaries and domestic cellular subsidiary for recovery. Reciprocal Compensation We have been required by certain state regulatory decisions to pay "reciprocal compensation" to competitive local exchange and other carriers to terminate calls on their networks, including a large volume of one-way traffic from our customers to internet service providers that are their customers. On February 26, 1999, the FCC confirmed that such traffic is interstate and interexchange in nature and not subject to the reciprocal compensation requirements of the 1996 Act. Because the previous state regulatory decisions were based upon a view that internet access calls are "local" rather than interstate and interexchange in nature, we have asked those state commissions to revisit their prior interpretations. Unless state regulators follow the FCC's interpretation, these reciprocal compensation payments, which were approximately $175 million higher in 1998, are expected to grow to approximately $350 million in 1999. STATE REGULATION OF RATES AND SERVICES State public utility commissions regulate our operating telephone subsidiaries with respect to certain intrastate rates and services and certain other matters. In most jurisdictions the telephone subsidiaries have been able to replace rate of return regulation with price regulation plans. New York Telephone New York The New York State Public Service Commission has regulated New York Telephone under the Performance Incentive Plan since 1995. The plan is performance-based, replacing rate of return regulation with a form of price regulation and incentives to improve service, and does not restrict New York Telephone's earnings. The plan . caps prices at current rates for "basic" services such as residence and business exchange access, residence and business local calling and LifeLine service; . establishes price reduction commitments for a number of services, including toll and intraLATA carrier access services; . adjusts prices annually based on certain costs associated with state commission mandates and other defined "exogenous" events; and . establishes service quality targets with stringent rebate provisions if New York Telephone is unable to meet some or all of the targets. 5 Connecticut New York Telephone's operations are subject to rate of return regulation, but an incentive regulation plan which would eliminate regulation of earnings has been filed with the Connecticut Department of Public Utility Control. Bell Atlantic - New Jersey Bell Atlantic - New Jersey is regulated under a Plan for Alternative Form of Regulation, which expires on December 31, 1999. A petition has been filed to extend the plan for another year. The plan divides Bell Atlantic - New Jersey's services into Competitive Services and Rate-Regulated Services. . The prices for Competitive Services may be changed without regulatory involvement. . Rate-Regulated Services are grouped in two categories: . "Protected Services": Basic residence and business service, Touch-Tone, access services and the ordering, installation and restoration of these services. . "Other Services": Custom Calling, Custom Local Area Signaling Services ("CLASS" services which utilize Signaling System 7), operator services and 911 enhanced service. . There is a cap on basic residence service rates through 1999, but revenue-neutral rate restructuring is permitted. . There is no cap on earnings for Rate-Regulated Services, but Bell Atlantic-New Jersey must share all earnings above a return on equity of 13.7% equally with customers. Bell Atlantic - Pennsylvania The Pennsylvania Public Utility Commission regulates Bell Atlantic - Pennsylvania under an Alternative Regulation Plan approved in 1994. The plan provides for a pure price cap plan with no sharing of earnings with customers and replaces rate base, rate of return regulation. . Competitive Services, including directory advertising, billing services, Centrex service, paging, speed calling, repeat calling, and HiCap are deregulated. . All Noncompetitive Services are price regulated. The plan: . permits annual price increases up to, but not exceeding, the GDP-PI minus 2.93%. . requires annual price decreases when the GDP-PI falls below 2.93%. . caps prices for protected services, including residential and business basic exchange services, special access and switched access, through 1999. . permits revenue-neutral rate restructuring for noncompetitive services. The plan requires Bell Atlantic - Pennsylvania to provide a Lifeline service for residential customers. The plan also requires deployment of a universal broadband network, which must be completed in phases: 20% by 1998; 50% by 2004; and 100% by 2015. Deployment must be reasonably balanced among urban, suburban and rural areas. From September 1998 through February 1999, the commission sponsored a multi-party global telecommunications settlement proceeding aimed at resolving issues in a number of contentious telecommunications regulatory dockets at the commission. The formal negotiation period ended on March 1, 1999, without a settlement among all the negotiation parties having been reached. Since the close of negotiations, two group of participants, one of which includes us, two competitive local exchange carriers, and a number of small telephone companies, have proposed separate nonunanimous settlements for consideration by the commission in resolving some or all of the telecommunications dockets. The commission has not decided what procedures it will follow in addressing the issues raised in these settlement proposals. New England Telephone Maine In 1995, the Maine Public Utilities Commission adopted a five-year price cap plan for New England Telephone, with the provision for a five-year extension after review by the state commission. Overall average prices and specific rate elements for most services are limited by a price cap formula of inflation minus a productivity factor plus or minus certain exogenous cost changes. There is no restriction on New England Telephone's earnings. The state commission also established a service quality index with penalties in the form of customer rebates to apply if service quality categories are missed. 6 Massachusetts In 1995, the Massachusetts Department of Public Utilities approved a price regulation plan for New England Telephone through August 2001, with no restriction on earnings. Certain residence exchange rates are capped. Pricing rules limit New England Telephone's ability to increase prices for most services, including a ceiling on the weighted average price of all tariffed services based on a formula of inflation minus a productivity factor plus or minus certain exogenous changes. In addition, New England Telephone's service quality performance levels in any given month could result in an increase in the productivity offset by one-twelfth of one percent for purposes of the annual price cap filing. New Hampshire New England Telephone's operations are subject to rate of return regulation. Rhode Island In 1996, the Rhode Island Public Utilities Commission approved an incentive regulation plan for New England Telephone. The plan has no set term or expiration, although there are opportunities for annual review by the state commission, and there is no earnings cap or sharing mechanism. Other features of the plan include: more stringent service quality requirements, including a financial penalty, and no increase in residence or business basic exchange rates through 1999. Vermont New England Telephone's operations are subject to rate of return regulation, but an incentive plan has been filed with the Vermont Public Service Board which would eliminate regulations of earnings. Bell Atlantic - Maryland In 1996, the Public Service Commission of Maryland approved a price cap plan for regulating the intrastate services provided by Bell Atlantic - Maryland. Under the plan, services are divided into six categories: Access; Basic-Residential; Basic-Business; Discretionary; Competitive; and Miscellaneous. Rates for Access, Basic-Residential and Basic-Business are capped for a period of three years. After the cap period, rates for services in these three categories can be increased or decreased annually under a formula that is based upon changes in the GDP-PI minus a productivity offset based upon changes in the rate of inflation (CPI). Rates for Discretionary services may be increased under the same formula. Rates for competitive services may be increased without regulatory limits. Regulation of profits is eliminated. Bell Atlantic - Virginia Effective in 1995, the Virginia State Corporation Commission approved an alternative regulatory plan that regulates Bell Atlantic Virginia's noncompetitive services on a price cap basis and does not regulate Bell Atlantic - - Virginia's competitive services. The plan includes a moratorium on rate increases for basic local telephone service until 2001 and eliminates regulation of profits. Bell Atlantic - West Virginia In February 1998, the West Virginia Public Service Commission issued an order extending the Incentive Regulation Plan until December 31, 2000. The Incentive Regulation Plan includes pricing flexibility for competitive services. Bell Atlantic - West Virginia is committed to invest at least $225 million in its network over the three-year period from 1998 through 2000. 7 Bell Atlantic - Delaware In 1994, Bell Atlantic - Delaware elected to be regulated under the alternative regulation provisions of the Delaware Telecommunications Technology Investment Act of 1993 (the "Delaware Telecommunications Act"). The Delaware Telecommunications Act provides that: . the prices of "Basic Telephone Services" (e.g., dial-tone and local usage) will remain regulated and cannot change in any one year by more than the rate of inflation (GDP-PI) less 3%; . the prices of "Discretionary Services" (e.g., Identa RingSM and Call Waiting) cannot increase more than 15% per year per service; . the prices of "Competitive Services" (e.g., voice messaging and message toll service) are not subject to tariff or regulation; and . Bell Atlantic - Delaware will develop a technology deployment plan with a commitment to invest a minimum of $250 million in Delaware's telecommunications network during the first five years of the plan. The Delaware Telecommunications Act also provides protections to ensure that competitors will not be unfairly disadvantaged, including a prohibition on cross-subsidization, imputation rules, service unbundling and resale service availability requirements, and a review by the Delaware Public Service Commission during the fifth year of the plan. In March 1998, the state commission approved Bell Atlantic - Delaware's request to continue under the Delaware Telecommunications Act until March 2002. Bell Atlantic - Washington, D.C. In 1996, the District of Columbia Public Service Commission approved a price cap plan for intra-Washington, D.C. services provided by Bell Atlantic - Washington, D.C. Provisions of the plan include: . a term of four years, through December 31, 1999; . three service categories: basic, discretionary, and competitive; . caps on certain basic residential rates for the term of the plan, with other basic rates to change with the GDP-PI minus 3%; . discretionary service rate increases of up to 15% annually; . elimination of price limits on competitive service rates; and . elimination of the regulation of profits. COMPETITION Legislative changes, including provisions of the 1996 Act discussed above under "Telecommunications Act of 1996," regulatory changes and new technology are continuing to expand the types of available communications services and equipment and the number of competitors offering such services. We anticipate that these industry changes, together with the rapid growth, enormous size and global scope of these markets, will attract new entrants and encourage existing competitors to broaden their offerings. Current and potential competitors in telecommunication services include long distance companies, other local telephone companies, cable companies, wireless service providers, foreign telecommunications providers, electric utilities, Internet service providers and other companies that offer network services. Many of these companies have a strong market presence, brand recognition and existing customer relationships, all of which contribute to intensifying competition and may affect our future revenue growth. In addition, a number of major industry participants have announced mergers, acquisitions and joint ventures which could substantially affect the development and nature of some or all of our markets. Local Exchange Services The ability to offer local exchange services has historically been subject to regulation by state regulatory commissions. Applications from competitors to provide and resell local exchange services have been approved in every jurisdiction in our territory. The 1996 Act is expected to significantly increase the level of competition in all of our local exchange markets. 8 One of the purposes of the 1996 Act was to ensure, and accelerate, the emergence of competition in local exchange markets. Toward this end, the 1996 Act requires most existing local exchange carriers (incumbent local exchange carriers, or "ILECs"), including our operating telephone subsidiaries, to permit potential competitors (competitive local exchange carriers, or "CLECs") to: . purchase service from the ILEC for resale to CLEC customers . purchase unbundled network elements from the ILEC, and/or . interconnect the CLEC network with the ILEC's network. The 1996 Act provides for arbitration by the state public utility commission if an ILEC and a CLEC are unable to reach agreement on the terms of the arrangement sought by the CLEC. Negotiations between the operating telephone subsidiaries and various CLECs, and arbitrations before state public utility commissions, have continued. As of January 31, 1999, the operating telephone subsidiaries had entered into approximately 897 agreements with CLECs covering all of our territory, of which 664 have been approved by state regulators. We expect that these agreements, and the 1996 Act, will continue to lead to substantially increased competition in our local exchange markets in 1999 and subsequent years. We believe that this competition will be both on a facilities basis and in the form of resale by CLECs of our operating telephone subsidiaries' service. Under the various agreements and arbitrations discussed above, our operating telephone subsidiaries are generally required to sell their services to CLECs at discounts ranging from approximately 15% to 29% from the prices our operating telephone subsidiaries charge their retail customers. IntraLATA Toll Services IntraLATA toll calls originate and terminate within the same LATA, but generally cover a greater distance than a local call. State regulatory commissions rather than federal authorities generally regulate these services. All of our state regulatory commissions (except in the District of Columbia, where intraLATA toll service is not provided) permit other carriers to offer intraLATA toll services within the state. Until the implementation of "presubscription," intraLATA toll calls were completed by our operating telephone subsidiaries unless the customer dialed a code to access a competing carrier. Presubscription changes this dialing method and enables customers to make these toll calls using another carrier without having to dial an access code. The 1996 Act generally prohibits, with certain exceptions, a state from requiring presubscription until the earlier of such time as the BOC is authorized to provide long distance services originating in the state or three years from the effective date of the 1996 Act. New York Telephone fully completed intraLATA presubscription implementation by September 1996. By December 1997, our operating telephone subsidiaries in Delaware, Maine, New Hampshire, New Jersey, Pennsylvania, Rhode Island, Vermont and West Virginia had also implemented presubscription. We expect to offer intraLATA presubscription in Massachusetts in April 1999. In Maryland and Virginia, the state commissions have decided that intraLATA presubscription need not occur on the third anniversary of the 1996 Act, but did not set dates for implementation. The recent Supreme Court decision reinstated the FCC's authority to adopt rules governing intraLATA presubscription, and the FCC has required that implementation be completed as early as May 1999. Implementation of presubscription for intraLATA toll services has had a material negative effect on intraLATA toll service revenues in those jurisdictions where, as noted above, presubscription has been implemented before we are permitted to offer long distance services. However, the negative effect is beginning to subside now that presubscription has been available in most of our states for more than one year. In addition, the adverse impact on intraLATA toll services revenues is being partially offset by an increase in intraLATA network access revenues. 9 Alternative Access A substantial portion of our operating telephone subsidiaries' revenues from business and government customers is derived from a relatively small number of large, multiple-line subscribers. We face competition from alternative communications systems, constructed by large end-users, interexchange carriers and alternative access vendors, which are capable of originating and/or terminating calls without the use of our plant. The FCC's orders requiring us to offer virtual collocated interconnection for special and switched access services have enhanced the ability of such alternative access providers to compete with us. Other potential sources of competition include cable television systems, shared tenant services and other noncarrier systems which are capable of bypassing our operating telephone subsidiaries' local plant, either partially or completely, through substitution of special access for switched access or through concentration of telecommunications traffic on fewer of our operating telephone subsidiaries' lines. Wireless Services Wireless services also constitute potential sources of competition to our wireline telecommunications services, especially as wireless carriers continue to lower their prices to end users. Wireless portable telephone services employ analog and digital technology that allows customers to make and receive telephone calls from any location using small handsets, and can also be used for data transmission. Our investment in wireless services is described below under "Global Wireless." Public Telephone Services We face increasing competition in the provision of pay telephone services from other providers. In addition, the growth of wireless communications decreases usage of public telephones. Operator Services Alternative operator services providers have entered into competition with our operator services product line. DIRECTORY Through Bell Atlantic Yellow Pages Company, Bell Atlantic Electronic Commerce Services, Inc. and other subsidiaries, we publish printed and electronic directories and provide Internet-based electronic shopping guides, as well as website creation and hosting and other electronic commerce services. Our directory publishing business produces over 600 domestic and international Yellow Page directories with over 900,000 advertisers and distributes approximately 80 million copies annually in its regional markets, as well as in Poland, the Czech Republic, Slovakia, Greece, Gibraltar and China. We provide on-line shopping services with more than 10,000 advertisers and nearly 23 million visits per month. 1998 revenues from the Directory segment were approximately $2.3 billion. 10 GLOBAL WIRELESS 1998 revenues from our Global Wireless segment were approximately $3.8 billion. United States We provide wireless communications services in the United States principally through our subsidiary, Bell Atlantic Mobile ("BAM"), and PrimeCo Personal Communications, L.P. ("PrimeCo"), a joint venture. BAM provides wireless services to approximately 6.2 million customers in the Northeast, mid-Atlantic, Southeast and Southwest portions of the United States. BAM competes with other cellular carriers and personal communications service ("PCS") providers licensed by the FCC. Competing providers offer competitive pricing plans, digital technology, and enhanced calling features. BAM has introduced new pricing plans designed to meet this new competition, and offers digital service as well as enhanced calling features in its markets. PrimeCo is a partnership between Bell Atlantic and AirTouch Communications which provides PCS services in over 30 major cities across the United States. At year-end PrimeCo had approximately 902,000 customers. Since 1994 we have invested approximately $1.6 billion in PrimeCo to fund its operations and the build-out of its PCS network. Mexico We have a 47.2% economic interest in Grupo Iusacell, S.A. de C.V. ("Iusacell"), a telecommunications company in Mexico whose primary business is the provision of wireless telephone service. The Peralta Group, the other principal shareholder of Iusacell, holds approximately 43.6%, and the remaining 9.3% is held by public shareholders. Since 1993, we have invested approximately $1.2 billion in Iusacell. In the first quarter of 1997, we consummated a restructuring of our investment in Iusacell to permit us to assume control of its board of directors and management. At year end, Iusacell had approximately 750,000 subscribers. Italy We have a 19.71% economic interest in Omnitel Pronto Italia, S.p.A. ("Omnitel"), an Italian digital cellular telecommunications company. Since 1994 we have invested approximately $544 million in Omnitel. At year-end, Omnitel had approximately 6.2 million subscribers. Greece We have a 20% economic interest in STET Hellas Telecommunications S.A. ("STET Hellas"), which holds one of three nationwide licenses for cellular services in Greece. At year-end, STET Hellas had approximately 688,000 subscribers. Czech Republic and Slovakia We have an economic interest of approximately 25% in EuroTel Praha s r.o. and EuroTel Bratislava a.s., which have been operating cellular systems in the Czech Republic and Slovakia, respectively, since 1991. Indonesia We have an economic interest of approximately 23% in P.T. Excelcomindo Pratama ("Excelcomindo"), which holds a nationwide license to provide cellular service in Indonesia. In the third quarter of 1998, we recorded a charge of $137 million to adjust the carrying value of our investment in Excelcomindo to its estimated fair value. We considered the following factors in determining this charge: 11 . The continued weakness of the Indonesian currency as compared to historical exchange rates will create additional financial burdens on the company in servicing U.S. dollar-denominated debt. The continuing political unrest in Indonesia has contributed to the currency's instability. . The economic instability and prospects for an extended recovery period have resulted in weaker than expected growth in Excelcomindo's business. One significant factor has been inflexible tariff regulation despite rising costs due to inflation. This and other factors have resulted in reduced expectations of future cash flows and, accordingly, a reduction in the value of our investment. . Issues with cash flow are requiring Excelcomindo's shareholders to evaluate the future funding of the business. OTHER BUSINESSES 1998 revenues from our Other Businesses were approximately $124 million. New Zealand We have a 24.94% economic interest in Telecom Corporation of New Zealand Limited ("TCNZ"). TCNZ is the principal provider of telecommunications services in New Zealand, offering local service, national and international long distance service, cellular service and Internet access. At December 31, 1998, TCNZ had approximately 1.85 million access lines, 565,000 cellular connections and 160,000 internet access customers. TCNZ faces increasing competition in most of its markets. The New Zealand government retains a single share in TCNZ, which gives the government the right to limit residential local service price increases to no more than the rate of inflation and requires a flat-rate local calling option for residential customers. In February 1998, we monetized our investment in TCNZ and issued approximately $2.5 billion in five year notes, which are exchangeable into shares of TCNZ at the option of the holder after September 1, 1999. Upon exchange by the holders, we retain the option to settle in cash or by delivery of shares. Great Britain We have an 18.5% economic interest in Cable & Wireless Communications, PLC ("CWC"), which was created in April 1997 through the merger of Mercury Communications, NYNEX CableComms, and Bell Cablemedia, following the acquisition of Videotron Holdings by Bell Cablemedia. CWC provides telecommunications and CATV services and at December 31, 1998 had approximately 1 million residential telephony lines and 837,000 CATV subscribers. In August 1998 we monetized our investment in CWC and issued approximately $3.2 billion in notes which are exchangeable into shares of CWC at the option of the holder after July 1, 2002. Upon exchange by the holders, we retain the option to settle in cash or by delivery of shares. Thailand We have an economic interest of 18.2% in TelecomAsia Corporation Public Company Limited ("TelecomAsia"), which operates a telecommunications network and CATV system in metropolitan Bangkok. At year-end, TelecomAsia had approximately 1.3 million telephony lines in service and 350,000 CATV subscribers. In the third quarter of 1998, we recorded a charge of $348 million to adjust the carrying value of our investment in Telecom Asia to its estimated fair value. We considered the following factors in determining this charge: . The continued weakness of the Thai currency as compared to historical exchange rates will place additional financial burdens on the company in servicing U.S. dollar-denominated debt. . The economic instability and prospects for an extended recovery period have resulted in weaker than expected growth in TelecomAsia's business. This is indicated by slower than expected growth in total subscribers and usage. These factors resulted in reduced expectations of future cash flows and, accordingly, a reduction in the value of our investment. . The business plan for TelecomAsia contemplated cash flows from several lines of business. Given TelecomAsia's inclination to focus on its core wireline business, these other lines of business may not contribute future cash flows at previously expected levels. 12 Philippines We have a 20% economic interest in BayanTel Telecommunications Holdings Corporation ("BayanTel"), a local exchange provider. At December 31, 1998, BayanTel had approximately 250,000 access lines. FLAG FLAG Limited (FLAG) owns and operates an undersea fiberoptic cable system, providing digital communications links between Europe and Asia. FLAG launched commercial service in the fourth quarter of 1997. We hold approximately a 34% equity interest in the venture and have invested approximately $227 million since 1994. We have approximately a 5% interest in the parent company of FLAG, FLAG Telecom Holding Limited (FLAG Telecom). In the first quarter of 1999, a subsidiary of FLAG Telecom and Global TeleSystems Group, Inc., a U.S. telecommunications company, agreed to establish a joint venture to build and operate a transoceanic dual cable system to carry high-speed data and video traffic across the Atlantic Ocean. The companies expect to offer service in 2000. EMPLOYEES As of December 31, 1998, Bell Atlantic and its subsidiaries had approximately 140,000 employees. Unions represent approximately 69% of our employees. In 1998 we executed new collective bargaining agreements with the unions. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS In this Annual Report on Form 10-K we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "estimates," "hopes" or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors, along with those discussed elsewhere in this Annual Report, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: . materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; . material changes in available technology; . the final outcome of federal, state and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, universal service, and unbundled network elements and resale rates; . the extent, timing, success and overall effects of competition from others in the local telephone and toll service markets; . the timing and profitability of our entry into the in-region long distance market; . the success and expense of our remediation efforts and those of our suppliers, customers, joint ventures, noncontrolled investments and interconnecting carriers in achieving year 2000 compliance; and . the timing of, and regulatory or other conditions associated with, the completion of the merger with GTE and our ability to combine operations and obtain revenue enhancement and cost savings following the merger. 13 Item 2. Properties GENERAL Our principal properties do not lend themselves to simple description by character and location. Our total investment in plant, property and equipment was approximately $83.1 billion at December 31, 1998 and $77.4 billion at December 31, 1997, including the effect of retirements, but before deducting accumulated depreciation. Our gross investment in plant, property and equipment consisted of the following at December 31: 1998 1997 ------ ------ Outside communications plant .................... 40.5% 40.9% Central office equipment ........................ 37.9 37.7 Land and buildings .............................. 8.5 8.7 Furniture, vehicles and other work equipment .... 9.5 9.4 Other ........................................... 3.6 3.3 ------ ------ 100.0% 100.0% ====== ====== Our properties are divided among our operating segments as follows: 1998 1997 ------ ------ Domestic Telecom ................................ 92.3% 93.0% Global Wireless ................................. 7.2 6.5 Directory ....................................... .4 .4 Other Businesses ................................ .1 .1 ------ ------ 100.0% 100.0% ====== ====== "Outside communications plant" consists primarily of aerial cable, underground cable, conduit and wiring, cellular plant, and telephone poles. "Central office equipment" consists of switching equipment, transmission equipment and related facilities. "Land and buildings" consists of land and land improvements, and principally central office buildings. "Furniture, vehicles and other work equipment" consists of public telephone instruments and telephone equipment (including PBXs), furniture, office equipment, motor vehicles and other work equipment. "Other" property consists primarily of plant under construction, capital leases and leasehold improvements. The customers of our operating telephone subsidiaries are served by electronic switching systems that provide a wide variety of services. The operating telephone subsidiaries' network is in a transition from an analog to a digital network, which provides the capabilities to furnish advanced data transmission and information management services. At December 31, 1998, approximately 97% of the access lines were served by digital capability. Substantially all of the assets of New York Telephone Company, totaling approximately $13.3 billion at December 31, 1998, are subject to the lien of New York Telephone Company's refunding mortgage bond indenture. CAPITAL EXPENDITURES We continue to make significant capital expenditures to meet the demand for communications services and to further improve such services. Capital expenditures for our Domestic Telecom business were approximately $6.4 billion in 1998, $5.5 billion in 1997 and $4.9 billion in 1996. Capital expenditures for our Global Wireless, Directory and Other Businesses were approximately $1.0 billion in 1998, $1.1 billion in 1997 and $1.5 billion in 1996. Capital expenditures exclude additions under capital leases. We expect capital expenditures in 1999 to total approximately $8.1 billion, including approximately $7.3 billion to be invested in our Domestic Telecom business to facilitate the introduction of new products and services, enhance responsiveness to competitive challenges, and increase the operating efficiency and productivity of the network. This estimate includes approximately $500 million related to the implementation of the new accounting standard on costs of computers software, Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." 14 Item 3. Legal Proceedings There were no proceedings reportable under Item 3. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information with respect to our executive officers.
Held Name Age Office Since - ------------------------ --- ---------------------------------------------------- ----- Ivan G. Seidenberg 52 Chairman and Chief Executive Officer 1998 Lawrence T. Babbio, Jr. 54 President and Chief Operating Officer 1998 James G. Cullen 56 President and Chief Operating Officer 1998 Jacquelyn B. Gates 47 Vice President - Ethics and Corporate Compliance 1998 Alexander H. Good 49 Executive Vice President - Strategy 1998 and Corporate Development Patrick F.X. Mulhearn 47 Vice President - Corporate Communications 1997 Donald J. Sacco 57 Executive Vice President - Human Resources 1997 Frederic V. Salerno 55 Senior Executive Vice President and Chief Financial 1997 Officer/Strategy and Business Development Thomas J. Tauke 48 Senior Vice President - Government Relations 1997 Doreen A. Toben 49 Vice President - Controller 1998 Chester N. Watson 48 Vice President - Internal Auditing 1997 Morrison DeS. Webb 51 Executive Vice President - External Affairs and 1997 Corporate Communications Ellen C. Wolf 45 Vice President - Treasurer 1997 James R. Young 47 Executive Vice President - General Counsel 1997
Prior to serving as an executive officer, each of the above officers have held high level managerial positions with the company or one of its subsidiaries for at least five years. Officers are not elected for a fixed term of office but are removable at the discretion of the Board of Directors. 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The principal market for trading in the common stock of Bell Atlantic is the New York Stock Exchange. The common stock is also listed in the United States on the Boston, Chicago, Pacific, and Philadelphia stock exchanges. As of December 31, 1998, there were 1,102,900 shareowners of record. High and low stock prices, as reported on the New York Stock Exchange composite tape of transactions, and dividend data are as follows: Market Price Cash ------------------- Dividend High Low Declared ---- --- -------- 1998: First Quarter............... $53 $42 3/8 $.385 Second Quarter.............. 51 5/8 44 11/16 .385 Third Quarter............... 50 7/16 40 7/16 .385 Fourth Quarter.............. 61 3/16 47 3/4 .385 1997: First Quarter............... $35 11/16 $29 5/8 $.37 Second Quarter.............. 39 1/8 28 3/8 .37 Third Quarter............... 40 7/8 34 .385 Fourth Quarter.............. 45 7/8 37 3/8 .385 Reflects 2-for-1 stock split declared and paid in second quarter of 1998. Pursuant to the terms of an Agreement and Plan of Merger, dated September 23, 1997, relating to the merger of Blue Ridge Cellular Telephone Company with one of our subsidiaries, we issued 212,171 shares of common stock in 1997 and 1,742 shares of common stock in 1998, none of which was registered under the Securities Act of 1933. Item 6. Selected Financial Data The information required by this item is included on page F-21 of this report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is included on pages F-2 through F-20 of this report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is included on pages F-13 through F-15 of this report. Item 8. Financial Statements and Supplementary Data The information required by this item is included on pages F-22 through F-51 of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. 16 PART III Item 10. Directors and Executive Officers of the Registrant For information with respect to our executive officers, see "Executive Officers of the Registrant" at the end of Part I of this Report. For information with respect to the Directors and compliance with Section 16(a) of the Securities Exchange Act of 1934, see the Proxy Statement for our 1999 Annual Meeting of Shareowners to be filed pursuant to Regulation 14A, which is incorporated herein by reference. Item 11. Executive Compensation For information with respect to executive compensation, see the Proxy Statement for our 1999 Annual Meeting of Shareowners to be filed pursuant to Regulation 14A, which is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management For information with respect to the security ownership of the Directors and Executive Officers, see the Proxy Statement for our 1999 Annual Meeting of Shareowners to be filed pursuant to Regulation 14A, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions For information with respect to certain relationships and related transactions, see the Proxy Statement for our 1999 Annual Meeting of Shareowners to be filed pursuant to Regulation 14A, which is incorporated herein by reference. 17 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) Financial Statements See Index to Financial Information appearing on Page F-1. (2) Financial Statement Schedule See Index to Financial Information appearing on Page F-1. (3) Exhibits Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC) in File No. 1-8606 except as otherwise noted, are incorporated herein by reference as exhibits hereto. Exhibit Number - ------- 2 Agreement and Plan of Merger by and among Bell Atlantic Corporation, Beta Gama Corporation and GTE Corporation, dated as of July 27, 1998. (Exhibit 2.01 to Form 8-K, date of report July 30, 1998.) 3a Restated Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"). (Exhibit 3(i) to Form 8-K, date of report August 14, 1997.) 3b By-Laws of Bell Atlantic, as amended and restated as of January 1, 1999. 4 No instrument which defines the rights of holders of long-term debt of Bell Atlantic and its consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, Bell Atlantic hereby agrees to furnish a copy of any such instrument to the SEC upon request. 10a Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of January 1, 1998.* 10b Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842).* 10c Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842.)* 10d Bell Atlantic Retirement Plan for Outside Directors, as amended and restated as of January 1, 1996. (Exhibit 10k to Form 10-K for the year ended December 31, 1995.)* 10e Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of January 1, 1998.* 10f Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990.)* 10f(i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993.)* 10g Description of Changes in Compensation for Outside Directors of Bell Atlantic, effective August 14, 1997 (Exhibit 10y to Form 10-Q for the quarter ended September 30, 1997.)* 18 10h Bell Atlantic Senior Management Short Term Incentive Plan, as amended and restated effective as of January 22 1996. (Exhibit 10a to Form 10-K for the year ended December 31, 1996.)* 10h(i) Description of Amendment, effective August 14, 1997. (Exhibit 10a(i) to Form 10-Q for the quarter ended September 30, 1997.)* 10i Bell Atlantic Deferred Compensation Plan, as amended and restated as of January 1, 1997. (Exhibit 10i to Form 10-K for the year ended December 31, 1996.)* 10i(i) Description of Amendments to Bell Atlantic Deferred Compensation Plan (renamed the Bell Atlantic Senior Management Income Deferral Plan), effective January 1, 1998. (Exhibit 10i(i) to Form 10-K for the year ended December 31, 1997.)* 10j Bell Atlantic 1985 Incentive Stock Option Plan, as amended and restated as of July 1, 1996. (Exhibit 10j to Form 10-K for the year ended December 31, 1996.)* 10j(i) Description of Amendment and Administrative Change to Bell Atlantic 1985 Incentive Stock Option Plan, effective August 14, 1997. (Exhibit 10a(i) to Form 10-Q for the quarter ended September 30, 1997.)* 10k Section 6 from Bell Atlantic Cash Balance Plan regarding limitations on payment of pension amounts which exceed the limitations contained in the Employee Retirement Income Security Act of 1974. (Exhibit 10g to Form 10-K for the year ended December 31, 1996.)* 10l Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986.)* 10l(i) Resolutions amending the Plan, effective as of January 1, 1989. (Exhibit 10d to Form SE dated March 29, 1989.)* 10l(ii) Description of Amendments, effective January 1, 1998, to Bell Atlantic Senior Management Long Term Disability Plan (formerly known, as the Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan). (Exhibit 10b(ii) to Form 10-K for the year ended December 31, 1997.)* 10m Bell Atlantic Salary Program for Senior Managers, effective August 14, 1997. (Exhibit 10x to Form 10-Q for the quarter ended September 30, 1997.)* 10n Description of Bell Atlantic Senior Management Estate Management Plan.* 10o Description of Bell Atlantic Senior Management Death Benefit Plan, effective April 1, 1998. (Exhibit 10rr to Form 10-K for year ended December 31, 1997.)* 10p Description of Bell Atlantic Senior Management Flexible Spending Perquisite Account, effective January 1, 1998. (Exhibit 10ss to Form 10-K for year ended December 31, 1997.)* 10q NYNEX 1984 Stock Option Plan, as amended and restated. (Post-Effective Amendment No. 1 to NYNEX's Registration No. 2-97813, dated September 21, 1987, File No. 1-8608.)* 10r NYNEX 1987 Restricted Stock Award Plan (Exhibit No. (28) (i) 1 to NYNEX's filing on Form SE dated March 23, 1988, File No. 1-8608.)* 10s NYNEX 1990 Stock Option Plan as amended. (Exhibit No. 2 to NYNEX's Proxy Statement dated March 20, 1995, File No. 1-8608.)* 10t NYNEX 1995 Stock Option Plan as amended. (Exhibit No. 1 to NYNEX's Proxy Statement dated March 20, 1995, File No. 1-8608.)* 19 10u NYNEX 1995 Long Term Incentive Program as amended. (Exhibit No. 3 to NYNEX's Proxy Statement dated March 20, 1995, File No. 1-8608.)* 10v NYNEX Supplemental Life Insurance Plan. (Exhibit No. 10 iii 21 to NYNEX's Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No. 1-8608.)* 10w NYNEX Executive Retention Agreement. (Exhibit No. 10 iii 35 to NYNEX's Quarterly Report on Form 10-Q, for the period ended June 30, 1996, File No. 1-8608.)* 10x Employment Agreement, dated August 14, 1997, by and between Bell Atlantic and Raymond W. Smith (Exhibit 10aa to Form 10-Q for the quarter ended September 30, 1997.)* 10x(i) Letter dated April 16, 1998, to Raymond W. Smith concerning employment-related issues. (Exhibit 10v(i) to Form 10-Q for the quarter ended June 30, 1998.)* 10x(ii) Resolutions dated May 1, 1998, approving amendments to Employment Agreement of Raymond W. Smith. (Exhibit 10v(ii) to Form 10-Q for the quarter ended June 30, 1998.)* 10y Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Lawrence T. Babbio, Jr.. (Exhibit 10a to Form 10-Q for the quarter ended June 30, 1998.)* 10z Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and James G. Cullen. (Exhibit 10b to Form 10-Q for the quarter ended June 30, 1998.)* 10aa Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Frederic V. Salerno. (Exhibit 10c to Form 10-Q for the quarter ended June 30, 1998.)* 10bb Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Donald J. Sacco. (Exhibit 10d to Form 10-Q for the quarter ended June 30, 1998.)* 10cc Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Morrison DeS. Webb. (Exhibit 10e to Form 10-Q for the quarter ended June 30, 1998.)* 10dd Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and James R. Young. (Exhibit 10f to Form 10-Q for the quarter ended June 30, 1998.)* 10ee Form of Amendment, dated as of October 27, 1998, to Employment Agreements with Lawrence T. Babbio, Jr., James G. Cullen, Frederic V. Salerno, Donald J. Sacco, Morrison DeS. Webb and James R. Young.* 10ff Employment Agreement, dated as of January 1, 1999, by and between Bell Atlantic Corporation and Ivan G. Seidenberg.* 10gg Employment Agreement, dated as of October 27, 1998, by and between Bell Atlantic Corporation and Alexander H. Good.* 10hh Resolution, dated January 24, 1994, granting Lawrence T. Babbio, Jr. certain nonqualified stock options to purchase American Depository Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V. (Exhibit 10s to Form 10-K for the year ended December 31, 1993.)* 10ii Form of stock option grant to Lawrence T. Babbio, Jr., dated February 18, 1997, containing terms and conditions of certain nonqualified stock options to purchase American Depository Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V. (Exhibit 10q to Form 10-K for the year ended December 31, 1996.)* 10jj Forms of Stay Incentive Agreement and Separation and Non-Compete Agreement with Doreen A. Toben and Ellen C. Wolf with respect to the Bell Atlantic-NYNEX merger. (Exhibit 10(f) to Registration Statement on Form S-4 No. 333-11573.)* 20 10kk Form of Stay Incentive Agreement, dated as of November 23, 1998, with Doreen A. Toben and Ellen C. Wolf with respect to the Bell Atlantic - GTE Merger.* 10ll Form of Stay Incentive Agreement, dated as of November 23, 1998, with Patrick F. X. Mulhearn and Thomas J. Tauke.* 10mm Form of Stay Incentive Agreement, dated as of November 23, 1998, with Jacquelyn B. Gates and Chester N. Watson.* 10nn Form of Merger Agreement, dated as of January 29, 1999, with Doreen A. Toben and Ellen C. Wolf.* 10oo Form of Merger Agreement, dated as of January 29, 1999, with Patrick F. X. Mulhearn and Thomas J. Tauke.* 10pp Form of Merger Agreement, dated as of January 29, 1999, with Jacquelyn B. Gates and Chester N. Watson.* 10qq Stock Option Agreement, dated as of July 27, 1998, between Bell Atlantic Corporation and GTE Corporation. (Exhibit 10.01 to Form 8-K, date of report July 30, 1998.) 10rr Stock Option Agreement, dated as of July 27, 1998, between GTE Corporation and Bell Atlantic Corporation. (Exhibit 10.02 to Form 8-K, date of report July 30, 1998.) 12 Computation of Ratio of Earnings to Fixed Charges. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. - ----------- *Indicates management contract or compensatory plan or arrangement. 21 (b) Current Reports on Form 8-K filed during the quarter ended December 31, 1998: A Current Report on Form 8-K, dated October 13, 1998, was filed regarding certain charges taken in the third quarter of 1998. A Current Report on Form 8-K, dated October 21, 1998, was filed regarding Bell Atlantic's third quarter 1998 financial results. A Current Report on Form 8-K, dated October 26, 1998, was filed on behalf of the Bell Atlantic Savings and Security Plan (Non Salaried Employees) regarding a change in the Plan's independent accountants. A Current Report on Form 8-K, dated October 26, 1998, was filed on behalf of the Bell Atlantic Savings and Plan for Salaried Employees regarding a change in the Plan's independent accountants. A Current Report on Form 8-K, dated October 26, 1998, was filed on behalf of the NYNEX Corporation Savings and Security Plan (Non-Salaried Employees) regarding a change in the Plan's independent accountants. A Current Report on Form 8-K, dated October 28, 1998, was filed regarding certain statements made at a Bell Atlantic Analyst Conference on October 28, 1998. 22 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. BELL ATLANTIC CORPORATION By /s/ Doreen A. Toben -------------------------------- Doreen A. Toben Vice President - Controller March 29, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. +++++ Principal Executive Officer: Chairman of the + Ivan G. Seidenberg Board and Chief + Executive Officer + + Principal Financial Officer: Senior Executive Vice + Frederic V. Salerno President and Chief + Financial Officer/Strategy and + Business Development + + Principal Accounting Officer: Vice President - Controller + Doreen A. Toben + + Directors: + + Lawrence T. Babbio, Jr. +++++ By /s/ Doreen A. Toben Richard L. Carrion + ------------------------- James G. Cullen + Doreen A. Toben Lodewijk J.R. de Vink + (individually and as James H. Gilliam, Jr. + attorney-in-fact) Stanley P. Goldstein + March 29, 1999 Helene L. Kaplan + Thomas H. Kean + Elizabeth T. Kennan + John F. Maypole + Joseph Neubauer + Thomas H. O'Brien + Eckhard Pfeiffer + Hugh B. Price + Rozanne L. Ridgway + Frederic V. Salerno + Ivan G. Seidenberg + Walter V. Shipley + John R. Stafford + Morrison DeS. Webb + Shirley Young +++++
23 INDEX TO FINANCIAL INFORMATION Page Number ----------- Management's Discussion and Analysis of Results of Operations and Financial Condition ........................................... F-2 Selected Financial Data .............................................. F-21 Consolidated Statements of Income For the years ended December 31, 1998, 1997 and 1996 .............. F-22 Consolidated Balance Sheets December 31, 1998 and 1997 ........................................ F-23 Consolidated Statements of Changes in Shareowners' Investment For the years ended December 31, 1998, 1997 and 1996 .............. F-24 Consolidated Statements of Cash Flows For the years ended December 31, 1998, 1997 and 1996 .............. F-25 Notes to Consolidated Financial Statements ........................... F-26 Report of Management ................................................. F-51 Report of Independent Accountants .................................... F-51 Schedule II--Valuation and Qualifying Accounts For the years ended December 31, 1998, 1997 and 1996 .............. F-52 Financial statement schedules other than that listed above have been omitted because such schedules are not required or applicable. F-1 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OVERVIEW - -------------------------------------------------------------------------------- 1998 marked a year in which we achieved very solid financial results while continuing to position ourselves for entry into new markets in telecommunications. Our results were driven by strong market demand for voice and data services in our Domestic Telecom business and robust operating performance by our Global Wireless group. In 1998, we reported net income of $2,965 million, or $1.86 diluted earnings per share. In 1997, we reported net income of $2,455 million or $1.56 diluted earnings per share, and in 1996 we reported net income of $3,402 million or $2.18 diluted earnings per share. Our reported results for all three years were affected by special items. After adjusting for such items, net income would have been $4,323 million or $2.72 diluted earnings per share in 1998, $3,847 million or $2.45 diluted earnings per share in 1997, and $3,474 million or $2.23 diluted earnings per share in 1996. The table below summarizes reported and adjusted results of operations for 1998, 1997 and 1996. (DOLLARS IN MILLIONS) Years Ended December 31 1998 1997 1996 - -------------------------------------------------------------------------------- Operating revenues $ 31,566 $ 30,194 $ 29,155 Operating expenses 24,939 24,852 23,076 --------------------------------------- Operating income 6,627 5,342 6,079 REPORTED NET INCOME 2,965 2,455 3,402 --------------------------------------- Special items-pre-tax Merger-related costs 196 519 -- Retirement incentive costs 1,021 513 236 Other charges and special items 589 1,041 315 --------------------------------------- Total special items-pre-tax 1,806 2,073 551 Tax effect and other tax-related items (448) (681) (206) Cumulative effect of change in accounting principle, net of tax (273) --------------------------------------- Total special items-after-tax 1,358 1,392 72 --------------------------------------- ADJUSTED NET INCOME $ 4,323 $ 3,847 $ 3,474 ======================================= DILUTED EARNINGS PER SHARE-REPORTED $ 1.86 $ 1.56 $ 2.18 DILUTED EARNINGS PER SHARE-ADJUSTED $ 2.72 $ 2.45 $ 2.23 All prior year per share amounts have been adjusted to reflect a two-for-one common stock split on June 1, 1998. The following table shows how special items are reflected in our consolidated statements of income for each of the three years: (DOLLARS IN MILLIONS) Years Ended December 31 1998 1997 1996 - -------------------------------------------------------------------------------- OPERATING REVENUES Regulatory contingencies $ -- $ 179 $ 132 --------------------------------------- EMPLOYEE COSTS Retirement incentive costs 1,021 513 236 Merger direct incremental costs -- 53 -- Merger severance costs -- 223 -- Merger transition costs 15 4 -- Video-related charges -- 12 -- Other special items 30 -- 41 DEPRECIATION AND AMORTIZATION Write-down of assets 40 300 19 OTHER OPERATING EXPENSES Merger direct incremental costs -- 147 -- Merger transition costs 181 92 -- Video-related charges 15 69 -- Real estate consolidation -- 55 -- Regulatory, tax and legal contingencies and other special items 9 347 171 --------------------------------------- 1,311 1,815 467 --------------------------------------- (INCOME) LOSS FROM UNCONSOLIDATED BUSINESSES Write-down of Asian investments 485 -- -- Write-down of video investments 8 162 -- Equity share of CWC formation costs -- 59 -- Gains on sales of investments -- (142) (60) OTHER INCOME AND EXPENSE, NET Write-down of assets (45) -- 12 INTEREST EXPENSE Write-down of assets 47 -- -- --------------------------------------- TOTAL SPECIAL ITEMS-PRE-TAX 1,806 2,073 551 PROVISION FOR INCOME TAXES Tax effect of special items and other tax-related items (448) (681) (206) Cumulative effect of change in accounting principle-directory publishing, net of tax -- -- (273) --------------------------------------- TOTAL SPECIAL ITEMS-AFTER-TAX $ 1,358 $ 1,392 $ 72 ======================================= F-2 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- What follows is a further explanation of the nature and timing of these special items. - -------------------------------------------------------------------------------- Merger-related Costs - -------------------------------------------------------------------------------- In connection with the Bell Atlantic-NYNEX merger, which was completed in August 1997, we recorded pre-tax costs totaling $196 million in 1998 and $519 million in 1997. In 1998, merger-related charges of $196 million were for transition and integration costs. In 1997, merger-related charges consisted of $96 million for transition and integration costs, $200 million for direct incremental costs and $223 million for employee severance costs. Transition and integration costs represent costs associated with integrating the operations of Bell Atlantic and NYNEX, such as systems modifications costs, advertising and branding costs, and costs associated with the elimination and consolidation of duplicate facilities, relocation and training. Transition and integration costs are expensed as incurred. Direct incremental costs consist of expenses associated with completing the merger transaction, such as professional and regulatory fees, compensation arrangements and shareowner-related costs. Employee severance costs, as recorded under SFAS No. 112, "Employers' Accounting for Postemployment Benefits," represent benefit costs for the separation by the end of 1999 of approximately 3,100 management employees who are entitled to benefits under pre-existing separation pay plans. During 1997 and 1998, 245 and 856 management employees were separated with severance benefits. Merger-related costs were comprised of the following amounts in 1998 and 1997: (DOLLARS IN MILLIONS) Years Ended December 31 1998 1997 - -------------------------------------------------------------------------------- TRANSITION AND INTEGRATION COSTS Systems modifications $ 149 $ 36 Advertising 20 -- Branding 11 48 Relocation, training and other 16 12 ----------------------- TOTAL TRANSITION AND INTEGRATION COSTS 196 96 ----------------------- DIRECT INCREMENTAL COSTS Professional services 80 Compensation arrangements 54 Shareowner-related 16 Registration and other regulatory 18 Taxes and other 32 ------- TOTAL DIRECT INCREMENTAL COSTS 200 ------- EMPLOYEE SEVERANCE COSTS 223 ----------------------- TOTAL MERGER-RELATED COSTS $ 196 $ 519 ======================= We expect to incur between $100 million and $200 million (pre-tax) in transition and integration costs over the next 12 to 18 months to complete our transition efforts. You can find additional information on merger-related costs in Note 2 to the consolidated financial statements. - -------------------------------------------------------------------------------- Retirement Incentive Costs - -------------------------------------------------------------------------------- In 1993, we announced a restructuring plan which included an accrual of approximately $1.1 billion (pre-tax) for severance and postretirement medical benefits under an involuntary force reduction plan. Beginning in 1994, retirement incentives have been offered under a voluntary program as a means of implementing substantially all of the work force reductions planned in 1993. Since the inception of the retirement incentive program, we recorded additional costs totaling approximately $3.0 billion (pre-tax) through December 31, 1998. These additional costs and the corresponding number of employees accepting the retirement incentive offer for each year ended December 31 are as follows: (DOLLARS IN MILLIONS) Years Amount Employees - -------------------------------------------------------------------------------- 1994 $ 694 7,209 1995 515 4,759 1996 236 2,996 1997 513 4,311 1998 1,021 7,299 --------------------------------------- $ 2,979 26,574 ======================================= The additional costs are comprised of special termination pension and postretirement benefit amounts, as well as employee costs for other items. These costs have been reduced by severance and postretirement medical benefit reserves established in 1993 and transferred to the pension and postretirement benefit liabilities as employees accepted the retirement incentive offer. The remaining severance and postretirement medical reserve balances totaled $93 million at December 31, 1997 and were fully utilized at December 31, 1998. The retirement incentive program covering management employees ended on March 31, 1997 and the program covering associate employees was completed in September 1998. You can find additional information on retirement incentive costs in Note 15 to the consolidated financial statements. - -------------------------------------------------------------------------------- Other Charges and Special Items - -------------------------------------------------------------------------------- YEAR 1998 During 1998, we recorded other charges and special items totaling $589 million in connection with the write-down of Asian investments and obsolete or impaired assets, and for other special items arising during the year. The remaining liability associated with these charges was $8 million at December 31, 1998. These charges are comprised of the following significant items. Asian Investments In the third quarter of 1998, we recorded pre-tax charges of $485 million to adjust the carrying values of two Asian investments -- TelecomAsia, a wireline investment in Thailand, and Excelcomindo, a wireless investment in Indonesia. We account for these investments under the cost method. F-3 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- The charges were necessary because we determined that the decline in the estimated fair values of each of these investments was other than temporary. We determined the fair values of these investments by discounting estimated future cash flows. In the case of TelecomAsia, we recorded a charge of $348 million to adjust the carrying value of the investment to its estimated fair value. We considered the following factors in determining this charge: . The continued weakness of the Thai currency as compared to historical exchange rates will place additional financial burdens on the company in servicing U.S. dollar-denominated debt. . The economic instability and prospects for an extended recovery period have resulted in weaker than expected growth in TelecomAsia's business. This is indicated by slower than expected growth in total subscribers and usage. These factors resulted in reduced expectations of future cash flows and, accordingly, a reduction in the value of our investment. . The business plan for TelecomAsia contemplated cash flows from several lines of business. Given TelecomAsia's inclination to focus on its core wireline business, these other lines of business may not contribute future cash flows at previously expected levels. In the case of Excelcomindo, we recorded a charge of $137 million to adjust the carrying value of the investment to its estimated fair value. We considered the following factors in determining this charge: . The continued weakness of the Indonesian currency as compared to historical exchange rates will place additional financial burdens on the company in servicing U.S. dollar-denominated debt. The continuing political unrest in Indonesia has contributed to the currency's instability. . The economic instability and prospects for an extended recovery period have resulted in weaker than expected growth in Excelcomindo's business. One significant factor has been inflexible tariff regulation despite rising costs due to inflation. This and other factors have resulted in reduced expectations of future cash flows and, accordingly, a reduction in the value of our investment. . Issues with cash flow are requiring Excelcomindo's shareholders to evaluate the future funding of the business. We will continue to monitor the political, economic and financial aspects of our remaining investments in Thailand and Indonesia, as well as other investments. The book value of our remaining Asian investments was approximately $210 million at December 31, 1998. Should we determine that any further decline in the fair values of these investments is other than temporary, the impact could be material to our results of operations. Video-related Charges In 1998, we recorded pre-tax charges of $23 million primarily related to wireline and other nonsatellite video initiatives. We made a strategic decision in 1998 to focus our video efforts on satellite service being offered in conjunction with DirecTV and USSB. We communicated the decision to stop providing wireline video services to subscribers and offered them the opportunity to subscribe to the satellite-based video service that we introduced in 1998. In the third quarter of 1998, we decided to dispose of these assets by sale or abandonment, and we conducted an impairment review under the requirements of SFAS No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." We based our estimate on an estimate of the cash flows expected to result from the use of the assets prior to their disposal and the net proceeds (if any) expected to result from disposal. We are currently providing video service exclusively in conjunction with our arrangements with DirecTV and USSB. Write-down Of Assets And Other Items Results for 1998 also included a pre-tax charge, net of minority interest, of $42 million for the write-down of fixed assets (primarily buildings and wireless communications equipment) and capitalized interest associated with our Mexican wireless investment-Grupo Iusacell, S.A. de C.V. (Iusacell). These assets relate to Iusacell's trial of fixed wireless service provided over the 450 MHz frequency. While continuing this trial, Iusacell is considering whether or not to pursue its rights to acquire 450 MHz licenses for other areas. Iusacell believes that the capability of the CDMA technology and the success it has had with its deployment indicate that impairment exists with respect to assets related to the 450 MHz technology. Iusacell is currently providing service over the 450 MHz spectrum and has concluded that the carrying amount of these assets exceeds the sum of the estimated future cash flows associated with the assets. We recognized an impairment loss under the provisions of SFAS No. 121. It is currently anticipated that the 450 assets will remain in service until at least the third quarter of 1999, at which point a decision on overall strategy will be made. We account for our Iusacell investment as a fully consolidated subsidiary. Other items arising in 1998 included charges totaling $39 million principally associated with the settlement of labor contracts in August 1998. YEAR 1997 During 1997, we recorded other charges and special items totaling $1,041 million in connection with consolidating operations and combining organizations, and for other special items arising during the year. You can find additional detail about these accrued liabilities in Note 2 to the consolidated financial statements. Video-related Charges In 1997, we recognized total pre-tax charges of $243 million related to certain video investments and operations. We determined that we would no longer pursue a multichannel, multipoint, distribution system (MMDS) as part of our video strategy. As a result, we recognized liabilities for purchase commitments associated with the MMDS technology and costs associated with closing the operations of our Tele-TV partnership because this operation no longer supports our video strategy. We also wrote-down our remaining investment in CAI Wireless Systems, Inc. F-4 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- Write-down Of Assets And Real Estate Consolidation In the third quarter of 1997, we recorded pre-tax charges of $355 million for the write-down of obsolete or impaired fixed assets and for the cost of consolidating redundant real estate properties. As part of our merger integration planning, we reviewed the carrying values of long-lived assets. This review included estimating remaining useful lives and cash flows and identifying assets to be abandoned. In the case of impaired assets, we analyzed cash flows related to those assets to determine the amount of the impairment. As a result of these reviews, we recorded charges of $275 million for the write-off of some assets and $25 million for the impairment of other assets. These assets primarily included computers and other equipment used to transport data for internal purposes, copper wire used to provide telecommunications service in New York, and duplicate voice mail platforms. None of these assets are being held for disposal. At December 31, 1998, the impaired assets had no remaining carrying value. In connection with our merger integration efforts, we consolidated real estate properties to achieve a reduction in the total square footage of building space that we utilize. We sold properties, subleased some of our leased facilities and terminated other leases, for which we recorded a charge of $55 million in the third quarter of 1997. Most of the charge related to properties in Pennsylvania and New York, where corporate support functions were consolidated into fewer work locations. Regulatory, Tax And Legal Contingencies And Other Special Items In 1997, we also recorded reductions to operating revenues and charges to operating expenses totaling $526 million (pre-tax), which consisted of the following items: . Revenue reductions consisted of $179 million for federal regulatory matters. These matters relate to specific issues that are currently under investigation by federal regulatory commissions. We believe that it is probable that the ultimate resolution of these pending matters will result in refunds to our customers. . Charges to operating expenses totaled $347 million and consisted of $75 million for interest on federal and other tax contingencies; $55 million for other tax matters; and $52 million for legal contingencies and a state regulatory audit issue. These contingencies were accounted for under the rules of SFAS No. 5, "Accounting for Contingencies." These charges also included $95 million related to costs incurred in standardizing and consolidating our directory businesses and $70 million for other post-merger initiatives. Other charges arising in 1997 included $59 million for our equity share of formation costs previously announced by Cable & Wireless Communications plc (CWC). We own an 18.5% interest in CWC and account for our investment under the equity method of accounting. In 1997, we recognized pre-tax gains of $142 million on the sales of our ownership interests of several nonstrategic businesses. These gains included $42 million on the sale of our interest in Sky Network Television Limited of New Zealand (SkyTV); $54 million on the sale of our 33% stake in an Italian wireline venture, Infostrada; and $46 million on the sale of our two-sevenths interest in Bell Communications Research, Inc. (Bellcore). YEAR 1996 In 1996, we recorded other charges and special items totaling $315 million, consisting of $334 million in connection with regulatory and legal contingencies and for costs associated with asset and investment dispositions and $41 million for actuarially determined costs of a benefit plan amendment. These charges were partially offset by a net gain of $60 million on the sale of a nonstrategic investment. Effective January 1, 1996, we changed our method of accounting for directory publishing revenues and expenses. We adopted the point-of-publication method, meaning that we now recognize directory revenues and expenses upon publication rather than over the lives of the directories. We recorded an after-tax increase in income of $273 million, representing the cumulative effect of this change in accounting principle. - -------------------------------------------------------------------------------- SEGMENTAL RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- We have four reportable segments, which we operate and manage as strategic business units and we organize by products and services. Our segments are Domestic Telecom, Global Wireless, Directory and Other Businesses. You can find additional information about our segments in Note 17 to the consolidated financial statements. We measure and evaluate our reportable segments based on adjusted net income, which excludes undistributed corporate expenses and special items arising during each period. Special items are transactions that management has excluded from the business units' results, but has included in reported consolidated earnings. We previously described these special items in the Overview section. The effect of these special items on each of the segment's reported net income is provided in the following table: (DOLLARS IN MILLIONS) Years Ended December 31 1998 1997 1996 - -------------------------------------------------------------------------------- DOMESTIC TELECOM Reported net income $ 2,383 $ 2,016 $ 2,413 Special items 790 977 377 --------------------------------------------- Adjusted net income $ 3,173 $ 2,993 $ 2,790 ============================================= GLOBAL WIRELESS Reported net income $ 50 $ 113 $ 73 Special items 178 (18) 7 --------------------------------------------- Adjusted net income $ 228 $ 95 $ 80 ============================================= DIRECTORY Reported net income $ 662 $ 564 $ 855 Special items 22 93 (270) --------------------------------------------- Adjusted net income $ 684 $ 657 $ 585 ============================================= OTHER BUSINESSES Reported net income $ (231) $ 28 $ 57 Special items 366 20 (45) --------------------------------------------- Adjusted net income $ 135 $ 48 $ 12 ============================================= RECONCILING ITEMS Reported net income $ 101 $ (266) $ 4 Special items 2 320 3 --------------------------------------------- Adjusted net income $ 103 $ 54 $ 7 ============================================= Reconciling items consist of corporate operations and intersegment eliminations. F-5 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [GRAPHIC APPEARS HERE] Domestic Telecom - ------------------------------------------------------------------------------- Our Domestic Telecom segment consists primarily of our nine operating telephone subsidiaries that provide local telephone services from Maine to Virginia including voice and data transport, enhanced and custom calling features, network access, directory assistance, private lines and public telephones. This segment also provides customer premises equipment distribution, systems integration, billing and collections, and Internet access services. Domestic Telecom represents the aggregation of our domestic wireline business units (consumer, enterprise, general, and network services), which focus on specific markets to increase revenues and customer satisfaction. Years Ended December 31 (Dollars In Millions) RESULTS OF OPERATIONS--ADJUSTED BASIS 1998 1997 1996 - -------------------------------------------------------------------------------- OPERATING REVENUES Local services $ 13,882 $ 13,256 $ 12,627 Network access services 7,656 7,340 7,247 Long distance services 1,929 2,190 2,374 Ancillary services 2,090 2,023 1,888 ---------------------------------- 25,557 24,809 24,136 ---------------------------------- OPERATING EXPENSES Employee costs 7,298 7,436 7,679 Depreciation and amortization 5,195 4,990 4,911 Other operating expenses 7,047 6,696 6,262 ---------------------------------- 19,540 19,122 18,852 ---------------------------------- OPERATING INCOME $ 6,017 $ 5,687 $ 5,284 ================================== INCOME (LOSS) FROM UNCONSOLIDATED BUSINESSES $ 27 $ (14) $ (72) ADJUSTED NET INCOME $ 3,173 $ 2,993 $ 2,790 OPERATING REVENUES Local Services Local services revenues are earned by our operating telephone subsidiaries from the provision of local exchange, local private line, public telephone (pay phone) and value-added services. Value-added services are a family of services, which expand the utilization of the network. These services include products such as Caller ID, Call Waiting and Return Call. [PIE CHART APPEARS HERE] - ------------------------------------------------------------------------------- 1998 Domestic Telecom Revenue Components - ------------------------------------------------------------------------------- Local 54% Long Distance 8% Ancillary 8% Network Access 30% - ------------------------------------------------------------------------------- Growth in local services revenues of $626 million or 4.7% in 1998 and $629 million or 5.0% in 1997 was primarily due to higher usage of our network facilities. This growth was generated, in part, by an increase in access lines in service of 4.3% in 1998 and 3.7% in 1997. Access line growth primarily reflects higher demand for Centrex services and an increase in additional residential lines. Higher revenues from private line and switched data services also contributed to the revenue growth in both years. Our local services revenues were boosted in both 1998 and 1997 by increased customer demand and usage of our value-added services and the implementation of new charges to carriers resulting from pay phone deregulation in April 1997. In 1998, revenue growth from these factors was partially offset by price reductions on certain local services and the elimination of Touch-Tone service charges by several of our operating telephone subsidiaries. You can find additional information on the Telecommunications Act of 1996 (1996 Act) and its impact on the local exchange market under "Other Factors That May Affect Future Results." [PIE CHART APPEARS HERE] - -------------------------------------------------------------------------------- Access Lines by Category - -------------------------------------------------------------------------------- Residence 63% Business 36% Public 1% 41.6 million - -------------------------------------------------------------------------------- Network Access Services Network access services revenues are earned from end-user subscribers and long distance and other competing carriers who use our local exchange facilities to provide usage services to their customers. Switched access revenues are derived from fixed and usage-based charges paid by carriers for access to our local network. Special access revenues originate from carriers and end-users that buy dedicated local exchange capacity to support their private networks. End-user access revenues are earned from our customers and resellers who purchase retail dial-tone services. Our network access services revenues grew $316 million or 4.3% in 1998 and $93 million or 1.3% in 1997. This growth was mainly attributable to higher customer demand, as reflected by growth in access minutes of use of 7.8% in 1998 and 7.3% in 1997. Volume growth also reflects a continuing expansion of the business market, particularly for high-capacity services. In 1998, we saw an increasing demand for special access services as a result of a greater utilization of the network by Internet service providers and other high-capacity users. Higher network usage by alternative providers of intraLATA toll services and higher end-user revenues attributable to an increase in access lines in service also contributed to revenue growth in both years. Volume-related growth was partially offset in both years by net price reductions mandated by federal and state price cap and incentive plans. F-6 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Access Minutes of Use - -------------------------------------------------------------------------------- 1996 149.5 B 1997 160.5 B 1998 173.0 B 1997 7.3% growth 1998 7.8% growth - -------------------------------------------------------------------------------- The Federal Communications Commission (FCC) regulates the rates that we charge long distance carriers and end-user subscribers for interstate access services. We are required to file new access rates with the FCC each year, under the rules of the Price Cap Plan. We implemented price decreases for interstate access services of approximately $63 million on an annual basis for the period July 1996 through June 1997 and approximately $430 million on an annual basis for the period July 1997 through June 1998. In July 1998, we implemented price decreases of approximately $175 million on an annual basis. The rates include amounts necessary to recover our operating telephone subsidiaries' contribution to the FCC's universal service fund. The FCC has created a multi-billion dollar interstate fund to link schools and libraries to the Internet and to subsidize low-income consumers and rural healthcare providers. Under the FCC's rules, all providers of interstate telecommunications services must contribute to the fund. The subsidiaries' contributions to the universal service fund are included in Other Operating Expenses. Beginning in the third quarter of 1998, access charges on intrastate toll calls in New York were reduced by $94 million annually due to a New York State Public Service Commission order. This reduction is, in part, an acceleration of access revenue reductions expected under the New York Performance Regulation Plan and, in addition, will be partially offset by increased revenues from the federal universal service fund. In January 1999, rates were further reduced by approximately $18 million on an annual basis to reflect lower required contributions to the FCC's universal service fund. The rates included in our July 1998 and January 1999 filings will be in effect through June 1999. You can find additional information on FCC rulemakings concerning price caps, access charges and universal service under "Other Factors That May Affect Future Results-Recent Developments-FCC." Long Distance Services Long distance services revenues are earned primarily from calls made outside a customer's local calling area, but within the same service area of our operating telephone subsidiaries (intraLATA toll). Other long distance services that we provide include 800 services, Wide Area Telephone Service (WATS), corridor services and long distance services outside of our region. Declines in long distance services revenues of $261 million or 11.9% in 1998 and $184 million or 7.8% in 1997 were caused by two factors. First, we implemented presubscription for intraLATA toll services during 1997 in most states throughout the region. In these states, customers may now use an alternative provider of their choice for intraLATA toll calls without dialing a special access code when placing a call. The relative effect of presubscription on long distance revenues was lower in the second half of 1998, as a result of presubscription being available in most of our states for more than one year. The adverse impact on long distance services revenues as a result of presubscription was partially mitigated by increased network access services revenues for usage of our network by these alternative providers. Second, we implemented customer win-back and retention initiatives that included toll calling discount packages and product bundling offers. These revenue reductions were partially offset by higher calling volumes generated by an increase in access lines in service. Our operating telephone subsidiaries in Maryland and Virginia expect to offer presubscription no later than coincident with our offering of interLATA long distance services in those states, or earlier if so ordered by state or federal regulators. Our operating telephone subsidiary in Massachusetts expects to offer presubscription in April 1999. We believe that competition for long distance services, including competitive pricing and customer selection of alternative providers of intraLATA and interLATA toll services in the states currently offering presubscription, will continue to affect revenue trends. You can find additional information on presubscription under "Other Factors That May Affect Future Results-Competition-IntraLATA Toll Services." Ancillary Services Our ancillary services include such services as billing and collections for long distance carriers, systems integration, voice messaging, Internet access, customer premises equipment and wiring and maintenance services. Revenues from ancillary services grew $67 million or 3.3% in 1998 and $135 million or 7.2% in 1997 due principally to new contracts with business customers for systems integration services and higher demand for voice messaging, billing and collections and Internet access services. Revenues earned from our customer premises services declined in 1998, while in 1997 revenues from these services grew over the prior year. OPERATING EXPENSES Employee Costs Employee costs, which consist of salaries, wages and other employee compensation, employee benefits and payroll taxes, declined in 1998 by $138 million or 1.9% and in 1997 by $243 million or 3.2%. These reductions were largely attributable to lower pension and benefit costs in both years. A number of factors contributed to these cost reductions, including favorable pension plan investment returns, lower than expected retiree medical claims, and plan amendments including the conversion of a pension plan to a cash balance plan. Effective January 1, 1998, we established common pension and savings plan benefit provisions for all management employees. As a result, all former NYNEX management employees receive the same benefit levels as previously given under Bell Atlantic management benefit plans. This change included the conversion of the NYNEX management pension plan to a cash balance plan. F-7 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- Other items contributing to the decreases, but to a lesser extent, were lower work force levels in 1998 and lower overtime pay for repair and maintenance activity in 1997. - -------------------------------------------------------------------------------- Employees per 10,000 Access Lines - -------------------------------------------------------------------------------- [BAR CHART APPEARS HERE] 1996 30.9 1997 30.5 1998 28.9 - -------------------------------------------------------------------------------- These cost reductions were partially offset by salary and wage increases in both years. In 1998, we executed new contracts with unions representing associate employees. The new contracts provide for wage and pension increases and other benefit improvements as described below: . The wages, pension and other benefits for our associate employees are negotiated with unions. During 1998, we entered into new 2-year contracts with the Communications Workers of America (CWA), representing more than 73,000 associate workers and with the International Brotherhood of Electrical Workers (IBEW), representing approximately 13,000 associate workers in New York and the New England states. These contracts, which expire in August 2000, provide for wage increases of up to 3.8 percent effective August 1998, and up to 4 percent effective August 1999. Over the course of this two-year contract period, pension increases will range from 11 percent to 20 percent. The contracts also include cash payments, working condition improvements, and continuation of certain employment security provisions. . We also entered into a two-year extension of contracts with the IBEW, representing approximately 9,000 associate members in New Jersey and Pennsylvania. These contracts, which expire in August 2002, provide for wage increases of 4.8 percent in April 1999, 3 percent in May 2000, and 3 percent in May 2001. Pensions will increase by a total of 11 percent for the years 1999-2001, and there will be improvements in a variety of other benefits and working conditions. Depreciation and Amortization Depreciation and amortization expense increased $205 million or 4.1% in 1998 and $79 million or 1.6% in 1997 principally due to growth in depreciable telephone plant and changes in the mix of plant assets. Depreciable telephone plant increased in 1998 by 2.8%, compared to 1.8% in 1997 principally as a result of increased capital expenditures to support the expansion of our network. These expense increases were partially offset by the effect of lower rates of depreciation. Other Operating Expenses The rise in other operating expenses of $351 million or 5.2% in 1998 and $434 million or 6.9% in 1997 was due to higher costs at our operating telephone subsidiaries. These increases were primarily attributable to higher interconnection payments to competitive local exchange and other carriers to terminate calls on their networks of approximately $175 million in 1998 and $55 million in 1997, and additional Year 2000 readiness costs of approximately $70 million in 1998 and $20 million in 1997. The higher payments for termination of calls to competitive carriers' networks were the result of state regulatory decisions requiring us to pay "reciprocal compensation" for the large volume of one-way traffic from our customers to customers of other carriers, primarily calls to Internet service providers. On February 26, 1999, the FCC confirmed that such traffic is interstate and interexchange in nature and not subject to the reciprocal compensation requirements of the 1996 Act. Because previous state commission decisions were based upon a view that Internet access calls are "local" rather than interstate and interexchange, we have asked the state commissions to revisit their prior interpretations. Unless state regulators follow the FCC's decision, these reciprocal compensation payments are expected to grow to approximately $350 million in 1999. We also recognized additional costs in 1998 as a result of our contribution to the federal universal service fund, as described earlier in the discussion of "Network Access Services Revenues." Costs associated with opening our network to competitors, including local number portability, declined by $85 million in 1998, compared to an increase of $165 million in 1997. Other operating expenses were also affected in both years, but to a lesser extent, by higher material purchases to support the network. Higher marketing and advertising costs also contributed to the expense increase in 1997. The cost increase in 1998 was partially offset by lower taxes other than income due to the effect of a change in New Jersey state tax law. This state tax law change, which became effective January 1, 1998, repealed the gross receipts tax for our operating telephone subsidiary in New Jersey and replaced it with a net income-based tax. INCOME (LOSS) FROM UNCONSOLIDATED BUSINESSES The change in income (loss) from unconsolidated businesses in both years was primarily due to the effect of the disposition of our video operations in the third quarters of 1998 and 1997. F-8 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [GRAPHIC APPEARS HERE] Global Wireless - ------------------------------------------------------------------------------- Our Global Wireless segment consists of our wireless telecommunications services to customers in 24 states in the United States and foreign wireless investments servicing customers in Latin America, Europe and the Pacific Rim. Years Ended December 31 (Dollars In Millions) RESULTS OF OPERATIONS--ADJUSTED BASIS 1998 1997 1996 - -------------------------------------------------------------------------------- OPERATING REVENUES Wireless services revenues $ 3,798 $ 3,347 $ 2,684 ---------------------------------- OPERATING EXPENSES Employee costs 548 490 395 Depreciation and amortization 592 481 303 Other operating expenses 1,942 1,742 1,465 ---------------------------------- 3,082 2,713 2,163 ---------------------------------- OPERATING INCOME $ 716 $ 634 $ 521 ================================== LOSS FROM UNCONSOLIDATED BUSINESSES $ (96) $ (196) $ (141) ADJUSTED NET INCOME $ 228 $ 95 $ 80 In the first quarter of 1997, we consummated a restructuring of our investment in Iusacell, a Mexican wireless company, to permit us to assume control of the Board of Directors and management of Iusacell. As a result of the restructuring, we changed the accounting for our Iusacell investment from the equity method to full consolidation in the first quarter of 1997. You can find more information about Iusacell in Note 4 to the consolidated financial statements. OPERATING REVENUES Revenues earned from our consolidated wireless businesses grew $451 million or 13.5% in 1998 and $663 million or 24.7% in 1997. This revenue growth was largely attributable to our domestic cellular subsidiary, Bell Atlantic Mobile, which contributed $383 million to revenue growth in 1998 and $448 million to revenue growth in 1997. This growth was principally due to more customers and increased usage of our domestic wireless services. Our domestic cellular customer base grew 15.8% in 1998 and 21.4% in 1997. Volume-related revenue growth in both years was partially offset by the effect of competitive pricing factors. Total revenue per subscriber by our domestic cellular operations was $50.84 in 1998, $53.15 in 1997 and $57.83 in 1996. [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Bell Atlantic Mobile Customers (in thousands) - -------------------------------------------------------------------------------- 1996 4,410 1997 5,356 1998 6,201 1997 21.4% growth 1998 15.8% growth - -------------------------------------------------------------------------------- Higher revenues of $63 million from Iusacell also contributed to revenue growth in 1998. The consolidation of Iusacell contributed $228 million to wireless services revenues in 1997. OPERATING EXPENSES Employee Costs Employee costs at our wireless subsidiaries increased by $58 million or 11.8% in 1998 and $95 million or 24.1% in 1997 principally as a result of higher work force levels. The number of employees at Bell Atlantic Mobile grew by approximately 500 or 7.0% in 1998 and by 760 or 11.7% in 1997. The effect of consolidating Iusacell also contributed $39 million to the expense increase in 1997. Depreciation And Amortization Depreciation and amortization expense increased by $111 million or 23.1% in 1998 and $178 million or 58.7% in 1997. These increases were mainly attributable to growth in depreciable domestic cellular plant. The effect of consolidating Iusacell also contributed $44 million to the expense increase in 1997. Other Operating Expenses Other operating expenses increased by $200 million or 11.5% in 1998 and $277 million or 18.9% in 1997 principally due to increased service costs at Bell Atlantic Mobile, including higher roaming payments to wireless carriers and additional cost of equipment. Higher marketing and advertising costs also contributed to the rise in other operating expenses in both years. Iusacell's operating costs increased by $58 million in 1998 as a result of higher service costs and the effect of consolidating Iusacell added $180 million to other operating expenses in 1997. [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Bell Atlantic Mobile Monthly Cash Expense per Subscriber - -------------------------------------------------------------------------------- 1996 $31 1997 $27 1998 $24 - -------------------------------------------------------------------------------- LOSS FROM UNCONSOLIDATED BUSINESSES The change in loss from unconsolidated businesses in 1998 of $100 million was principally due to improved operating results from our investments in Omnitel Pronto Italia S.p.A. (Omnitel), an international wireless investment, and PrimeCo Personal Communications, L.P. (PrimeCo), a personal communications services (PCS) joint venture. In 1997, higher equity losses from unconsolidated businesses of $55 million were primarily attributable to our PrimeCo investment. In November 1996, PrimeCo launched commercial service in 16 major cities throughout the country, expanding its PCS service to over 30 cities by the end of 1998. Results for 1997 were positively affected by the consolidation of Iusacell and improved operating results from Omnitel. F-9 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [GRAPHIC APPEARS HERE] Directory - -------------------------------------------------------------------------------- Our Directory segment consists of our domestic and international publishing businesses including print directories and Internet-based shopping guides, as well as website creation and hosting and other electronic commerce services. This segment has operations principally in the United States and Central Europe. Years Ended December 31 (Dollars In Millions) RESULTS OF OPERATIONS--ADJUSTED BASIS 1998 1997 1996 - -------------------------------------------------------------------------------- OPERATING REVENUES Directory services revenues $ 2,264 $ 2,215 $ 2,159 -------------------------------- OPERATING EXPENSES Employee costs 326 215 212 Depreciation and amortization 37 39 34 Other operating expenses 777 886 910 -------------------------------- 1,140 1,140 1,156 -------------------------------- OPERATING INCOME $ 1,124 $ 1,075 $ 1,003 ================================ INCOME (LOSS) FROM UNCONSOLIDATED BUSINESSES $ 29 $ 23 $ (1) ADJUSTED NET INCOME $ 684 $ 657 $ 585 OPERATING REVENUES Operating revenues from our Directory segment improved by $49 million or 2.2% in 1998 and $56 million or 2.6% in 1997 principally as a result of increased pricing for certain directory services in both years. Higher business volumes including revenue from new Internet-based shopping directory and electronic commerce services also contributed to revenue growth in both years, but to a lesser extent. OPERATING EXPENSES In 1998, the increase in employee costs and the reduction in other operating expenses were largely due to a change in classification of certain costs from other operating expenses to employee costs. For comparability purposes, similar costs in 1997 and 1996 were approximately $95 million and $94 million, respectively. If prior year amounts had been classified similar to 1998, employee costs would have increased by approximately $16 million or 5.2% in 1998 and by $4 million or 1.3% in 1997. These increases were largely due to salary and wage increases. After adjusting other operating expenses in prior years, these expenses would have declined by approximately $14 million or 1.8 % in 1998 and by $25 million or 3.1% in 1997. Cost reductions in both years were principally due to lower general and administrative costs of service. INCOME (LOSS) FROM UNCONSOLIDATED BUSINESSES Higher income from unconsolidated businesses in 1998 and 1997 was due to the recognition of gains on the sale of portions of our ownership interests in certain global directory businesses. - ------------------------------------------------------------------------------- [GRAPHIC APPEARS HERE] Other Businesses - ------------------------------------------------------------------------------- Our Other Businesses segment includes international wireline telecommunications investments in Europe and the Pacific Rim and lease financing and other businesses. Years Ended December 31 (Dollars In Millions) RESULTS OF OPERATIONS--ADJUSTED BASIS 1998 1997 1996 - ------------------------------------------------------------------------------- OPERATING REVENUES Other services revenues $ 124 $ 278 $ 456 -------------------------------- OPERATING EXPENSES Employee costs 14 58 136 Depreciation and amortization 3 48 103 Other operating expenses 105 210 332 -------------------------------- 122 316 571 -------------------------------- OPERATING INCOME (LOSS) $ 2 $ (38) $(115) ================================ INCOME FROM UNCONSOLIDATED BUSINESSES $ 86 $ 78 $ 107 ADJUSTED NET INCOME $ 135 $ 48 $ 12 In the second quarter of 1997, we transferred our interests in cable television and telecommunications operations in the United Kingdom to CWC in exchange for an 18.5% ownership interest in CWC. This transaction was accounted for as a nonmonetary exchange of similar productive assets and, as a result no gain or loss was recorded. We now account for our investment in CWC under the equity method. Prior to this transfer, we included the accounts of these operations in our consolidated financial statements. You can find more information about CWC in Note 3 to the consolidated financial statements. OPERATING RESULTS In 1998, the changes in operating revenues, expenses and income from unconsolidated businesses principally reflect the effect of the change in the accounting for our CWC investment under the equity method, beginning in the second quarter of 1997. The improvement in operating income between 1997 and 1996 reflects the effects of the CWC transaction and the sale of our real estate properties business in the second quarter of 1997. Income from unconsolidated businesses decreased in 1997 primarily as a result of higher equity losses from our international telecommunications investments. These decreases were partially offset by the effect of the change in accounting for CWC under the equity method and improved operating results from our investment in FLAG Ltd. (FLAG). FLAG owns and operates an undersea fiberoptic cable system, providing digital communications links between Europe and Asia. F-10 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NONOPERATING ITEMS - -------------------------------------------------------------------------------- The following discussion of nonoperating items is based on the amounts reported in our consolidated financial statements. Years Ended December 31 (Dollars In Millions) INTEREST EXPENSE 1998 1997 1996 - -------------------------------------------------------------------------------- Interest expense from continuing operations $ 1,335 $ 1,230 $ 1,082 Capitalized interest costs 90 81 129 ------------------------------------ Total interest costs on debt balances $ 1,425 $ 1,311 $ 1,211 ==================================== Average debt outstanding $19,963 $18,897 $17,745 Effective interest rate 7.14% 6.94% 6.82% The rise in interest cost in both 1998 and 1997 was principally due to higher average debt levels. In 1998, interest expense also included added costs due to the settlement of tax-related matters. The reduction in capitalized interest costs in 1997 was largely attributable to our PrimeCo investment and the consolidation of Iusacell. Years Ended December 31 (Dollars In Millions) OTHER INCOME AND (EXPENSE), NET 1998 1997 1996 - -------------------------------------------------------------------------------- Minority interest $ (75) $ (95) $(169) Foreign currency gains, net 40 28 3 Interest income 81 27 28 Gains on disposition of assets/businesses, net 44 17 3 Other, net 32 20 35 ------------------------------ Total $ 122 $ (3) $(100) ============================== The change in other income and expense in 1998, as compared to 1997, was due to several factors. These factors principally included an increase in income resulting from the settlement of tax-related matters and from the sales of our paging business and a leveraged lease. Other factors included a reduction in minority interest, which was largely attributable to a write-down of assets by Iusacell and higher foreign exchange gains associated with our international investments. The principal factors contributing to the change in other income and expense in 1997, as compared to the prior year, included the consolidation of our Iusacell investment and the effect of the change in accounting method for our equity investment in CWC, as described earlier. Years Ended December 31 1998 1997 1996 - ------------------------------------------------------------------------------- EFFECTIVE INCOME TAX RATES 40.2% 38.4% 36.3% The higher reported effective income tax rate in 1998 resulted from higher state and local income taxes caused principally by the change in the New Jersey state tax law described above under "Domestic Telecom-Other Operating Expenses," and from the write-down of certain international investments for which no tax benefits were provided. These rate increases were partially offset by adjustments to deferred tax balances at certain subsidiaries and higher tax credits related to our foreign operations. The reported effective income tax rate was higher in 1997, than in 1996, due to the effect of certain merger-related costs and special charges for which there were no corresponding tax benefits. Adjustments to the valuation allowance resulting from our re-evaluation of tax planning strategies in light of the merger also contributed to the higher effective income tax rate in 1997. These factors were partially offset by the effect of the change in the New Jersey state tax law, which resulted in the recognition of a deferred state income tax benefit of approximately $75 million in the third quarter of 1997. You can find a reconciliation of the statutory federal income tax rate to the effective income tax rate for each period in Note 16 to the consolidated financial statements. EXTRAORDINARY ITEM We recorded extraordinary charges associated with the early extinguishment of debentures and refunding mortgage bonds of our operating telephone subsidiaries and debt issued by FLAG. These charges reduced net income by $25.5 million (net of an income tax benefit of $14.3 million) in 1998. - -------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL CONDITION - -------------------------------------------------------------------------------- (DOLLARS IN MILLIONS) YEARS ENDED DECEMBER 31 1998 1997 1996 - -------------------------------------------------------------------------------- Cash Flows From (Used In) Operating activities $ 10,071 $ 8,859 $ 8,781 Investing activities (7,685) (7,339) (7,574) Financing activities (2,472) (1,447) (1,420) ----------------------------------- Increase (Decrease) in Cash and Cash Equivalents $ (86) $ 73 $ (213) =================================== We use the net cash generated from our operations and from external financing to fund capital expenditures for network expansion and modernization, pay dividends, and invest in new businesses. While current liabilities exceeded current assets at December 31, 1998 and 1997, our sources of funds, primarily from operations and, to the extent necessary, from readily available external financing arrangements, are sufficient to meet ongoing operating and investing requirements. We expect that presently foreseeable capital requirements will continue to be financed primarily through internally generated funds. Additional debt or equity financing may be needed to fund additional development activities or to maintain our capital structure to ensure our financial flexibility. - -------------------------------------------------------------------------------- Cash Flows From Operating Activities - -------------------------------------------------------------------------------- Our primary source of funds continued to be cash generated from operations. Improved cash flows from operations during 1998 and 1997 resulted principally from improved operating income before special charges and timing differences in the payment of accounts payable and accrued taxes. F-11 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Cash Flows Used In Investing Activities - -------------------------------------------------------------------------------- Capital expenditures continued to be our primary use of capital resources. The majority of the capital expenditures were to support our Domestic Telecom business in order to facilitate the introduction of new products and services, enhance responsiveness to competitive challenges, and increase the operating efficiency and productivity of the network. We invested approximately $6.4 billion in 1998, $5.5 billion in 1997 and $4.9 billion in 1996 in our Domestic Telecom business. We also invested in our Wireless, Directory and Other Businesses approximately $1.0 billion in 1998, $1.1 billion in 1997 and $1.5 billion in 1996. We expect capital expenditures in 1999 to total approximately $8.1 billion, including approximately $7.3 billion to be invested in our Domestic Telecom business. This estimate includes approximately $500 million related to the implementation of the new accounting standard on costs of computer software, Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." You can find additional information on SOP No. 98-1 under "Other Matters-Recent Accounting Pronouncements-Costs of Computer Software." [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Capital Expenditures - -------------------------------------------------------------------------------- 1996 $6.4B 1997 $6.6B 1998 $7.4B - -------------------------------------------------------------------------------- We continue to make substantial investments in our unconsolidated businesses. During 1998, we invested $603 million, which included a cash payment of $162 million to increase our ownership interest in Omnitel from 17.45% to 19.71%. In 1998, we also invested $301 million in PrimeCo to fund the build-out and operations of its PCS network and $140 million in our lease financing businesses. In 1997, cash investing activities in unconsolidated businesses totaled $833 million and included $426 million in PrimeCo, $138 million in FLAG and $269 million in leasing and other partnerships. During 1996, we invested $257 million in PrimeCo, $315 million in Omnitel, primarily to increase our ownership interest, $224 million in other international telecommunications investments and $275 million in leasing and other partnerships. Our short-term investments include principally cash equivalents held in trust accounts for the payment of certain employee benefits. We invested $1,028 million in 1998, $844 million in 1997 and $418 million in 1996 principally to pre-fund vacation pay and associate health and welfare benefits. In 1998 and 1997, we increased our pre-funding to cover employees of the former NYNEX companies. Proceeds from the sales of all short-term investments were $968 million in 1998, $427 million in 1997 and $133 million in 1996. In 1998, we received cash proceeds of $637 million in connection with the disposition of investments. These proceeds included $564 million associated with Viacom's repurchase of one-half of our investment in Viacom Inc. (Viacom) and $73 million from the sales of our paging and other nonstrategic businesses. In 1997, we disposed of our real estate properties and our interests in Bellcore, Infostrada, SkyTV and other joint ventures and received cash proceeds totaling $547 million. In 1996, we received cash proceeds of approximately $128 million from the sales of nonstrategic businesses. We invested $62 million in each of 1998 and 1997 to purchase cellular properties. During 1997, we received cash proceeds of $153 million from the TCNZ share repurchase plan, which was completed in December 1997. - ------------------------------------------------------------------------------- Cash Flows Used In Financing Activities - ------------------------------------------------------------------------------- As in prior years, dividend payments were a significant use of capital resources. We determine the appropriateness of the level of our dividend payments on a periodic basis by considering such factors as long-term growth opportunities, internal cash requirements, and the expectations of our shareowners. In September 1998, we announced a quarterly cash dividend of $.385 per share. For 1998, cash dividends declared totaled $1.54 per share. We declared cash dividends of $.37 per share in the first and second quarters of 1997 and $.385 per share in the second half of 1997, or $1.51 per share for the year. In 1996, cash dividends were $.36 per share each quarter, or $1.44 per share for the year. Cash dividends declared in 1996 included a payment of $.0025 per share for redemption of all rights granted under our Shareholder Rights Plan. We increased our total debt (including capital lease obligations) by $1,026 million from December 31, 1997 to fund the increase in our Domestic Telecom capital investment program, for higher purchases of shares to fund employee stock option exercises, and for continued investments in PrimeCo and Omnitel. Our debt level also increased by $1,438 million from 1996 to 1997 principally due to an increase in telephone plant construction, new investments in PrimeCo and other wireless subsidiaries, and the consolidation of our Iusacell investment. Additional pre-funding of employee trusts as a result of covering employees of the former NYNEX companies also contributed to the increase in the 1998 and 1997 debt levels. [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Dividends - -------------------------------------------------------------------------------- 1996 $2.2B 1997 $2.3B 1998 $2.4B - -------------------------------------------------------------------------------- F-12 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- In February 1998, our wholly owned subsidiary, Bell Atlantic Financial Services, Inc. (FSI), issued $2,455 million of 5.75% senior exchangeable notes due on April 1, 2003 that are exchangeable into ordinary shares of TCNZ stock that we own (TCNZ exchangeable notes). In August 1998, FSI also issued $3,180 million of 4.25% senior exchangeable notes due on September 15, 2005 that are exchangeable into ordinary shares of CWC stock that we own (CWC exchangeable notes). Proceeds of both offerings were used for the repayment of a portion of our short-term debt and other general corporate purposes. In addition, two of our operating telephone subsidiaries refinanced debentures totaling $721 million and Iusacell issued $100 million in debt. [BAR CHART APPEARS HERE] - -------------------------------------------------------------------------------- Debt Ratio - -------------------------------------------------------------------------------- 1996 58.3% 1997 60.5% 1998 61.3% - -------------------------------------------------------------------------------- As of December 31, 1998, we had in excess of $4.5 billion of unused bank lines of credit and $299.5 million in bank borrowings outstanding. As of December 31, 1998, our operating telephone subsidiaries and financing subsidiaries had shelf registrations for the issuance of up to $2.8 billion of unsecured debt securities. The debt securities of those subsidiaries continue to be accorded high ratings by primary rating agencies. After the announcement of the Bell Atlantic-GTE merger, the rating agencies placed the ratings of certain of our subsidiaries under review for potential downgrade. In a subsequent and unrelated event, Moody's Investor Services changed its methodology for rating diversified U.S. Telecommunications Companies. As a result, the debt ratings of four of our operating telephone subsidiaries were downgraded and one operating telephone subsidiary was upgraded to reflect this new rating methodology. In 1998, we established a $2.0 billion Euro Medium Term Note Program, under which we may issue notes that are not registered with the Securities and Exchange Commission. The notes will be issued from time to time from our subsidiary, Bell Atlantic Global Funding, Inc. (BAGF), and will have the benefit of a support agreement between BAGF and Bell Atlantic. There have been no notes issued under this program. In December 1998, we accepted an offer from Viacom to repurchase one-half of our investment in Viacom, or 12 million shares of their preferred stock (with a book value of approximately $600 million), for approximately $564 million in cash. This transaction resulted in a small loss in the fourth quarter of 1998. The cash proceeds, together with additional cash, were used to purchase an outside party's interest in one of our fully consolidated subsidiaries. This transaction reduced Minority Interest by $600 million and included certain stock appreciation rights and costs totaling $32 million. Our remaining investment in Viacom, 12 million shares of their preferred stock (with a book value of approximately $600 million), was repurchased by Viacom in a second transaction in January 1999 for approximately $612 million in cash. This transaction did not have a material effect on our consolidated results of operations. You can find additional information on our Viacom investment in Notes 3 and 10 to the consolidated financial statements. In December 1998, Bell Atlantic Mobile announced an agreement with Crown Castle International Corporation to form a joint venture into which Bell Atlantic Mobile, together with certain partnerships in which it is the managing partner (the managed entities), will contribute (assuming the participation of all managed entities) approximately 1,400 network cellular towers in exchange for approximately $380 million in cash and an equity interest of approximately 37.7% in the joint venture. BAM and the managed entities will lease back a portion of the network towers and the joint venture will lease the remaining space to third parties. The joint venture also plans to build new towers. This financing transaction is expected to close in the first quarter of 1999, assuming the satisfaction of certain conditions of closing. - -------------------------------------------------------------------------------- MARKET RISK - -------------------------------------------------------------------------------- We are exposed to various types of market risk in the normal course of our business, including the impact of interest rate changes, foreign currency exchange rate fluctuations, changes in equity investment prices and changes in corporate tax rates. We employ risk management strategies using a variety of derivatives including interest rate swap agreements, interest rate caps and floors, foreign currency forwards and options and basis swap agreements. We do not hold derivatives for trading purposes. It is our policy to enter into interest rate, foreign currency and other derivative transactions only to the extent necessary to achieve our desired objectives in limiting our exposures to the various market risks. Our objectives include maintaining a mix of fixed and variable rate debt to lower borrowing costs within reasonable risk parameters, hedging the value of certain international investments, and protecting against earnings and cash flow volatility resulting from changes in foreign exchange rates. We do not hedge our market risk exposure in a manner that would completely eliminate the effect of changes in interest rates, equity prices and foreign exchange rates on our earnings. While we do not expect that our liquidity and cash flows will be materially affected by these risk management strategies, our net income may be materially affected by certain market risk associated with the TCNZ and CWC exchangeable notes. F-13 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Exchangeable Notes - -------------------------------------------------------------------------------- In 1998, we issued the TCNZ and CWC exchangeable notes as described earlier, and in Note 8 to the consolidated financial statements. These financial instruments expose us to market risk, including foreign exchange rate risk, interest rate risk and equity price risk, which could affect the fair values of the notes and our future earnings. Market risk that could affect the fair values of the exchangeable notes includes: . Equity price movements because the notes are exchangeable into shares that are traded on the open market and routinely fluctuate in value. . Foreign exchange rate movements because the notes are exchangeable into shares that are denominated in a foreign currency. The fair value of the TCNZ exchangeable notes is affected by changes in the U.S. dollar/ New Zealand dollar exchange rate, and the fair value of the CWC exchangeable notes is affected by changes in the U.S. dollar/ British pound exchange rate. . Interest rate movements because the notes carry fixed interest rates. Market risk that could affect our future earnings includes: . Equity price and/or foreign exchange rate movements because these movements may result in our TCNZ shares rising to a level greater than 120% of the share price at the pricing date of the offering. Similar movements may cause the price of our CWC shares to rise to a level greater than 128% of the share price at the pricing date of the offering. If either event should occur, we are required to mark-to-market the applicable exchangeable note liability by the amount of the increase in share price over the exchange price. This mark-to-market transaction would reduce income by the amount of the increase in the exchangeable note liability. If the share price subsequently declines, the liability would be reduced (but not less than its amortized carrying value) and income would be increased. At December 31, 1998, the fair value of neither the underlying TCNZ shares, nor the underlying CWC shares, exceeded the recorded value of the debt liability and, therefore, no mark-to-market adjustments were recorded to our financial statements. . Interest rate movements will not impact earnings because the exchangeable notes carry a fixed interest rate and there is no requirement to mark-to-market the notes based on changes in interest rates. The following sensitivity analysis measures the effect on earnings due to changes in the underlying share prices of the TCNZ and CWC stock. . At December 31, 1998, the exchange price for the TCNZ shares (expressed as American Depositary Receipts) was $44.93 and the exchange price for the CWC shares (expressed as American Depositary Shares) was $57.47. . For each $1.00 increase or decrease in value of the TCNZ shares above the exchange price, our earnings would be reduced or increased by approximately $55 million. For each $1.00 increase or decrease in value of the CWC shares above the exchange price, our earnings would be reduced or increased by approximately $56 million. . Our earnings would not be affected when the TCNZ and CWC share prices are at or below their exchange prices. . Our cash flows would not be affected by ongoing mark-to-market activity relating to the exchangeable notes. . If we decide to deliver shares in exchange for the notes, the exchangeable note liability (including any mark-to-market adjustments) will be eliminated and the investment will be reduced by the book value of the related number of shares delivered. Upon settlement, the excess of the liability over the book value of the related shares delivered will be recorded as a gain. We also have the option to settle these liabilities with cash upon exchange. - -------------------------------------------------------------------------------- Interest Rate Risk - -------------------------------------------------------------------------------- The table that follows summarizes the fair values of our long-term debt, interest rate derivatives and exchangeable notes as of December 31, 1998 and 1997. The table also provides a sensitivity analysis of the estimated fair values of these financial instruments assuming 100-basis-point upward and downward parallel shifts in the yield curve. Our sensitivity analysis did not include the fair values of our commercial paper and bank loans because they are not significantly affected by changes in market interest rates.
(Dollars In Millions) Fair Value assuming Fair Value assuming At December 31, 1998 Fair Value +100 basis point shift -100 basis point shift - ---------------------------------------------------------------------------------------------------------- Long-term debt and interest rate derivatives $14,243 $13,414 $15,098 Exchangeable notes 5,818 5,618 6,018 ----------------------------------------------------------- Total $20,061 $19,032 $21,116 =========================================================== At December 31, 1997 - ---------------------------------------------------------------------------------------------------------- Long-term debt and interest rate derivatives $14,420 $13,608 $15,209 Exchangeable notes - - - ----------------------------------------------------------- Total $14,420 $13,608 $15,209 ===========================================================
- -------------------------------------------------------------------------------- Foreign Exchange Risk - -------------------------------------------------------------------------------- The fair values of our foreign currency derivatives and investments accounted for under the cost method are subject to fluctuations in foreign exchange rates. Our most significant foreign currency derivatives are interest rate swap agreements, which contain both a foreign currency and an interest rate component and require an exchange of British pounds and U.S. dollars at the maturity of the contract. F-14 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- The table that follows summarizes the fair values of our foreign currency derivatives, cost investments, and the exchangeable notes as of December 31, 1998 and 1997. The table also provides a sensitivity analysis of the estimated fair values of these financial instruments assuming a 10% decrease and increase in the value of the U.S. dollar against the various currencies to which we are exposed. Our sensitivity analysis does not include potential changes in the value of our international investments accounted for under the equity method. As of December 31, 1998, the carrying value of our equity method international investments totaled approximately $1.9 billion.
(DOLLARS IN MILLIONS) Fair Value assuming Fair Value assuming At December 31, 1998 Fair Value 10% decrease in US$ 10% increase in US$ - ---------------------------------------------------------------------------------------------------- Costs investments and foreign currency derivatives $ 154 $ 140 $ 172 Exchangeable notes (5,818) (6,023) (5,643) -------------------------------------------------------- Total $(5,664) $(5,883) $(5,471) ======================================================== At December 31, 1997 - ---------------------------------------------------------------------------------------------------- Cost investments and foreign currency derivatives $ 351 $ 368 $ 341 Exchangeable notes - - - -------------------------------------------------------- Total $ 351 $ 368 $ 341 ========================================================
- -------------------------------------------------------------------------------- Foreign Currency Translation - -------------------------------------------------------------------------------- The functional currency for nearly all of our foreign operations is the local currency. The translation of income statement and balance sheet amounts of these entities into U.S. dollars are recorded as cumulative translation adjustments, which are included in Accumulated Other Comprehensive Loss in our consolidated balance sheets. At December 31, 1998, our primary translation exposure was to the British pound, Italian lira and New Zealand dollar. We have not hedged our accounting translation exposure to foreign currency fluctuations relative to these investments, except for our United Kingdom investment which is partially hedged. Equity income from our international investments is affected by exchange rate fluctuations when an equity investee has assets and liabilities denominated in a currency other than the investee's functional currency. Our investment in the Philippines is exposed to fluctuations in the U.S. dollar/Filipino peso exchange rate. Iusacell, our consolidated investment in Mexico, also holds U.S. dollar denominated debt. For the period October 1, 1996 through December 31, 1998, we considered Iusacell to operate in a highly inflationary economy. Beginning January 1, 1999, we discontinued highly inflationary accounting for our Iusacell subsidiary and resumed using the Mexican peso as its functional currency. As a result, beginning in 1999 our earnings will be affected by any foreign currency gains or losses associated with the U.S dollar denominated debt held by Iusacell and our equity will be affected by the translation from the Mexican peso. - -------------------------------------------------------------------------------- Other Market Risks - -------------------------------------------------------------------------------- Earnings generated from our leveraged lease portfolio may be affected by changes in corporate tax rates. In order to hedge a portion of this risk, we entered into several basis swap agreements which provide for the receipt of a variable interest rate (LIBOR-based) in exchange for a rate calculated based on a tax-exempt market index (J.J. Kenney). We account for these basis swaps at fair value and record changes as unrealized gains and losses in earnings. In addition to the risks that we have discussed, we are typically exposed to other types of risk in the course of our business such as political risks to assets located in foreign countries. Credit risks and other potential risks have not been included in the above analysis. - -------------------------------------------------------------------------------- OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS - -------------------------------------------------------------------------------- Proposed Bell Atlantic-GTE Merger - -------------------------------------------------------------------------------- Bell Atlantic and GTE Corporation have announced a proposed merger of equals under a definitive merger agreement dated as of July 27, 1998. Under the terms of the agreement, GTE shareholders will receive 1.22 shares of Bell Atlantic common stock for each share of GTE common stock that they own. Bell Atlantic shareholders will continue to own their existing shares after the merger. We expect the merger to qualify as a pooling of interests, which means that for accounting and financial reporting purposes the companies will be treated as if they had always been combined. The completion of the merger is subject to a number of conditions, including certain regulatory approvals, receipt of opinions that the merger will be tax-free, and the approval of the shareholders of both Bell Atlantic and GTE. We believe that the merger will result in significant opportunities for cost savings, revenue growth, technological development and other benefits. The combined company will achieve synergies through economies of scope and scale, the elimination of duplicative expenditures and the consistent use of the best practices of Bell Atlantic and GTE in cost control and product offerings. Based on anticipated revenue and expense synergies, we expect that the merger will improve earnings per share, excluding merger-related charges, in the first year following the completion. We estimate that the merger will also generate significant capital synergies, producing higher capital efficiency and higher cash flow and margin growth. By the third year following the completion of the merger, we expect: . annual revenue synergies of approximately $2 billion, primarily from improved market penetration for value-added services and faster development of our data and long distance businesses, which, at an estimated operating margin of 25%, will produce $500 million in incremental operating income; . annual expense savings of approximately $2 billion, with savings generated from operating and procurement synergies, reduced corporate overheads, the migration of long distance traffic onto GTE's network, and greater efficiency in wireless operations; and F-15 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- . annual capital synergies of approximately $500 million through volume purchasing and the elimination of certain capital costs associated with building a data network in our current territory. We are targeting revenue growth of 8-10% and earnings per share growth of 13-15% (excluding merger-related charges) in each of the first two years following the completion of the merger. By the third year after the completion of the merger, we are targeting revenue growth in excess of 10% and earnings per share growth in excess of 15% (excluding merger-related charges). As a result of the merger, the combined company will incur direct incremental and transition costs currently estimated at $1.6 billion to $2.0 billion (pre-tax) in connection with completing the transaction and integrating the operations of Bell Atlantic and GTE. These costs consist principally of systems modification costs, costs associated with the elimination and consolidation of duplicate facilities, employee severance and relocation resulting from the merger, branding, compensation arrangements, and professional and registration fees. While the exact timing, nature and amount of these costs is subject to change, we anticipate that the combined company will record a charge of approximately $375 million (pre-tax) for direct incremental costs in the quarter in which the merger is completed. Transition costs of approximately $1.2 billion to $1.6 billion (pre-tax) will be incurred over the three years following completion of the merger. - -------------------------------------------------------------------------------- Telecommunications Industry Changes - -------------------------------------------------------------------------------- The telecommunications industry is undergoing substantial changes as a result of the 1996 Act, other public policy changes and technological advances. These changes are bringing increased competitive pressures in our current businesses, but will also open new markets to us. The 1996 Act became law on February 8, 1996 and replaced the Modification of Final Judgment (MFJ). In general, the 1996 Act includes provisions that open local exchange markets to competition and permit Bell Operating Companies (BOCs) or their affiliates, including ours, to provide long distance services and to engage in manufacturing previously prohibited by the MFJ. Under the 1996 Act, our ability to provide in-region long distance service is largely dependent on satisfying certain conditions. The requirements include a 14-point "competitive checklist" of steps we must take which will help competitors offer local service through resale, the purchase of unbundled network elements or through their own networks. We must also demonstrate to the FCC that our entry into the in-region long distance market would be in the public interest. The U. S. Court of Appeals rejected a constitutional challenge to these provisions, and the Supreme Court recently declined to review that decision. During the period that the case was pending, we continued to work through the regulatory process at both the state and federal levels in order to be in a position to demonstrate compliance with the challenged provisions. The U. S. Supreme Court recently reversed a U.S. Court of Appeals decision that had invalidated certain aspects of the FCC rules implementing provisions of the 1996 Act. In particular, the Supreme Court reinstated the FCC's authority to adopt rules governing the methodology to be used by state commissions in setting prices for local interconnection and resale arrangements, and reinstated rules that allow competitors to choose individual terms out of negotiated interconnection agreements, and that prohibit incumbent local telephone companies from separating network elements that already are combined in the incumbent's own network. The U.S. Supreme Court also decided that the FCC had applied the wrong standard in determining what elements of their networks incumbent local telephone companies are obligated to make available to competitors on an unbundled basis. Among other things, the FCC failed to account for the fact that some elements are available from other sources. As a result of the decision, the FCC must conduct a new proceeding to apply the correct standard. Pending that proceeding, we have informally agreed to continue offering the FCC's previously specified list of unbundled elements. In addition, a challenge to the substantive merits of the FCC's pricing rules remains pending in the U.S. Court of Appeals. In April 1998, our operating telephone subsidiary in New York filed with the New York State Public Service Commission a statement setting forth additional commitments that we will make to the FCC in connection with our anticipated application for permission to enter the in-region long distance market in New York. Those commitments include terms under which we will offer combinations of unbundled network elements and an unbundled network element platform (UNE-P) to competitors wishing to provide basic local and ISDN-BRI service to business or residential customers. We will offer UNE-P for basic local and ISDN-BRI service throughout our New York operating area, but UNE-P will not be available to competitors for other services, or for service to business customers in those parts of New York City where there is a defined level of local competition from two or more competitive local exchange carriers. Our commitment to offer UNE-P will be for four years in New York City and other major urban areas and for six years in the rest of the state. We believe that the terms of these commitments generally are consistent with the recent Supreme Court decision. We expect to file in the second quarter of 1999 an application with the FCC for permission to enter the in-region long distance market in New York. We hope to begin offering this service in the third quarter of 1999. Following our application for New York, we expect next to file applications with the FCC for Pennsylvania, Massachusetts, New Jersey, Virginia and Maryland and, subsequently, for the remaining states in our region. The timing of our long distance entry in each of our 14 jurisdictions depends on the receipt of FCC approval. We are unable to predict definitively the impact that the 1996 Act will ultimately have on our business, results of operations or financial condition. The financial impact will depend on several factors, including the timing, extent and success of competition in our markets, the timing and outcome of various regulatory proceedings and any appeals, and the timing, extent and success of our pursuit of new opportunities resulting from the 1996 Act. F-16 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- We anticipate that these industry changes, together with the rapid growth, enormous size and global scope of these markets, will attract new entrants and encourage existing competitors to broaden their offerings. Current and potential competitors in telecommunication services include long distance companies, other local telephone companies, cable companies, wireless service providers, foreign telecommunications providers, electric utilities, Internet service providers and other companies that offer network services. Many of these companies have a strong market presence, brand recognition and existing customer relationships, all of which contribute to intensifying competition and may affect our future revenue growth. In addition, a number of major industry participants have announced mergers, acquisitions and joint ventures which could substantially affect the development and nature of some or all of our markets. You should also read the "Competition" section for additional information. - -------------------------------------------------------------------------------- Recent Developments-FCC - -------------------------------------------------------------------------------- In 1998, the FCC continued to implement reforms to the interstate access charge system and to implement the "universal service" and other requirements of the 1996 Act. ACCESS CHARGES Interstate access charges are the rates long distance carriers pay for use and availability of our operating telephone subsidiaries' facilities for the origination and termination of interstate service. The FCC required a phased restructuring of access charges, which began in January 1998, so that the operating telephone subsidiaries' nonusage-sensitive costs will be recovered from long distance carriers and end-users through flat rate charges, and usage-sensitive costs will be recovered from long distance carriers through usage-based rates. In addition, the FCC has required that different levels of usage-based charges for originating and for terminating interstate traffic be established. PRICE CAPS Under the FCC price cap rules that apply to interstate access rates, each year our price cap index is adjusted downward by a fixed percentage intended to reflect increases in productivity (the productivity factor) and adjusted upward by an allowance for inflation (the GDP-PI). The current productivity factor is 6.5 percent. These changes will be reflected in tariff changes that will be filed to take effect on July 1, 1999. In October 1998, the FCC initiated a proceeding with respect to its price cap rules to determine whether a change in the current productivity factor is warranted, whether to continue its "market based" approach of allowing market forces (supplemented by its price cap rules) to determine access charge levels, and whether to afford additional pricing flexibility for access services. In addition, we have petitioned the FCC to remove our special access services from price cap regulation on the grounds that customers of these services have competitive alternatives available, and a challenge to the FCC order establishing the 6.5 percent productivity factor is pending in the U.S. Court of Appeals. We are unable to predict the results of these further proceedings. UNIVERSAL SERVICE The FCC has adopted rules implementing the "universal service" provision of the 1996 Act. As of January 1, 1999, the rules require each of our operating telephone subsidiaries to contribute approximately 2% of its interstate retail revenues for high-cost and low-income subsidies. Each of our operating telephone subsidiaries also will be contributing a portion of its total retail revenues for schools, libraries and not-for-profit healthcare. Our operating telephone subsidiaries will recover these contributions through interstate charges to long distance carriers and end-users. Our domestic wireless subsidiary is required to contribute to these universal service programs and will recover the cost of its contributions from end-users. A new federal high-cost universal service support mechanism for nonrural carriers and an increase in the funding level for schools and libraries are expected to become effective in 1999. The FCC currently is considering, in conjunction with a recommendation from a joint board of federal and state regulators, a number of issues that could affect the size of the universal service fund for high cost areas and the amount of universal service costs that are assessed against our operating telephone subsidiaries and domestic cellular subsidiary for recovery. - -------------------------------------------------------------------------------- Competition - -------------------------------------------------------------------------------- INTRALATA TOLL SERVICES IntraLATA toll calls originate and terminate within the same LATA, but generally cover a greater distance than a local call. These services are generally regulated by state regulatory commissions rather than federal authorities. All of our state regulatory commissions (except in the District of Columbia, where intraLATA toll service is not provided) permit other carriers to offer intraLATA toll services within the state. Until the implementation of presubscription, intraLATA toll calls were completed by our operating telephone subsidiaries unless the customer dialed a code to access a competing carrier. Presubscription changes this dialing method and enables customers to make these toll calls using another carrier without having to dial an access code. The 1996 Act generally prohibits, with certain exceptions, a state from requiring presubscription until the earlier of such time as the BOC is authorized to provide long distance services originating in the state or three years from the effective date of the 1996 Act. Our operating telephone subsidiary in New York fully completed intraLATA presubscription implementation by September 1996. By December 1997, our operating telephone subsidiaries in Delaware, Maine, New Hampshire, New Jersey, Pennsylvania, Rhode Island, Vermont and West Virginia had also implemented presubscription. We expect to offer intraLATA presubscription in Massachusetts in April 1999. In Maryland and Virginia, the state commissions have decided that intraLATA presubscription need not occur on the third anniversary of the 1996 Act, but did not set dates for implementation. The recent Supreme Court decision reinstated the FCC's authority to adopt rules governing intraLATA presubscription, and F-17 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- the FCC has required that implementation be completed as early as May 1999. Implementation of presubscription for intraLATA toll services has had a material negative effect on intraLATA toll service revenues in those jurisdictions where, as noted above, presubscription has been implemented before we are permitted to offer long distance services. However, the negative effect is beginning to subside now that presubscription has been available in most of our states for more than one year. In addition, the adverse impact on intraLATA toll services revenues is being partially offset by increased intraLATA network access revenues. LOCAL EXCHANGE SERVICES Local exchange services have historically been subject to regulation by state regulatory commissions. Applications from competitors to provide and resell local exchange services have been approved in all of our state jurisdictions. The 1996 Act is expected to significantly increase the level of competition in all of our local exchange markets. - -------------------------------------------------------------------------------- OTHER MATTERS - -------------------------------------------------------------------------------- Euro Common Currency - -------------------------------------------------------------------------------- Beginning January 1, 1999, eleven European countries are participating in a multi-step process to convert their existing sovereign currencies to the "Euro." The process includes a transition period of three years, during which time either the Euro or the participating countries' own currencies will be accepted as payment. After the transition period, the countries will issue Euro-denominated bills and coins and will withdraw their own currencies from circulation no later than July 1, 2002, completing the conversion process. We have investments in companies in Italy and the Netherlands, which are participating in the Euro conversion. We do not believe that the Euro conversion will have a material effect on these investments. - -------------------------------------------------------------------------------- Recent Accounting Pronouncements - -------------------------------------------------------------------------------- COSTS OF COMPUTER SOFTWARE In March 1998, the American Institute of Certified Public Accountants (AICPA) issued SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This new accounting standard provides, among other things, guidance for determining whether computer software is for internal use and when the cost related to such software should be expensed as incurred or capitalized and amortized. SOP No. 98-1 is required to be applied prospectively. We adopted SOP No. 98-1 effective January 1, 1999. We estimate that the implementation of SOP No. 98-1 will result in a net after-tax benefit of $200 million to $250 million in 1999 results of operations due to the prospective capitalization of costs which were previously expensed as incurred. Costs for maintenance and training, as well as the cost of software that does not add functionality to the existing system will continue to be expensed as incurred. COSTS OF START-UP ACTIVITIES In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of Start-Up Activities." This new accounting standard requires that costs of start-up activities, including pre-operating, pre-opening and other organizational costs, be expensed as incurred. In addition, the unamortized balance of any previously deferred start-up costs existing at adoption must be expensed. We adopted SOP No. 98-5 effective January 1, 1999. The adoption of SOP No. 98-5 will not have a material effect on our results of operations or financial condition in 1999 because our policy has been to generally expense all start-up activities. DERIVATIVES AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivatives be measured at fair value and recognized as either assets or liabilities in our balance sheet. Changes in the fair values of the derivative instruments will be recognized in either earnings or comprehensive income, depending on the designated use and effectiveness of the instruments. Bell Atlantic must adopt SFAS No. 133 no later than January 1, 2000. We are currently evaluating the provisions of SFAS No. 133 and have not yet determined what the impact of adopting this statement will be on our future results of operations or financial condition. - -------------------------------------------------------------------------------- Year "2000" Update - -------------------------------------------------------------------------------- We have a comprehensive program to evaluate and address the impact of the Year 2000 date transition on our operations. This program includes steps to: . inventory and assess for Year 2000 compliance our equipment, software and systems; . determine whether to remediate, replace or retire noncompliant items, and establish a plan to accomplish these steps; . remediate, replace or retire the items; . test the items, where required; and . provide management with reporting and issues management to support a seamless transition to the Year 2000. STATE OF READINESS For our operating telephone subsidiaries, centralized services entities and general corporate operations, the program focuses on the following project groups: Network Elements, Applications and Support Systems, and Information Technology Infrastructure. At this time, we have virtually completed the inventory, assessment and detailed planning phases for these projects. Remediation/replacement/retirement and testing activities are well underway. We plan to fix, replace or retire those items that were not Year 2000 compliant and that require action to avoid service impact. Our goal for these operations is to have our network and other mission critical systems Year 2000 compliant (including testing) by June 30, 1999. We are on schedule to achieve this goal for substantially all of our network and other mission critical systems. What follows is a more detailed breakdown of our efforts to date. F-18 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- . Network Elements Approximately 350 different types of network elements (such as central office switches) appear in over one hundred thousand instances. When combined in various ways and using network application systems, these elements are the building blocks of customer services and networked information transmission of all kinds. We originally assessed approximately 70% of these element types, representing over 90% of all deployed network elements, as Year 2000 compliant. Late in 1998, through additional testing and verification, we determined that certain network elements, originally represented as having no Year 2000-related service impact, were likely to cause service issues unless remediated. As a result, we had an increase in the overall number of network elements requiring repair. Notwithstanding the additional work effort, as of February 1999, we have repaired or replaced approximately 50% of the deployed network elements requiring remediation, and certification testing/evaluation is well underway. We also have made substantial progress on the remaining network elements. Although we are generally on track to achieve our June 30, 1999 goal for network elements, it is possible that the timeframe for compliance of a small number of network elements may extend into July or August, without any impact on customer service or our operations. . Applications And Support Systems Approximately 1,200 application and systems support: (i) the administration and maintenance of our network and customer service functions (network information systems); (ii) customer care and billing functions; and (iii) human resources, finance and general corporate functions. We originally assessed approximately 48% of these application systems as either compliant or to be retired. As of February 1999, we have successfully completed certification testing/evaluation of approximately 70% of all application systems. We also have made substantial progress on the remaining application systems. Although we are generally on track to achieve our June 30, 1999 goal for applications and support systems, it is possible that the timeframe for compliance of a small number of applications and support systems may extend into July or August, without any impact on customer service or our operations. . Information Technology Infrastructure Approximately 40 mainframe, 1,000 mid-range, and 90,000 personal computers, related network components, and software products comprise our information technology (IT) infrastructure. Of the approximately 1,350 unique types of elements in the inventory for the IT infrastructure, we originally assessed approximately 73% as compliant or to be retired. As of February 1999, we have successfully completed certification testing/evaluation of approximately 90% of all element types. We have made substantial progress on the remaining items and we are on track to achieve our June 30, 1999 goal. For our other controlled or majority-owned subsidiaries, including Bell Atlantic Mobile and our directory companies, the inventory, assessment and planning efforts are substantially complete, and remediation/replacement/retirement and testing activities are in progress. Bell Atlantic Mobile, our directory companies and, in general, all of the other controlled or majority-owned subsidiaries are on track to achieve our June 30, 1999 goal for substantially all of their mission critical systems. Our Iusacell subsidiary has experienced some delays in implementation of its Year 2000 project plan. It is currently anticipated that required modification, replacement and retirement of substantially all of its mission critical systems will be completed by September 30, 1999, with testing continuing throughout 1999. Our Year 2000 program also includes a project to review and remediate affected systems (including those with embedded technology) within our buildings and other facilities, a project to assure Year 2000 compliance across all of our internal business processes, and other specific projects directed towards insuring we meet our Year 2000 objectives. THIRD PARTY ISSUES . Vendors In general, our product vendors have made available either Year 2000-compliant versions of their offerings or new compliant products as replacements of discontinued offerings. In some cases, the compliance "status" of the product in question is based on vendor-provided information, which remains subject to our testing and verification activities. In several instances, vendors have not met original delivery schedules, resulting in delayed testing and deployment. At this time, we do not anticipate that such delays will have a material impact on our ability to achieve Year 2000 compliance within our desired timeframes. We are continuing Year 2000-related discussions with utilities and similar services providers. In general, information requests to such services providers have yielded less meaningful information than inquiries to our product vendors, and we do not yet have sufficient information to determine whether key utilities and similar service providers will successfully complete the Year 2000 transition. However, we are now beginning to engage in more productive discussions with large utilities servicing our facilities and we are hopeful that these discussions will provide us additional assurance of Year 2000 compliance for those entities. At the present time, we remain unable to determine the Year 2000 readiness of most key utilities and similar service providers or the likelihood that those providers will successfully complete the Year 2000 transition. We intend to monitor critical service provider activities, as appropriate, through the completion of their respective remediation projects. . Customers Our customers remain keenly interested in the progress of our Year 2000 efforts, and we anticipate increased demand for information, including detailed testing data and company-specific responses. We are providing limited warranties of Year 2000 compliance for certain new telecommunications services and other offerings, but we do not expect any resulting warranty costs to be material. We are also analyzing and addressing Year 2000 issues in customer premise equipment (CPE), including CPE that we have F-19 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- sold or maintained. In general, the customer is responsible for CPE. However, customers could attribute a Year 2000 malfunction of their CPE, whether or not sold or maintained by us, to a failure of our network service. We also have a separate effort to identify and address Year 2000 issues for CPE and other equipment that we maintain for Public Safety Answering Points (PSAPs) and are used in connection with the provision of E-911/911 and related services. We are presently repairing and replacing E-911/911-related CPE, as appropriate, that we maintain for various PSAPs. . Interconnecting Carriers Our network operations interconnect with domestic and international networks of other carriers. If one of these interconnecting carriers should fail or suffer adverse impact from a Year 2000 problem, our customers could experience impairment of service. COSTS From the inception of our Year 2000 project through December 31, 1998, and based on the cost tracking methods we have historically applied to this project, we have incurred total pre-tax expenses of approximately $122 million ($97 million of which was incurred in 1998), and we have made capital expenditures of approximately $80 million (all of which was made in 1998). For 1999, we expect to incur total pre-tax expenses for our Year 2000 project of approximately $100 million to $200 million and total capital expenditures of $125 million to $175 million. These cost estimates have been included in our earnings targets. We have investments in various joint ventures and other interests. At this time, we do not anticipate that the impact of any Year 2000 remediation costs that they incur will be material to our results of operations. RISKS The failure to correct a material Year 2000 problem could cause an interruption or failure of certain of our normal business functions or operations, which could have a material adverse effect on our results of operations, liquidity or financial condition; however, we consider such a likelihood remote. Due to the uncertainty inherent in other Year 2000 issues that are ultimately beyond our control, including, for example, the final Year 2000 readiness of our suppliers, customers, interconnecting carriers, and joint venture and investment interests, we are unable to determine at this time the likelihood of a material impact on our results of operations, liquidity or financial condition, due to such Year 2000 issues. However, we are taking appropriate prudent measures to mitigate that risk. We anticipate that, in the event of any material interruptions or failures of our service resulting from actual or perceived Year 2000 problems within or beyond our control, we could be subject to third party claims. CONTINGENCY PLANS As a public telecommunications carrier, we have had considerable experience successfully dealing with natural disasters and other events requiring contingency planning and execution. As part of our efforts to develop appropriate Year 2000 contingency plans, we are reviewing our existing Emergency Preparedness and Disaster Recovery plans for any necessary modifications. We have developed, where appropriate, contingency plans for addressing delays in remediation activities. For example, delay in the installation of a new Year 2000 compliant system could require remediation of the existing system. We are also developing a corporate Year 2000 contingency plan to ensure that core business functions and key support processes are in place for uninterrupted processing and service, in the event of external (e.g. power, public transportation, water), internal or supply chain failures (i.e. critical dependencies on another entity for information, data or services). We anticipate that an initial draft of our corporate contingency plan will be ready by the end of the first quarter of 1999. - -------------------------------------------------------------------------------- CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS - -------------------------------------------------------------------------------- In this Management's Discussion and Analysis, and elsewhere in this Annual Report, we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "estimates," "hopes" or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors, along with those discussed elsewhere in this Annual Report, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements: . materially adverse changes in economic conditions in the markets served by us or by companies in which we have substantial investments; . material changes in available technology; . the final outcome of federal, state, and local regulatory initiatives and proceedings, including arbitration proceedings, and judicial review of those initiatives and proceedings, pertaining to, among other matters, the terms of interconnection, access charges, universal service, and unbundled network element and resale rates; . the extent, timing, success, and overall effects of competition from others in the local telephone and toll service markets; . the timing and profitability of our entry into the in-region long distance market; . the success and expense of our remediation efforts and those of our suppliers, customers, joint ventures, noncontrolled investments, and interconnecting carriers in achieving Year 2000 compliance; and . the timing of, and regulatory or other conditions associated with, the completion of the merger with GTE and our ability to combine operations and obtain revenue enhancements and cost savings following the merger. F-20 - -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS Operating revenues $ 31,565.9 $ 30,193.9 $ 29,155.2 $ 27,926.8 $ 27,098.0 Operating income 6,627.2 5,341.5 6,078.6 5,417.4 4,522.4 Income before extraordinary items and cumulative effect of changes in accounting principles 2,990.8 2,454.9 3,128.9 2,826.1 2,224.9 Per common share-basic 1.90 1.58 2.02 1.85 1.47 Per common share-diluted 1.87 1.56 2.00 1.84 1.46 Net income (loss) 2,965.3 2,454.9 3,402.0 (96.8) 68.2 Per common share-basic 1.89 1.58 2.20 (.06) .05 Per common share-diluted 1.86 1.56 2.18 (.06) .04 Cash dividends declared per common share 1.54 1.51 1.44 1.40 1.38 FINANCIAL POSITION Total assets $ 55,143.9 $ 53,964.1 $ 53,361.1 $ 50,623.1 $ 54,020.2 Long-term debt 17,646.4 13,265.2 15,286.0 15,744.1 14,590.2 Employee benefit obligations 10,384.2 10,004.4 9,588.0 9,388.4 8,980.2 Minority interest, including a portion subject to redemption requirements 329.7 911.2 2,014.2 1,221.1 648.0 Preferred stock of subsidiary 200.5 200.5 145.0 145.0 85.0 Shareowners' investment 13,025.4 12,789.1 12,976.4 11,213.6 13,063.5
All per share amounts have been adjusted to reflect a two-for-one stock split on June 1, 1998. Significant events affecting our historical earnings trends include the following: . 1998 and 1997 data include retirement incentive costs, merger-related costs and other special items (see Notes 2 and 15 and Management's Discussion and Analysis). . 1996 data include retirement incentive costs, other special items (see Note 15 and Management's Discussion and Analysis), and the adoption of a change in accounting for directory publishing (see Note 1). . 1995 and 1994 data include retirement incentive costs (see Note 15), and an extraordinary charge for the discontinuation of regulatory accounting principles. . Cash dividends declared in 1996 include a payment of $.0025 per common share for redemption of all rights granted under our Shareholder Rights Plan. F-21 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME Bell Atlantic Corporation and Subsidiaries - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------ OPERATING REVENUES $ 31,565.9 $ 30,193.9 $ 29,155.2 OPERATING EXPENSES Employee costs, including benefits and taxes 9,265.8 9,047.2 8,703.9 Depreciation and amortization 5,870.2 5,864.4 5,379.0 Other operating expenses 9,802.7 9,940.8 8,993.7 -------------------------------------------- 24,938.7 24,852.4 23,076.6 -------------------------------------------- OPERATING INCOME 6,627.2 5,341.5 6,078.6 Income (loss) from unconsolidated businesses (414.6) (124.1) 14.2 Other income and (expense), net 121.7 (3.3) (99.6) Interest expense 1,335.4 1,230.0 1,082.0 -------------------------------------------- Income before provision for income taxes, extraordinary item, and cumulative effect of change in accounting principle 4,998.9 3,984.1 4,911.2 Provision for income taxes 2,008.1 1,529.2 1,782.3 -------------------------------------------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 2,990.8 2,454.9 3,128.9 Extraordinary item Early extinguishment of debt, net of tax (25.5) -- -- Cumulative effect of change in accounting principle Directory publishing, net of tax -- -- 273.1 -------------------------------------------- NET INCOME 2,965.3 2,454.9 3,402.0 Redemption of minority interest (29.8) -- -- Redemption of investee preferred stock (2.5) -- -- -------------------------------------------- NET INCOME AVAILABLE TO COMMON SHAREOWNERS $ 2,933.0 $ 2,454.9 $ 3,402.0 ============================================ BASIC EARNINGS PER COMMON SHARE: INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 1.90 $ 1.58 $ 2.02 Extraordinary item (.01) -- -- Cumulative effect of change in accounting principle -- -- .18 -------------------------------------------- NET INCOME $ 1.89 $ 1.58 $ 2.20 ============================================ Weighted-average shares outstanding (in millions) 1,553.0 1,551.8 1,546.6 ============================================ DILUTED EARNINGS PER COMMON SHARE: INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 1.87 $ 1.56 $ 2.00 Extraordinary item (.01) -- -- Cumulative effect of change in accounting principle -- -- .18 -------------------------------------------- NET INCOME $ 1.86 $ 1.56 $ 2.18 ============================================ Weighted-average shares-diluted (in millions) 1,578.3 1,571.1 1,560.2 ============================================
See Notes to Consolidated Financial Statements F-22 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- (Dollars In Millions, Except Per Share Amounts) At December 31, 1998 1997 - ----------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 237.1 $ 322.8 Short-term investments 785.8 720.6 Accounts receivable, net of allowances of $593.3 and $611.9 6,559.9 6,340.8 Inventories 566.0 550.3 Prepaid expenses 522.0 634.0 Other 411.5 432.3 ------------------------------ 9,082.3 9,000.8 ------------------------------ Plant, property and equipment 83,064.1 77,437.2 Less accumulated depreciation 46,248.6 42,397.8 ------------------------------ 36,815.5 35,039.4 ------------------------------ Investments in unconsolidated businesses 4,276.0 5,144.2 Other assets 4,970.1 4,779.7 ------------------------------ Total assets $ 55,143.9 $ 53,964.1 ============================== LIABILITIES AND SHAREOWNERS' INVESTMENT Current liabilities Debt maturing within one year $ 2,987.6 $ 6,342.8 Accounts payable and accrued liabilities 6,105.0 5,966.4 Other 1,438.6 1,355.0 ------------------------------ 10,531.2 13,664.2 ------------------------------ Long-term debt 17,646.4 13,265.2 ------------------------------ Employee benefit obligations 10,384.2 10,004.4 ------------------------------ Deferred credits and other liabilities Deferred income taxes 2,253.8 2,106.2 Unamortized investment tax credits 221.8 250.7 Other 550.9 772.6 ------------------------------ 3,026.5 3,129.5 ------------------------------ Minority interest, including a portion subject to redemption requirements 329.7 911.2 ------------------------------ Preferred stock of subsidiary 200.5 200.5 ------------------------------ Commitments and contingencies (Notes 2, 3, 4, 6 and 7) Shareowners' investment Series preferred stock ($.10 par value; none issued) -- -- Common stock ($.10 par value; 1,576,246,325 shares and 1,576,052,790 shares issued) 157.6 157.6 Contributed capital 13,368.0 13,176.8 Reinvested earnings 1,370.8 1,261.6 Accumulated other comprehensive loss (714.2) (553.3) ------------------------------ 14,182.2 14,042.7 Less common stock in treasury, at cost 592.2 590.5 Less deferred compensation-employee stock ownership plans 564.6 663.1 ------------------------------ 13,025.4 12,789.1 ------------------------------ Total liabilities and shareowners' investment $ 55,143.9 $ 53,964.1 ============================== See Notes to Consolidated Financial Statements F-23 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' INVESTMENT Bell Atlantic Corporation and Subsidiaries - --------------------------------------------------------------------------------
(Dollars In Millions, Except Per Share Amounts, And Shares In Thousands) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount ------------------------------------------------------------------------------- COMMON STOCK Balance at beginning of year 1,576,053 $ 157.6 1,574,001 $ 157.4 1,543,360 $ 154.3 Shares issued Employee plans 193 -- 2,044 .2 9,084 .9 Shareowner plans -- -- 8 -- 2,968 .3 Common shares issued to subsidiary -- -- -- -- 18,796 1.9 Shares retired -- -- -- -- (207) -- ------------------------------------------------------------------------------- Balance at end of year 1,576,246 157.6 1,576,053 157.6 1,574,001 157.4 ------------------------------------------------------------------------------- CONTRIBUTED CAPITAL Balance at beginning of year 13,176.8 13,216.3 12,375.8 Shares issued Employee plans 178.4 (22.2) 263.1 Shareowner plans -- -- 94.0 Acquisition agreements -- (.3) -- Dividends -- -- (.2) Common shares issued to subsidiary -- -- 489.0 Issuance of stock by subsidiaries 12.8 -- -- Other -- (17.0) (5.4) ------------------------------------------------------------------------------- Balance at end of year 13,368.0 13,176.8 13,216.3 ------------------------------------------------------------------------------- REINVESTED EARNINGS Balance at beginning of year 1,261.6 1,282.0 180.9 Net income 2,965.3 2,454.9 3,402.0 Dividends declared and redemption of stock rights ($1.54, $1.51, and $1.44 per share) (2,392.3) (2,363.4) (2,295.7) Shares issued Employee plans (443.3) (121.0) (19.4) Tax benefit of dividends paid to ESOPs 11.8 12.9 14.8 Redemption of minority interest (29.8) -- -- Redemption of investee preferred stock (2.5) -- -- Other -- (3.8) (.6) ------------------------------------------------------------------------------- Balance at end of year 1,370.8 1,261.6 1,282.0 ------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance at beginning of year (553.3) (321.6) (537.6) ------------------------------------------------------------------------------- Foreign currency translation adjustment (146.2) (234.0) 221.9 Unrealized gains (losses) on securities 2.0 2.3 (5.9) Minimum pension liability adjustment (16.7) -- -- ------------------------------------------------------------------------------- Other comprehensive income (loss) (160.9) (231.7) 216.0 ------------------------------------------------------------------------------- Balance at end of year (714.2) (553.3) (321.6) ------------------------------------------------------------------------------- TREASURY STOCK Balance at beginning of year 22,952 590.5 22,540 589.3 3,762 97.9 Shares purchased 20,743 1,001.8 24,148 919.8 3,578 118.3 Shares distributed Employee plans (20,779) (998.8) (23,260) (899.0) (3,386) (111.6) Shareowner plans (26) (1.2) (52) (1.8) (2) (.1) Acquisition agreements (3) (.1) (424) (17.8) -- -- Common shares held by subsidiary -- -- -- -- 18,796 490.9 Shares retired -- -- -- -- (208) (6.1) ------------------------------------------------------------------------------- Balance at end of year 22,887 592.2 22,952 590.5 22,540 589.3 ------------------------------------------------------------------------------- DEFERRED COMPENSATION-ESOPS Balance at beginning of year 663.1 768.4 861.9 Amortization (98.5) (105.3) (93.5) ------------------------------------------------------------------------------- Balance at end of year 564.6 663.1 768.4 ------------------------------------------------------------------------------- TOTAL SHAREOWNERS' INVESTMENT $ 13,025.4 $ 12,789.1 $ 12,976.4 =============================================================================== COMPREHENSIVE INCOME Net income $ 2,965.3 $ 2,454.9 $ 3,402.0 Other comprehensive income (loss) per above (160.9) (231.7) 216.0 ------------------------------------------------------------------------------- $ 2,804.4 $ 2,223.2 $ 3,618.0 ===============================================================================
See Notes To Consolidated Financial Statements F-24 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- (Dollars in Millions) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,965.3 $ 2,454.9 $ 3,402.0 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 5,870.2 5,864.4 5,379.0 Extraordinary item, net of tax 25.5 -- -- Cumulative effect of change in accounting principle, net of tax -- -- (273.1) Loss (income) from unconsoli- dated businesses 414.6 124.1 (14.2) Dividends received from unconsolidated businesses 169.4 192.1 194.8 Amortization of unearned lease income (120.2) (110.3) (100.6) Deferred income taxes, net 264.2 236.9 284.2 Investment tax credits (28.9) (38.1) (57.3) Other items, net 226.5 88.2 274.1 Changes in certain assets and liabilities, net of effects from acquisition/disposition of businesses Accounts receivable (220.3) (139.5) (184.0) Inventories (110.5) (73.8) (116.1) Other assets (108.0) 65.2 (244.8) Accounts payable and accrued liabilities 376.4 (93.3) 382.6 Employee benefit obligations 354.2 415.5 206.5 Other liabilities (7.5) (127.6) (352.3) ---------------------------------------- Net cash provided by operating activities 10,070.9 8,858.7 8,780.8 ======================================== CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments (1,027.8) (843.6) (418.1) Proceeds from sale of short-term investments 968.2 426.9 132.5 Additions to plant, property and equipment (7,446.5) (6,637.7) (6,394.7) Proceeds from sale of plant, property and equipment 11.9 5.5 15.4 Investment in leased assets (269.0) (161.6) (201.3) Proceeds from leasing activities 154.9 83.0 99.9 Investment in notes receivable (7.2) -- -- Proceeds from notes receivable 21.1 63.1 213.3 Proceeds from Telecom Corporation of New Zealand Limited share repurchase plan -- 153.3 -- Acquisition of businesses, less cash acquired (61.9) (61.8) (10.0) Investments in unconsolidated businesses, net (602.7) (833.0) (1,071.2) Proceeds from disposition of businesses 637.3 546.5 127.8 Other, net (63.2) (79.2) (67.6) ---------------------------------------- Net cash used in investing activities (7,684.9) (7,338.6) (7,574.0) ======================================== CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 6,328.9 633.0 109.4 Principal repayments of borrowings and capital lease obligations (651.4) (901.4) (375.8) Early extinguishment of debt (790.0) -- -- Net change in short-term borrowings with original maturities of three months or less (4,038.4) 1,580.3 77.1 Dividends paid and redemption of stock rights (2,379.5) (2,340.4) (2,204.1) Proceeds from sale of common stock 559.0 710.7 328.3 Purchase of common stock for treasury (1,001.8) (919.8) (118.3) Minority interest (631.9) (.1) 687.8 Reduction in preferred stock of subsidiary -- (10.0) -- Proceeds from sale of preferred stock by subsidiary -- 65.5 -- Net change in outstanding checks drawn on controlled disbursement accounts 133.4 (264.5) 75.3 ---------------------------------------- Net cash used in financing activities (2,471.7) (1,446.7) (1,420.3) ======================================== Increase (decrease) in cash and cash equivalents (85.7) 73.4 (213.5) Cash and cash equivalents, beginning of year 322.8 249.4 462.9 ---------------------------------------- Cash and cash equivalents, end of year $ 237.1 $ 322.8 $ 249.4 ======================================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-25 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1.Description of Business and Summary of Significant Accounting Policies - -------------------------------------------------------------------------------- DESCRIPTION OF BUSINESS Bell Atlantic is an international telecommunications company that operates in four segments: Domestic Telecom, Global Wireless, Directory and Other Businesses. For further information concerning our business, see Note 17. The telecommunications industry is undergoing substantial changes as a result of the Telecommunications Act of 1996, other public policy changes and technological advances. These changes are bringing increased competitive pressures, but will also open new markets to us, such as long distance services in our geographic region, upon completion of certain requirements of the Telecommunications Act of 1996. CONSOLIDATION The consolidated financial statements include our controlled or majority-owned subsidiaries. Investments in businesses which we do not control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Investments in which we do not have the ability to exercise significant influence over operating and financial policies are accounted for under the cost method. All significant intercompany accounts and transactions have been eliminated. Grupo Iusacell, S.A. de C.V. In the first quarter of 1997, we consummated a restructuring of our investment in Grupo Iusacell, S.A. de C.V. (Iusacell), a Mexican wireless company, to permit us to assume control of the Board of Directors and management of Iusacell. As a result of the restructuring, we changed the accounting for our Iusacell investment from the equity method to full consolidation. You can find additional information about Iusacell in Note 4. United Kingdom Operations In the second quarter of 1997, we transferred our interests in cable television and telecommunications operations in the United Kingdom to Cable & Wireless Communications plc (CWC) in exchange for an 18.5% ownership interest in CWC. Prior to the transfer, we included the accounts of these operations in our consolidated financial statements. We now account for our investment in CWC under the equity method. You can find additional information about CWC in Note 3. COMMON STOCK SPLIT On May 1, 1998, the Board of Directors declared a two-for-one split of Bell Atlantic common stock, effected in the form of a 100% stock dividend to shareholders of record on June 1, 1998 and payable on June 29, 1998. Shareholders of record received an additional share of common stock for each share of common stock held at the record date. We retained the par value of $.10 per share for all shares of common stock. The prior period financial information (including share and per share data) contained in this report has been adjusted to give retroactive recognition to this common stock split. USE OF ESTIMATES We prepare our financial statements under generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts or certain disclosures. Actual results could differ from those estimates. REVENUE RECOGNITION Our operating telephone subsidiaries recognize revenues when services are rendered based on usage of our local exchange network and facilities. Our other subsidiaries recognize revenues when products are delivered or services are rendered to customers. MAINTENANCE AND REPAIRS We charge the cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments, to Operating Expenses. EARNINGS PER COMMON SHARE Basic earnings per common share are based on the weighted-average number of shares outstanding during the year. Diluted earnings per common share include the dilutive effect of shares issuable under our stock-based compensation plans, which represent the only potential dilutive common shares. CASH AND CASH EQUIVALENTS We consider all highly liquid investments with a maturity of 90 days or less when purchased to be cash equivalents, except cash equivalents held as short-term investments. Cash equivalents are stated at cost, which approximates market value. SHORT-TERM INVESTMENTS Our short-term investments consist primarily of cash equivalents held in trust to pay for certain employee benefits. Short-term investments are stated at cost, which approximates market value. INVENTORIES We include in inventory new and reusable materials of the operating telephone subsidiaries which are stated principally at average original cost, except that specific costs are used in the case of large individual items. Inventories of our other subsidiaries are stated at the lower of cost (determined principally on either an average or first-in, first-out basis) or market. PLANT AND DEPRECIATION We state plant, property and equipment at cost. Our operating telephone subsidiaries' depreciation expense is principally based on the composite group remaining life method and straight-line composite rates. This method provides for the recognition of the cost of the remaining net investment in telephone plant, less anticipated net salvage value, over the remaining asset lives. This method requires the periodic revision of depreciation rates. The asset lives used by our operating telephone subsidiaries are presented in the following table: Average Lives (In Years) - -------------------------------------------------------------------------------- Buildings 20-60 Central office equipment 2-12 Outside communications plant 8-65 Furniture, vehicles and other equipment 5-15 F-26 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 1 CONTINUED When we replace or retire depreciable telephone plant, we deduct the carrying amount of such plant from the respective accounts and charge accumulated depreciation. Gains or losses on disposition are amortized with the remaining net investment in telephone plant. Plant, property and equipment of our other subsidiaries is depreciated on a straight-line basis over the following estimated useful lives: buildings, 20 to 40 years, and other equipment, 1 to 20 years. When the depreciable assets of our other subsidiaries are retired or otherwise disposed of, the related cost and accumulated depreciation are deducted from the plant accounts, and any gains or losses on disposition are recognized in income. COMPUTER SOFTWARE COSTS Our operating telephone subsidiaries capitalize initial right-to-use fees for central office switching equipment, including initial operating system and initial application software costs. For noncentral office equipment, only the initial operating system software is capitalized. Subsequent additions, modifications, or upgrades of initial software programs, whether operating or application packages, are expensed as incurred. CAPITALIZATION OF INTEREST COSTS We capitalize interest associated with the acquisition or construction of plant assets. Capitalized interest is reported as a cost of plant and a reduction in interest cost. GOODWILL AND OTHER INTANGIBLES Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. We amortize goodwill and other identifiable intangibles on a straight-line basis over its estimated useful life, not exceeding 40 years. We assess the impairment of other identifiable intangibles and goodwill related to our consolidated subsidiaries under Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. A determination of impairment (if any) is made based on estimates of future cash flows. In instances where goodwill has been recorded for assets that are subject to an impairment loss, the carrying amount of the goodwill is eliminated before any reduction is made to the carrying amounts of impaired long-lived assets and identifiable intangibles. FOREIGN CURRENCY TRANSLATION The functional currency for nearly all of our foreign operations is the local currency. For these foreign entities, we translate income statement amounts at average exchange rates for the period, and we translate assets and liabilities at end-of-period exchange rates. We record these translation adjustments in Accumulated Other Comprehensive Loss, a separate component of Shareowners' Investment, in our consolidated balance sheets. We report exchange gains and losses on intercompany foreign currency transactions of a long-term nature in Accumulated Other Comprehensive Loss. Other exchange gains and losses are reported in income. When a foreign entity operates in a highly inflationary economy, we use the U.S. dollar as the functional currency rather than the local currency. We translate nonmonetary assets and liabilities and related expenses into U.S. dollars at historical exchange rates. We translate all other income statement amounts using average exchange rates for the period. Monetary assets and liabilities are translated at end-of-period exchange rates, and any gains or losses are reported in income. For the period October 1, 1996, through December 31, 1998, we considered Iusacell to operate in a highly inflationary economy. Beginning January 1, 1999, we discontinued highly inflationary accounting for Iusacell and resumed using the Mexican peso as its functional currency. DERIVATIVE INSTRUMENTS We have entered into derivative transactions to manage our exposure to fluctuations in foreign currency exchange rates, interest rates, and corporate tax rates. We employ risk management strategies using a variety of derivatives including foreign currency forwards and options, interest rate swap agreements, interest rate caps and floors, and basis swap agreements. We do not hold derivatives for trading purposes. Fair Value Method We use the fair value method of accounting for our foreign currency derivatives, which requires us to record these derivatives at fair value in our consolidated balance sheets, and changes in value are recorded in income or Shareowners' Investment. Depending upon the nature of the derivative instruments, the fair value of these instruments may be recorded in Current Assets, Other Assets, Current Liabilities, and Deferred Credits and Other Liabilities in our consolidated balance sheets. Gains and losses and related discounts or premiums arising from foreign currency derivatives (which hedge our net investments in consolidated foreign subsidiaries and investments in foreign entities accounted for under the equity method) are included in Accumulated Other Comprehensive Loss and reflected in income upon sale or substantial liquidation of the investment. Certain of these derivatives also include an interest element, which is recorded in Interest Expense over the lives of the contracts. Gains and losses from derivatives which hedge our short-term transactions and cost investments are included in Other Income and Expense, Net, and discounts or premiums on these contracts are included in income over the lives of the contracts. Gains and losses from derivatives hedging identifiable foreign currency commitments are deferred and reflected as adjustments to the related transactions. If the foreign currency commitment is no longer likely to occur, the gain or loss is recognized immediately in income. Earnings generated from our leveraged lease portfolio may be affected by changes in corporate tax rates. In order to hedge a portion of this risk, we use basis swap agreements, which we account for using the fair value method of accounting. Under this method, these agreements are carried at fair value and included in Other Assets or Deferred Credits and Other Liabilities in our consolidated balance sheet. Changes in the unrealized gain or loss are included in Other Income and Expense, Net. F-27 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 1 CONTINUED Accrual Method Interest rate swap agreements and interest rate caps and floors that qualify as hedges are accounted for under the accrual method. An instrument qualifies as a hedge if it effectively modifies and/or hedges the interest rate characteristics of the underlying fixed or variable interest rate debt. Under the accrual method, no amounts are recognized in our consolidated balance sheets related to the principal balances. The interest differential to be paid or received, which is accrued as interest rates change, and premiums related to caps and floors, are recognized as adjustments to Interest Expense over the lives of the agreements. These interest accruals are recorded in Current Assets and Current Liabilities in our consolidated balance sheets. If we terminate an agreement, the gain or loss is recorded as an adjustment to the basis of the underlying liability and amortized over the remaining original life of the agreement. If the underlying liability matures, or is extinguished and the related derivative is not terminated, that derivative would no longer qualify for accrual accounting. In this situation, the derivative is accounted for at fair value, and changes in the value are recorded in income. SALE OF STOCK BY SUBSIDIARY We recognize in consolidation changes in our ownership percentage in a subsidiary caused by issuances of the subsidiary's stock as adjustments to Contributed Capital. INCOME TAXES Bell Atlantic and its domestic subsidiaries file a consolidated federal income tax return. For periods prior to the merger (see Note 2), NYNEX filed its own consolidated federal income tax return. Our operating telephone subsidiaries use the deferral method of accounting for investment tax credits earned prior to the repeal of investment tax credits by the Tax Reform Act of 1986. We also defer certain transitional credits earned after the repeal. We amortize these credits over the estimated service lives of the related assets as a reduction to the Provision for Income Taxes. ADVERTISING COSTS We expense advertising costs as they are incurred. STOCK-BASED COMPENSATION We account for stock-based employee compensation plans under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, and follow the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." CHANGE IN ACCOUNTING PRINCIPLE - DIRECTORY PUBLISHING Effective January 1, 1996, we changed our method of accounting for directory publishing revenues and expenses from the amortized method to the point-of-publication method. Under the point-of-publication method, revenues and expenses are recognized when the directories are published rather than over the lives of the directories, as under the amortized method. We believe the point-of-publication method is preferable because it is the method generally followed by publishing companies. This accounting change resulted in a one-time, noncash increase in net income of $273.1 million (net of income tax of $179.0 million), or $.18 per share on both a basic and diluted basis, which is reported as a cumulative effect of a change in accounting principle at January 1, 1996. On an annual basis, the financial impact of applying this method in 1996 was not significant. ADOPTION OF NEW ACCOUNTING STANDARDS In 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income" (see Note 20), SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (see Note 17), and SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (see Note 15). Prior year amounts have been provided or restated as required. These standards require new disclosures only and do not impact our results of operations or financial position. RECENT ACCOUNTING PRONOUNCEMENTS Costs Of Computer Software In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This new accounting standard provides, among other things, guidance for determining whether computer software is for internal use and when the cost related to such software should be expensed as incurred or capitalized and amortized. SOP 98-1 is required to be applied prospectively. We adopted SOP No. 98-1 effective January 1, 1999. We estimate that the implementation of SOP No. 98-1 will result in a net after-tax benefit of $200 million to $250 million in 1999 results of operations due to the prospective capitalization of costs which were previously expensed as incurred. Costs for maintenance and training, as well as the cost of software that does not add functionality to the existing system will continue to be expensed as incurred. Costs Of Start-up Activities In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of Start-Up Activities." This new accounting standard requires that costs of start-up activities, including pre-operating, pre-opening and other organizational costs, be expensed as incurred. In addition, the unamortized balance of any previously deferred start-up costs existing at adoption must be expensed. We adopted SOP No. 98-5 effective January 1, 1999. The adoption of SOP No. 98-5 will not have a material effect on our results of operations or financial condition in 1999 because our policy has been to generally expense all start-up activities. Derivatives And Hedging Activities In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivatives be measured at fair value and recognized as either assets or liabilities in our balance sheet. Changes in the fair values of the derivative instruments will be recognized in either earnings or comprehensive income, depending on the designated use and effectiveness of the instruments. Bell Atlantic must adopt SFAS No. 133 no later than January 1, 2000. We are currently evaluating the provisions of SFAS No. 133 and have not yet determined what the impact of adopting this statement will be on our future results of operations or financial condition. F-28 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2. Bell Atlantic - NYNEX Merger - -------------------------------------------------------------------------------- On August 14, 1997, Bell Atlantic Corporation and NYNEX Corporation completed a merger of equals under a definitive merger agreement entered into on April 21, 1996 and amended on July 2, 1996. Under the terms of the amended agreement, NYNEX became a wholly owned subsidiary of Bell Atlantic. NYNEX stockholders received 0.768 of a share of Bell Atlantic common stock for each share of NYNEX common stock that they owned. This resulted in the issuance of 700.4 million shares of Bell Atlantic common stock. The merger qualified as a tax-free reorganization and has been accounted for as a pooling of interests. Under this method of accounting, the companies are treated as if they had always been combined for accounting and financial reporting purposes and, therefore, we restated our financial information for all dates and periods prior to the merger. The combined results reflect certain reclassifications to conform to the presentation used by Bell Atlantic and certain adjustments to conform accounting methodologies between Bell Atlantic and NYNEX. Results of operations for certain periods prior to the merger have been combined and conformed as follows: (Dollars In Millions) Six months ended Year ended June 30, 1997 December 31, 1996 - -------------------------------------------------------------------------------- (unaudited) Operating revenues Bell Atlantic $ 6,854.6 $ 13,081.4 NYNEX 6,815.1 13,453.8 Reclassifications .1 .7 Cellular consolidation 1,454.5 2,619.3 ------------------------------------ Combined $ 15,124.3 $ 29,155.2 ==================================== Net income Bell Atlantic $ 1,014.5 $ 1,881.5 NYNEX 540.1 1,477.0 Cellular consolidation 3.3 (7.6) SFAS No. 106 adjustment 39.1 62.4 Other adjustments (2.0) (11.3) ------------------------------------ Combined $ 1,595.0 $ 3,402.0 ==================================== . Reclassifications were made to conform to our post-merger presentation. . Cellular consolidation refers to an adjustment that was made to conform accounting methodologies and to consolidate the accounts of cellular operations that were jointly controlled by NYNEX and Bell Atlantic prior to the merger and accounted for by both companies using the equity method. . An adjustment for SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," was made to reflect the adoption by NYNEX of the immediate recognition of the transition benefit obligation effective January 1, 1993, to conform to the method used by Bell Atlantic. . Other adjustments were made to conform the accounting policies of the companies, and to record the related tax effects of these adjustments. MERGER-RELATED COSTS In the third quarter of 1997 we recorded merger-related pre-tax costs of approximately $200 million for direct incremental costs, and approximately $223 million for employee severance costs. Direct incremental costs consist of expenses associated with completing the merger transaction, such as professional and regulatory fees, compensation arrangements, and shareowner-related costs. Employee severance costs, as recorded under SFAS No. 112, "Employers' Accounting for Postemployment Benefits," represent the benefit costs for the separation by the end of 1999 of approximately 3,100 management employees who are entitled to benefits under pre-existing separation pay plans. During 1997 and 1998, 245 and 856 management employees were separated with severance benefits. Accrued postemployment benefit liabilities are included in our consolidated balance sheets as a component of Employee Benefit Obligations. OTHER INITIATIVES During 1997, we recorded other charges and special items totaling approximately $1,041 million (pre-tax) in connection with consolidating operations and combining organizations, and for other special items arising during the year. Video-Related Charges In 1997, we recognized total pre-tax charges of approximately $243 million related to certain video investments and operations. We determined that we would no longer pursue a multichannel, multipoint, distribution system (MMDS) as part of our video strategy. As a result, we recognized liabilities for purchase commitments associated with the MMDS technology and costs associated with closing the operations of our Tele-TV partnership because this operation no longer supports our video strategy. We also wrote-down our remaining investment in CAI Wireless Systems, Inc. Write-Down of Assets and Real Estate Consolidation In the third quarter of 1997, we recorded pre-tax charges of approximately $355 million for the write-down of obsolete or impaired fixed assets and for the cost of consolidating redundant real estate properties. As part of our merger integration planning, we reviewed the carrying values of long-lived assets. This review included estimating remaining useful lives and cash flows, and identifying assets to be abandoned. In the case of impaired assets, we analyzed cash flows related to those assets to determine the amount of the impairment. As a result of these reviews, we recorded charges of approximately $275 million for the write-off of some assets and $25 million for the impairment of other assets. These assets primarily included computers and other equipment used to transport data for internal purposes, copper wire used to provide telecommunications service in New York, and duplicate voice mail platforms. None of these assets are being held for disposal. At December 31, 1998, the impaired assets had no remaining carrying value. F-29 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 2 CONTINUED In connection with our merger integration efforts, we consolidated real estate to achieve a reduction in the total square footage of building space that we utilize. We sold properties, subleased some of our leased facilities and terminated other leases, for which we recorded a charge of approximately $55 million in the third quarter of 1997. Most of the charge related to properties in Pennsylvania and New York, where corporate support functions were consolidated into fewer work locations. Regulatory, Tax And Legal Contingencies And Other Special Items In 1997, we also recorded reductions to operating revenues and charges to operating expenses totaling approximately $526 million (pre-tax), which consisted of the following: . Revenue reductions consisted of approximately $179 million for federal regulatory matters. These matters relate to specific issues that are currently under investigation by federal regulatory commissions. We believe that it is probable that the ultimate resolution of these pending matters will result in refunds to our customers. . Charges to operating expenses totaled approximately $347 million and consisted of $75 million for interest on federal and other tax contingencies; $55 million for other tax matters; and $52 million for legal contingencies and a state regulatory audit issue. These contingencies were accounted for under the rules of SFAS No. 5, "Accounting for Contingencies." These charges also included approximately $95 million related to costs incurred in standardizing and consolidating our directory businesses and $70 million for other post-merger initiatives. Other charges arising in 1997 included approximately $59 million for our equity share of formation costs previously announced by CWC. We own an 18.5% interest in CWC and account for our investment under the equity method of accounting. In 1997, we recognized pre-tax gains of approximately $142 million on the sales of our ownership interests of several nonstrategic businesses. These gains included approximately $42 million on the sale of our interest in Sky Network Television Limited of New Zealand; $54 million on the sale of our 33% stake in an Italian wireline venture, Infostrada; and $46 million on the sale of our two-sevenths interest in Bell Communications Research, Inc. We expect that the remaining direct incremental liabilities will be fully utilized, through either payments or adjustments, by the end of 1999. The obligation for severance benefits, which has been determined under SFAS No. 112, represents expected payments to employees who leave the company with benefits provided under pre-existing separation pay plans. The severance obligation is adjusted through annual costs, which are actuarially determined based upon financial market interest rates, experience, and management's best estimate of future benefit payments. In 1997, the merger-related severance costs increased our existing severance obligation. When the merger-related separations are completed, we will continue to have an obligation for ongoing separations. We expect to utilize the remaining video and real estate liabilities in 1999, although some lease liabilities will extend through 2012. Liabilities for regulatory, tax and legal contingencies, and other special items will be utilized as the respective matter is settled. The following table provides a reconciliation of the liabilities associated with merger-related costs and other charges and special items at December 31, 1998 and 1997.
(Dollars In Millions) 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------- Charged to Beginning Expense or End of End of of Year Revenue Deductions Adjustments Year Deductions Adjustments Year - ------------------------------------------------------------------------------------------------------------------------------- MERGER-RELATED Direct incremental costs $ -- $ 199.5 $ (164.5)a $ -- $ 35.0 $ (5.2)a $ (25.5) $ 4.3 Severance obligation 110.9 222.7 (23.6)a 19.7 329.7 (60.6)a 46.7 315.8 OTHER INITIATIVES Video-related costs -- 242.8 (226.6)b 5.1 21.3 (3.0)a (12.8) 5.5 Write-down of fixed assets and real estate consolidation -- 355.0 (311.6)b -- 43.4 (17.6)b (2.5) 23.3 Regulatory, tax and legal contingencies and other special items -- 525.9 (144.3)b -- 381.6 (118.2)c (14.4) 249.0 ------------------------------------------------------------------------------------------------ $ 110.9 $ 1,545.9 $ (870.6) $ 24.8 $ 811.0 $ (204.6) $ (8.5) $ 597.9 ================================================================================================
. Adjustments refer to deductions to the liability that reduced expense, or additions to the liability that increased expense resulting from changes in circumstances or experience in implementing the planned activities. . Deductions refer to the utilization of the liability through payments, asset write-offs, or refunds to customers. a-primarily comprised of cash payments b-primarily comprised of asset write-offs c-comprised of cash payments of $65.9 million, refunds to customers of $41.8 million, and asset write-offs of $10.5 million F-30 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3. Investments in Unconsolidated Businesses - -------------------------------------------------------------------------------- Our investments in unconsolidated businesses are comprised of the following:
(DOLLARS IN MILLIONS) 1998 1997 AT DECEMBER 31, Ownership Investment Ownership Investment - ------------------------------------------------------------------------------------ EQUITY INVESTEES PrimeCo Personal Communications, L.P. 50.00% $1,011.4 50.00% $ 919.9 Cable & Wireless Communications plc 18.50 675.4 18.50 665.8 Omnitel Pronto Italia S.p.A 19.71 520.6 17.45 313.2 Telecom Corporation of New Zealand Limited 24.95 373.0 24.95 417.7 FLAG Ltd. 37.67 178.3 37.87 236.6 Other Various 738.9 Various 714.7 -------- -------- Total equity investees 3,497.6 3,267.9 COST INVESTEES Various 778.4 Various 1,876.3 -------- -------- TOTAL $4,276.0 $5,144.2 ======== ========
Dividends received from investees amounted to $169.4 million in 1998, $192.1 million in 1997, and $194.8 million in 1996. PRIMECO PERSONAL COMMUNICATIONS, L.P. PrimeCo Personal Communications, L.P. (PrimeCo) is a partnership established in 1994 between Bell Atlantic and AirTouch Communications, which provides personal communications services (PCS) in over 30 major cities across the United States. PrimeCo began offering services to customers in November 1996. Since 1994, we have invested approximately $1.6 billion in PrimeCo to fund its operations and the build-out of its PCS network. Under the terms of the partnership agreement, PrimeCo entered into a leveraged lease financing arrangement for certain equipment which has been guaranteed by the partners in the joint venture. Our share of this guarantee is approximately $139 million. CABLE & WIRELESS COMMUNICATIONS plc In the second quarter of 1997, we transferred our interests in cable television and telecommunications operations in the United Kingdom to CWC in exchange for an 18.5% ownership interest in CWC. This transaction was accounted for as a nonmonetary exchange of similar productive assets and, as a result, no gain or loss was recorded. We account for our investment in CWC under the equity method because we have significant influence over CWC's operating and financial policies. Prior to the transfer, we included the accounts of these operations in our consolidated financial statements. In connection with our investment in CWC, in August 1998 we issued $3,180.0 million of 4.25% senior exchangeable notes due on September 15, 2005. The notes are exchangeable into 277.6 million ordinary shares of CWC stock that we own at the option of the holder, beginning on July 1, 2002. You can find additional information on the CWC exchangeable notes in Note 8. OMNITEL PRONTO ITALIA S.p.A. Omnitel Pronto Italia S.p.A. (Omnitel) operates a cellular mobile telephone network in Italy. We account for this investment under the equity method because we have significant influence over Omnitel's operating and financial policies. Since 1994, we have invested approximately $544 million in Omnitel. Approximately $162 million of this amount was invested in April 1998, which increased our ownership interest from 17.45% to 19.71%. Goodwill related to this investment totals approximately $400 million, which is being amortized on a straight-line basis over a period of 25 years. TELECOM CORPORATION OF NEW ZEALAND LIMITED Telecom Corporation of New Zealand Limited (TCNZ) is that country's principal provider of telecommunications services. At the date of acquisition of our interest in 1990, goodwill was approximately $285 million. We are amortizing this amount on a straight-line basis over a period of 40 years. During 1997, we sold portions of our stock investment to TCNZ in connection with its share repurchase plan, resulting in cash proceeds of approximately $153 million. These transactions reduced our investment and increased our ownership interest in TCNZ. Our investment in TCNZ was also reduced by approximately $38 million as of December 31, 1998, resulting from foreign currency translation losses. We recorded these losses as a component of Shareowners' Investment. In connection with our investment in TCNZ, in February 1998 we issued $2,455.0 million of 5.75% senior exchangeable notes due on April 1, 2003. The notes are exchangeable into 437.1 million ordinary shares of TCNZ stock that we own at the option of the holder, beginning September 1, 1999. You can find additional information on the TCNZ exchangeable notes in Note 8. FLAG Ltd. Fiberoptic Link Around the Globe Ltd. (FLAG) owns and operates an undersea fiberoptic cable system, providing digital communications links between Europe and Asia. FLAG launched commercial service in the fourth quarter of 1997. We hold approximately a 34% equity interest in the venture and have invested approximately $227 million in FLAG since 1994. We have approximately a 5% interest in the parent company of FLAG, FLAG Telecom Holdings Limited (FLAG Telecom). In the first quarter of 1999, a subsidiary of FLAG Telecom and Global TeleSystems Group, Inc., a U.S. telecommunications company, agreed to establish a joint venture to build and operate a transoceanic dual cable system to carry high-speed data and video traffic across the Atlantic Ocean. The companies expect to offer service in 2000. FLAG had outstanding borrowings of $615.1 million as of December 31, 1997 under a limited recourse debt facility, which it refinanced in the first quarter of 1998 through a new $800.0 million credit facility. This refinancing resulted in an after-tax extraordinary charge of $14.7 million. The refinancing also released us from certain obligations under a contingent sponsor support agreement signed in connection with the debt facility outstanding in 1997. F-31 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- Note 3 continued OTHER EQUITY INVESTEES We also have global wireless investments in the Czech Republic, Slovakia, Greece, and Indonesia. These investments are in joint ventures to build and operate cellular networks in these countries. We also have an investment in a company in the Philippines which provides telecommunications services in certain regions of that country. The remaining investments include real estate partnerships, publishing joint ventures, and several other domestic and international joint ventures. SUMMARIZED FINANCIAL INFORMATION The following tables display the summarized unaudited financial information for our equity investees. These amounts are shown on a 100 percent basis. (DOLLARS IN MILLIONS) YEAR ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------- Results of operations Operating revenues $ 8,832.3 Operating income 1,474.3 Income before extraordinary item 577.2 Net income 520.2 Bell Atlantic's equity share of income $ 24.8 AT DECEMBER 31, 1998 - -------------------------------------------------------------------------------- Financial position Current assets $ 4,679.6 Noncurrent assets 18,986.1 Current liabilities 4,830.0 Noncurrent liabilities 10,027.2 Minority interest 155.0 Stockholders' equity 8,653.5 Bell Atlantic's equity share of investees $ 3,497.6 COST INVESTEES Our cost investments are carried at their original cost, except in cases where we have determined that a decline in the estimated fair value of an investment is other than temporary as described below under "Other Cost Investments." Viacom Inc. Since 1993, we have held an investment in Viacom Inc. (Viacom), an entertainment and publishing company. This investment consisted of 24 million shares of Viacom Series B Cumulative Preferred Stock that we purchased for $1.2 billion. The preferred stock, which carried an annual dividend of 5%, was convertible into shares of Viacom Class B nonvoting common stock at a price of $70 per share. In December 1998, we accepted an offer from Viacom to repurchase one-half of our Viacom investment, or 12 million shares of the preferred stock (with a book value of approximately $600 million), for approximately $564 million in cash. This transaction resulted in a small loss, which was recorded in Income (Loss) from Unconsolidated Businesses in our consolidated statement of income in 1998. The remaining investment in Viacom, 12 million shares of preferred stock (with a book value of approximately $600 million), was repurchased by Viacom in a second transaction in January 1999 for approximately $612 million in cash. This transaction did not have a material effect on our consolidated results of operations. Other Cost Investments Other cost investments consist principally of our Asian investments-TelecomAsia, a wireline investment in Thailand, and Excelcomindo, a wireless investment in Indonesia. In the third quarter of 1998, we recorded pre-tax charges of $485.1 million to Income (Loss) from Unconsolidated Businesses in our consolidated statement of income to adjust the carrying values of TelecomAsia and Excelcomindo. The charges were necessary because we determined that the decline in the estimated fair values of each of these investments were other than temporary. We determined the fair values of these investments by discounting estimated future cash flows. In the case of TelecomAsia, we recorded a charge of $348.1 million to adjust the carrying value of the investment to its estimated fair value. We considered the following factors in determining this charge: . The continued weakness of the Thai currency as compared to historical exchange rates will place additional financial burdens on the company in servicing U.S. dollar-denominated debt. . The economic instability and prospects for an extended recovery period have resulted in weaker than expected growth in TelecomAsia's business. This is indicated by slower than expected growth in total subscribers and usage. These factors resulted in reduced expectations of future cash flows and, accordingly, a reduction in the value of our investment. . The business plan for TelecomAsia contemplated cash flows from several lines of business. Given TelecomAsia's inclination to focus on its core wireline business, these other lines of business may not contribute future cash flows at previously expected levels. In the case of Excelcomindo, we recorded a charge of $137.0 million to adjust the carrying value of the investment to its estimated fair value. We considered the following factors in determining this charge: . The continued weakness of the Indonesian currency as compared to historical exchange rates will place additional financial burdens on the company in servicing U.S. dollar-denominated debt. The continuing political unrest in Indonesia has contributed to the currency's instability. . The economic instability and prospects for an extended recovery period have resulted in weaker than expected growth in Excelcomindo's business. One significant factor has been inflexible tariff regulation despite rising costs due to inflation. This and other factors have resulted in reduced expectations of future cash flows and, accordingly, a reduction in the value of our investment. . Issues with cash flow are requiring Excelcomindo's shareholders to evaluate the future funding of the business. F-32 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4. Grupo Iusacell, S.A. de C.V. - -------------------------------------------------------------------------------- Since 1993, we have invested $1.2 billion in Iusacell, the second largest telecommunications company in Mexico. Goodwill related to this investment totaled approximately $840 million and is being amortized on a straight-line basis over a period of 25 years. In the first quarter of 1997, we consummated a restructuring of our investment in Iusacell to permit us to assume control of the Board of Directors and management of Iusacell. As a result of the restructuring, we changed the accounting for our Iusacell investment from the equity method to full consolidation. In 1998 and 1997, we entered into several transactions which have resulted in changes to our economic ownership percentage. As part of the initial restructuring in the first quarter of 1997, we converted approximately $33 million of debt into Series A shares, thereby increasing our ownership percentage from 41.9% to 42.1%. We also agreed to provide Iusacell up to $150.0 million under a subordinated convertible debt facility (the Facility) as Iusacell may require from time to time. This obligation expires in June 1999. In the third quarter of 1998, Iusacell and its principal shareholders entered into another agreement (the 1998 Restructuring Agreement) to restructure ownership of the company. This restructuring, if completed, will result in the formation of a new holding company with two classes of shares, one of which will trade publicly. The restructuring is intended to increase the liquidity of Iusacell's publicly traded shares and to increase the availability of debt financing to Iusacell. Iusacell borrowed $101.5 million from us under the Facility during the second half of 1998. We immediately converted the debt into 145.0 million additional Series A shares at a price of $.70 per share as contemplated by the 1998 Restructuring Agreement. However, under this same agreement, we sold 21.4 million of those shares to the Peralta Group, the other principal shareholder of Iusacell, for $.70 per share. As a result of this debt conversion and sale of shares to the Peralta Group, our ownership percentage increased to 47.1% as of December 31, 1998. The 1998 Restructuring Agreement also contemplates that the new Iusacell holding company will engage in a rights offering to existing shareholders, and that we and the Peralta Group, under certain circumstances, will engage in a secondary public offering of a portion of our respective shares. These transactions would reduce our ownership percentage to approximately 42%. We would, however, continue to retain management control of Iusacell through the completion of these transactions and, therefore, would continue to consolidate the company's results. The 1998 Restructuring Agreement also provides that any further borrowings by Iusacell under the Facility will be immediately converted into shares of Iusacell at a conversion price of $.70 per share. It further provides that the Peralta Group will purchase from us one-half of any shares received from that debt conversion for $.70 per share. Iusacell borrowed approximately $31 million under the Facility in the first quarter of 1999, which has been converted to equity, increasing our ownership percentage to 47.2%. PUT OPTIONS The Peralta Group can require us to purchase from it approximately 517 million Iusacell shares for $.75 per share, or approximately $388 million in the aggregate, by giving notice of exercise between November 15 and December 15, 2001. - -------------------------------------------------------------------------------- 5. Plant, Property and Equipment - -------------------------------------------------------------------------------- The following table displays the details of plant, property and equipment, which is stated at cost: (DOLLARS IN MILLIONS) AT DECEMBER 31, 1998 1997 - -------------------------------------------------------------------------------- Land $ 412.3 $ 408.5 Buildings 6,666.7 6,323.4 Central office equipment 31,440.8 29,167.2 Outside communications plant 33,604.9 31,669.7 Furniture, vehicles and other work equipment 7,870.0 7,253.2 Other 1,356.6 1,276.5 Construction-in-progress 1,712.8 1,338.7 --------------------------------- 83,064.1 77,437.2 Accumulated depreciation (46,248.6) (42,397.8) --------------------------------- Total $ 36,815.5 $ 35,039.4 ================================= Plant, property and equipment at December 31, 1998 and 1997 includes real estate property and equipment under operating leases (or held for lease) of $96.6 million and $52.8 million, and accumulated depreciation of $21.9 million and $14.8 million. - -------------------------------------------------------------------------------- 6. Leasing Arrangements - -------------------------------------------------------------------------------- AS LESSOR We are the lessor in leveraged and direct financing lease agreements under which commercial aircraft, rail equipment, industrial equipment, power generating facilities, real estate property, and telecommunications and other equipment are leased for remaining terms of 1 to 48 years. Minimum lease payments receivable represent unpaid rentals, less principal and interest on third-party nonrecourse debt relating to leveraged lease transactions. Since we have no general liability for this debt, the related principal and interest have been offset against the minimum lease payments receivable. Minimum lease payments receivable are subordinate to the debt and the holders of the debt have a security interest in the leased equipment. F-33 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 6 CONTINUED Finance lease receivables, which are included in Current Assets - Other and Noncurrent Assets - Other Assets in our consolidated balance sheets are comprised of the following:
(DOLLARS IN MILLIONS) AT DECEMBER 31, 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Direct Direct Leveraged Finance Leveraged Finance Leases Leases Total Leases Leases Total - --------------------------------------------------------------------------------------------------------------------- Minimum lease payments receivable $ 2,986.3 $ 189.9 $ 3,176.2 $ 2,674.6 $ 223.5 $ 2,898.1 Estimated residual value 2,186.8 36.1 2,222.9 1,969.7 36.2 2,005.9 Unearned income (2,131.9) (58.1) (2,190.0) (1,874.7) (70.7) (1,945.4) ------------------------------------------------------------------------------ $ 3,041.2 $ 167.9 3,209.1 $ 2,769.6 $ 189.0 2,958.6 ========================== ========================== Allowance for doubtful accounts (37.3) (24.9) ---------- ----------- Finance lease receivables, net $ 3,171.8 $ 2,933.7 ========== ========== Current $ 37.2 $ 39.2 ========== ========== Noncurrent $ 3,134.6 $ 2,894.5 ========== ==========
Accumulated deferred taxes arising from leveraged leases, which are included in Deferred Income Taxes, amounted to $2,445.2 million at December 31, 1998 and $2,233.8 million at December 31, 1997. The following table is a summary of the components of income from leveraged leases: (DOLLARS IN MILLIONS) YEARS ENDED DECEMBER 31, 1998 1997 1996 - -------------------------------------------------------------------------------- Pre-tax lease income $ 99.2 $ 97.4 $ 87.5 Income tax expense 47.2 30.7 22.1 Investment tax credits 5.3 2.9 3.5 This table displays the future minimum lease payments to be received from noncancelable leases, net of nonrecourse loan payments related to leveraged and direct financing leases in excess of debt service requirements, for the periods shown at December 31, 1998: (DOLLARS IN MILLIONS) Capital Operating YEARS Leases Leases - --------------------------------------------------------------------------- 1999 $ 85.7 $ 16.2 2000 64.9 6.1 2001 65.3 .6 2002 94.5 .7 2003 83.1 .2 Thereafter 2,782.8 -- ------------------------------ Total $ 3,176.3 $ 23.8 ============================== AS LESSEE We lease certain facilities and equipment for use in our operations under both capital and operating leases. Total rent expense under operating leases amounted to $555.7 million in 1998, $572.6 million in 1997 and $531.9 million in 1996. We incurred initial capital lease obligations of $2.7 million in 1998, $11.4 million in 1997, and $16.4 million in 1996. Capital lease amounts included in plant, property and equipment are as follows: (DOLLARS IN MILLIONS) AT DECEMBER 31, 1998 1997 - -------------------------------------------------------------------------------- Capital leases $ 296.2 $ 307.2 Accumulated amortization (169.6) (163.5) ----------------------------- Total $ 126.6 $ 143.7 ============================= This table displays the aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 1998: (DOLLARS IN MILLIONS) Capital Operating YEARS Leases Leases - -------------------------------------------------------------------------------- 1999 $ 36.2 $ 253.7 2000 45.0 221.1 2001 31.7 174.5 2002 25.5 148.3 2003 16.8 125.4 Thereafter 477.0 762.3 -------------------------------- Total minimum rental commitments 632.2 $ 1,685.3 Less interest and executory costs 480.4 ================ --------------- Present value of minimum lease payments 151.8 Less current installments 15.4 --------------- Long-term obligation at December 31, 1998 $ 136.4 =============== As of December 31, 1998, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was $289.9 million. F-34 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7. Commitments and Contingencies - -------------------------------------------------------------------------------- In connection with certain state regulatory incentive plan commitments, we have deferred revenues which will be recognized as the commitments are met or obligations are satisfied under the plans. In addition, several state and federal regulatory proceedings may require our operating telephone subsidiaries to refund a portion of the revenues collected in the current and prior periods. There are also various legal actions pending to which we are a party. We have established reserves for specific liabilities in connection with regulatory and legal matters which we currently deem to be probable and estimable. We do not expect that the ultimate resolution of pending regulatory and legal matters in future periods will have a material effect on our financial condition, but it could have a material effect on our results of operations. - -------------------------------------------------------------------------------- 8. Debt - -------------------------------------------------------------------------------- DEBT MATURING WITHIN ONE YEAR The following table displays the details of debt maturing within one year: (DOLLARS IN MILLIONS) AT DECEMBER 31, 1998 1997 - ---------------------------------------------------------------------------- Notes payable Commercial paper $ 1,383.7 $ 5,067.7 Bank loans 299.5 509.7 Long-term debt maturing within one year 1,304.4 765.4 ------------------------------ Total debt maturing within one year $ 2,987.6 $ 6,342.8 ============================== Weighted-average interest rates for notes payable outstanding at year-end 5.6% 5.9% ============================== Capital expenditures (primarily construction of telephone plant) are partially financed, pending long-term financing, through bank loans and the issuance of commercial paper payable within 12 months. At December 31, 1998, we had in excess of $4.5 billion of unused bank lines of credit. The availability of these lines, for which there are no formal compensating balances, is at the discretion of each bank. Certain of these lines of credit contain requirements for the payment of commitment fees. Substantially all of the assets of Iusacell, totaling approximately $725 million at December 31, 1998, are subject to lien under a credit facility with certain bank lenders. LONG-TERM DEBT This table shows our outstanding long-term debt obligations:
(DOLLARS IN MILLIONS) AT DECEMBER 31, Interest Rates % Maturities 1998 1997 - --------------------------------------------------------------------------------------------------------------- Telephone subsidiaries' debentures 4.375 - 7.00 1999-2033 $ 4,572.0 $ 3,867.0 7.125 - 7.75 2002-2033 2,465.0 2,705.0 7.85 - 9.375 2010-2031 1,979.0 2,179.0 Unamortized discount, net of premium (56.0) (55.8) ---------- ----------- 8,960.0 8,695.2 Exchangeable notes, net of unamortized discount of $243.8 4.25 - 5.75 2003-2005 5,645.6 - Notes payable 5.30 - 12.42 1999-2012 3,036.0 3,515.8 Refunding mortgage bonds 4.25 - 7.375 2000-2011 635.5 986.1 Mortgage and installment notes 10.50 - 11.00 1999-2005 17.2 22.5 Employee stock ownership plan loans (Note 15) Bell Atlantic senior notes 8.17 2000 199.8 313.4 NYNEX debentures 9.55 2010 304.9 327.3 Capital lease obligations-average rate 11.0% and 10.8% 151.8 170.3 ---------- ----------- Total long-term debt, including current maturities 18,950.8 14,030.6 Less maturing within one year 1,304.4 765.4 ---------- ----------- Total long-term debt $ 17,646.4 $ 13,265.2 ========== ===========
F-35 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 8 CONTINUED Telephone Subsidiaries' Debt The telephone subsidiaries' debentures outstanding at December 31, 1998 include $1,857.0 million that are callable. The call prices range from 101.98% to 100.00% of face value, depending upon the remaining term to maturity of the issue. All of our refunding mortgage bonds are also callable as of December 31, 1998. In addition, our long-term debt includes $735.0 million that will become redeemable for limited periods at the option of the holders. Of this amount, $385.0 million becomes redeemable in 1999 and $175.0 million in 2002. One debenture totaling $175.0 million becomes redeemable in 2000 and again in 2002. The redemption prices will be 100.0% of face value plus accrued interest. Substantially all of the assets of New York Telephone Company, totaling approximately $13.3 billion at December 31, 1998, are subject to lien under New York Telephone Company's refunding mortgage bond indenture. Exchangeable Notes In February 1998, our wholly owned subsidiary Bell Atlantic Financial Services, Inc. (FSI) issued $2,455.0 million of 5.75% senior exchangeable notes due on April 1, 2003 (TCNZ exchangeable notes). The TCNZ exchangeable notes are exchangeable into 437.1 million ordinary shares of TCNZ stock that we own at the option of the holder, beginning on September 1, 1999. The exchange price was established at a 20% premium to the TCNZ share price at the pricing date of the offering. Upon exchange by investors, we retain the option to settle in cash or by delivery of TCNZ shares. During the period from April 1, 2001 to March 31, 2002, the TCNZ exchangeable notes are callable at our option at 102.3% of the principal amount and, thereafter and prior to maturity at 101.15%. The proceeds of the TCNZ exchangeable notes offering were used for the repayment of a portion of our short-term debt. In August 1998, FSI issued $3,180.0 million of 4.25% senior exchangeable notes due on September 15, 2005 (CWC exchangeable notes). The CWC exchangeable notes were issued at a discount and at December 31, 1998 the notes had a carrying value of $3,190.6 million. The CWC exchangeable notes are exchangeable into 277.6 million ordinary shares of CWC stock that we own at the option of the holder beginning on July 1, 2002. The exchange price was established at a 28% premium to the CWC share price at the pricing date of the offering. Upon exchange by investors, we retain the option to settle in cash or by delivery of CWC shares. The CWC exchangeable notes are redeemable at our option, beginning September 15, 2002, at escalating prices from 104.2% to 108.0% of the principal amount. If the CWC exchangeable notes are not called or exchanged prior to maturity, they will be redeemable at 108.0% of the principal amount at that time. The proceeds of the CWC exchangeable notes offering were used for the repayment of a portion of our short-term debt and other general corporate purposes. The TCNZ and CWC exchangeable notes must be marked-to-market if the fair value of either the underlying TCNZ shares rises to a level greater than 120% of the share price at the pricing date of the offering, or the underlying CWC shares rises to a level greater than 128% of the share price at the pricing date of the offering. If either event should occur, we are required to mark-to-market the applicable exchangeable note liability by the amount of the increase in share price over the exchange price. This mark-to-market transaction would reduce income by the amount of the increase in the exchangeable note liability. If the share price subsequently declines, the liability would be reduced (but not less than its amortized carrying value) and income would be increased. At December 31, 1998, the fair value of neither the underlying TCNZ shares, nor the underlying CWC shares, exceeded the recorded value of the debt liability and, therefore, no mark-to-market adjustments were recorded to our financial statements. Support Agreements The TCNZ exchangeable notes have the benefit of a Support Agreement dated February 1, 1998, and the CWC exchangeable notes have the benefit of a Support Agreement dated August 26, 1998, both of which are between Bell Atlantic and FSI. In the Support Agreements, Bell Atlantic guarantees the payment of interest, premium (if any), principal, and the cash value of exchange property related to these notes should FSI fail to pay. Another Support Agreement between Bell Atlantic and FSI dated October 1, 1992, guarantees payment of interest, premium (if any), and principal on FSI's medium-term notes (aggregating $244.7 million at December 31, 1998) should FSI fail to pay. The holders of FSI's debt do not have recourse to the stock or assets of our operating telephone subsidiaries or TCNZ; however, they do have recourse to dividends paid to Bell Atlantic by any of our consolidated subsidiaries as well as assets not covered by the exclusion. The carrying value of the available assets reflected in our consolidated financial statements was approximately $14.1 billion at December 31, 1998. In 1998, we established a $2.0 billion Euro Medium Term Note Program under which we may issue notes that are not registered with the Securities and Exchange Commission. The notes will be issued from time to time from our subsidiary, Bell Atlantic Global Funding, Inc. (BAGF), and will have the benefit of a support agreement between BAGF and Bell Atlantic. There have been no notes issued under this program. Maturities of Long-Term Debt Maturities of long-term debt outstanding at December 31, 1998, excluding capital lease obligations and unamortized discount and premium, are $1,289.0 million in 1999, $893.6 million in 2000, $373.8 million in 2001, $941.1 million in 2002, $3,532.6 million in 2003, and $12,068.0 million thereafter. These amounts include the redeemable debt at the earliest possible redemption dates. Early Extinguishment of Debt We recorded extraordinary charges associated with the early extinguishment of debentures and refunding mortgage bonds of the telephone subsidiaries and debt issued by FLAG, an investment accounted for under the equity method. You can find a description of our FLAG investment in Note 3. These charges reduced net income by $25.5 million (net of an income tax benefit of $14.3 million) in 1998. F-36 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - ------------------------ 9. Financial Instruments - ------------------------ DERIVATIVES We limit our use of derivatives to managing risk that could negatively impact our financing and operating flexibility, making cash flows more stable over the long run and achieving savings over other means of financing. Our risk management strategy is designed to protect against adverse changes in interest rates, foreign currency exchange rates, and corporate tax rates, as well as facilitate our financing strategies. We use several types of derivatives in managing these risks, including interest rate swap agreements, interest rate caps and floors, foreign currency forwards and options, and basis swap agreements. Derivative agreements are linked to specific liabilities or assets and hedge the related economic exposures. We do not hold derivatives for trading purposes. We recognized pre-tax income (expense) of $(3.6) million in 1998, $17.3 million in 1997, and $12.7 million in 1996 in our statements of income related to our risk management activities involving derivatives. INTEREST RATE RISK MANAGEMENT The table that follows provides additional information about our interest rate risk management. The notional amounts shown are used to calculate interest payments to be exchanged. These amounts are not actually paid or received, nor are they a measure of our potential gains or losses from market risks. They do not represent our exposure in the event of nonperformance by a counterparty or our future cash requirements. Our financial instruments are grouped based on the nature of the hedging activity. (DOLLARS IN MILLIONS) Weighted-Average Rate Notional -------------------------- At December 31, Amount Maturities Receive Pay - -------------------------------------------------------------------------------- INTEREST RATE SWAP AGREEMENTS Foreign Currency/Interest Rate Swaps 1998 $ 303.2 1999 - 2002 5.3% 6.0% 1997 $ 375.4 1998 - 2002 4.5% 6.2% Other Interest Rate Swaps Pay fixed 1998 $ 260.0 1999 - 2005 5.0% 5.9% 1997 $ 260.0 1999 - 2005 5.7% 5.9% Pay variable 1998 $ 783.7 1999 - 2006 6.6% 5.3% 1997 $ 783.7 1999 - 2006 6.6% 6.1% STRUCTURED NOTE SWAP AGREEMENTS 1998 $ 60.0 1999 1997 $ 60.0 1999 INTEREST RATE CAP/FLOOR AGREEMENTS 1998 $ 297.0 1999 - 2002 1997 $ 262.0 1999 - 2001 BASIS SWAP AGREEMENTS 1998 $ 1,001.0 2003 - 2004 1997 $ 1,001.0 2003 - 2004 We use foreign currency/interest rate swap agreements to hedge the value of certain international investments. The agreements generally require us to receive payments based on fixed interest rates and make payments based on variable interest rates. The structured note swap agreements convert several structured medium-term notes to conventional fixed rate liabilities while reducing financing costs. The effective fixed interest rate on these notes averaged 6.1% at December 31, 1998 and 1997. Other interest rate swap agreements, which sometimes incorporate options, and interest rate caps and floors are all used to adjust the interest rate profile of our debt portfolio and allow us to achieve a targeted mix of fixed and variable rate debt. Earnings generated from our leveraged lease portfolio may be affected by changes in corporate tax rates. In order to hedge a portion of this risk, we entered into several basis swap agreements which require us to receive payments based on a variable interest rate (LIBOR-based) and make payments based on a tax-exempt market index (J.J.Kenney). We account for these basis swap agreements at fair value and recognized income (expense) of $(3.7) million in 1998, $4.2 million in 1997, and $20.2 million in 1996 related to mark-to-market adjustments. FOREIGN EXCHANGE RISK MANAGEMENT Our foreign exchange risk management includes the use of foreign currency forward contracts, options and foreign currency swaps. Forward contracts and options call for the sale or purchase, or the option to sell or purchase, certain foreign currencies on a specified future date. These contracts are typically used to hedge short-term foreign currency transactions and commitments. The total notional amounts of our foreign currency forward contracts and option contracts were $2.4 million at December 31, 1998 and $14.5 million at December 31, 1997, all of which had maturities of six months or less. Certain of the interest rate swap agreements shown in the table contain both a foreign currency and an interest rate component. These agreements require the exchange of payments based on specified interest rates in addition to the exchange of currencies at the maturity of the contract. The required payments for both components are based on the notional amounts of the contracts. Our net equity position in unconsolidated foreign businesses as reported in our consolidated balance sheets totaled $1,916.6 million at December 31, 1998 and $1,784.2 million at December 31, 1997. Our most significant investments at December 31, 1998 and 1997 had operations in the United Kingdom, Italy and New Zealand. We have not hedged our accounting translation exposure to foreign currency fluctuations relative to these investments except for our United Kingdom investment which is partially hedged. Our equity income is subject to exchange rate fluctuations when our equity investee has balances denominated in a currency other than the investees' functional currency. We recognized $10.5 million in 1998, $(30.1) million in 1997, and $6.8 million in 1996 related to such fluctuations in Income (Loss) From Unconsolidated Businesses. F-37 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 9 CONTINUED We continually monitor the relationship between gains and losses recognized on all of our foreign currency contracts and on the underlying transactions being hedged to mitigate market risk. CONCENTRATIONS OF CREDIT RISK Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments, short-term investments, trade receivables, certain notes receivable, preferred stock, and derivative contracts. Our policy is to place our temporary cash investments with major financial institutions. Counterparties to our derivative contracts are also major financial institutions and organized exchanges. The financial institutions have all been accorded high ratings by primary rating agencies. We limit the dollar amount of contracts entered into with any one financial institution and monitor our counterparties' credit ratings. We generally do not give or receive collateral on swap agreements due to our credit rating and those of our counterparties. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote and do not expect the settlement of these transactions to have a material effect on our results of operations or financial condition. FAIR VALUES OF FINANCIAL INSTRUMENTS The tables that follow provide additional information about our material financial instruments: Financial Instrument Valuation Method - -------------------------------------------------------------------------------- Cash and cash equivalents Carrying amounts and short-term investments Short-and long-term debt Market quotes for similar terms (excluding capital leases and and maturities or future cash exchangeable notes) flows discounted at current rates Exchangeable notes Market quotes for similar instruments with both debt and embedded equity components Cost investments in Future cash flows discounted at current unconsolidated businesses rates, market quotes for similar and notes receivable instruments or other valuation models Interest rate swap and other Gains or losses to terminate agreements agreements or amounts paid to replicate agreements at current rates Foreign currency forward Market quotes or gains or losses to and option contracts terminate agreements (DOLLARS IN MILLIONS) 1998 1997 ---------------------------------------------------- Carrying Fair Carrying Fair At December 31, Amount* Value Amount* Value - ------------------------------------------------------------------------------- Short-and long-term debt $ 14,836.6 $ 15,928.3 $ 19,437.7 $ 19,988.9 Exchangeable notes 5,645.6 5,818.2 -- -- Cost investments in unconsolidated businesses 777.8 796.9 1,693.0 1,464.6 Notes receivable, net 18.4 18.3 32.9 33.2 Interest rate swap and other agreements Assets 6.1 26.7 26.3 31.8 Liabilities 25.5 39.7 24.8 31.8 Foreign currency forward and option contracts Assets -- -- .2 -- Liabilities -- -- .2 .2 * The carrying amounts shown for derivatives include deferred gains and losses. In January 1999, we accepted an offer from Viacom to repurchase their preferred stock from us. Our investment in Viacom is included in the table under "Cost investments in unconsolidated businesses." We have used the sale price as the fair value of our Viacom investment at December 31, 1998. The fair value of our Viacom investment at December 31, 1997 was calculated using certain theoretical convertible valuation models since the preferred stock was not publicly traded. We were unable to determine the fair value of other investments, with carrying values of $.6 million and $183.3 million at December 31, 1998 and 1997, without incurring excessive costs. - ------------------------ 10. Minority Interest - ------------------------ (DOLLARS IN MILLIONS) At December 31, 1998 1997 - -------------------------------------------------------------------------------- Portion subject to redemption requirements $ 18.6 $ 618.3 Portion nonredeemable 311.1 292.9 ------------------------- $ 329.7 $ 911.2 ========================= VIACOM TRANSACTIONS In December 1998, we accepted an offer from Viacom to repurchase one-half of our investment in Viacom, or 12 million shares of their preferred stock (with a book value of approximately $600 million), for approximately $564 million in cash. This preferred stock had been held by a fully consolidated subsidiary, which had been created as part of a transaction to monetize a portion of our Viacom investment during 1995 and 1996. This monetization transaction involved entering into nonrecourse contracts whereby we raised $600.0 F-38 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 10 CONTINUED million based, among other things, on the value of our investment in Viacom. To accomplish the monetization, two fully consolidated subsidiaries were created to manage and protect certain assets for distribution at a later date. In addition, an outside party contributed $600.0 million in cash in exchange for an interest in one of these subsidiaries, and we contributed a $600.0 million note that was collateralized by certain financial assets, including the 12 million shares of Viacom preferred stock and 22.4 million shares of our common stock. The outside party's contribution was reflected in Minority Interest, and the issuance of common stock was reflected as Treasury Stock in our consolidated balance sheets and statements of shareowners' investment. The cash proceeds from the repurchase of the 12 million shares of Viacom preferred stock, together with additional cash, was used to repay the note that had been contributed to one of the subsidiaries. The total amount of cash was distributed to the outside party, under a pre-existing agreement, to redeem most of that party's interest in the subsidiary. We then purchased the remaining portion of the outside party's interest. The transaction was accounted for as a charge to Reinvested Earnings and a reduction from Net Income in calculating Net Income Available to Common Shareowners in the amount of $29.8 million. As a result of our purchase of the outside party's interest, we reduced Minority Interest by $600.0 million in 1998. However, the subsidiaries continue to hold shares of our common stock, which have been reported as Treasury Stock in our consolidated balance sheet at December 31, 1998. The remaining 12 million shares of preferred stock were repurchased by Viacom in a second transaction in January 1999 for approximately $612 million in cash. You can find additional information on our Viacom investment in Note 3. OTHER MINORITY INTERESTS Minority interest in 1998 and 1997 also included the minority interests in certain partnerships consolidated by Bell Atlantic Mobile. The other shareowners' interest in Iusacell is also reflected as minority interest in 1998 and 1997 as a result of our change to full consolidation for our investment in Iusacell beginning in 1997. You can find a description of our Iusacell investment in Note 4. - --------------------------------- 11. Preferred Stock of Subsidiary - --------------------------------- Our subsidiary Bell Atlantic New Zealand Holdings, Inc. (BANZHI) has the authority to issue 5,000,000 shares of Serial Preferred Stock. BANZHI has issued three series of preferred stock. BANZHI owns a portion of our investment in Iusacell and, with another subsidiary, indirectly owns our investment in TCNZ. In 1994, BANZHI issued 850,000 shares of Series A Preferred Stock at $100 per share with an annual dividend rate of $7.08 per share. In 1995, 600,000 shares of Series B Preferred Stock were issued at $100 per share with an annual dividend rate of $5.80 per share. At December 31, 1998 and 1997, 95,000 shares ($9.5 million) of Series B Preferred Stock were held by a wholly owned subsidiary. Both series are subject to mandatory redemption on May 1, 2004 at a redemption price per share of $100, together with any accrued and unpaid dividends. In 1997, 650,000 shares of Series C Variable Term Preferred Stock were issued at $100 per share. At December 31, 1998, these shares had an annual dividend rate of 4.24%. - --------------------------------- 12. Shareowners' Investment - --------------------------------- Our certificate of incorporation provides authority for the issuance of up to 250 million shares of Series Preferred Stock, $.10 par value, in one or more series, with such designations, preferences, rights, qualifications, limitations and restrictions as the Board of Directors may determine. We are authorized to issue up to 2.25 billion shares of common stock. On January 23, 1996, the Board of Directors adopted a resolution ordering the redemption of all rights granted under our Shareholder Rights Plan, approved by the Board in 1989. Shareholders of record as of April 10, 1996 were paid the redemption price of $.01 per Right ($.0025 per share after adjusting for stock splits) on May 1, 1996. F-39 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - --------------------------------- 13. Earnings Per Share - --------------------------------- The following table is a reconciliation of the numerators and denominators used in computing earnings per share:
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Years Ended December 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- NET INCOME AVAILABLE TO COMMON SHAREOWNERS Income before extraordinary item and cumulative effect of change in accounting principle $ 2,990.8 $ 2,454.9 $ 3,128.9 Redemption of minority interest (29.8) -- -- Redemption of investee preferred stock (2.5) -- -- -------------------------------------------------------- Income available to common shareowners* 2,958.5 2,454.9 3,128.9 Extraordinary item (25.5) -- -- Cumulative effect of change in accounting principle -- -- 273.1 -------------------------------------------------------- Net income available to common shareowners* $ 2,933.0 $ 2,454.9 $ 3,402.0 ======================================================== BASIC EARNINGS PER COMMON SHARE Weighted-average shares outstanding 1,553.0 1,551.8 1,546.6 Income before extraordinary item and cumulative effect -------------------------------------------------------- of change in accounting principle $ 1.90 $ 1.58 $ 2.02 Extraordinary item (.01) -- -- Cumulative effect of change in accounting principle -- -- .18 -------------------------------------------------------- Net income $ 1.89 $ 1.58 $ 2.20 ======================================================== DILUTED EARNINGS PER COMMON SHARE Weighted-average shares outstanding 1,553.0 1,551.8 1,546.6 Effect of dilutive securities 25.3 19.3 13.6 -------------------------------------------------------- Weighted-average shares - diluted 1,578.3 1,571.1 1,560.2 Income before extraordinary item and cumulative effect ======================================================== of change in accounting principle $ 1.87 $ 1.56 $ 2.00 Extraordinary item (.01) -- -- Cumulative effect of change in accounting principle -- -- .18 -------------------------------------------------------- Net income $ 1.86 $ 1.56 $ 2.18 ========================================================
* Income and Net income available to common shareowners is the same for purposes of calculating basic and diluted earnings per share. Stock options to purchase .2 million, .1 million and 29.9 million shares of common stock were outstanding at December 31, 1998, 1997, and 1996, which were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. F-40 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - -------------------------------- 14. Stock Incentive Plans - -------------------------------- We have stock-based compensation plans that include fixed stock option and performance-based share plans. We apply APB Opinion No. 25 and related interpretations in accounting for our plans. We have adopted the disclosure-only provisions of SFAS No. 123. We recognize no compensation expense for our fixed stock option plans. Compensation expense charged to income for our performance-based share plans was $14.3 million in 1998, $23.4 million in 1997, and $10.6 million in 1996. If we had elected to recognize compensation expense based on the fair value at the grant dates for 1996 and subsequent fixed and performance-based plan awards consistent with the provisions of SFAS No. 123, net income and earnings per share would have been changed to the pro forma amounts indicated below: (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- Net income As reported $ 2,965.3 $ 2,454.9 $ 3,402.0 Pro forma 2,917.9 2,393.6 3,355.8 Basic earnings per share As reported $ 1.89 $ 1.58 $ 2.20 Pro forma 1.86 1.54 2.17 Diluted earnings per share As reported $ 1.86 $ 1.56 $ 2.18 Pro forma 1.83 1.52 2.15 ----------------------------------------------------------------- These results may not be representative of the effects on pro forma net income for future years. We determined the pro forma amounts using the Black-Scholes option-pricing model based on the following weighted-average assumptions: 1998 1997 1996 - -------------------------------------------------------------------------------- Dividend yield 4.59% 4.86% 4.72% Expected volatility 18.63% 14.87% 15.16% Risk-free interest rate 5.55% 6.35% 5.42% Expected lives (in years) 5 5 5 -------------------------------------------------- The weighted-average value of options granted was $6.47 per option during 1998, $4.30 per option during 1997 and $2.96 per option during 1996. The NYNEX stock options outstanding and exercisable at the date of the merger were converted to Bell Atlantic stock options. The NYNEX option activity and share prices have been restated, for all years presented, to Bell Atlantic shares using the exchange ratio of 0.768 per share of Bell Atlantic common stock to one share of NYNEX common stock. Our stock incentive plans are described below: FIXED STOCK OPTION PLANS We have fixed stock option plans for key management employees under which options to purchase Bell Atlantic common stock are granted at a price equal to the market price of the stock at the date of grant. Under the 1985 Incentive Stock Option Plan (ISO Plan), key employees (including employees of the former NYNEX companies, after the merger) may be granted incentive and/or nonqualified stock options to purchase shares of common stock and certain key employees may receive reload options upon tendering shares of common stock to exercise options. In 1994, we adopted the Options Plus Plan. Under this plan, we granted nonqualified stock options to approximately 800 managers below the officer level in place of a portion of each manager's annual cash bonus in 1994 and 1995. The Options Plus Plan was discontinued after the January 1995 grant. The Stock Compensation Plan for Outside Directors entitles each outside director to receive up to 5,000 stock options per year. Options are exercisable after three years or less and the maximum term is ten years. Fixed stock option plans covering key management employees of the former NYNEX companies include the 1990 and the 1995 Stock Option Plans. The 1990 Stock Option Plan, which expired on December 31, 1994, permitted the grant of options through December 1994 to purchase shares of common stock. In January 1995, NYNEX established the 1995 Stock Option Plan. Options under the 1995 Stock Option Plan are exercisable after three years or less and the maximum term is ten years. Since the merger with NYNEX, the new options granted under this plan are reload options. Both the 1990 and 1995 plans will continue to exist until the last outstanding option has been exercised or has expired. In 1992, 1994 and 1996, NYNEX established stock option plans for associates and management employees other than those eligible to participate in the other stock option plans. These employees were granted options (with the number of options granted varying according to employee level) to purchase a fixed number of shares of common stock at the market price of the stock on the grant date. Options granted under these plans are exercisable after two years or less and the maximum term is ten years. This table is a summary of the status of the fixed stock option plans: Weighted-Average Stock Options Exercise Price - -------------------------------------------------------------------------------- Outstanding, December 31, 1995 68,715,924 $ 24.93 Granted 31,866,368 33.28 Exercised (8,889,406) 24.65 Canceled/forfeited (1,099,888) 31.51 ------------ Outstanding, December 31, 1996 90,592,998 27.93 Granted 15,670,210 33.10 Exercised (26,238,090) 26.40 Canceled/forfeited (885,184) 29.39 ------------ Outstanding, December 31, 1997 79,139,934 29.28 Granted 24,061,468 46.40 Exercised (23,373,126) 29.01 Canceled/forfeited (1,744,531) 36.88 ------------ Outstanding, December 31, 1998 78,083,745 34.87 ============ Options exercisable, December 31, 1996 56,482,864 27.68 1997 63,650,570 28.27 1998 55,395,762 30.17 --------------------------------------- F-41 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 14 CONTINUED The following table summarizes information about fixed stock options outstanding as of December 31, 1998:
Stock Options Outstanding Stock Options Exercisable ------------------------------------------------- ------------------------- Weighted-Average Range of Remaining Weighted-Average Weighted-Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - ------------------------------------------------------------------------------------------------- $ 15.00 - 19.99 5,552 .1 years $ 18.00 5,552 $ 18.00 20.00 - 24.99 8,711,764 3.5 23.07 8,711,764 23.07 25.00 - 29.99 16,780,585 5.6 25.87 16,780,585 25.87 30.00 - 34.99 27,780,786 7.4 33.00 25,765,996 33.01 35.00 - 39.99 1,480,557 8.6 37.76 796,719 37.71 40.00 - 44.99 361,306 9.1 43.39 318,057 43.36 45.00 - 49.99 21,661,784 9.1 47.56 2,720,337 46.46 50.00 - 54.99 1,087,712 9.6 52.13 295,852 51.84 55.00 - 59.99 213,699 9.9 56.44 900 57.78 - ------------------------------ ---------- Total 78,083,745 7.1 34.87 55,395,762 30.17 =========== ==========
PERFORMANCE-BASED SHARE PLANS Our performance-based share plans provided for the granting of awards to certain key employees, including employees of the former NYNEX companies in the form of Bell Atlantic common stock. Authority to make new grants expired in December 1994. Final awards were credited to pre-merger employees of Bell Atlantic in January 1996 and to employees of the former NYNEX companies in March 1994. Effective January 1, 1998, the Income Deferral Plan replaced the deferred compensation plans, including deferred performance shares, and expands the award distribution options for those employees. Employees who were active as of January 1, 1998 had their performance share balances transferred to the Income Deferral Plan. Those employees who were inactive as of that date continue to hold deferred share balances. We also have deferred compensation plans that allow members of the Board of Directors to defer all or a portion of their compensation. Some of these plans provide for returns based on the performance of, and eventual settlement in, Bell Atlantic common stock. Compensation expense for all of these plans is recorded based on the fair market value of the shares as they are credited to participants' accounts. The Income Deferral Plan is accounted for with our pension plans. The number of shares outstanding in the performance share plans were 393,491 at December 31, 1998, 1,099,690 at December 31, 1997, and 1,252,286 at December 31, 1996. A total of 180,560,000 shares may be distributed under the fixed stock option plans and the performance-based share plans. As of December 31, 1998 and 1997, a total of 56,578,766 and 69,615,880 shares of common stock were available for the granting of stock options under the fixed stock option plans and for distributions of shares under the performance-based share plans. In addition to plans described above, Iusacell maintains a separate stock option plan for its key employees in which it awards options to acquire Iusacell common stock. The effect of this plan on our consolidated results of operations was not significant. - --------------------------- 15. Employee Benefits - --------------------------- The FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," in February 1998. This new standard does not change the measurement or recognition of costs for pensions or other postretirement plans. It standardizes disclosures and eliminates those that are no longer useful. The information provided below for 1998, 1997 and 1996 has been presented under the requirements of the new standard. We maintain noncontributory defined benefit pension plans for substantially all management and associate employees, as well as postretirement healthcare and life insurance plans for our retirees and their dependents. We also sponsor savings plans to provide opportunities for eligible employees to save for retirement on a tax-deferred basis and to encourage employees to acquire and maintain an equity interest in our company. In 1997, following the completion of the merger with NYNEX, the assets of the Bell Atlantic and NYNEX pension and savings plans were commingled in a master trust, and effective January 1, 1998 we established common pension and savings plan benefit provisions for all management employees. The disclosures provided for 1997 and 1996 were determined using weighted-average assumptions for the combined Bell Atlantic and NYNEX benefit plans. PENSION AND OTHER POSTRETIREMENT BENEFITS At December 31, 1998, shares of our common stock accounted for less than 1% of the plan assets. Substantive commitments for future amendments are reflected in the pension costs and benefit obligations. Pension and other postretirement benefits for our associate employees (approximately 69% of our work force) are subject to collective bargaining agreements. Modifications in associate benefits have been bargained from time to time, and we may also periodically amend the benefits in the management plans. The following tables summarize benefit costs, as well as the benefit obligations, plan assets, funded status and rate assumptions associated with pension and postretirement healthcare and life insurance benefit plans. F-42 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 15 CONTINUED BENEFIT COST
(DOLLARS IN MILLIONS) Pension Healthcare and Life Years Ended December 31, 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Service cost $ 388.6 $ 355.8 $ 398.6 $ 101.1 $ 98.4 $ 122.5 Interest cost 1,855.4 1,877.3 1,831.2 593.1 626.3 653.0 Expected return on plan assets (2,544.9) (2,346.6) (2,169.5) (287.6) (249.1) (214.8) Amortization of transition asset (82.0) (82.0) (79.6) -- -- -- Amortization of prior service cost (132.7) (136.0) (129.9) 52.7 50.0 66.1 Actuarial (gain), net (111.5) (62.5) (9.4) (101.8) (40.3) (2.5) ---------------------------------------------------------------------------- Net periodic (income) benefit cost (627.1) (394.0) (158.6) 357.5 485.3 624.3 ---------------------------------------------------------------------------- Special termination benefits 1,029.3 687.7 481.3 57.9 60.0 39.8 Curtailment (gain) loss (including recognition of prior service cost) (134.4) (221.8) (174.0) 149.9 117.9 90.6 Release of severance and postretirement medical reserves (38.8) (68.8) (91.0) (54.6) (88.4) (126.0) ---------------------------------------------------------------------------- Retirement incentive cost, net* 856.1 397.1 216.3 153.2 89.5 4.4 ---------------------------------------------------------------------------- Total benefit cost $ 229.0 $ 3.1 $ 57.7 $ 510.7 $ 574.8 $ 628.7 ============================================================================
* See "Retirement Incentives" section for additional information ASSUMPTIONS The actuarial assumptions used are based on financial market interest rates, past experience, and management's best estimate of future benefit changes and economic conditions. Changes in these assumptions may impact future benefit costs and obligations. The weighted-average assumptions used in determining expense and benefit obligations are as follows:
Pension Healthcare and Life - ------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Discount rate at end of year 7.00% 7.25% 7.75% 7.00% 7.25% 7.75% Long-term rate of return on plan assets for the year 8.90 8.90 8.60 8.90 8.70 8.35 Rate of future increases in compensation at end of year 4.00 4.00 4.40 4.00 4.00 4.40 Medical cost trend rate at end of year 6.00 6.50 8.30 Ultimate (year 2001 for 1998 and 1997, year 2008 for 1996) 5.00 5.00 4.75 Dental cost trend rate at end of year 3.50 3.50 3.75 Ultimate (year 2002) 3.00 3.00 3.50
The medical cost trend rate significantly affects the reported postretirement benefit costs and benefit obligations. A one-percentage-point change in the assumed healthcare cost trend rate would have the following effects:
(DOLLARS IN MILLIONS) One-Percentage-Point Increase One-Percentage-Point Decrease - ------------------------------------------------------------------------------------------------------------------ Effect on total service and interest cost $ 57.7 $ (46.5) Effect on postretirement benefit obligation 631.2 (515.8)
F-43 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- Note 15 continued
(DOLLARS AND MILLIONS) Pension Healthcare and Life - ---------------------------------------------------------------------------------------- At December 31, 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------- Benefit Obligation Beginning of year $ 26,732.0 $ 24,935.7 $ 8,852.2 $ 8,617.2 Service cost 388.6 355.8 101.1 98.4 Interest cost 1,855.4 1,877.3 593.1 626.3 Plan amendments 38.2 (97.0) 10.9 -- Actuarial (gain) loss, net 349.9 1,173.4 (90.9) (59.8) Benefits paid (2,370.6) (2,041.5) (549.7) (537.1) Curtailments (96.3) (159.4) 88.5 47.2 Special termination benefits 1,029.3 687.7 57.9 60.0 Transfers 153.8 -- -- -- ------------------------------------------------------- End of year 28,080.3 26,732.0 9,063.1 8,852.2 ------------------------------------------------------- Fair Value of Plan Assets Beginning of year 35,253.0 31,075.5 3,824.6 3,209.9 Actual return on plan assets 4,018.9 6,194.1 721.9 673.3 Company contribution 60.6 24.1 173.1 182.7 Benefits paid (2,370.6) (2,041.5) (257.0) (241.3) Transfers 4.6 .8 -- -- ------------------------------------------------------- End of year 36,966.5 35,253.0 4,462.6 3,824.6 ------------------------------------------------------- Funded Status End of year 8,886.2 8,521.0 (4,600.5) (5,027.6) Unrecognized Actuarial (gain), net (10,534.0) (9,521.4) (1,951.9) (1,512.1) Prior service cost (1,316.7) (1,493.1) 143.2 192.3 Transition asset (357.1) (439.0) -- -- ------------------------------------------------------- Net Amount Recognized $ (3,321.6) $ (2,932.5) $ (6,409.2) $ (6,347.4) ======================================================= Amounts recognized on the balance sheet Employee benefit obligation $ (3,372.7) $ (2,974.7) $ (6,409.2) $ (6,347.4) Other assets 23.7 42.2 -- -- Accumulated other comprehensive loss 27.4 -- -- -- ------------------------------------------------------- Net amount recognized $ (3,321.6) $ (2,932.5) $ (6,409.2) $ (6,347.4) =======================================================
The changes in benefit obligations from year to year were caused by a number of factors, including changes in actuarial assumptions (see Assumptions), plan amendments and special termination benefits. RETIREMENT INCENTIVES In 1993, we announced a restructuring plan which included an accrual of approximately $1.1 billion (pre-tax) for severance and postretirement medical benefits under an involuntary force reduction plan. Beginning in 1994, retirement incentives have been offered under a voluntary program as a means of implementing substantially all of the work force reductions planned in 1993. Since the inception of the retirement incentive program, we recorded additional costs totaling approximately $3.0 billion (pre-tax) through December 31, 1998. These additional costs and the corresponding number of employees accepting the retirement incentive offer for each year ended December 31 are as follows: (DOLLARS IN MILLIONS) Years Amount Employees - -------------------------------------------------------------------------------- 1994 $ 694.0 7,209 1995 514.9 4,759 1996 235.8 2,996 1997 513.1 4,311 1998 1,021.1 7,299 ----------------------------------------- $ 2,978.9 26,574 ========================================= The retirement incentive costs are included in Employee Costs in our statements of income and the accrued liability is a component of Employee Benefit Obligations reported in our consolidated balance sheets. The additional costs are comprised of special termination pension and postretirement benefit amounts, as well as employee costs for other items. These costs have been reduced by severance and postretirement medical benefit reserves established in 1993 and transferred to the pension and postretirement benefit liabilities as employees accepted the retirement incentive offer. F-44 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 15 CONTINUED The retirement incentive program covering management employees ended on March 31, 1997 and the program covering associate employees was completed in September 1998. The following table provides the amounts transferred from the 1993 reserve balance to pension and postretirement benefits (OPEB) liabilities: (DOLLARS IN MILLIONS) Years Pension OPEB Total - -------------------------------------------------------------------------------- 1994 $ 293.0 $ 179.0 $ 472.0 1995 81.6 72.0 153.6 1996 91.0 126.0 217.0 1997 81.6 88.4 170.0 1998 38.8 54.6 93.4 - -------------------------------------------------------------------------------- $ 586.0 $ 520.0 $ 1,106.0 ========================================================= The remaining severance and postretirement medical reserves balances associated with the 1993 restructuring plan were as follows at December 31, 1997 and 1998: (DOLLARS IN MILLIONS) 1997 1998 - -------------------------------------------------------------------------------- Beginning of year $ 263.4 $ 93.4 Utilization (170.0) (93.4) ---------------------------------- End of year $ 93.4 $ -- ================================== SAVINGS PLANS AND EMPLOYEE STOCK OWNERSHIP PLANS We maintain three leveraged employee stock ownership plans (ESOPs). Under these plans, we match a certain percentage of eligible employee contributions with shares of our common stock. In 1989, two leveraged ESOPs were established by Bell Atlantic to purchase Bell Atlantic common stock and fund matching contributions. In 1990, NYNEX established a leveraged ESOP to fund matching contributions to management employees and purchased shares of NYNEX common stock. At the date of the merger, NYNEX common stock outstanding was converted to Bell Atlantic shares using an exchange ratio of 0.768 per share of Bell Atlantic common stock to one share of NYNEX common stock. The Bell Atlantic leveraged ESOP trusts were funded by the issuance of $790.0 million in senior notes. The annual interest rate on the senior notes is 8.17%. The senior notes are payable in semiannual installments, which began on January 1, 1990 and end in the year 2000. The NYNEX leveraged ESOP trust was established through a company loan of $450 million, the proceeds of which were used to purchase common shares of NYNEX stock held in treasury. NYNEX issued and guaranteed $450 million of 9.55% debentures, the proceeds of which were principally used to repurchase common shares in the open market. The debentures require annual payments of principal and are due on May 1, 2010. Interest payments are due semiannually. All of the leveraged ESOP trusts repay the debt, including interest, with funds from our contributions to the ESOP trusts, as well as dividends received on unallocated and allocated shares of common stock. The obligations of the leveraged ESOP trusts, which we guarantee, are recorded as Long-term Debt and the offsetting deferred compensation is classified as a reduction of Shareowners' Investment. As the ESOP trusts make principal payments, we reduce the long-term debt balance. The deferred compensation balance is reduced by the amount of employee compensation recognized as the ESOP shares are allocated to participants. Common stock is allocated from all leveraged ESOP trusts based on the proportion of principal and interest paid on ESOP debt in a year to the remaining principal and interest due over the term of the debt. At December 31, 1998, the number of unallocated and allocated shares of common stock was 18.9 million and 32.4 million. All leveraged ESOP shares are included in earnings per share computations. We recognize leveraged ESOP cost based on the modified shares allocated method for the Bell Atlantic leveraged ESOP trusts which held securities before December 15, 1989 and the shares allocated method for the NYNEX leveraged ESOP trust which held securities after December 15, 1989. ESOP cost and trust activity consist of the following: (DOLLARS IN MILLIONS) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- Compensation $ 98.4 $ 105.4 $ 93.5 Interest incurred 48.6 57.0 69.4 Dividends (34.0) (36.9) (42.1) Other trust earnings and expenses, net (.4) (.5) (.2) ------------------------------------------- Net leveraged ESOP cost 112.6 125.0 120.6 Additional (reduced) ESOP cost (8.5) (2.3) 14.6 ------------------------------------------- Total ESOP cost $ 104.1 $ 122.7 $ 135.2 =========================================== Dividends received for debt service $ 65.6 $ 66.7 $ 68.3 =========================================== Total company contributions to leveraged ESOP trusts $ 143.9 $ 136.5 $ 141.8 =========================================== In addition to the ESOPs described above, we maintain savings plans for associate employees of the former NYNEX companies, and employees of certain other subsidiaries. Compensation expense associated with these savings plans was $80.8 million in 1998, $71.1 million in 1997, and $69.1 million in 1996. F-45 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - ------------------------ 16. Income Taxes - ------------------------ The components of income tax expense from continuing operations are presented in the following table: (DOLLARS IN MILLIONS) YEARS ENDED DECEMBER 31, 1998 1997 1996 - -------------------------------------------------------------------------------- Current Federal $ 1,513.9 $ 1,207.4 $ 1,450.2 State and local 368.3 222.2 195.4 ------------------------------------------------- 1,882.2 1,429.6 1,645.6 ------------------------------------------------- Deferred Federal 178.4 279.2 235.9 State and local 85.8 (42.3) 48.3 ------------------------------------------------- 264.2 236.9 284.2 ------------------------------------------------- Investment tax credits (28.9) (38.1) (57.3) Other credits (109.4) (99.2) (90.2) ------------------------------------------------- Total income tax expense $ 2,008.1 $ 1,529.2 $ 1,782.3 ================================================= During 1997, two states in our operating region enacted significant changes in their tax laws. In New Jersey, a law was enacted that repealed the gross receipts tax applicable to telephone companies and extended the net-income-based corporate business tax to include telephone companies. This resulted in a decrease in deferred state income tax expense of $75.4 million. In Maryland, a law was enacted that changed the determination of taxable income. This resulted in an increase in deferred state income tax expense of $8.3 million. The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate: Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Investment tax credits (.4) (.6) (.8) State income taxes, net of federal tax benefits 5.5 2.6 3.1 Write-down of foreign investments 3.8 -- -- Other, net (3.7) 1.4 (1.0) -------------------------------------- Effective income tax rate 40.2% 38.4% 36.3% ====================================== Deferred taxes arise because of differences in the book and tax bases of certain assets and liabilities. Significant components of deferred tax liabilities (assets) are shown in the following table: (DOLLARS IN MILLIONS) At December 31, 1998 1997 - -------------------------------------------------------------------------------- Deferred tax liabilities Depreciation $ 3,634.5 $ 3,564.5 Leveraged leases 2,437.0 2,225.3 Partnership investments 470.8 329.9 Other 631.1 1,044.2 ---------------------------------- 7,173.4 7,163.9 ---------------------------------- Deferred tax assets Employee benefits (4,122.8) (4,065.0) Investment tax credits (83.9) (94.3) Allowance for uncollectible accounts receivable (94.1) (117.4) Other (985.6) (1,114.8) ---------------------------------- (5,286.4) (5,391.5) ---------------------------------- Valuation allowance 317.2 79.4 ---------------------------------- Net deferred tax liability $ 2,204.2 $ 1,851.8 ================================== Deferred tax assets include approximately $2,609 million at December 31, 1998 and $3,126 million at December 31, 1997 related to postretirement benefit costs recognized under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This deferred tax asset will gradually be realized over the estimated lives of current retirees and employees. The valuation allowance primarily represents the tax benefits of capital losses, certain state net operating loss carryforwards, and other deferred tax assets which may expire without being utilized. During 1998, the valuation allowance increased $237.8 million. This increase primarily relates to state net operating losses and the write-down of certain foreign investments, for which tax benefits may never be realized. F-46 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - ------------------------------ 17. Segment Information - ------------------------------ We have adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way companies must determine and report information about operating segments in their annual and interim reports. We have four reportable segments, which we operate and manage as strategic business units and we organize by products and services. We measure and evaluate our reportable segments based on adjusted net income, which excludes undistributed corporate expenses and special items arising during each period. Special items are transactions that management has excluded from the business units' results, but has included in reported consolidated earnings. We generally account for intersegment sales of products and services and asset transfers at current market prices. Intersegment revenues were not material in 1998, 1997 and 1996. We are not dependent on any single customer. Our segments and their principal activities consist of the following: - -------------------------------------------------------------------------------- Segment Description - -------------------------------------------------------------------------------- Domestic Telecom Domestic wireline telecommunications services-primarily our nine operating telephone subsidiaries that provide local telephone services from Maine to Virginia including voice and data transport, enhanced and custom calling features, network access, directory assistance, private lines and public telephones. This segment also provides customer premises equipment distribution, systems integration, billing and collections, and Internet access services. Domestic Telecom represents the aggregation of our domestic wireline business units (consumer, enterprise, general, and network services), which focus on specific markets to increase revenues and customer satisfaction. - -------------------------------------------------------------------------------- Global Wireless Wireless telecommunications services to customers in 24 states in the United States and foreign wireless investments servicing customers in Latin America, Europe and the Pacific Rim. - -------------------------------------------------------------------------------- Directory Domestic and international publishing businesses including print directories and Internet-based shopping guides, as well as website creation and hosting and other electronic commerce services. This segment has operations principally in the United States and Central Europe. - -------------------------------------------------------------------------------- Other Businesses International wireline telecommunications investments in Europe and the Pacific Rim and lease financing and other businesses. - -------------------------------------------------------------------------------- GEOGRAPHIC AREAS Our foreign investments are located principally in Europe, Latin America and the Pacific Rim. Domestic and foreign operating revenues are based on the location of customers. Long-lived assets consist of property, plant and equipment (net of accumulated depreciation) and investments in unconsolidated businesses. The table below presents financial information by major geographic area: (DOLLARS IN MILLIONS) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- DOMESTIC Operating revenues $ 31,168.2 $ 29,760.2 $ 28,817.7 Long-lived assets 38,527.8 37,431.5 36,929.7 FOREIGN Operating revenues 397.7 433.7 337.5 Long-lived assets 2,563.7 2,752.1 4,127.3 CONSOLIDATED Operating revenues 31,565.9 30,193.9 29,155.2 Long-lived assets 41,091.5 40,183.6 41,057.0 ----------------------------------------------------- F-47 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 17 CONTINUED OPERATING SEGMENT FINANCIAL INFORMATION (DOLLARS IN MILLIONS) 1998 1997 1996 - -------------------------------------------------------------------------------- DOMESTIC TELECOM Operating revenues $ 25,557.5 $ 24,809.2 $ 24,136.2 Depreciation and amortization 5,195.1 4,989.6 4,911.5 Income (loss) from unconsolidated businesses 27.2 (13.7) (71.7) Interest income 44.6 14.6 5.9 Interest expense 972.1 906.4 840.2 Income tax expense 1,958.3 1,792.0 1,598.5 Extraordinary item (10.8) -- -- Net income 3,172.5 2,993.3 2,790.5 Segment assets 41,216.8 39,428.6 38,618.9 Investments in unconsolidated businesses .2 3.9 151.9 Capital expenditures 6,409.4 5,485.9 4,913.8 - -------------------------------------------------------------------------------- GLOBAL WIRELESS Operating revenues $ 3,797.9 $ 3,347.4 $ 2,684.3 Depreciation and amortization 591.6 481.0 303.3 (Loss) from unconsolidated businesses (96.2) (195.5) (141.1) Interest income 10.6 9.4 2.0 Interest expense 275.4 267.2 140.8 Income tax expense 114.6 65.0 99.2 Net income 228.5 95.0 79.6 Segment assets 7,738.6 7,089.7 6,093.4 Investments in unconsolidated businesses 1,767.7 1,570.6 1,706.5 Capital expenditures 995.7 987.7 936.6 - -------------------------------------------------------------------------------- DIRECTORY Operating revenues $ 2,263.6 $ 2,215.2 $ 2,159.3 Depreciation and amortization 36.7 39.4 33.7 Income (loss) from unconsolidated businesses 28.6 22.7 (.5) Interest income .8 1.1 .7 Interest expense 19.9 16.5 20.8 Income tax expense 436.2 410.7 384.2 Net income 683.9 656.6 585.1 Segment assets 1,741.0 1,474.5 906.2 Investments in unconsolidated businesses 14.5 22.1 8.4 Capital expenditures 34.6 34.0 32.3 - -------------------------------------------------------------------------------- OTHER BUSINESSES Operating revenues $ 123.9 $ 278.1 $ 455.8 Depreciation and amortization 2.4 47.9 103.1 Income from unconsolidated businesses 85.9 77.7 106.8 Interest income 23.7 13.0 44.7 Interest expense 38.4 33.9 30.1 Income tax benefit (34.3) (40.7) (59.2) Extraordinary item (14.7) -- -- Net income 135.3 48.4 11.8 Segment assets 5,353.2 5,583.3 8,081.6 Investments in unconsolidated businesses 1,867.6 2,080.6 1,813.3 Capital expenditures 3.3 134.0 508.6 Noncash financing and investing activities Contributions of net assets to unconsolidated businesses -- 681.8 -- Contributions to partnerships -- 73.0 220.1 - -------------------------------------------------------------------------------- RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN MILLIONS) 1998 1997 1996 - -------------------------------------------------------------------------------- OPERATING REVENUES Domestic Telecom $ 25,557.5 $ 24,809.2 $ 24,136.2 Global Wireless 3,797.9 3,347.4 2,684.3 Directory 2,263.6 2,215.2 2,159.3 Other Businesses 123.9 278.1 455.8 ----------------------------------------------------- Total segments 31,742.9 30,649.9 29,435.6 Reconciling items (177.0) (192.9) (210.6) Adjustments -- (263.1) (69.8) ----------------------------------------------------- Total consolidated $ 31,565.9 $ 30,193.9 $ 29,155.2 ===================================================== NET INCOME Domestic Telecom $ 3,172.5 $ 2,993.3 $ 2,790.5 Global Wireless 228.5 95.0 79.6 Directory 683.9 656.6 585.1 Other Businesses 135.3 48.4 11.8 ----------------------------------------------------- Total segments 4,220.2 3,793.3 3,467.0 Reconciling items 103.5 53.5 7.2 Adjustments (1,358.4) (1,391.9) (72.2) ----------------------------------------------------- Total consolidated $ 2,965.3 $ 2,454.9 $ 3,402.0 ===================================================== SEGMENT ASSETS Domestic Telecom $ 41,216.8 $ 39,428.6 $ 38,618.9 Global Wireless 7,738.6 7,089.7 6,093.4 Directory 1,741.0 1,474.5 906.2 Other Businesses 5,353.2 5,583.3 8,081.6 ----------------------------------------------------- Total segments 56,049.6 53,576.1 53,700.1 Reconciling items (905.7) 388.0 (339.0) ----------------------------------------------------- Total consolidated $ 55,143.9 $ 53,964.1 $ 53,361.1 ===================================================== Reconciling items include undistributed corporate expenses, corporate assets and intersegment eliminations. Corporate assets are comprised primarily of our investment in Viacom. In December 1998, one-half of our investment in Viacom was repurchased (see Note 3). F-48 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- NOTE 17 CONTINUED Adjustments include special items and line item reclassifications. Special items included merger-related costs (see Note 2), retirement incentives (see Note 15), and other charges. The effect of these special items on each of the segment's net income is provided in the following table: (DOLLARS IN MILLIONS) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- DOMESTIC TELECOM Reported net income $ 2,382.1 $ 2,016.5 $ 2,413.4 Special items 790.4 976.8 377.1 --------------------------------------------------- Adjusted net income $ 3,172.5 $ 2,993.3 $ 2,790.5 =================================================== GLOBAL WIRELESS Reported net income $ 50.9 $ 112.5 $ 72.9 Special items 177.6 (17.6) 6.7 --------------------------------------------------- Adjusted net income $ 228.5 $ 94.9 $ 79.6 =================================================== DIRECTORY Reported net income $ 661.6 $ 563.7 $ 855.0 Special items 22.3 92.9 (269.9) --------------------------------------------------- Adjusted net income $ 683.9 $ 656.6 $ 585.1 =================================================== OTHER BUSINESSES Reported net income $ (230.2) $ 28.6 $ 56.9 Special items 365.6 19.8 (45.1) --------------------------------------------------- Adjusted net income $ 135.4 $ 48.4 $ 11.8 =================================================== RECONCILING ITEMS Reported net income $ 100.9 $ (266.4) $ 3.8 Special items 2.5 320.0 3.4 --------------------------------------------------- Adjusted net income $ 103.4 $ 53.6 $ 7.2 =================================================== - ----------------------------------------------- 18. Proposed Bell Atlantic - GTE Merger - ----------------------------------------------- Bell Atlantic and GTE Corporation have announced a proposed merger of equals under a definitive merger agreement dated as of July 27, 1998. Under the terms of the agreement, GTE shareholders will receive 1.22 shares of Bell Atlantic common stock for each share of GTE common stock that they own. Bell Atlantic shareholders will continue to own their existing shares after the merger. We expect the merger to qualify as a pooling of interests. The completion of the merger is subject to a number of conditions, including certain regulatory approvals, receipt of opinions that the merger will be tax-free, and the approval of the shareholders of both Bell Atlantic and GTE. - ----------------------------------------------- 19. Additional Financial Information - ----------------------------------------------- The tables that follow provide additional financial information related to our consolidated financial statements: INCOME STATEMENT INFORMATION (DOLLARS IN MILLIONS) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- Taxes other than income $ 1,465.9 $ 1,606.9 $ 1,499.9 Interest expense incurred, net of amounts capitalized 1,375.9 1,275.2 1,124.1 Capitalized interest 90.4 81.0 128.5 Advertising expense 453.2 397.0 357.5 Interest expense incurred includes $40.5 million in 1998, $45.2 million in 1997 and $42.1 million in 1996 related to our lease financing business. Such interest expense is classified as Other Operating Expenses. BALANCE SHEET INFORMATION (DOLLARS IN MILLIONS) At December 31, 1998 1997 - -------------------------------------------------------------------------------- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable $ 3,401.1 $ 3,575.4 Accrued expenses 1,271.5 1,089.7 Accrued vacation pay 634.3 618.1 Accrued salaries and wages 231.9 279.9 Interest payable 329.0 245.8 Accrued taxes 237.2 157.5 -------------------------------- $ 6,105.0 $ 5,966.4 ================================ OTHER CURRENT LIABILITIES Advance billings and customer deposits $ 695.7 $ 643.0 Dividend payable 610.6 597.8 Other 132.3 114.2 -------------------------------- $ 1,438.6 $ 1,355.0 ================================ CASH FLOW INFORMATION (DOLLARS IN MILLIONS) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- CASH PAID Income taxes, net of amounts refunded $ 1,369.3 $ 1,402.8 $ 1,667.9 Interest, net of amounts capitalized 1,201.2 1,215.4 1,162.5 F-49 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued - -------------------------------------------------------------------------------- - ---------------------------------- 20. Comprehensive Income - ---------------------------------- Effective January 1, 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income." The new rules establish standards for the reporting of comprehensive income and its components in financial statements. Comprehensive income consists of net income and other gains and losses affecting shareowners' equity that, under generally accepted accounting principles, are excluded from net income. The adoption of SFAS No. 130 did not affect our statement of income, but did affect the presentation of our statement of changes in shareowners' investment and balance sheet. Changes in the components of other comprehensive income (loss), net of income tax expense (benefit), are as follows: (DOLLARS IN MILLIONS) Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION ADJUSTMENTS Foreign currency translation adjustments, taxes of $1.8, $(1.8) and $(4.7) $ (146.4) $ (234.0) $ 221.8 Less: reclassification adjustments (.2) -- (.1) Net foreign currency translation ----------------------------------- adjustments (146.2) (234.0) 221.9 ----------------------------------- UNREALIZED GAINS (LOSSES) ON SECURITIES Unrealized holding gains (losses), taxes of $15.9, $0 and $(1.3) 12.0 3.5 (5.8) Less: reclassification adjustments for gains realized in net income, taxes of $12.8, $.7 and $.1 10.0 1.2 .1 Net unrealized gains (losses) on ----------------------------------- securities 2.0 2.3 (5.9) MINIMUM PENSION LIABILITY ADJUSTMENT, ----------------------------------- taxes of $(10.7) (16.7) -- -- ----------------------------------- OTHER COMPREHENSIVE INCOME (LOSS) $ (160.9) $ (231.7) $ 216.0 =================================== The components of accumulated other comprehensive income (loss) are as follows: (DOLLARS IN MILLIONS) AT DECEMBER 31, 1998 1997 - --------------------------------------------------------------------- Foreign currency translation adjustments $ (699.6) $ (553.4) Unrealized gains (losses) on securities 2.1 .1 Minimum pension liability adjustment (16.7) -- ------------------------ Accumulated other comprehensive income (loss) $ (714.2) $ (553.3) ======================== - -------------------------------------------------- 21. Quarterly Financial Information (Unaudited) - --------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Income (Loss) Before Extraordinary Item Operating Operating --------------------------------------------------- Net Quarter Ended Revenues Income Amount Per Share-Basic Per Share-Diluted Income (Loss) - ------------------------------------------------------------------------------------------------------------ 1998 March 31 $ 7,651.1 $ 1,712.0 $ 909.6 $ .58 $ .57 $ 893.4 June 30 7,927.8 1,952.6 1,027.2 .66 .65 1,020.9 September 30* 7,909.9 1,130.1 (7.2) (.01) (.01) (8.1) December 31 8,077.1 1,832.5 1,061.2 .66 .65 1,059.1 1997 March 31 $ 7,416.5 $ 1,458.5 $ 698.2 $ .45 $ .45 $ 698.2 June 30 7,707.8 1,847.9 896.8 .58 .57 896.8 September 30** 7,373.9 421.0 (80.1) (.05) (.05) (80.1) December 31 7,695.7 1,614.1 940.0 .61 .60 940.0
* Results of operations for the third quarter of 1998 include approximately $1,100 million (after-tax) of costs associated with the completion of our retirement incentive program, as well as charges to adjust the carrying values of two Asian investments and to write-down assets. ** Results of operations for the third quarter of 1997 include approximately $1,050 million (after-tax) of costs incurred in connection with consolidating operations and combining the organizations of Bell Atlantic and NYNEX and for other special items arising during the quarter, as well as charges associated with the completion of the merger and with our retirement incentive program. Income (loss) before extraordinary item per common share is computed independently for each quarter and the sum of the quarters may not equal the annual amount. F-50 - -------------------------------------------------------------------------------- REPORT OF MANAGEMENT - -------------------------------------------------------------------------------- We, the management of Bell Atlantic Corporation, are responsible for the consolidated financial statements and the information and representations contained in this report. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts based on management's best estimates and judgments. Financial information elsewhere in this report is consistent with that in the financial statements. Management has established and maintained a system of internal control which is designed to provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. The system of internal control includes widely communicated statements of policies and business practices, which are designed to require all employees to maintain high ethical standards in the conduct of our business. The internal controls are augmented by organizational arrangements that provide for appropriate delegation of authority and division of responsibility and by a program of internal audits. The financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants. Their audit was conducted in accordance with generally accepted auditing standards and included an evaluation of our internal control structure and selective tests of transactions. The Report of Independent Accountants appears on this page. The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with the independent accountants, management and internal auditors to review accounting, auditing, internal controls, litigation and financial reporting matters. Both the internal auditors and the independent accountants have free access to the Audit Committee without management present. /s/ Ivan G. Seidenberg Ivan G. Seidenberg Chairman of the Board and Chief Executive Officer /s/ Frederic V. Salerno Frederic V. Salerno Senior Executive Vice President and Chief Financial Officer/ Strategy and Business Development /s/ Doreen A. Toben Doreen A. Toben Vice President-Controller - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF BELL ATLANTIC CORPORATION In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Bell Atlantic Corporation and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, in 1996, the Company changed its method of accounting for directory publishing revenues and expenses. /s/ PricewaterhouseCoopers LLP New York, New York February 9, 1999 F-51 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1998, 1997 and 1996 (Dollars in Millions)
Additions -------------------------- Charged to Balance at Other Balance at Beginning Charged To Accounts-- Deductions-- End of Description of Period Expenses Note (a) Note (b) Period - ------------------------------------------------------------------------------------------------------------------- Allowance for Uncollectible Accounts Receivable: Year 1998 ................... $ 611.9 $ 460.5 $ 577.9 $ 1,057.0 $ 593.3 Year 1997 ................... 566.7 530.5 557.3 1,042.6 611.9 Year 1996 ................... 475.0 493.7 554.6 956.6 566.7 Valuation Allowance for Deferred Tax Assets: Year 1998 ................... $ 79.4 $ 276.3 $ -- $ 38.5 $ 317.2 Year 1997 ................... 44.8 64.7 .5 30.6 79.4 Year 1996 ................... 39.3 14.2 1.3 10.0 44.8 Restructuring Reserves: Year 1998 ................... $ 149.6 $ -- $ -- $ 95.1 $ 54.5 Year 1997 ................... 330.1 -- -- 180.5 149.6 Year 1996 ................... 700.6 -- -- 370.5 330.1 Allowance For Uncollectible Finance Lease Receivable: Year 1998 ................... $ 24.9 $ 5.0 $ 7.4 $ -- $ 37.3 Year 1997 ................... 23.8 12.9 -- 11.8 24.9 Year 1996 ................... 24.3 -- -- .5 23.8
- ------------ (a) Allowance for Uncollectible Accounts Receivable includes (1) amounts previously written off which were credited directly to this account when recovered, and (2) accruals charged to accounts payable for anticipated uncollectible charges on purchases of accounts receivable from others which were billed by us. Allowance for Uncollectible Finance Lease Receivables includes amounts transferred from other accounts. (b) Amounts written off as uncollectible or transferred to other accounts or utilized (except for the valuation allowance for deferred tax assets). F-52 EXHIBIT INDEX ------------- Exhibit Number - ------ 2 Agreement and Plan of Merger by and among Bell Atlantic Corporation, Beta Gama Corporation and GTE Corporation, dated as of July 27, 1998. (Exhibit 2.01 to Form 8-K, date of report July 30, 1998.) 3a Restated Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"). (Exhibit 3(i) to Form 8-K, date of report August 14, 1997.) 3b By-Laws of Bell Atlantic, as amended and restated as of January 1, 1999. 4 No instrument which defines the rights of holders of long-term debt of Bell Atlantic and its consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, Bell Atlantic hereby agrees to furnish a copy of any such instrument to the SEC upon request. 10a Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of January 1, 1998.* 10b Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842).* 10c Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842.)* 10d Bell Atlantic Retirement Plan for Outside Directors, as amended and restated as of January 1, 1996. (Exhibit 10k to Form 10-K for the year ended December 31, 1995.)* 10e Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of January 1, 1998.* 10f Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990.)* 10f(i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993.)* 10g Description of Changes in Compensation for Outside Directors of Bell Atlantic, effective August 14, 1997 (Exhibit 10y to Form 10-Q for the quarter ended September 30, 1997.)* 10h Bell Atlantic Senior Management Short Term Incentive Plan, as amended and restated effective as of January 22 1996. (Exhibit 10a to Form 10-K for the year ended December 31, 1996.)* 10h(i) Description of Amendment, effective August 14, 1997. (Exhibit 10a(i) to Form 10-Q for the quarter ended September 30, 1997.)* 10i Bell Atlantic Deferred Compensation Plan, as amended and restated as of January 1, 1997. (Exhibit 10i to Form 10-K for the year ended December 31, 1996.)* 10i(i) Description of Amendments to Bell Atlantic Deferred Compensation Plan (renamed the Bell Atlantic Senior Management Income Deferral Plan), effective January 1, 1998. (Exhibit 10i(i) to Form 10-K for the year ended December 31, 1997.)* 10j Bell Atlantic 1985 Incentive Stock Option Plan, as amended and restated as of July 1, 1996. (Exhibit 10j to Form 10-K for the year ended December 31, 1996.)* 10j(i) Description of Amendment and Administrative Change to Bell Atlantic 1985 Incentive Stock Option Plan, effective August 14, 1997. (Exhibit 10a(i) to Form 10-Q for the quarter ended September 30, 1997.)* 10k Section 6 from Bell Atlantic Cash Balance Plan regarding limitations on payment of pension amounts which exceed the limitations contained in the Employee Retirement Income Security Act of 1974. (Exhibit 10g to Form 10-K for the year ended December 31, 1996.)* 10l Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986.)* 10l(i) Resolutions amending the Plan, effective as of January 1, 1989. (Exhibit 10d to Form SE dated March 29, 1989.)* 10l(ii) Description of Amendments, effective January 1, 1998, to Bell Atlantic Senior Management Long Term Disability Plan (formerly known, as the Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan). (Exhibit 10b(ii) to Form 10-K for the year ended December 31, 1997.)* 10m Bell Atlantic Salary Program for Senior Managers, effective August 14, 1997. (Exhibit 10x to Form 10-Q for the quarter ended September 30, 1997.)* 10n Description of Bell Atlantic Senior Management Estate Management Plan.* 10o Description of Bell Atlantic Senior Management Death Benefit Plan, effective April 1, 1998. (Exhibit 10rr to Form 10-K for year ended December 31, 1997.)* 10p Description of Bell Atlantic Senior Management Flexible Spending Perquisite Account, effective January 1, 1998. (Exhibit 10ss to Form 10-K for year ended December 31, 1997.)* 10q NYNEX 1984 Stock Option Plan, as amended and restated. (Post-Effective Amendment No. 1 to NYNEX's Registration No. 2-97813, dated September 21, 1987, File No. 1-8608.)* 10r NYNEX 1987 Restricted Stock Award Plan (Exhibit No. (28) (i) 1 to NYNEX's filing on Form SE dated March 23, 1988, File No. 1-8608.)* 10s NYNEX 1990 Stock Option Plan as amended. (Exhibit No. 2 to NYNEX's Proxy Statement dated March 20, 1995, File No. 1-8608.)* 10t NYNEX 1995 Stock Option Plan as amended. (Exhibit No. 1 to NYNEX's Proxy Statement dated March 20, 1995, File No. 1-8608.)* 10u NYNEX 1995 Long Term Incentive Program as amended. (Exhibit No. 3 to NYNEX's Proxy Statement dated March 20, 1995, File No. 1-8608.)* 10v NYNEX Supplemental Life Insurance Plan. (Exhibit No. 10 iii 21 to NYNEX's Quarterly Report on Form 10-Q for the period ended June 30, 1996, File No. 1-8608.)* 10w NYNEX Executive Retention Agreement. (Exhibit No. 10 iii 35 to NYNEX's Quarterly Report on Form 10-Q, for the period ended June 30, 1996, File No. 1-8608.)* 10x Employment Agreement, dated August 14, 1997, by and between Bell Atlantic and Raymond W. Smith (Exhibit 10aa to Form 10-Q for the quarter ended September 30, 1997.)* 10x(i) Letter dated April 16, 1998, to Raymond W. Smith concerning employment-related issues. (Exhibit 10v(i) to Form 10-Q for the quarter ended June 30, 1998.)* 10x(ii) Resolutions dated May 1, 1998, approving amendments to Employment Agreement of Raymond W. Smith. (Exhibit 10v(ii) to Form 10-Q for the quarter ended June 30, 1998.)* 10y Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Lawrence T. Babbio, Jr.. (Exhibit 10a to Form 10-Q for the quarter ended June 30, 1998.)* 10z Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and James G. Cullen. (Exhibit 10b to Form 10-Q for the quarter ended June 30, 1998.)* 10aa Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Frederic V. Salerno. (Exhibit 10c to Form 10-Q for the quarter ended June 30, 1998.)* 10bb Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Donald J. Sacco. (Exhibit 10d to Form 10-Q for the quarter ended June 30, 1998.)* 10cc Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and Morrison DeS. Webb. (Exhibit 10e to Form 10-Q for the quarter ended June 30, 1998.)* 10dd Employment Agreement, dated as of June 1, 1998, by and between Bell Atlantic Corporation and James R. Young. (Exhibit 10f to Form 10-Q for the quarter ended June 30, 1998.)* 10ee Form of Amendment, dated as of October 27, 1998, to Employment Agreements with Lawrence T. Babbio, Jr., James G. Cullen, Frederic V. Salerno, Donald J. Sacco, Morrison DeS. Webb and James R. Young.* 10ff Employment Agreement, dated as of January 1, 1999, by and between Bell Atlantic Corporation and Ivan G. Seidenberg.* 10gg Employment Agreement, dated as of October 27, 1998, by and between Bell Atlantic Corporation and Alexander H. Good.* 10hh Resolution, dated January 24, 1994, granting Lawrence T. Babbio, Jr. certain nonqualified stock options to purchase American Depository Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V. (Exhibit 10s to Form 10-K for the year ended December 31, 1993.)* 10ii Form of stock option grant to Lawrence T. Babbio, Jr., dated February 18, 1997, containing terms and conditions of certain nonqualified stock options to purchase American Depository Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V. (Exhibit 10q to Form 10-K for the year ended December 31, 1996.)* 10jj Forms of Stay Incentive Agreement and Separation and Non-Compete Agreement with Doreen A. Toben and Ellen C. Wolf with respect to the Bell Atlantic-NYNEX merger. (Exhibit 10(f) to Registration Statement on Form S-4 No. 333-11573.)* 10kk Form of Stay Incentive Agreement, dated as of November 23, 1998, with Doreen A. Toben and Ellen C. Wolf with respect to the Bell Atlantic - GTE Merger.* 10ll Form of Stay Incentive Agreement, dated as of November 23, 1998, with Patrick F. X. Mulhearn and Thomas J. Tauke.* 10mm Form of Stay Incentive Agreement, dated as of November 23, 1998, with Jacquelyn B. Gates and Chester N. Watson.* 10nn Form of Merger Agreement, dated as of January 29, 1999, with Doreen A. Toben and Ellen C. Wolf.* 10oo Form of Merger Agreement, dated as of January 29, 1999, with Patrick F. X. Mulhearn and Thomas J. Tauke.* 10pp Form of Merger Agreement, dated as of January 29, 1999, with Jacquelyn B. Gates and Chester N. Watson.* 10qq Stock Option Agreement, dated as of July 27, 1998, between Bell Atlantic Corporation and GTE Corporation. (Exhibit 10.01 to Form 8-K, date of report July 30, 1998.) 10rr Stock Option Agreement, dated as of July 27, 1998, between GTE Corporation and Bell Atlantic Corporation. (Exhibit 10.02 to Form 8-K, date of report July 30, 1998.) 12 Computation of Ratio of Earnings to Fixed Charges. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. - ----------- *Indicates management contract or compensatory plan or arrangement. EX-3.B 2 BY-LAWS OF BELL ATLANTIC AMENDED & RESTATED EXHIBIT 3b - -------------------------------------------------------------------------------- BELL ATLANTIC CORPORATION BYLAWS - -------------------------------------------------------------------------------- As Amended, effective as of January 1, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- B Y L A W S OF BELL ATLANTIC CORPORATION (a Delaware Corporation) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- B Y L A W S OF BELL ATLANTIC CORPORATION Table of Contents ----------------- ARTICLE I Offices and Fiscal Year 1 SECTION 1.01. Registered Office 1 SECTION 1.02. Fiscal Year 1 ARTICLE II Notice - Waivers - Meetings 1 SECTION 2.01. Notice, What Constitutes 1 SECTION 2.02. Notice of Meetings of Board of Directors 1 SECTION 2.03. Notice of Meetings of Stockholders 2 SECTION 2.04. Waivers of Notice 2 SECTION 2.05. Exception to Requirements of Notice 2 SECTION 2.06. Conference Telephone Meetings 3 ARTICLE III Meetings of Stockholders 3 SECTION 3.01. Place of Meeting 3 SECTION 3.02. Annual Meeting 3 SECTION 3.03. Special Meetings 3 SECTION 3.04. Quorum, Manner of Acting and Adjournment 3 SECTION 3.05. Organization 4 SECTION 3.06. Voting 5 SECTION 3.07. Voting Lists 5 SECTION 3.08. Inspectors of Election 6 ARTICLE IV Board of Directors7 SECTION 4.01. Powers 7 SECTION 4.02. Number 7 SECTION 4.03. Term of Office 7 SECTION 4.04. Vacancies 7 SECTION 4.05. Resignations 7 SECTION 4.06. Organization 8 SECTION 4.07. Place of Meeting 8 SECTION 4.08. Regular Meetings 8 SECTION 4.09. Special Meetings 8 SECTION 4.10. Quorum, Manner of Acting and Adjournment 8 i SECTION 4.11. Committees of the Board 9 SECTION 4.12. Compensation of Directors 9 SECTION 4.13. Qualifications and Election of Directors 10 SECTION 4.14. Voting of Stock 11 SECTION 4.15. Endorsement of Securities for Transfer 11 ARTICLE V Officers 11 SECTION 5.01. Number, Qualifications and Designation 11 SECTION 5.02. Election and Term of Office 11 SECTION 5.03. Subordinate Officers, Committees and Agents 11 SECTION 5.04. Officers' Bonds 11 SECTION 5.05. Salaries 12 ARTICLE VI Certificates of Stock, Transfer, Etc. 12 SECTION 6.01. Form and Issuance 12 SECTION 6.02. Transfer 12 SECTION 6.03. Lost, Stolen, Destroyed or Mutilated Certificates 13 SECTION 6.04. Record Holder of Shares 13 SECTION 6.05. Determination of Stockholders of Record 13 ARTICLE VII General Provisions 14 SECTION 7.01. Dividends 14 SECTION 7.02. Contracts 14 SECTION 7.03. Corporate Seal 15 SECTION 7.04. Checks, Notes, Etc. 15 SECTION 7.05. Corporate Records 15 SECTION 7.06. Amendment of Bylaws 15 ii B Y L A W S OF BELL ATLANTIC CORPORATION (a Delaware Corporation) ARTICLE I Offices and Fiscal Year SECTION 1.01. Registered Office. --The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware until a different office is established by resolution of the board of directors and a certificate certifying the change is filed in the manner provided by statute. SECTION 1.02. Fiscal Year. --The fiscal year of the corporation shall end on the 31st day of December in each year. ARTICLE II Notice - Waivers - Meetings SECTION 2.01. Notice, What Constitutes. --Whenever, under the provisions of the Delaware General Corporation Law ("GCL") or the certificate of incorporation or these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to require personal notice, but such notice may be given in writing, by mail or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by telephone or facsimile transmission to the address (or to the telex, TWX, facsimile or telephone number) of the person appearing on the books of the corporation, or in the case of directors, supplied to the corporation for the purpose of notice. If the notice is sent by mail, telegram or courier service, it shall be deemed to be given when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched, or in the case of facsimile transmission, when received. SECTION 2.02. Notice of Meetings of Board of Directors. --Notice of a regular meeting of the board of directors need not be given. Notice of every special meeting of the board of directors shall be given to each director in person or by telephone or in writing at least 24 hours (in the case of notice in person or by telephone, telex, TWX or facsimile transmission) or 48 hours (in the case of notice by telegram, courier service or express mail) or five days (in the case of notice by first class mail) before the time at which the meeting is to be held. Every such notice shall state the time and place of the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board need be specified in a notice of the meeting. 1 SECTION 2.03. Notice of Meetings of Stockholders. --Written notice of the place, date and hour of every meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote at the meeting not less than ten nor more than 60 days before the date of the meeting. Every notice of a special meeting shall state the purpose or purposes thereof. If the notice is sent by mail, it shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the stockholder at the address of the stockholder as it appears on the records of the corporation. SECTION 2.04. Waivers of Notice. (a) Written Waiver. --Whenever notice is required to be given under any provisions of the GCL or the certificate of incorporation or these Bylaws, a written waiver, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice of such meeting. (b) Waiver by Attendance. --Attendance of a person at a meeting, either in person or by proxy, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened. SECTION 2.05. Exception to Requirements of Notice. (a) General Rule. --Whenever notice is required to be given, under any provision of the GCL or the certificate of incorporation or these Bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. (b) Stockholders Without Forwarding Addresses. --Whenever notice is required to be given, under any provision of the GCL or the certificate of incorporation or these Bylaws, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a 12 month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth the person's then current address, the requirement that notice be given to such person shall be reinstated. 2 SECTION 2.06. Conference Telephone Meetings. --One or more directors may participate in a meeting of the board, or of a committee of the board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE III Meetings of Stockholders SECTION 3.01. Place of Meeting. --All meetings of the stockholders of the corporation shall be held at such place within or without the State of Delaware as shall be designated by the board of directors in the notice of such meeting (or by the Chairman calling a meeting pursuant to Section 3.03). SECTION 3.02. Annual Meeting. --The board of directors may fix and designate the date and time of the annual meeting of the stockholders. At said meeting the stockholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting. SECTION 3.03. Special Meetings. --Special meetings of the stockholders of the corporation may be called at any time by the chairman of the board or a majority of the board of directors. At any time, upon the written request of any person or persons who have duly called a special meeting, which written request shall state the purpose or purposes of the meeting, it shall be the duty of the secretary to fix the date of the meeting which shall be held at such date and time as the secretary may fix, not less than ten nor more than 60 days after the receipt of the request, and to give due notice thereof. If the secretary shall neglect or refuse to fix the time and date of such meeting and give notice thereof, the person or persons calling the meeting may do so. SECTION 3.04. Quorum, Manner of Acting and Adjournment. (a) Quorum. --The holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders except as otherwise provided by the GCL, by the certificate of incorporation or by these Bylaws. If a quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At any such adjourned meeting at which a quorum is present or represented, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 3 (b) Manner of Acting. --Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote at the meeting on the election of directors. In all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote and voting thereon shall be the act of the stockholders, unless the question is one upon which, by express provision of the applicable statute, the certificate of incorporation or these Bylaws, a different vote is required in which case such express provision shall govern and control the decision of the question. The stockholders present in person or by proxy at a duly organized meeting can continue to do business until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum. (c) Stockholder Proposals. --Nominations by stockholders of persons for election to the board of directors of the corporation may be made at an annual meeting in compliance with Section 4.13 hereof. The proposal of other business to be considered by the stockholders at an annual meeting of stockholders may be made (i) pursuant to the corporation's notice of meeting, (ii) by or at the direction of the board of directors, or (iii) by any stockholder of the corporation pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days prior to the anniversary date of the prior year's annual meeting. Such stockholder's notice to the secretary shall set forth (a) as to the stockholder giving notice and the beneficial owner, if any on whose behalf the proposal is made, (i) their name and record address, and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by each of them, and (b) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder giving notice and the beneficial owner, if any, on whose behalf the proposal is made. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this section. (d) The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any proposal made at the meeting was not made in accordance with the foregoing procedures and, in such event, the proposal shall be disregarded. Any decision by the chairman of the meeting shall be conclusive and binding upon all stockholders of the corporation for any purpose. SECTION 3.05. Organization. --At every meeting of the stockholders, the chairman of the board, if there be one, or in the case of a vacancy in the office or absence of the chairman of the board, one of the following persons present in the order stated: the president, the vice chairman, if one has been appointed, a chairman designated by the board of directors or a chairman chosen by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast, shall act as chairman, and the secretary, or, in the absence of the secretary, an assistant secretary, or in the absence of the secretary and the assistant secretaries, a person appointed by the chairman, shall act as secretary. 4 SECTION 3.06. Voting. (a) General Rule. --Unless otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote, in person or by proxy, for each share of capital stock having voting power held by such stockholder. (b) Voting and Other Action by Proxy.-- (1) A stockholder may execute a writing authorizing another person or persons to act for the stockholder as proxy. Such execution may be accomplished by the stockholder or the authorized officer, director, employee or agent of the stockholder signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. A stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission if such telegram, cablegram or other means of electronic transmission sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. (2) No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. (3) A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. SECTION 3.07. Voting Lists. --The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting. The list shall be arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 5 SECTION 3.08. Inspectors of Election. (a) Appointment. --All elections of directors shall be by written ballot; the vote upon any other matter need not be by ballot. In advance of any meeting of stockholders the board of directors may appoint one or more inspectors, who need not be stockholders, to act at the meeting and to make a written report thereof. The board of directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the person's best ability. (b) Duties. --The inspectors shall ascertain the number of shares outstanding and the voting power of each, shall determine the shares represented at the meeting and the validity of proxies and ballots, shall count all votes and ballots, shall determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and shall certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (c) Polls. --The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (d) Reconciliation of Proxies and Ballots. --In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information transmitted in accordance with section 3.06, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b) shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. 6 ARTICLE IV Board of Directors SECTION 4.01. Powers. --All powers vested by law in the corporation shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors. SECTION 4.02. Number. --Subject to the provisions of the certificate of incorporation, the board of directors shall consist of such number of directors as may be determined from time to time by resolution adopted by a vote of a majority of the entire board of directors. SECTION 4.03. Term of Office. --Directors of the corporation shall hold office until the next annual meeting of stockholders and until their successors shall have been elected and qualified, except in the event of death, resignation or removal. SECTION 4.04. Vacancies. (a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and a director so chosen shall hold office until the next annual election of the class for which such director shall have been elected and until a successor is duly elected and qualified. If there are no directors in office, then an election of directors may be held in the manner provided by statute. (b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. (c) If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the entire board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorship, or to replace the directors chosen by the directors then in office. SECTION 4.05. Resignations. --Any director may resign at any time upon written notice to the chairman, president or secretary of the corporation. The resignation shall be effective upon receipt thereof by the corporation or at such subsequent time as shall be specified in the notice of resignation and, unless otherwise specified in the notice, the acceptance of the resignation shall not be necessary to make it effective. 7 SECTION 4.06. Organization. --At every meeting of the board of directors, the chairman of the board, if there be one, or, in the case of a vacancy in the office or absence of the chairman of the board, one of the following officers present in the order stated: the president, the vice chairman, if one has been appointed, the vice presidents in their order of rank and seniority, or a chairman chosen by a majority of the directors present, shall preside, and the secretary, or, in the absence of the secretary, an assistant secretary, or in the absence of the secretary and the assistant secretaries, any person appointed by the chairman of the meeting, shall act as secretary. SECTION 4.07. Place of Meeting. --Meetings of the board of directors, both regular and special, shall be held at such place within or without the State of Delaware as the board of directors may from time to time determine, or as may be designated in the notice of the meeting. SECTION 4.08. Regular Meetings. --Regular meetings of the board of directors shall be held without notice at such time and place as shall be designated from time to time by resolution of the board of directors. SECTION 4.09. Special Meetings. --Special meetings of the board of directors shall be held whenever called by the chairman or by three or more of the directors. SECTION 4.10. Quorum, Manner of Acting and Adjournment. (a) General Rule. --At all meetings of the board one-third of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by the GCL or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. (b) Unanimous Written Consent. --Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any meeting of the board of directors may be taken without a meeting, if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board. 8 SECTION 4.11. Committees of the Board. (a) Establishment. --The board of directors may, by resolution adopted by a majority of the entire board, establish one or more other committees, each committee to consist of one or more directors. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee and the alternate or alternates, if any, designated for such member, the member or members of the committee present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. (b) Powers. --Any such committee, to the extent provided in the resolution establishing such committee, shall have and may exercise all the power and authority of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have such power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the GCL, fix the designation and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of shares of any series), adopting an agreement of merger or consolidation under Section 251, 252, 254, 255, 256, 257, 258, 263, or 264 of the GCL, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the Bylaws of the corporation. Such committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee so formed shall keep regular minutes of its meetings and report the same to the board of directors when required. (c) Committee Procedures. --The term "board of directors" or "board," when used in any provision of these Bylaws relating to the organization or procedures of or the manner of taking action by the board of directors, shall be construed to include and refer to any committee of the board. SECTION 4.12. Compensation of Directors. --Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation 9 therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 4.13. Qualifications and Election of Directors. (a) All directors of the corporation shall be natural persons of full age, but need not be residents of Delaware or stockholders of the corporation. Except in the case of vacancies, directors shall be elected by the stockholders. If directors of more than one class are to be elected, each class of directors to be elected at the meeting shall be nominated and elected separately. No person who has reached 70 years of age may be elected or appointed to a term of office as a director of the corporation. The term of office of any director elected or appointed in conformity with the preceding sentence shall continue (to the extent provided in the certificate of incorporation and these Bylaws) after such director reaches 70 years of age. (b) Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors. (c) Nominations of persons for election to the board of directors of the corporation may also be made at the meeting by any stockholder of the corporation entitled to vote for the election of directors who complies with the notice procedures set forth in this Section 4.13 (c) and (d). Such nominations, other than those made by or at the direction of the board, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 90 days prior to the anniversary date of the prior year's meeting for the election of directors. Such stockholder's notice to the secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the rules and regulations promulgated under the Securities Exchange Act of 1934 as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director by the stockholders of the corporation unless nominated in accordance with the procedures set forth herein. (d) The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any nomination made at the meeting was not made in accordance with the foregoing procedures and, in such event, the nomination shall be disregarded. Any decision by the chairman of the meeting shall be conclusive and binding upon all stockholders of the corporation for any purpose. 10 SECTION 4.14. Voting of Stock. --Unless otherwise ordered by the board of directors, each of the chairman of the board, the president, and the principal accounting officer (as identified in the corporation's most recent report filed with the United States Securities and Exchange Commission) shall have full power and authority, on behalf of the corporation, to attend and to act and vote, in person or by proxy, at any meeting of the stockholders of any company in which the corporation may hold stock, and at any such meeting shall possess and may exercise any and all of the rights and powers incident to the ownership of such stock which, as the owner thereof, the corporation might have possessed and exercised if present. The board of directors, by resolution adopted from time to time, may confer like powers upon any other person or persons. SECTION 4.15. Endorsement of Securities for Transfer. --Each of the chairman of the board, the president, and the principal accounting officer shall have the power to endorse and deliver for sale, assignment or transfer certificates for stock, bonds or other securities, registered in the name of or belonging to the corporation, whether issued by the corporation or by any other corporation, government, state or municipality or agency thereof; and the board of directors from time to time may confer like power upon any other officer, agent or person by resolution adopted from time to time. Every such endorsement shall be countersigned by the treasurer or an assistant treasurer. ARTICLE V Officers SECTION 5.01. Number, Qualifications and Designation. --The corporation shall have such officers with such titles and duties as shall be specified by resolution of the board of directors. Any number of offices may be held by the same person. Officers may, but need not, be directors or stockholders of the corporation. The board of directors may elect from among the members of the board a chairman of the board and one or more vice chairmen of the board. SECTION 5.02. Election and Term of Office. --The officers of the corporation, except those elected by delegated authority pursuant to section 5.03 of this Article, shall be elected annually by the board of directors, and each such officer shall hold office for a term of one year and until a successor is elected and qualified, or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. SECTION 5.03. Subordinate Officers, Committees and Agents. --Each officer of the corporation shall have the power to appoint subordinate officers (including without limitation one or more assistant secretaries and one or more assistant treasurers) and to retain or appoint employees or other agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees or other agents. SECTION 5.04. Officers' Bonds. --No officer of the corporation need provide a bond to guarantee the faithful discharge of the officer's duties unless the board of directors shall 11 by resolution so require a bond in which event such officer shall give the corporation a bond (which shall be renewed if and as required) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of office. SECTION 5.05. Salaries. --The salaries of the officers and agents of the corporation elected by the board of directors shall be fixed from time to time by the board of directors. ARTICLE VI Certificates of Stock, Transfer, Etc. SECTION 6.01. Form and Issuance. (a) Issuance. --The shares of the corporation shall be represented by certificates unless the board of directors shall by resolution provide that some or all of any class or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the corporation. Notwithstanding the adoption of any resolution providing for uncertificated shares, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice chairman of the board of directors, or the president or vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary, representing the number of shares registered in certificate form. (b) Form and Records. --Stock certificates of the corporation shall be in such form as approved by the board of directors. The stock record books and the blank stock certificate books shall be kept by the secretary or by any agency designated by the board of directors for that purpose. The stock certificates of the corporation shall be numbered and registered in the stock ledger and transfer books of the corporation as they are issued. (c) Signatures. --Any of or all the signatures upon the stock certificates of the corporation may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent or registrar before the certificate is issued, it may be issued with the same effect as if the signatory were such officer, transfer agent or registrar at the date of its issue. SECTION 6.02. Transfer. --Transfers of shares shall be made on the share register or transfer books of the corporation upon surrender of the certificate therefor, endorsed by the person named in the certificate or by an attorney lawfully constituted in writing. No transfer shall be made which would be inconsistent with the provisions of applicable law. 12 SECTION 6.03. Lost, Stolen, Destroyed or Mutilated Certificates. --The board of directors may direct a new certificate of stock or uncertificated shares to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or the legal representative of the owner, to give the corporation a bond sufficient to indemnify against any claim that may be made against the corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate or uncertificated shares. SECTION 6.04. Record Holder of Shares. --The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. SECTION 6.05. Determination of Stockholders of Record. (a) Meetings of Stockholders. --In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than 60 nor less than ten days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting. 13 (b) Consent of Stockholders. --In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the GCL, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the GCL, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. (c) Dividends. --In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. ARTICLE VII General Provisions SECTION 7.01. Dividends. --Subject to the restrictions contained in the GCL and any restrictions contained in the certificate of incorporation, the board of directors may declare and pay dividends upon the shares of capital stock of the corporation. SECTION 7.02. Contracts. --Except as otherwise provided in these Bylaws, the board of directors may authorize any officer or officers including the chairman and vice chairman of the board of directors, or any agent or agents, to enter into any contract or to execute or deliver any instrument on behalf of the corporation and such authority may be general or confined to specific instances. Any officer so authorized may, unless the authorizing resolution otherwise provides, delegate such authority to one or more subordinate officers, employees or agents, and such delegation may provide for further delegation. 14 SECTION 7.03. Corporate Seal. --The corporation shall have a corporate seal, which shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. SECTION 7.04. Checks, Notes, Etc. --All checks, notes and evidences of indebtedness of the corporation shall be signed by such person or persons as the board of directors may from time to time designate. SECTION 7.05. Corporate Records. (a) Examination by Stockholders. --Every stockholder shall, upon written demand under oath stating the purpose thereof, have a right to examine, in person or by agent or attorney, during the usual hours for business, for any proper purpose, the stock ledger, list of stockholders, books or records of account, and records of the proceedings of the stockholders and directors of the corporation, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. Where the stockholder seeks to inspect the books and records of the corporation, other than its stock ledger or list of stockholders, the stockholder shall first establish (1) that the stockholder has complied with the provisions of this section respecting the form and manner of making demand for inspection of such documents; and (2) that the inspection sought is for a proper purpose. Where the stockholder seeks to inspect the stock ledger or list of stockholders of the corporation and has complied with the provisions of this section respecting the form and manner of making demand for inspection of such documents, the burden of proof shall be upon the corporation to establish that the inspection sought is for an improper purpose. (b) Examination by Directors. --Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to the person's position as a director. SECTION 7.06. Amendment of Bylaws. --Except as otherwise provided herein, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted either (1) by vote of the stockholders at a duly organized annual or special meeting of stockholders in accordance with the certificate of incorporation, or (2) by vote of a majority of the entire board of directors at any regular or special meeting of directors if such power is conferred upon the board of directors by the certificate of incorporation. 15 EX-10.A 3 BELL ATLANTIC DEFERRED COMP. PLAN FOR OUTSIDE DIR. EXHIBIT 10a BELL ATLANTIC DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS (As restated January 1, 1998, to incorporate amendments through that date) Article 1: INTRODUCTION This Deferred Compensation Plan is maintained by Bell Atlantic Corporation ("Bell Atlantic") for the benefit of Outside Directors (and their Beneficiaries) who are or have been members of the Board of Directors of Bell Atlantic. It shall be maintained according to the terms of this document. The Plan also covers certain individuals who were formerly Outside Directors of the Operating Telephone Company subsidiaries of Bell Atlantic at a time when the applicable Operating Telephone Companies were participating companies in this Plan. Article 2. DEFINITIONS 2.1 DEFINITIONS. When used in this document, the following words and phrases shall have the meanings assigned to them, unless the context clearly indicates otherwise: (a) AFFILIATED COMPANY means Bell Atlantic and any direct or indirect subsidiary of Bell Atlantic. (b) BELL ATLANTIC means Bell Atlantic Corporation, a Delaware corporation, which maintains its principal offices in New York, New York. (c) BENEFICIARY means the person or persons, natural or otherwise, designated by an Outside Director under Section 8.1 to receive any death benefit payable under Section 6.3. (d) BOARD means the Board of Directors of Bell Atlantic. (e) CASH DEFERRED FEE ACCOUNT means an account established under the Plan in the name of an Outside Director. The Participating Companies shall credit each Outside Director's Cash Deferred Fee Account with (1) any Director's Fees that are deferred by the Outside Director under Section 3.1(a) and directed into the Cash Deferred Fee Account under Section 3.1(d), and (2) any Interest that is credited under Article 4. The Company shall debit from each Outside Director's Cash Deferred Fee Account payments made from it under Article 6. (f) CORPORATE SECRETARY shall refer to the Corporate Secretary of Bell Atlantic, or any Assistant Secretary to whom responsibilities under this Plan have been delegated by the Corporate Secretary. (g) DEFERRED FEE ACCOUNTS means the aggregate of an Outside Director's Cash Deferred Fee Account and Stock Deferred Fee Account. (h) DEFERRED FEE AGREEMENT means the written agreement between the Company and an Outside Director that, together with this Plan, governs the Outside Director's rights to deferral and subsequent distribution of deferred Director's Fees (adjusted for investment performance) under this Plan. (i) DIRECTOR means a member of the Board. - ------------------------------------------------------------------------------- DEFERRED COMPENSATION PLAN - 1 - RESTATED JANUARY 1, 1998 B705 (j) DIRECTOR'S FEES means the cash portion of the annual retainer paid to an Outside Director, any fees paid to an Outside Director for attending meetings of the Participating Company Board or any committee of the Participating Company Board, and any fees paid to an Outside Director for serving as chairman of a committee of the Participating Company Board. (k) INTEREST means the amount of interest credited to an Outside Director's Cash Deferred Fee Account at an annual rate determined in accordance with Section 4.2. (l) OPERATING TELEPHONE COMPANY means, with reference to any time period before or after divestiture, any of the following companies: . Bell Atlantic - Delaware, Inc.; . Bell Atlantic - Maryland, Inc.; . Bell Atlantic - New Jersey, Inc.; . Bell Atlantic - Pennsylvania, Inc.; . Bell Atlantic - Virginia, Inc.; . Bell Atlantic - Washington, D.C., Inc.; and . Bell Atlantic - West Virginia, Inc. (m) OPERATING TELEPHONE COMPANY BOARD shall mean the board of directors of any Operating Telephone Company, as any such board may be or may have been constituted either before or after divestiture. (n) OUTSIDE DIRECTOR means a Director of a Participating Company who is not also an employee of the Participating Company or any Affiliated Company. (o) PARTICIPATING COMPANY, as of the date of this restatement of the Plan, means Bell Atlantic. During certain periods prior to the date of this restatement, the Participating Companies included Bell Atlantic and the Operating Telephone Companies. (p) PLAN means the Bell Atlantic Deferred Compensation Plan for Outside Directors, as set forth in this document, and as it may be amended from time to time. (q) PLAN ADMINISTRATOR shall have the meaning stated in Section 9.4. (r) SHARES means phantom shares of Bell Atlantic common stock credited to an Outside Director's Stock Deferred Fee Account under the Plan. (s) STOCK means the common stock of Bell Atlantic. (t) STOCK DEFERRED FEE ACCOUNT means an account established under the Plan in the name of an Outside Director. A Participating Company shall credit its Outside Director's Stock Deferred Fee Account with (1) Shares for any Director's Fees that are deferred by the Outside Director under Section 3.1(a) and directed into the Stock Deferred Fee Account under Section 3.1(d), and (2) any additional Shares that are credited under Article 5. There shall be debited from each Outside Director's Stock Deferred Fee Account payments made from it under Article 6. Article 3. DEFERRAL OF DIRECTOR'S FEES 3.1 ELECTION TO DEFER FEES. (a) Before the beginning of any calendar year, an Outside Director may elect to defer all or part of his or her Director's Fees to be earned in that calendar year, in accordance with either (i), (ii) or (iii) hereof: - ------------------------------------------------------------------------------- DEFERRED COMPENSATION PLAN - 2 - RESTATED JANUARY 1, 1998 B705 (i) the Outside Director may defer such fees to any date not earlier than the first anniversary of the final payment date for the Directors' Fees for such calendar year; (ii) the Outside Director may defer such fees to the first business day of January following the year the Outside Director attains age 70; or (iii) the Outside Director may defer such fees to the January 1 following the year in which the Outside Director terminates his service as a director or, if later, the year in which the Outside Director terminates his service as a director of a Participating Company. (b) At any time earlier than 12 months prior to the date on which a distribution of a portion (or all) of an Outside Director's Deferred Fee Account would be payable under the terms of an existing Deferred Fee Agreement, an Outside Director may elect to extend the deferral of all of his Deferred Fee Account, or of such portion of his account as would otherwise be distributed. At the election of the Outside Director, such a second deferral under this Section 3.1(b) may extend the date of distribution of all, or such portion, of the Deferred Fee Account to the first business day of January which first follows either: (i) the calendar year in which the Outside Director terminates service as an Outside Director (or, if later, the calendar year in which the Outside Director terminates service as a director of a Participating Company); (ii) any calendar year subsequent to the year stated in the previous paragraph; or (iii) the calendar year in which the Outside Director attains age 70. (c) At any time earlier than 12 months prior to the date on which a distribution of a portion (or all) of an Outside Director's Deferred Fee Account would be payable under the terms of an existing Deferred Fee Agreement, an Outside Director may modify his or her prior election of a distribution option for the account. An Outside Director may modify the distribution option for each and any Deferred Fee Account once, but not more than once. A modification of the distribution option may, but need not, be elected at the same time as the Outside Director submits any election under Section 3.1(b). (d) When an Outside Director elects to defer Director's Fees under Section 3.1(a), the Outside Director shall also elect whether amounts deferred should be credited to his Cash Deferred Fee Account, to his Stock Deferred Fee Account, or equally to both. (e) An election under Sections 3.1(a), (b), (c) or (d) shall be made by an Outside Director by executing a Deferred Fee Agreement with the Participating Company and delivering it to the Corporate Secretary or Plan Administrator. 3.2 CREDITING TO DEFERRED FEE ACCOUNTS. (a) When an Outside Director elects under Section 3.1(d) to have deferred Director's Fees credited to his Cash Deferred Fee Account, the Participating Company shall credit the Outside Director's Cash Deferred Fee Account with the amount of such deferred Director's Fees as of the day such deferred Director's Fees would have been paid to the Outside Director were they not deferred under the Plan. (b) When an Outside Director elects under Section 3.1(d) to have deferred Director's Fees credited to his Stock Deferred Fee Account, the Participating Company shall credit the Outside Director's Stock Deferred Fee Account with a number of Shares as of the day such deferred Director's Fees would have been paid to the Outside Director were they not deferred under the Plan. The number of Shares credited to the Stock Deferred Fee Account shall be the quotient of (1) the amount of deferred Director's Fees to be credited to the Stock Deferred Fee Account, and (2) the mean between the highest and lowest selling prices of Bell Atlantic Stock - ------------------------------------------------------------------------------- DEFERRED COMPENSATION PLAN - 3 - RESTATED JANUARY 1, 1998 B705 on the first day of the calendar quarter in which such Shares are credited, as reported on the New York Stock Exchange Composite Tape. However, if there are no sales on the first day of such calendar quarter, the average of the means between the highest and lowest selling prices of the stock on the nearest trading day before and the nearest trading day after the first day of the quarter will be used. 3.3 ELECTIONS FOR A SUBSEQUENT YEAR. (a) An Outside Director may, on a prospective basis for a future calendar year, change the amount of the Director's Fees to be deferred, or elect not to defer any of such Director's Fees for such future year, by executing a new Deferred Fee Agreement. No such Deferred Fee Agreement shall be effective for the year in which it is executed or for any prior year. (b) Notwithstanding anything in Section 3.3(a) to the contrary, a newly elected Outside Director shall have thirty days from the date on which he is elected to serve on a Participating Company Board to deliver a Deferred Fee Agreement which shall be applicable to his first calendar year of service. 3.4 INVESTMENT DIRECTION FOR A SUBSEQUENT YEAR'S DEFERRALS. An Outside Director may, by executing a Deferred Fee Agreement on a prospective basis for a subsequent calendar year, direct the investment of the Director's Fees to be earned and deferred in such subsequent year, without regard to the investment direction then applicable to any deferred Director's Fees for the then-current year. No such investment direction shall apply retroactively to amounts previously deferred. Article 4: INTEREST 4.1 INTEREST. Interest shall accrue on an amount credited to the Cash Deferred Fee Account from and after the date any such amount is credited to such account pursuant to Section 3.2(a). Interest shall be credited to each Outside Director's Cash Deferred Fee Account, as of the end of each month, at an annual rate determined pursuant to Section 4.2, on the amount credited to the account on the first day of the month, or on such other periodic basis as the Plan Administrator may find appropriate. Interest shall be credited during each such period that an Outside Director has any amount credited to his Cash Deferred Fee Account under the Plan. 4.2 RATE OF INTEREST. Interest shall be credited at a rate equal to the average yield for ten-year U.S. Treasury notes for the previous quarter. Article 5: DIVIDENDS 5.1 DIVIDEND REINVESTMENT. Additional Shares shall be credited to each Outside Director's Stock Deferred Fee Account, as of each payment date for dividends on Bell Atlantic Stock, in an amount determined pursuant to Section 5.2, on the basis of the number of Shares credited to the Outside Director's Stock Deferred Fee Account on the record date for such dividends. Additional Shares shall be credited for each record date that an Outside Director has any amount credited to his Stock Deferred Fee Account under the Plan. 5.2 NUMBER OF DIVIDEND REINVESTMENT SHARES. The number of additional Shares credited to an Outside Director's Stock Deferred Fee Account as of any dividend payment date shall be the quotient of : (1) the product of the number of Shares credited to the Outside Director's Stock Deferred Fee Account on the dividend record date for such dividend and the dividend per share on Bell Atlantic Stock, divided by (2) the fair market value of Bell Atlantic Stock on the dividend payment date. The fair market value of Bell Atlantic Stock on the dividend payment date shall be the mean between the highest and lowest selling prices of the Stock on the - ------------------------------------------------------------------------------- DEFERRED COMPENSATION PLAN - 4 - RESTATED JANUARY 1, 1998 B705 dividend payment date, as reported on the New York Stock Exchange Composite Tape. However, if there are no sales on the dividend payment date, the fair market value of the Stock shall be the average of the means between the highest and lowest selling prices of the Stock on the nearest day before and the nearest day after the dividend payment date, as reported on the New York Stock Exchange Composite Tape. Article 6: PAYMENT OF DEFERRED FEES 6.1 DEFERRED FEES AND INTEREST. At the time and in the manner provided in Section 6.2 or 6.3, (a) amounts credited to an Outside Director's Cash Deferred Fee Account shall be paid in cash, and (b) amounts credited to an Outside Director's Stock Deferred Fee Account shall be paid in an equal number of shares of Bell Atlantic Stock, and any fractional share of Stock shall be paid in cash. 6.2 PAYMENT. (a) Unless an Outside Director elects under Section 3.1 to receive the distribution of his deferred fees for a calendar year in installments, the appropriate portion of the amount credited to the Outside Director's Deferred Fee Accounts for that calendar year shall be paid in a lump sum. (b) At the election of an Outside Director, as described in Section 3.1, the appropriate portion of the amount credited to the Outside Director's Deferred Fee Accounts shall be paid either in a single total distribution, or in approximately equal annual distributions for a number of years elected by the Outside Director. The first such installment shall be payable on the distribution commencement date determined under Section 3.1. In the case of a distribution in the form of two or more annual installments, an Outside Director's Deferred Fee Accounts shall bear interest at the rate specified in Article 4, or be credited with dividends in accordance with Article 5 (whichever is applicable), during the installment payout period. (c) Notwithstanding the terms of any elections pursuant to Section 3.1, the entire balance of the accounts of an Outside Director shall be distributed, with interest and earnings to date, in the event that the Bell Atlantic Board determines that any of the following circumstances has occurred: (i) the Outside Director, at any time after he ceases to serve as a director of a Participating Company, becomes employed by any governmental agency having regulatory jurisdiction over the business of an Operating Telephone Company; (ii) the Outside Director has engaged in knowing and willful misconduct in connection with his or her service as a director; or (iii) the Outside Director, without the consent of the Bell Atlantic Board, has at any time during the period from the last day he or she served as a director on a Participating Company Board (the "Director's Cessation of Service Date") to the second anniversary of such date, personally engaged in managing, planning, or advising in any manner whatever an activity which directly competes with any of the businesses in which a Bell Atlantic Company was engaged on the Director's Cessation of Service Date, or any business which was in the planning stage at a Bell Atlantic Company on such date. For the purposes of this paragraph, a "Bell Atlantic Company" means Bell Atlantic or any Affiliated Company. - ------------------------------------------------------------------------------- DEFERRED COMPENSATION PLAN - 5 - RESTATED JANUARY 1, 1998 B705 6.3 DEATH OF A DIRECTOR. If an Outside Director dies with any amount credited to his Deferred Fee Accounts, then his Beneficiary shall be entitled to receive the entire amount in a lump sum. The payment shall be made no later than sixty days following the Outside Director's death. Article 7: EARLY WITHDRAWALS SUBJECT TO PENALTY 7.1 WITHDRAWALS FROM DEFERRED FEE ACCOUNTS. Except as provided in Section 7.1(b), neither the Outside Director, his Beneficiary, nor any other individual or entity shall have any right to make any withdrawals from the Outside Director's Deferred Fee Accounts contrary to the initial elections or modified elections made in accordance with Section 3.1. 7.2 EARLY WITHDRAWAL PENALTY. An Outside Director may at any time direct the Plan administrator to distribute, as soon as administratively practicable, all or any portion of the balance of any one or more of the director's Deferred Fee Accounts which the Outside Director then designates; provided, however, that, in each such instance of a distribution prior to the date on which the account would otherwise be distributed, a six percent early withdrawal penalty shall apply to the amount of the requested early withdrawal. Article 8: BENEFICIARIES 8.1 DESIGNATION OF BENEFICIARY. Each Outside Director may designate from time to time any person or persons, natural or otherwise, as his Beneficiary or Beneficiaries to whom benefits under Section 6.3 are to be paid if he dies while entitled to benefits. Each Beneficiary designation shall be made either in the Deferred Fee Agreement or on a form prescribed by the Plan Administrator and shall be effective only when filed with the Corporate Secretary or Plan Administrator during the Outside Director's lifetime. Each Beneficiary designation filed with the Corporate Secretary or Plan Administrator shall revoke all Beneficiary designations previously made by the Outside Director. The revocation of a Beneficiary designation shall not require the consent of any designated Beneficiary. Article 9: ADMINISTRATION 9.1 RIGHT TO AMEND OR TERMINATE. The Board may amend or terminate the Plan at any time in whole or in part. The Governance and Board Affairs Committee of the Board shall have authority to recommend Plan amendments for approval by the Board; provided, however, that the Board retains authority to amend or terminate the Plan in the absence of a recommendation by the Governance and Board Affairs Committee. No amendment or termination of the Plan shall reduce the amount credited to an Outside Director's Deferred Fee Accounts, the amount owed to him under the Plan as of the date of amendment or termination, or the amount of Interest or number of Shares to be credited to his account. The Executive Vice President - Human Resources of Bell Atlantic shall have the authority to adopt amendments to the Plan which that officer determines, with the advice of counsel, are necessary or appropriate to ensure that transactions under the Plan are exempt, to the maximum extent practicable, from the short-swing trading provisions of Section 16(b) of the Securities Exchange Act. 9.2 NO FUNDING OBLIGATION. Except as otherwise provided in this Section 9.2, the obligation of the Participating Companies to pay benefits under this Plan shall be unfunded and unsecured, and, in all events, any payments under this Plan shall be made solely from those assets of a Participating Company which would be available to satisfy the claims of the Participating Company's general creditors in the event of bankruptcy. The Treasurer of Bell Atlantic (a) may, in that officer's discretion, and - ------------------------------------------------------------------------------- DEFERRED COMPENSATION PLAN - 6 - RESTATED JANUARY 1, 1998 B705 (b) shall, if and when either (i) said Treasurer is directed to do so by a committee of officers of the Corporation chaired by the Chief Executive Officer, or (ii) there occurs a "Hostile Change of Control" as defined in the Bell Atlantic Senior Management Retirement Income Plan, cause Bell Atlantic and the Participating Companies to set aside assets, including, without limitation, assets which may be held under the Bell Atlantic Rabbi Trust Agreement, or to purchase annuity or life insurance contracts, and to apply such assets or the proceeds of such contracts to discharge all or part of the benefit obligations under this Plan. 9.3 APPLICABLE LAW. This Plan shall be construed and enforced in accordance with the laws of the state of Delaware, except to the extent superseded by federal law. 9.4 ADMINISTRATION AND INTERPRETATION. The Executive Vice President - Human Resources of Bell Atlantic, or, in the event of a vacancy in that position, the most senior officer of Bell Atlantic in the Human Resources organization (the "Plan Administrator"), shall have the authority and responsibility to administer and interpret this Plan. The day to day administration of the Plan shall be carried out by the Plan Administrator, or by a person to whom the Plan Administrator delegates discretion for the day-to-day administration of the Plan, in cooperation with the Corporate Secretary. Benefits due and owing to an Outside Director or Beneficiary under the Plan shall be paid when due without any requirement that a claim for benefits be filed. However, Outside Directors and Beneficiaries who have not received the benefits to which they feel entitled may file a written claim with the Plan Administrator, who, with the advice of counsel, shall act on the claim within thirty days. The Plan Administrator's action on any such claim may be appealed by the claimant to the Board, which is hereby empowered as a fiduciary with full discretion to interpret the Plan and apply its terms to the facts of the claimant's case. The decision of the Board, in the event of any such appeal, shall be final and binding to the full extent permitted under applicable law, unless and to the extent that a claimant subsequently proves an abuse of discretion. - ------------------------------------------------------------------------------- DEFERRED COMPENSATION PLAN - 7 - RESTATED JANUARY 1, 1998 B705 FORM 1 ------ BELL ATLANTIC DEFERRED COMPENSATION PLAN OUTSIDE DIRECTOR'S PROSPECTIVE DEFERRED FEE AGREEMENT ----------------------------------------------------- This election by __________________ (the "Outside Director") is made under the terms of the Bell Atlantic Deferred Compensation Plan for Outside Directors (the "Plan"). 1. TERMS OF THE DEFERRED FEE PLAN. The Outside Director agrees to the terms and ------------------------------ conditions of the Plan, a copy of which has been delivered to the Outside Director and constitutes part of this Agreement. Capitalized words and phrases in this Agreement shall have the meaning given to them in the Plan, unless the context clearly indicates otherwise. (Check one box only.) - - The Outside Director does not wish to defer next year's fees under the plan. - - The Outside Director wishes to defer next year's fees in accordance with the instructions marked below. 2. ELECTION TO DEFERRED FEES. The Outside Director authorizes and directs the ------------------------- Company to defer ____ [insert a percentage, e.g., 100%, or a dollar amount, e.g., $10,000] of the Outside Director's Fees to be earned in calendar year 19__. 3. INVESTMENT OF DEFERRED FEES. The Outside Director elects to have deferred --------------------------- Director's Fees credited: (check one box only): - - entirely to the Stock Deferred Fee Account - - entirely to the Cash Deferred Fee Account - - half to the Stock Deferred Fee Account, and half to the Cash Deferred Fee Account 4. DEFERRAL DATE. The Outside Director elects to defer the Director's Fees ------------- earned in the year shown in Item 2 to the following distribution date: (check one box only) - - December of 19__ (minimum deferral: 1 year) - - January 1 of the year following the year the Outside Director terminates his or her service as a Director of the Company (or, if later, his or her service as a Director of a subsidiary) - - January 1 of the year following the Outside Director's 70th birthday 5. FORM OF PAYMENT. On the distribution date indicated in Item 4, the Outside --------------- Director elects to receive the proceeds of the Deferred Fee Account(s) for the fees deferred under this Agreement, as follows: (check one box only) - - in a single payment - - in ___ approximately equal annual installments (select two or more) 6. BENEFICIARY. The Outside Director requests that, not later than 60 days after ----------- his or her death, the balance of his or her Deferred Fee Account(s) (including interest or dividends) shall be paid in a lump sum: (check one box only) - - to the Beneficiary or Beneficiaries named on the Outside Director's most recent beneficiary designation, on file with the Secretary of the Company - - to the following Beneficiary or Beneficiaries: - --------------------------------------- -------------------------------------- Name of Beneficiary Percent Name of Beneficiary Percent - --------------------------------------- -------------------------------------- Address Address - --------------------------------------- -------------------------------------- Relationship Relationship Note: The Outside Director may change the Beneficiary(ies) at any time by executing another copy of this portion of FORM 1 or FORM 2, or by written notice to the Secretary of the Company. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the ____ day of _______________, 19___ - -------------------------------- ----------------------------------------- Witness Outside Director Deliver this signed form to the Secretary or Assistant Secretary of the Company. - -------------------------------------------------------------------------------- B705 FORM 2 ------ BELL ATLANTIC DEFERRED COMPENSATION PLAN OUTSIDE DIRECTOR'S ELECTION TO MODIFY A PRIOR ELECTION TO DEFER FEES -------------------------------------------------------------------- This election by ________________ (the "Outside Director") is made under the terms of the Bell Atlantic Deferred Compensation Plan for Outside Directors (the "Plan"). Instructions: Complete Section A, B, C and/or D, whichever is or are applicable. Then sign under Section E. A. MODIFY PAY-OUT OF DEFERRAL ACCOUNT. I elect to modify the date on which ---------------------------------- payments will commence under my deferral account, as follows (check box 1, 2 or 3): 1. - Commence pay-outs as of January 1 following the year of my termination of service on the board of directors of any Bell Atlantic Company 2. - Commence pay-outs as of January 1, 19__ 3. - Commence pay-outs as of January 1 following my 70th birthday B. FORM OF PAY-OUT. I elect to modify the form of payment of all my deferral --------------- account, as follows (check box 1 or 2): 1. - a single payment 2. - annual installments (select two or more) C. EARLY WITHDRAWAL. Subject to a 6% early-withdrawal penalty, I elect to make ---------------- an early withdrawal, as follows: Cash Deferral Stock Deferral Total Dollar Amount Account Account to Withdraw ------- ------- ----------- ___% withdrawal ___% withdrawal $_________ Withdrawals will be processed as soon as practicable. Withdrawals from stock deferral accounts will be distributed in shares; withdrawals from cash deferral accounts will be paid in cash. D. CHANGE OF BENEFICIARY(IES). In the event of my death, any remaining balance -------------------------- in my deferral account under the Plan is to be paid, as soon as practicable in a single payment, as follows: - -------------------------------------- ------------------------------------- Name of Beneficiary Percent Name of Beneficiary Percent - -------------------------------------- ------------------------------------- Address Address - -------------------------------------- ------------------------------------- Relationship Relationship Note: Attach additional sheet of paper if needed. I understand that I may modify my beneficiary designation under the plan at any time by submitting a new Form 1 or 2, or by written notice to the Plan Administrator, c/o Greg Riker, Room 3878, 1095 Avenue of the Americas, New York, New York 10036. E. SIGNATURE. --------- I agree to the terms and conditions of the Plan, a copy of which has been delivered to me. Date: Name: -------------------------------- ---------------------------------- Witness: Signed: ----------------------------- -------------------------------- Deliver this signed form to the Secretary or Assistant Secretary of the Company. - -------------------------------------------------------------------------------- EX-10.E 4 BELL ATLANTIC STOCK COMPENSATION PLAN OUTSIDE DIR. EXHIBIT 10e BELL ATLANTIC STOCK COMPENSATION PLAN FOR OUTSIDE DIRECTORS Restated as of January 1, 1998, to incorporate amendments adopted through December 31, 1997 1. NAME OF PLAN. The plan shall be known as the Bell Atlantic Stock Compensation Plan for Outside Directors (and is referred to herein as the "Plan"). 2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to encourage ownership of shares of the Common Stock (the "Stock") of Bell Atlantic Corporation (the "Corporation"), and to further align the interests of non- employee members of the boards of directors of Participating Companies with the interests of shareowners of the Corporation. 3. EFFECTIVE DATE. The effective date of the Plan is July 1, 1991. The Plan was submitted to, and was approved by, shareowners at the annual meeting of the Corporation in April 1991. 4. PARTICIPATING COMPANIES. As of January 1, 1998, the Corporation is the sole company participating in the Plan. 5. ELIGIBLE PARTICIPANTS. Each member of the board of directors of a Participating Company who is, as of the date of any award or grant hereunder, in active service as a director, but who is not then an employee of the Corporation or any subsidiary of the Corporation (each, an "Outside Director"), shall be eligible to receive remuneration under the Plan. 6. COMPENSATION IN STOCK AND OPTIONS (a) Annual Grant or Award. On an annual basis, for each individual who is in active service as an Outside Director of the Corporation as of the close of the regular January meeting of the Board of Directors of the Corporation (the "Board"), each such Outside Director shall have a right to receive remuneration under both Sections 6(a)(1) and 6(a)(2) of this Plan, as follows: (1) Grant of Options. The annual remuneration provided under this Section 6(b)(1) of the Plan shall consist of a grant of nonqualified stock options ("Options") which bestows on each such Outside Director a right to purchase 1,000 shares of Stock at an exercise price per Option equal to the Fair Market Value of the Stock on the date of grant. "Fair Market Value" shall have the same meaning as stated in the Bell Atlantic 1985 Incentive Stock Option Plan, as that plan may be amended from time to time (the "ISO Plan"). (2) Election between Options and Shares. Pursuant to this Section 6(b)(2) of the Plan, each such Outside Director shall have a right to elect on an annual basis to receive, in addition to the grant of Options described in Section 6(b)(1), either: (i) a grant of Options to purchase 1,500 shares of Stock at an exercise price per Option equal to the Fair Market Value of the Stock on the date of grant, or (ii) an award of a number of shares of Stock having an aggregate Average Market Value (as hereinafter defined) equal to the aggregate value (as determined by the Plan Administrator) of the Options described in clause "(i)" of this paragraph, rounding up to a whole number of shares. - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 1 B706 "Average Market Value" means the average of the high and low trading prices per share of Stock during the last five trading days of the calendar month prior to the month in which the award is made. (3) Rules Applicable to Annual Grants of Options. Options granted on an annual basis under this Plan shall be granted on the same date, and with the same exercise price, as the principal annual grant of options by the Human Resources Committee ("HRC") of the Board under the ISO Plan. Options shall be granted under this Plan automatically, and no action by the Board shall be required; provided, however, that the Plan Administrator shall afford each eligible Outside Director an opportunity to elect in advance, in writing, prior to the date of the applicable grant of Options or award of Stock, which of the two forms of remuneration the individual Outside Director wishes to receive, as described in Section 6(a)(2). The Board shall retain the authority in its sole discretion to revise, from time to time, the number of Options to be automatically granted annually under this Plan, provided, however, that no such action shall be taken without first obtaining the advice of counsel. (b) Initial Grant Upon Election to the Board. In the case of an individual who is first elected to the Board as of an effective date which is later in any calendar year than the regular January meeting, then, as of the first trading day in the calendar month first following the effective date of the election of the said Outside Director, Options to purchase 1,000 shares of Stock shall be granted under this Plan to the Outside Director, and the said Options shall have an exercise price equal to the Fair Market Value of the Stock as of the date of grant. 7. Terms Applicable to Grants of Options and Awards of Stock (a) Terms of Options. Options granted pursuant to Section 6(a) and 6(b) of this Plan shall be subject to the following terms and conditions: (i) Options shall expire not later than the tenth anniversary of the date of grant; (ii) Options shall be subject to a waiting period of one year, and shall first become exercisable on the first anniversary of the date of grant; (iii) In the event of the retirement of an Outside Director from the Board upon having attained mandatory retirement age, or on account of disability, any outstanding Options which are not yet exercisable shall become exercisable on the day following the Outside Director's retirement, and all outstanding Options shall expire on the earlier of the fifth anniversary of the date of retirement or the tenth anniversary of the date of grant; (iv) In the event of a resignation or a termination of the service of an Outside Director from the Board for any reason other than disability or retirement upon having attained mandatory retirement age, any outstanding Options shall expire at the close of business on the effective date of said resignation; provided, however, that the Board may, in its discretion, take action to cause the Options of such an Outside Director to become exercisable, and/or to remain exercisable, for a period of time subsequent to said resignation or termination, but in no event may the Options remain exercisable after the later of the fifth anniversary of the last date of service as an Outside Director or the tenth anniversary of the date of grant; - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 2 B706 (v) In the event of the death of an Outside Director at a time when Options are outstanding, any such Options shall be exercisable from the day following the date of death until the earlier of the first anniversary of the date of death or the tenth anniversary of the date of grant, without regard to (A) whether or not the options were otherwise exercisable on the date of death, and (B) whether or not any other limitation upon the period of exercise may otherwise have been applicable in the absence of death; and (vi) The exercise price for Options shall be payable solely in cash. (b) Option Agreements. With respect to each grant of Options, the Plan Administrator, with the advice and assistance of counsel, shall have the authority, responsibility and discretion to prepare a form of agreement (the "Option Agreement") which shall state the terms and conditions stated in section 7(a) hereof, and such additional terms and conditions as the Plan Administrator determines are appropriate. In each case, the grant of Options to an Outside Director shall be conditioned on the Outside Director signing the corresponding Option Agreement within a period determined by the Plan Administrator. In the event that an Optionee does not deliver to the Plan Administrator a signed Option Agreement within an applicable period, or signs an Option Agreement which has been modified in a manner unacceptable to the Plan Administrator, the Optionee shall forfeit the Options stated on said Option Agreement. (c) Adjustments in Stock. Notwithstanding any other provision of this Plan, in a transaction to which section 424(a) of the Internal Revenue Code applies, the Board of Directors shall determine whether, and to what extent, it is appropriate to make adjustments in the class or issuer of stock subject to outstanding Options under the Plan, and/or in the number and corresponding exercise prices of outstanding Options, in order to preserve the aggregate value of the spreads between the exercise prices of the outstanding Options and the value of the applicable Stock or stocks. Such modifications shall be consistent with the terms of any such reorganization, recapitalization, stock split, stock dividend, combination of shares, or any other change affecting the Stock. (d) Election to Transfer Shares to Direct Invest Plan. Each Outside Director who elects to receive an award of Stock pursuant to clause "(ii)" of Section 6(a)(2) of the Plan for a given plan year shall, prior to the date of the award for such year, have the right to elect whether to receive the award in the form of a share certificate, which shall be solely in the name of the Outside Director, or to have the Corporation credit the Stock directly into an account, which shall be solely in the name of the Outside Director, under the Corporation's Direct Invest Plan. For an Outside Director who elects to deposit the award in a Direct Invest Plan account, the terms of Direct Invest Plan shall thereafter apply and the shares awarded under this Plan shall be treated no differently than any other shares held under the Direct Invest Plan. (e) No Accrued Interest In Subsequent Awards or Grants. Until the applicable date of an award of Stock or a grant of Options under the Plan, an eligible Outside Director shall have no accrued right to receive all or any portion of any subsequent award. An eligible Outside Director shall have no right to assign or alienate any interest in any award of Stock which has not yet been presented under this Plan, and an Outside Director may not assign or transfer any Options granted under this Plan other than by beneficiary designation in the event of death. Options granted under this Plan shall not be subject to attachment or alienation and, during the life of the Outside Director to whom the Options are granted, the Options may be exercised solely by the Outside Director in accordance with their terms. - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 3 B706 8. SOURCE OF STOCK. Shares of Stock awarded under the Plan, and Stock transferred to an Outside Director upon exercise of Options, may be treasury shares, or authorized but unissued shares, or outstanding shares of Stock acquired by the Corporation in the open market or elsewhere. 9. TAXES. Any and all tax consequences for an Outside Director which are associated with an award of shares or an exercise of Options under this Plan shall be the sole responsibility of the participating Outside Director. 10. AUTHORIZED NUMBER OF SHARES. The aggregate number of shares of Stock which may be awarded under this Plan, or transferred upon exercise of Options, shall be 100,000. Said limit shall be adjusted, in the manner determined appropriate by the Plan Administrator with the advice of counsel, in the event of any stock split, stock dividend, recapitalization, or other change affecting the Stock. 11. NOT ELIGIBLE FOR DEFERRAL. Neither the Options nor the Stock received under this Plan shall be eligible for deferral under the Bell Atlantic Deferred Compensation Plan for Outside Directors. 12. ADMINISTRATION; AMENDMENT AND TERMINATION. (a) Authority of the Board. The Board of the Corporation shall have the authority to amend and to terminate the Plan at any time in its discretion, and to determine in its discretion whether any other company affiliated with the Corporation may participate in the Plan from time to time; provided, however, that any amendment adopted by the Board may be submitted for approval by the shareowners of the Corporation if, in the opinion of counsel, such approval is required to exempt the awards of Stock, and the grant or exercise of Options, under this Plan from the short-swing trading provisions of Section 16 of the Securities Exchange Act of 1934. The Governance and Board Affairs Committee of the Board may recommend amendments to the Plan for the approval of the full Board. (b) Authority of Plan Administrator. The Executive Vice President - Human Resources of the Corporation (or, in the event of a vacancy in that position, the most senior Human Resources executive of the Corporation), or any person to whom that officer or executive delegates administrative responsibility for the Plan, shall be the "Plan Administrator" (as that term is used herein), with the authority (i) to administer and interpret the Plan, (ii) to prepare and distribute Option Agreements and administer the exercise of Options, (iii) to adopt minor and administrative modifications of the Plan and amendments which the Plan Administrator believes, with the advice of counsel, to be necessary or appropriate to comply with changes in applicable law or to ensure that transactions under the Plan remain exempt from Section 16(b) of the Securities Exchange Act of 1934 to the maximum extent practicable, and (iv) with advice of counsel, to submit the Plan, or amendments to the Plan, to the shareowners of the Corporation for approval. - -------------------------------------------------------------------------------- Stock Compensation Plan for Outside Directors Page 4 B706 EX-10.N 5 BELL ATLANTIC SENIOR MANAGEMENT ESTATE MANG. PLAN EXHIBIT 10n DESCRIPTION OF THE ESTATE MANAGEMENT PLAN FOR SENIOR MANAGERS The Estate Management Plan provides life insurance protection to Senior Managers both before and after retirement. The life insurance coverage under the Plan replaces any basic and supplemental life insurance coverage that would be received under Bell Atlantic's Employee Life and AD&D Insurance Plan (or another group life insurance plan offered by the Senior Manager's employing company). The Plan provides life insurance coverage equal to five times annual base salary plus 50% of the maximum Short Term Incentive Award. Coverage increases automatically if the participant's salary and maximum Short Term Incentive Award increase. Under the Plan, a participant purchases a universal life insurance policy using a split-dollar arrangement. Under the split-dollar arrangement, the participant collaterally assigns his or her policy to the company when he or she begins participating in the Plan. This collateral assignment remains in effect for 15 years or until the participant reaches age 65, whichever is later. The collateral assignment also terminates if the participant leaves the company before becoming eligible for retiree benefits. While the collateral assignment is in effect, the company will pay the majority of the annual premium on the policy. The company's portion of the premium is intended to build the cash value through investment The participant pays the premium for the death benefit, based on the carrier's term life insurance rates. While the collateral assignment is in effect, the policy will be used only to provide the participant with the targeted level of life insurance coverage. Although the policy's cash value will grow, the participant will not have access to the cash value until after the collateral assignment ends. When the collateral assignment ends, the company will recover its premiums from the policy but not any investment earnings associated with those premiums. Once the collateral assignment ends, the remaining cash value of the policy (derived from the policy's investment earnings) is the participant's to use, either to continue insurance coverage or to provide additional income. EX-10.EE 6 FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT - DATED 10/27/98 EXHIBIT 10ee FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made as of the 27th day of October, 1998, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and ___________., ___________ of Bell Atlantic (the "Key Executive"). WHEREAS, Bell Atlantic and the Key Executive have entered into an Employment Agreement dated as of June 1, 1998 (the "Agreement"); WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as of July 27, 1998, among Bell Atlantic, GTE Corporation ("GTE") and Beta Gamma Corporation (the "Definitive Agreement"), Bell Atlantic contemplates a merger of the Bell Atlantic and GTE businesses (the "Merger") on a date which is yet to be decided (the "Closing Date"); WHEREAS, Bell Atlantic considers the Key Executive to be an employee whose continuing services, leadership and support are and will be valuable, especially during the period prior to the Closing Date; and WHEREAS, Bell Atlantic wishes to amend the Agreement to provide an additional incentive for the Key Executive to remain an Employee in Good Standing during the period prior to the Closing Date; NOW, THEREFORE, for good and valuable consideration, Bell Atlantic and the Key Executive hereby agree as follows: 1. Certain Definitions. Terms which are defined in the Agreement shall ------------------- have the same meaning in this Amendment. 2. Stay Bonus. ---------- (a) Closing of Merger. If the Merger occurs pursuant to the ----------------- Definitive Agreement, and if the Key Executive has remained an Employee in Good Standing of a Bell Atlantic Company from the date of this Amendment to the Closing Date, then, not later than 30 calendar days following the Closing Date, Bell Atlantic shall cause the Bell Atlantic Company which then employs the Key Executive to pay the Key Executive a special bonus (a "Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to 1.5 multiplied by the sum, as of the Closing Date, of (i) the Key Executive's annual rate of base salary, and (ii) 50% of the Key Executive's maximum short-term incentive under the STIP. (b) Merger Plan is Terminated. If the Definitive Agreement is ------------------------- terminated without the Merger occurring, the Key Executive shall have no right to receive the Stay Bonus or any portion of such bonus. 3. Termination of Employment. ------------------------- (a) Voluntary Resignation, Retirement, or Discharge for Cause. In the --------------------------------------------------------- event that, prior to the Closing Date of the Merger, the Key Executive voluntarily resigns or retires for any reason (except a constructive discharge), or is discharged by a Bell Atlantic Company for cause, the Key Executive shall forfeit any and all rights to receive the Stay Bonus. (b) Involuntary Terminations. In the event that a Bell Atlantic ------------------------ Company discharges the Key Executive other than for cause, or the Key Executive is constructively discharged, and the Merger subsequently occurs pursuant to the Definitive Agreement, then the Key Executive shall be entitled to receive, as liquidated damages (in addition to the damages provided for in Section 7(c) of the Agreement), a single cash payment which shall be equal (before withholding of taxes) to the Stay Bonus which would otherwise have become payable under Section 2(a) of this Amendment, provided that such cash payment shall be contingent upon the absence, at the time of payment, of any act by the Key Executive that would constitute a material breach of the Agreement, and provided further that the date of discharge shall be substituted for the Closing Date of the Merger for purposes of calculating the dollar amount of such payment. Such payment shall be made not later than 30 calendar days following the Closing Date. (c) Payment in Case of Death or Disability. In the event that the Key -------------------------------------- Executive dies, or terminates his employment on account of disability (within the meaning of the applicable disability benefit plan in which the Key Executive participates from time to time) on a date on which the Key Executive was an Employee in Good Standing, and the Merger subsequently occurs pursuant to the Definitive Agreement, Bell Atlantic shall cause the Key Executive's last employing Bell Atlantic Company to pay the Key Executive, or the Key Executive's estate in the event of death, a single cash payment which shall be equal (before withholding of taxes) to the Stay Bonus multiplied by the following fraction: the numerator shall be the number of days that have elapsed between the date of this Amendment and the date of the Key Executive's death or disability, and the denominator shall be the number of days that have elapsed between the date of this Amendment and the Closing Date of the Merger. Such payment shall be made not later than 30 calendar days following the Closing Date, substituting the date of death or disability for the Closing Date for purposes of calculating the dollar amount of the payment. 4. Deferrals under IDP. Amounts otherwise payable to the Key ------------------- Executive under Sections 2 or 3 of this Amendment may be deferred under the IDP or any successor plan in accordance with the terms of the IDP. 5. Business Discretion of Bell Atlantic. Nothing in this Amendment is ------------------------------------ intended to limit the discretion of any Bell Atlantic Company to take any action with regard to the Merger which Bell Atlantic may consider appropriate, including, without limitation, postponing the Closing Date or terminating the Definitive Agreement. 6. Non-Benefit Bearing Payments. Any amount to be paid under Sections ---------------------------- 2 or 3 of this Amendment shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 2 7. Effect on Agreement. Nothing in this Amendment is intended to ------------------- override or supercede any of the provisions of the Agreement. The terms and conditions of this Amendment shall be considered additional terms and conditions of the Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. BELL ATLANTIC CORPORATION By: ------------------------------------ Ivan Seidenberg Chief Executive Officer THE KEY EXECUTIVE By: ------------------------------------ 3 EX-10.FF 7 EMPLOYMENT AGREEMENT - DATED 01/01/99 EXHIBIT 10ff EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day of January, 1999, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and Ivan G. Seidenberg, Chief Executive Officer of Bell Atlantic (the "Key Executive"). In this Agreement, "Bell Atlantic Companies" means all of, and "Bell Atlantic Company" means any one of, Bell Atlantic, all corporate subsidiaries or other companies affiliated with Bell Atlantic, all companies in which Bell Atlantic directly or indirectly owns a substantial equity interest, and their successors and assigns. WHEREAS, Bell Atlantic and the Key Executive have previously entered into an Executive Retention Agreement last amended March 14, 1997 (the "Retention Agreement") and an Employment Agreement dated as of August 14, 1997 (the "Prior Employment Agreement"); and WHEREAS, Bell Atlantic and the Key Executive wish to supersede, in their entirety, the Retention Agreement and Prior Employment Agreement; NOW, THEREFORE, for good and valuable consideration, the Key Executive and Bell Atlantic hereby agree as follows: 1. Term of Employment. The term of employment under this Agreement ------------------ (the "Term of Employment") shall commence on January 1, 1999 and end on December 31, 2003. 2. Obligations of the Bell Atlantic Companies. During the Term of ------------------------------------------ Employment, the Bell Atlantic Companies shall have the following obligations and duties and shall provide the following compensation to the Key Executive. (a) Salary. Bell Atlantic shall employ the Key Executive as ------ Chief Executive Officer and shall compensate the Key Executive at a base salary of not less than $1,200,000 per year, subject to annual review by the Board of Directors of Bell Atlantic (the "Board") in January, 2000 and each January thereafter during the Term of Employment. (b) STIP. The Key Executive shall participate in the Bell ---- Atlantic Senior Management Short Term Incentive Plan or any successor to that plan ("STIP") and shall be eligible for a potential maximum award which, for each performance year during the Term of Employment, shall be equal to or greater than 2.25 multiplied by the Key Executive's base salary in effect on January 1 of each such year. (c) Stock Options. The Key Executive shall participate in the ------------- Bell Atlantic 1985 Incentive Stock Option Plan or any successor to that plan (the "Stock Option Plan") and shall receive an annual grant of options thereunder with a value equal to or greater than 2.5 multiplied by the Key Executive's base salary in effect on the date of grant. - -------------------------------------------------------------------------------- Employment Agreement Page 1 Ivan G. Seidenberg (d) Vacation. The Key Executive shall have the same holidays -------- per calendar year recognized by Bell Atlantic for its management employees and shall have an aggregate of 4 management personal days and 5 weeks vacation per calendar year, provided that such management personal days and vacation days shall be scheduled with due regard to the needs of the business. (e) Corporate Aircraft. The Key Executive and his immediate ------------------ family shall use Bell Atlantic corporate aircraft for all business and personal travel, except that the Key Executive may use commercial aircraft where use of corporate aircraft is not practical. The Key Executive shall be responsible for the payment of taxes on imputed income attributable to personal use of corporate aircraft, except that, whenever the Key Executive uses corporate aircraft for business purposes and is accompanied by an immediate family member whose use of corporate aircraft results in the imputation of income to the Key Executive, the Company shall pay the Key Executive additional cash compensation in an amount sufficient to allow the Key Executive to pay taxes on (i) such additional compensation, plus (ii) the income imputed to the Key Executive because of such family member's use of corporate aircraft. (f) Other Benefit Plans. To the extent not otherwise modified ------------------- by the terms of this Agreement, the Key Executive shall be eligible to participate in all of the benefit and compensation plans, and the programs or perquisites, applicable to senior managers of Bell Atlantic, as those plans and programs may be amended, supplemented, replaced or terminated from time to time. (g) Board of Directors. The Key Executive shall be nominated ------------------ for election to the Board at each annual meeting of shareowners which occurs prior to the end of the Term of Employment, and shall be appointed as Chairman of the Board. 3. Obligations of the Key Executive. During the Term of Employment, -------------------------------- the Key Executive shall have the following obligations and duties. (a) Director and Officer. The Key Executive shall fully and -------------------- faithfully perform his duties and responsibilities (i) as Chairman of the Board, and (ii) as the Chief Executive Officer of Bell Atlantic, reporting only to the Board. (b) Entire Business Efforts. The Key Executive shall continue ----------------------- to diligently devote his entire business skill, time and effort to the affairs of the Bell Atlantic Companies in accordance with the duties assigned to him, and shall perform all such duties, and otherwise conduct himself, in a manner reasonably calculated in good faith by him to promote the best interests of the Bell Atlantic Companies. Prior to the Key Executive's termination of employment, except to the extent specifically permitted by the Board, and except for memberships on boards of directors which the Key Executive holds on the date of this Agreement, the Key Executive shall not, directly or indirectly, render any services of a business, commercial or professional nature to any other person or organization other than a Bell Atlantic Company or a venture in which a Bell Atlantic Company has a financial interest, whether or not the services are rendered for compensation. - -------------------------------------------------------------------------------- Employment Agreement Page 2 Ivan G. Seidenberg 4. Potential Interim Amount. Effective January 1, 1999, Bell ------------------------ Atlantic shall credit $3,224,483 to the Company Contribution sub-account contained within the Key Executive's account under the Bell Atlantic Income Deferral Plan ("IDP"). This credit shall be allocated in full to the Bell Atlantic Shares Fund maintained under the IDP. The Key Executive shall have the right to change this allocation from the Bell Atlantic Shares Fund to any other permitted investment option in accordance with the terms of the IDP. The parties acknowledge that such credit is in complete satisfaction of and will fully discharge any right or entitlement that the Key Executive may have, now or in the future, to a Potential Interim Amount ("PIA") under the IDP or under any other benefit plan maintained by any Bell Atlantic Company. 5. Retention Agreement Payments. ---------------------------- (a) Retention Award. Effective January 1, 1999, the Key --------------- Executive will forfeit any right or entitlement that he may have, now or in the future, to the Retention Award provided for in Section 3(e) of the Retention Agreement. In lieu thereof, Bell Atlantic shall credit the Key Executive's account under the IDP with the number of Bell Atlantic shares comprising, as of January 1, 1999, the Retention Award. This credit valued as $1,016,636 shall be allocated in full to the Bell Atlantic Shares Fund maintained under the IDP, provided that the Key Executive shall have the right to change this allocation from the Bell Atlantic Shares Fund to any other permitted investment option in accordance with the terms of the IDP. (b) Severance. Effective January 1, 1999, Bell Atlantic shall --------- credit the Key Executive's account under the IDP with the value of the Severance Payment, including the Global Balanced Fund Account, provided for in Section 3(h) of the Retention Agreement. Such value shall be determined in accordance with the provisions of the Retention Agreement, except that the value shall be determined as of December 31, 1998. This credit shall be allocated to the following investment funds maintained under the IDP: a) $136,146 of the Severance Payment shall be credited to the Bell Atlantic Shares Fund; and b) the balance of the Severance Payment in the amount of $4,377,290 shall be credited to the Government Money Market Fund. The Key Executive shall have the right to change these allocations to any other permitted investment option in accordance with the terms of the IDP. The parties acknowledge that these credits to the IDP shall be in complete satisfaction of, and will fully discharge, any right or entitlement that the Key Executive may have, now or in the future, to the Severance Payment. 6. Special Incentive. ----------------- (a) Incentive Accounts. Bell Atlantic shall establish three ------------------ sub-accounts within the Key Executive's account under the IDP. These sub-accounts shall consist of the 2001 Account, the 2002 Account and the 2003 Account (together, the "Incentive Accounts"). (b) Credit. Effective January 1, 1999, Bell Atlantic shall ------ credit $6,000,000 to the 2001 Account, $2,000,000 to the 2002 Account, and $2,000,000 to the 2003 Account. These credits shall be allocated to the Global Balanced Fund maintained under the IDP, and shall continue to be allocated to such Fund until the credits vest as provided in Section 6(c) of this Agreement. The credits, plus any earnings or losses, shall constitute the "Incentive Awards". The Key Executive shall have no right or - -------------------------------------------------------------------------------- Employment Agreement Page 3 Ivan G. Seidenberg entitlement to these Awards unless, and only to the extent that, rights to these Awards vest under Section 6(c) of this Agreement. (c) Vesting. Provided the Key Executive is an "employee in good standing" (as hereinafter defined) on the respective vesting dates described in clauses (i) through (iii), the Key Executive's rights under the IDP to the Incentive Awards shall vest as follows: (i) 2001 Account: if "adjusted earnings per share" (or "AEPS"), as hereinafter defined, for Bell Atlantic for the fiscal year ending December 31, 2001 are less than 121.0% of the AEPS for the fiscal year ending December 31, 1998 (the "1998 Base Year"), the Key Executive shall forfeit any right or entitlement to the Incentive Award in the 2001 Account; if such earnings are equal to 121.0% of the 1998 Base Year AEPS, the Key Executive's rights to 70% of such Incentive Award shall vest as of December 31, 2001; if such earnings are equal to or greater than 136.0% of the 1998 Base Year AEPS, the Key Executive's rights to 130% of such Incentive Award shall vest as of December 31, 2001; and, if such earnings are between 121.0% and 136.0% of the 1998 Base Year AEPS, the Key Executive's rights to a pro rated amount of between 70% to 130% of such Incentive Award shall vest as of December 31, 2001; (ii) 2002 Account: if AEPS for Bell Atlantic for the fiscal year ending December 31, 2002 are less than 107.0% of the AEPS for the fiscal year ending December 31,2001 (the "2001 Base Year"), the Key Executive shall forfeit any right or entitlement to the Incentive Award in the 2002 Account; if such earnings are equal to 107.0% of the 2001 Base Year AEPS, the Key Executive's rights to 70% of such Incentive Award shall vest as of December 31, 2002; if such earnings are equal to or greater than 112.0% of the 2001 Base Year AEPS, the Key Executive's rights to 130% of such Retention Award shall vest as of December 31, 2002; and, if such earnings are between 107.0% and 112.0% of the 2001 Base Year AEPS, the Key Executive's rights to a pro rated amount of between 70% and 130% of such Incentive Award shall vest as of December 31, 2002; and (iii) 2003 Account: if AEPS for Bell Atlantic for the fiscal year ending December 31, 2003 are less than 107.0% of the AEPS for the fiscal year ending December 31, 2002 (the "2002 Base Year"), the Key Executive shall forfeit any right or entitlement to the Incentive Award in the 2003 Account; if such earnings are equal to 107.0% of the 2002 Base Year AEPS, the Key Executive's rights to 70% of such Incentive Award shall vest as of December 31, 2003; if such earnings are equal to or greater than 112.0% of the 2002 Base Year AEPS, the Key Executive's rights to 130% of such Incentive Award shall vest as of December 31, 2003; and, if such earnings are between 107.0% and 112.0% of the 2002 Base Year AEPS, the Key Executive's rights to a pro rated amount of between 70% and 130% of such Incentive Award shall vest as of December 31, 2003. (d) Adjusted Earnings Per Share and Earnings Targets. ------------------------------------------------ "Adjusted earnings per share" for any year shall be the earnings per share of Bell Atlantic adjusted, - -------------------------------------------------------------------------------- Employment Agreement Page 4 Ivan G. Seidenberg in the discretion of the Board, to eliminate or modify any extraordinary, non-reoccurring, one-time or other such items necessary to more appropriately reflect the ongoing results of the Bell Atlantic businesses. In addition, the Board, in its discretion, may modify or change the earnings targets set forth in Section 6(c) of this Agreement to take into account acquisitions, mergers, dispositions, reorganizations, changes in capital structure, or other such events. (e) Definition of Employee in Good Standing. For purposes of --------------------------------------- this Agreement, the Key Executive will be considered to be an "employee in good standing" on a given date if, on or before that date, the Key Executive has not terminated employment for any reason (other than "constructive discharge" as defined in Section 8(d) of this Agreement), has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date (other than pursuant to a "constructive discharge"), and has not behaved in a manner that would be grounds for discharge with "cause" as defined in Section 8(b) of this Agreement. 7. Stay Bonus. ---------- (a) Closing of Merger. If Bell Atlantic and GTE Corporation ----------------- ("GTE") merge their businesses (the "Merger") pursuant to the terms of the Agreement and Plan of Merger dated as of July 27, 1998, among Bell Atlantic, GTE, and Beta Gamma Corporation (the "Definitive Agreement"), and if the Key Executive has remained an Employee in Good Standing of a Bell Atlantic Company from the date of this Agreement to the closing date of the Merger (the "Closing Date"), then, not later than 30 calendar days following the Closing Date, Bell Atlantic shall pay the Key Executive a special bonus (a "Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to 1.5 multiplied by the sum, as of the Closing Date, of (i) the Key Executive's annual rate of base salary, and (ii) 50% of the Key Executive's maximum short-term incentive under the STIP. (b) Business Discretion of Bell Atlantic/Termination of --------------------------------------------------- Merger Plan. Nothing in this Agreement is intended to limit the ----------- discretion of any Bell Atlantic Company to take any action with regard to the Merger which Bell Atlantic may consider appropriate, including, without limitation, postponing the Closing Date or terminating the Definitive Agreement. If the Definitive Agreement is terminated without the Merger occurring, the Key Executive shall have no right to receive the Stay Bonus or any portion of such bonus. 8. Terminations of Employment. -------------------------- (a) Voluntary Resignation, Retirement, or Discharge for --------------------------------------------------- Cause. In the event that, prior to the end of the Term of Employment, ----- the Key Executive voluntarily resigns or retires for any reason (except a "constructive discharge"), or is discharged by Bell Atlantic for "cause", the Key Executive shall forfeit any and all rights to receive the compensation and benefits set forth in Sections 2, 6 and 7 of this Agreement which as of the relevant date have not yet been earned under this Agreement, but shall otherwise be eligible to receive any and all compensation and benefits for which a senior manager would be eligible under the applicable provisions of the compensation and benefit plans - -------------------------------------------------------------------------------- Employment Agreement Page 5 Ivan G. Seidenberg in which he is then eligible to participate, as those plans may be amended from time to time. (b) Cause. For purposes of this Agreement, the term "cause" ----- shall mean (i) grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Executive; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; or a material breach of the Employee Code of Business Conduct or Paragraphs 10 (Non-Compete/No Solicitation), 11 (Return of Property; Intellectual Property Rights) or 12 (Proprietary and Confidential Information) of this Agreement; each of the foregoing as determined in the reasonable discretion and judgment of the Board, or (ii) commission of any felony of which the Key Executive is finally adjudged guilty in a court of competent jurisdiction. In the event that Bell Atlantic terminates the employment of the Key Executive for Cause, it will state in writing the grounds for such termination and provide this statement to the Key Executive within 10 business days after the date of termination. (c) Involuntary Terminations. Except in the case of a ------------------------ discharge for Cause, in the event that Bell Atlantic discharges the Key Executive, or the Key Executive is "constructively discharged", prior to the end of the Term of Employment, then the Key Executive shall be entitled to receive, as liquidated damages, subject to signing and delivering the Release (attached as Exhibit A), the following payments, credits and benefits in lieu of any payment, credit or benefit otherwise provided in Sections 2, 6 and 7 of this Agreement, provided that each payment, credit and benefit shall be contingent upon the absence, at the time such payment, credit or benefit is due, of any act that would constitute a material breach of this Agreement: (i) Salary: through the Term of Employment, on a monthly basis, an amount equal to the monthly salary which would have been paid to the Key Executive under Section 2 of this Agreement, assuming that his annual rate of salary would have been increased each January 1 by the greater of (A) 5%, or (B) the general percentage increase, if any, approved by the Human Resources Committee ("HRC") of the Board for comparable positions in the senior management group based on the HRC's review of market-median values for such comparable positions; (ii) Short-Term Incentives: through the Term of Employment, on an annual basis, not later than 30 days after the date on which incentives are awarded by Bell Atlantic under the STIP for the prior year's performance, an amount equal to the value of the potential maximum award which the Key Executive would have been entitled to receive under the STIP based on the maximum STIP award for comparable positions in the senior management group, without adjustment for individual performance; (iii) Special Incentive: if the separation from service occurs prior to December 31, 2001, vested rights under the IDP to 100% of the Incentive Awards in each of the Incentive Accounts; if the separation from service occurs after December 31, 2001 but before December 31, 2002, vested rights under the IDP to 100% of the Retention Awards in the 2002 and 2003 Incentive Accounts; and, - -------------------------------------------------------------------------------- Employment Agreement Page 6 Ivan G. Seidenberg if the separation from service occurs after December 31, 2002, vested rights under the IDP to 100% of the Incentive Award in the 2003 Incentive Account; (iv) Stock Options: through the Term of Employment, on an annual basis, within 30 days of the granting of stock options for the year to senior managers, an amount equal to 2.5 multiplied by the annual salary amount determined in accordance with clause (i) above; provided further, with respect to any and all Bell Atlantic stock options which are outstanding on the date of the Key Executive's separation from service, the Key Executive shall be deemed, for purposes of determining the duration of the Key Executive's right to exercise any and all such stock options, to have remained in active service with Bell Atlantic continuously through the Term of Employment, and then to have separated from service with whatever rights would then be applicable to a holder of such options under the Stock Option Plan; (v) IDP Benefits: through the Term of Employment, company credits to the Company Contribution sub-account contained within the Key Executive's account under the IDP to the fullest extent provided, and at the same time such amounts would have been credited, as if the Key Executive had remained actively employed until the end of the Term of Employment and received the salary and maximum STIP awards determined in accordance with clauses (i) and (ii) above; provided further, that Bell Atlantic shall also credit to such IDP sub-account an amount each year equal to the sum of (A) the amount which the Key Executive would otherwise have been eligible to receive as company matching contributions under the Bell Atlantic Savings Plan or any successor to that plan (if he had fully participated in contributions to that plan) and (B) the pay credits which the Key Executive would otherwise have been eligible to receive under the Bell Atlantic Cash Balance Plan or any successor to that plan; (vi) Split- Dollar Benefits: regardless of whether the Key Executive is retirement eligible at the time of his separation from service, split-dollar life insurance benefits applicable to a retiring participating senior manager, under the terms of the Bell Atlantic Senior Management Estate Management Program; (vii) Flexible Perquisites: through the Term of Employment, on a monthly basis, $3,000 in lieu of the Flexible Perquisites Account allowance that the Key Executive would have been entitled to receive; (viii) Stay Bonus: if the Merger subsequently occurs pursuant to the Definitive Agreement, a single cash payment, not later than 30 days after the Closing Date of the Merger, which shall be equal (before withholding of taxes) to the Stay Bonus which would otherwise have become payable under Section 7(a) of this Agreement, provided that the date of separation from service shall be substituted for the Closing Date for purposes of calculating the dollar amount of such payment; and (ix) Other: accommodations for travel, office support and facilities, executive assistance and other perquisites as provided previous retiring Chairmen. - -------------------------------------------------------------------------------- Employment Agreement Page 7 Ivan G. Seidenberg (d) Constructive Discharge. The Key Executive shall be deemed ---------------------- to have been "constructively discharged" for purposes of this Agreement if the Key Executive is an Employee in Good Standing and he terminates his employment for any of the following reasons: Bell Atlantic (or the Key Executive's employing company) has materially breached this Agreement; the Key Executive's responsibilities have been significantly reduced in type or scope; there has been a significant adverse change in the Key Executive's reporting relationship; there has been a significant adverse change in the Key Executive's relative compensation (including a negative individual performance adjustment which causes the Key Executive's STIP award for a particular year to be reduced by 10% or more); the Key is removed from the position of Chairman of the Board during the Term of Employment; or there has been a "change of control" of Bell Atlantic. For purposes of this Agreement, a "change of control" of Bell Atlantic shall mean that any of the following events or circumstances has occurred: (i) any "Person" (as such term is used in sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes a beneficial owner, directly or indirectly, of shares of one or more classes of stock of Bell Atlantic representing 20% or more of the total voting power of Bell Atlantic's then outstanding voting stock, provided, however, that if such beneficial ownership is acquired in a transaction that has been negotiated and approved by the Board, such acquisition of beneficial ownership shall not be treated as a change of control of Bell Atlantic for purpose of this Agreement; (ii) a tender offer (for which a filing has been or is required to be made with the Securities and Exchange Commission under section 14(d) of the Securities Exchange Act of 1934) is made for the stock of Bell Atlantic, and the Person making the offer owns or has accepted for payment shares of one or more classes of Bell Atlantic stock which represent, when combined with any shares otherwise acquired and owned by such Person, 20% or more of the total voting power of Bell Atlantic's then outstanding stock, provided, however, that if such tender offer has been negotiated and approved by the Board, such tender offer and stock acquisition shall not be treated as a change of control of Bell Atlantic for purposes of this Agreement; or (iii) there ceases to be a majority of the Board comprised of individuals who either (A) have been members of the Board continuously for a period of not less than two years, or (B) are new directors whose election by the Board or nomination for election by shareowners of Bell Atlantic was approved by a vote of at least two-thirds of the directors then in office who either were directors described in clause (A) hereof or whose election or nomination for election was previously so approved. (e) Disability or Death. If, during the Term of Employment at ------------------- a time when the Key Executive is an Employee in Good Standing, the Key Executive terminates employment on account of disability (within the meaning of the applicable disability benefit plans in which the Key Executive participates from time to time) or dies, and provided Bell Atlantic receives a Release in the form of Exhibit A from the Key Executive - -------------------------------------------------------------------------------- Employment Agreement Page 8 Ivan G. Seidenberg (in the case of disability) or from his estate (in the case of death), then Bell Atlantic shall pay to the Key Executive (in the case of disability) or pay to the Key Executive's estate (in the case of death) the amounts determined as if, at the date of termination of employment on account of disability or death, the Key Executive had been terminated without cause under Section 8(c) of this Agreement; provided, however, that in lieu of the amount described in Section 8(c)(viii) of this Agreement (the "Stay Bonus Amount"), the Key Executive (or his estate) shall receive the Stay Bonus Amount multiplied by the following fraction: the numerator shall be the number of days that have elapsed between the date of this Agreement and the date of the Key Executive's death or disability, and the denominator shall be the number of days that have elapsed between the date of this Agreement and the Closing Date of the Merger; and, provided further, that in the case of a termination of employment on account of disability, the amounts paid pursuant to Sections 8(c)(i) and (ii) of this Agreement shall reduce dollar for dollar the disability benefits which would otherwise be payable to the Key Executive during the remainder of the Term of Employment under the various disability benefit plans in which he participates. 9. Payments Subject to Excise Tax. In the event that it shall be ------------------------------ determined, in the manner described in Exhibit B, that any payment or distribution by any Bell Atlantic Company to or for the benefit of the Key Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, Bell Atlantic shall pay the Key Executive an additional amount, determined in accordance with and subject to the provisions of Exhibit B, to compensate the Key Executive for his excise tax cost. 10. Prohibition Against Competitive Activities. ------------------------------------------ (a) Prohibited Conduct by the Key Executive. During the --------------------------------------- period of the Key Executive's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Executive's termination of employment for any reason from all Bell Atlantic Companies, the Key Executive, without the prior written consent of the Board, shall not: (i) personally engage in "Competitive Activities" (as defined in Section 9(b) of this Agreement); or (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities, or any company or person affiliated with such person or entity engaged in Competitive Activities; provided, however, that the Key Executive's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Key Executive's equity interest in any such company is less than a controlling interest. (b) Competitive Activities. For purposes of this Agreement, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as the products or services which (i) are sold (or, pursuant to an existing - -------------------------------------------------------------------------------- Employment Agreement Page 9 Ivan G. Seidenberg business plan, will be sold) to paying customers of one or more Bell Atlantic Companies, and (ii) for which the Key Executive then has responsibility to plan, develop, manage, market or oversee, or had any such responsibility within the prior 24 months. Notwithstanding the previous sentence, a business activity will not be treated as a Competitive Activity if the geographic marketing area of the relevant products or services sold by the Key Executive or a third party does not overlap with the geographic marketing area for the applicable products and services of the Bell Atlantic Companies. (c) No Solicitation of Bell Atlantic Employees. During the ------------------------------------------ period of the Key Executive's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Executive's termination of employment for any reason from all Bell Atlantic Companies, the Key Executive shall not, without the consent of the Board: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which could lead to the use of that information for purposes of recruiting or hiring; or (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, or representatives. (d) Waiver. Nothing in this Agreement shall bar the Key ------ Executive from requesting, at the time of the Key Executive's termination of employment or at any time thereafter, that the Board waive, in its sole discretion, Bell Atlantic's rights to enforce some or all of this Section. 11. Return of Property; Intellectual Property Rights. The Key ------------------------------------------------ Executive agrees that on or before the Key Executive's termination of employment for any reason with all Bell Atlantic Companies, the Key Executive shall return to the appropriate Bell Atlantic Company all property owned by each such company or in which any such company has an interest. The Key Executive acknowledges that Bell Atlantic or an applicable Bell Atlantic Company is the rightful owner of any programs, ideas, inventions, discoveries, copyright material or trademarks which the Key Executive may have originated or developed, or assisted in originating or developing, during the Key Executive's period of employment with any Bell Atlantic Company, where any such origination or development involved the use of company time or resources, or the exercise of the Key Executive's responsibilities for or on behalf of any such company. The Key Executive shall at all times, both before and after termination of employment, cooperate with Bell Atlantic in executing and delivering documents requested by any Bell Atlantic Company, and taking any other actions, that are necessary or requested by Bell Atlantic to assist any Bell Atlantic Company in patenting, copyrighting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the applicable company. 12. Proprietary and Confidential Information. The Key Executive ---------------------------------------- shall at all times preserve the confidentiality of all proprietary information and trade secrets of any and all Bell - -------------------------------------------------------------------------------- Employment Agreement Page 10 Ivan G. Seidenberg Atlantic Companies, except to the extent that disclosure of such information is legally required. "Proprietary information" means information that has not been disclosed to the public, and which is treated as confidential within the business of any Bell Atlantic Company. 13. Nondisclosure. Unless and until the precise terms of this Agreement, ------------- and the precise amount of any payment eligible to be paid or actually paid under this Agreement, are disclosed in writing to the public by any Bell Atlantic Company, the Key Executive shall hold the terms of this Agreement and the amount of any payment, benefit, credit, or right hereunder in strict confidence, except that the Key Executive may disclose such details (i) on a confidential basis to his spouse (if any), and to any financial counselor, tax adviser or legal counsel retained by the Key Executive, or (ii) to the extent such disclosure is legally required. 14. Assignment by Bell Atlantic. The obligations of Bell Atlantic --------------------------- hereunder shall be the obligations of any and all successors and assigns of Bell Atlantic. Bell Atlantic may assign this Agreement without the Key Executive's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Executive, and no person other than the Key Executive (or the Key Executive's estate) may assert the rights of the Key Executive under this Agreement. 15. Non-Benefit Bearing Payments. The amounts to be paid, provided or ---------------------------- credited under Sections 4, 5, 6, 7, 8, and 9 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 16. Deferrals under IDP. Amounts otherwise payable to the Key Executive ------------------- under Sections 7 or 8 of this Agreement may be deferred under the IDP or any successor plan, but only if and to the extent that a valid deferral election is in place and deferral of such amounts is permitted under the terms of the IDP or successor plan. 17. Forfeiture of IDP Amounts. The Key Executive acknowledges that if he ------------------------- breaches Section 10 (Non-Compete/No Solicitation) of this Agreement or engages in serious misconduct that is contrary to written policies of Bell Atlantic and is harmful to any Bell Atlantic Company or its reputation, he may forfeit any balance remaining in any Company Contribution sub-account contained within his account under the IDP. 18. Waiver. Failure to insist upon strict compliance with any of the ------ terms, covenants or conditions of this Agreement shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 19. Additional Remedies. In addition to any other rights or remedies, ------------------- whether legal, equitable or otherwise, which each of the parties may have, the Key Executive acknowledges that Sections 10 (Non-Compete/No Solicitation), 11 (Return of Property), 12 Proprietary and Confidential Information), and 13 (Nondisclosure) of this Agreement are essential to the continued good will and profitability of Bell Atlantic and further acknowledges that the application and operation thereof shall not involve a substantial hardship upon the Key Executive's future - -------------------------------------------------------------------------------- Employment Agreement Page 11 Ivan G. Seidenberg livelihood. The parties hereto further recognize that irreparable damage to Bell Atlantic will result in the event that these sections of the Agreement are not specifically enforced and that monetary damages will not adequately protect Bell Atlantic from a breach of these sections of the Agreement. If any dispute arises concerning the violation by the Key Executive of these sections of the Agreement, the parties hereto agree that an injunction may be issued restraining such violation pending the determination of such controversy, and no bond or other security may be required in connection therewith. 20. Reformation and Severability. The Key Executive and Bell Atlantic ---------------------------- agree that the agreements contained herein and within the Release shall each constitute a separate agreement independently supported by good and adequate consideration, and shall each be severable from the other provisions of the Agreement and the Release. If an arbitrator or court of competent jurisdiction determines that any term, provision or portion of this Agreement or the Release is void, illegal or unenforceable, the other terms, provisions and portions of this Agreement or the Release shall remain in full force and effect and the terms, provisions and portions that are determined to be void, illegal or unenforceable shall either be limited so that they shall remain in effect to the extent permissible by law, or such arbitrator or court shall substitute, to the extent enforceable, provisions similar thereto or other provisions, so as to provide to Bell Atlantic, to the fullest extent permitted by applicable law, the benefits intended by this Agreement and the Release. 21. GTE Merger. If the Merger occurs pursuant to the Definitive ---------- Agreement, any action taken to implement succession as contemplated under Section 7.10 of the Definitive Agreement shall not result in a breach of this Agreement or constitute grounds for Constructive Discharge under Section 8(d) of this Agreement, and this Agreement shall be amended to the extent necessary to permit such succession. 22. Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed to have been duly given if delivered by hand or messenger, transmitted by telex or telegram or mailed by registered or certified mail, return receipt requested and postage prepaid, as follows: (a) If to Bell Atlantic, to: Bell Atlantic Corporation 1095 Avenue of the Americas New York, New York 10036 Attention: Executive Vice President and General Counsel - -------------------------------------------------------------------------------- Employment Agreement Page 12 Ivan G. Seidenberg (b) If to the Key Executive, to: 5 Quail Hollow Lane West Nyack, NY 10994 or to such other person or address as either of the parties shall hereafter designate to the other from time to time by similar notice. 23. Arbitration. Any dispute arising out of or relating to this ----------- Agreement, except any dispute arising out of or relating to Sections 10 through 13 of this Agreement, shall be settled by final and binding arbitration, which shall be the exclusive means of resolving any such dispute, and the parties specifically waive all rights to pursue any other remedy, recourse or relief. With respect to disputes by Bell Atlantic arising out of or relating to Sections 10 through 13 of this Agreement, Bell Atlantic has retained all its rights to legal and equitable recourse and relief, including but not limited to injunctive relief. Notice of the existence of a dispute which a party wishes to have resolved by arbitration shall be provided pursuant to Section 22 of this Agreement. The arbitration shall be expedited and conducted in New York, New York pursuant to the Center for Public Resources ("CPR") Rules for Non-Administered Arbitration of Employment Disputes in effect at the time of notice of the dispute before one neutral arbitrator appointed by CPR from the CPR Panel of Neutrals unless the parties mutually agree to the appointment of a different neutral arbitrator. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the arbitration may be entered by any court having jurisdiction. The finding of the arbitrator may not change the express terms of this Agreement and shall be consistent with the arbitrator's understanding of the findings a court of proper jurisdiction would make in applying the applicable law to the facts underlying the dispute. In no event whatsoever shall such an arbitration award include any award of damages other than the amounts in controversy under this Agreement. The parties waive the right to recover, in such arbitration, punitive damages. 24. Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the laws of the State of New York. 25. Entire Agreement. Except for the terms of other compensation and ---------------- benefit plans in which the Key Executive participates, this Agreement shall set forth the entire understanding of Bell Atlantic and the Key Executive and shall supersede all prior agreements and communications, whether oral or written, between Bell Atlantic and the Key Executive including, without limitation, the Retention Agreement and the Prior Employment Agreement. This Agreement shall not be modified except by written agreement of the Key Executive and Bell Atlantic. 26. Tax Withholding. Any payment made pursuant to this Agreement will be --------------- subject to applicable withholding taxes under federal, state and local law. - -------------------------------------------------------------------------------- Employment Agreement Page 13 Ivan G. Seidenberg IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: ------------------------- THE KEY EXECUTIVE ---------------------------- Ivan G. Seidenberg - -------------------------------------------------------------------------------- Employment Agreement Page 14 Ivan G. Seidenberg EXHIBIT A --------- THIS RELEASE (the "Release") is entered into by _____________________ (the "Key Executive"), for the benefit of BELL ATLANTIC CORPORATION (the "Company"), and all companies, and their officers, directors and employees, which are affiliated with the Company or in which the Company owns a substantial economic interest, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan). Capitalized terms in this document which are not otherwise defined herein shall have the respective meanings assigned to them in the Employment Agreement between the Company and the Key Executive, dated ____________, _____ (the "Agreement"). WHEREAS, the Key Executive has separated from service with the Key Executive's employing company (the "Employer") on __________ , _____ (the "Separation Date") pursuant to the terms of the Agreement, and the Key Executive wishes to execute this Release as contemplated under the terms of the Agreement. NOW, THEREFORE, the Key Executive affirms as follows: 1. The Key Executive hereby waives any and all claims which the Key Executive might have against any Bell Atlantic Company, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), for salary payments, vacation pay, incentives, bonuses, or other remuneration or employee benefits of any kind, with the exception of any obligations of the Company or Employer arising after the Separation Date under Sections 8 and 9 of the Agreement. 2. Except as provided in Section 1 hereof, the Key Executive hereby voluntarily releases and discharges each and every Bell Atlantic Company and their successors and assigns, and the directors, officers, employees, and agents of each of them, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), reimbursements or costs of any kind which the Key Executive might have or assert against any of said entities or persons as of the Separation Date by reason of the Key Executive's employment by any Bell Atlantic Company or the termination of said employment, and all circumstances related thereto, including but not limited to, any and all claims, demands, rights and causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. Sections 1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of 1991, the Americans with Disabilities Act, the Employee Retirement Income Security Act ("ERISA") or any other applicable federal, state or local employment discrimination statute or ordinance. 3. The Key Executive hereby reaffirms all covenants and promises given by the Key Executive under the Agreement, and all other terms and conditions of the Agreement, in all respects. 4. Should any provision of this Release be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. STATEMENT BY THE KEY EXECUTIVE WHO IS SIGNING BELOW: THE COMPANY HAS --------------------------------------------------- ADVISED ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE COMPANY HAS FULFILLED ITS DUTIES TO ME UNDER THE OLDER WORKERS BENEFITS PROTECTION ACT, AND I ACKNOWLEDGE THAT THIS RELEASE IS LEGALLY ENFORCEABLE BY THE COMPANY. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED. THE UNDERSIGNED, intending to be legally bound, has executed this Release as of the ___ day of _________, _____, that being the Key Executive's Separation Date. THE KEY EXECUTIVE Signed: -------------------------------- THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING - -------------------------------------------------------------------------------- Employment Agreement Page 16 Ivan G. Seidenberg EXHIBIT B --------- Determination of Gross-Up Payment. In the event that any payment or --------------------------------- benefit received or to be received by the Key Executive pursuant to the terms of the Agreement (the "Contract Payments") or of any other plan, arrangement or agreement of any Bell Atlantic Company ("Other Payments" and, together with the Contract Payments, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code (the "Code") as determined in accordance with this paragraph, Bell Atlantic shall pay to the Key Executive, at the time specified below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Key Executive, after deduction of the Excise Tax on Payments and any federal, state and local income tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Key Executive with respect thereto, shall be equal to the total present value (using the applicable federal rate (as defined in Section 1274(d) of the Code) in such calculation) of the Payments at the time such Payments are to be made. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the written opinion of independent counsel selected by Bell Atlantic and reasonably acceptable to the Key Executive ("Independent Counsel"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax; (ii) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (i) hereof); and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by Independent Counsel in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Key Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Key Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. Timing of Gross-Up Payment. The Gross-Up Payments provided for in this -------------------------- Exhibit B shall be made upon the earlier of (i) the payment to the Key Executive of any Payment or (ii) the imposition upon the Key Executive or payment by the Key Executive of any Excise Tax. Adjustments to Gross-Up Payment. If it is established pursuant to a ------------------------------- final determination of a court or an Internal Revenue Service proceeding or the written opinion of Independent Counsel that the Excise Tax is less than the amount previously taken into account hereunder, the Key Executive shall repay to Bell Atlantic within thirty (30) days of - -------------------------------------------------------------------------------- Employment Agreement Page 17 Ivan G. Seidenberg the Key Executive's receipt of notice of such final determination or opinion the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Key Executive if such repayment results in a reduction in Excise Tax or a federal, state and local income tax deduction) plus any interest received by the Key Executive on the amount of such repayment, provided, however, that if any such amount has been paid by the Key Executive as an Excise Tax or other tax, the Key Executive shall cooperate with Bell Atlantic in seeking a refund of any tax overpayments, and shall not be required to make repayments to Bell Atlantic until the overpaid taxes and interest thereon are refunded to the Key Executive. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding or the written opinion of Independent Counsel that the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Bell Atlantic shall make an additional Gross-Up Payment in respect of such excess within thirty (30) days of Bell Atlantic's receipt of notice of such final determination or opinion. Change in Law or Interpretation. In the event of any change in, or ------------------------------- further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Key Executive shall be entitled, by written notice to Bell Atlantic, to request a written opinion of Independent Counsel regarding the application of such change to any of the foregoing, and Bell Atlantic shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of Independent Counsel incurred in connection with this Exhibit B shall be borne by Bell Atlantic. - -------------------------------------------------------------------------------- Employment Agreement Page 18 Ivan G. Seidenberg EX-10.GG 8 EMPLOYMENT AGREEMENT - DATED 10/27/98 EXHIBIT 10gg EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 27th day of October, 1998, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and Alexander H. Good, the Executive Vice President - Strategy and Corporate Development of Bell Atlantic (the "Key Executive"). In this Agreement, "Bell Atlantic Companies" means all of, and "Bell Atlantic Company" means any one of, Bell Atlantic, all corporate subsidiaries or other companies affiliated with Bell Atlantic, all companies in which Bell Atlantic directly or indirectly owns a substantial equity interest, and their successors and assigns. WHEREAS, Bell Atlantic and the Key Executive have previously entered into a Separation and Non-Compete Agreement dated May 3, 1996 (the "Prior Agreement"); and WHEREAS, Bell Atlantic and the Key Executive wish to supersede, in its entirety, the Prior Agreement; NOW, THEREFORE, for good and valuable consideration, the Key Executive and Bell Atlantic hereby agree as follows: 1. Term of Employment. The term of employment under this ------------------ Agreement (the "Term of Employment") shall commence on the date first set forth above and end on May 31, 2001. 2. Obligations of the Bell Atlantic Companies. During the Term of ------------------------------------------ Employment, the Bell Atlantic Companies shall have the following obligations and duties and shall provide the following compensation to the Key Executive. (a) Salary. One or more Bell Atlantic Companies shall employ ------ the Key Executive as an officer and senior manager, and shall compensate the Key Executive at a base salary of not less than his current base salary (b) STIP. The Key Executive shall participate in the Bell ---- Atlantic Senior Management Short Term Incentive Plan or any successor to that plan ("STIP") and shall be eligible each year during the Term of Employment for a potential maximum award which shall not be less than the potential maximum award he is eligible to receive for the performance year 1998. (c) Stock Options. The Key Executive shall participate in the ------------- Bell Atlantic 1985 Incentive Stock Option Plan or any successor to that plan (the "Stock Option Plan") and shall receive an annual grant of options thereunder with a value equal to or greater than 1.2 multiplied by the Key Executive's base salary on the date of grant. (d) Vacation. The Key Executive shall have the same holidays -------- per calendar year recognized by his employing company for its management employees and shall have an aggregate of 4 management personal days and 5 weeks vacation per calendar - -------------------------------------------------------------------------------- Employment Agreement Page 1 Alexander H. Good year, provided that such management personal days and vacation days shall be scheduled with due regard to the needs of the business. (e) Other Benefit Plans. To the extent not otherwise modified ------------------- by the terms of this Agreement, the Key Executive shall be eligible to participate in all of the benefit and compensation plans, and the programs or perquisites, applicable to similarly-situated senior managers of Bell Atlantic, as those plans and programs may be amended, supplemented, replaced or terminated from time to time. 3. Obligations of the Key Executive. During the Term of -------------------------------- Employment, the Key Executive shall have the following obligations and duties. (a) Officer. The Key Executive shall continue to fully and ------- faithfully perform his duties and responsibilities as an officer, reporting only to the Chief Executive Officer, provided that, for purposes of this Agreement, the term "Chief Executive Officer" shall include a Co-Chief Executive Officer. (b) Executive. The Key Executive shall serve in such --------- executive capacities, with such titles and authorities, as the Board of Directors of Bell Atlantic (the "Board") or the Chief Executive Officer may from time to time prescribe, and the Key Executive shall perform all duties incidental to such positions, shall cooperate fully with the Board and the Chief Executive Officer, and shall work cooperatively with the other officers of the Bell Atlantic Companies. (c) Entire Business Efforts. The Key Executive shall continue ----------------------- to diligently devote his entire business skill, time and effort to the affairs of the Bell Atlantic Companies in accordance with the duties assigned to him, and shall perform all such duties, and otherwise conduct himself, in a manner reasonably calculated in good faith by him to promote the best interests of the Bell Atlantic Companies. Prior to the Key Executive's termination of employment, except to the extent specifically permitted by the Chief Executive Officer or the Board, and except for memberships on boards of directors which the Key Executive holds on the date of this Agreement, the Key Executive shall not, directly or indirectly, render any services of a business, commercial or professional nature to any other person or organization other than a Bell Atlantic Company or a venture in which a Bell Atlantic Company has a financial interest, whether or not the services are rendered for compensation. 4. Retention Award. --------------- (a) Credit. As of the date of this Agreement, Bell Atlantic ------ shall credit $1,000,000 to the Key Executive's account under the Bell Atlantic Income Deferral Plan ("IDP"). This credit shall be allocated to the Global Balanced Fund maintained under the IDP, and shall continue to be allocated to such fund until the credit becomes vested as provided in Section 4(b) of this Agreement. The $1,000,000 credit, plus any earnings or loss credited thereto, shall constitute the "Retention Award". - -------------------------------------------------------------------------------- Employment Agreement Page 2 Alexander H. Good (b) Vesting. Provided the Key Executive remains an "Employee ------- in Good Standing" (as hereinafter defined) of a Bell Atlantic Company from the date of this Agreement to May 31, 2001, the Key Executive's rights under the IDP to the Retention Award shall vest on May 31, 2001, and the amount of the Retention Award shall be paid to the Key Executive in accordance with any distribution election or elections that the Key Executive has made pursuant to the terms of the IDP. (c) Definition of Employee in Good Standing. For purposes of --------------------------------------- this Agreement, the Key Executive will be considered to be an "Employee in Good Standing" on a given date if, on or before that date, the Key Executive has not terminated employment for any reason (other than "constructive discharge" as defined in Section 6(d) of this Agreement), has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date (other than pursuant to a "constructive discharge" as defined in Section 6(d) of this Agreement), and has not behaved in a manner that would be grounds for discharge with cause as defined in Section 6(b) of this Agreement. 5. Stay Bonus. ---------- (a) Closing of Merger. If Bell Atlantic and GTE Corporation ----------------- ("GTE") merge their businesses (the "Merger") pursuant to the terms of the Agreement and Plan of Merger dated as of July 27, 1998, among Bell Atlantic, GTE, and Beta Gamma Corporation (the "Definitive Agreement"), and if the Key Executive has remained an Employee in Good Standing of a Bell Atlantic Company from the date of this Agreement to the closing date of the Merger (the "Closing Date"), then, not later than 30 calendar days following the Closing Date, Bell Atlantic shall cause the Bell Atlantic Company which then employs the Key Executive to pay the Key Executive a special bonus (a "Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to 1.5 multiplied by the sum, as of the Closing Date, of (i) the Key Executive's annual rate of base salary, and (ii) 50% of the Key Executive's maximum short-term incentive under the STIP. (b) Business Discretion of Bell Atlantic/Termination of --------------------------------------------------- Merger Plan. Nothing in this Agreement is intended to limit the ----------- discretion of any Bell Atlantic Company to take any action with regard to the Merger which Bell Atlantic may consider appropriate, including, without limitation, postponing the Closing Date or terminating the Definitive Agreement. If the Definitive Agreement is terminated without the Merger occurring, the Key Executive shall have no right to receive the Stay Bonus or any portion of such bonus. 6. Terminations of Employment. -------------------------- (a) Voluntary Resignation, Retirement, or Discharge for --------------------------------------------------- Cause. In the event that, prior to the end of the Term of Employment, ----- the Key Executive voluntarily resigns or retires for any reason (except a "constructive discharge", as hereinafter defined, or is discharged by Bell Atlantic for "cause" (as hereinafter defined), the Key Executive shall forfeit any and all rights to receive the compensation and benefits set forth in Sections 2 and 5 of this Agreement which as of the relevant date have not yet - -------------------------------------------------------------------------------- Employment Agreement Page 3 Alexander H. Good been earned under this Agreement, and shall forfeit the right to receive the Retention Award set forth in Section 4 of this Agreement, but shall otherwise be eligible to receive any and all compensation and benefits for which a similarly-situated senior manager would be eligible under the applicable provisions of the compensation and benefit plans in which he is then eligible to participate, as those plans may be amended from time to time. (b) Cause. For purposes of this Agreement, the term "cause" ----- shall mean (i) grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Executive; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; or a material breach of the Employee Code of Business Conduct or Sections 8 (Non-Compete/No Solicitation), 9 (Return of Property; Intellectual Property Rights) or 10 (Proprietary and Confidential Information) of this Agreement; each of the foregoing as determined in the reasonable discretion and judgment of the Chief Executive Officer of Bell Atlantic, or (ii) commission of any felony of which the Key Executive is finally adjudged guilty in a court of competent jurisdiction. In the event that Bell Atlantic terminates the employment of the Key Executive for cause, it will state in writing the grounds for such termination and provide this statement to the Key Executive within 10 business days after the date of termination. (c) Involuntary Terminations. Except in the case of a ------------------------ discharge for cause, in the event that Bell Atlantic discharges the Key Executive, or the Key Executive is "constructively discharged" (as hereinafter defined), prior to the end of the Term of Employment, then the Key Executive shall be entitled to receive, as liquidated damages, subject to signing and delivering the Release (attached as Exhibit A), the following payments, credits and benefits in lieu of any payment, credit, or benefit otherwise provided in Sections 2, 4 and 5 of this Agreement, provided that each payment, credit and benefit shall be contingent upon the absence, at the time such payment, credit or benefit is due, of any act that would constitute a material breach of this Agreement: (i) Salary: through the Term of Employment, on a monthly basis, an amount equal to the monthly salary which would have been paid to the Key Executive under Section 2 of this Agreement, assuming that his annual rate of salary would have been increased each January 1 by the greater of (A) 5%, or (B) the general percentage increase, if any, approved by the Human Resources Committee ("HRC") of the Board for comparable positions in the senior management group based on the HRC's review of market-median values for such comparable positions; (ii) Short-Term Incentives: through the Term of Employment, on an annual basis, not later than 30 days after the date on which incentives are awarded by Bell Atlantic under the STIP for the prior year's performance, an amount equal to the value of the potential maximum award which the Key Executive would have been entitled to receive under the STIP based on the maximum STIP award for comparable positions in the senior management group, without adjustment for individual performance; (iii) Retention Award: immediate vesting under the IDP of the Retention Award provided for in Section 4 of this Agreement; - -------------------------------------------------------------------------------- Employment Agreement Page 4 Alexander H. Good (iv) Stay Bonus: if the Merger subsequently occurs pursuant to the Definitive Agreement, a single cash payment, not later than 30 days after the Closing Date of the Merger, which shall be equal (before withholding of taxes) to the Stay Bonus which would otherwise have become payable under Section 5(a) of this Agreement, provided that the date of discharge shall be substituted for the Closing Date for purposes of calculating the dollar amount of such payment; (v) Stock Options: through the Term of Employment, on an annual basis, within 30 days of the granting of stock options for the year to senior managers, an amount equal to 1.2 multiplied by the annual salary amount determined in accordance with clause (i) above; provided further, with respect to any and all Bell Atlantic stock options which are outstanding on the date of the Key Executive's separation from service, the Key Executive shall be deemed, for purposes of determining the duration of the Key Executive's right to exercise any and all such stock options, to have remained in active service with Bell Atlantic continuously through the Term of Employment, and then to have separated from service with whatever rights would then be applicable to a holder of such options under the Stock Option Plan; (vi) IDP Benefits: through the Term of Employment, company credits to the Company Contribution sub-account contained within the Key Executive's account under the IDP to the fullest extent provided, and at the same time such amounts would have been credited, as if the Key Executive had remained actively employed until the end of the Term of Employment and received the salary and maximum STIP awards determined in accordance with clauses (i) and (ii) above; provided further, that Bell Atlantic shall also credit to such IDP sub-account an amount each year equal to the sum of (A) the amount which the Key Executive would otherwise have been eligible to receive as company matching contributions under the Bell Atlantic Savings Plan or any successor to that plan (if he had fully participated in contributions to that plan) and (B) the pay credits which the Key Executive would otherwise have been eligible to receive under the Bell Atlantic Cash Balance Plan or any successor to that plan; (vii) Split- Dollar Benefits: regardless of whether the Key Executive is retirement eligible at the time of his separation from service, split-dollar life insurance benefits applicable to a retiring participating senior manager, under the terms of the Bell Atlantic Senior Management Estate Management Program; and (viii) Flexible Perquisites: through the Term of Employment, on a monthly basis, $2,000 in lieu of the Flexible Perquisites Account allowance that the Key Executive would have been entitled to receive. (d) Constructive Discharge. The Key Executive shall be deemed ---------------------- to have been "constructively discharged" for purposes of this Agreement if the Key Executive is an Employee in Good Standing and he terminates his employment for any of the following reasons: Bell Atlantic (or the Key Executive's employing company) has materially breached this Agreement; the Key Executive's responsibilities have been significantly reduced in type or scope; there has been a significant adverse change in the - -------------------------------------------------------------------------------- Employment Agreement Page 5 Alexander H. Good Key Executive's reporting relationship; there has been a significant adverse change in the Key Executive's relative compensation (including a negative individual performance adjustment which causes the Key Executive's STIP award for a particular year to be reduced by 10% or more); Ivan Seidenberg is not elected Chairman of the Board by December 31, 1998 or is removed from or resigns from that position during the Term of Employment (unless the Board determines that such event results from Mr. Seidenberg's death, "Disability" (as defined in Section 4(a) of his Employment Agreement, dated as of August 14, 1998), or his election to terminate his employment "without Good Reason" (as provided in Section 4(c) of his Employment Agreement); or there has been a "change of control" of Bell Atlantic. For purposes of this Agreement, a change of control of Bell Atlantic shall mean that any of the following events or circumstances has occurred: (i) any "Person" (as such term is used in sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes a beneficial owner, directly or indirectly, of shares of one or more classes of stock of Bell Atlantic representing 20% or more of the total voting power of Bell Atlantic's then outstanding voting stock, provided, however, that if such beneficial ownership is acquired in a transaction that has been negotiated and approved by the Board, such acquisition of beneficial ownership shall not be treated as a change of control of Bell Atlantic for purpose of this Agreement; (ii) a tender offer (for which a filing has been or is required to be made with the Securities and Exchange Commission under section 14(d) of the Securities Exchange Act of 1934) is made for the stock of Bell Atlantic, and the Person making the offer owns or has accepted for payment shares of one or more classes of Bell Atlantic stock which represent, when combined with any shares otherwise acquired and owned by such Person, 20% or more of the total voting power of Bell Atlantic's then outstanding stock, provided, however, that if such tender offer has been negotiated and approved by the Board, such tender offer and stock acquisition shall not be treated as a change of control of Bell Atlantic for purposes of this Agreement; or (iii) there ceases to be a majority of the Board comprised of individuals who either (A) have been members of the Board continuously for a period of not less than two years, or (B) are new directors whose election by the Board or nomination for election by shareowners of Bell Atlantic was approved by a vote of at least two-thirds of the directors then in office who either were directors described in clause (A) hereof or whose election or nomination for election was previously so approved. (e) Disability or Death. If, during the Term of Employment ------------------- at a time when the Key Executive is an Employee in Good Standing, the Key Executive terminates employment on account of disability (within the meaning of the applicable disability benefit plans in which the Key Executive participates from time to time) or dies, and provided Bell Atlantic receives a Release in the form of Exhibit A from the Key Executive (in the case of disability) or from his estate (in the case of death), then Bell Atlantic shall continue to pay to the Key Executive (in the case of disability) or pay to the Key Executive's estate (in the case of death) the amounts determined as if, at the date of termination of employment on account of disability or death, the Key Executive had been - -------------------------------------------------------------------------------- Employment Agreement Page 6 Alexander H. Good terminated without cause under Section 6(c) of this Agreement; provided, however, that in lieu of the amount described in Section 6(c)(iv) of this Agreement (the "Stay Bonus Amount"), the Key Executive (or his estate) shall receive the Stay Bonus Amount multiplied by the following fraction: the numerator shall be the number of days that have elapsed between the date of this Agreement and the date of the Key Executive's death or disability, and the denominator shall be the number of days that have elapsed between the date of this Agreement and the Closing Date of the Merger; and, provided further, that in the case of a termination of employment on account of disability, the amounts paid pursuant to Sections 6(c)(i) and (ii) of this Agreement shall reduce dollar for dollar the disability benefits which would otherwise be payable to the Key Executive during the remainder of the Term of Employment under the various disability benefit plans in which he participates. 7. Payments Subject to Excise Tax. In the event that it shall be ------------------------------ determined, in the manner described in Exhibit B, that any payment or distribution by any Bell Atlantic Company to or for the benefit of the Key Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, Bell Atlantic shall pay the Key Executive an additional amount, determined in accordance with and subject to the provisions of Exhibit B, to compensate the Key Executive for his excise tax cost. 8. Prohibition Against Competitive Activities. ------------------------------------------ (a) Prohibited Conduct by the Key Executive. During the period --------------------------------------- of the Key Executive's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Executive's termination of employment for any reason from all Bell Atlantic Companies, the Key Executive, without the prior written consent of the Chief Executive Officer of Bell Atlantic shall not: (i) personally engage in "Competitive Activities" (as defined in Section 8(b) of this Agreement); or (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities, or any company or person affiliated with such person or entity engaged in Competitive Activities; provided, however, that the Key Executive's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Key Executive's equity interest in any such company is less than a controlling interest. (b) Competitive Activities. For purposes of this Agreement, "Competitive Activities" means business activities relating to products or services of the same or similar type as the products or services which (i) are sold (or, pursuant to an existing business plan, will be sold) to paying customers of one or more Bell Atlantic Companies, and (ii) for which the Key Executive then has responsibility to plan, develop, manage, market or oversee, or had any such responsibility within the prior 24 months. Notwithstanding the previous sentence, a business activity will not be treated as a - -------------------------------------------------------------------------------- Employment Agreement Page 7 Alexander H. Good Competitive Activity if the geographic marketing area of the relevant products or services sold by the Key Executive or a third party does not overlap with the geographic marketing area for the applicable products and services of the Bell Atlantic Companies. (c) No Solicitation of Bell Atlantic Employees. During the ------------------------------------------ period of the Key Executive's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Executive's termination of employment for any reason from all Bell Atlantic Companies, the Key Executive shall not, without the consent of the Chief Executive Officer of Bell Atlantic: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which could lead to the use of that information for purposes of recruiting or hiring; or (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, or representatives. (d) Waiver. Nothing in this Agreement shall bar the Key Executive from requesting, at the time of the Key Executive's termination of employment or at any time thereafter, that the Chief Executive Officer of Bell Atlantic waive, in his sole discretion, Bell Atlantic's rights to enforce some or all of this Section. 9. Return of Property; Intellectual Property Rights. The Key ------------------------------------------------ Executive agrees that on or before the Key Executive's termination of employment for any reason with all Bell Atlantic Companies, the Key Executive shall return to the appropriate Bell Atlantic Company all property owned by each such company or in which any such company has an interest, including files, documents, data and records (whether on paper or in tapes, disks, or other machine-readable form), office equipment, credit cards and employee identification cards. The Key Executive acknowledges that Bell Atlantic or an applicable Bell Atlantic Company is the rightful owner of any programs, ideas, inventions, discoveries, copyright material or trademarks which the Key Executive may have originated or developed, or assisted in originating or developing, during the Key Executive's period of employment with any Bell Atlantic Company, where any such origination or development involved the use of company time or resources, or the exercise of the Key Executive's responsibilities for or on behalf of any such company. The Key Executive shall at all times, both before and after termination of employment, cooperate with Bell Atlantic in executing and delivering documents requested by any Bell Atlantic Company, and taking any other actions, that are necessary or requested by Bell Atlantic to assist any Bell Atlantic Company in patenting, copyrighting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the applicable company. 10. Proprietary and Confidential Information. The Key Executive shall ---------------------------------------- at all times preserve the confidentiality of all proprietary information and trade secrets of any and all Bell Atlantic Companies, except to the extent that disclosure of such information is legally required. - -------------------------------------------------------------------------------- Employment Agreement Page 8 Alexander H. Good "Proprietary information" means information that has not been disclosed to the public, and which is treated as confidential within the business of any Bell Atlantic Company, such as strategic or tactical business plans; undisclosed financial data; ideas, processes, methods, techniques, systems, patented or copyrighted information, models, devices, programs, computer software or related information; documents relating to regulatory matters and correspondence with governmental entities; undisclosed information concerning any past, pending or threatened legal dispute; pricing and cost data; reports and analyses of business prospects; business transactions which are contemplated or planned; research data; personnel information and data; identities of users and purchasers of any Bell Atlantic Company's products or services; and other confidential matters pertaining to or known by one or more Bell Atlantic Companies, including confidential information of a third party which the Key Executive knows a Bell Atlantic Company is bound to protect. 11. Nondisclosure. Unless and until the precise terms of this ------------- Agreement, and the precise amount of any payment eligible to be paid or actually paid under this Agreement, are disclosed in writing to the public by any Bell Atlantic Company, the Key Executive shall hold the terms of this Agreement and the amount of any payment, benefit, credit, or right hereunder in strict confidence, except that the Key Executive may disclose such details (i) on a confidential basis to his spouse (if any), and to any financial counselor, tax adviser or legal counsel retained by the Key Executive, or (ii) to the extent such disclosure is legally required. 12. Assignment by Bell Atlantic. The obligations of Bell Atlantic --------------------------- hereunder shall be the obligations of any and all successors and assigns of Bell Atlantic. Bell Atlantic may assign this Agreement without the Key Executive's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Executive, and no person other than the Key Executive (or the Key Executive's estate) may assert the rights of the Key Executive under this Agreement. 13. Non-Benefit Bearing Payments. The amounts to be paid, provided or ---------------------------- credited under Sections 4, 5, 6, and 7 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit to be paid, provided or credited under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 14. Deferrals under IDP. Amounts otherwise payable to the Key Executive ------------------- under Section 5 and 6 of this Agreement may be deferred under the IDP or any successor plan, but only if and to the extent that a valid deferral election is in place and deferral of such amounts is permitted under the terms of the IDP or successor plan. 15. Forfeiture of IDP Amounts. The Key Executive acknowledges that if ------------------------- he breaches Section 8 (Non-Compete/No Solicitation) of this Agreement or engages in serious misconduct that is contrary to written policies of Bell Atlantic and is harmful to any Bell Atlantic Company or its reputation, he may forfeit any balance remaining in any Company Contribution sub-account contained within his account under the IDP. 16. Waiver. Failure to insist upon strict compliance with any of the ------ terms, covenants or conditions of this Agreement shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or - -------------------------------------------------------------------------------- Employment Agreement Page 9 Alexander H. Good more times be deemed a waiver or relinquishment of such right or power at any other time or times. 17. Additional Remedies. In addition to any other rights or remedies, ------------------- whether legal, equitable or otherwise, which each of the parties may have, the Key Executive acknowledges that Sections 8 (Non-Compete/No Solicitation), 9 (Return of Property), 10 (Proprietary and Confidential Information), and 11 (Nondisclosure) of this Agreement are essential to the continued good will and profitability of Bell Atlantic and further acknowledges that the application and operation thereof shall not involve a substantial hardship upon the Key Executive's future livelihood. The parties hereto further recognize that irreparable damage to Bell Atlantic will result in the event that these sections of the Agreement are not specifically enforced and that monetary damages will not adequately protect Bell Atlantic from a breach of these sections of the Agreement. If any dispute arises concerning the violation by the Key Executive of these sections of the Agreement, the parties hereto agree that an injunction may be issued restraining such violation pending the determination of such controversy, and no bond or other security may be required in connection therewith. 18. Reformation and Severability. The Key Executive and Bell Atlantic ---------------------------- agree that the agreements contained herein and within the Release shall each constitute a separate agreement independently supported by good and adequate consideration, and shall each be severable from the other provisions of the Agreement and the Release. If an arbitrator or court of competent jurisdiction determines that any term, provision or portion of this Agreement or the Release is void, illegal or unenforceable, the other terms, provisions and portions of this Agreement or the Release shall remain in full force and effect and the terms, provisions and portions that are determined to be void, illegal or unenforceable shall either be limited so that they shall remain in effect to the extent permissible by law, or such arbitrator or court shall substitute, to the extent enforceable, provisions similar thereto or other provisions, so as to provide to Bell Atlantic, to the fullest extent permitted by applicable law, the benefits intended by this Agreement and the Release. If Bell Atlantic's Independent Certified Public Accountants determine that Section 6(d) of this Agreement, in whole or in part, prevents Bell Atlantic from complying with the provisions of Section 7.16 of the Definitive Agreement, then the Key Executive agrees to amend Section 6(d) of this Agreement to the extent necessary to permit compliance with such Section 7.16. 19. Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed to have been duly given if delivered by hand or messenger, transmitted by telex or telegram or mailed by registered or certified mail, return receipt requested and postage prepaid, as follows: - -------------------------------------------------------------------------------- Employment Agreement Page 10 Alexander H. Good (a) If to Bell Atlantic, to: Bell Atlantic Corporation 1095 Avenue of the Americas New York, New York 10036 Attention: Executive Vice President Human Resources (b) If to the Key Executive, to: 412 Prince Street Alexandria, Virginia 22314 or to such other person or address as either of the parties shall hereafter designate to the other from time to time by similar notice. 20. Arbitration. Any dispute arising out of or relating to this ----------- Agreement, except any dispute arising out of or relating to Sections 8 through 11 of this Agreement, shall be settled by final and binding arbitration, which shall be the exclusive means of resolving any such dispute, and the parties specifically waive all rights to pursue any other remedy, recourse or relief. With respect to disputes by Bell Atlantic arising out of or relating to Sections 8 through 11 of this Agreement, Bell Atlantic has retained all its rights to legal and equitable recourse and relief, including but not limited to injunctive relief, as referred to in Section 17 of this Agreement. Notice of the existence of a dispute which a party wishes to have resolved by arbitration shall be provided pursuant to Section 20 of this Agreement. The arbitration shall be expedited and conducted in New York, New York pursuant to the Center for Public Resources ("CPR") Rules for Non-Administered Arbitration of Employment Disputes in effect at the time of notice of the dispute before one neutral arbitrator appointed by CPR from the CPR Panel of Neutrals unless the parties mutually agree to the appointment of a different neutral arbitrator. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the arbitration may be entered by any court having jurisdiction. The finding of the arbitrator may not change the express terms of this Agreement and shall be consistent with the arbitrator's understanding of the findings a court of proper jurisdiction would make in applying the applicable law to the facts underlying the dispute. In no event whatsoever shall such an arbitration award include any award of damages other than the amounts in controversy under this Agreement. The parties waive the right to recover, in such arbitration, punitive damages. 21. Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the laws of the State of New York. 22. Entire Agreement. Except for the terms of other compensation and ---------------- benefit plans in which the Key Executive participates, this Agreement shall set forth the entire understanding of Bell Atlantic and the Key Executive and shall supersede all prior agreements and communications, whether oral or written, between Bell Atlantic and the Key Executive including, without limitation, the Prior Agreement. This Agreement shall not be modified except by written agreement of the Key Executive and Bell Atlantic. - -------------------------------------------------------------------------------- Employment Agreement Page 11 Alexander H. Good 23. Tax Withholding. Any payment made pursuant to this Agreement will --------------- be subject to applicable withholding taxes under federal, state and local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: _______________________ Ivan Seidenberg Chief Executive Officer THE KEY EXECUTIVE By: _______________________ Alexander H. Good - -------------------------------------------------------------------------------- Employment Agreement Page 12 Alexander H. Good EXHIBIT A --------- THIS RELEASE (the "Release") is entered into by _____________________ (the "Key Executive"), for the benefit of BELL ATLANTIC CORPORATION (the "Company"), and all companies, and their officers, directors and employees, which are affiliated with the Company or in which the Company owns a substantial economic interest, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan). Capitalized terms in this document which are not otherwise defined herein shall have the respective meanings assigned to them in the Employment Agreement between the Company and the Key Executive, dated ____________, _____ (the "Agreement"). WHEREAS, the Key Executive has separated from service with the Key Executive's employing company (the "Employer") on __________ , _____ (the "Separation Date") pursuant to the terms of the Agreement, and the Key Executive wishes to execute this Release as contemplated under the terms of the Agreement. NOW, THEREFORE, the Key Executive affirms as follows: 1. The Key Executive hereby waives any and all claims which the Key Executive might have against any Bell Atlantic Company, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), for salary payments, vacation pay, incentives, bonuses, or other remuneration or employee benefits of any kind, with the exception of any obligations of the Company or Employer arising after the Separation Date under Sections 5 or 6 of the Agreement. 2. Except as provided in Section 1 hereof, the Key Executive hereby voluntarily releases and discharges each and every Bell Atlantic Company and their successors and assigns, and the directors, officers, employees, and agents of each of them, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), reimbursements or costs of any kind which the Key Executive might have or assert against any of said entities or persons as of the Separation Date by reason of the Key Executive's employment by any Bell Atlantic Company or the termination of said employment, and all circumstances related thereto, including but not limited to, any and all claims, demands, rights and causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. Sections 1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of 1991, the Americans with Disabilities Act, the Employee Retirement Income Security Act ("ERISA") or any other applicable federal, state or local employment discrimination statute or ordinance. 3. The Key Executive hereby reaffirms all covenants and promises given by the Key Executive under the Agreement, and all other terms and conditions of the Agreement, in all respects. 4. Should any provision of this Release be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. STATEMENT BY THE KEY EXECUTIVE WHO IS SIGNING BELOW: THE COMPANY HAS --------------------------------------------------- ADVISED ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE COMPANY HAS FULFILLED ITS DUTIES TO ME UNDER THE OLDER WORKERS BENEFITS PROTECTION ACT, AND I ACKNOWLEDGE THAT THIS RELEASE IS LEGALLY ENFORCEABLE BY THE COMPANY. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED. THE UNDERSIGNED, intending to be legally bound, has executed this Release as of the ___ day of _________, _____, that being the Key Executive's Separation Date. THE KEY EXECUTIVE Signed: ----------------------------- THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING - -------------------------------------------------------------------------------- Exhibits to Employment Agreement Page 14 Alexander H. Good EXHIBIT B --------- Determination of Gross-Up Payment. In the event that any payment or --------------------------------- benefit received or to be received by the Key Executive pursuant to the terms of the Agreement (the "Contract Payments") or of any other plan, arrangement or agreement of any Bell Atlantic Company ("Other Payments" and, together with the Contract Payments, the "Payments") would be subject to the excise tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code (the "Code") as determined in accordance with this paragraph, Bell Atlantic shall pay to the Key Executive, at the time specified below, an additional amount (the "Gross-Up Payment") such that the net amount retained by the Key Executive, after deduction of the Excise Tax on Payments and any federal, state and local income tax and the Excise Tax upon the Gross-Up Payment, and any interest, penalties or additions to tax payable by the Key Executive with respect thereto, shall be equal to the total present value (using the applicable federal rate (as defined in Section 1274(d) of the Code) in such calculation) of the Payments at the time such Payments are to be made. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the total amount of the Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to the extent that, in the written opinion of independent counsel selected by Bell Atlantic and reasonably acceptable to the Key Executive ("Independent Counsel"), a Payment (in whole or in part) does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, or such "excess parachute payments" (in whole or in part) are not subject to the Excise Tax; (ii) the amount of the Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Payments or (B) the amount of "excess parachute payments" within the meaning of section 280G(b)(1) of the Code (after applying clause (i) hereof); and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by Independent Counsel in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Key Executive shall be deemed to pay federal income taxes at the highest marginal rates of federal income taxation applicable to individuals in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the state and locality of the Key Executive's residence in the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes that can be obtained from deduction of such state and local taxes, taking into account any limitations applicable to individuals subject to federal income tax at the highest marginal rates. Timing of Gross-Up Payment. The Gross-Up Payments provided for in this -------------------------- Exhibit B shall be made upon the earlier of (i) the payment to the Key Executive of any Payment or (ii) the imposition upon the Key Executive or payment by the Key Executive of any Excise Tax. Adjustments to Gross-Up Payment. If it is established pursuant to a ------------------------------- final determination of a court or an Internal Revenue Service proceeding or the written opinion of Independent Counsel that the Excise Tax is less than the amount previously taken into account hereunder, the Key Executive shall repay to Bell Atlantic within thirty (30) days of - -------------------------------------------------------------------------------- Exhibits to Employment Agreement Page 15 Alexander H. Good the Key Executive's receipt of notice of such final determination or opinion the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Key Executive if such repayment results in a reduction in Excise Tax or a federal, state and local income tax deduction) plus any interest received by the Key Executive on the amount of such repayment, provided, however, that if any such amount has been paid by the Key Executive as an Excise Tax or other tax, the Key Executive shall cooperate with Bell Atlantic in seeking a refund of any tax overpayments, and shall not be required to make repayments to Bell Atlantic until the overpaid taxes and interest thereon are refunded to the Key Executive. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding or the written opinion of Independent Counsel that the Excise Tax exceeds the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Bell Atlantic shall make an additional Gross-Up Payment in respect of such excess within thirty (30) days of Bell Atlantic's receipt of notice of such final determination or opinion. Change in Law or Interpretation. In the event of any change in, or ------------------------------- further interpretation of, sections 280G or 4999 of the Code and the regulations promulgated thereunder, the Key Executive shall be entitled, by written notice to Bell Atlantic, to request a written opinion of Independent Counsel regarding the application of such change to any of the foregoing, and Bell Atlantic shall use its best efforts to cause such opinion to be rendered as promptly as practicable. All fees and expenses of Independent Counsel incurred in connection with this Exhibit B shall be borne by Bell Atlantic. - -------------------------------------------------------------------------------- Exhibits to Employment Agreement Page 16 Alexander H. Good EX-10.KK 9 FORM OF STAY INCENTIVE AGREEMENT - DATED 11/23/98 EXHIBIT 10kk FORM OF STAY INCENTIVE AGREEMENT (Doreen A. Toben, Ellen C. Wolf) THIS STAY INCENTIVE AGREEMENT (the "Agreement") is made as of the 23rd day of November, 1998, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and ________________________________, an employee of a Bell Atlantic Company (the "Key Employee"). In this Agreement, "Bell Atlantic Company" means any or all of the following: Bell Atlantic, a corporate subsidiary or other company affiliated with Bell Atlantic, a company in which Bell Atlantic owns directly or indirectly an equity interest of at least ten percent, and the successors and assigns of any such company. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as of July 27, 1998, among Bell Atlantic, GTE Corporation ("GTE") and Beta Gamma Corporation (the "Definitive Agreement"), Bell Atlantic contemplates a merger of the Bell Atlantic and GTE businesses (the "Merger") on a date which is yet to be decided (the "Closing Date"); WHEREAS, Bell Atlantic considers the Key Employee to be an employee whose continuing services, leadership and support are and will be valuable, especially during the period prior to the Closing Date; and WHEREAS, subject to the terms of this Agreement, Bell Atlantic wishes to incent the Key Employee to remain an employee in good standing during this period; NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Stay Incentive. -------------- (a) Stay Incentive Bonus at Closing. If the Merger occurs pursuant to ------------------------------- the Definitive Agreement, and if the Key Employee has remained an "Employee in Good Standing" (as defined in Section 1(c) of this Agreement) of a Bell Atlantic Company from the date of this Agreement to the Closing Date, then, not later than 30 calendar days following the Closing Date, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a special stay incentive bonus (a "Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to 1.5 multiplied by the greater of (i) the sum of the Key Employee's annual rate of base salary and 50% of the Key Employee's maximum short-term incentive under the Bell Atlantic Short Term Incentive Plan (or other applicable short-term incentive plan), both as of the date of this Agreement, or (ii) the sum of such items, both as of the Closing Date. (b) Adjusted Stay Incentive Bonus if Merger Plan is Terminated. If the ---------------------------------------------------------- Definitive Agreement is terminated without the Merger occurring, and the Key Employee has remained an "Employee in Good Standing" of a Bell Atlantic Company from the date of this Agreement to the date the Definitive Agreement is terminated, then, not later than 30 calendar days following the date of termination of the Definitive Agreement, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a special adjusted stay incentive bonus (an "Adjusted Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to 25 percent of the Stay Bonus described in Section 1(a) of this Agreement, except that the date of termination of the Definitive Agreement shall be substituted for the Closing Date for purposes of calculating such amount. (c) Definition of Employee in Good Standing. For purposes of this --------------------------------------- Agreement, the Key Employee will be considered to be an "Employee in Good Standing" on a given date if, on that date, the Key Employee is employed by a Bell Atlantic Company, has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date, and has not behaved in a manner that would be grounds for discharge for "Cause" as defined in Section 1(d) of this Agreement. (d) Definition of Cause. For purposes of this Agreement, the term ------------------- "Cause" shall mean grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Employee as determined by the Key Employee's current supervisor, with the concurrence of the Executive Vice President - Human Resources of Bell Atlantic; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; a material breach of the Employee Code of Business Conduct or this Agreement; or commission of any felony of which the Key Employee is finally adjudged guilty in a court of competent jurisdiction. 2. Termination of Employment. ------------------------- (a) Voluntary Resignation, Retirement, or Discharge for Cause. In the --------------------------------------------------------- event that, prior to the Closing Date or termination of the Definitive Agreement, the Key Employee voluntarily resigns or retires for any reason or is discharged by a Bell Atlantic Company for Cause, the Key Employee shall forfeit any and all rights to receive a Stay Bonus or an Adjusted Stay Bonus under Section 1 of this Agreement. (b) Involuntary Terminations. In the event that a Bell Atlantic ------------------------ Company discharges the Key Employee other than for Cause, and either (i) the Merger subsequently occurs pursuant to the Definitive Agreement, or (ii) the Definitive Agreement is terminated without the Merger occurring, then Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee a bonus equal in amount to the Stay Bonus or Adjusted Stay Bonus which would otherwise have become payable under Section 1 (a) or (b) of this Agreement, provided that the payment of such bonus shall be contingent upon the absence, at the time of payment, of any act by the Key Employee that would constitute a material breach of this Agreement, and provided further that the date of discharge shall be substituted for the dates described in Section 1 (a) or (b) for purposes of calculating the dollar amount of such bonus. Such bonus shall be paid not later than the date on which the Stay Bonus or Adjusted Stay Bonus would otherwise have become payable. (c) Payment in Case of Death or Disability. In the event that the Key -------------------------------------- Employee dies, or terminates his or her employment on account of disability (within the meaning of the applicable disability benefit plan in which the Key Employee participates from time to time) on a date on which the Key Employee was an Employee in Good Standing, and the Merger subsequently occurs pursuant to the Definitive Agreement, Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee, or the Key Employee's estate in the event of death, a single cash payment which shall be equal (before withholding of taxes) to the Stay Bonus multiplied by the following fraction: the numerator shall 2 be the number of days that have elapsed between the date of this Agreement and the date of the Key Employee's death or disability, and the denominator shall be the number of days that have elapsed between the date of this Agreement and the Closing Date of the Merger. Such payment shall be made in accordance with the timetable prescribed in Section 1(a) of this Agreement, substituting the date of death or disability for the date described in Section 1(a) for purposes of calculating the dollar amount of the payment. If the Definitive Agreement is terminated without the Merger occurring after the Key Employee's death or disability, and if the Key Employee was an Employee in Good Standing on the date of such death or disability, a single cash payment shall be made to the Key Employee, or the Key Employee's estate in the event of death, in an amount equal (before withholding of taxes) to the Adjusted Stay Bonus. Such payment shall be made in accordance with the timetable prescribed in Section 1(b) of this Agreement, substituting the date of death or disability for the date described in Section 1(b) for purposes of calculating the dollar amount of the payment. 3. Prohibition Against Recruiting or Hiring. Commencing on the ---------------------------------------- effective date of this Agreement and at all times thereafter through the second anniversary of the Key Employee's termination of employment for any reason from all Bell Atlantic Companies, the Key Employee shall not, without the consent of the Executive Vice President - Human Resources of Bell Atlantic: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire, or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which the Key Employee knows or should know could lead to the use of that information for purposes of recruiting or hiring; or (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, or representatives. 4. Confidentiality. The Key Employee agrees not to disclose or --------------- discuss, other than with the Key Employee's legal counsel, financial or tax adviser, and spouse (if any) either the existence of or any details of this Agreement. The Key Employee will make a good faith effort to ensure that any such legal counsel, financial or tax adviser, or spouse will not disclose or discuss the existence or any details of this Agreement with any other person. 5. Proprietary Information. The Key Employee shall at all times ----------------------- preserve the confidentiality of all proprietary information and trade secrets of any and all Bell Atlantic Companies. "Proprietary information" means information obtained or developed by the Key Employee during the Key Employee's employment with any Bell Atlantic Company that has not been fully disclosed in a writing generally circulated to the public at large, and which is treated as confidential within the business of any Bell Atlantic Company. 6. Deferrals under IDP. Amounts otherwise payable to the Key ------------------- Employee under Sections 1 or 2 of this Agreement may be deferred under the Bell Atlantic Income Deferral Plan ("IDP") or any successor plan in accordance with the terms of the IDP. 3 7. Assignment by Bell Atlantic. Bell Atlantic may assign this --------------------------- Agreement without the Key Employee's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Employee, and no person other than the Key Employee (or the Key Employee's estate) may assert the rights of the Key Employee under this Agreement. 8. Business Discretion of Bell Atlantic. Nothing in this ------------------------------------ Agreement is intended to limit the discretion of any Bell Atlantic Company to take any action with regard to the Merger which Bell Atlantic may consider appropriate, including, without limitation, postponing the Closing Date or terminating the Definitive Agreement. This Agreement is not a contract to retain the Key Employee in the employ of any Bell Atlantic Company for any prescribed period or term. This Agreement does not modify the employment-at-will status of the Key Employee. 9. Non-Benefit Bearing Payments. Any amount to be paid under ---------------------------- Section 1 or Section 2 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 10. Remedies. The Key Employee acknowledges that irreparable -------- injury will result to Bell Atlantic, and other Bell Atlantic Companies, and to their business, in the event of a material breach by the Key Employee of any of the Key Employee's covenants and commitments under this Agreement. In the event of a material breach of any of the Key Employee's covenants and commitments under this Agreement, the Key Employee, in the sole discretion of Bell Atlantic, may forfeit any amount otherwise payable to the Key Employee under Sections 1 or 2 of this Agreement. In addition, Bell Atlantic and any affected Bell Atlantic Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. 11. Governing Law. This Agreement shall be interpreted and ------------- enforced in accordance with the law of the State of New York. 12. Severability. If any clause, phrase or provision of this ------------ Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, this shall not affect or render invalid or unenforceable the remainder of this Agreement. Furthermore, in the event that a court of law or equity determines that the duration of any restrictions under this Agreement is not enforceable, this Agreement shall be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement, as so amended. 13. Waiver: The waiver by Bell Atlantic of a breach by the Key ------ Employee of any provision of this Agreement shall not be construed as a waiver of any subsequent breach. 14. Entire Agreement: This Agreement sets forth the entire ---------------- understanding of Bell Atlantic and the Key Employee, and supersedes all prior agreements and communications, whether oral or written, pertaining to eligibility for stay incentives of the type described herein, and covenants pertaining to recruiting or hiring, and proprietary information. This Agreement shall not be modified except by written agreement of the Key Employee and Bell Atlantic. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: ------------------------------------- THE KEY EMPLOYEE ---------------------------------------- 5 EX-10.LL 10 FORM OF STAY INCENTIVE AGREEMENT - DATED 11/23/98 EXHIBIT 10ll FORM OF STAY INCENTIVE AGREEMENT (Patrick F.X. Mulhearn, Thomas J. Tauke) THIS STAY INCENTIVE AGREEMENT (the "Agreement") is made as of the 23rd day of November, 1998, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and ________________________________, an employee of a Bell Atlantic Company (the "Key Employee"). In this Agreement, "Bell Atlantic Company" means any or all of the following: Bell Atlantic, a corporate subsidiary or other company affiliated with Bell Atlantic, a company in which Bell Atlantic owns directly or indirectly an equity interest of at least ten percent, and the successors and assigns of any such company. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as of July 27, 1998, among Bell Atlantic, GTE Corporation ("GTE") and Beta Gamma Corporation (the "Definitive Agreement"), Bell Atlantic contemplates a merger of the Bell Atlantic and GTE businesses (the "Merger") on a date which is yet to be decided (the "Closing Date"); WHEREAS, Bell Atlantic considers the Key Employee to be an employee whose continuing services, leadership and support are and will be valuable, especially during the period prior to the Closing Date; and WHEREAS, subject to the terms of this Agreement, Bell Atlantic wishes to incent the Key Employee to remain an employee in good standing during this period; NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Stay Incentive. -------------- (a) Stay Incentive Bonus at Closing. If the Merger occurs pursuant to ------------------------------- the Definitive Agreement, and if the Key Employee has remained an "Employee in Good Standing" (as defined in Section 1(c) of this Agreement) of a Bell Atlantic Company from the date of this Agreement to the Closing Date, then, not later than 30 calendar days following the Closing Date, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a special stay incentive bonus (a "Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to the greater of (i) the sum of the Key Employee's annual rate of base salary and 50% of the Key Employee's maximum short-term incentive under the Bell Atlantic Short Term Incentive Plan (or other applicable short-term incentive plan), both as of the date of this Agreement, or (ii) the sum of such items, both as of the Closing Date. (b) Adjusted Stay Incentive Bonus if Merger Plan is Terminated. If the ---------------------------------------------------------- Definitive Agreement is terminated without the Merger occurring, and the Key Employee has remained an "Employee in Good Standing" of a Bell Atlantic Company from the date of this Agreement to the date the Definitive Agreement is terminated, then, not later than 30 calendar days following the date of termination of the Definitive Agreement, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a special adjusted stay incentive bonus (an "Adjusted Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to 25 percent of the Stay Bonus described in Section 1(a) of this Agreement, except that the date of termination of the Definitive Agreement shall be substituted for the Closing Date for purposes of calculating such amount. (c) Definition of Employee in Good Standing. For purposes of this --------------------------------------- Agreement, the Key Employee will be considered to be an "Employee in Good Standing" on a given date if, on that date, the Key Employee is employed by a Bell Atlantic Company, has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date, and has not behaved in a manner that would be grounds for discharge for "Cause" as defined in Section 1(d) of this Agreement. (d) Definition of Cause. For purposes of this Agreement, the term ------------------- "Cause" shall mean grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Employee as determined by the Key Employee's current supervisor, with the concurrence of the Executive Vice President - Human Resources of Bell Atlantic; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; a material breach of the Employee Code of Business Conduct or this Agreement; or commission of any felony of which the Key Employee is finally adjudged guilty in a court of competent jurisdiction. 2. Termination of Employment. ------------------------- (a) Voluntary Resignation, Retirement, or Discharge for Cause. In the --------------------------------------------------------- event that, prior to the Closing Date or termination of the Definitive Agreement, the Key Employee voluntarily resigns or retires for any reason or is discharged by a Bell Atlantic Company for Cause, the Key Employee shall forfeit any and all rights to receive a Stay Bonus or an Adjusted Stay Bonus under Section 1 of this Agreement. (b) Involuntary Terminations. In the event that a Bell Atlantic Company ------------------------ discharges the Key Employee other than for Cause, and either (i) the Merger subsequently occurs pursuant to the Definitive Agreement, or (ii) the Definitive Agreement is terminated without the Merger occurring, then Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee a bonus equal in amount to the Stay Bonus or Adjusted Stay Bonus which would otherwise have become payable under Section 1 (a) or (b) of this Agreement, provided that the payment of such bonus shall be contingent upon the absence, at the time of payment, of any act by the Key Employee that would constitute a material breach of this Agreement, and provided further that the date of discharge shall be substituted for the dates described in Section 1 (a) or (b) for purposes of calculating the dollar amount of such bonus. Such bonus shall be paid not later than the date on which the Stay Bonus or Adjusted Stay Bonus would otherwise have become payable. (c) Payment in Case of Death or Disability. In the event that the Key -------------------------------------- Employee dies, or terminates his or her employment on account of disability (within the meaning of the applicable disability benefit plan in which the Key Employee participates from time to time) on a date on which the Key Employee was an Employee in Good Standing, and the Merger subsequently occurs pursuant to the Definitive Agreement, Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee, or the Key Employee's estate in the event of death, a single cash payment which shall be equal (before withholding of taxes) to the Stay Bonus multiplied by the following fraction: the numerator shall 2 be the number of days that have elapsed between the date of this Agreement and the date of the Key Employee's death or disability, and the denominator shall be the number of days that have elapsed between the date of this Agreement and the Closing Date of the Merger. Such payment shall be made in accordance with the timetable prescribed in Section 1(a) of this Agreement, substituting the date of death or disability for the date described in Section 1(a) for purposes of calculating the dollar amount of the payment. If the Definitive Agreement is terminated without the Merger occurring after the Key Employee's death or disability, and if the Key Employee was an Employee in Good Standing on the date of such death or disability, a single cash payment shall be made to the Key Employee, or the Key Employee's estate in the event of death, in an amount equal (before withholding of taxes) to the Adjusted Stay Bonus. Such payment shall be made in accordance with the timetable prescribed in Section 1(b) of this Agreement, substituting the date of death or disability for the date described in Section 1(b) for purposes of calculating the dollar amount of the payment. 3. Prohibition Against Recruiting or Hiring. Commencing on the ---------------------------------------- effective date of this Agreement and at all times thereafter through the second anniversary of the Key Employee's termination of employment for any reason from all Bell Atlantic Companies, the Key Employee shall not, without the consent of the Executive Vice President - Human Resources of Bell Atlantic: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire, or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which the Key Employee knows or should know could lead to the use of that information for purposes of recruiting or hiring; or (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, or representatives. 4. Confidentiality. The Key Employee agrees not to disclose or discuss, --------------- other than with the Key Employee's legal counsel, financial or tax adviser, and spouse (if any) either the existence of or any details of this Agreement. The Key Employee will make a good faith effort to ensure that any such legal counsel, financial or tax adviser, or spouse will not disclose or discuss the existence or any details of this Agreement with any other person. 5. Proprietary Information. The Key Employee shall at all times ----------------------- preserve the confidentiality of all proprietary information and trade secrets of any and all Bell Atlantic Companies. "Proprietary information" means information obtained or developed by the Key Employee during the Key Employee's employment with any Bell Atlantic Company that has not been fully disclosed in a writing generally circulated to the public at large, and which is treated as confidential within the business of any Bell Atlantic Company. 6. Deferrals under IDP. Amounts otherwise payable to the Key Employee ------------------- under Sections 1 or 2 of this Agreement may be deferred under the Bell Atlantic Income Deferral Plan ("IDP") or any successor plan in accordance with the terms of the IDP. 3 7. Assignment by Bell Atlantic. Bell Atlantic may assign this --------------------------- Agreement without the Key Employee's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Employee, and no person other than the Key Employee (or the Key Employee's estate) may assert the rights of the Key Employee under this Agreement. 8. Business Discretion of Bell Atlantic. Nothing in this Agreement is ------------------------------------ intended to limit the discretion of any Bell Atlantic Company to take any action with regard to the Merger which Bell Atlantic may consider appropriate, including, without limitation, postponing the Closing Date or terminating the Definitive Agreement. This Agreement is not a contract to retain the Key Employee in the employ of any Bell Atlantic Company for any prescribed period or term. This Agreement does not modify the employment-at-will status of the Key Employee. 9. Non-Benefit Bearing Payments. Any amount to be paid under Section 1 ---------------------------- or Section 2 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 10. Remedies. The Key Employee acknowledges that irreparable injury -------- will result to Bell Atlantic, and other Bell Atlantic Companies, and to their business, in the event of a material breach by the Key Employee of any of the Key Employee's covenants and commitments under this Agreement. In the event of a material breach of any of the Key Employee's covenants and commitments under this Agreement, the Key Employee, in the sole discretion of Bell Atlantic, may forfeit any amount otherwise payable to the Key Employee under Sections 1 or 2 of this Agreement. In addition, Bell Atlantic and any affected Bell Atlantic Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. 11. Governing Law. This Agreement shall be interpreted and enforced in ------------- accordance with the law of the State of New York. 12. Severability. If any clause, phrase or provision of this Agreement ------------ or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, this shall not affect or render invalid or unenforceable the remainder of this Agreement. Furthermore, in the event that a court of law or equity determines that the duration of any restrictions under this Agreement is not enforceable, this Agreement shall be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement, as so amended. 13. Waiver: The waiver by Bell Atlantic of a breach by the Key Employee ------ of any provision of this Agreement shall not be construed as a waiver of any subsequent breach. 14. Entire Agreement: This Agreement sets forth the entire ---------------- understanding of Bell Atlantic and the Key Employee, and supersedes all prior agreements and communications, whether oral or written, pertaining to eligibility for stay incentives of the type described herein, and covenants pertaining to recruiting or hiring, and proprietary information. This Agreement shall not be modified except by written agreement of the Key Employee and Bell Atlantic. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: --------------------------- THE KEY EMPLOYEE ------------------------------ 5 EX-10.MM 11 FORM OF STAY INCENTIVE AGREEMENT - DATED 11/23/98 EXHIBIT 10mm FORM OF STAY INCENTIVE AGREEMENT (Jacquelyn B. Gates, Chester N. Watson) THIS STAY INCENTIVE AGREEMENT (the "Agreement") is made as of the 23rd day of November, 1998, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and ________________________________, an employee of a Bell Atlantic Company (the "Key Employee"). In this Agreement, "Bell Atlantic Company" means any or all of the following: Bell Atlantic, a corporate subsidiary or other company affiliated with Bell Atlantic, a company in which Bell Atlantic owns directly or indirectly an equity interest of at least ten percent, and the successors and assigns of any such company. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as of July 27, 1998, among Bell Atlantic, GTE Corporation ("GTE") and Beta Gamma Corporation (the "Definitive Agreement"), Bell Atlantic contemplates a merger of the Bell Atlantic and GTE businesses (the "Merger") on a date which is yet to be decided (the "Closing Date"); WHEREAS, Bell Atlantic considers the Key Employee to be an employee whose continuing services, leadership and support are and will be valuable, especially during the period prior to the Closing Date; and WHEREAS, subject to the terms of this Agreement, Bell Atlantic wishes to incent the Key Employee to remain an employee in good standing during this period; NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Stay Incentive. -------------- (a) Stay Incentive Bonus at Closing. If the Merger occurs pursuant to ------------------------------- the Definitive Agreement, and if the Key Employee has remained an "Employee in Good Standing" (as defined in Section 1(c) of this Agreement) of a Bell Atlantic Company from the date of this Agreement to the Closing Date, then, not later than 30 calendar days following the Closing Date, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a special stay incentive bonus (a "Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to the greater of the Key Employee's annual rate of base salary on the date of this Agreement, or such salary as of the Closing Date. (b) Adjusted Stay Incentive Bonus if Merger Plan is Terminated. If the ---------------------------------------------------------- Definitive Agreement is terminated without the Merger occurring, and the Key Employee has remained an "Employee in Good Standing" of a Bell Atlantic Company from the date of this Agreement to the date the Definitive Agreement is terminated, then, not later than 30 calendar days following the date of termination of the Definitive Agreement, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a special adjusted stay incentive bonus (an "Adjusted Stay Bonus") consisting of a single cash payment in an amount equal (before withholding of taxes) to 25 percent of the Stay Bonus described in Section 1(a) of this Agreement, except that the date of termination of the Definitive Agreement shall be substituted for the Closing Date for purposes of calculating such amount. (c) Definition of Employee in Good Standing. For purposes of this --------------------------------------- Agreement, the Key Employee will be considered to be an "Employee in Good Standing" on a given date if, on that date, the Key Employee is employed by a Bell Atlantic Company, has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date, and has not behaved in a manner that would be grounds for discharge for "Cause" as defined in Section 1(d) of this Agreement. (d) Definition of Cause. For purposes of this Agreement, the term ------------------- "Cause" shall mean grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Employee as determined by the Key Employee's current supervisor, with the concurrence of the Executive Vice President - Human Resources of Bell Atlantic; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; a material breach of the Employee Code of Business Conduct or this Agreement; or commission of any felony of which the Key Employee is finally adjudged guilty in a court of competent jurisdiction. 2. Termination of Employment. ------------------------- (a) Voluntary Resignation, Retirement, or Discharge for Cause. In the --------------------------------------------------------- event that, prior to the Closing Date or termination of the Definitive Agreement, the Key Employee voluntarily resigns or retires for any reason or is discharged by a Bell Atlantic Company for Cause, the Key Employee shall forfeit any and all rights to receive a Stay Bonus or an Adjusted Stay Bonus under Section 1 of this Agreement. (b) Involuntary Terminations. In the event that a Bell Atlantic Company ------------------------ discharges the Key Employee other than for Cause, and either (i) the Merger subsequently occurs pursuant to the Definitive Agreement, or (ii) the Definitive Agreement is terminated without the Merger occurring, then Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee a bonus equal in amount to the Stay Bonus or Adjusted Stay Bonus which would otherwise have become payable under Section 1 (a) or (b) of this Agreement, provided that the payment of such bonus shall be contingent upon the absence, at the time of payment, of any act by the Key Employee that would constitute a material breach of this Agreement, and provided further that the date of discharge shall be substituted for the dates described in Section 1 (a) or (b) for purposes of calculating the dollar amount of such bonus. Such bonus shall be paid not later than the date on which the Stay Bonus or Adjusted Stay Bonus would otherwise have become payable. (c) Payment in Case of Death or Disability. In the event that the Key -------------------------------------- Employee dies, or terminates his or her employment on account of disability (within the meaning of the applicable disability benefit plan in which the Key Employee participates from time to time) on a date on which the Key Employee was an Employee in Good Standing, and the Merger subsequently occurs pursuant to the Definitive Agreement, Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee, or the Key Employee's estate in the event of death, a single cash payment which shall be equal (before withholding of taxes) to the Stay Bonus multiplied by the following fraction: the numerator shall be the number of days that have elapsed between the date of this Agreement and the date of the Key Employee's death or disability, and the denominator shall be the number of days that 2 have elapsed between the date of this Agreement and the Closing Date of the Merger. Such payment shall be made in accordance with the timetable prescribed in Section 1(a) of this Agreement, substituting the date of death or disability for the date described in Section 1(a) for purposes of calculating the dollar amount of the payment. If the Definitive Agreement is terminated without the Merger occurring after the Key Employee's death or disability, and if the Key Employee was an Employee in Good Standing on the date of such death or disability, a single cash payment shall be made to the Key Employee, or the Key Employee's estate in the event of death, in an amount equal (before withholding of taxes) to the Adjusted Stay Bonus. Such payment shall be made in accordance with the timetable prescribed in Section 1(b) of this Agreement, substituting the date of death or disability for the date described in Section 1(b) for purposes of calculating the dollar amount of the payment. 3. Prohibition Against Recruiting or Hiring. Commencing on the ---------------------------------------- effective date of this Agreement and at all times thereafter through the second anniversary of the Key Employee's termination of employment for any reason from all Bell Atlantic Companies, the Key Employee shall not, without the consent of the Executive Vice President - Human Resources of Bell Atlantic: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire, or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which the Key Employee knows or should know could lead to the use of that information for purposes of recruiting or hiring; or (iii) interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, or representatives. 4. Confidentiality. The Key Employee agrees not to disclose or --------------- discuss, other than with the Key Employee's legal counsel, financial or tax adviser, and spouse (if any) either the existence of or any details of this Agreement. The Key Employee will make a good faith effort to ensure that any such legal counsel, financial or tax adviser, or spouse will not disclose or discuss the existence or any details of this Agreement with any other person. 5. Proprietary Information. The Key Employee shall at all times ----------------------- preserve the confidentiality of all proprietary information and trade secrets of any and all Bell Atlantic Companies. "Proprietary information" means information obtained or developed by the Key Employee during the Key Employee's employment with any Bell Atlantic Company that has not been fully disclosed in a writing generally circulated to the public at large, and which is treated as confidential within the business of any Bell Atlantic Company. 6. Deferrals under IDP. Amounts otherwise payable to the Key ------------------- Employee under Sections 1 or 2 of this Agreement may be deferred under the Bell Atlantic Income Deferral Plan ("IDP") or any successor plan in accordance with the terms of the IDP. 3 7. Assignment by Bell Atlantic. Bell Atlantic may assign this --------------------------- Agreement without the Key Employee's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Employee, and no person other than the Key Employee (or the Key Employee's estate) may assert the rights of the Key Employee under this Agreement. 8. Business Discretion of Bell Atlantic. Nothing in this Agreement ------------------------------------ is intended to limit the discretion of any Bell Atlantic Company to take any action with regard to the Merger which Bell Atlantic may consider appropriate, including, without limitation, postponing the Closing Date or terminating the Definitive Agreement. This Agreement is not a contract to retain the Key Employee in the employ of any Bell Atlantic Company for any prescribed period or term. This Agreement does not modify the employment-at-will status of the Key Employee. 9. Non-Benefit Bearing Payments. Any amount to be paid under Section ---------------------------- 1 or Section 2 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 10. Remedies. The Key Employee acknowledges that irreparable injury -------- will result to Bell Atlantic, and other Bell Atlantic Companies, and to their business, in the event of a material breach by the Key Employee of any of the Key Employee's covenants and commitments under this Agreement. In the event of a material breach of any of the Key Employee's covenants and commitments under this Agreement, the Key Employee, in the sole discretion of Bell Atlantic, may forfeit any amount otherwise payable to the Key Employee under Sections 1 or 2 of this Agreement. In addition, Bell Atlantic and any affected Bell Atlantic Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. 11. Governing Law. This Agreement shall be interpreted and enforced ------------- in accordance with the law of the State of New York. 12. Severability. If any clause, phrase or provision of this ------------ Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, this shall not affect or render invalid or unenforceable the remainder of this Agreement. Furthermore, in the event that a court of law or equity determines that the duration of any restrictions under this Agreement is not enforceable, this Agreement shall be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement, as so amended. 13. Waiver: The waiver by Bell Atlantic of a breach by the Key ------ Employee of any provision of this Agreement shall not be construed as a waiver of any subsequent breach. 14. Entire Agreement: This Agreement sets forth the entire ---------------- understanding of Bell Atlantic and the Key Employee, and supersedes all prior agreements and communications, whether oral or written, pertaining to eligibility for stay incentives of the type described herein, and covenants pertaining to recruiting or hiring, and proprietary information. This Agreement shall not be modified except by written agreement of the Key Employee and Bell Atlantic. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: ------------------------------------- THE KEY EMPLOYEE ---------------------------------------- pmgteret5.doc 5 EX-10.NN 12 FORM OF MERGER AGREEMENT - DATED 01/29/99 EXHIBIT 10nn FORM OF MERGER AGREEMENT (Doreen A. Toben, Ellen C. Wolf) THIS MERGER AGREEMENT (the "Agreement) is made as of the 29th day of January, 1999, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and ________________________, an employee of a Bell Atlantic Company (the "Key Employee"). In this Agreement, "Bell Atlantic Company" means any or all of the following: Bell Atlantic, a corporate subsidiary or other company affiliated with Bell Atlantic, a company in which Bell Atlantic owns directly or indirectly an equity interest of at least ten percent, and the successors and assigns of any such company. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as of July 27, 1998, among Bell Atlantic, GTE Corporation ("GTE") and Beta Gamma Corporation (the "Definitive Agreement"), Bell Atlantic contemplates a merger of the Bell Atlantic and GTE businesses (the "Merger") on a date which is yet to be decided (the "Closing Date"); WHEREAS, the period from the date of this Agreement to at least the second anniversary of the Closing Date is likely to be a period of difficult transition, with heightened concern about job security due to possible reductions in force in connection with the Merger; WHEREAS, Bell Atlantic wishes to provide additional financial security to the Key Employee in the form of eligibility for post-separation payments, which the Key Employee would be eligible to receive in case of a termination of employment without cause during such period; and WHEREAS, Bell Atlantic and the Key Employee wish to set forth the terms and conditions applicable to such post-separation payments. NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Period of Agreement. The Period of this Agreement shall be the ------------------- period beginning on August 15, 1999 and ending on the second anniversary of the Closing Date; provided, however, that, in the event that the Definitive Agreement is terminated without the Merger occurring, the Period of this Agreement shall end on the date on which the Definitive Agreement is terminated. 2. Post-Separation Payments. ------------------------ (a) Two Times Pay. If, during the Period of this Agreement, a Bell ------------- Atlantic Company discharges the Key Employee without "Cause" (as defined in Section 2(d) of this Agreement), or the Key Employee is "Constructively Discharged" (as defined in Section 2(e) of this Agreement), Bell Atlantic shall cause the Bell Atlantic Company which then employs the Key Employee to pay to the Key Employee, in cash, an aggregate amount equal (before withholding of taxes) to two times "Pay" (as defined in Section 2(b) of this Agreement). (b) Pay. For purposes of this Agreement, "Pay" means an amount equal --- (before withholding of taxes) to the greater of (i) the sum of the Key Employee's annual rate of base salary and 50% of the Key Employee's maximum short term incentive under the Bell Atlantic Senior Management Short Term Incentive Plan (or other applicable short-term incentive plan), both as of the date of this Agreement, or (ii) the sum of such items, both as of the date the Key Employee's employment is terminated. (c) Payment of Installments. The payment described in this Section ----------------------- shall be payable in cash, less applicable withholding taxes, in a series of 24 approximately equal monthly installments, with the first installment commencing within 30 days of the eighth day following delivery of the legal release provided for in Section 2(g) of this Agreement. If the Key Employee dies after termination of employment, all unpaid installments will be paid in a lump sum to the Key Employee's estate. (d) Cause. For purposes of this Agreement, the term "Cause" shall ----- mean grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Employee as determined by the Key Executive's current supervisor, with the concurrence of the Executive Vice President - Human Resources of Bell Atlantic; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; a material breach of the Employee Code of Business Conduct or this Agreement; or commission of any felony of which the Key Employee is finally adjudged guilty in a court of competent jurisdiction. (e) Constructive Discharge. The Key Employee shall be deemed to have ---------------------- been "Constructively Discharged" for purposes of this Agreement if the Key Employee is an "Employee in Good Standing" (as defined in Section 2(f) of this Agreement) and terminates his or her employment for either of the following reasons: (i) the Key Employee has refused to relocate to a new principal place of work which would require a commute of more than 35 miles greater than the Key Employee's existing commute; or (ii) the Key Employee is assigned to a position where the sum of the annual rate of base salary plus the maximum amount of annual short term incentive the Key Employee would be eligible to receive per year is less than 90% of the sum of the corresponding items of salary and short term incentive for the Key Employee's existing position. (f) Employee in Good Standing. For purposes of this Agreement, the ------------------------- Key Employee will be considered to be an "Employee in Good Standing" on a given date if, on that date, the Key Employee is employed by a Bell Atlantic Company, has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date (other than pursuant to a Constructive Discharge), and has not behaved in a manner that would be grounds for discharge with Cause. (g) Legal Release. Notwithstanding any provision of this Agreement to ------------- the contrary, no post-separation payments shall be payable under the terms of this Agreement unless the Key Employee executes a legal release in a form contained in Exhibit A. 2 3. Prohibition Against Recruiting, Hiring or Solicitation. ------------------------------------------------------ Commencing on the effective date of this Agreement and at all times thereafter through the second anniversary of the Key Employee's termination of employment for reasons which entitle the Key Employee to receive separation payments under Section 2 of this Agreement, the Key Employee shall not, without the consent of the Executive Vice President - Human Resources of Bell Atlantic: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire, or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which the Key Employee knows or should know could lead to the use of that information for purposes of recruiting or hiring; (iii) approach any customer of any Bell Atlantic Company in an effort to persuade such customer to purchase, from a competing company, products or services of the same or similar type as the products or services which are sold (or, pursuant to an existing business plan, will be sold) to paying customers of one or more Bell Atlantic Companies; or (iv) interfere with the relationship of any Bell Atlantic Company with any of its customers, employees, agents, or representatives. 4. Competition. ----------- (a) Prohibited Conduct. During the period of the Key Employee's ------------------ employment with any Bell Atlantic Company through the second anniversary of the Key Employee's termination of employment for reasons which entitle the Key Employee to receive separation payments under Section 2 of this Agreement, the Key Employee, without the prior written consent of the Executive Vice President - - Human Resources of Bell Atlantic, shall not: (i) personally engage in "Competitive Activities" (as defined in Section 4(b) of this Agreement; or (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities; provided, however, that the Key Employee's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Key Employee's equity interest in any such company is less than a controlling interest. (b) Competitive Activities. For purposes of this Agreement, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as the products or services which (i) are sold (or, pursuant to an existing business plan, will be sold) to paying customers of one or more Bell Atlantic Companies, and (ii) for which the Key Employee had 3 responsibility to plan, develop, manage, market or oversee, within the prior 24 months or, if the Key Employee's employment has been terminated, within the 24 months preceding termination of employment. Notwithstanding the previous sentence, a business activity will not be treated as a Competitive Activity if the geographic marketing area of the relevant products or services does not overlap with the Bell Atlantic territory (as such territory exists at the time the Key Employee's employment is terminated). (c) Notice. Bell Atlantic shall send the Key Employee written ------ notice in the event that Bell Atlantic believes that the Key Employee has violated any of the prohibitions of this Section, provided, however, that any failure by Bell Atlantic to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to Bell Atlantic giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Waiver. Nothing in this Agreement shall bar the Key Employee ------ from requesting that the Executive Vice President - Human Resources of Bell Atlantic, in that officer's sole discretion, waive in writing Bell Atlantic's rights to enforce the competition covenant of this Section with respect to an opportunity or activity contemplated by the Key Employee and which the Key Employee describes in writing to said officer. 5. Confidentiality. The Key Employee agrees not to disclose or --------------- discuss, other than with the Key Employee's legal counsel, financial or tax adviser, and spouse (if any) either the existence of or any details of this Agreement. The Key Employee will make a good faith effort to ensure that any such legal counsel, financial or tax adviser, or spouse will not disclose or discuss the existence or any details of this Agreement with any other person. 6. Proprietary Information. The Key Employee shall at all times ----------------------- preserve the confidentiality of all proprietary information and trade secrets of any and all Bell Atlantic Companies. "Proprietary information" means information obtained or developed by the Key Employee during the Key Employee's employment with any Bell Atlantic Company that has not been fully disclosed in a writing generally circulated to the public at large, and which is treated as confidential within the business of any Bell Atlantic Company. 7. Assignment by Bell Atlantic. Bell Atlantic may assign this --------------------------- Agreement without the Key Employee's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Employee, and no person other than the Key Employee (or the Key Employee's estate) may assert the rights of the Key Employee under this Agreement. 8. Non-Benefit Bearing Payments. The amounts to be paid under ---------------------------- Section 2 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 9. Certain Limitations Upon Payments. --------------------------------- (a) Tax Code Limitations. Anything in this Agreement to the -------------------- contrary notwithstanding, in the event that it shall be determined that any payment or distribution by Bell 4 Atlantic to or for the benefit of the Key Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the aggregate present value of amounts payable or distributable to or for the benefit of the Key Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to taxation under Section 4999 of the Code. For purposes of this Section, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) Determinations by Outside Counsel. All determinations to be --------------------------------- made under this Section of the Agreement shall be made by Bell Atlantic's outside counsel ("Outside Counsel"). Outside Counsel shall provide its determinations and any supporting calculations both to Bell Atlantic and the Key Employee within 10 days of the effective date of termination of employment. Any such determination by Outside Counsel shall be binding upon Bell Atlantic and the Key Employee. Within five days after this determination, Bell Atlantic or the appropriate Bell Atlantic Company shall commence to pay to or for the benefit of the Key Employee such amounts (if any) as are then due to the Key Employee under this Agreement. (c) Overpayments and Underpayments. As a result of uncertainty in ------------------------------ the application of Section 280G of the Code at the time of the initial determination by Outside Counsel hereunder, it is possible that Agreement Payments will either have been made by Bell Atlantic which should not have been made ("Overpayment"), or that additional Agreement Payments which have not been made by Bell Atlantic could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. Within two years after the effective date of termination of employment, Outside Counsel shall review any determination made by it pursuant to Section 9(b) of this Agreement. In the event that Outside Counsel determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Key Employee which the Key Employee shall repay to Bell Atlantic together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount shall be payable by the Key Employee to Bell Atlantic if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that Outside Counsel determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the appropriate Bell Atlantic Company to or for the benefit of the Key Employee together with interest at the Federal Rate. (d) Outside Counsel Fees. All of the fees and expenses of Outside -------------------- Counsel in performing the determinations referred to in Sections 9(b) and (c) of this Agreement shall be borne solely by Bell Atlantic. 10. Remedies. The Key Employee acknowledges that irreparable -------- injury will result to Bell Atlantic and other Bell Atlantic Companies, and to their business, in the event of any breach by the Key Employee of any of the Key Employee's covenants and commitments under this Agreement. In the event of a breach of any of the Key Employee's covenants and commitments under this Agreement, Bell Atlantic and any affected Bell Atlantic Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, 5 injunctive relief, equitable relief and compensatory damages. In addition to the foregoing, the Key Employee shall forfeit all unpaid installment payments under Section 2 of this Agreement, and shall have an obligation to immediately repay any installment payment previously received. 11. Governing Law. This Agreement shall be interpreted and ------------- enforced in accordance with the law of the State of New York. 12. Severability. If any clause, phrase or provision of this ------------ Agreement or the application thereto to any person or circumstances shall be invalid or unenforceable under any applicable law, this shall not affect or render invalid or unenforceable the remainder of this Agreement. Furthermore, in the event that a court of law or equity determines that the geographic scope of any covenants, or the duration of any of the restrictions under this Agreement, are not enforceable, or if any provision of this Agreement conflicts with any applicable requirement of a code of conduct that pertains to an employee licensed to practice a profession governed by such code, this Agreement shall be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement, as so amended, and to avoid a conflict with said code of conduct. 13. Waiver. The waiver by Bell Atlantic of a breach by the Key ------ Employee of any provision of this Agreement shall not be construed as a waiver of any subsequent breach. 14. Entire Agreement. ---------------- (a) Post-Separation Payments. This Agreement sets forth the entire ------------------------ understanding of Bell Atlantic and the Key Employee and supersedes all prior agreements and communications, whether oral or written, pertaining to eligibility for post-separation payments, except as follows. This Agreement (i) is not intended to modify or supersede any provisions of the prior agreement between the Key Employee and Bell Atlantic pertaining to eligibility for post-separation payments upon termination of the Key Employee's employment through August 14, 1999 (the "Prior Separation Agreement"), and (ii) shall not affect the rights of the Key Employee under the compensation and benefit plans in which the Key Employee participates, provided, however, that in exchange for the separation payments described in this Agreement, the Key Employee hereby waives, during the Period of this Agreement, any rights he or she may have to participate in the Bell Atlantic Executive Separation Pay Plan or any other Bell Atlantic plan that provides for severance payments. (b) Certain Covenants. Except for the Prior Separation Agreement, ----------------- and except for the terms of other compensation and benefit plans in which the Key Employee participates, Sections 3 (Prohibition Against Recruiting, Hiring or Solicitation), 4 (Competition), and 6 (Proprietary Information) of this Agreement shall supersede the terms or provisions of any prior covenant or agreement between the Key Employee and any Bell Atlantic Company covering the same subject matter; provided, however, that any such prior covenants or agreements shall again be enforceable to the full extent of their terms if (i) the Key Employee remains employed by a Bell Atlantic Company subsequent to the Period of this Agreement (or any extension of such Period), or (ii) during the Period of this Agreement, the Key Employee terminates his employment, or such employment is terminated by Bell Atlantic, for reasons which do not entitle the Key Employee to receive separation payments under Section 2 of this Agreement. 6 (c) Modification of Agreement. This Agreement shall not be ------------------------- modified except by written agreement of the Key Employee and Bell Atlantic. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: ---------------------------------- THE KEY EMPLOYEE ------------------------------------- 7 EXHIBIT A RELEASE ------- THIS RELEASE (the "Release") is entered into by _____________________ (the "Key Employee"), for the benefit of BELL ATLANTIC CORPORATION (the "Company"), and all companies, and their officers, directors and employees, which are affiliated with the Company or in which the Company owns a substantial economic interest, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan). Capitalized terms in this document which are not otherwise defined herein shall have the respective meaning assigned to them in the Separation Agreement between the Company and the Key Employee, dated as of January 29, 1999 (the "Agreement"). WHEREAS, the Key Employee has separated from service with the Key Employee's employing company (the "Employer") on __________ , _______(the "Separation Date") pursuant to the terms of the Agreement, and the Key Employee wishes to execute this Release as contemplated under the terms of the Agreement. NOW, THEREFORE, the Key Employee affirms as follows: 1. The Key Employee hereby waives any and all claims which the Key Employee might have against any Bell Atlantic Company, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), for salary payments, vacation pay, incentives, bonuses, or other remuneration or employee benefits of any kind, with the exception of any unfulfilled obligations of the Company or Employer under Section 2 of the Agreement. 2. Except as provided in Section 1 hereof, the Key Employee hereby voluntarily releases and discharges each and every Bell Atlantic Company and their successors and assigns, and the directors, officers, employees, and agents of each of them, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), reimbursements or costs of any kind which the Key Employee might have or assert against any of said entities or persons by reason of the Key Employee's employment by any Bell Atlantic Company or the termination of said employment, and all circumstances related thereto, including but not limited to, any and all claims, demands, rights and/or causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. -- --- Sections 1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the - -- --- Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of 1991, the Americans with Disabilities Act, the Employee Retirement Income Security Act ("ERISA") or any other applicable federal, state, or local or foreign employment discrimination statute or ordinance. 3. The Key Employee hereby reaffirms all covenants and promises given by the Key Employee under the Agreement, and all other terms and conditions of the Agreement, in all respects. 4. Should any provision of this Release be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. STATEMENT BY THE KEY EMPLOYEE WHO IS SIGNING BELOW: THE COMPANY HAS -------------------------------------------------- ADVISED ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE COMPANY HAS FULFILLED ITS DUTIES TO ME UNDER THE OLDER WORKERS BENEFITS PROTECTION ACT, AND I ACKNOWLEDGE THAT THIS RELEASE AND THE AGREEMENT ARE LEGALLY ENFORCEABLE BY THE COMPANY. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED. THE UNDERSIGNED, intending to be legally bound, has executed this Release as of the ___ day of _________, ____, that being the Key Employee's Separation Date. THE KEY EMPLOYEE Signed: ----------------------------- THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING EX-10.OO 13 FORM OF MERGER AGREEMENT - DATED 01/29/99 EXHIBIT 10oo FORM OF MERGER AGREEMENT (Patrick F.X. Mulhearn, Thomas J. Tauke) THIS MERGER AGREEMENT (the "Agreement) is made as of the 29th day of January, 1999, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and ________________________, an employee of a Bell Atlantic Company (the "Key Employee"). In this Agreement, "Bell Atlantic Company" means any or all of the following: Bell Atlantic, a corporate subsidiary or other company affiliated with Bell Atlantic, a company in which Bell Atlantic owns directly or indirectly an equity interest of at least ten percent, and the successors and assigns of any such company. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as of July 27, 1998, among Bell Atlantic, GTE Corporation ("GTE") and Beta Gamma Corporation (the "Definitive Agreement"), Bell Atlantic contemplates a merger of the Bell Atlantic and GTE businesses (the "Merger") on a date which is yet to be decided (the "Closing Date"); WHEREAS, the period from the date of this Agreement to at least the second anniversary of the Closing Date is likely to be a period of difficult transition, with heightened concern about job security due to possible reductions in force in connection with the Merger; WHEREAS, Bell Atlantic wishes to provide additional financial security to the Key Employee in the form of eligibility for post-separation payments, which the Key Employee would be eligible to receive in case of a termination of employment without cause during such period; and WHEREAS, Bell Atlantic and the Key Employee wish to set forth the terms and conditions applicable to such post-separation payments. NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Period of Agreement. The Period of this Agreement shall be the period ------------------- beginning on the date of this Agreement and ending on the second anniversary of the Closing Date; provided, however, that, in the event that the Definitive Agreement is terminated without the Merger occurring, the Period of this Agreement shall end on the date on which the Definitive Agreement is terminated. 2. Post-Separation Payments. ------------------------ (a) Two Times Pay. If, during the Period of this Agreement, a Bell ------------- Atlantic Company discharges the Key Employee without "Cause" (as defined in Section 2(d) of this Agreement), or the Key Employee is "Constructively Discharged" (as defined in Section 2(e) of this Agreement), Bell Atlantic shall cause the Bell Atlantic Company which then employs the Key Employee to pay to the Key Employee, in cash, an aggregate amount equal (before withholding of taxes) to two times "Pay" (as defined in Section 2(b) of this Agreement). (b) Pay. For purposes of this Agreement, "Pay" means an amount equal --- (before withholding of taxes) to the greater of (i) the sum of the Key Employee's annual rate of base salary and 50% of the Key Employee's maximum short term incentive under the Bell Atlantic Senior Management Short Term Incentive Plan (or other applicable short-term incentive plan), both as of the date of this Agreement, or (ii) the sum of such items, both as of the date the Key Employee's employment is terminated. (c) Payment of Installments. The payment described in this Section ----------------------- shall be payable in cash, less applicable withholding taxes, in a series of 24 approximately equal monthly installments, with the first installment commencing within 30 days of the eighth day following delivery of the legal release provided for in Section 2(g) of this Agreement. If the Key Employee dies after termination of employment, all unpaid installments will be paid in a lump sum to the Key Employee's estate. (d) Cause. For purposes of this Agreement, the term "Cause" shall mean ----- grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Employee as determined by the Key Executive's current supervisor, with the concurrence of the Executive Vice President - Human Resources of Bell Atlantic; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; a material breach of the Employee Code of Business Conduct or this Agreement; or commission of any felony of which the Key Employee is finally adjudged guilty in a court of competent jurisdiction. (e) Constructive Discharge. The Key Employee shall be deemed to have ---------------------- been "Constructively Discharged" for purposes of this Agreement if the Key Employee is an "Employee in Good Standing" (as defined in Section 2(f) of this Agreement) and terminates his or her employment for either of the following reasons: (i) the Key Employee has refused to relocate to a new principal place of work which would require a commute of more than 35 miles greater than the Key Employee's existing commute; or (ii) the Key Employee is assigned to a position where the sum of the annual rate of base salary plus the maximum amount of annual short term incentive the Key Employee would be eligible to receive per year is less than 90% of the sum of the corresponding items of salary and short term incentive for the Key Employee's existing position. (f) Employee in Good Standing. For purposes of this Agreement, the Key ------------------------- Employee will be considered to be an "Employee in Good Standing" on a given date if, on that date, the Key Employee is employed by a Bell Atlantic Company, has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date (other than pursuant to a Constructive Discharge), and has not behaved in a manner that would be grounds for discharge with Cause. (g) Legal Release. Notwithstanding any provision of this Agreement to ------------- the contrary, no post-separation payments shall be payable under the terms of this Agreement unless the Key Employee executes a legal release in a form contained in Exhibit A. 3. Prohibition Against Recruiting, Hiring or Solicitation. Commencing ------------------------------------------------------ on the effective date of this Agreement and at all times thereafter through the second anniversary of the Key Employee's termination of employment for reasons which entitle the Key Employee to 2 receive separation payments under Section 2 of this Agreement, the Key Employee shall not, without the consent of the Executive Vice President - Human Resources of Bell Atlantic: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire, or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which the Key Employee knows or should know could lead to the use of that information for purposes of recruiting or hiring; (iii) approach any customer of any Bell Atlantic Company in an effort to persuade such customer to purchase, from a competing company, products or services of the same or similar type as the products or services which are sold (or, pursuant to an existing business plan, will be sold) to paying customers of one or more Bell Atlantic Companies; or (iv) interfere with the relationship of any Bell Atlantic Company with any of its customers, employees, agents, or representatives. 4. Competition. ----------- (a) Prohibited Conduct. During the period of the Key Employee's ------------------ employment with any Bell Atlantic Company through the second anniversary of the Key Employee's termination of employment for reasons which entitle the Key Employee to receive separation payments under Section 2 of this Agreement, the Key Employee, without the prior written consent of the Executive Vice President - - Human Resources of Bell Atlantic, shall not: or (i) personally engage in "Competitive Activities" (as defined in Section 4(b) of this Agreement; or (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities; provided, however, that the Key Employee's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Key Employee's equity interest in any such company is less than a controlling interest. (b) Competitive Activities. For purposes of this Agreement, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as the products or services which (i) are sold (or, pursuant to an existing business plan, will be sold) to paying customers of one or more Bell Atlantic Companies, and (ii) for which the Key Employee had responsibility to plan, develop, manage, market or oversee, within the prior 24 months or, if the Key Employee's employment has been terminated, within the 24 months preceding termination of employment. Notwithstanding the previous sentence, a business activity will not be treated as a 3 Competitive Activity if the geographic marketing area of the relevant products or services does not overlap with the Bell Atlantic territory (as such territory exists at the time the Key Employee's employment is terminated). (c) Notice. Bell Atlantic shall send the Key Employee written notice in ------ the event that Bell Atlantic believes that the Key Employee has violated any of the prohibitions of this Section, provided, however, that any failure by Bell Atlantic to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to Bell Atlantic giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Waiver. Nothing in this Agreement shall bar the Key Employee from ------ requesting that the Executive Vice President - Human Resources of Bell Atlantic, in that officer's sole discretion, waive in writing Bell Atlantic's rights to enforce the competition covenant of this Section with respect to an opportunity or activity contemplated by the Key Employee and which the Key Employee describes in writing to said officer. 5. Confidentiality. The Key Employee agrees not to disclose or --------------- discuss, other than with the Key Employee's legal counsel, financial or tax adviser, and spouse (if any) either the existence of or any details of this Agreement. The Key Employee will make a good faith effort to ensure that any such legal counsel, financial or tax adviser, or spouse will not disclose or discuss the existence or any details of this Agreement with any other person. 6. Proprietary Information. The Key Employee shall at all times ----------------------- preserve the confidentiality of all proprietary information and trade secrets of any and all Bell Atlantic Companies. "Proprietary information" means information obtained or developed by the Key Employee during the Key Employee's employment with any Bell Atlantic Company that has not been fully disclosed in a writing generally circulated to the public at large, and which is treated as confidential within the business of any Bell Atlantic Company. 7. Assignment by Bell Atlantic. Bell Atlantic may assign this --------------------------- Agreement without the Key Employee's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Employee, and no person other than the Key Employee (or the Key Employee's estate) may assert the rights of the Key Employee under this Agreement. 8. Non-Benefit Bearing Payments. The amounts to be paid under ---------------------------- Section 2 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 9. Certain Limitations Upon Payments. --------------------------------- (a) Tax Code Limitations. Anything in this Agreement to the contrary -------------------- notwithstanding, in the event that it shall be determined that any payment or distribution by Bell Atlantic to or for the benefit of the Key Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal 4 Revenue Code of 1986, as amended (the "Code"), the aggregate present value of amounts payable or distributable to or for the benefit of the Key Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to taxation under Section 4999 of the Code. For purposes of this Section, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) Determinations by Outside Counsel. All determinations to be made --------------------------------- under this Section of the Agreement shall be made by Bell Atlantic's outside counsel ("Outside Counsel"). Outside Counsel shall provide its determinations and any supporting calculations both to Bell Atlantic and the Key Employee within 10 days of the effective date of termination of employment. Any such determination by Outside Counsel shall be binding upon Bell Atlantic and the Key Employee. Within five days after this determination, Bell Atlantic or the appropriate Bell Atlantic Company shall commence to pay to or for the benefit of the Key Employee such amounts (if any) as are then due to the Key Employee under this Agreement. (c) Overpayments and Underpayments. As a result of uncertainty in the ------------------------------ application of Section 280G of the Code at the time of the initial determination by Outside Counsel hereunder, it is possible that Agreement Payments will either have been made by Bell Atlantic which should not have been made ("Overpayment"), or that additional Agreement Payments which have not been made by Bell Atlantic could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. Within two years after the effective date of termination of employment, Outside Counsel shall review any determination made by it pursuant to Section 9(b) of this Agreement. In the event that Outside Counsel determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Key Employee which the Key Employee shall repay to Bell Atlantic together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount shall be payable by the Key Employee to Bell Atlantic if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that Outside Counsel determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the appropriate Bell Atlantic Company to or for the benefit of the Key Employee together with interest at the Federal Rate. (d) Outside Counsel Fees. All of the fees and expenses of Outside -------------------- Counsel in performing the determinations referred to in Sections 9(b) and (c) of this Agreement shall be borne solely by Bell Atlantic. 10. Remedies. The Key Employee acknowledges that irreparable injury -------- will result to Bell Atlantic and other Bell Atlantic Companies, and to their business, in the event of any breach by the Key Employee of any of the Key Employee's covenants and commitments under this Agreement. In the event of a breach of any of the Key Employee's covenants and commitments under this Agreement, Bell Atlantic and any affected Bell Atlantic Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. In addition to the foregoing, the Key Employee shall forfeit all unpaid installment payments under Section 2 of this Agreement, and shall have an obligation to immediately repay any installment payment previously received. 5 11. Governing Law. This Agreement shall be interpreted and enforced in ------------- accordance with the law of the State of New York. 12. Severability. If any clause, phrase or provision of this Agreement ------------ or the application thereto to any person or circumstances shall be invalid or unenforceable under any applicable law, this shall not affect or render invalid or unenforceable the remainder of this Agreement. Furthermore, in the event that a court of law or equity determines that the geographic scope of any covenants, or the duration of any of the restrictions under this Agreement, are not enforceable, or if any provision of this Agreement conflicts with any applicable requirement of a code of conduct that pertains to an employee licensed to practice a profession governed by such code, this Agreement shall be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement, as so amended, and to avoid a conflict with said code of conduct. 13. Waiver. The waiver by Bell Atlantic of a breach by the Key Employee ------ of any provision of this Agreement shall not be construed as a waiver of any subsequent breach. 14. Entire Agreement. ---------------- (a) Post-Separation Payments. This Agreement sets forth the entire ------------------------ understanding of Bell Atlantic and the Key Employee and supersedes all prior agreements and communications, whether oral or written, pertaining to eligibility for post-separation payments, except as follows. This Agreement shall not affect the rights of the Key Employee under the compensation and benefit plans in which the Key Employee participates; provided, however, that in exchange for the separation payments described in this Agreement, the Key Employee hereby waives, during the Period of this Agreement, any rights he or she may have to participate in the Bell Atlantic Executive Separation Pay Plan or any other Bell Atlantic plan that provides for severance payments. (b) Certain Covenants. Except for the terms of compensation and benefit ----------------- plans in which the Key Employee participates, Sections 3 (Prohibition Against Recruiting, Hiring or Solicitation), 4 (Competition), and 6 (Proprietary Information) of this Agreement shall supersede the terms or provisions of any prior covenant or agreement between the Key Employee and any Bell Atlantic Company covering the same subject matter; provided, however, that any such prior covenants or agreements shall again be enforceable to the full extent of their terms if (i) the Key Employee remains employed by a Bell Atlantic Company subsequent to the Period of this Agreement (or any extension of such Period), or (ii) during the Period of this Agreement, the Key Employee terminates his employment, or such employment is terminated by Bell Atlantic, for reasons which do not entitle the Key Employee to receive separation payments under Section 2 of this Agreement. (c) Modification of Agreement. This Agreement shall not be modified ------------------------- except by written agreement of the Key Employee and Bell Atlantic. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: --------------------------- THE KEY EMPLOYEE ------------------------------- 7 EXHIBIT A RELEASE ------- THIS RELEASE (the "Release") is entered into by _____________________ (the "Key Employee"), for the benefit of BELL ATLANTIC CORPORATION (the "Company"), and all companies, and their officers, directors and employees, which are affiliated with the Company or in which the Company owns a substantial economic interest, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan). Capitalized terms in this document which are not otherwise defined herein shall have the respective meaning assigned to them in the Separation Agreement between the Company and the Key Employee, dated as of January 29, 1999 (the "Agreement"). WHEREAS, the Key Employee has separated from service with the Key Employee's employing company (the "Employer") on __________ , _______(the "Separation Date") pursuant to the terms of the Agreement, and the Key Employee wishes to execute this Release as contemplated under the terms of the Agreement. NOW, THEREFORE, the Key Employee affirms as follows: 1. The Key Employee hereby waives any and all claims which the Key Employee might have against any Bell Atlantic Company, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), for salary payments, vacation pay, incentives, bonuses, or other remuneration or employee benefits of any kind, with the exception of any unfulfilled obligations of the Company or Employer under Section 2 of the Agreement. 2. Except as provided in Section 1 hereof, the Key Employee hereby voluntarily releases and discharges each and every Bell Atlantic Company and their successors and assigns, and the directors, officers, employees, and agents of each of them, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), reimbursements or costs of any kind which the Key Employee might have or assert against any of said entities or persons by reason of the Key Employee's employment by any Bell Atlantic Company or the termination of said employment, and all circumstances related thereto, including but not limited to, any and all claims, demands, rights and/or causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. -- --- Sections 1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the - -- --- Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of 1991, the Americans with Disabilities Act, the Employee Retirement Income Security Act ("ERISA") or any other applicable federal, state, or local or foreign employment discrimination statute or ordinance. 3. The Key Employee hereby reaffirms all covenants and promises given by the Key Employee under the Agreement, and all other terms and conditions of the Agreement, in all respects. 4. Should any provision of this Release be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. STATEMENT BY THE KEY EMPLOYEE WHO IS SIGNING BELOW: THE COMPANY HAS -------------------------------------------------- ADVISED ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE COMPANY HAS FULFILLED ITS DUTIES TO ME UNDER THE OLDER WORKERS BENEFITS PROTECTION ACT, AND I ACKNOWLEDGE THAT THIS RELEASE AND THE AGREEMENT ARE LEGALLY ENFORCEABLE BY THE COMPANY. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED. THE UNDERSIGNED, intending to be legally bound, has executed this Release as of the ___ day of _________, ____, that being the Key Employee's Separation Date. THE KEY EMPLOYEE Signed: -------------------- THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING EX-10.PP 14 FORM OF MERGER AGREEMENT - DATED 01/29/99 EXHIBIT 10pp FORM OF MERGER AGREEMENT (Jacquelyn B. Gates, Chester N. Watson) THIS MERGER AGREEMENT (the "Agreement) is made as of the 29th day of January, 1999, by and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and ________________________, an employee of a Bell Atlantic Company (the "Key Employee"). In this Agreement, "Bell Atlantic Company" means any or all of the following: Bell Atlantic, a corporate subsidiary or other company affiliated with Bell Atlantic, a company in which Bell Atlantic owns directly or indirectly an equity interest of at least ten percent, and the successors and assigns of any such company. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated as of July 27, 1998, among Bell Atlantic, GTE Corporation ("GTE") and Beta Gamma Corporation (the "Definitive Agreement"), Bell Atlantic contemplates a merger of the Bell Atlantic and GTE businesses (the "Merger") on a date which is yet to be decided (the "Closing Date"); WHEREAS, the period from the date of this Agreement to at least the second anniversary of the Closing Date is likely to be a period of difficult transition, with heightened concern about job security due to possible reductions in force in connection with the Merger; WHEREAS, Bell Atlantic wishes to provide additional financial security to the Key Employee in the form of eligibility for post-separation payments, which the Key Employee would be eligible to receive in case of a termination of employment without cause during such period; and WHEREAS, Bell Atlantic and the Key Employee wish to set forth the terms and conditions applicable to such post-separation payments. NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Period of Agreement. The Period of this Agreement shall be the ------------------- period beginning on the date of this Agreement and ending on the second anniversary of the Closing Date; provided, however, that, in the event that the Definitive Agreement is terminated without the Merger occurring, the Period of this Agreement shall end on the date on which the Definitive Agreement is terminated. 2. Post-Separation Payments. ------------------------ (a) Pay. If, during the Period of this Agreement, a Bell Atlantic --- Company discharges the Key Employee without "Cause" (as defined in Section 2(d) of this Agreement), or the Key Employee is "Constructively Discharged" (as defined in Section 2(e) of this Agreement), Bell Atlantic shall cause the Bell Atlantic Company which then employs the Key Employee to pay to the Key Employee, in cash, an aggregate amount equal (before withholding of taxes) to "Pay" (as defined in Section 2(b) of this Agreement). (b) Pay. For purposes of this Agreement, "Pay" means an amount --- equal (before withholding of taxes) to the greater of (i) the sum of the Key Employee's annual rate of base salary and 50% of the Key Employee's maximum short term incentive under the Bell Atlantic Senior Management Short Term Incentive Plan (or other applicable short-term incentive plan), both as of the date of this Agreement, or (ii) the sum of such items, both as of the date the Key Employee's employment is terminated. (c) Payment of Installments. The payment described in this Section ----------------------- shall be payable in cash, less applicable withholding taxes, in a series of 12 approximately equal monthly installments, with the first installment commencing within 30 days of the eighth day following delivery of the legal release provided for in Section 2(g) of this Agreement. If the Key Employee dies after termination of employment, all unpaid installments will be paid in a lump sum to the Key Employee's estate. (d) Cause. For purposes of this Agreement, the term "Cause" shall ----- mean grossly incompetent performance or substantial or continuing inattention to or neglect of the duties and responsibilities assigned to the Key Employee as determined by the Key Executive's current supervisor, with the concurrence of the Executive Vice President - Human Resources of Bell Atlantic; fraud, misappropriation or embezzlement involving any Bell Atlantic Company; a material breach of the Employee Code of Business Conduct or this Agreement; or commission of any felony of which the Key Employee is finally adjudged guilty in a court of competent jurisdiction. (e) Constructive Discharge. The Key Employee shall be deemed to ---------------------- have been "Constructively Discharged" for purposes of this Agreement if the Key Employee is an "Employee in Good Standing" (as defined in Section 2(f) of this Agreement) and terminates his or her employment for either of the following reasons: (i) the Key Employee has refused to relocate to a new principal place of work which would require a commute of more than 35 miles greater than the Key Employee's existing commute; or (ii) the Key Employee is assigned to a position where the sum of the annual rate of base salary plus the maximum amount of annual short term incentive the Key Employee would be eligible to receive per year is less than 90% of the sum of the corresponding items of salary and short term incentive for the Key Employee's existing position. (f) Employee in Good Standing. For purposes of this Agreement, the ------------------------- Key Employee will be considered to be an "Employee in Good Standing" on a given date if, on that date, the Key Employee is employed by a Bell Atlantic Company, has not tendered oral or written notice of intent to resign or retire effective as of a date on or before the given date (other than pursuant to a Constructive Discharge), and has not behaved in a manner that would be grounds for discharge with Cause. (g) Legal Release. Notwithstanding any provision of this Agreement ------------- to the contrary, no post-separation payments shall be payable under the terms of this Agreement unless the Key Employee executes a legal release in a form contained in Exhibit A. 3. Prohibition Against Recruiting, Hiring or Solicitation. ------------------------------------------------------ Commencing on the effective date of this Agreement and at all times thereafter through the second anniversary of the Key Employee's termination of employment for reasons which entitle the Key Employee to 2 receive separation payments under Section 2 of this Agreement, the Key Employee shall not, without the consent of the Executive Vice President - Human Resources of Bell Atlantic: (i) recruit or solicit any active employee of any Bell Atlantic Company for employment or for retention as a consultant or service provider; (ii) hire, or participate (with another company or third party) in the process of hiring (other than for a Bell Atlantic Company) any person who is then an active employee of any Bell Atlantic Company, or provide names or other information about Bell Atlantic employees to any person or business (other than a Bell Atlantic Company) under circumstances which the Key Employee knows or should know could lead to the use of that information for purposes of recruiting or hiring; (iii) approach any customer of any Bell Atlantic Company in an effort to persuade such customer to purchase, from a competing company, products or services of the same or similar type as the products or services which are sold (or, pursuant to an existing business plan, will be sold) to paying customers of one or more Bell Atlantic Companies; or (iv) interfere with the relationship of any Bell Atlantic Company with any of its customers, employees, agents, or representatives. 4. Competition. ----------- (a) Prohibited Conduct. During the period of the Key Employee's ------------------ employment with any Bell Atlantic Company through the first anniversary of the Key Employee's termination of employment for reasons which entitle the Key Employee to receive separation payments under Section 2 of this Agreement, the Key Employee, without the prior written consent of the Executive Vice President - - Human Resources of Bell Atlantic, shall not: (i) personally engage in "Competitive Activities" (as defined in Section 4(b) of this Agreement; or (ii) work for, own, manage, operate, control or participate in the ownership, management, operation or control of, or provide consulting or advisory services to, any individual, partnership, firm, corporation or institution engaged in Competitive Activities; provided, however, that the Key Employee's purchase or holding, for investment purposes, of securities of a publicly-traded company shall not constitute "ownership" or "participation in ownership" for purposes of this paragraph so long as the Key Employee's equity interest in any such company is less than a controlling interest. (b) Competitive Activities. For purposes of this Agreement, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as the products or services which (i) are sold (or, pursuant to an existing business plan, will be sold) to paying customers of one or more Bell Atlantic Companies, and (ii) for which the Key Employee had responsibility to plan, develop, manage, market or oversee, within the prior 24 months or, if the Key Employee's employment has been terminated, within the 24 months preceding termination of employment. Notwithstanding the previous sentence, a business activity will not be treated as a 3 Competitive Activity if the geographic marketing area of the relevant products or services does not overlap with the Bell Atlantic territory (as such territory exists at the time the Key Employee's employment is terminated). (c) Notice. Bell Atlantic shall send the Key Employee written ------ notice in the event that Bell Atlantic believes that the Key Employee has violated any of the prohibitions of this Section, provided, however, that any failure by Bell Atlantic to give notice under this provision or to enforce its rights under this Agreement in any one or more instances shall not be a bar to Bell Atlantic giving notice and taking action to enforce its rights under this Agreement at any later time. (d) Waiver. Nothing in this Agreement shall bar the Key Employee ------ from requesting that the Executive Vice President - Human Resources of Bell Atlantic, in that officer's sole discretion, waive in writing Bell Atlantic's rights to enforce the competition covenant of this Section with respect to an opportunity or activity contemplated by the Key Employee and which the Key Employee describes in writing to said officer. 5. Confidentiality. The Key Employee agrees not to disclose or --------------- discuss, other than with the Key Employee's legal counsel, financial or tax adviser, and spouse (if any) either the existence of or any details of this Agreement. The Key Employee will make a good faith effort to ensure that any such legal counsel, financial or tax adviser, or spouse will not disclose or discuss the existence or any details of this Agreement with any other person. 6. Proprietary Information. The Key Employee shall at all times ----------------------- preserve the confidentiality of all proprietary information and trade secrets of any and all Bell Atlantic Companies. "Proprietary information" means information obtained or developed by the Key Employee during the Key Employee's employment with any Bell Atlantic Company that has not been fully disclosed in a writing generally circulated to the public at large, and which is treated as confidential within the business of any Bell Atlantic Company. 7. Assignment by Bell Atlantic. Bell Atlantic may assign this --------------------------- Agreement without the Key Employee's consent to any company that acquires all or substantially all of the stock or assets of Bell Atlantic, or into which or with which Bell Atlantic is merged or consolidated. This Agreement may not be assigned by the Key Employee, and no person other than the Key Employee (or the Key Employee's estate) may assert the rights of the Key Employee under this Agreement. 8. Non-Benefit Bearing Payments. The amounts to be paid under ---------------------------- Section 2 of this Agreement shall not be treated as compensation for purposes of computing or determining any additional benefit payable under any savings plan, insurance plan, pension plan, or other employee benefit plan maintained by any Bell Atlantic Company. 9. Certain Limitations Upon Payments. --------------------------------- (a) Tax Code Limitations. Anything in this Agreement to the -------------------- contrary notwithstanding, in the event that it shall be determined that any payment or distribution by Bell Atlantic to or for the benefit of the Key Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal 4 Revenue Code of 1986, as amended (the "Code"), the aggregate present value of amounts payable or distributable to or for the benefit of the Key Employee pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be subject to taxation under Section 4999 of the Code. For purposes of this Section, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) Determinations by Outside Counsel. All determinations to be --------------------------------- made under this Section of the Agreement shall be made by Bell Atlantic's outside counsel ("Outside Counsel"). Outside Counsel shall provide its determinations and any supporting calculations both to Bell Atlantic and the Key Employee within 10 days of the effective date of termination of employment. Any such determination by Outside Counsel shall be binding upon Bell Atlantic and the Key Employee. Within five days after this determination, Bell Atlantic or the appropriate Bell Atlantic Company shall commence to pay to or for the benefit of the Key Employee such amounts (if any) as are then due to the Key Employee under this Agreement. (c) Overpayments and Underpayments. As a result of uncertainty in ------------------------------ the application of Section 280G of the Code at the time of the initial determination by Outside Counsel hereunder, it is possible that Agreement Payments will either have been made by Bell Atlantic which should not have been made ("Overpayment"), or that additional Agreement Payments which have not been made by Bell Atlantic could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. Within two years after the effective date of termination of employment, Outside Counsel shall review any determination made by it pursuant to Section 9(b) of this Agreement. In the event that Outside Counsel determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Key Employee which the Key Employee shall repay to Bell Atlantic together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no amount shall be payable by the Key Employee to Bell Atlantic if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that Outside Counsel determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the appropriate Bell Atlantic Company to or for the benefit of the Key Employee together with interest at the Federal Rate. (d) Outside Counsel Fees. All of the fees and expenses of Outside -------------------- Counsel in performing the determinations referred to in Sections 9(b) and (c) of this Agreement shall be borne solely by Bell Atlantic. 10. Remedies. The Key Employee acknowledges that irreparable -------- injury will result to Bell Atlantic and other Bell Atlantic Companies, and to their business, in the event of any breach by the Key Employee of any of the Key Employee's covenants and commitments under this Agreement. In the event of a breach of any of the Key Employee's covenants and commitments under this Agreement, Bell Atlantic and any affected Bell Atlantic Company reserves all rights to seek any and all remedies and damages permitted under law, including, but not limited to, injunctive relief, equitable relief and compensatory damages. In addition to the foregoing, the Key Employee shall forfeit all unpaid installment payments under Section 2 of this Agreement, and shall have an obligation to immediately repay any installment payment previously received. 5 11. Governing Law. This Agreement shall be interpreted and ------------- enforced in accordance with the law of the State of New York. 12. Severability. If any clause, phrase or provision of this ------------ Agreement or the application thereto to any person or circumstances shall be invalid or unenforceable under any applicable law, this shall not affect or render invalid or unenforceable the remainder of this Agreement. Furthermore, in the event that a court of law or equity determines that the geographic scope of any covenants, or the duration of any of the restrictions under this Agreement, are not enforceable, or if any provision of this Agreement conflicts with any applicable requirement of a code of conduct that pertains to an employee licensed to practice a profession governed by such code, this Agreement shall be deemed to be amended to the extent necessary, but only to the extent necessary, to permit the enforcement of the terms of this Agreement, as so amended, and to avoid a conflict with said code of conduct. 13. Waiver. The waiver by Bell Atlantic of a breach by the Key ------ Employee of any provision of this Agreement shall not be construed as a waiver of any subsequent breach. 14. Entire Agreement. ---------------- (a) Post-Separation Payments. This Agreement sets forth the entire ------------------------ understanding of Bell Atlantic and the Key Employee and supersedes all prior agreements and communications, whether oral or written, pertaining to eligibility for post-separation payments, except as follows. This Agreement shall not affect the rights of the Key Employee under the compensation and benefit plans in which the Key Employee participates; provided, however, that in exchange for the separation payments described in this Agreement, the Key Employee hereby waives, during the Period of this Agreement, any rights he or she may have to participate in the Bell Atlantic Executive Separation Pay Plan or any other Bell Atlantic plan that provides for severance payments. (b) Certain Covenants. Except for the terms of compensation and ----------------- benefit plans in which the Key Employee participates, Sections 3 (Prohibition Against Recruiting, Hiring or Solicitation), 4 (Competition), and 6 (Proprietary Information) of this Agreement shall supersede the terms or provisions of any prior covenant or agreement between the Key Employee and any Bell Atlantic Company covering the same subject matter; provided, however, that any such prior covenants or agreements shall again be enforceable to the full extent of their terms if (i) the Key Employee remains employed by a Bell Atlantic Company subsequent to the Period of this Agreement (or any extension of such Period), or (ii) during the Period of this Agreement, the Key Employee terminates his employment, or such employment is terminated by Bell Atlantic, for reasons which do not entitle the Key Employee to receive separation payments under Section 2 of this Agreement. (c) Modification of Agreement. This Agreement shall not be ------------------------- modified except by written agreement of the Key Employee and Bell Atlantic. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: -------------------------------- THE KEY EMPLOYEE ---------------------------------- 7 EXHIBIT A RELEASE ------- THIS RELEASE (the "Release") is entered into by _____________________ (the "Key Employee"), for the benefit of BELL ATLANTIC CORPORATION (the "Company"), and all companies, and their officers, directors and employees, which are affiliated with the Company or in which the Company owns a substantial economic interest, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan). Capitalized terms in this document which are not otherwise defined herein shall have the respective meaning assigned to them in the Separation Agreement between the Company and the Key Employee, dated as of January 29, 1999 (the "Agreement"). WHEREAS, the Key Employee has separated from service with the Key Employee's employing company (the "Employer") on __________ , _______(the "Separation Date") pursuant to the terms of the Agreement, and the Key Employee wishes to execute this Release as contemplated under the terms of the Agreement. NOW, THEREFORE, the Key Employee affirms as follows: 1. The Key Employee hereby waives any and all claims which the Key Employee might have against any Bell Atlantic Company, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), for salary payments, vacation pay, incentives, bonuses, or other remuneration or employee benefits of any kind, with the exception of any unfulfilled obligations of the Company or Employer under Section 2 of the Agreement. 2. Except as provided in Section 1 hereof, the Key Employee hereby voluntarily releases and discharges each and every Bell Atlantic Company and their successors and assigns, and the directors, officers, employees, and agents of each of them, and any benefit plan maintained by any Bell Atlantic Company (or any plan administrator of any such plan), of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys' fees), reimbursements or costs of any kind which the Key Employee might have or assert against any of said entities or persons by reason of the Key Employee's employment by any Bell Atlantic Company or the termination of said employment, and all circumstances related thereto, including but not limited to, any and all claims, demands, rights and/or causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. Section 2000e et seq.), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. -- --- Sections 1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. Section 621 et seq.), the Equal Pay Act of 1963 (29 U.S.C. Section 206(d)(1)), the - -- --- Rehabilitation Act of 1973 (29 U.S.C. Sections 701-794), the Civil Rights Act of 1991, the Americans with Disabilities Act, the Employee Retirement Income Security Act ("ERISA") or any other applicable federal, state, or local or foreign employment discrimination statute or ordinance. 3. The Key Employee hereby reaffirms all covenants and promises given by the Key Employee under the Agreement, and all other terms and conditions of the Agreement, in all respects. 4. Should any provision of this Release be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby, and said illegal or invalid part, term or provision shall be deemed not to be a part of this Release. STATEMENT BY THE KEY EMPLOYEE WHO IS SIGNING BELOW: THE COMPANY HAS -------------------------------------------------- ADVISED ME IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE. THE COMPANY HAS FULFILLED ITS DUTIES TO ME UNDER THE OLDER WORKERS BENEFITS PROTECTION ACT, AND I ACKNOWLEDGE THAT THIS RELEASE AND THE AGREEMENT ARE LEGALLY ENFORCEABLE BY THE COMPANY. I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS RELEASE AND HAVE HAD SUFFICIENT TIME AND OPPORTUNITY (OVER A PERIOD OF SUBSTANTIALLY MORE THAN 21 DAYS) TO CONSULT WITH MY PERSONAL TAX, FINANCIAL AND LEGAL ADVISORS PRIOR TO EXECUTING THIS DOCUMENT, AND I INTEND TO BE LEGALLY BOUND BY ITS TERMS. I UNDERSTAND THAT I MAY REVOKE THIS RELEASE WITHIN SEVEN (7) DAYS FOLLOWING MY SIGNING, AND THIS RELEASE WILL NOT BECOME ENFORCEABLE OR EFFECTIVE UNTIL THAT SEVEN-DAY PERIOD HAS EXPIRED. THE UNDERSIGNED, intending to be legally bound, has executed this Release as of the ___ day of _________, ____, that being the Key Employee's Separation Date. THE KEY EMPLOYEE Signed: -------------------------- THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING EX-12 15 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 BELL ATLANTIC CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Millions)
Years ended December 31 ----------------------------------------------------------------- 1998 1997* 1996* 1995* 1994* ----------------------------------------------------------------- Income before provision for income taxes, extraordinary items, and cumulative effect of changes in accounting principles ............ $ 4,998.9 $ 3,984.1 $ 4,911.2 $ 4,535.0 $ 3,430.8 Minority interest .............................. 32.3 45.6 130.9 130.2 48.7 Loss (income) from unconsolidated businesses ... 414.6 124.1 (14.2) 22.1 (65.9) Dividends from unconsolidated businesses ....... 169.4 192.1 194.8 179.0 168.4 Interest expense, including interest related to lease financing activities .................. 1,375.9 1,275.2 1,124.1 1,305.0 1,298.4 Portion of rent expense representing interest .. 185.2 190.9 177.3 177.1 165.6 Amortization of capitalized interest ........... 21.7 16.4 10.0 5.4 3.1 ----------------------------------------------------------------- Income, as adjusted ............................ $ 7,198.0 $ 5,828.4 $ 6,534.1 $ 6,353.8 $ 5,049.1 ================================================================= Fixed charges: Interest expense, including interest related to lease financing activities .................. $ 1,375.9 $ 1,275.2 $ 1,124.1 $ 1,305.0 $ 1,298.4 Portion of rent expense representing interest .. 185.2 190.9 177.3 177.1 165.6 Capitalized interest ........................... 90.4 81.0 128.5 73.2 19.1 Priority distributions ......................... -- 18.8 58.5 47.1 29.9 Preferred stock dividend requirement ........... 20.5 15.5 14.9 9.8 5.4 ----------------------------------------------------------------- Fixed Charges .................................. $ 1,672.0 $ 1,581.4 $ 1,503.3 $ 1,612.2 $ 1,518.4 ================================================================= Ratio of Earnings to Fixed Charges ............. 4.31 3.69 4.35 3.94 3.33 =================================================================
* Restated as required by revision of Item 503(d) of Regulation S-K EX-21 16 LIST OF SUBSIDIARIES OF BELL ATLANTIC EXHIBIT 21 Principal Subsidiaries of Bell Atlantic Corporation --------------------------------------------------- Name State of Organization - ---- --------------------- Bell Atlantic - Delaware, Inc. Delaware Bell Atlantic - Maryland, Inc. Maryland Bell Atlantic - New Jersey, Inc. New Jersey Bell Atlantic - Pennsylvania, Inc. Pennsylvania Bell Atlantic - Virginia, Inc. Virginia Bell Atlantic - Washington, D.C., Inc. New York Bell Atlantic - West Virginia, Inc. West Virginia New England Telephone and Telegraph Company New York (d/b/a Bell Atlantic - New England) New York Telephone Company New York (d/b/a Bell Atlantic - New York) Cellco Partnership Delaware (d/b/a Bell Atlantic Mobile) EX-23 17 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Bell Atlantic Corporation on Form S-8 (File No. 333-66785), Form S-8 (File No. 333-66459), Form S-8 (File No. 333-66349), Form S-3 (File No. 33-49085), Form S-3 (File No. 333-48083), Form S-3 (File No. 33-30642), Form S-3 (File No. 33-8451), Form S-8 (File No. 33-10377), Form S-8 (File No. 33-10378), Form S-8 (File No. 33-58681), Form S-8 (File No. 33-58683), Form S-8 (File No. 333- 00409), Form S-8 (File No. 33-36551), Form S-3 (File No. 33-62393), Form S-4 (File No. 333-11573), Form S-8 (File No. 333-33747), Form S-8 (File No. 333- 41593), Form S-3 (File No. 333-42801), and Form S-8 (File No. 333-45985) of our report dated February 9, 1999, on our audits of the consolidated financial statements and financial statement schedule of the Company and its subsidiaries as of December 31, 1998 and December 31, 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP New York, New York March 29, 1999 EX-24 18 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Lawrence T. Babbio, Jr. --------------------------- Lawrence T. Babbio, Jr. POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Richard L. Carrion ---------------------- Richard L. Carrion POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ James G. Cullen ------------------- James G. Cullen POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Lodewijk J.R. de Vink ------------------------- Lodewijk J.R. de Vink POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ James H. Gilliam, Jr. ------------------------- James H. Gilliam, Jr. POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Stanley P. Goldstein ------------------------ Stanley P. Goldstein POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Helene L. Kaplan -------------------- Helene L. Kaplan POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Thomas H. Kean ---------------------------- Thomas H. Kean POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Elizabeth T. Kennan --------------------------- Elizabeth T. Kennan POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ John F. Maypole ------------------------ John F. Maypole POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Joseph Neubauer ------------------- Joseph Neubauer POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Eckhard Pfeiffer ------------------------ Eckhard Pfeiffer POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Hugh B. Price ---------------------- Hugh B. Price POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Rozanne L. Ridgway -------------------------- Rozanne L. Ridgway POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Frederic V. Salerno ----------------------- Frederic V. Salerno POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben and Frederic V. Salerno as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Ivan G. Seidenberg ---------------------- Ivan G. Seidenberg POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Walter V. Shipley --------------------- Walter V. Shipley POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Thomas H. O'Brien --------------------- Thomas H. O'Brien POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ John R. Stafford -------------------- John R. Stafford POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Morrison DeS. Webb ---------------------- Morrison DeS. Webb POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Doreen A. Toben, Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Shirley Young ----------------- Shirley Young POWER OF ATTORNEY WHEREAS, BELL ATLANTIC CORPORATION, a Delaware corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended December 31, 1998. NOW, THEREFORE, the undersigned hereby appoints each of Frederic V. Salerno and Ivan G. Seidenberg as attorney for the undersigned for the purpose of executing and filing such registration statement and any amendment or amendments or other necessary documents, hereby giving to each said attorney full authority to perform all acts necessary thereto as fully as the undersigned could do if personally present, and hereby ratifying all that said attorney may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23rd day of March, 1999. /s/ Doreen A. Toben -------------------- Doreen A. Toben EX-27 19 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1,023 0 7,153 593 566 9,082 83,064 46,248 55,144 10,531 17,646 0 0 158 12,867 55,144 0 31,566 0 24,939 0 0 1,335 4,999 2,008 2,991 0 (26) 0 2,965 1.89 1.86
-----END PRIVACY-ENHANCED MESSAGE-----