-----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, QjfOz3p/GaonCAwNIokRCJn47MAUb4hryUiKAopp736GeI8coFpCVb6XfgpoAJfN jtSYzMfTHEjWuledMnC2lw== 0000950109-97-002420.txt : 19970326 0000950109-97-002420.hdr.sgml : 19970326 ACCESSION NUMBER: 0000950109-97-002420 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-08606 FILM NUMBER: 97562279 BUSINESS ADDRESS: STREET 1: 1717 ARCH ST 47W CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159636000 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 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, 1996 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.) 1717 Arch Street Philadelphia, Pennsylvania 19103 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (215) 963-6000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- Common Stock, $1 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 February 28, 1997, the aggregate market value of the registrant's voting stock held by non-affiliates was approximately $30,249,000,000. At February 28, 1997, 437,768,397 shares of the registrant's Common Stock were outstanding, after deducting 47,870 shares held in treasury. Documents incorporated by reference: Portions of the registrant's Annual Report to shareowners for the year ended December 31, 1996 (Part II). Portions of the registrant's Proxy Statement dated March 10, 1997 prepared in connection with the Annual Meeting of Shareowners (Part III). ================================================================================ TABLE OF CONTENTS Item No. PAGE - -------- ---- PART I 1. Business........................................................ 1 2. Properties...................................................... 16 3. Legal Proceedings............................................... 17 4. Submission of Matters to a Vote of Security Holders............. 18 Executive Officers of the Registrant................................. 18 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters............................................. 19 6. Selected Financial Data......................................... 19 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 19 8. Financial Statements and Supplementary Data..................... 19 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................. 19 PART III 10. Directors and Executive Officers of the Registrant.............. 20 11. Executive Compensation.......................................... 20 12. Security Ownership of Certain Beneficial Owners and Management...................................................... 20 13. Certain Relationships and Related Transactions.................. 20 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................................... 21
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF MARCH 20, 1997 PART I Item 1. Business GENERAL Bell Atlantic Corporation (the "Company") is one of the seven regional holding companies ("RHCs") formed in connection with the court-approved divestiture (the "Divestiture"), effective January 1, 1984, of those assets of American Telephone and Telegraph Company ("AT&T") related to exchange telecommunications, exchange access functions, printed directories and cellular mobile communications. Pursuant to the Divestiture, AT&T transferred to the Company, among other assets, its 100% ownership interest in seven of the twenty-two Bell System operating companies ("BOCs"): New Jersey Bell Telephone Company; The Bell Telephone Company of Pennsylvania; The Diamond State Telephone Company; The Chesapeake and Potomac Telephone Company; The Chesapeake and Potomac Telephone Company of Maryland; The Chesapeake and Potomac Telephone Company of Virginia; and The Chesapeake and Potomac Telephone Company of West Virginia (collectively, the "telephone subsidiaries"). In January, 1994, to facilitate the creation of a uniform "Bell Atlantic" brand name across the territories served by the telephone subsidiaries, the names of the telephone subsidiaries were changed to Bell Atlantic - New Jersey, Inc. ("Bell Atlantic - New Jersey"), Bell Atlantic - Pennsylvania, Inc. ("Bell Atlantic - Pennsylvania"), Bell Atlantic - Delaware, Inc. ("Bell Atlantic - Delaware"), Bell Atlantic - Washington, D.C., Inc. ("Bell Atlantic - Washington, D.C."), Bell Atlantic - Maryland, Inc. ("Bell Atlantic - Maryland"), Bell Atlantic - Virginia, Inc. ("Bell Atlantic - Virginia") and Bell Atlantic - West Virginia, Inc. ("Bell Atlantic - West Virginia"), respectively. The Company was incorporated in 1983 under the laws of the State of Delaware and has its principal executive offices at 1717 Arch Street, Philadelphia, Pennsylvania 19103 (telephone number 215-963-6000). LINE OF BUSINESS RESTRICTIONS AND THE TELECOMMUNICATIONS ACT OF 1996 The consent decree entitled "Modification of Final Judgment" ("MFJ") and the Plan of Reorganization ("Plan") approved by the United States District Court for the District of Columbia set forth the terms of Divestiture and established certain restrictions on the post-Divestiture activities of the RHCs, including the Company, and their affiliates. The MFJ's principal restrictions on post- Divestiture RHC activities included prohibitions on (i) providing interLATA (long distance) telecommunications, and (ii) engaging in the manufacture of telecommunications equipment and customer premises equipment. The Telecommunications Act of 1996 (the "Act") became effective on February 8, 1996 and replaces the MFJ. In general, the Act includes provisions to open the telephone subsidiaries' local exchange markets to competition and to permit affiliates of local exchange carriers, such as the Company, to provide interLATA services and engage in manufacturing. However, the ability of the Company to engage in businesses previously prohibited by the MFJ is largely dependent on satisfying certain conditions contained in the Act and regulations to be promulgated thereunder. With regard to the rules governing competition in the interLATA market, the Act takes a two-fold approach. Effective February 8, 1996, the Company was permitted to apply for state approval to offer interLATA services in states outside of the geographic region in which the telephone subsidiaries currently operate as local exchange carriers. In addition, the Company's wireless businesses are now permitted to offer interLATA services without having to comply with the conditions imposed in waivers granted under the MFJ. 1 Secondly, each of the telephone subsidiaries must demonstrate to the Federal Communications Commission ("FCC") that it has satisfied certain requirements in order for the Company to be permitted to offer interLATA services for calls originating within the geographic region in which the telephone subsidiary operates as a local exchange carrier. Among the requirements with which a telephone subsidiary must comply is a 14-point "competitive checklist," which includes steps the telephone subsidiaries must take which will help competitors offer local services either through resale of the telephone subsidiaries' service, purchase of unbundled network elements from the telephone subsidiaries, or though the competitors' own networks. A telephone subsidiary must also demonstrate to the FCC that its entry into the interLATA market would be in the public interest. The FCC is required to conduct a number of rulemakings to implement the Act. See "FCC Regulation and Interstate Rates - Access Charge and Universal Service Reform" and "Competition - Local Exchange Services." The ultimate outcome of FCC rulemakings could have a significant impact upon successful implementation of the Act and the extent, nature and timing of competition in the local exchange and interLATA markets. No definitive prediction can be made as to the impact of the Act on the business, results of operations or financial condition of the Company. The financial impact on the Company will depend on several factors, including the timing, extent and success of competition in the Company's markets and the timing, extent and success of the Company's pursuit of new business opportunities resulting from the Act. PROPOSED MERGER WITH NYNEX CORPORATION In April, 1996, the Company and NYNEX Corporation announced a definitive agreement for a merger of equals; the agreement was amended in July, 1996 (the agreement, as amended, hereinafter the "Merger Agreement"). Under the Merger Agreement, NYNEX will become a subsidiary of the Company and NYNEX shareowners will receive 0.768 of a share of Company common stock for each share of NYNEX common stock owned. The shares of Company stock to be issued to NYNEX stockholders in the merger will constitute approximately 44% of the outstanding stock of the Company after the merger. NYNEX is another of the RHCs created at Divestiture, and the BOCs owned by NYNEX serve the Northeastern portion of the United States. The business of the NYNEX BOCs is qualitatively similar to that of the Company's telephone subsidiaries as described below under "The Telephone Subsidiaries - General." NYNEX is also subject to the Act, and to FCC regulation, in much the same ways as the Company is, as described above under "Line of Business Restrictions and the Telecommunications Act of 1996" and below under "The Telephone Subsidiaries - - FCC Regulation and Interstate Rates," respectively. The operations of the NYNEX BOCs are also subject to regulation by the public utility commissions of New York, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire and Maine. As discussed below under "Domestic Wireless Communications," the Company and NYNEX have previously formed partnerships which contain substantially all of their domestic cellular, paging and personal communications services businesses. The Company believes that the proposed merger will be an effective means of achieving the operating efficiency, scale, scope and financial resources necessary to expand into the new markets available to the Company under the Act and to compete with new market entrants in the Company's existing markets. As a result of the merger, the Company will incur certain transition costs, currently estimated at $700 million to $900 million. The Company also expects to recognize recurring expense savings of approximately $600 million annually by the third year following completion of the merger as a result of consolidating operating systems and other administrative functions and reducing management positions. Incremental savings in annual capital 2 expenditures for the Company should grow to approximately $250 million to $300 million, including efficiencies relating to purchasing, marketing trials and equipment testing. Shareowners of both companies approved the merger in November, 1996. Completion of the merger remains subject to a number of conditions, the principal ones relating to regulatory reviews. The Company is unable to predict when it will be able to complete the merger. Pursuant to the Merger Agreement, the principal executive offices of the Company following completion of the merger will be in New York, New York. THE TELEPHONE SUBSIDIARIES General The telephone subsidiaries presently serve a territory ("Territory") consisting of 19 Local Access and Transport Areas ("LATAs"). These LATAs are generally centered on a city or based on some other identifiable common geography and, with certain limited exceptions, each LATA marks the boundary within which a telephone subsidiary has been permitted by the MFJ to provide telephone service. The telephone subsidiaries currently provide two basic types of telecommunications services. First, they transport telecommunications traffic between subscribers located within the same LATA, including both local and toll services. Local service includes the provision of local exchange ("dial tone"), local private line and public telephone services (including dial-tone service for pay telephones owned by the Company and by other pay telephone providers). Among other local services provided are Centrex (telephone subsidiary central office-based switched telephone service enabling the subscriber to make both intercom and outside calls) and a variety of special and custom calling services. Toll service includes message toll service (calling service beyond the local calling area) within LATA boundaries, and intraLATA Wide Area Toll Service (WATS) and 800 services (volume discount offerings for customers with highly concentrated demand). As permitted by the Plan, Bell Atlantic - New Jersey and Bell Atlantic - Pennsylvania also earn revenue from the provision of telecommunications service between LATAs in corridors between the cities (and certain surrounding counties) of (i) New York, New York and Newark, New Jersey and (ii) Philadelphia, Pennsylvania and Camden, New Jersey. Second, the telephone subsidiaries provide exchange access service, which links a subscriber's telephone or other equipment to the transmission facilities of long distance carriers which, in turn, provide interLATA service to their customers. Bell Atlantic - Pennsylvania, Bell Atlantic - Delaware, Bell Atlantic - Maryland, Bell Atlantic - West Virginia, Bell Atlantic - Virginia and Bell Atlantic - New Jersey also provide exchange access service to interexchange carriers ("IXCs") which provide intrastate intraLATA toll service. Operations During 1993, Bell Atlantic reorganized certain functions formerly performed by each of the telephone subsidiaries into lines of business ("LOBs") operating across these companies. The LOBs focus on specific market segments. The telephone subsidiaries remain responsible within their respective service areas for the provision of telephone services, financial performance and regulatory matters. The Consumer Services LOB markets communications services to residential customers within the Territory (11 million households and 29 million people). 1996 revenues generated by the Consumer Services LOB were approximately $4.3 billion, representing approximately 33% of the telephone subsidiaries' aggregate revenues. These revenues were derived primarily from the provision of telephone services to residential users. 3 The Carrier Services LOB 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. 1996 revenues generated by the Carrier Services market were approximately $2.7 billion, representing approximately 21% of the telephone subsidiaries' aggregate revenues. Approximately 91% of total Carrier Services revenues were derived from IXCs; AT&T is the largest single customer. 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 ("LECs") which resell network connections to their own customers. The Small Business Services LOB markets communications and information services to small businesses (customers having up to 20 access lines). The Small Business Services LOB has approximately 1.2 million small business customers in the Territory which in 1996 generated approximately $1.9 billion in revenues, representing approximately 15% of the telephone subsidiaries' aggregate revenues. The Large Business Services LOB markets communications and information services to large businesses (customers having more than 20 access lines). 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 integration (integrating multiple geographically disparate networks into one system), network optimization (disaster avoidance, 911 service, intelligent vehicle highway systems), video services (distance learning, telemedicine, videoconferencing) and interactive multimedia applications services. 1996 revenues from the Large Business Services LOB were approximately $1.8 billion, representing approximately 14% of the telephone subsidiaries' aggregate revenues. The Directory Services LOB manages the provision of (i) advertising and marketing services to advertisers, and (ii) listing information (e.g., White Pages and Yellow Pages). These services are currently provided primarily through print media, but the Company expects that use of electronic formats will increase in the future. In addition, the Directory Services LOB manages the provision of photocomposition, database management and other related products and services to publishers. 1996 revenues from the Directory Services LOB were approximately $1.1 billion, representing approximately 9% of the telephone subsidiaries' aggregate revenues. In February, 1997, the Company introduced the Bell Atlantic Interactive Yellow Pages, an Internet-based electronic shopping service. That product is designed to meet businesses' needs to advertise in a variety of media. The Public and Operator Services LOB markets pay telephone and operator services in the Territory to meet consumer needs for accessing public networks and locating and identifying network subscribers, and to provide calling assistance and arrange billing alternatives (e.g., calling card, collect and third party calls). 1996 revenues from the Public and Operator Services LOB were approximately $700 million, representing approximately 5% of the telephone subsidiaries' aggregate revenues. The Federal Systems LOB markets communications and information technology and services to departments, agencies and offices of the executive, judicial and legislative branches of the federal government. 1996 revenues from the Federal Systems LOB were approximately $400 million, representing approximately 3% of the telephone subsidiaries' aggregate revenues. The Network LOB manages the technologies, services and systems platforms required by the other LOBs and the telephone subsidiaries to meet the needs of their respective customers, including switching, feature development and on- premises installation and maintenance services. FCC Regulation and Interstate Rates The telephone subsidiaries are subject to the jurisdiction of the FCC with respect to interstate services and certain related matters. The FCC prescribes a uniform system of accounts for the telephone subsidiaries; the 4 principles and standard procedures used to separate plant investment, expenses, taxes and reserves between those applicable to interstate services under the jurisdiction of the FCC and those applicable to intrastate services under the jurisdiction of the respective state regulatory authorities ("separations procedures"); and depreciation rates applicable to assets allocated to interstate services. The FCC also prescribes procedures for allocating costs and revenues between regulated and unregulated activities. The FCC has prescribed structures for exchange access tariffs to specify the charges ("access charges") for use and availability of the telephone subsidiaries' facilities for the origination and termination of interstate interLATA service. In general, the tariff structures prescribed by the FCC provide that interstate costs of the telephone subsidiaries which do not vary based on usage are recovered from subscribers through flat monthly charges ("subscriber line charges"), and from IXCs through usage-sensitive Carrier Common Line ("CCL") charges. Traffic-sensitive interstate costs are recovered from carriers through variable access charges based on several factors, primarily usage. Price Caps The FCC's price cap system, which became effective in 1991, places caps on overall telephone subsidiary prices for interstate access services. The caps are modified annually, in inflation-adjusted terms, to reflect increases in productivity, and can also be adjusted to reflect certain "exogenous" changes, such as changes in FCC separations procedures. Under the current form of the price cap system, the Company's price cap index is adjusted by an inflation index (GDP-PI) less a fixed percentage, either 4.0%, 4.7% or 5.3% as the Company may elect, which is intended to reflect increases in productivity ("Productivity Factor"). If the Company selects the 4.0% or 4.7% Productivity Factor, it is required to share a portion of its future interstate earnings in excess of a rate of return of 12.25%. If the Company selects the 5.3% Productivity Factor, it is not required to share a portion of its future interstate earnings. In July, 1996, the Company selected the 5.3% Productivity Factor for the July, 1996 to June, 1997 tariff period. The rates included in the July, 1996 filing resulted in price increases totaling approximately $21 million on an annual basis. Access Charge and Universal Service Reform In December, 1996, the FCC commenced a proceeding to reform the interstate access charge system. The FCC is considering two approaches for establishing a transition to access charges which more closely reflect the economic cost of access services and for deregulating access services as competition develops in the local exchange and exchange access markets. Under a market-based approach, the FCC would rely on actual and potential competition from new facilities-based service providers and market entrants purchasing unbundled network elements to drive prices for access services toward appropriate levels. As competition develops, the FCC would gradually relax, and ultimately remove, existing access rate structure requirements and price cap restrictions. Under an alternative prescriptive approach, the FCC would specify the nature and timing of changes to the current access charge rate levels. The FCC is expected to release its order in this proceeding in the second quarter of 1997. The Company is unable to predict the amount of any modifications in access charges that could result from this proceeding, the manner in which such modifications would be effectuated, or the time period over which such modifications would occur. The FCC has also initiated a rulemaking under the Act designed to preserve "universal service" by ensuring that local exchange service remains reasonably available to all residential customers, including low-income customers and customers in areas which are expensive to serve. The FCC proposes to restructure the current federal Universal Service Fund, which provides support for high cost access and low-income assistance, and, as required by the Act, to establish new support mechanisms for discounted services for schools, libraries and rural health care providers. The FCC must issue an order resolving the universal service issues by May, 1997. The Company is 5 unable to predict the ultimate size of the Fund, how contributions to the Fund by telecommunications providers will be determined, how payments from the Fund will be distributed, or the financial impact of this proceeding on the Company. FCC Cost Allocation and Affiliate Transaction Rules FCC rules govern (i) the allocation of costs between the regulated and unregulated activities of a communications common carrier and (ii) transactions between the regulated and unregulated affiliates of a communications common carrier. Under the cost allocation rules, unregulated activities include activities that have never been regulated as communications common carrier offerings and activities that have been preemptively deregulated by the FCC. The costs of these activities are removed prior to the separations procedures process and are assigned to unregulated activities in the aggregate, not to specific services, for pricing purposes. Other activities must be accounted for as regulated activities, and their costs are subject to separations procedures. The affiliate transaction rules govern the pricing of assets transferred, and services provided, between affiliates. These rules generally require that assets be transferred between affiliates at "market price," if such price can be established through a tariff or a prevailing price actually charged to third parties. In the absence of a tariff or prevailing price, (i) asset transfers from a regulated to an unregulated affiliate must be valued at the higher of cost or fair market value, and (ii) asset transfers from an unregulated to a regulated affiliate must be valued at the lower of cost or fair market value. The FCC has not attempted to make its cost allocation or affiliate transaction rules preemptive. State regulatory authorities are free to use different cost allocation methods and affiliate transaction rules for intrastate ratemaking and to require carriers to keep separate allocation records. State Regulation of Rates and Services The communications services of the telephone subsidiaries are subject to regulation by the public utility commissions in the jurisdictions in which they operate with respect to intrastate rates and services and certain other matters. For a discussion of regulatory proceedings regarding competition in the telephone subsidiaries' local exchange and intraLATA toll markets, see "Competition - Local Exchange Services" and "Competition - IntraLATA Toll Services." Bell Atlantic - New Jersey, Inc. The New Jersey Telecommunications Act of 1992 authorized the Board of Public Utilities ("BPU") to adopt alternative regulatory frameworks to address changes in technology and the structure of the telecommunications industry and to promote economic development. It also deregulated services which the BPU found to be competitive. Pursuant to that legislation, Bell Atlantic - New Jersey filed a Plan for Alternative Form of Regulation (the "New Jersey Plan"), which became effective with modifications required by the BPU in May, 1993 and was affirmed on appeal in 1996. The New Jersey Plan divides Bell Atlantic - New Jersey's services into Rate- Regulated Services and Competitive Services. Rate-Regulated Services are grouped in two categories: - "Protected Services": Basic residence and business service, Touch-Tone, access services, message toll services and the ordering, installation and restoration of these services. Rates for Protected Services, other than basic residence service, may be increased in an amount limited to the prior year's increase in the Gross National Product-Price Index ("GNP-PI") less a 2% productivity offset, as long as the return on equity for Rate-Regulated Services does not exceed 11.7%. Basic residence service rates are capped through December 6 1999. However, revenue-neutral rate restructuring for Rate- Regulated Services, including Protected Services and basic residence service, is permitted. - "Other Services": Custom Calling, Custom Local Area Signaling Services ("CLASS" services which utilize Signaling System 7), operator services and 911 enhanced service. Rates for Other Services may be increased beginning January, 1996 in an amount limited to the prior year's increase in the GNP-PI less a 2% productivity offset, as long as the return on equity for Rate- Regulated Services does not exceed 12.7%. All earnings above a return on equity of 13.7% for Rate-Regulated Services will be shared equally with customers. There is no point at which earnings for Rate-Regulated Services are capped. Competitive Services are deregulated under the New Jersey Telecommunications Act of 1992. Bell Atlantic - Pennsylvania, Inc. In July, 1993, legislation was enacted in Pennsylvania which enabled Bell Atlantic - Pennsylvania to petition the Pennsylvania Public Utility Commission ("PPUC") to regulate Bell Atlantic - Pennsylvania under an alternative form of regulation. In October, 1993, Bell Atlantic - Pennsylvania filed its petition and plan with the PPUC. In June, 1994, the PPUC approved, with modifications, Bell Atlantic - Pennsylvania's Alternative Regulation Plan (the "Pennsylvania Plan"); the modifications were accepted by Bell Atlantic - Pennsylvania in July, 1994. The Pennsylvania Plan provides for a pure price cap plan with no sharing of earnings with customers, and replaces rate base rate of return regulation. The Pennsylvania Plan removes from price and earnings regulation certain competitive services, including directory advertising, billing services, Centrex service, paging, speed calling and repeat calling. All remaining services will be price regulated. Under price regulation, annual price increases up to, but not exceeding, the inflation rate (GDP-PI) minus 2.93% will be permitted. Annual price decreases are required when the GDP-PI falls below 2.93%. Prices for protected services in the noncompetitive category, which include residential and business basic exchange services, special access and switched access, are capped through December 31, 1999. However, revenue-neutral rate restructuring for non- competitive services is permitted. The Pennsylvania Plan requires Bell Atlantic - Pennsylvania to propose a Lifeline service for residential customers on a revenue-neutral basis. 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. In July, 1994, several parties filed appeals in the Pennsylvania Commonwealth Court regarding the PPUC's order approving the Pennsylvania Plan. In December, 1995, the Commonwealth Court issued an opinion and order affirming in part and reversing, vacating and remanding in part the PPUC's decision. The Commonwealth Court: (i) vacated the PPUC's determination of the price cap formula and remanded to the PPUC for quantification of an "input price differential" (i.e., difference between the cost of Bell Atlantic - Pennsylvania's inputs and the U.S. economy's inputs); (ii) vacated and remanded for additional findings the PPUC's decision that directory advertising and billing services are "competitive" services; and (iii) reversed the PPUC's decision that paging, Centrex, speed calling, and repeat call are competitive. In all other respects, the PPUC's order was sustained. The PPUC and Bell Atlantic - Pennsylvania have filed petitions requesting that the Pennsylvania Supreme Court review the Pennsylvania Commonwealth Court's ruling. The Supreme Court has decided to hear this appeal, and a decision is expected in 1997. In the meantime, the petition for review has the effect of staying the Commonwealth Court's order. On November 1, 1996, Bell Atlantic - Pennsylvania made its third annual price adjustment filing under the Pennsylvania Plan. On December 19, 1996, the PPUC approved the filing, with modifications, which reduced rates 7 by $12.9 million annually, effective January 1, 1997. However, the PPUC ordered these reductions on services which differed from those proposed by Bell Atlantic - Pennsylvania. In 1996, Bell Atlantic - Pennsylvania also filed a plan to rebalance and restructure rates on a revenue-neutral basis. This filing provided for increases to specific revenue categories with offsetting decreases in other categories. On December 12, 1996, the PPUC approved the filing with certain modifications. Bell Atlantic - Pennsylvania began implementing new rates in January, 1997, with additional changes to be implemented in May and June, 1997. Bell Atlantic - Delaware, Inc. In March, 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 Ring(SM) and Call Waiting) cannot increase more than 15% per year per service; -the prices of "Competitive Services" (e.g., directory advertising and message toll service) will not be 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. Bell Atlantic - Washington, D.C., Inc. In January, 1993, the District of Columbia Public Service Commission ("DCPSC") adopted a regulatory reform plan for the intra-Washington, D.C. services of Bell Atlantic - Washington, D.C., to be in effect for a three-year trial period. This plan provided for a banded rate of return of 100 basis points over or under the authorized return on equity (which was set at 11.45% in December, 1993). Bell Atlantic - Washington, D.C. was permitted to seek a rate increase if its return on equity fell below 10.45% and was required to share, through refunds, 50% of any earnings in excess of a return on equity of 12.45%. In January, 1995, Bell Atlantic - Washington, D.C. filed a petition with the DCPSC seeking approval of a proposed price cap plan to become effective upon the expiration of the 1993 reform plan. In November, 1996, the DCPSC approved a price cap plan for intra-Washington, D.C. services provided by Bell Atlantic- Washington, D.C. The plan (1) is for four years, through December 31, 1999; (2) divides services into three categories: basic, discretionary, and competitive; (3) caps certain basic residential rates for the term of the plan and allows other basic rates to change with the rate of inflation (GDP-PI) minus 3%; (4) allows discretionary service rates to increase up to 15% annually; (5) eliminates price limits on competitive service rates; (6) reduces residential rates by $3.2 million in 1996, and business rates by $2.2 million in 1997 and $3.2 million in 1998; (7) establishes a trust fund to finance advanced telecommunications services in the District's public schools, libraries, and community centers; and (8) eliminates the regulation of profits. 8 Bell Atlantic - Maryland, Inc. In January, 1993, the Public Service Commission of Maryland ("MPSC") continued a regulatory reform plan (the "Reform Plan"), first adopted in 1990, for regulating the intrastate services provided by Bell Atlantic - Maryland. The Reform Plan provided for sharing of earnings on Other-Than-Competitive Services (e.g., basic business and residential dial-tone line and usage, pay telephone services, and intraLATA toll services) within a prescribed range (12.7% to 16.5%) of return on equity. Earnings on Competitive Services (e.g., Centrex intercom, and high capacity, special access and private line service) were not subject to rate of return limitation. In 1995, the Maryland General Assembly enacted legislation which permitted the MPSC to regulate Bell Atlantic - Maryland by a method other than rate base rate of return regulation. In December, 1995, Bell Atlantic - Maryland filed a proposed price cap plan with the MPSC. In November, 1996, the MPSC 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. The MPSC ordered rates for Access to be reduced by $32.1 million. These reduced rates and rates for 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 rate of inflation (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. Certain parties have appealed the MPSC's decision in state court. Bell Atlantic - Virginia, Inc. Under legislation passed in the 1993 session of the Virginia General Assembly, the Virginia State Corporation Commission ("VSCC") is no longer statutorily required to regulate telephone companies on the basis of rate of return regulation. In February, 1994, Bell Atlantic - Virginia filed a proposal to have its noncompetitive services regulated on a price cap basis; competitive services would not be regulated. Following public hearings, the VSCC approved a new optional regulatory plan, effective January 1, 1995, which allows Bell Atlantic - Virginia to replace traditional cost-based regulation with a plan that relies on price constraints. The new plan, which eliminates regulation of profits, includes a temporary moratorium on rate increases for basic local telephone service until 2001, eliminates the monthly charge for Touch-Tone service and expands universal telephone service to the poor. In November, 1994, Bell Atlantic - Virginia notified the VSCC of its election to participate in the new regulatory plan. Following an appeal, the new plan was upheld by the Virginia Supreme Court. Bell Atlantic - West Virginia, Inc. In December, 1991, the West Virginia Public Service Commission ("WVPSC") approved an "Incentive Regulation Plan." The Incentive Regulation Plan continued the major provisions of the prior plan, including pricing flexibility for competitive services and a freeze on rates for basic local exchange service. It also committed Bell Atlantic - West Virginia to invest $450 million from 1991 through 1995 in West Virginia's telecommunications infrastructure. In December, 1994, the WVPSC issued an order extending the Incentive Regulation Plan for three years, with certain modifications. Basic rates remain frozen through January 15, 1998 and Touch-Tone charges will be eliminated over a three year period. Bell Atlantic - West Virginia is committed to invest at least $375 million in its network over the five year period from 1995 through 1999. 9 Competition Legislative changes, including provisions of the Act discussed above under "Line of Business Restrictions and the 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. An increasing amount of this competition is from large companies which have substantial capital, technological and marketing resources, nationwide presence and brand name recognition. Local Exchange Services The ability to offer local exchange service has historically been subject to regulation by state public utility commissions. One of the purposes of the Act was to ensure, and accelerate, the emergence of competition in local exchange markets. Toward this end, the Act requires most existing local exchange carriers (incumbent local exchange carriers, or "ILECs"), including the telephone subsidiaries, to permit potential competitors (competitive local exchange carriers, or "CLECs") to (i) purchase service from the ILEC for resale to CLEC customers, (ii) purchase unbundled network elements from the ILEC, and/or (iii) interconnect its network with the ILEC's network. The 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. In August, 1996, the FCC adopted an order (the "Interconnection Order") relating to these types of arrangements between ILECs and CLECs. The Interconnection Order set forth cost methodology to be used by state commissions in arbitration proceedings to set cost-based rates for purchase of unbundled network elements and for purchase of services for resale, and established guideline amounts to be used by state commissions in the absence of full cost studies. Several parties, including the Company, appealed the Interconnection Order on the grounds that it was inconsistent with the Act. In October, 1996, the U.S. Court of Appeals for the Eighth Circuit granted a stay of the effectiveness of the pricing provisions of the Interconnection Order pending a final decision on their validity. Notwithstanding the existence of the stay of the Interconnection Order, negotiations between the telephone subsidiaries and CLECs, and arbitrations before state public utility commissions, have continued. As of March 1, 1997, the Company had entered into approximately 40 agreements with ten CLECs covering all of the Company's state jurisdictions. The Company expects that these agreements, and the Act, will lead to substantially increased competition in its local exchange markets in 1997 and subsequent years. The Company believes that this competition will be both on a facilities basis and in the form of resale by CLECs of the telephone subsidiaries' service. Under the various agreements and arbitrations discussed above, the telephone subsidiaries are generally required to sell their services to CLECs at discounts ranging from approximately 9% to 25% from the prices the telephone subsidiaries charge their retail customers. IntraLATA Toll Services Competition to offer intrastate intraLATA toll services is currently permitted in all of the telephone subsidiaries' state jurisdictions where intraLATA toll services are provided. Increased competition from IXCs has resulted in a decline in several components of the telephone subsidiaries' toll service revenues. Currently, intraLATA toll calls in these jurisdictions are completed by the telephone subsidiaries unless the customer dials a code to access a competing carrier. This dialing method would be changed by "presubscription," which would enable customers to make intraLATA toll calls using another carrier without having to dial the access code. 10 In general, the Act prohibits a state from requiring intraLATA presubscription until the earlier of such time as a BOC in the state is authorized to provide long distance services within the state or three years from the effective date of the Act. This prohibition does not apply to a final order requiring a BOC to implement presubscription that was issued on or prior to December 19, 1995 or to states consisting of a single LATA. The state public utilities commissions in several of the jurisdictions in which the telephone subsidiaries operate have adopted orders requiring implementation of intraLATA presubscription in 1997. The Pennsylvania PUC has ordered presubscription by July 31, 1997, but the order states that a reasonable effort should be made to coordinate implementation of presubscription with the Company's entry into the interLATA market in Pennsylvania. The West Virginia PSC has ordered presubscription by August 15, 1997. The Delaware PSC adopted an order that requires implementation of presubscription by July 31, 1997, although the Company believes that this order is inconsistent with the Act. The New Jersey BPU has adopted a rule requiring implementation of presubscription by May 5, 1997; the Company has filed a lawsuit in federal court challenging the BPU's rule as inconsistent with the Act. The Company expects to offer intraLATA presubscription in the telephone subsidiaries' other jurisdictions coincident with the Company's entry into the interLATA market in such jurisdictions, as required by the Act. Implementation of intraLATA presubscription in a particular jurisdiction prior to the time the Company is permitted to enter the interLATA market in the same jurisdiction will adversely affect the Company's ability to compete in the intraLATA toll services market in that jurisdiction. Alternative Access A substantial portion of the telephone subsidiaries' revenues from business and government customers is derived from a relatively small number of large, multiple-line subscribers. The telephone subsidiaries face competition from alternative communications systems, constructed by large end users, IXCs and alternative access vendors, which are capable of originating and/or terminating calls without the use of the telephone subsidiary's plant. The ability of such alternative access providers to compete with the telephone subsidiaries has been enhanced by the FCC's orders requiring the telephone subsidiaries to offer virtual collocated interconnection for special and switched access services. Other potential sources of competition include cable television systems, shared tenant services and other non-carrier systems which are capable of bypassing the 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 the telephone subsidiaries' lines. Personal Communications Services Personal communications services ("PCS") also constitute potential sources of competition to the telephone subsidiaries. PCS consists of wireless portable telephone services employing digital technology, which will allow customers to make and receive telephone calls from any location using small handsets, and which could also be used for data transmission. The Company's investment in PCS is described below under "Domestic Wireless Communications." 11 Directories The Company continues to face significant competition from other providers of directories, as well as competition from other advertising media. In addition, the Company's electronic interactive yellow pages faces competition from a growing number of Internet yellow pages publishers. Public Telephone Services The Company faces increasing competition in the provision of pay telephone services from other providers. In addition, the growth of wireless communications negatively impacts usage of public telephones. Operator Services Alternative operator services providers have entered into competition with the telephone subsidiaries' operator services product line. LONG DISTANCE SERVICE Promptly after the effective date of the Act, the Company announced that it would enter the interLATA market in states outside the Territory. At year-end the Company, through its subsidiary Bell Atlantic Communications, Inc., had complied with state entry requirements in 15 states, and was actively marketing service in three states. With respect to interLATA services within the Territory, the Company believes that, as of March 1, 1997, it is close to completing the "checklist" and other prerequisites under the Act for entering the market in several of its jurisdictions. The Company expects to apply to the FCC for permission to offer interLATA services in one or more of its jurisdictions in the second quarter of 1997, and expects to receive such permission for one or more jurisdictions in the second half of 1997. DOMESTIC WIRELESS COMMUNICATIONS The Company provides wireless communications services in the United States principally through two joint ventures. Effective July 1, 1995, the Company and NYNEX Corporation combined substantially all of their domestic cellular and paging businesses and formed Bell Atlantic NYNEX Mobile ("BANM"), a partnership which provides wireless services to over 4.4 million customers in the Northeast, mid-Atlantic, Southeast and Southwest portions of the United States. BANM is a general partnership and is controlled equally by Bell Atlantic and NYNEX. Bell Atlantic owns an approximate 62% economic interest in BANM. BANM competes in each of its principal markets with a second cellular carrier licensed by the FCC. In late 1995, BANM began to experience additional competition from entities entering the wireless communications market through the provision of PCS. Competing PCS providers offer competitive pricing plans, digital technology, and enhanced calling features. BANM has introduced new pricing plans designed to meet this new competition, and has begun offering digital service in five of its markets. It expects to offer digital service in all markets by the third quarter of 1997. BANM also has begun offering enhanced calling features over both its analog and digital networks. In October, 1994, Bell Atlantic, NYNEX, AirTouch Communications and U S WEST, Inc. formed a partnership, PrimeCo Personal Communications, L.P. ("PrimeCo"), to provide PCS. In March, 1995, PrimeCo was a successful bidder in FCC auctions for licenses for spectrum to provide PCS in the following markets, where none 12 of the partners has cellular operations: Chicago; Dallas; Tampa; Houston; Miami; New Orleans; Milwaukee; Richmond; San Antonio; Jacksonville; and Honolulu. PrimeCo paid $1.1 billion for these licenses. In November, 1996, PrimeCo commenced operations in 16 major cities, and at year-end had approximately 37,000 customers. INTERNATIONAL WIRELESS INVESTMENTS Mexico Through purchases of stock in 1993 and 1994 at prices totaling $1.04 billion, the Company acquired a 41.9% economic interest in Grupo Iusacell, S.A. de C.V. ("Iusacell"), a leading telecommunications company in Mexico whose primary business is the provision of cellular telephone service. Another shareowner group owns 48% of Iusacell, and the remaining 10% is held by public shareowners. In February, 1997, the Company consummated a restructuring of its investment in Iusacell to permit the Company to assume management control without increasing its percentage ownership. The restructuring also required the Company to convert certain subordinated debentures into equity and to make additional financing available to Iusacell. The Company expects that the restructuring will help Iusacell take advantage of growth opportunities in its existing cellular business and in emerging fixed wireless and long distance markets. Italy In December, 1996, the Company increased its indirect interest in Omnitel Pronto Italia, S.p.A. ("Omnitel"), an Italian digital cellular telecommunications company, from 11.7% to 17.5% for a purchase price of approximately $274 million. Omnitel commenced operations in December, 1995, and at year-end 1996 had in excess of 710,000 subscribers. Czech Republic and Slovakia The Company has an economic interest of approximately 25% in the Eurotel companies, which have been operating analog cellular systems in the Czech Republic and Slovakia since 1991. The Czech Eurotel was awarded one of two digital cellular licenses in 1995, and commenced digital service in July, 1996. The Slovak government awarded Eurotel a digital license late in 1996, and Eurotel launched digital service in early 1997. At year-end 1996, the two companies had approximately 190,000 customers. TELECOM CORPORATION OF NEW ZEALAND In 1990, wholly-owned subsidiaries of the Company and Ameritech Corporation ("Ameritech") each purchased approximately 49.8% of the common shares of Telecom Corporation of New Zealand Limited ("TCNZ") from the New Zealand government for an aggregate purchase price of approximately $2.4 billion. Under the terms of the acquisition and subsequent agreements with the New Zealand government, the Company and Ameritech were required to sell equity interests in TCNZ such that their combined ownership would, within four years of the acquisition, be reduced to 49.9%. Through public and private sales during 1991 and 1993, the Company reduced its ownership interest in TCNZ to 24.8%, and, together with Ameritech, completed the sell-down obligation. 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. 13 TCNZ continues to be the principal provider of telecommunications services in New Zealand, offering local service, national and international long distance service, cellular service and Internet access. TCNZ faces increasing competition in most of its markets. VIDEO SERVICES Over the last several years the Company has conducted several trials and investigations to assess the viability of providing entertainment programming and other video services either through the network of the telephone subsidiaries or through a wireless delivery mechanism. In October, 1994, the Company, NYNEX and Pacific Telesis Group formed two partnerships to provide multimedia services. TELE-TV Media, L.P. was formed to license, acquire and develop entertainment and information services. TELE-TV Systems, L.P. was formed to provide the systems necessary to deliver these services over the partners' networks. At that time, each of the three partners committed to contribute $100M to fund the activities of these partnerships. The partners have recently engaged in discussions which could lead to changes in the role and activities of the TELE-TV entities. The Company presently intends to participate in the video services market through the eventual deployment of a "switched digital video" network, which involves the introduction of additional fiber optic facilities into the telephone subsidiaries' network. The Company is currently providing video services under this approach in certain areas of New Jersey, in competition with a cable operator, and has approximately 3,000 customers. INTERNET SERVICES During 1996, the Company, through its Bell Atlantic Internet Solutions subsidiary, began offering Internet access services to residential, business and institutional customers. Bell Atlantic Internet Solutions also provides services that assist businesses and institutions in establishing a presence on the World Wide Web. CERTAIN CONTRACTS AND RELATIONSHIPS Certain planning, marketing, procurement, financial, legal, accounting, technical support and other management services are provided to the telephone subsidiaries on a centralized basis by Bell Atlantic's wholly-owned subsidiary, Bell Atlantic Network Services, Inc. ("NSI"). Bell Atlantic Network Funding Corporation provides short-term financing and cash management services to the telephone subsidiaries. Certain corporate services, including those listed above, also are provided to other subsidiaries on a centralized basis by NSI. Bell Atlantic Financial Services, Inc. provides short-, medium- and long-term financing services and cash management services to subsidiaries of the Company other than the telephone subsidiaries. The seven RHCs each own (directly or through subsidiaries) a one-seventh interest in Bell Communications Research, Inc. ("Bellcore"). Pursuant to the Plan, Bellcore was created to furnish the RHCs and their BOC subsidiaries with technical assistance such as network planning, engineering and software development, as well as various other consulting services that could be provided more effectively on a centralized basis. Bellcore has also served as the central point of contact for coordinating the efforts of the RHCs in meeting the national security and emergency preparedness requirements of the federal government, and helps to mobilize the combined resources of the RHCs in times of natural disasters. In November, 1996, the seven RHCs entered into a definitive agreement to 14 sell their interests in Bellcore to Science Applications International Corporation. The transaction is subject to regulatory approvals, and is expected to be completed near the end of 1997. After the sale is completed, centralized national security and emergency preparedness functions will be performed for the RHCs by National Telecommunications Association, owned by the seven RHCs. EMPLOYEES As of December 31, 1996, the Company and its subsidiaries had approximately 62,600 employees. Approximately 70% of the employees of the Company and its subsidiaries are represented by unions. Of those so represented, approximately 80% are represented by the Communications Workers of America, and approximately 20% are represented by the International Brotherhood of Electrical Workers, both of which are affiliated with the American Federation of Labor-Congress of Industrial Organizations. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Information set forth above regarding expected or possible future events is forward-looking and subject to risks and uncertainties. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect the future results of the Company and could cause those results to differ materially from those expressed in the forward-looking statements: (i) materially adverse changes in economic conditions in the markets served by the Company; (ii) a significant delay in the expected closing of the merger; (iii) the final outcome of FCC rulemakings with respect to interconnection agreements, access charge reform and universal service; (iv) the timing of presubscription for toll services; (v) future state regulatory actions in the telephone subsidiaries' operating areas; (vi) the extent, timing and success of competition from others in the local telephone and toll service markets; and (vii) the timing of entry and profitability of the Company in the long distance market. 15 Item 2. Properties GENERAL The principal properties of the Company do not lend themselves to simple description by character and location. The Company's investment in plant, property and equipment, 98% of which was held by the telephone subsidiaries in 1996 and 1995, consisted of the following at December 31:
1996 1995 ----- ----- Central office equipment................................ 39% 38% Cable, wiring and conduit............................... 37 37 Other equipment......................................... 12 12 Land and buildings...................................... 9 9 Other................................................... 3 4 ---- ---- 100% 100% ==== ====
"Central office equipment" consists of switching equipment, transmission equipment and related facilities. "Cable, wiring and conduit" consists primarily of aerial cable, underground cable, conduit and wiring. "Other equipment" consists of public telephone instruments and telephone equipment (including PBXs) used by the telephone subsidiaries in their operations, poles, furniture, office equipment, and vehicles and other work equipment. "Land and buildings" consists of land owned in fee and improvements thereto, principally central office buildings. "Other" property consists primarily of plant under construction, capital leases and leasehold improvements. The customers of the telephone subsidiaries are served by electronic switching systems that provide a wide variety of services. The 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, 1996, approximately 86% of the access lines were served by digital capability. CAPITAL EXPENDITURES The telephone subsidiaries have been making and expect to continue to make significant capital expenditures to meet the demand for communications services and to further improve such services. Capital expenditures of the telephone subsidiaries were approximately $2.5 billion in 1996, $2.4 billion in 1995 and $2.2 billion in 1994. The total investment in plant, property and equipment was approximately $34.8 billion at December 31, 1996, $33.6 billion at December 31, 1995 and $33.7 billion at December 31, 1994, in each case after giving effect to retirements, but before deducting accumulated depreciation at such date. 16 Item 3. Legal Proceedings General The Company and some of its subsidiaries are parties to litigation and other claims arising in the ordinary course of business, including matters relating to employment disputes, customer claims, taxes, contracts, and alleged torts. Some of these claims purport to be class actions. In January, 1991, the Company, its Chief Executive Officer and its former Chief Financial Officer were named as defendants in several identical class action complaints. These complaints, which were consolidated in a single proceeding in the United States District Court for the Eastern District of Pennsylvania and have subsequently been amended, allege that, during a class period from June 14, 1990 through January 22, 1991, the plaintiffs purchased shares of Bell Atlantic stock at inflated prices as a result of the defendants' alleged failure to disclose material information regarding certain aspects of the Company's financial performance and prospects. The trial court's 1991 decision granting defendants' motion to dismiss this action was reversed by the United States Court of Appeals for the Third Circuit upon appeal by the plaintiffs. Discovery in this action has been completed and defendants filed a motion for summary judgment in June, 1996. While complete assurance cannot be given as to the outcome of any litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of the foregoing matters would not be material in amount to the results of operations or financial position of the Company. Pre-Divestiture Contingent Liabilities and Litigation The Plan provides for the recognition and payment by AT&T and the former BOCs (including the telephone subsidiaries) of liabilities that are attributable to pre-Divestiture events but do not become certain until after Divestiture. These contingent liabilities relate principally to litigation and other claims with respect to the former Bell System's rates, taxes, contracts and torts (including business torts, such as alleged violations of the antitrust laws). Except to the extent that affected parties otherwise agree, contingent liabilities that are attributable to pre-Divestiture events are shared by AT&T and the BOCs in accordance with formulas prescribed by the Plan, whether or not an entity was a party to the proceeding and regardless of whether an entity was dismissed from the proceeding by virtue of settlement or otherwise. Each company's allocable share of liability under these formulas depends on several factors, including the type of contingent liability involved and each company's relative net investment as of the effective date of Divestiture. Under the formula generally applicable to most of the categories of these contingent liabilities, the telephone subsidiaries' aggregate allocable share of liability is approximately 10.2%. AT&T and various of its subsidiaries and the BOCs (including in some cases one or more of the telephone subsidiaries) have been and are parties to various types of litigation relating to pre-Divestiture events, including actions and proceedings involving environmental claims and allegations of violations of equal employment laws. Damages, if any, ultimately awarded in the remaining actions relating to pre-Divestiture events could have a financial impact on the Company whether or not the Company is a defendant since such damages will be treated as contingent liabilities and allocated in accordance with the allocation rules established by the Plan. Effective in 1994, the Company and the other Regional Holding Companies agreed to discontinue sharing of new pre-Divestiture claims and certain existing claims other than claims relating to environmental matters. AT&T is not a party to this agreement. While complete assurance cannot be given as to the outcome of any contingent liabilities or litigation, in the opinion of the Company's management, any monetary liability or financial impact to which the Company would be subject after final adjudication of all of the remaining potential or actual pre- Divestiture claims would not be material in amount to the results of operations or financial position of the Company. 17 Item 4. Submission of Matters to a Vote of Security Holders A special meeting of the Company's shareowners was held on November 8, 1996. At this meeting, the shareowners approved the Amended and Restated Agreement and Plan of Merger, dated as of April 21, 1996, as amended and restated on July 2, 1996, between NYNEX Corporation and Bell Atlantic Corporation, and related transactions, including the issuance of shares of Bell Atlantic Common Stock and the amendment and restatement of Bell Atlantic Corporation's certificate of incorporation. The vote was 315,431,385 for and 8,391,298 against, with 2,656,918 shares abstaining and no broker non-votes. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is certain information with respect to the Company's executive officers.
Held Name Age Office Since - --------------------------- --- --------------------------------------- ----- Raymond W. Smith 59 Chairman of the Board and Chief 1989 Executive Officer Lawrence T. Babbio, Jr. 52 Vice Chairman 1995 James G. Cullen 54 Vice Chairman 1995 William O. Albertini 53 Executive Vice President and Chief 1995 Financial Officer P. Alan Bulliner 53 Vice President - Corporate Secretary 1992 and Counsel Patrick C. G. Coulter 56 Vice President - Corporate 1995 Communications John F. Gamba 58 Senior Vice President - Corporate 1995 Resources and Performance Assurance Alexander H. Good 47 President and Chief Executive Officer 1996 Bell Atlantic International Inc., and Vice President - Strategic Planning and Development Bruce S. Gordon 51 Group President - Consumer and Small 1993 Business Services, Bell Atlantic Network Services, Inc. Stuart C. Johnson 54 Group President - Large Business and 1993 Information Services, Bell Atlantic Network Services, Inc. Thomas R. McKeough 50 Vice President - Mergers and 1994 Acquisitions and Associate General Counsel Kevin P. Pennington 40 Vice President - Human Resources 1995 Doreen A. Toben 47 Vice President - Finance and Controller 1995 Ellen C. Wolf 43 Vice President - Treasurer 1995 James R. Young 45 Vice President - General Counsel 1992
Prior to serving as an executive officer of the Company, each of the above officers, with the exception of Messrs. Coulter, Good, Johnson, and Pennington, have held high level managerial positions with the Company or one of its subsidiaries for at least five years. Prior to joining the Company in 1995, Mr. Coulter was with Raytheon Company, serving as Director of Media Relations and Advertising (from 1991 to 1992) and Director of Corporate Communications (from 1992 to 1995). From 1990 until joining the Company in 1994, Mr. Good served as Senior Vice President of Mobile Telecommunications Technology Corporation (MTEL) and President of MTEL International. From 1987 until joining the Company in 1992, Mr. Johnson served as President, GTE-Contel Federal Sector for GTE Corporation. Prior to joining the Company in 1995, Mr. Pennington served as Executive Vice President-Corporate Services and Chief Administrative Officer at Clark U.S.A., Inc. (from 1993 to 1995) and as Vice President-Human Resources at Mercy Health System (from 1991 to 1993). Officers are not elected for a fixed term of office but are removable at the discretion of the Board of Directors. 18 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 Corporation 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, 1996, there were 870,605 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 ------------- ------- -------- 1996: First Quarter........... $74 7/8 $61 1/8 $.72* Second Quarter.......... 67 3/4 59 .72 Third Quarter........... 64 55 1/8 .72 Fourth Quarter.......... 68 58 1/2 .72 1995: First Quarter........... $55 3/4 $48 3/8 $.70 Second Quarter.......... 58 7/8 52 .70 Third Quarter........... 61 7/8 54 7/8 .70 Fourth Quarter.......... 68 7/8 59 .70
*Includes a payment of $.005 per common share for redemption of rights under the Company's Shareholder Rights Plan. Item 6. Selected Financial Data The Selected Financial and Operating Data on page 10 of the Company's 1996 Annual Report to shareowners is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Management's Discussion and Analysis of Results of Operations and Financial Condition on pages 11 through 20 of the Company's 1996 Annual Report to shareowners is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Report of Independent Accountants, Consolidated Statements of Operations, Consolidated Balance Sheets, Consolidated Statements of Changes in Shareowners' Investment, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements on pages 21 through 45 of the Company's 1996 Annual Report to shareowners are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 19 PART III Item 10. Directors and Executive Officers of Registrant For information with respect to the executive officers of the Company, see "Executive Officers of the Registrant" at the end of Part I of this Report. For information with respect to the Directors of the Company, see "Election of Directors" on pages 1 through 8 of the Proxy Statement for the Company's 1997 Annual Meeting of Shareowners, which is incorporated herein by reference. For information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, see "Section 16(a) Beneficial Ownership Reporting Compliance" on page 20 of the Proxy Statement for the Company's 1997 Annual Meeting of Shareowners, which is incorporated herein by reference. Item 11. Executive Compensation For information with respect to executive compensation, see "Executive Compensation" on pages 12 through 17, "Stock Performance" on page 19, and "Employment Agreements" on pages 20 and 21 of the Proxy Statement for the Company's 1997 Annual Meeting of Shareowners, which are 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 of the Company, see "Ownership of Bell Atlantic Common Stock" on page 18 of the Proxy Statement for the Company's 1997 Annual Meeting of Shareowners, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions None. 20 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 Statements and Financial Statement Schedule appearing on Page F-1. (2) Financial Statement Schedules See Index to Financial Statements and Financial Statement Schedule appearing on Page F-1. (3) Exhibits. Exhibits identified in parentheses below, on file with the Securities and Exchange Commission (SEC), are incorporated herein by reference as exhibits hereto. Exhibit Number - ------ 2 Amended and Restated Agreement and Plan of Merger, dated April 21, 1996, as amended and restated on July 2, 1996, between NYNEX Corporation, and Bell Atlantic Corporation. (Exhibit 2 to Registration Statement on Form S-4 No. 333-11573.) 3a Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"), dated October 7, 1983. (Exhibit 3a to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.) 3b Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 9, 1986 and filed May 16, 1986. (Exhibit 3b to Form SE dated March 27, 1987, File No. 1-8606.) 3c Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 6, 1987 and filed May 8, 1987. (Exhibit 3c to Form SE dated March 28, 1988, File No. 1-8606.) 3d Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 10, 1990 and filed June 29, 1990. (Exhibit 3d to Form SE dated March 28, 1991, File No. 1-8606.) 3e By-Laws of Bell Atlantic, as amended through June 23, 1992. (Exhibit 3e to Form SE dated March 29, 1993, File No. 1-8606). 4 No instrument which defines the rights of holders of long-term debt, of the Company and all of 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 Senior Management Short Term Incentive Plan, as amended and restated effective as of January 22 1996.* 10b Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986, File No. 1-8606.)* 21 10b (i) Resolutions amending the Plan, effective as of January 1, 1989. (Exhibit 10d to Form SE dated March 29, 1989, File No. 1-8606.)* 10c Bell Atlantic Personal Financial Services Program, as amended and restated as of July 1, 1995. (Exhibit 10c to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10d Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of February 1, 1995. (Exhibit 10d to Form 10- K for the year ended December 31, 1994, File No. 1-8606.)* 10e Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10f Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10g 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.* 10h Bell Atlantic Senior Management Retirement Income Plan, as amended and restated effective as of January 1, 1996.* 10i Bell Atlantic Deferred Compensation Plan, as amended and restated as of January 1, 1997.* 10j Bell Atlantic 1985 Incentive Stock Option Plan, as amended and restated as of July 1, 1996.* 10k 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, File No. 1-8606.)* 10l Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of January 1, 1996. (Exhibit 10l to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10m Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990, File No. 1-8606.)* 10m (i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993, File No. 1-8606.)* 10n Employment Agreement, dated May 2, 1995, between the Company and Lawrence T. Babbio, Jr. (Exhibit 10n to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10n (i) Amendment, dated July 10, 1996, to Employment Agreement, dated May 2, 1995, between the Company and Lawrence T. Babbio, Jr.* 10o Employment Agreement, dated July 10, 1996, between the Company and Lawrence T. Babbio, Jr.* 22 10p 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, File No. 1-8606.)* 10q Form of stock option grant to Lawrene T. Babbio, Jr. and William O. Albertini, dated February 18, 1997, containing terms and conditions of certain nonqualifed stock options to purchase American Depository Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V. * 10r Employment Agreement, dated May 2, 1995, between the Company and James G. Cullen. (Exhibit 10p to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10r(i) Amendment, dated June 30, 1996, to Employment Agreement dated, May 2, 1995 between the Company and James G. Cullen.* 10s Employment Agreement, dated June 30, 1996, between the Company and James G. Cullen.* 10t Employment Agreements with William O. Albertini, Bruce S. Gordon, Stuart C. Johnson and James R. Young. (Exhibit 10(e) to Registration Statement on Form S-4 No. 333-11573.)* 10u Forms of Stay Incentive Agreement and Separation and Non-Compete Agreement with P. Alan Bulliner, Patrick C.G. Coulter, Alexander H. Good, Thomas R. McKeough, Kevin P. Pennington, Doreen A. Toben and Ellen C. Wolf. (Exhibit 10(f) to Registration Statement on Form S-4 No. 333-11573.)* 10v Term Sheet, dated December 18, 1996 between the Company and Stuart C. Johnson reciting the terms and conditions of a new employment agreement. 10w Non-Compete and Proprietary Information Agreement, dated August 9, 1993, among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson. (Exhibit 10w to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 Portions of the Company's Annual Report to shareowners for the year ended December 31, 1996. 18 Letter regarding change in accounting principle. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. 99a Annual Report on Form 11-K for the Bell Atlantic Savings Plan for Salaried Employees for the year ended December 31, 1996. (To be filed by amendment.) 99b Annual Report on Form 11-K for the Bell Atlantic Savings and Security Plan (Non-Salaried Employees) for the year ended December 31, 1996. (To be filed by amendment.) - ---------- *Indicates management contract or compensatory plan or arrangement. 23 Shareowners may request a copy of the exhibits to this Annual Report on Form 10-K by writing to the Corporate Secretary, Bell Atlantic Corporation, 1717 Arch Street, Philadelphia, Pennsylvania 19103. (b) Current Reports on Form 8-K filed during the quarter ended December 31, 1996: A Current Report on Form 8-K, dated October 17, 1996, was filed regarding the Company's third quarter 1996 financial results. 24 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/ William O. Albertini -------------------------------------- William O. Albertini Executive Vice President and Chief Financial Officer March 24, 1997 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: + Raymond W. Smith Chairman of the + Board and Chief + Executive Officer + + Principal Financial Officer: + William O. Albertini Executive Vice + President and Chief + Financial Officer + + Principal Accounting Officer: + Doreen A. Toben Vice President - + Finance and Controller + + Directors: + William W. Adams +++++ By /s/ William O. Albertini William O. Albertini + -------------------------- Lawrence T. Babbio, Jr. + William O. Albertini Thomas E. Bolger + (individually and as Frank C. Carlucci + attorney-in-fact) James G. Cullen + March 24, 1997 James H. Gilliam, Jr. + Thomas H. Kean + John F. Maypole + Joseph Neubauer + Thomas H. O'Brien + Eckhard Pfeiffer + Rozanne L. Ridgway + Raymond W. Smith + Shirley Young +++++
25 BELL ATLANTIC CORPORATION Index to Financial Statements and Financial Statement Schedule Page Number -------------------- Annual Form Report to 10-K Shareowners ---- ----------- Report of Independent Accountants...................... F-2 21 Consolidated Statements of Operations- For the years ended December 31, 1996, 1995 and 1994.. -- 22 Consolidated Balance Sheets- December 31, 1996 and 1995............................ -- 23 Consolidated Statements of Changes in Shareowners' Investment- For the years ended December 31, 1996, 1995 and 1994.. -- 24 Consolidated Statements of Cash Flows- For the years ended December 31, 1996, 1995, and 1994.............................................. -- 25 Notes to Consolidated Financial Statements............. -- 26-45 Schedule II--Valuation and Qualifying Accounts-- For the years ended December 31, 1996, 1995 and 1994................................................. F-3 -- Financial statement schedules other than that listed above have been omitted because such schedules are not required or applicable. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareowners of Bell Atlantic Corporation Our report on the consolidated financial statements of Bell Atlantic Corporation and subsidiaries has been incorporated by reference in this Form 10-K from page 21 of the 1996 Annual Report to shareowners of Bell Atlantic Corporation and subsidiaries. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page F-1 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 5, 1997 F-2 BELL ATLANTIC CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (DOLLARS IN MILLIONS)
ADDITIONS -------------------- CHARGED TO BALANCE AT CHARGED OTHER BALANCE BEGINNING TO ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES --NOTE(a) --NOTE(b) OF PERIOD - ---------------------------------------------------------- ---------- -------- ---------- ---------- --------- Allowance for Uncollectible Accounts Receivable: Year 1996............................................... $189.8 $207.4 $192.9 $341.8 $248.3 Year 1995............................................... $188.9 $176.2 $203.5 $378.8 $189.8 Year 1994............................................... $192.6 $176.8 $197.8 $378.3 $188.9 Allowance for Obsolete Inventory: Year 1996............................................... $ 1.8 $ 2.4 $ .3 $ 1.3 $ 3.2 Year 1995............................................... $ 18.3 $ 3.6 $ .1 $ 20.2 $ 1.8 Year 1994............................................... $ 18.3 $ 5.0 $ -- $ 5.0 $ 18.3 Valuation Allowances for Deferred Tax Assets: Year 1996............................................... $ 9.6 $ 10.8 $ 1.3 $ 2.5 $ 19.2 Year 1995............................................... $ 22.4 $ 1.8 $ -- $ 14.6 $ 9.6 Year 1994............................................... $ 74.8 $ 5.6 $ -- $ 58.0 $ 22.4 Other Allowances (c): Year 1996............................................... $ 12.2 $ 1.3 $ 3.9 $ 8.3 $ 9.1 Year 1995............................................... $ 10.8 $ 2.1 $ 5.6 $ 6.3 $ 12.2 Year 1994............................................... $ 10.7 $ 4.9 $ -- $ 4.8 $ 10.8
- ---------------- (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 the Company. (b) Amounts written off as uncollectible or obsolete or transferred to other accounts (except for the valuation allowance for deferred tax assets). In 1995 and 1994, amounts include ending balances for businesses sold during the year. (c) Other Allowances include allowances for notes receivable, obsolete equipment and allowances for probable losses incurred in the directory businesses arising in the normal course of operations. F-3 EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 1-8606 BELL ATLANTIC CORPORATION EXHIBIT INDEX Exhibit Number 2 Amended and Restated Agreement and Plan of Merger, dated April 21, 1996, as amended and restated on July 2, 1996, between NYNEX Corporation, and Bell Atlantic Corporation. (Exhibit 2 to Registration Statement on Form S-4 No. 333-11573.) 3a Certificate of Incorporation of Bell Atlantic Corporation ("Bell Atlantic"), dated October 7, 1983. (Exhibit 3a to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.) 3b Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 9, 1986 and filed May 16, 1986. (Exhibit 3b to Form SE dated March 27, 1987, File No. 1-8606.) 3c Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 6, 1987 and filed May 8, 1987. (Exhibit 3c to Form SE dated March 28, 1988, File No. 1-8606.) 3d Certificate of Amendment of Certificate of Incorporation of Bell Atlantic, dated May 10, 1990 and filed June 29, 1990. (Exhibit 3d to Form SE dated March 28, 1991, File No. 1-8606.) 3e By-Laws of Bell Atlantic, as amended through June 23, 1992. (Exhibit 3e to Form SE dated March 29, 1993, File No. 1-8606). 4 No instrument which defines the rights of holders of long-term debt, of the Company and all of 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 Senior Management Short Term Incentive Plan, as amended and restated effective as of January 22 1996.* 10b Bell Atlantic Senior Management Long-Term Disability and Survivor Protection Plan, as amended. (Exhibit 10h to Form SE filed on March 27, 1986, File No. 1-8606.)* 10b (i) Resolutions amending the Plan, effective as of January 1, 1989. (Exhibit 10d to Form SE dated March 29, 1989, File No. 1-8606.)* 10c Bell Atlantic Personal Financial Services Program, as amended and restated as of July 1, 1995. (Exhibit 10c to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10d Bell Atlantic Deferred Compensation Plan for Outside Directors, as amended and restated as of February 1, 1995. (Exhibit 10d to Form 10- K for the year ended December 31, 1994, File No. 1-8606.)* 10e Bell Atlantic Insurance Plan for Directors. (Exhibit 10hh to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10f Description of Bell Atlantic Plan for Non-Employee Directors' Travel Accident Insurance. (Exhibit 10ii to Registration Statement on Form S-1 No. 2-87842, File No. 1-8606.)* 10g 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.* 10h Bell Atlantic Senior Management Retirement Income Plan, as amended and restated effective as of January 1, 1996.* 10i Bell Atlantic Deferred Compensation Plan, as amended and restated as of January 1, 1997.* 10j Bell Atlantic 1985 Incentive Stock Option Plan, as amended and restated as of July 1, 1996.* 10k 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, File No. 1-8606.)* 10l Bell Atlantic Stock Compensation Plan for Outside Directors, as amended and restated as of January 1, 1996. (Exhibit 10l to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10m Bell Atlantic Corporation Directors' Charitable Giving Program. (Exhibit 10p to Form SE dated March 29, 1990, File No. 1-8606.)* 10m (i) Resolutions amending and partially terminating the Program. (Exhibit 10p to Form SE dated March 29, 1993, File No. 1-8606.)* 10n Employment Agreement, dated May 2, 1995, between the Company and Lawrence T. Babbio, Jr. (Exhibit 10n to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10n (i) Amendment, dated July 10, 1996, to Employment Agreement, dated May 2, 1995, between the Company and Lawrence T. Babbio, Jr.* 10o Employment Agreement, dated July 10, 1996, between the Company and Lawrence T. Babbio, Jr.* 10p 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, File No. 1-8606.)* 10q Form of stock option grant to Lawrene T. Babbio, Jr. and William O. Albertini, dated February 18, 1997, containing terms and conditions of certain nonqualifed stock options to purchase American Depository Receipts representing Series L shares of the capital stock of Grupo Iusacell, S.A. de C.V. * 10r Employment Agreement, dated May 2, 1995, between the Company and James G. Cullen. (Exhibit 10p to Form 10-K for the year ended December 31, 1995, File No. 1-8606.)* 10r(i) Amendment, dated June 30, 1996, to Employment Agreement dated, May 2, 1995 between the Company and James G. Cullen.* 10s Employment Agreement, dated June 30, 1996, between the Company and James G. Cullen.* 10t Employment Agreements with William O. Albertini, Bruce S. Gordon, Stuart C. Johnson and James R. Young. (Exhibit 10(e) to Registration Statement on Form S-4 No. 333-11573.)* 10u Forms of Stay Incentive Agreement and Separation and Non-Compete Agreement with P. Alan Bulliner, Patrick C.G. Coulter, Alexander H. Good, Thomas R. McKeough, Kevin P. Pennington, Doreen A. Toben and Ellen C. Wolf. (Exhibit 10(f) to Registration Statement on Form S-4 No. 333-11573.)* 10v Term Sheet, dated December 18, 1996 between the Company and Stuart C. Johnson reciting the terms and conditions of a new employment agreement. 10w Non-Compete and Proprietary Information Agreement, dated August 9, 1993, among the Company, Bell Atlantic Network Services, Inc. and Stuart C. Johnson. (Exhibit 10w to Form 10-K for the year ended December 31, 1993, File No. 1-8606.)* 11 Computation of Earnings Per Common Share. 12 Computation of Ratio of Earnings to Fixed Charges. 13 Portions of the Company's Annual Report to shareowners for the year ended December 31, 1996. 18 Letter regarding change in accounting principle. 21 List of subsidiaries of Bell Atlantic. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. 99a Annual Report on Form 11-K for the Bell Atlantic Savings Plan for Salaried Employees for the year ended December 31, 1996. (To be filed by amendment.) 99b Annual Report on Form 11-K for the Bell Atlantic Savings and Security Plan (Non-Salaried Employees) for the year ended December 31, 1996. (To be filed by amendment.) - ---------- *Indicates management contract or compensatory plan or arrangement. EX-10.A 2 SENIOR MANAGEMENT SHORT TERM INCENTIVE PLAN EXHIBIT 10a BELL ATLANTIC SENIOR MANAGEMENT SHORT TERM INCENTIVE PLAN Amended and Restated Effective as of January 22, 1996 To incorporate amendments adopted through that date 1. Purpose. The purpose of the Bell Atlantic Senior Management Short Term Incentive Plan (the "Plan") is to provide annual incentive compensation to those employees of Bell Atlantic Corporation (the "Company") and other "Participating Companies" to whom the Human Resources Committee of the Board has accorded the status of senior manager ("Senior Managers"). Such incentive compensation shall be based upon the achievement of financial performance criteria established by the Human Resources Committee, and subject to modification, on a case-by-case basis, based on individual performance. The Company and all of its subsidiaries are sometimes collectively referred to under this Plan as "Affiliated Companies." 2. Awards. (a) Annual Short Term Awards. ------------------------ (1) Authority to Award. The Human Resources Committee (the "HRC") of the Board of Directors of the Company (the "Board") may make awards under this Plan ("Short Term Awards") in each calendar year with respect to the preceding year (the "Performance Year"), beginning with Awards made in 1985 with respect to Performance Year 1984, in such amounts and to those of the eligible Senior Managers as it may determine in its sole discretion subject to the limitations of the Plan; provided, however, that the Board shall approve the Short Term Awards for the most senior executive officers of the Company. (2) Form of Short Term Award. For 1990 and prior Performance ------------------------ Years, Short Term Awards shall be paid in cash in the calendar year the Short Term Awards are made, except to the extent that the participating Senior Manager has made an election to defer the receipt of such Short Term Award pursuant to the terms of the Bell Atlantic Senior Management Incentive Award Deferral Plan (the "Deferral Plan"). For 1991 and subsequent Performance Years, 80 percent of the Short Term Award shall be payable in cash in the year following the Performance Year (subject to the right of the participating Senior Manager to elect to defer the distribution of the Short Term Award under the Deferral Plan), and 20 percent of the Short Term Award shall be in the form of phantom shares of stock of the Company which must be deferred for future distribution in the form of shares of common stock of the Company, in accordance with the terms of the Deferral Plan; provided, however, that 100 percent of the Award shall be payable in cash in the event that the Senior Manager dies or retires prior to the date of the award. For purposes of determining the number of phantom shares to be awarded, the value per share shall be the average of the closing prices on shares of Company Stock on the last five trading days of December of the Performance Year. (b) Standard Awards. The HRC shall approve a standard award level --------------- ("Standard Award") for each Senior Manager salary grade for each Performance Year it intends to - -------------------------------------------------------------------------------- Short Term Incentive Plan (1/22/96) Page 1 grant awards; provided, however, that the Board shall approve the Standard Award for the most senior executive officers of the Company. (c) Adjustments for Financial Performance. A percentage of the ------------------------------------- Standard Awards for any Performance Year varying from 0 to 200 percent will be determined by the HRC promptly after the end of the Performance Year based solely upon the levels of achievement during such Performance Year of financial performance criteria which were set by the HRC at or about the beginning of the Performance Year. The HRC shall establish these financial performance criteria in a manner consistent with the Company's financial statements published for financial reporting purposes, but the financial criteria may take into account criteria other than net income before federal income tax. For the 1996 Performance Year and thereafter, the level of achievement on financial performance criteria shall be taken into account in combination with the level of achievement in meeting customer satisfaction criteria, as described in Section 2(d)(ii). (d) Customer Satisfaction. ---------------------- (i) Gateway Structure Prior to 1996: For plan years prior ------------------------------- to 1996, the percentage of the Standard Awards determined under paragraph 2(c), above, shall be reduced in whole or in part if minimum customer satisfaction standards are not met by the Company and its consolidated subsidiaries. The HRC shall establish these customer satisfaction standards and the percentage reduction in Standard Awards as adjusted for financial performance under paragraph 2(c), above, in the event of failure to satisfy these customer satisfaction standards. The percentage of the applicable Standard Awards referred to in paragraph 2(c), reduced if required under this paragraph 2(d), shall serve as guidelines in making awards under the Plan. (ii) 1996 and Subsequent Performance Years: For 1996 and ------------------------------------- Performance Years thereafter, at or about the beginning of the applicable Performance Year the HRC shall approve a set of customer satisfaction criteria which shall be taken into account as a factor in the determination of awards under the Plan in addition to financial performance criteria. After the end of the applicable performance year, when the HRC shall determine the percentage modifier for awards for a performance year in the range of 0% to 200%, the level of measured success in meeting the customer satisfaction criteria throughout the Performance Year shall be weighted 25% and the level of success in meeting the financial performance results (as described in Section 2(c)) shall be weighted 75%. The HRC shall have the discretion to determine which customer satisfaction results from which pools of customers shall affect Senior Managers from various Participating Companies, business units or lines of business shall have their awards affected by customer satisfaction results. The HRC shall have the discretion to establish and take into account other strategic objectives for Senior Managers of one or more Participating Companies or lines of business, either in lieu of or in addition to the factor of customer satisfaction. (e) Adjustments for Individual Merit. In the case of each eligible --------------------------------- Senior Manager, the actual Short Term Award may be more or less (including no award) than the percentage of the employee's Standard Award determined under paragraphs 2(c) and 2(d) above, depending upon individual merit, as determined by the HRC in its sole discretion; provided, however, that any individual merit adjustment for the most senior executive officers of the Company shall be approved by the Board. When adjusting the percentage of each employee's - -------------------------------------------------------------------------------- Short Term Incentive Plan (1/22/96) Page 2 Standard Award determined under paragraphs 2(c) and 2(d) above for individual merit, the sum of all adjusted awards shall not exceed the amount approved for this purpose. The amount approved for adjusted awards shall be a percentage of the total Standard Awards approved under paragraph 2(b), as determined by the HRC or the Board in their sole discretion. 3. Eligibility. (a) Subject to the terms of paragraph 3(b) below, each employee of a Participating Company who, during a Performance Year, renders at least three months of active service in the capacity of a Senior Manager shall be eligible for a Short Term Award under the Plan for such Performance Year (whether or not so employed or living on the date the Short Term Award is eventually awarded), provided that said three months of active service shall not include any time during the Performance Year that the employee was absent on account of disability and receiving disability benefits under the Bell Atlantic Sickness or Accident Disability Benefit Plan or other short-term disability plan ("Disability Benefits"). (b) The Standard Award applicable to a Senior Manager otherwise eligible for awards under the Plan for a Performance Year shall be prorated over the Performance Year, or the Senior Manager shall be ineligible for an award, as follows:
(1) commencement or for service as a Senior Manager for at least 3 revocation of Senior months of the Performance Year, prorate to nearest Manager status after full month for the period during the Performance the beginning of the Year that the employee served in the status of Performance Year Senior Manager (2) change in salary prorate to the nearest full month, according to grade period of active service at each salary grade (3) receipt of prorate to the nearest full month, based on time Disability Benefits of service while not receiving Disability Benefits for more than three months in a Performance Year (4) receipt of no reduction in applicable Standard Award Disability Benefits for three months or less in a Performance Year (5) retirement prorate to nearest full month, based on the date of retirement (6) resignation, no award other than retirement
- -------------------------------------------------------------------------------- Short Term Incentive Plan (1/22/96) Page 3
(7) leave of absence, prorate to nearest full month, based on date that or an approved leave, transfer, or rotational assignment rotational assignment commences, or date that Senior Manager returns or career transfer to from absence to active service, unless otherwise Bell Communications provided by the HRC Research, Inc. ("Bellcore") (8) death during a prorate to nearest full month, based on the date Performance Year of death (no need to satisfy 3 months of service rule); payable as soon as practicable following date of death, based on a performance modifier reflecting results through the last completed month prior to date of death (9) termination of no award employment (other than as described in (3), (5), (6), (7) or (8) above) prior to the date of award
(c) The HRC may, in its discretion on a case-by-case basis, establish combinations of age and service which shall cause the termination of employment of a Senior Manager to be treated as a "retirement" for purposes of Section 3(b)(5) hereof. In the absence of the establishment of such special age and service criteria, "retirement" shall mean a termination of employment of a Senior Manager at a time when the Senior Manager has attained sufficient age and service to qualify for participation in retiree health and welfare plans maintained the Company. (d) In the case of a Senior Manager who transfers between Participating Companies during a Performance Year, the company last employing the employee during the Performance Year shall pay the short term award, if any, for that Performance Year. 4. Adjustments. (a) In order to assure the incentive features of the Plan and to avoid distortion in the operation of the Plan, the Board or the HRC may make adjustments in the criteria established for any Performance Year under Section 2 whether before or after the end of the Performance Year to the extent it deems appropriate in its sole discretion, which shall be conclusive and binding upon all parties concerned, to compensate for or reflect any extraordinary changes which may have occurred during the Performance Year which significantly alter the basis upon which such financial performance criteria and customer satisfaction standards were determined. Such changes may include, without limitation, changes in accounting practices, changes in tax, regulatory or other laws or regulations, or economic changes not in the ordinary course of business cycles. (b) In the event of any change in outstanding shares of the Company by reason of any stock dividend or stock split, recapitalization, merger, consolidation, combination or exchange of shares, or other similar corporate change, the HRC shall make such adjustments, if any, that it deems appropriate in the performance levels established under Section 2 for any Performance Year not then completed. Any and all such adjustments shall be conclusive and binding upon all parties concerned. - -------------------------------------------------------------------------------- Short Term Incentive Plan (1/22/96) Page 4 5. Other Conditions. (a) No person shall have any claim to be granted a Short Term Award under the Plan and there is no obligation for uniformity of treatment of eligible employees under the Plan. (b) Neither a Standard Award nor a Short Term Award under the Plan may be assigned or alienated. (c) Neither the Plan nor any action taken hereunder shall be construed as giving to any employee the right to be retained in the employ of any Participating Company. (d) Each Participating Company shall have the right to deduct from any Short Term Award to be paid under the Plan or deferred under the Deferral Plan any federal, state, or local taxes required by law to be withheld with respect to such award. (e) Notwithstanding any other provision of the Plan, no Short Term Awards will be made if, at the time that the award would have paid, any of the following circumstances have occurred: (i) the regular quarterly dividend on any outstanding Company common or preferred shares has been omitted and not subsequently paid or there exists any default in payment of dividends on any such outstanding shares, (ii) the rate of dividends on Company common shares is lower than any regular quarterly dividend paid during the Performance Year, adjusted for any stock split, combination, exchange or similar change, or (iii) estimated consolidated net income of the Company for the twelve-month period preceding the month the awards would otherwise have been made is less than the sum of (1) the amount of the Short Term Awards to be made under the Plan and similar plans of other Affiliated Companies ("Similar Subsidiary Plans") and the amount of payments and awards eligible for distribution under the Bell Atlantic 1985 Performance Share Plan (the "Long Term Plan") in that month, and (2) all dividends applicable to such period on an accrual basis, either paid, declared, or accrued at the most recently paid rate, on all outstanding Company preferred and common shares. In the event net income available under clause (iii) above for awards under the Plan and the Similar Plans, and for payments and awards eligible for distribution under the Long Term Plan, is sufficient to cover part but not all of such amounts, the following order shall be applied, pro rata within each category: (i) dividend equivalent payments under the Long Term Plan, (ii) units eligible for distribution under the Long Term Plan, (iii) awards under the Plan and the Similar Plans. 6. Designation of Beneficiaries. An eligible Senior Manager may designate - -------------------------------------------------------------------------------- Short Term Incentive Plan (1/22/96) Page 5 a beneficiary or beneficiaries to receive all or part of the Short Term Award which may be granted to the Senior Manager under the Plan in case of death. A designation of beneficiary may be replaced by a new beneficiary designation or may be revoked by the employee at any time. A designation or revocation shall be on a form to be provided for the purpose and shall be signed by the employee and delivered to the Company prior to the employee's death. In case of the employee's death, a Short Term Award generated under the Plan with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under applicable law) shall be paid to the designated beneficiary or beneficiaries. Any Short Term Award that is awarded with respect to an employee for whom no valid and enforceable beneficiary designation is known to the Plan Administrator shall be distributed to the employee's estate. If there shall be any question as to the legal right of any beneficiary to receive an award under the Plan, the amount in question may be paid to the estate of the employee, in which event neither the Plan, the Company, nor any Affiliated Company, shall have any further liability to anyone with respect to such paid amounts. 7. Plan Administration. (a) The Vice President - Executive Compensation and Benefits of the Company shall have the authority and responsibility to act as "Plan Administrator" (as that term is used in this Plan), including, without limitation, the authority and responsibility to distribute summary descriptions of the Plan, and to provide for the routine administration of the Plan. The Plan Administrator, with the advice of counsel, shall have the right to respond to and decide any claims or disputes under the Plan and to interpret the Plan, subject to the ultimate authority of the HRC to review any appeal from any such claim or interpretation. In the event of any such appeal, the action of the HRC shall be final and binding. Any determinations or actions required or permitted to be made by the Plan Administrator or the HRC may be made by the Board. The Board, the HRC, and the Plan Administrator, in making any determinations under or referred to in the Plan shall be entitled to rely on opinions, reports, or statements of officers or employees of the Company or any other Affiliated Company, or of counsel, public accountants, or other professionals or experts. (b) The Plan shall be governed by the laws of the State of Delaware (without regard to any conflicts-of-laws provisions) to the extent not preempted by Federal law. 8. Modification or Termination of Plan. (a) The HRC may modify or amend, and the Board or HRC may terminate, the Plan at any time to be effective at such date as the Board or HRC (as the case may be) may determine. A modification or amendment may affect present and future eligible employees. The determination of financial performance achieved for any Performance Year may, but need not be, adjusted to reflect extraordinary financial items and adjustments or restatements of the financial statements in the discretion of the HRC. Any such determination shall not be affected by subsequent adjustments or restatements. (b) Notwithstanding the foregoing paragraph, the Plan Administrator may make administrative modifications to the plans to comply with changes in applicable law or to ensure effective and consistent administration of the plans; provided, however, that the Plan Administrator shall not have the authority to amend the Plan in any manner which alters the amount of compensation or benefits provided by the Plan. The Vice President - Human Resources of the Company, with the advice of counsel, has the authority to amend the Plan or - -------------------------------------------------------------------------------- Short Term Incentive Plan (1/22/96) Page 6 modify the administration of the Plan to the extent required to ensure that transactions under the Plan are exempt to the maximum extent possible from the short-swing profit provisions of Section 16(b) of the Securities Exchange Act of 1934. - -------------------------------------------------------------------------------- Short Term Incentive Plan (1/22/96) Page 7 EX-10.G 3 CASH BALANCE PLAN Exhibit 10g Excerpt from Bell Atlantic Cash Balance Plan Effective 12/31/95 6. Limitations On Contributions And Benefits 6.1 Conditional Contributions. To the extent permitted under ERISA and the Code, all contributions to the Plan are subject to the following conditions: 6.1.1 Contributions Conditioned on Deductibility. All contributions made to the Plan by each Participating Employer shall be conditioned upon the deductibility of such contributions under the Code. To the extent that any such deduction is disallowed by the Internal Revenue Service, each Participating Employer, upon the approval of the Treasurer of Bell Atlantic, shall have the right to demand and receive from the Trustee the related contribution to the extent disallowed within one year after the disallowance of said deduction. 6.1.2 Mistaken Contributions. If a Participating Employer makes a contribution, or any part thereof, by mistake of fact, such contribution or part thereof shall be returned to the Participating Employer within one year after such contribution is made. 6.2 Special Limitation on Benefits for Higher-Paid Employees. 6.2.1 Nondiscrimination upon Plan Termination. In the event of Plan termination, the benefit payable to any highly compensated employee or any highly compensated former employee (as defined in Section 414(q) of the Code and regulations thereunder) shall be limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code. If payment of benefits is restricted in accordance with this paragraph, assets in excess of the amount required to provide such restricted benefits shall become a part of the assets available under Section 10.4 for allocation among Participants and their beneficiaries whose benefits are not restricted under this paragraph. 6.2.2 Restrictions on Highly Compensated Participants. The restrictions of this paragraph shall apply prior to termination of the Plan to any Participant who is a highly compensated employee or a highly compensated former employee and who is one of the 25 highest paid employees or former employees of all Participating Employers and all Bell Atlantic Affiliates for any Plan Year. The annual payments to or on behalf of any such Participant shall be limited to an amount equal to the sum of: (1) the payment that would have been made to the Participant under a single life annuity that is the Actuarial Equivalent of the sum of the Participant's Accrued Benefit and any other benefits under the Plan (other than a social security supplement), plus (2) the payment that the Participant is entitled to receive under any applicable social security supplement. 6.2.3 Exception to Restrictions on Highly Compensated Participants. The restrictions in Section 6.2.2 shall not apply: (a) if, after the payment of benefits to or on behalf of such Participant, the value of the Plan assets equals or exceeds 110% of the value of the current liabilities (within the meaning of Section 412(l)(7) of the Code); (b) if the value of the benefits payable to or on behalf of the Participant is less than 1% of the value of - -------------------------------------------------------------------------------- Bell Atlantic Cash Balance Plan Page 1 3/21/97 DRAFT current liabilities before distribution; (c) if the value of the benefits payable to or on behalf of the Participant does not exceed $3,500; or (d) such Participant has entered into an agreement with the Plan Administrator as described in Section 6.2.4. 6.2.4 Further Exception from Restrictions on a Highly Compensated Participant. Notwithstanding Section 6.2.2, a Participant described in that Section (a "restricted Participant") may receive one or more distributions without regard to the restrictions described in that Section, provided that the following requirements are met: (a) The "restricted amount" (which may be required to be repaid to the Plan) is the excess of the accumulated amount of distributions made to the restricted Participant over the accumulated amount of the Participant's nonrestricted limit. The Participant's "nonrestricted limit" is equal to the payments that could have been distributed to the Participant pursuant to subsection (b). An "accumulated amount" is the amount of a payment increased by a reasonable amount of interest from the date the payment was made (or would have been made) until the date for the determination of the restricted amount. (b) Prior to receipt of a distribution from the Plan, the restricted Participant shall deposit in escrow with a depository acceptable to the Plan Administrator property having a fair market value equal to at least 125% of the restricted amount. Alternatively, the Participant may either: (i) post a bond from an insurance company, bonding company or other surety approved by the U.S. Treasury Department as an acceptable surety for federal bonds, or (ii) obtain a bank letter of credit in an amount equal to at least 100% of the restricted amount. (c) Amounts in the escrow account in excess of 125% of the restricted amount may be withdrawn on behalf of the Participant. If the market value of the property in the escrow account falls below 110% of the restricted amount, the Participant shall deposit additional property to bring the value of the property up to 125% of the restricted amount. The Participant may receive any income from the property placed in escrow, provided that the 125% minimum is maintained. Similar rules shall apply to the release of any liability in excess of 100% of the restricted amount where the repayment obligation has been secured by a bond or a letter of credit. (d) A depository may not redeliver to a Participant any property held under the agreement, other than amounts in excess of 125% of the restricted amount and a surety or bank may not release any liability on a bond or letter of credit unless the Plan Administrator certifies that the restricted Participant (or the Participant's estate) is no longer obligated to repay any amount under the agreement. The Plan Administrator shall make such certification at any time after the distribution commences if either: (i) the conditions of paragraphs "(a)" to "(c)" above are met; or (ii) the Plan is terminated and the requirement of subsection "(a)" is met; or (iii) the Participant is no longer a restricted Participant. Such certification shall terminate the agreement between the Participant and the Plan Administrator. 6.3 Code Section 415 Limits on Benefits. 6.3.1 Code Section 415 Single Plan Limits. A Participant's benefit under this Plan shall not be payable to the extent it exceeds the amount set forth in Section 415 of the Code, the limitations of which are hereby incorporated by reference into the Plan. 6.3.2 Section 415 Combined Plans Limits. If in any Limitation Year, a Participant is a participant in one or more defined contribution plans sponsored by a Participating Employer or a Bell Atlantic Affiliate, the annual benefit under this Plan shall be reduced to the extent necessary to meet the combined plan limits of Section 415(e) of the Code. 6.3.3 Application of Section 415 to Surviving Spouses. If a Participant's benefit is limited by the limitations set forth in Code Section 415, the benefit payable to - -------------------------------------------------------------------------------- Bell Atlantic Cash Balance Plan Page 2 3/21/97 DRAFT the Participant's Surviving Spouse under Section 5.2.2(b) or 5.6 shall be determined on the basis of the Participant's benefit calculated under Section 4 without regard to the Section 415 limitations, and such limitations shall be applied instead to the resulting benefit payable to the Surviving Spouse. 6.3.4 Annual Adjustments. The limitation of Section 415(b)(1)(A) of the Code will be automatically adjusted for each Terminated Participant or Former Active Participant by multiplying such limit by the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code in such manner as the Secretary shall prescribe. The limitation of Section 415(b)(1)(B) of the Code shall be automatically adjusted for Terminated Participants to reflect the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code in such manner as the Secretary shall prescribe. The new limitation will apply to Limitation Years ending within the calendar year of the date of the adjustment. The pension paid to any Terminated Participant shall be automatically adjusted to reflect the maximum amount allowable under Section 415 of the Code for such Limitation Year. Notwithstanding the above, the adjustment described in this paragraph shall not be made for a Participant who has received a lump sum benefit payment from either the Bell Atlantic Executive Management Retirement Income Plan, the Bell Atlantic Senior Management Retirement Income Plan, or the Bell Atlantic ERISA Excess Pension Plan to the extent that such adjustment would provide benefits for which the Participant has previously been compensated by virtue of the lump sum payment. - -------------------------------------------------------------------------------- Bell Atlantic Cash Balance Plan Page 3 3/21/97 DRAFT EX-10.H 4 SENIOR MANAGEMENT RETIREMENT INCOME PLAN Exhibit 10h BELL ATLANTIC SENIOR MANAGEMENT RETIREMENT INCOME PLAN Restated as of January 1, 1996 To incorporate amendments with effective dates through December 31, 1995 Table of Contents ----------------- 1. STATEMENT OF PURPOSE.............................................................. 1 2. DEFINITIONS....................................................................... 1 "Appeals Committee"............................................................... 1 "Automatic Survivor Annuity" and "Target Automatic Survivor Annuity".............. 1 "Bell Atlantic"................................................................... 1 "Bell Atlantic Company"........................................................... 1 "Beneficiary"..................................................................... 1 "Benefit Commencement Date"....................................................... 1 "Claims Committee"................................................................ 2 "Disability Pension".............................................................. 2 "Final Average Pay"............................................................... 2 "Grantor Trusts".................................................................. 2 "Hostile Change of Control"....................................................... 2 "Mandatory Beneficiary"........................................................... 2 "Mandatory Retirement Age"........................................................ 2 "Mid-Career Pension Plan"......................................................... 2 "Participating Company"........................................................... 2 "Pay"............................................................................. 2 "Paying Agent".................................................................... 3 "Plan"............................................................................ 3 "Plan Administrator".............................................................. 3 "Post-Separation Pension"......................................................... 3 "Prior Plan Document"............................................................. 3 "Qualified Pension Benefits"...................................................... 3 "Qualified Pension Formula Benefits".............................................. 4 "Qualified Pension Plans"......................................................... 4 "Replacement Pay Percentage"...................................................... 4 "Retirement Pension".............................................................. 4 "Senior Manager".................................................................. 4 "Senior Manager LTD Plan"......................................................... 4 "Separation from Service"......................................................... 4 "Separation from Service Date".................................................... 4 "Short Term Incentive Award"...................................................... 4 "Short Term Incentive Plan"....................................................... 4 "Target Single-Sum Death Benefit"................................................. 5 "Target Pension".................................................................. 5 "Totally Disabled" and "Total Disability"......................................... 5 "Years of Service"................................................................ 5 3. PARTICIPATION..................................................................... 5 3.1 Participation................................................................. 5 3.2 Mandatory Retirement Age...................................................... 5 4. TYPES OF PENSION; ELIGIBILITY; FORFEITURE......................................... 6
- -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page i 4.1 Retirement Pension............................................................ 6 4.1.1 Eligibility................................................................ 6 4.1.2 Benefit Commencement....................................................... 6 4.2 Post-Separation Pension....................................................... 6 4.2.1 Eligibility................................................................ 6 4.2.2 Benefit Commencement; Actuarial Reduction Factors.......................... 6 4.3 Disability Pension............................................................ 7 4.3.1 Eligibility................................................................ 7 4.3.2 Benefit Commencement and Cessation......................................... 7 4.3.3 Disabled Senior Managers Who Wish to Cashout............................... 7 4.3.4 No Accrual During Disability............................................... 7 4.3.5 Conversion to Retirement Pension........................................... 7 4.4 Forfeiture of Benefits........................................................ 7 5. AMOUNT OF PENSION BENEFIT....................................................... 8 5.1 Pension Payable Under This Plan............................................... 8 5.2 Target Pension................................................................ 8 5.3 Replacement Pay Percentage.................................................... 9 5.4 Early Retirement Reduction Factor............................................. 9 5.5 Post-Separation Actuarial Reduction Factor.................................... 9 5.6 No Reduction Of Pension Under Prior Plan Document............................. 9 6. FORM OF BENEFIT................................................................. 10 6.1 Benefit Commencement Dates Prior To December 31, 1995......................... 10 6.2 Benefit Commencement Dates On Or After December 31, 1995...................... 10 6.2.1 Forms of Benefit Determined by Qualified Pension Plans..................... 10 6.2.2 Benefit Commencement Date.................................................. 10 6.2.3 If an Annuity is Elected Under the Qualified Pension Plan.................. 10 6.2.4 Marital Status............................................................. 10 6.3 Monthly Payments.............................................................. 10 6.4 Single-Sum Cashout............................................................ 11 6.4.1 Eligibility for Cashout.................................................... 11 6.4.2 Conversion of Nonqualified Single-Life Annuity to Cashout.................. 11 6.4.3 Subsequent Modification of Cashout Amount.................................. 11 6.4.4 Cashout Elections.......................................................... 12 6.4.5 No Ad Hoc Increases........................................................ 12 6.4.6 When Paid.................................................................. 12 6.4.7 Agreement as a Condition of Cashout........................................ 12 6.4.8 No Effect on Death Benefit Eligibility..................................... 12 6.4.9 Part-Annuity, Part-Cashout................................................. 12 6.4.10 Cashout in Two to Five Annual Installments................................. 12 7. BENEFITS IN THE EVENT OF DEATH.................................................... 13 7.1 Survivor Annuities............................................................ 13 7.1.1 Death Subsequent to Separation from Service................................ 13 7.1.2 Death Prior to Separation from Service..................................... 13 7.1.2(a) Automatic Survivor Annuity........................................... 13 7.1.2(b) Target Automatic Survivor Annuity.................................... 13 7.2 Single-Sum Death Benefits..................................................... 13 7.2.1 General Rule............................................................... 13 7.2.2 Target Single-sum death Benefit............................................ 14 7.2.3 Accidental Death in the Course of Employment............................... 14 7.3 Death While Receiving Short-Term Disability Benefits.......................... 14
- -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page ii 8. SPONSORSHIP; ADMINISTRATION; AMENDMENT; TERMINATION; CHANGE OF CONTROL............ 14 8.1 Sponsor....................................................................... 14 8.2 Participating Companies....................................................... 15 8.3 Amendment; Termination........................................................ 15 8.4 Protection of Benefits........................................................ 15 8.5 Hostile Change Of Control..................................................... 15 8.6 Plan Administrator............................................................ 15 8.6.1 Express and Implied Powers................................................. 15 8.6.2 Administrative Guidelines.................................................. 15 8.6.3 Authorize Disbursements.................................................... 15 8.7 Determination Of Benefits; Claims; Appeals.................................... 16 8.7.1 Benefit Calculation in the Absence of Claim................................ 16 8.7.2 Notice of Benefit Determination............................................ 16 8.7.3 ERISA Claims Procedures and Deadlines...................................... 16 8.7.4 Exclusive Administrative Remedy for Claims................................. 16 8.8 Service In More Than One Capacity............................................. 16 8.9 Set-Off For Governmental Payments Of Like Kind................................ 16 8.10 Accidental Death; Damage Claims; Release...................................... 16 8.10.1 Releases................................................................... 16 8.10.2 Damage Claims or Suits..................................................... 17 8.10.3 Judgment or Settlement..................................................... 17 8.11 Leaves Of Absence; Breaks In Service.......................................... 17 8.12 Assignment Or Alienation...................................................... 17 9. FUNDING AND PAYMENT OF BENEFITS................................................... 17 9.1 Plan Unfunded................................................................. 17 9.2 Contributions To Grantor Trust................................................ 18 9.3 Paying Agent; Allocation Of Cost; Participating Company Contributions......... 18 9.3.1 Paying Agent.............................................................. 18 9.3.2 Allocation of Accrued Cost and Disbursements.............................. 18 9.3.3 Duty to Reimburse Paying Agent............................................ 18 9.3.4 Bell Atlantic as Secondary Obligor........................................ 18 9.3.5 Participating Companies as Co-Grantors of Grantor Trusts.................. 18
- -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page iii 1. STATEMENT OF PURPOSE The purpose of this Plan (which was known prior to January 1, 1989 as the Bell Atlantic Senior Management Non-Qualified Pension Plan) is to provide supplementary pension payments to Senior Managers of Bell Atlantic and its affiliated companies. The Plan provides pension benefits for Senior Managers with at least five Years of Service (and their Beneficiaries) upon retirement or upon Separation from Service for certain other reasons. The amount of the pension benefit under the Plan is based upon factors which take account of Years of Service and Final Average Pay. The Plan also provides a single-sum death benefit for active Senior Managers, and for Senior Managers in retiree status under a Qualified Pension Plan. This document describes the terms of the Plan, which was comprehensively redesigned, amended and restated effective January 1, 1989, and as it has been amended from time to time thereafter through December 31, 1995. This restatement furthermore incorporates amendments, effective December 31, 1995, which are intended to cause this Plan to be more compatible with the December 31, 1995 cash balance design amendments of the Bell Atlantic Management Pension Plan (renamed the Bell Atlantic Cash Balance Plan) and other Qualified Pension Plans maintained by Bell Atlantic Companies. For Senior Managers with a Separation from Service Date prior to January 1, 1989, the terms of the Prior Plan Document shall apply, and for Senior Managers with a Separation from Service Date prior to December 31, 1995, the terms of this Plan which were in effect on the Separation from Service Date shall apply. 2. DEFINITIONS The use in this Plan of personal pronouns of the masculine gender is intended to include both the masculine and feminine genders. "Appeals Committee" means a committee comprised of the Chief Executive Officer, the Plan Administrator, and such other persons (if any) as the Plan Administrator may designate from time to time. "Automatic Survivor Annuity" and "Target Automatic Survivor Annuity" shall have the meaning stated in Section 7.1.2 hereof. "Bell Atlantic" means Bell Atlantic Corporation, a Delaware corporation. Any reference to the "Board of Directors", the "Human Resources Committee", or to the title of any officer, shall mean the Board of Directors, the Human Resources Committee of the Board of Directors, or the respective officer, of Bell Atlantic. "Bell Atlantic Company" means Bell Atlantic and each of its corporate subsidiaries, and each partnership, in which Bell Atlantic has a direct or indirect 50% or greater ownership interest. "Beneficiary" means the surviving spouse or other designated beneficiary of a Senior Manager (with respect to the survivor annuity provisions of this Plan), and the person or persons who may be eligible for a single-sum death benefit under this Plan. "Benefit Commencement Date" shall be the date as of which the benefit under this Plan shall be payable, which is not to be confused with the first date on which a benefit payment will be transmitted to the Senior Manager (which will typically occur up to 90 days following the Benefit Commencement Date). For a Senior Manager with a vested accrued benefit under a Qualified Pension Plan, the Benefit Commencement Date under this Plan shall automatically be the same date as the benefit commencement date under the Qualified Pension Plan. - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 1 "Claims Committee" means a committee of one or more persons consisting of the Plan Administrator and such other persons (if any) as the Plan Administrator may designate from time to time. "Disability Pension" shall have the meaning stated in Section 4.3. "Final Average Pay" means a Senior Manager's average annual Pay for the five 12-month periods of highest Pay among the last ten years to and including the calendar year of the Senior Manager's Separation from Service. The 12-month periods referred to in the previous sentence may either be a set of five calendar years or a set of five 12-month periods other than calendar years (where each such period begins with the same calendar month and ends with the 12th calendar month thereafter). When determining the amount of Pay in a given period, reference will be made to the period in which Pay was earned rather than the period when paid. Pay in the form of a bonus or short term incentive shall be deemed to have been earned ratably over the months of the performance period in which the short term incentive was earned. The fact that certain Pay which has been earned in one period may have been voluntarily or involuntarily deferred for payment in a later period under the terms of a qualified or nonqualified deferred compensation plan shall not alter the period in which the Pay is taken into account for purposes of Final Average Pay under this Plan. "Grantor Trusts" means the one or more trusts described in the Bell Atlantic Rabbi Trust Agreement and any similar trust agreements to which one or more Bell Atlantic Companies are parties as co-grantors, and which are designed (i) to qualify as grantor trusts within the meaning of Sections 671 through 679 of the Internal Revenue Code, and (ii) to satisfy the rules applicable to so-called "rabbi trusts" as described in rulings and announcements of the Internal Revenue Service and the Department of Labor. "Hostile Change of Control" means a "Hostile Change of Control" as that term is defined in the Bell Atlantic Management Pension Plan, as it may be amended from time to time. "Mandatory Beneficiary" shall have the same meaning as defined under the Bell Atlantic Management Pension Plan, as it may be amended from time to time. "Mandatory Retirement Age" shall have the following meaning (except as otherwise provided by any applicable state or local law which is not pre-empted by Federal law): (a) age 65, in the case of any employee who has attained age 65, and who, for the two-year period immediately prior to his Separation from Service, is employed as a Senior Manager or in any other bona fide executive or policy making position and would, in the event of retirement at such time, be entitled to an immediate retirement benefit of not less than $44,000 per annum, in the aggregate, from the Qualified Pension Plans, this Plan, and all other qualified and non-qualified pension, savings and deferred compensation plans maintained by Bell Atlantic Companies; and (b) in the case of any other employee, there shall be no Mandatory Retirement Age. "Mid-Career Pension Plan" means the Bell Atlantic Mid-Career Pension Plan, which was frozen as of May 1, 1991, for purposes of any further accruals. "Participating Company" shall mean a Bell Atlantic Company which employs one or more Senior Managers. "Pay" - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 2 shall mean the gross amount (before reduction for tax withholding, or for pre-tax or after-tax contributions to any employee benefit plans) of the sum of: (a) the total base recurring salary earned by the Senior Manager for a period during which he was an employee of one or more Bell Atlantic Companies; plus (b) the gross amount of the annual bonus or bonuses earned for a performance period for services rendered to one or more Bell Atlantic Companies during (whether such a bonus is awarded in the form of cash or shares or a combination of cash and shares, without regard to any deferral of any such award), including (i) the value of any Short Term Incentive Award earned by the Senior Manager for performance for a Bell Atlantic Company during all or part of an annual performance period, and/or (ii) the value of any other annual bonus (whether such a bonus is awarded in the form of cash or a combination of cash and "Options Plus" stock options, without regard to any deferral of any such award) earned for performance during all or part of a performance period under any annual incentive plan of a Bell Atlantic Company (for performance during a period prior to being designated a Senior Manager). Solely for purposes of this Section, all references to forms of remuneration paid by one or more "Bell Atlantic Companies" shall, in the case of a Senior Manager who is on an approved rotational assignment to Bell Communications Research, Inc. ("Bellcore"), be deemed to include the corresponding forms of remuneration earned by the Senior Manager while employed by Bellcore, but only such remuneration which is earned while the Senior Manager retains the status of Bellcore rotational. "Paying Agent" shall mean Bell Atlantic, or any other Bell Atlantic Company or third-party entity which is designated by the Plan Administrator from time to time, in such company's or entity's capacity as agent for the Participating Companies in the performance of the payroll function of disbursing any and all benefits which are payable under the terms of this Plan. "Plan" shall mean this Bell Atlantic Senior Management Retirement Income Plan, as it is described herein and as it may be amended from time to time. "Plan Administrator" shall mean the Vice President - Human Resources of Bell Atlantic, or, if that position is not occupied, the incumbent of the most senior executive position of the Human Resources organization of Bell Atlantic. "Post-Separation Pension" shall have the meaning stated in Section 4.2 of this Plan. "Prior Plan Document" shall mean the plan document describing the terms of the Bell Atlantic Senior Management Non-Qualified Pension Plan, as amended and restated as of January 1, 1986. "Qualified Pension Benefits" shall mean the aggregate of the one or more pension benefits actually payable to a Senior Manager (or, subsequent to a Senior Manager's death, to his Beneficiaries), before taking account of any applicable taxes, under the terms of the one or more Qualified Pension Plans in which the Senior Manager has accrued vested benefits, taking into account all elements of the pension calculation, including without limitation (i) the form in which the benefit is being paid, (ii) any early retirement reduction, actuarial discount, or cash-balance-to-annuity conversion factor which may be applicable under the terms of the Qualified Pension Plans as of the Benefit Commencement Date, and (iii) any limitations on the amount which may be paid from the trust of a Qualified Pension Plan under applicable law (including by way of example limitations under Code Section 415 and Code Section 401(a)(17)). - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 3 "Qualified Pension Formula Benefits" shall mean the amount of Qualified Pension Benefits which would be payable to a Senior Manager if the limitations of Code Section 415 did not apply. Qualified Pension Formula Benefits shall be determined after taking into account any limitations under applicable law other than Code Section 415, such as the limitations of Code Section 401(a)(17). "Qualified Pension Plans" shall mean the defined-benefit pension plans designed to be qualified under Section 401(a) of the Internal Revenue Code and sponsored by a Bell Atlantic Company, whether such plans embody a traditional pension annuity benefit design or a cash balance design. "Replacement Pay Percentage" shall have the meaning stated in Section 5.3 hereof. "Retirement Pension" shall have the meaning stated in Section 4.1 of this Plan. "Senior Manager" shall mean an active or former employee who is serving or has served as an officer of one or more Bell Atlantic Companies and who, by resolution adopted by the Human Resources Committee, has at any time been granted the status of Senior Manager, unless and until such status is revoked in a subsequent resolution adopted by the Human Resources Committee. The Human Resources Committee may, in its sole discretion, revoke Senior Manager status in the event, and as of the date, of either (a) the demotion or downgrade of an officer who was then a Senior Manager, or (b) upon the occurrence of any forfeiture event stated under Section 4.4 hereof; provided, however, that under no circumstances shall the Human Resources Committee, or any officer or director of any Bell Atlantic Company, take any action on or after the occurrence of a Hostile Change of Control to revoke, or construe as revoked, the Senior Manager status of any person who had Senior Manager status immediately prior to the Hostile Change of Control. "Senior Manager LTD Plan" means the Bell Atlantic Senior Management Long Term Disability and Survivor Protection Plan, as it may be amended from time to time. "Separation from Service" means the termination of employment of a Senior Manager for any reason, including, without limitation, retirement, disability, resignation, discharge, other voluntary or involuntary termination, failure to return to duty upon recovery from a disability or at the expiration of a recognized leave of absence or approved rotational assignment, or death, but not including (i) commencement of an approved leave of absence or rotational assignment, or (ii) transfer to another Bell Atlantic Company. "Separation from Service Date" means, in the event of a Senior Manager's Separation from Service, the first day following the last day on which a Senior Manager is treated as being on the payroll of a Bell Atlantic Company as an employee in active service or on an approved leave or rotational assignment. In the case of a Senior Manager with a Retirement Pension, the Separation from Service Date is also referred to as the "pension commencement date". For a former employee with a right to receive a deferred Post-Retirement Pension, the pension commencement date means the first day for which a pension benefit hereunder becomes payable. "Short Term Incentive Award" means the amount (if any) awarded to a Senior Manager after the end of an annual performance period, pursuant to the Short Term Incentive Plan in which the Senior Manager then participates. The term Short Term Incentive Award refers to the gross amount earned (before any applicable tax withholding), whether such amount is distributed when awarded or is deferred, and whether such award is in the form of cash or stock or a combination of cash or stock. "Short Term Incentive Plan" - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 4 means the Bell Atlantic Senior Management Short Term Incentive Plan maintained for Senior Managers by the Bell Atlantic Companies. "Target Single-Sum Death Benefit" shall have the meaning stated in Section 7.2 hereof. "Target Pension" means a pension, expressed as an annual amount calculated in the manner described in Article 5 of this Plan, which is intended to represent the total pension benefit for which a Senior Manager is eligible under all defined-benefit pension plans maintained by Bell Atlantic Companies in which the Senior Manager participates, including, without limitation, benefits under this Plan and under the Qualified Pension Plans. "Totally Disabled" and "Total Disability" shall have the following meaning: a Senior Manager shall be considered to be Totally Disabled and to be subject to a Total Disability if, on and after the completion of the 26- or 52-week period of disability benefits (whichever is applicable) through the date as of which the Company elected to terminate the Senior Manager's employment due to disability, the Senior Manager continues to be disabled as determined by the administrator of the Bell Atlantic Bell Flex Long Term Disability Plan (or, for a Senior Manager who is not a participant in that plan, as determined by the administrator of the long term disability plan of the applicable Bell Atlantic Company in which the Senior Manager participates). "Years of Service" For purposes of benefit accrual under this Plan, except as expressly limited or stated elsewhere in the Plan, "Years of Service" shall mean the aggregate (without double counting) of all periods of service for which the Senior Manager is credited for benefit accrual purposes under the terms of the one or more Qualified Pension Plans in which the Senior Manager has an accrued benefit, stated in terms of years and any fraction of a year. Years of Service shall, in addition (but without double counting), include any period during which the Senior Manager is employed by any Bell Atlantic Company which does not at that time participate in a Qualified Pension Plan (with such service calculated according to the rules of the Bell Atlantic Cash Balance Plan solely for purposes of determining Years of Service under this Plan). For purposes of determining a Senior Manager's "Years of Service" for purposes of qualifying for a Retirement Pension under this Plan (as distinct from Years of Service for benefit accrual purposes), the rules applicable to retirement-eligibility service under the Qualified Pension Plan(s) in which the Senior Manager participates shall apply. 3. PARTICIPATION 3.1 Participation. Each Senior Manager shall be a participant in this Plan on and after the date on which the individual becomes a Senior Manager, and shall remain a participant so long as he or she retains the status of Senior Manager. 3.2 Mandatory Retirement Age. Each Senior Manager for whom a Mandatory Retirement Age is applicable under the definition of that term in Section 2 hereof shall be subject to mandatory Separation from Service, and shall cease to be eligible for hire in the capacity of a Senior Manager by any Bell Atlantic Company, on and after the last day of the month in which such Senior Manager attains the Mandatory Retirement Age (whether or not he is then eligible for a Retirement Pension or Post-Separation Pension). - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 5 4. TYPES OF PENSION; ELIGIBILITY; FORFEITURE. 4.1 Retirement Pension. 4.1.1 Eligibility. A Senior Manager shall be eligible for a Retirement Pension under this Plan upon his Separation from Service for any reason other than death, Total Disability, or cause, if, on his Separation from Service Date, the following conditions are met: (i) he is then treated as having the status of a Senior Manager; and (ii) he then, either: (A) has a combination of age and years of service on the Separation from Service Date that equals or exceeds any of the following combinations: Age equal to or greater than: Service equal to or greater than: Any age 30 years 50 25 years 55 20 years 60 15 years 65 10 years or (B) has attained and accrued a combination of age and retirement eligibility service which the Human Resources Committee has determined, in its discretion on a case-by-case basis, constitute sufficient age and service for that particular Senior Manager to qualify for an immediate Retirement Pension. 4.1.2 Benefit Commencement. A Retirement Pension shall commence on the benefit commencement date under the Qualified Pension Plan. 4.2 Post-Separation Pension. 4.2.1 Eligibility. A Senior Manager who is not eligible for a Retirement Pension under Section 4.1.1, or who Separates from Service on account of disability but fails to be eligible for a Disability Pension under Section 4.3, shall be eligible for a Post-Separation Pension under this Plan in the event of his Separation from Service for any reason other than death or cause, if, on his Separation from Service Date, the following conditions are met: (i) he is then treated as having the status of a Senior Manager; and (ii) he has then accrued five years of service for vesting purposes under the terms of at least one Qualified Pension Plan. 4.2.2 Benefit Commencement; Actuarial Reduction Factors. (i) A Post-Separation Pension shall commence on the same date as the benefit commencement date under the Qualified Pension Plan in which the Senior Manager participates (sometimes referred to herein as the "pension commencement date"). If the Senior Manager does not participate in a Qualified Pension Plan or has no vested benefit under any Qualified Pension Plan, the pension commencement date shall be the Separation from Service Date. (ii) In the event that the Benefit Commencement Date occurs prior to age 65, the Post-Separation Pension shall be subject to actuarial reduction in accordance with the terms of Section 5.2(b)(ii) and, if applicable, Section 5.2(c) - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 6 4.3 Disability Pension. 4.3.1 Eligibility. A Senior Manager shall be eligible under this Plan for a Disability Pension in the form of an annuity if, on his Separation from Service Date, the following conditions are met: (i) he or she is then treated as having the status of a Senior Manager; (ii) he or she has accrued at least 15 Years of Service; and (iii) his or her employment is terminated by the employing company on account of disability. 4.3.2 Benefit Commencement and Cessation. The Benefit Commencement Date for a Disability Pension shall be the benefit commencement date under the Qualified Pension Plan in which the Senior Manager participates. A Disability Pension shall cease in the event, and at the time, that the Senior Manager is found to be no longer Totally Disabled, at which time the benefit shall convert to a deferred Post- Separation Pension (with an actuarial reduction based on the individual's age at the time of commencing the Post-Separation Pension), or an immediate and unreduced Retirement Pension, depending upon the age and service of the Senior Manager on the Separation from Service Date. 4.3.3 Disabled Senior Managers Who Wish to Cashout. If a Senior Manager has elected to cashout 100% of his or her Qualified Plan Benefit and wishes to cashout some or all of his benefit under this Plan, the Senior Manager may elect to waive the right to receive a Disability Pension and to receive instead the Retirement Pension or Post- Separation Pension which he or she would have been eligible to receive in the absence of the disability, and the Senior Manager may then elect to cashout some or all of the Retirement Pension or Post-Separation Pension, whichever is applicable. 4.3.4 No Accrual During Disability. Notwithstanding the terms of any Qualified Pension Plan in which a Senior Manager who is receiving a Disability Pension may be a participant, for purposes of this Plan, no Years of Service shall accrue on or after the Separation from Service Date of the Senior Manager, unless the Senior Manager ceases to be Totally Disabled and is re-employed as a Senior Manager. 4.3.5 Conversion to Retirement Pension. A Disability Pension which has commenced at any date prior to the date a Senior Manager attains age 65 shall convert to a Retirement Pension on the date he attains age 65. 4.4 Forfeiture of Benefits. On any date prior to, but in no event at any time after, the occurrence of a Hostile Change of Control, the Human Resources Committee may, in its sole discretion, take action to cause to be forfeited all benefits for which a Senior Manager (and his Beneficiaries) would be otherwise eligible hereunder, under any of the following circumstances: (a) the Senior Manager is discharged by his employing company for cause; (b) the Human Resources Committee determines that the Senior Manager engaged in misconduct in connection with his employment with a Bell Atlantic Company; or (c) the Plan Administrator determines that the Senior Manager has breached his or her non-compete or proprietary information duties to Bell Atlantic. In furtherance of the prohibitions of this Plan against engaging in competitive activities or disclosing proprietary information, the following additional terms and conditions shall apply: (i) During the first two years following a Senior Manager's Separation from Service Date, (1) a cash out under the Plan shall be available only if the Senior Manager signs a non-compete and proprietary information agreement, or delivers a copy of a previously executed agreement of that type which is then in force, in a form acceptable to the Plan Administrator with the advice of - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 7 counsel, and (2) neither a cashout shall be paid nor an annuity shall commence under the Plan unless and until the Senior Manager delivers both: (a) written information sufficient to enable the Plan Administrator to determine whether the Senior Manager's subsequent career plans or commitments will violate the applicable non-compete rule, and (b) an agreement to provide timely notice of any changed circumstances during the ensuing two years. (ii) In addition to, and apart from, the Plan Administrator's existing discretion to cause a forfeiture of a Senior Manager's pension if he or she violates the applicable non-compete rule, the Plan Administrator with the advice of counsel and the concurrence of the Chairman of the Human Resources Committee shall have the discretion, for up to two years, to suspend a Senior Manager's eligibility to cash out the benefit or commence an annuity under this Plan if the Senior Manager does not fully comply with applicable requirements of paragraph "(i)", or if there is evidence that further investigation would show that the Senior Manager is seeking to, or has, become involved with employment or business activities contrary to the applicable non-compete rule. (iii) For purposes of this Plan, the definitions of prohibited competitive activities and prohibited disclosure of proprietary information shall be as stated in the terms and conditions of the form of non-compete and proprietary information agreement generally applicable to newly hired and promoted Senior Managers, as that form of agreement may exist on the Separation from Service Date; provided, however, that, for a Senior Manager who, on the Separation from Service Date, is subject to a previously executed non-compete and proprietary information agreement which then remains in force, the applicable definitions for purposes of this Plan shall be as stated in such prior agreement; provided, however, that nothing in this paragraph is intended to negate the provisions of the previous two paragraphs. 5. AMOUNT OF PENSION BENEFIT 5.1 Pension Payable under this Plan. On a Senior Manager's Benefit Commencement Date the non-qualified pension benefit payable under this Plan (expressed as an annuity of the form applicable to the Senior Manager's benefit) shall be equal to the Senior Manager's Target Pension (expressed as an annuity of the applicable form), minus the Senior ----- Manager's Qualified Pension Benefits (expressed as an annuity of the same form). In the case of a Senior Manager whose pension benefit under this Plan is being partly or fully paid in the form of a cashout, the "annuity of the applicable form" for purposes of the previous sentence shall be a single-life annuity commencing on the Benefits Commencement Date; and, in such a case, the non- qualified single-life annuity benefit determined under the previous sentence shall then be converted to a cashout in accordance with the rules of Section 6.4 of this Plan. 5.2 Target Pension. On the Benefit Commencement Date, a Senior Manager's Target Pension (expressed as an annuity of the form applicable to the Senior Manager) shall be equal to the greater of the Senior Manager's Qualified Pension Formula Benefits (expressed as an annuity of the same form), or: (a) the product of: (i) the Replacement Pay Percentage, times (ii) Final Average Pay; (b) reduced (except in the case of a Disability Pension annuity) by: ------- (i) any applicable early retirement reduction factor under Section 5.4, in the case of a Retirement Pension; or (ii) any applicable actuarial reduction factor under Section 5.5, in the case of a Post-Separation Pension; and - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 8 (c) if the benefit is paid in any form of annuity other than a single life annuity, the portion of the benefit that is paid in that form shall be further reduced by the applicable factor which, under the terms of the --------------- Qualified Pension Plan, is to be used to convert a single life annuity to an annuity of the applicable form. The benefit calculated in paragraphs (a) through (c) of this Section shall be subject to adjustment based on any modification of the Target Pension if the Senior Manager's Final Average Pay increases due to any benefit-bearing Pay (for example, a Short Term Incentive Award) that is awarded to the Senior Manager after the Benefit Commencement Date. 5.3 Replacement Pay Percentage. A Senior Manager's Replacement Pay Percentage shall be measured as of his Separation from Service Date, and shall be equal to the sum of: (a) two percentage points (2%) for each of his first 20 Years of Service; (b) one and a half percentage points (1.5%) for each of his next 10 Years of Service; plus (c) one percentage point (1%) for each of his next 5 Years of Service; and (d) no further percentage points for any additional Years of Service thereafter. For a Senior Manager with less than 35 Years of Service, where the Senior Manager has accrued a fraction of a Year of Service in addition to a whole number of years, then such Senior Manager shall be credited with the product of (i) that fraction, times (ii) the number of percentage points that would be credited for the next full year. 5.4 Early Retirement Reduction Factor. The early retirement reduction factor which is applicable to a Senior Manager's Retirement Pension shall be equal to the product of: (a) five percent (5%), times (b) the number of years and fraction of a year by which the Separation from Service Date precedes the date on which the Senior Manager attains age 60, where the "fraction of a year" is measured in twelfths based on the number of full (not partial) months; provided, however, that the Human Resources Committee may, in its sole discretion on a case-by-case basis, waive all or any portion of the early retirement reduction which would otherwise apply to a Senior Manager. 5.5 Post-Separation Actuarial Reduction Factor. In the case of a Post-Separation Pension in the form of an annuity which commences at any time prior to the date on which the Senior Manager attains age 65, the actuarial reduction factor shall be determined with reference to the Benefit Commencement Date for the Post-Separation Pension, based on interest rates and mortality factors prescribed by the Federal legislation commonly known as "GATT", namely, the yield on 30-year U.S. Treasury bonds and 1983 Group Annuity Mortality (GAM 83) factors, determined under the rules in effect as of the Benefit Commencement Date under the Qualified Pension Plan in which the Senior Manager participates. In the case of a Post-Separation Pension commencing on or after the date the Senior Manager attains age 65, the actuarial reduction factor shall be zero. Notwithstanding any other provision of this Section 5.5, the Human Resources Committee may, in its sole discretion on a case-by-case basis, waive all or any portion of the actuarial reduction which would otherwise apply to a Senior Manager whose Post-Separation Pension has commenced, or will commence, prior to age 65. 5.6 No Reduction of Pension under Prior Plan Document. Notwithstanding any other provision of this Plan, the Target Pension under Section 5.2 of this Plan, for which a Senior Manager is eligible as a consequence of his actual Separation from Service at any time on or after January 1, 1989, shall not be less, when expressed as a benefit in the form of a single-life annuity, than the aggregate pension amount (expressed as a single- life annuity) to which he would have been entitled if he had a Separation from Service Date of December 31, 1988, taking into account the Years of Service and compensation history he had then - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 9 accrued (including the actual Short-Term Incentive Award for performance in 1988), and the age he had then attained, under the December 31, 1988 pension formulas of the Qualified Plans, the Mid-Career Pension Plan, the non-disability provisions of the Senior Manager LTD Plan, and the Prior Plan Document. 6. FORM OF BENEFIT. 6.1 Benefit Commencement Dates Prior to December 31, 1995. In the case of a Senior Manager who has a Benefit Commencement Date prior to December 31, 1995, the available forms of benefit shall be those described in the version of this Plan which was in effect on the Benefit Commencement Date. 6.2 Benefit Commencement Dates On or After December 31, 1995. 6.2.1 Forms of Benefit Determined by Qualified Pension Plans. With the exception of the cashout forms of benefit described in Section 6.4 and the method for calculating the amount of the cashout as described in that Section, the annuity forms of benefit which a Senior Manager may elect under this Plan shall be precisely the same forms of benefit (calculated in the same manner) as the forms of annuities offered as of the Benefit Commencement Date under the terms of the Qualified Pension Plan in which the Senior Manager participates. 6.2.2 Benefit Commencement Date. The Benefit Commencement Date under this Plan shall automatically be the benefit commencement date for the Qualified Pension Benefit payable to the Senior Manager. The Benefit Commencement Date for a survivor annuity under this Plan shall automatically be the benefit commencement date for the Qualified Pension Benefit applicable to the survivor annuitant. 6.2.3 If an Annuity is Elected Under the Qualified Pension Plan. For a Senior Manager (or survivor annuitant) who elects to receive his or her Qualified Pension Benefit in whole or in part in the form of an annuity, any portion of the pension benefit payable as an annuity under this Plan shall automatically be payable as an annuity of exactly the same form as the annuity benefit payable to the Senior Manager (or his or her survivor annuitant) under the Qualified Pension Plan. Under this Plan, the method used to convert a single-life annuity to an annuity of any other form shall be the method which is in effect under the terms of the applicable Qualified Pension Plan as of the Benefit Commencement Date. For a Senior Manager who elects to receive his or her Qualified Pension Benefit in the form of a joint and survivor annuity, the designated survivor annuitant under this Plan shall automatically be the same survivor annuitant designated for the Qualified Pension Benefit. 6.2.4 Marital Status. For purposes of this Plan, the Plan Administrator may require a Senior Manager or a person purporting to be a Beneficiary to present, and the Plan Administrator may rely upon without any duty to further investigate, any official documentary evidence of civil law marital status, such as a marriage certificate or record of marriage, or a court order or other record of divorce, issued by a court or governmental unit. Common law marriage shall not be recognized for purposes of this Plan. 6.3 Monthly Payments. Pension benefits in the form of an annuity shall be payable in monthly installments. The Plan Administrator shall endeavor to ensure that the annual Target Pension amount for any annuity is paid, as nearly as practicable, in twelve approximately equal monthly installments. The Plan Administrator may elect to cause the Paying Agent to pay a constant portion of each monthly installment from company assets under this Plan and to cause the trustee of the - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 10 Qualified Pension Plans to pay a complementary constant portion from the applicable qualified trust. Alternatively, the Plan Administrator may cause said trustee to pay the first installments in each calendar year from the Qualified Pension Plan (or Plans) until the amount payable under the Qualified Pension Plan(s) reaches the applicable limit under the terms of the Qualified Pension Plan(s) or applicable tax law, and to cause the Paying Agent to pay the remaining installments for the year from company assets under this Plan. 6.4 Single-Sum Cashout. 6.4.1 Eligibility for Cashout. If, but only if, a Senior Manager elects to receive his or her Qualified Pension Benefit in whole or in part in the form of a cashout, the Senior Manager shall be eligible to elect to receive the nonqualified pension benefit under Section 5.1 of this Plan either in whole or in part in the form of a cashout as described in this Section 6.4; provided, however, that a Senior Manager who is eligible for a Disability Pension may elect a cashout only under the circumstances described in Section 4.3.3. 6.4.2 Conversion of Nonqualified Single-Life Annuity to Cashout The nonqualified benefit described in Section 5.1, expressed as a single life annuity, may be converted to a single-sum cashout, as follows: (i) As of the Benefit Commencement Date, determine the nonqualified benefit payable to the Senior Manager under Section 5.1, where both the Target Benefit under this Plan and the accrued benefit under the Qualified Pension Plan are expressed in the form of an immediate single life annuity. The term "Nonqualified Single Life Annuity" shall mean the difference (expressed as an immediate single life annuity) resulting from subtracting (A) the Qualified Plan Benefit expressed as an immediate single life annuity, from (B) the Target Benefit under this Plan expressed as an immediate single life annuity; provided, however, that any negative difference shall be disregarded. In the case of a Senior Manager who is eligible for a Retirement Pension, the annuity described in clause "(B)" of this paragraph shall take account of the applicable early retirement reduction factors of Section 5.4 of this Plan. In the case of a Senior Manager who is not eligible for a Retirement Pension, the annuity described in clause "(B)" of this paragraph shall be determined by converting the Target Benefit in the form of a single life annuity commencing at age 65 to an immediate annuity by applying the same actuarial assumptions and mortality factors as those which are used, as of the Benefit Commencement Date, for determining an immediate single life annuity under the Qualified Pension Plan. (ii) Determine the present value of the Nonqualified Single Life Annuity, as of the Benefit Commencement Date, by determining the present value of a stream of monthly payments equal to the Nonqualified Single Life Annuity over a number of years then equal to the Senior Manager's life expectancy, without reference to any hypothetical future ad hoc increase or any hypothetical future adjustment in the limitations under Section 415 of the Internal Revenue Code. (iii) For purposes of calculating the present value in "(ii)", use a present value discount rate equal to 100% of the PBGC rate for the calendar month prior to the month in which the day prior to the Benefit Commencement Date occurs; and use life expectancy assumptions which are reasonably representative of broad-based employee mortality experience, as determined by the Plan Administrator with the advice of the Treasurer of Bell Atlantic. 6.4.3 Subsequent Modification of Cashout Amount. The cashout calculated in Section 6.4.2 shall be subject to adjustment based on any modification of the Target Pension that is caused by any benefit-bearing Pay awarded to the Senior Manager after the Separation from Service Date. - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 11 6.4.4 Cashout Elections. A cashout election shall be made in accordance with rules and procedures substantially similar to those under the Qualified Pension Plan. A cashout election may be revoked until the Benefit Commencement Date. For a Senior Manager who is married on the Benefit Commencement Date, a cashout may not be elected without the signed consent of the spouse on a form approved by the Plan Administrator. 6.4.5 No Ad Hoc Increases. A Senior Manager who receives a cashout shall have no right to receive any ad hoc pension increase under this Plan at any time. 6.4.6 When Paid. Any portion of the benefit which the Senior Manager elects to receive as a cashout shall be payable in full, as soon as practicable, and not later than 60 days following the Benefit Commencement Date, and no actuarial adjustment (akin to interest) shall be applicable to such a cashout for the period from the Benefit Commencement Date to the date actually paid. 6.4.7 Agreement as a Condition of Cashout. As a condition to receiving a benefit in the form of a cashout, a Senior Manager must sign a document, in a form satisfactory to the Plan Administer, as described in the non-compete and proprietary information provisions of Section 4.4(c) of this Plan. 6.4.8 No Effect on Death Benefit Eligibility. An election of a benefit in the form of a cashout shall have no effect on subsequent eligibility for a single-sum death benefit under Section 7.2 of this Plan. 6.4.9 Part-Annuity, Part-Cashout. A Senior Manager who is eligible under the terms of Section 6.4.1 may, with the written consent of his or her spouse (if any), elect within the 90 days ending on the Benefit Commencement Date to receive any percentage (from 0% to 100%) of the nonqualified pension benefit under this Plan in the form of a cashout, with the remainder (if any) to be paid in any one of the forms of annuity described under the terms of the Senior Manager's Qualified Pension Plan then in effect. 6.4.10 Cashout in Two to Five Annual Installments. In lieu of a single-sum cashout, a Senior Manager who qualifies for a Retirement Pension at the time of his or her eventual retirement, may elect in writing, not later than 12 months prior to the Senior Manager's subsequent actual Benefit Commencement Date, to a benefit distribution alternative which the Plan Administrator determines to be the actuarial equivalent of the single-sum cashout described in Section 6.4.2, but which is payable in two, three, four or five annual installments. For a Senior Manager who wishes to have an opportunity on the Benefit Commencement Date to receive a distribution in two to five annual installments, the written election described in the first sentence of this paragraph must identify which of the annual installment options (i.e., two, or three, or four, or five annual installments) the Senior Manager wishes to reserve as an alternative available to him or her at the time of the Benefit Commencement Date. Within the 90-day period ending in the Benefit Commencement Date, if the Senior Manager's Qualified Pension Benefit is payable 100% as a cashout, the Senior Manager who had previously tendered such a timely prior written notice may then elect either the previously earmarked form of installment distribution, or an annuity of a type then available under the terms of the Senior Manager's Qualified Pension Plan then in effect. If, instead, the Qualified Pension Benefit is payable as an annuity, the nonqualified pension benefit under this Plan shall be paid as an annuity of the same form. - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 12 7. BENEFITS IN THE EVENT OF DEATH 7.1 Survivor Annuities. 7.1.1 Death Subsequent to Separation from Service. To the extent provided under the terms of Article 6, in the event of the death of a Senior Manager with a Retirement, Post-Separation or Disability Pension benefit in the form of a joint and survivor annuity hereunder, who dies subsequent to his or her Benefit Commencement Date, the designated survivor annuitant (if the designated annuitant survives the deceased), shall be entitled to the applicable survivor annuity in accordance with the same terms and conditions which apply to a benefit of the same form under the Qualified Pension Plan. 7.1.2 Death Prior to Separation from Service. 7.1.2(a) Automatic Survivor Annuity. In the event of the death, prior to the Benefit Commencement Date of a person who is a Senior Manager and has accrued a vested benefit under this Plan on his date of death, and who is survived by a person who is then his Spouse, said surviving Spouse shall be entitled to an Automatic Survivor Annuity in an amount which, when expressed as a single-life annuity for the life of the surviving Spouse, is equal to the Target Automatic Survivor Annuity (expressed as a single-life annuity) less any survivor's annuity benefit or ---- death beneficiary's cash balance benefit (expressed as a single-life annuity) which is actually payable to the designated beneficiary under the Senior Manager's Qualified Pension Plan. 7.1.2(b) Target Automatic Survivor Annuity. The Target Automatic Survivor Annuity shall be an annuity, commencing on the day after the date of death of the Senior Manager, and payable for the life of the surviving spouse, in an annual amount equal to the greater of: (A) 15% of the Target Single-Sum Death Benefit calculated under Section 7.2.2, which is occasioned by the Senior Manager's death; or (B) 50% of the Target Pension for which the Senior Manager would have been eligible (if any) if he had Separated from Service on his date of death with a joint and 50% survivor annuity (calculated to take account of a 10% joint and survivor annuity reduction factor), and with either of the following (whichever, if any, is applicable): (1) an immediate Retirement Pension, if he then had sufficient age and service to qualify for that form of benefit, and such pension shall not be reduced by any otherwise applicable early retirement reduction factor; or (2) if clause "(1)" above does not apply but the Senior Manager has accrued at least five years of vesting service under the Qualified Pension Plan, a Post-Separation Pension commencing on the date of death, where such pension (when expressed in the form of a single life annuity) shall not be reduced by any otherwise applicable actuarial reduction factor. 7.2 Single-Sum Death Benefits. 7.2.1 General Rule. In the event of the death of a Senior Manager before his Separation from Service, or, in the event of a death at any time after the Separation from Service of a Senior Manager who had sufficient age and service to qualify for a Retirement Pension at the time of his or her Separation from Service Date, a single-sum death benefit shall be payable under this Plan to the Senior Manager's Mandatory Beneficiary in an amount equal to the Target Single-Sum Death Benefit described in paragraph (b) below, less the total ---- amount (if any) of - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 13 all single-sum death benefits payable under the terms of one or more Qualified Pension Plans (referred to in such plans as "1991 Death Benefits") as a consequence of the death of the Senior Manager. Except for a death benefit under Section 7.2.3 (if applicable), no death benefit shall be payable under this Section 7.2 as a consequence of the death of a Senior Manager whose first employment commencement date with any Bell Atlantic Company occurred after April 1, 1991. 7.2.2 Target Single-sum death Benefit. The "Target Single-sum death Benefit" shall be the sum of: (i) either of the following (whichever is applicable): ------ (a) the gross amount of the last Short Term Incentive Award for the last full 12-month performance period for which a Short Term Incentive Award was awarded to the Senior Manager, but in no event for any performance year later than 1990, or -- (b) in the case of an employee who was promoted to Senior Manager status after January 1, 1991, for whom paragraph (a) above is not applicable, the amount of the standard award under the Short Term Incentive Plan for a hypothetical Senior Manager employed at the same salary grade as the deceased Senior Manager and serving in that status for the full 1990 performance year; plus (ii) the annualized rate of the recurring base salary which was actually being earned by the Senior Manager on the earlier of (A) December 31, 1991, or (B) in the case of a death after the Separation from Service Date, the annualized rate earned by the Senior Manager on the day prior to the Separation from Service Date. 7.2.3 Accidental Death in the Course of Employment. In the event that a Senior Manager dies, prior to his Separation from Service for any other reason, as a consequence of a "job-related accidental injury" (as such term is then interpreted under the terms of the Bell Atlantic Management Pension Plan), a single-sum death benefit shall be payable under this Plan to the Senior Manager's Mandatory Beneficiary in an amount equal to three times the Target Single-sum death Benefit described ----------- in paragraph (b) above (but without reference to the December 31, 1991 limitation date), less the amount (if any) of the total single-sum death ---- benefits payable to him under the Qualified Pension Plans. 7.3 Death While Receiving Short-Term Disability Benefits. In the event of the death of a Senior Manager who was receiving short-term disability benefits on the date of death, and who would have been eligible for a Disability Pension if he or she had lived long enough to exhaust the 26-week or 52-week disability benefit period that is a prerequisite for a Disability Pension, the Plan Administrator shall determine pension benefits under this Plan as though the Senior Manager had expired the short-term disability period on the day prior to his or her death, thereby qualifying for a Disability Pension, and then died on the following day. A Senior Manager who is receiving short-term disability benefits and who is eligible to retire, may retire without forfeiting eligibility to continue receiving sickness benefits (subject to continuing to comply with the terms of the short-term disability plan), and the Senior Manager shall be eligible to submit a written election of the form of benefit under this Plan upon tendering his or her written election to retire. 8. SPONSORSHIP; ADMINISTRATION; AMENDMENT; TERMINATION; CHANGE OF CONTROL. 8.1 Sponsor. Bell Atlantic is the sponsor of the Plan. - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 14 8.2 Participating Companies. Each Participating Company shall (i) bear its allocated share of the expenses, and contribute its allocated share of disbursements, as described in Article 9 of the Plan, (ii) conform to the terms of the Plan, as they may be amended from time to time, and (iii) accede to the authority exercisable hereunder by Bell Atlantic and its officers, the Human Resources Committee, the Plan Administrator, and the Claims and Appeals Committees. 8.3 Amendment; Termination. Subject to the terms of Sections 8.4 and 8.5 hereof, and with or without advance notice to Senior Managers and their Beneficiaries: (a) the Human Resources Committee may, in its sole discretion at any time prior to the occurrence of a Hostile Change of Control, amend the Plan in any manner which it deems appropriate, and may terminate the Plan; and (b) the Plan Administrator, with the advice of counsel, may amend the Plan in any manner which has no effect on the amount or rate of accrual of benefits, or eligibility to receive a benefit, under the Plan. 8.4 Protection of Benefits. No amendment or termination of the Plan, and no cessation of participation by any Participating Company, shall cause any vested, accrued pension benefit hereunder to be reduced below the dollar value of such benefit as it existed immediately prior to such amendment, withdrawal or termination; provided, however, that nothing in this Section 8.4 is intended to curtail the right and authority of the Human Resources Committee, at any time prior to the occurrence of any Hostile Change of Control, to amend either the terms of the Plan which describe conditions which may result in a revocation of Senior Manager status, or the terms of Section 4.4 (pertaining to events of forfeiture), and from time to time thereafter, but prior to any Hostile Change of Control, to apply and enforce such amended terms. 8.5 Hostile Change of Control. During the five-year period commencing on the date of any Hostile Change of Control and terminating on the fifth anniversary of such date, none of the terms of the Plan may be amended in any manner which affects the amount or rate of accrual of benefits, the form or timing of, or eligibility for, benefits, or the conditions under which Senior Manager status may be revoked or a benefit may be forfeited, in the absence of the approval of a two-thirds majority of all Senior Managers. 8.6 Plan Administrator. 8.6.1 Express and Implied Powers. The Plan Administrator shall have the specific powers granted to the Plan Administrator under the terms of this Plan and shall have such other powers as may be necessary in order to enable the Plan Administrator to administer the Plan, except for the powers specifically reserved in this Plan to others. 8.6.2 Administrative Guidelines. The Plan Administrator may establish such administrative guidelines as he determines are necessary and appropriate for the administration of the Plan, and may amend such guidelines from time to time in his sole discretion. 8.6.3 Authorize Disbursements. The Plan Administrator shall have the authority (and may delegate to one or more other persons the authority) to authorize disbursements by the Paying Agent to pay benefits under this Plan. - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 15 8.7 Determination of Benefits; Claims; Appeals. 8.7.1 Benefit Calculation in the Absence of Claim. Upon the occurrence of any event entitling a Participant or Beneficiary to a benefit under the Plan, except in the case of a death of a Participant subsequent to his Separation from Service, no application for a benefit is required. Upon the occurrence of any such event which requires no application, or upon receipt of notice of the death of a separated Senior Manager, the Plan Administrator shall determine the amount, form and timing of the benefit which is payable, and the person or persons to whom payable. 8.7.2 Notice of Benefit Determination. The Plan Administrator shall provide notice in writing to a Participant or Beneficiary (whichever is applicable), stating the amount, form and timing of the benefit, or the reason for any denial or forfeiture of any benefits. 8.7.3 ERISA Claims Procedures and Deadlines. In the event that a Participant or Beneficiary believes that a benefit has been incorrectly determined or denied, a written claim may be addressed to the Vice President Human Resources of Bell Atlantic and delivered to the attention of the Plan Administrator. Each claim with respect to benefits under the Plan shall be decided by the Vice President Human Resources, and any appeal from any such claim shall be fully and fairly reviewed by the Human Resources Committee, all in conformity with the rules of Section 503 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). This Plan hereby grants those claims and appeals adjudicators full discretion to make findings of fact, to interpret the Plan, and to resolve disputes. Those adjudicators of claims and appeals shall, when performing those duties, exercise the duties of a fiduciary in accordance with the terms of ERISA. A claim may be denied if not filed within the statute of limitations for a contract dispute in the Commonwealth of Virginia, and appeal rights shall be exhausted if an appeal is not submitted within 60 days of the date the individual is notified of the denial of a claim. 8.7.4 Exclusive Administrative Remedy for Claims. The claims and appeals adjudicators shall determine conclusively for all parties all issues and disputes with respect to benefits under, or the administration of, the Plan. 8.8 Service in More than One Capacity. Any person may serve in more than one capacity with respect to the Plan. 8.9 Set-Off for Governmental Payments of Like Kind. In the event that a Senior Manager (or any of his Beneficiaries) is awarded a payment or series of payments under the laws applicable to Workers Compensation, or under any other governmental program, in a case in which the Claims Committee determines that such award is of the same general character, or is granted on account of the same disabling accident or illness, as a benefit provided by the Plan, then the Claims Committee may direct that the amount of the associated benefit otherwise payable under the Plan shall be reduced dollar for dollar by the amount of the governmentally prescribed payment or payments; provided, however, that no benefit payable under this Plan shall be reduced by reason of any governmental benefit or pension payable on account of military service or by reason of any benefit which the recipient receives under the Social Security Act. 8.10 Accidental Death; Damage Claims; Release. 8.10.1 Releases. In case of an accident resulting in the death of a Senior Manager which entitles his Beneficiaries to an annuity or single-sum death benefit under this Plan, all such Beneficiaries shall, prior to the payment of any such benefits, sign a release in a form satisfactory to the Plan Administrator, releasing all Bell Atlantic - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 16 Companies, and their directors, officers, and employees, from all claims and demands, whether statutory, contractual or under the common law of torts, which the Senior Manager and his Beneficiaries had or may have had against them, other than for benefits under this Plan or any other employee benefit plan, on account of such accident. 8.10.2 Damage Claims or Suits. Should a claim for damages, other than a claim for benefits under the Plan or any other employee benefit plan, be presented, or a suit brought, against any Bell Atlantic Company or the directors, officers, or employees of any such company, for damages on account of death of a Senior Manager, no single-sum death benefit shall be payable under Section 7.2 of the Plan on account of such death except as provided under paragraph (c) below; provided, however, that the Claims Committee may in its discretion and upon such terms as it may prescribe, waive this provision if all such claims for damages are withdrawn, or if such suit is discontinued. 8.10.3 Judgment or Settlement. In case any judgment for damages is recovered against any Bell Atlantic Company or its directors, officers or employees, or any settlement is made of any claim or suit on account of the death of a Senior Manager, and the amount of damages paid to the Beneficiaries who would have received benefits under the Plan is less than the value of benefits which would otherwise have been payable under the Plan, the difference between the two amounts may, in the discretion of the Claims Committee, be distributed to such Beneficiaries. 8.11 Leaves of Absence; Breaks in Service. For purposes of this Plan, the various categories of approved leaves of absence and rotational assignments, and breaks in service of various durations, shall be defined and administered in the same manner as is set forth in the Qualified Pension Plan in which the Bell Atlantic Company that then employs the Senior Manager participates, and as set forth in any other plan, program or practice of said employing company, at the time of the applicable event. 8.12 Assignment or Alienation. Assignment or alienation of pensions or other benefits under this Plan will not be permitted or recognized, except as may be required by any applicable law which is not preempted by federal law applicable to employee benefits. 9. FUNDING AND PAYMENT OF BENEFITS 9.1 Plan Unfunded. Nothing in this Plan shall be interpreted or construed to require Bell Atlantic in any manner to fund any obligation to the Senior Managers and Beneficiaries hereunder. Nothing contained in the Plan or in any trust agreement governing any Grantor Trust, and no action taken hereunder or thereunder shall create, or be construed to create, a "trust" (as that term is construed under Title I of ERISA) or a trust in which the portion of the trust assets held for the account of a Bell Atlantic Company as co-grantor is exempt from the claims of the general creditors of such co-grantor in the event of such co-grantor's bankruptcy or insolvency. Any assets which may be accumulated by any Participating Company in order to meet its obligations under this Plan shall for all purposes continue to be a part of the general assets of such Participating Company. To the extent that any Senior Manager or Beneficiary acquires a right to receive payments from the Paying Agent under this Plan for which any Participating Company is ultimately liable, such rights shall be no greater than the rights of any unsecured general creditor of the applicable Participating Company. - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 17 9.2 Contributions to Grantor Trust. In the event that Bell Atlantic, or the officer or officers who have been delegated the appropriate authority by the Board of Directors, determine that it would be desirable to set aside assets in one or more Grantor Trusts, in an amount (the "Grantor Amount") which shall be less than or equal to the accumulated benefit obligations of all Bell Atlantic Companies to participants under the one or more plans covered by such Grantor Trust or Trusts, each Participating Company shall contribute, in the manner and in the amount then prescribed by Bell Atlantic or its delegatees, its allocated share of the Grantor Amount. 9.3 Paying Agent; Allocation of Cost; Participating Company Contributions. 9.3.1 Paying Agent. Commencing January 1, 1989, for Senior Managers and Beneficiaries whose benefits had commenced prior to that date and for those whose benefits commence on or after that date, the Paying Agent shall act as the agent for the Plan and its Participating Companies, and in that capacity the Paying Agent shall have a fiduciary duty to each Senior Manager and Beneficiary to disburse all benefits to Senior Managers and Beneficiaries, at the time when due and in the amount then payable under the terms of the Plan. 9.3.2 Allocation of Accrued Cost and Disbursements. On and after January 1, 1989, the Plan Administrator, with the advice of the officers of Bell Atlantic who have responsibility for legal, treasury and accounting matters, shall establish and maintain cost allocation guidelines which shall govern the allocation of accrued expenses under the Plan for financial accounting purposes, and the allocation of the amounts by which Participating Companies are obligated to reimburse the Paying Agent for disbursements of benefits and other expenditures under the Plan. Such guidelines shall be established in a manner which allocates to each Participating Company its reasonable and appropriate share of the direct benefit cost (and any associated administrative cost) of the Plan. 9.3.3 Duty to Reimburse Paying Agent. At the times, and in the amounts determined under Section 9.3.2 above, each Participating Company shall remit to the Paying Agent the reimbursements allocated to it, either by a direct remittance to the Paying Agent, or via an intermediary. 9.3.4 Bell Atlantic as Secondary Obligor. With respect to benefits disbursed by the Paying Agent under this Plan to a Senior Manager (or his Beneficiaries), the obligation to reimburse the Paying Agent shall be the principal obligation of the Bell Atlantic Company or Companies for which the Senior Manager rendered service while serving in the status of a Senior Manager. Bell Atlantic, as Plan sponsor and as a direct or indirect beneficiary of the value of the services rendered by a Senior Manager, shall have a secondary obligation to reimburse the Paying Agent for any such disbursements in the event, and to the extent, of the failure of any principal obligor to honor such obligation. In the event of such a default by a Participating Company with a principal obligation to reimburse the Paying Agent, Bell Atlantic shall reimburse the Paying Agent for any defaulted amounts and ensure that the full benefit under the Plan is paid by the Paying Agent to all rightful Senior Managers and Beneficiaries as and when due. In such a case, Bell Atlantic may, in its sole discretion, release the defaulting company for some or all of the defaulted amount. Moreover, in the event of the sale of the stock, or substantially all of the assets, of a Participating Company, Bell Atlantic may in its sole discretion release said company from its contingent principal obligations to the Paying Agent under this Plan, and substitute itself as the principal obligor for such company's allocated share of costs under this Plan. 9.3.5 Participating Companies as Co-Grantors of Grantor Trusts. In the event, and in each and every instance, that Bell Atlantic elects in its sole discretion to transfer assets to one or more Grantor Trusts, each Participating Company shall promptly reimburse Bell Atlantic in an - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 18 amount equal to such company's allocated share of the amount transferred, determined in the manner described in Section 9.3.2 hereof. - -------------------------------------------------------------------------------- Bell Atlantic Senior Management Retirement Income Plan (1/1/96) Page 19 EX-10.I 5 DEFERRED COMPENSATION PLAN Exhibit 10i BELL ATLANTIC DEFERRED COMPENSATION PLAN (Amended and Restated as of January 1, 1997) 1. Purpose. The Bell Atlantic Deferred Compensation Plan (previously ------- known as the Bell Atlantic Senior Management Incentive Award Deferral Plan) (the "Plan") is a nonqualified, unfunded deferred compensation plan. The Plan is intended to enable eligible employees to defer the distribution of cash and stock awards of short term and long term incentive compensation, and to defer base salary in excess of the applicable IRS limit under Section 401(a)(17) of the Code (the "Qualified Plan Compensation Limit"). In 1997, the Qualified Plan Compensation Limit is $160,000, and in 1995 and 1996 it was $150,000. The Plan was established by the Board of Directors (the "Board") of Bell Atlantic Corporation ("Bell Atlantic") effective as of January 1, 1984, and is maintained for a select group of highly compensated managerial employees, including certain active and former officers, executives and key employees of Bell Atlantic and its subsidiaries. The Human Resources Committee (the "HRC") of the Board has the authority to amend the Plan, from time to time, and the Plan Administrator, as described in Section 9, is responsible for the day-to-day administration of the Plan. 2. Eligibility. ------------ (a) Participating Companies. The "Participating Companies" under this ----------------------- Plan shall be Bell Atlantic and each subsidiary or other company affiliated with Bell Atlantic which, at any time in a given plan year, employs one or more active employees who are either (a) Senior Managers who are eligible for an award under the Bell Atlantic Senior Management Short Term Incentive Plan or any of the seven other Short Term Incentive Plans formerly maintained for executives of Bell Atlantic and certain of its operating telephone company subsidiaries (collectively, the "Short Term Incentive Plan"), (b) Key Employees who are eligible for an award under the Bell Atlantic 1985 Performance Share Plan (the "Performance Share Plan"), (c) effective for awards for performance in 1991 and thereafter, certain key Executive Managers who are eligible for an award under the Bell Atlantic Executive Management Annual Bonus Plan (the "Annual Bonus Plan"), (d) Executive Managers and Senior Managers whose annual rate of base salary exceeds the Qualified Plan Compensation Limit in a given calendar year, or (e) any manager at Salary Grade H or above who is a party to a Stay Incentive Agreement with Bell Atlantic in connection with the proposed merger with NYNEX Corporation (a "Merger-Related Stay Agreement"). (b) Eligible Employees. An active employee of a Participating Company ------------------ shall be eligible to defer awards and establish deferral accounts under this Plan if the employee is in active service and is eligible to receive an award under either the Short Term Incentive Plan, a Merger-Related Stay Agreement, the Performance Share Plan (in any year through 1996, which is the year of the final distribution under that terminated plan), or (for awards for performance in 1991 and thereafter) the Annual Bonus Plan, or earns a base salary at an annual rate in excess of the Qualified Plan Compensation Limit. Certain former employees shall have the right to receive distributions from existing deferral accounts under the Plan, but not to defer future awards; those participants shall include: (a) any former employee who elected during a period of active employment with a Participating Company to defer one or more awards under a Short Term Incentive Plan, the Performance Share Plan or Annual Bonus Plan, and (b) any employee who was - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensatin Plan (1/1/97 Restatement) Page 1 a participant in the predecessor Bell System Senior Management Incentive Award Deferral Plan (the "Predecessor Plan") as of December 31, 1983. 3. Types of Compensation Which May be Deferred. -------------------------------------------- (a) Optional Election to Defer Salary in Excess of Qualified Plan ------------------------------------------------------------- Compensation Limit. Any Senior Manager or Executive Manager whose annual rate of - ------------------ base salary for a given calendar year exceeds the Qualified Plan Compensation Limit for that year shall be eligible to defer some or all of the individual's base recurring salary in excess of the applicable Qualified Plan Compensation Limit. This feature of the Plan became effective with 1993 elections for calendar year 1994 salary, and at that time applied to Senior Managers and to those key Executive Managers who then participated in the Annual Bonus Plan. Effective with 1994 elections for calendar year 1995, and annually thereafter, eligibility to defer base salary shall apply to employees of Salary Grades E (or equivalent grades) and above. Any such election shall state the number of dollars per annum to be deferred, which shall be withheld in approximately equal installments from each regular pay, in an amount per annum not less than $1,000, in increments of $1,000, and not greater than the amount by which the annual base salary rate at the time of deferral exceeds the Qualified Plan Compensation Limit for the applicable year. The amount of the deferral shall not adjust as a result of any salary modification that may occur during the ensuing year. Effective December 1, 1996, an employee may elect to defer any such salary to either a Directed Investment Account or to a Tandem Investment Account, and such deferrals shall be eligible for investment redirection from time to time as described elsewhere in this Plan. (b) Optional Election to Defer Cash Portion of Short Term Award. On or ----------------------------------------------------------- before the last day of any calendar year, an eligible employee may elect to direct that all or part of any cash short term award which may be awarded to the employee in the following year under a Short Term Incentive Plan or Annual Bonus Plan shall be deferred under the Plan. In no event, however, shall the part of any such award which is deferred in any calendar year be less than $1,000. In the case of awards for 1990 and prior years, any such deferral shall be credited to a "Cash Deferral Account" as hereafter defined. In the case of awards for 1991 through 1995, any such deferred compensation shall be credited to a "Short Term Award Deferral Account" as hereafter defined. Effective December 1, 1996, an employee may elect to defer any of the cash award described in this paragraph to either a Directed Investment Account or to a Tandem Investment Account, and such deferrals shall be eligible for investment redirection from time to time as described elsewhere in this Plan. (c) Mandatory Deferral of Stock Portion of Short Term Award. ------------------------------------------------------- Commencing with the 1992 award for the 1991 performance years under the Short Term Incentive Plan and the Annual Bonus Plan, any portion of an employee's award in the form of a deferred distribution of shares of Bell Atlantic stock shall automatically be credited in the form of phantom shares to a special share deferral account for the employee (a "Mandatory Share Deferral Account") as hereafter defined. In the event that an employee fails to deliver a signed deferral election form with respect to a such a mandatory deferral, the employee shall be deemed to have elected distribution in the form of a single distribution of shares of Bell Atlantic stock from the Mandatory Share Deferral Account in the year of his or her Retirement, death or separation from service for any other reason, whichever occurs first. The entire stock portion of the awards described in this paragraph shall be deferred to a Stock Investment Contract, shall not be eligible for investment redirection at any time, and shall be distributable solely in the form of shares of common stock of Bell Atlantic. - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restated) Page 2 (d) Optional Election to Defer Stock Award under the Performance Share ------------------------------------------------------------------ Plan. On or before the last day of any calendar year (to and including calendar year 1995, but not thereafter), an eligible employee may, in the employee's sole discretion, elect to direct that all or part of any shares of Bell Atlantic stock which may be awarded to the employee in the following year under the Performance Share Plan shall be credited to a "Share Deferral Account" (as hereafter defined). In no event, however, shall the amount of the award which is deferred in any given year be less than $1,000 worth of such shares (based on valuation at the time the award would otherwise be paid). Because the Bell Atlantic 1985 Performance Share Plan terminated upon making final distributions in the first quarter of 1996, no further deferrals of awards shall occur after 1996. The entire stock portion of the awards described in this paragraph shall be deferred to a Stock Investment Contract, shall not be eligible for investment redirection at any time, and shall be distributable solely in the form of shares of common stock of Bell Atlantic. (e) Optional Elections under Predecessor Plan. For the purpose of this ----------------------------------------- Plan, an election made by an eligible employee under the Predecessor Plan shall be considered as an election made under this Plan. Any reference to deferral of a "short term incentive award" in any election under the Predecessor Plan shall be treated as a deferral of a pre-1991 award under the Short Term Incentive Plan, and references to deferral of a "long term incentive award" in such any election under the Predecessor Plan shall be treated as a deferral of an award under the Performance Share Plan. The entire amount of any cash award described in this paragraph shall be held in a Cash Investment Contract, shall not be eligible for investment redirection at any time, and shall be distributable solely in the form of cash. (f) Optional Election to Defer Merger-Related Stay Incentive. On or -------------------------------------------------------- before the last day of 1996, a management employee at Salary Grade H or above who is a party to a Merger-Related Stay Agreement shall have a one-time election to direct that all or part of any cash award which may be awarded to the employee at any time in 1997 or thereafter under the terms of his or her Merger- Related Stay Agreement shall be deferred under the Plan. The employee may direct that a stated dollar amount or a stated percentage of the stay bonus be deferred under the Plan, but in no event shall the part of any such award which is deferred in any calendar year be less than $1,000. An employee may elect to defer any of the cash award described in this paragraph to either a Directed Investment Account or to a Tandem Investment Account, and such deferrals shall be eligible for investment redirection from time to time as described elsewhere in this Plan. 4. Initial Deferral Elections. --------------------------- (a) Timing of Deferral Elections. ----------------------------- (1) Existing Employees. An election by an eligible employee to defer eligible compensation under the Plan shall be delivered to the Plan Administrator on or before the last business day of December prior to the calendar year in which the award to be deferred is determined, approved and awarded. The elections signified on the employee's form may be changed or revoked on or before, but (except as provided in Section 5) not after, said last day of December. (2) Newly Hired and Newly Promoted Employees. For an eligible employee who is newly hired, the employee shall have a 30-day period, following the effective date of commencement of employment, in which to deliver a deferral election form, and any deferral elections shall become irrevocable (except as provided in Section 5) on the thirtieth day following such employment commencement date. For an eligible employee who is newly promoted to a compensation grade or level which makes the employee eligible to defer a form of compensation - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 3 under this Plan, the employee shall have a 30-day period, following the effective date of the promotion, in which to deliver a deferral election form, and any deferral elections shall become irrevocable (except as provided in Section 5) on the thirtieth day following the effective date of such promotion. (b) Form of Deferral Elections. In all events, a deferral election -------------------------- must be completed and signed by an eligible employee on a form provided by the Plan Administrator which shall provide the eligible employee with the following elections: (1) Whether and How Much to Defer. Except for any form of compensation which is subject to mandatory deferral, the deferral election form shall provide to an eligible employee an election to determine the percentage or amount of the applicable form of compensation to be deferred, if any. (2) Commencement Date for Distributions in the Absence of Retirement or Termination of Employment. The deferral election form shall afford an employee an election to select the future date or event which shall trigger the commencement of distribution. As further described in this Plan, an employee's "Retirement" (as hereafter defined) or death shall cause any deferral account which has not yet begun distribution to commence distribution, and an employee's voluntary or involuntary separation for any other reason shall cause all deferral accounts to be distributed in full, but the deferral election form shall allow an employee to elect to commence distribution on a stated date other than the date of Retirement, death or other separation if that stated date precedes the eventual date of the employee's actual Retirement, death or other separation. (3) Single Distribution or Multiple Installments. The deferral election form shall afford an employee an election whether to receive the balance of the deferred compensation account, commencing on the date elected by the employee or, if earlier, the date of the employee's retirement, either in a single distribution or in two to twenty approximately equal annual distributions. As further described in this Plan, all deferral accounts of an employee will be distributed in full in a single distribution upon an employee's voluntary or involuntary separation for any reason other than Retirement or death. (4) Distribution in the Event of Death. The deferral election form shall afford an employee an election, in the event of the death of the employee prior to the completion of the distribution, whether the designated beneficiaries (or the employee's estate, in the absence of designated beneficiaries) shall receive the balance of the deferred compensation account in a single distribution to be made in the year of the employee's death, or in two to ten approximately equal annual distributions commencing in the year of the employee's death. (5) Investment Vehicle(s) for Deferred Compensation. For deferral elections tendered in the fourth quarter of 1996 or in any deferral election period thereafter, with respect to any compensation which is initially awarded or payable in the form of cash (but not for compensation awarded in stock, such as an award under the Performance Share Plan or the deferred stock portion of an award under the Short Term Incentive Plan or the Annual Bonus Plan), the deferral election form shall afford an employee an election among two or more unfunded investment vehicles for the investment of the compensation then being deferred. - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 4 5. Other Elections Permitted Under the Plan. ----------------------------------------- (a) Designation of Beneficiaries. Each active employee who initially ---------------------------- elects to defer an award under Section 4, and each active or former employee who maintains a deferral account under this Plan, may at any time designate one or more beneficiaries, and revoke or change beneficiary designations, by submitting a signed beneficiary designation on a form approved by the Plan Administrator. (b) One-Time Postponement of Commencement Date and One-Time ------------------------------------------------------- Modification of Number of Installments. At any time earlier than 12 months prior - -------------------------------------- to the date on which a distribution of a portion (or all) of an employee's Cash or Share Deferral Account ultimately would have commenced distribution under the terms of an initial deferral election or under the terms of this Plan that apply to the timing of distributions upon Retirement, death or other separations from service, the employee may submit a written election to the Plan administrator which elects either or both of the following modifications: (i) an increase or decrease in the number of installments requested under his or her initial election of a distribution option for the account, and/or (ii) a postponement of the initially-elected distribution date; provided, however, that in no event shall the deferral commence later than the year in which the employee eventually Retires, dies or separates from service for any other reason. An employee may postpone the distribution date and modify the form of distribution for each and any deferral account once, but not more than once. If an employee, in fact, Retires, dies or separates from service less than 12 months subsequent to the date on which the employee submits a modified deferral election of any type under the terms of this paragraph, the Plan administrator shall void the modified election and shall administer the deferral account in accordance with the employee's initial deferral election. The provisions of this paragraph are effective November 1, 1992. (c) Early Withdrawals Subject to Penalty. ------------------------------------- (1) Withdrawal from Elective Deferral Accounts. Except as provided in the following paragraph (2), neither the employee, a beneficiary, nor any other individual or entity, shall have any right to receive a distribution or make any withdrawal from a deferral account, except in accordance with the terms of this Plan which apply to Retirement, death and other separations, or according to an initial deferral election under Section 4 or a one-time postponement or modification election under Section 5(b). (2) Early Withdrawal Penalty. On or after November 1, 1992, an active or former or retired employee 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 employee's deferral accounts which the employee 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. (3) Not Applicable to Mandatory Deferrals of Shares. The provisions of this Section 5(c) shall apply only to elective deferral accounts and shall not apply to Mandatory Share Deferral Accounts. 6. Deferral Accounts. ------------------ (a) Cash Investment Contract. A "Cash Investment Contract" is an ------------------------ unfunded book-entry account which credits interest on the deferral account balance, posted monthly, at a rate equal to one-twelfth of the current annual yield on 10-year U.S. Treasury obligations for the - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 5 month then ending. All distributions from a Cash Investment Contract shall be in the form of cash. (b) Shares Investment Contract. A "Shares Investment Contract" is an -------------------------- unfunded book-entry account in which the value of the deferral account reflects the total return on a like number of shares of common stock of Bell Atlantic, both as a result of fluctuations in the market value of Bell Atlantic common stock and as a result of reinvestment of phantom dividends (at the rate, and as of the dividend record date, applicable to dividends on Bell Atlantic common stock) on the shares of phantom stock held in the account. The phantom dividends credited to the balance of the Shares Investment Contract on each such dividend record date shall immediately be converted to a number of whole and fractional phantom shares equal to the result of dividing the market value per share of Bell Atlantic stock on the dividend record date into the number of dollars of phantom dividends. For purposes of this paragraph, the value of a Bell Atlantic shares on a dividend record date shall be equal to the average of the five daily means of the high and low sale prices per share of Bell Atlantic stock on the New York Stock Exchange ("NYSE") for the five trading days ending on such dividend record date. In the event of any change in outstanding Bell Atlantic common shares by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Plan Administrator, with the advice of counsel, shall make any appropriate adjustments in the number of phantom shares then credited to employees' accounts. Any and all such adjustments shall be conclusive and binding upon all parties concerned. All distributions from a Shares Investment Contract shall be in the form of shares of common stock of Bell Atlantic. (c) Directed Investment Account. --------------------------- (1) Definition. A "Directed Investment Account" is a form of unfunded book-entry deferral account which applies to certain "Deferral Accounts Eligible for Investment Direction." The Deferral Accounts Eligible for Investment Direction are: (i) cash compensation which is deferred to the Plan under an initial deferral election delivered to the Plan Administrator on or after December 1, 1996, electing to invest in a Directed Investment Account, and (ii) cash compensation deferred in 1991 or any later date into a Tandem Investment Contract which an employee elects on any date on or after December 1, 1996 to re-invest into a Directed Investment Account. A Directed Investment Account permits the employee to elect, at the time of initial deferral and from time to time thereafter until the account is finally and fully distributed, whether to invest some or all of the deferred cash compensation either (A) in a "Cash Investment Contract", or (B) in a "Shares Investment Contract", or, alternatively, to transfer an account balance out of the Directed Investment Account into a "Tandem Investment Account" or vice versa. Any balance held in Cash Investment Contract at the time of a distribution shall be distributed in cash, and any balance held in a Shares Investment Contract at the time of a distribution shall be distributed in shares. (2) Transfers within a Directed Investment Account. For an account balance held in a Directed Investment Account, an employee may elect in writing to reinvest balances of Deferral Accounts Eligible for Investment Direction. Such balances may be reinvested between the Cash Investment Contract and the Shares Investment Contract effective as of the last business day of any month by delivering to the Plan Administrator a notice in writing on an approved form on any day on or before the last day of said month. Reinvestment transfer rights continue until the deferral account is finally and fully distributed. When making an initial deferral election, and when transferring existing deferred balances between investment contracts in the Directed Investment Account, an employee shall have - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 6 the right to allocate between the Cash Investment Contract and the Shares Investment Contract in 10% increments from zero to 100%. (3) Transfers between a Directed Investment Account and a Tandem Investment Account. Effective as of the last business day of December of 1996 or the last business day of December of any subsequent calendar year, an employee may transfer some or all of the balance of a Tandem Investment Account to the Shares Investment Contract and/or the Cash Investment Contract, in 10% increments from zero to 100%. Effective as of the last business day of December of 1997 or the last business day of December of any subsequent calendar year, an employee may transfer some or all of the balance of a Shares Investment Account and/or Cash Investment Contract, in 10% increments from zero to 100%,.to a Tandem Investment Account. Such balances may be reinvested between the Directed Investment Account and the Tandem Investment Account by delivering to the Plan Administrator a notice in writing on an approved form on any day on or before the last business day of December of such year. (d) Tandem Investment Accounts. ---------------------------- (1) Definition. A Tandem Investment Account is an unfunded book-entry ---------- investment account which is solely available for Deferral Accounts Eligible for Directed Investment (as that term is defined in Section 6(c)(1) above). The Tandem Investment Account consists of two tandem sub-accounts, each of which is established at the outset with an account value equal to the value of the compensation deferred or transferred to the Tandem Investment Account by the employee. One of the sub-accounts is valued on a monthly basis in like manner to a Cash Investment Contract and the other sub-account is valued on a monthly basis in like manner to a Shares Investment Contract. The value of the Tandem Investment Account on the monthly valuation date as of which distribution commences to the employee (or a beneficiary), or on the monthly valuation date as of which some or all of the balance is being transferred by the employee to a Directed Investment Account, shall be equal to the greater of the two values of the two tandem sub-accounts as of such valuation date. (2) Election at Time of Distribution between Cash or Shares. The ------------------------------------------------------- following rules shall be applicable to an Employee who holds a balance in a Tandem Investment Account at the time distribution commences under the Plan. (i) Right to Elect. At the time distribution is to commence, the employee shall then have the right to elect whether to receive the distribution in the form of cash or in shares of Bell Atlantic stock. Such election shall be made at the time and in the form required by the Plan Administrator. In the event of the death of the employee prior to electing the form of distribution, the award shall be distributed in cash to the person or persons, and in the number of installments, previously designated by the employee. (ii) Election of Shares. If the employee elects to receive a distribution from a Tandem Investment Account in shares, the balance of the Tandem Investment Account shall be determined based on the greater of the two values of the sub-accounts, which shall then be stated as a number of shares based on the valuation method applicable to a Share Investment Contract. Any portion of the account then scheduled to be distributed shall be transferred to the employee as soon as administratively practicable. If the deferral account is scheduled to be distributed in two or more annual installments, the deferral - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 7 account shall thereafter be treated as a Shares Investment Contract until the entire balance of the account is distributed, and such Contract shall not be eligible for reinvestment at any time thereafter. (iii) Election of Cash. Conversely, if the employee elects to receive a distribution from a Tandem Investment Account in cash, the balance of the Tandem Investment Account shall be determined based on the greater of the two values of the sub-accounts, and that value shall be stated in cash, and distribution shall commence as soon as administratively practicable thereafter. Furthermore, if the deferral account is scheduled to be distributed in two or more annual installments, the deferral account shall thereafter be treated as a Cash Investment Contract until the entire balance of the account is distributed, and such Contract shall not be eligible for reinvestment at any time thereafter. 7. Distributions from Deferral Accounts. ------------------------------------- (a) Distribution According to Terms of Deferral Election. Pursuant to ---------------------------------------------------- the terms of a deferral election which has been made by an employee under Section 4 of this Plan, subject to any permissible modification election under Section 5(b), the first installment (or the single distribution if the employee has so elected) shall be paid as soon as administratively practicable after the earliest to occur of the following: (1) the date on which the employee attains the age specified by the employee in his or her deferral election form, which date shall not be earlier than one year from the date the award otherwise would have been distributed in the absence of an election to defer the distribution; (2) the end of the month in which the employee Retires, dies, or separates from service for any other reason with Bell Atlantic or any company affiliated with Bell Atlantic; provided, however, that a transfer of employment between companies affiliated with Bell Atlantic shall not constitute a Retirement or separation from service for purposes of this Plan; or (3) the anniversary, as specified by the employee in his or her deferral election form, of the date on which the award otherwise would have been distributed in the absence of an election to defer the distribution. (b) Definition of Retirement. When the word "Retirement" or "Retire" ------------------------ is used in this Plan, the term means either: (1) a separation from service at a time when the employee has accrued any of the following combinations of age and service (where "service" means service for purposes of retirement-eligibility as defined under the Bell Atlantic Cash Balance Plan): (i) any age with 30 or more years of service; (ii) at least age 50 with at least 25 or more years of service; (iii) at least age 55 with at least 20 or more years of service; (iv) at least age 60 with at least 15 or more years of service; or (v) at least age 65 with at least 10 or more years of service, or (2) a separation from service due to prolonged disability over a period of at least 26 weeks, or (3) a separation from service under circumstances which the HRC determines, on a case by case basis, shall be deemed to be treated as a retirement for purposes of this Plan. - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 8 (c) Immediate Distribution of All Deferral Account Balances. Notwithstanding the terms of any deferral election delivered under this Plan, the entire amount then credited to each of an employee's one or more deferral accounts shall be paid as soon as administratively practicable in a single distribution in the event that any of the following circumstances has occurred: (1) the Plan Administrator determines that the employee, at any time after his or her Retirement as an employee, has been employed by any governmental agency having regulatory jurisdiction over the business of a Participating Company; (2) the employee has separated from service for a reason other than Retirement or death; (3) the HRC determines that the employee has engaged in misconduct in connection with his or her employment with the employing company; or (4) the HRC determines that the employee, at any time within two years after his or her separation from service, has, without the written consent of Bell Atlantic, personally engaged in managing, planning or advising in any manner whatever an activity which directly competes with any of the businesses of Bell Atlantic or any of its direct or indirect subsidiaries, which any such company engaged in (A) on his or her separation from service date, or (B) thereafter, if plans to engage in such business had been formulated during the twelve-month period preceding the employee's separation from service date. (c) Distributions in Case of Death. In the event of the death of an ------------------------------ employee before the balance of any and all the employee's deferral accounts under this Plan are fully distributed, the balance of each such deferral account shall be distributed in accordance with the death-related deferral election of the employee with respect to each such account. Distribution shall be made to the beneficiary or beneficiaries designated in writing by the employee, or if the Plan Administrator determines, with the advice of counsel, that no valid and enforceable designation has been made, then the balances shall be distributed to the estate of the employee. The first installment (or the single payment if the employee has so elected) shall be paid as soon as administratively practicable after the date of death. (d) Distributions of Successive Annual Installments. In the case of a ----------------------------------------------- deferral account which is to be distributed in two or more installments, each installment subsequent to the first distribution shall be distributed in approximately equal annual installments as soon as practicable after the first anniversary of the date that the first distribution was due to be distributed. References in this Plan to distributions of "approximately equal annual installments" shall mean a distribution each year of a fraction of the then- undistributed account balance of a deferral account, where the numerator of the fraction shall be 1, and the denominator shall be the number of installments remaining to be distributed from that deferral account under the Plan (including the installment which is the subject of the calculation). 8. Unfunded Plan. -------------- (a) Plan Unfunded. Nothing in this Plan shall be interpreted or ------------- construed to require Bell Atlantic in any manner to fund any obligation to the employees participating in this Plan, or their beneficiaries. Nothing contained in the Plan or in any trust agreement governing any grantor trust that refers to the Plan, and no action taken under the Plan or any such grantor trust shall create, or be construed to create, a "trust" (as that term is construed under Title I of the Employee Retirement Income Security Act of ERISA) or a trust in which the portion of the - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 9 trust assets held for the account of a Bell Atlantic company as co-grantor is exempt from the claims of the general creditors of such co-grantor in the event of such co-grantor's bankruptcy or insolvency. Any assets which may be accumulated by any Participating Company in order to meet its obligations under this Plan shall for all purposes continue to be a part of the general assets of such Participating Company. To the extent that any employee or beneficiary acquires a right to receive distributions under this Plan for which any Participating Company is ultimately liable, such rights shall be no greater than the rights of any unsecured general creditor of the applicable Participating Company. (b) Contributions to Grantor Trust. In the event that Bell Atlantic, ------------------------------ or the officer or officers who have been delegated the appropriate authority by the Board, determine that it would be desirable to set aside assets in one or more grantor trusts, in an amount (the "Grantor Amount") which shall be equal to the accumulated benefit obligations of all Bell Atlantic companies to participants under the one or more plans covered by such grantor trust or trusts, each Participating Company shall contribute, in the manner and in the amount then prescribed by Bell Atlantic or its delegated agents, its allocated share of the Grantor Amount. (c) Allocation of Accrued Cost and Disbursements. On and after -------------------------------------------- January 1, 1989, the Plan Administrator, with the advice of the officers of Bell Atlantic who have responsibility for legal, treasury and accounting matters, shall have authority to establish and maintain cost allocation guidelines which shall govern the allocation of accrued expenses under the Plan for financial accounting purposes, and the allocation of any amounts by which Participating Companies are obligated to reimburse any another Participating Company for disbursements and other expenditures under the Plan. Such guidelines shall, if established, allocate to each Participating Company its reasonable and appropriate share of the direct benefit cost (and any associated administrative cost) of the Plan. (d) Participating Companies as Co-Grantors of Grantor Trusts. In the -------------------------------------------------------- event, and in each and every instance, that Bell Atlantic elects in its sole discretion to transfer assets to one or more grantor trusts, each Participating Company shall promptly reimburse Bell Atlantic in an amount equal to such company's allocated share of the amount transferred. (e) No Voting or Cash Dividend Rights on Phantom Shares. Shares of --------------------------------------------------- phantom stock held in deferral accounts under this Plan shall neither entitle the employee to vote the shares nor to receive dividends in cash. In lieu of cash dividends, shares of phantom stock shall be credited with phantom dividends which shall be converted to dividend reinvestment phantom shares as described elsewhere herein. 9. Administration; Amendment and Termination. ------------------------------------------ (a) Plan Administrator. The Vice President - Compensation and ------------------ Benefits of Bell Atlantic Network Services, Inc. shall have the authority and responsibility to act as "Plan Administrator" (as that term is used in this Plan), including, without limitation, the authority and responsibility to distribute summary descriptions of the Plan, notify employees of their rights to defer awards, receive deferral election forms and beneficiary designations, calculate balances of deferral accounts and the amount of distributions from the Plan. The Plan Administrator, with the advice of counsel, shall have the right to respond to and decide any claims or disputes under the Plan and to interpret the Plan, subject to the ultimate authority of the HRC to review any appeal from any such claim or interpretation. In the event of any such appeal, the action of the HRC shall be final and binding. In the event that there is no person occupying the position of Vice President - Compensation and Benefits of Bell Atlantic Network Services, Inc., the - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensatin Plan (1/1/97 Restatement) Page 10 Plan Administrator shall be the most senior executive of the Human Resources organization of Bell Atlantic. (b) Amendment and Termination of Plan. The HRC may at any time amend --------------------------------- or modify the Plan, or terminate the Plan. (c) Administrative Modifications; Authority to Deny Reinvestment ------------------------------------------------------------ Requests Which Would Result in Short-Swing Profits. The Plan Administrator, with - -------------------------------------------------- advice of counsel, may make administrative modifications to the Plan to comply with changes in applicable law or to ensure effective and consistent administration of the Plan; provided, however, that the Plan Administrator shall not have the authority to amend the Plan in any manner which alters the amount of compensation or benefits provided by the Plan. Notwithstanding any other provision of this Plan, the Plan Administrator shall have the authority (1) 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, and (2) to refuse any investment redirection request by an officer who is subject to the reporting obligations of Section 16 of the Securities Exchange Act of 1934 if the Plan Administrator determines with the advice of counsel that fulfilling the investment redirection request of such officer would cause the officer to have engaged in matching purchase and sale transactions which give rise to a short- swing profit which the officer would have a legal obligation to disgorge to the Corporation. (d) Authority of Plan Administrator to Determine and Withhold Taxes. --------------------------------------------------------------- The Plan Administrator shall have full authority, with or without the consent of a plan participant, to withhold from any compensation being deferred under this Plan any applicable taxes (including without limitation any FICA taxes, and any income taxes occasioned by the withholding of FICA taxes). The Plan Administrator shall furthermore have full authority to determine whether and to what extent any FICA taxes may be applicable to earnings on any deferral accounts under the Plan and, in the event that any such taxes are applicable, to withhold the taxes attributable to the unfunded deferral account from an employee's other income from any and all other sources. At the time of distribution of deferral account balances to any employee or beneficiary, the Plan Administrator shall have the authority to withhold all applicable taxes from the distribution, with or without the consent of the employee or beneficiary. (e) Scope of Amendments and Modifications. A Plan amendment or ------------------------------------- modification under Section 9(b) or (c) may affect both those employees who are participating in the Plan at the time of the amendment or modification as well as future participants. Any such amendment or modification, and any Plan termination, shall not adversely affect the rights of any employee (or beneficiary, in the case of a deceased employee), without his or her consent, to any benefit under the Plan to which such employee (or beneficiary) may have previously become entitled prior to the effective date of such change or termination. (f) No Forfeiture of Benefits. Each employee for whom one or more ------------------------- deferral accounts is established under this Plan shall at all times have the fully vested right to receive one or more distributions from such accounts at the times and in the manner stated under this Plan, and such accounts shall under no circumstances be subject to forfeiture. The rights of an employee to the balance of any deferral account under this Plan shall not, however, be assignable or subject to alienation. The value of deferral accounts which are based on phantom shares is expected to fluctuate, and there is no guarantee in any respect that the value of any such account balance shall be free from a decline in value from time to time. - -------------------------------------------------------------------------------- Bell Atlantic Deferred Compensation Plan (1/1/97 Restatement) Page 11 --------------------------------- EX-10.J 6 1985 INCENTIVE STOCK OPTION PLAN Exhibit 10j BELL ATLANTIC 1985 INCENTIVE STOCK OPTION PLAN Restated as of July 1, 1996, to incorporate amendments adopted through June 30, 1996 Section 1. Purpose. The Bell Atlantic 1985 Incentive Stock Option Plan (the "Plan") is intended to provide key employees of Bell Atlantic Corporation (the "Company") and its subsidiaries an opportunity to acquire common stock of the Company. The Plan is expected to help the Company and its subsidiaries attract, retain, and motivate key employees to work for the success of the Company and its subsidiaries. With the exception of options granted under section 6 of the Plan, options granted under the Plan are intended to be incentive stock options as defined in section 422A(b) of the Internal Revenue of 1986 (the "Code"). Options granted under section 6 of the Plan are intended to be nonqualified stock options. Section 2. Administration. (a) Human Resources Committee. The Plan shall be administered by the Human Resources Committee of the Company's Board of Directors (the "Committee"). The Committee may delegate some or all of its administrative responsibility under the Plan to one or more persons. (b) Administration. The Vice President - Executive Compensation and Benefits of Bell Atlantic Network Services, Inc. shall have the authority and responsibility to act as "Plan Administrator" (as that term is used in this Plan), including, without limitation, the authority and responsibility, with the advice of counsel, to distribute summary descriptions of the Plan, to enter into stock option agreements with optionees on behalf of the Company, to maintain records of options granted and outstanding, and to administer transactions in connection with the exercise of options by optionees. The Plan Administrator, with the advice of counsel, shall have the authority to cause any outstanding incentive stock options to be recharacterized as nonqualified stock options if and when so required in order to comply with the requirements of applicable law. Moreover, the Plan Administrator, with the advice of counsel, shall have the right to respond to and decide any claims or disputes under the Plan and to interpret the Plan, subject to the ultimate authority of the Committee to review any appeal from any such claim or interpretation. In the event of any such appeal, the action of the Committee shall be final and binding. (c) Grant of Options. The Committee shall determine the key employees of the Company and its subsidiaries to whom options may be granted under this Plan. The Committee shall also determine the time at which options shall be granted under the Plan, the number of shares for which these options shall be granted, the time at which these options may be exercised, and the conditions under which these options may be exercised. The Committee, in its sole discretion, shall prescribe the terms and conditions of each option granted under the Plan. (d) Liability. No member of the Committee may be held accountable for any action taken under this Plan in good faith. Section 3. Eligibility. - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 1 (a) In General. Options may be granted to key employees of the Company or any of its subsidiaries as defined in section 424(f) of the Code ("Subsidiaries"). (b) Directors. Options may not be granted to any director of the Company or its Subsidiaries unless the director is also a key employee of the Company or any of its Subsidiaries. (c) Ten-Percent Shareholders. Incentive stock options may not be granted under this Plan to shareholders of the Company or any of its Subsidiaries who own more than ten percent of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, unless the special requirements of sections 5(a) and 5(c) relating to ten-percent shareholders are met. (d) No Options for Committee. Options may not be granted under this Plan to members of the Committee. Section 4. Stock. (a) Common Stock. Options may be granted under this Plan for shares of the $1.00 par value common stock of the Company (the "Stock"). In the discretion of the Treasurer of the Company, Stock distributed under this Plan may be authorized but unissued shares or treasury shares; it may also be outstanding shares acquired by the Company in the open market or elsewhere. (b) Aggregate Share Limitation. The aggregate number of shares of Stock (restated to take into account the stock splits of record on March 31, 1986 and April 10, 1990) which may be distributed upon the exercise of options under this Plan may not exceed 25 million shares, less the number of shares (restated to take account of such splits) distributed under the Bell Atlantic 1985 Performance Share Plan. The expiration or termination of an option will not reduce the number of shares which may be distributed under this Plan; but the exercise of a stock appreciation right and the cancellation of the related option shall reduce the number of shares which may be distributed under this Plan by the number of shares for which the canceled option was granted. For purposes of determining whether the aggregate share limitation of this paragraph has been exceeded, the total number of shares distributed under this Plan shall be reduced by the number of shares tendered by key employees in stock-for-stock option exercise transactions under this Plan which occur after January 1, 1991. (c) Individual Option Grant Limitation. In the absence of a Plan amendment approved by the shareowners of the Company, the aggregate number of options to purchase a class of stock of the Company which may be granted under this Plan to any individual in any single calendar year shall be a number not greater than one-half of one percent of the number of shares of that class of stock which are issued and outstanding as of the first day of that calendar year. (d) Reorganization of the Company. The limitation on the aggregate number of shares that may be distributed or granted under this Plan may be adjusted in accordance with section 8 of the Plan (relating to recapitalizations, etc., of the Company). Section 5. Terms and Conditions of Incentive Stock Options. Each incentive stock - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 2 option granted under the Plan will be evidenced by a stock option agreement ("Agreement") between the Company and the individual to whom the option is granted ("Optionee"). Each incentive stock option granted under the Plan will comply with the following conditions: (a) Option Price. The option price of an incentive stock option will not be less than the fair market value of the Stock at the time an option is granted. However, in the case of an Optionee who owns more than ten percent of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the option price will not be less than one-hundred-ten percent of the fair market value of the Stock at the time the option is granted. The fair market value of the Stock shall be the mean between the highest and lowest selling prices of the Stock on the day an option is granted, as reported on the New York Stock Exchange Composite Tape. However, if there are no sales on the day an option is granted, the fair market value of the Stock shall be a weighted 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 day the option is granted, as reported on the New York Stock Exchange Composite Tape; the average is to be weighted inversely by the respective number of trading days between the selling days and the day the option is granted. (b) Dollar Limitation. With respect to any incentive stock options granted on or after January 1, 1987, the aggregate fair market value (determined at the time the option is granted) of the Stock with respect to which any such incentive stock options are exercisable for the first time by the Optionee during any calendar year shall not exceed $100,000. For purposes of the dollar limitation under this Section 5(b), all incentive stock options which are granted on or after January 1, 1987 by the Company or any of its Subsidiaries, and which first become exercisable in the applicable year, shall be treated as granted under this Plan and shall be subject to the aggregate fair market value limit under this Section 5(b) for such year. (c) Ten-Year Limitation. No incentive stock option may be exercised more than ten years after it is granted. However, in the case of an Optionee who owns more than ten percent of the combined voting power of all classes of stock of the Company or any of its Subsidiaries, no incentive stock option may be exercised more than five years after it is granted. Each Agreement must contain this ten-year (or five-year) limitation. However, the Committee may grant options which may only be exercised during a period of less than ten (or five) years. In the case of any options which may only be exercised during a period of less than ten (or five) years, each Agreement must contain this shorter limitation. (d) Exercise of Options. The Committee will determine the time at which incentive stock options may be exercised and the conditions under which incentive stock options may be exercised. Any restrictions upon exercise of an option will be contained in the Agreement. Subject to these limitations, if any, options may be exercised in whole or in part. They may be exercised on any business day until they expire. However, no option may be exercised for fewer than ten shares (or such other minimum number as may be established by the Plan Administrator) unless fewer than ten shares (or such other number established by the Plan Administrator) are outstanding, and the option is exhausted upon its exercise. When an option is exercised, and before shares are transferred to an Optionee upon his exercise of the option, the option price must be paid in full. In the discretion of the Committee, the option price may be paid in cash, with Stock, or in any combination of cash and Stock. If the option price may be paid other than in cash, then the Agreement will specify the acceptable methods of payment. If the option price may be paid in Stock, the Optionee may not tender on or after January 1, 1991 any share of Stock which - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 3 was acquired by the Optionee through exercise of an option less than six months prior to the date of exercise for which the Stock is being tendered. An Optionee will not have any of the rights of a shareholder by reason of an option until it is exercised. The Committee in its sole discretion may accelerate the time at which options may be exercised when it is in the best interests of the Company and its Subsidiaries to do so. (e) Seriatim Exercise. An incentive stock option granted prior to December 31, 1986 (a "Pre-1987 ISO") may not be exercised by an Optionee if there is an unexercised and unexpired incentive stock option granted to the Optionee at an earlier time under this Plan (or under another plan of the Company or any other company that was a Subsidiary when the incentive stock option was granted). Each Agreement with respect to a Pre-1987 ISO grant shall contain this restriction. This Section 5(e) shall not apply to any stock option granted on or after January 1, 1987. (f) Termination of Employment. (i) In the case of any stock options for which the one-year waiting period has not expired, the remaining waiting period shall be waived, and a 90-day exercise period shall commence, on the day following the effective date of either (1) an Optionee's termination of employment under a company- initiated, voluntary or involuntary, force management or force reduction program or initiative, or (2) an Optionee's cessation of employment by Bell Atlantic or any Subsidiary as a direct consequence of the sale of the business unit or Subsidiary which then employs the Optionee; provided, however, that this paragraph will not apply to an Optionee whose employment is terminated for unsatisfactory performance, misconduct, or refusal to accept a reassignment that involves no relocation or downgrade. In case of a termination or cessation of employment as described in clause "(1)" or "(2)" of the prior sentence, any outstanding stock options which are exercisable on the date of such termination or cessation of employment shall remain exercisable until the earlier of (a) the 90th day following the date of such termination or cessation of employment, or (b) the tenth anniversary of the date of grant. Nothing in this paragraph is intended to cause the post-employment exercise period to be shorter than may be provided for under any other applicable sections of this Plan, such as those relating either to retirement, death or termination of employment due to disability. (ii) Except as provided in paragraphs 5(j), 5(f)(i), 5(g) (relating to retirement of an Optionee), 5(h) (relating to death of an Optionee), and 5(i) (relating to disability of an Optionee), no incentive stock option may be exercised by an Optionee after termination of the employment relationship between the Optionee and the Company, or between the Optionee and a Subsidiary, as the case may be. In the case of an Optionee who is transferred to the Company, to a Subsidiary, or to Bell Communications Research, Inc. ("Bellcore"), or who commences an approved Bellcore rotational assignment, the termination of the employment relationship shall not be deemed to occur until the first date on which the Optionee is employed neither by the Company, a Subsidiary, nor Bellcore. (g) Retirement. Except as provided in paragraph 5(j) or this paragraph 5(g), in the case of an Optionee who either: (i) separates from service with a combination of age and years of service (as calculated for retirement-eligibility purposes) that equals or exceeds any of the following combinations: - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 4 Age equal to or greater than: Service equal to or greater than: ----------------------------- --------------------------------- Any age 30 years 50 25 years 55 20 years 60 15 years 65 10 years, or (ii) at the time of termination of employment satisfies such age and service criteria for retirement as the Committee may have established, in its discretion, on a case-by-case basis at the time of granting options to said Optionee, incentive stock options which are exercisable on the day of retirement may be exercised during the remaining option term, but not more than five years after the day of retirement. The Committee may, in its discretion, at the time of granting options to some or all key employees, establish a permissible exercise period following retirement which is shorter than the five-year period stated in the previous sentence. (h) Death. Except as provided in paragraph 5(j) or this paragraph 5(h), in the case of the death of an Optionee while employed by the Company or a Subsidiary, an incentive stock option may be exercised during the remaining option term, but not more than one year after the day of death, by the person entitled to exercise the option under the Optionee's will or under the laws of descent and distribution. The Committee may, in its discretion, at the time of granting options to some or all key employees, establish a permissible exercise period following death which is shorter than the one-year period stated in the previous sentence. (i) Disability. Except as provided in paragraph 5(j) or this paragraph 5(i), in the case of an Optionee who becomes disabled within the meaning of section 37(e)(3) of the Code while employed by the Company or a Subsidiary, incentive stock options which are exercisable on the day the disability occurs may be exercised during the remaining option term, but not more than five years after the day the disability occurs, and options which are not exercisable on the day the disability occurs may never be exercised. The Committee may, in its discretion, at the time of granting options to some or all key employees, establish a permissible exercise period following termination for disability which is shorter than the five-year period stated in the previous sentence. (j) Waiver of Limitations; Acceleration of Options. Upon an Optionee's termination of employment, retirement, death, or disability, the Committee in its sole discretion may waive the limitations on exercise of an incentive stock option contained in paragraphs 5(f) through 5(i) when it is in the best interests of the Company and its Subsidiaries to do so. Upon an Optionee's termination of employment, retirement, death, or disability, the Committee may also waive any requirements of paragraphs 5(d) and 5(l) that an incentive stock option may not be exercised within a certain time of its grant when it is in the best interests of the Company and its Subsidiaries to do so. However, the Committee may not extend the period during which an incentive stock option could otherwise be exercised. (k) Transferability of Option. Except as provided in this paragraph 5(k), no incentive stock option will be transferable. Upon the death of an Optionee, an incentive stock option may be transferred as provided in paragraph 5(h) (relating to death of an Optionee). - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 5 Moreover, an Optionee may designate the person or persons who may exercise and benefit from the option after the Optionee's death. During an Optionee's lifetime, an incentive stock option may only be exercised by the Optionee. Each Agreement will contain these restrictions on transferability. (l) No Exercise within One Year of Grant. Except as provided in this section 5(l) or in section 8(b) or 6(b) of this Plan, no option granted under the Plan may be exercised within one year of its grant. The Committee may, in its discretion, waive this limitation in the case of any or all options granted to any or all Optionees when it is in the best interests of the Company and its Subsidiaries to do so. Section 6. Terms and Conditions of Nonqualified Options. (a) General Provisions. Each nonqualified stock option granted under the Plan will be evidenced by an Agreement between the Company and the Optionee. No Agreement evidencing a nonqualified stock option shall also evidence an incentive stock option. Each nonqualified option shall be subject to all the terms and conditions of this Plan with the exception of section 5(c) (relating to the ten-year limitation). No nonqualified stock option may be exercised more than ten years after it is granted, except in the case of an Optionee who becomes disabled within the meaning of section 37(e)(3) of the Code while employed by the Company or a Subsidiary, in which case the nonqualified stock option may be exercised not more than five years (or such shorter time limit as the Committee may, in its discretion, prescribe) after the day the disability occurs, without regard to the ten-year limitation. Each Agreement will contain this restriction. (b) Reload Options. Notwithstanding any other provision of this Plan, the Committee may provide for the automatic granting of nonqualified stock options ("reload options") to all or one or more classifications of key employees, as designated by the Committee, upon the exercise by any such designated key employees of options in transactions in which Stock is tendered to pay the option price. In such a case, the number of reload options which shall automatically be granted by the Company to a designated key employee shall be equal to the number of shares of Stock tendered by the designated key employee. The option price of each such reload option shall be equal to the fair market value of the Stock on the date on which the reload option is automatically granted, and such reload options shall expire on the same date as the options then being exercised would have expired in the absence of being exercised. Reload options shall be exercisable by the Optionee after the date on which they are granted, subsequent to any waiting period that the Plan Administrator with the advice of counsel determines is necessary or appropriate to conform with legal or accounting requirements. Except as provided in this section 6(b) to the contrary, the terms and conditions applicable to reload options shall be the same as those that apply to other nonqualified options as described in section 6(a). Section 7. Stock Appreciation Rights. Incentive stock options and nonqualified stock options granted under the Plan may, in the discretion of the Committee, be coupled with stock appreciation rights in the same number of shares of Stock for which the options are granted. Stock appreciation rights may be exercised at the same time, and under the same conditions, as the incentive stock options or nonqualified stock options to which they relate. Upon an Optionee's exercise of a stock appreciation right, the Optionee shall be entitled to a cash payment from the Company in an amount equal to the difference between the fair market value of one share of Stock on the day the stock appreciation right is exercised, as determined under section 5(a), and - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 6 the option price of the related incentive stock option or nonqualified stock option, and the related incentive stock option or nonqualified stock option shall be canceled. Section 8. Recapitalization of Company. (a) Adjustments in Stock. In a transaction to which section 424(a) of the Code applies, the share and option limitations of sections 4(b) and 4(c) may be adjusted and the Stock subject to option under section 4(a) may be changed. The Committee will determine the adjustments to be made in the case of reorganization, recapitalization, stock split, stock dividend, combination of shares, or any other change affecting the Stock. Adjustments in the shares subject to option under the Plan may be in the aggregate number of shares subject to option under the Plan; the number of shares for which any Optionee has options; the option price of any options; and the type of stock subject to option under the Plan. (b) Acceleration of Options. In connection with a transaction to which section 424(a) of the Code applies, the Committee may waive any requirements of sections 5(d) and 5(l) that an incentive stock option may not be exercised within a certain time of its grant. The Committee may waive these requirements in the case of any or all Optionees. It may waive these requirements with respect to any or all options granted to an Optionee. The Committee may take this action either before or after the transaction to which section 424(a) of the Code applies. If this action is taken by the Committee before the transaction occurs, the action must be contingent upon the transaction occurring. Section 9. Amendment and Termination. To the extent permitted by law, the Committee or the Company's Board of Directors ("Board") may amend or suspend, and the Board may terminate, this Plan. The Plan Administrator may make administrative modifications to the Plan to comply with changes in applicable law or to ensure effective and consistent administration of the Plan; provided, however, that the Plan Administrator shall not amend the Plan in any manner which alters the amount of the benefit provided under the Plan. Unless an Optionee consents to an amendment, suspension, or termination of the Plan which is adopted by the Board, the Committee or the Plan Administrator, no amendment, suspension, or termination of the Plan will adversely affect the rights of an Optionee with respect to any option granted to the Optionee. Moreover, without approval of the owners of a majority of the shares of the Stock voting either in person or by proxy at a duly convened meeting of the Company's shareowners, no amendment to the Plan may: (a) except as provided in section 8(a), increase the aggregate number of shares subject to option under section 4(b) of the Plan or the number of options which may be granted to an individual in a single calendar year under section 4(c) of the Plan; (b) except as provided in section 8(a), decrease the option price at which options may be granted under section 5(a) of the Plan; (c) extend the period during which any option may be exercised beyond the limits stated in Section 5(c); or - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 7 (d) extend the period during which options may be granted under section 10 of the Plan. The Vice President - Human Resources of the Company, with the advice of counsel, has the authority to amend the Plan or modify the administration of the Plan to the extent required to ensure that transactions under the Plan are exempt to the maximum extent possible from the short-swing profit provisions of Section 16(b) of the Securities Exchange Act of 1934. Section 10. Effective Date. This Plan will be effective on the date it is adopted by the Board. However, this adoption will be conditioned upon approval of the Plan, within one year of its adoption, by owners of a majority of the shares of the Stock voting either in person or by proxy at a duly convened meeting of the Company's shareowners. All grants of incentive stock options, nonqualified stock options, and stock appreciation rights granted before shareowner approval of the Plan shall be conditioned on shareowner approval of the Plan . Section 11. Miscellaneous Provisions. (a) No Right to Employment. No grant of an incentive stock option, nonqualified stock option, or stock appreciation right under this plan shall give an Optionee a right to continued employment by the Company or any Subsidiary or otherwise interfere with the Company's or any Subsidiary's right to discharge an Optionee, whether or not for cause. (b) Tax Withholding. When the Company has an obligation to withhold any federal, state, or local tax upon the exercise of an incentive stock option or a nonqualified stock option under the Plan, the Optionee may pay the Company the amount of the required withholding, in cash, at the time of exercising the option, in lieu of the Company withholding the amount through the sale of shares. (c) Governing Law. This Plan shall be construed and enforced in accordance with the laws of the State of Delaware (without regard to the legislative or judicial conflict of laws rules of any state), except to the extent superseded by federal law. - -------------------------------------------------------------------------------- Bell Atlantic 1985 Incentive Stock Option Plan (7/1/96) Page 8 EX-10.N 7 AMENDMENT TO EMPLOYMENT AGREEMENT Exhibit 10n(i) FIRST AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN BELL ATLANTIC CORPORATION AND LAWRENCE T. BABBIO, JR. This First Amendment to the Employment Agreement between Bell Atlantic Corporation ("Bell Atlantic") and Lawrence T. Babbio, Jr. (the "Key Employee") dated May 2, 1995 (the "Employment Agreement") is made this 10th day of July, 1996. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated April 21, 1996 between Bell Atlantic, NYNEX Corporation ("NYNEX") and Seaboard Merger Company, and any amendment or restatement thereof (the "Definitive Agreement"), Bell Atlantic contemplates a corporate combination of the Bell Atlantic and NYNEX businesses on a date which is yet to be decided (the "Closing Date"), and Bell Atlantic contemplates that the achieving of the closing of the transactions contemplated by the Definitive Agreement (a "Closing"), and a successful combination of the two businesses, will depend on achieving numerous approvals by third parties, completing other conditions of closing, and developing of business integration plans, in addition to the continuation of efforts to manage and grow the existing lines of Bell Atlantic's business; and WHEREAS, Bell Atlantic acknowledges that the period from the date of this Agreement to the Closing Date is likely to be a period of extraordinary transition; and WHEREAS, Bell Atlantic wishes to provide additional financial security to the Key Employee, and to retain the services of the Key Employee as Vice Chairman to the Closing Date. NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Stay Incentive. -------------- (a) Stay Bonus at Closing. Subject to the terms and conditions of this --------------------- Agreement: (1) if there is a Closing of the transactions contemplated in the Definitive Agreement, and (2) if the Key Employee has remained an employee "in good standing" (as hereinafter defined) of one or more Bell Atlantic Companies 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 bonus consisting of a single cash payment (a "Stay Bonus") in an amount equal (before withholding of taxes) to 100 percent of the Key Employee's Pay as of the Closing Date. As used in this Agreement, "Pay" means the sum of (i) an amount equal to the Key Employee's then current annual rate of base salary, plus (ii) the greater of (a) the value of the Key Employee's most recent award of cash and stock (in either case, whether or not deferred) under the Senior Management Short Term Incentive Plan or any successor to that - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page1 Lawrence T. Babbio, Jr plan (the "STIP"); or (b) 150% of the target STIP award for the Key Employee's salary grade as of the relevant date. In the event that the most recent short term award was prorated for a portion of a year, the short term award shall be annualized. (b) Stay Bonus if Merger Plan is Terminated. Subject to the terms and --------------------------------------- conditions of this Agreement, if: (1) the Definitive Agreement is terminated, thereby canceling the plan of merger of the Bell Atlantic and NYNEX businesses, and (2) the Key Employee has remained an employee "in good standing" (as hereinafter defined) of one or more Bell Atlantic Companies, 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 bonus consisting of a single cash payment in an amount equal (before withholding of taxes) to 25 percent of the amount described in Section 1(a) of this Agreement (substituting the date of termination of the Definitive Agreement for the Closing Date, for purposes of calculating the then applicable Pay in Section 1(a)). (c) Payment in Case of Death. Subject to the terms and conditions of this ------------------------ Agreement, in the event of the death of the Key Employee on any date after the date of this Agreement on which the Key Employee was an employee "in good standing" immediately prior to the date of death, and prior to the Closing Date or the date of any termination of the Definitive Agreement, Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee's estate a single cash payment which (before withholding taxes) shall be equal to a fraction of the amount described in Section 1(a). The numerator of the fraction shall be the number of days that have elapsed between the signing of this Agreement and the Key Employee's date of death, and the denominator of the fraction shall be the number of days that elapse between the signing of this Agreement and the Closing Date. Such payment shall be made in accordance with the timetable prescribed in Section 1(a), and substituting the date of death for the date described in Section 1(a) for purposes of calculating Pay in those subsections. If the Definitive Agreement is terminated as provided in Section 1(b) after the Key Employee's date of death, a payment shall be made to the Key Employee's estate (in lieu of the foregoing payment) in an amount equal (before withholding of taxes) to 25 percent of the amount described in Section 1(a) of this Agreement and substituting the date of death for the date described in Section 1(a) for purposes of calculating the then applicable Pay in Section 1(a). (d) Definition of Employment in Good Standing. For purposes of Section 1(a) ----------------------------------------- through 1(c), the Key Employee will be considered to be "in good standing" on a given date if, on that date, the Key Employee has not terminated employment for any reason from the date of this Agreement to the given date, 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 is not in receipt of notice from his employing Bell Atlantic Company that the employer has determined that the Key Employee's employment is to be terminated because the Key Employee has committed a violation of law or a breach of the Employee Code of Conduct or other written policy of the - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page 2 Lawrence T. Babbio, Jr employing company which is of sufficient severity to be cause for termination for misconduct. (e) Stay Bonus Payment Not Applicable to Pension, Savings Plan, or Other -------------------------------------------------------------------- Benefit Plans. The amounts described in this Section of the Agreement shall ------------- not be eligible to be contributed to any qualified savings plan, and shall not be benefit-bearing compensation for purposes of any group term life insurance plan, pension plan, or other employee benefit plans. Nothing in this Agreement is intended to supersede or modify any rights which the Key Employee may have under any other compensation or benefit plan in which the Key Employee participates. At the time of any award of a stay bonus under Section 1(a) or 1(b) of this Agreement, such bonus may be deferred under any nonqualified deferred compensation plan in which the Key Employee is then eligible to participate, but only if and to the extent then permitted under the terms of any such nonqualified deferred compensation plan. 2. Additional Death Benefit. In the event of the death of the Key Employee ------------------------ on any date after the date of this Agreement (but prior to the Closing) on which the Key Employee was an employee "in good standing" immediately prior to the death, then Bell Atlantic shall continue to pay to the Key Employee's estate to the second anniversary of the Closing Date (or for two years following the date of death if the Definitive Agreement is terminated as provided in Section 1(b) after the Key Employee's death) the Key Employee's Pay in effect on the date of death. 3. Certain Limitations Upon Payments. Anything in this Agreement or in the --------------------------------- Employment Agreement to the contrary notwithstanding, Bell Atlantic and the Key Employee agree to follow the procedures set forth in Attachment A with respect to the applicability of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended. 4. Except as modified herein, in all other respects, the terms of the Employment Agreement shall continue in full force and effect until the Closing, or, in the event the Definitive Agreement is terminated, the Employment Agreement will remain in force according to its terms, as amended herein. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to the Employment Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: -------------------------------------------- Raymond W. Smith, Chairman of the Board and Chief Executive Officer THE KEY EMPLOYEE ----------------------------------------------- Lawrence T. Babbio, Jr. - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page 3 Lawrence T. Babbio, Jr Attachment A ------------ Certain Limitations upon Payments --------------------------------- (a) Tax Code Limitations. Anything in this Agreement or the Employment -------------------- 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 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) Calculations by Independent Firm. All determinations to be made under -------------------------------- this Section shall be made by Bell Atlantic's independent public accountant or such law firm as is acceptable to the Key Employee and Bell Atlantic (the "Independent Firm"), immediately if the Key Employee separates from service under circumstances which make the Key Employee eligible to receive post- separation payments under this Agreement, or at such other times as Bell Atlantic may determine. The parties agree that the Independent Firm shall render a preliminary opinion on the applicability of Section 280G to this Agreement and to the Employment Agreement within sixty (60) days of the date of execution of this Agreement. The Independent Firm shall provide its determinations and any supporting calculations both to Bell Atlantic and the Key Employee within ten (10) days of the effective date of termination of employment, or when such calculations are otherwise made. Any such determination by the Independent Firm shall be binding upon Bell Atlantic and the Key Employee. Within five (5) days after this determination, Bell Atlantic shall commence to pay (or cause payments to commence to be paid) 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 the uncertainty in the ------------------------------ application of Section 280G of the Code at the time of the initial determination by the Independent Firm 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, the Independent Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Independent Firm 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 the Independent Firm 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) All of the fees and expenses of the Independent Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by Bell Atlantic. - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page 4 Lawrence T. Babbio, Jr EX-10.O 8 EMPLOYMENT AGREEMENT Exhibit 10o EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made this 10th day of July, 1996, by and ---- between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and Lawrence T. Babbio, Jr., a Vice Chairman and employee of Bell Atlantic (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, or a company in which Bell Atlantic directly or indirectly owns a substantial equity interest, their successors and assigns, and, subsequent to any merger of Bell Atlantic with or into any other entity, any company which is an affiliate of the successors and assigns of Bell Atlantic subsequent to such merger, or a company in which any such successor or assignee owns a substantial equity interest. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated April 21, 1996, between Bell Atlantic, NYNEX Corporation ("NYNEX") and Seaboard Merger Company, and any amendment or restatement thereof (the "Definitive Agreement"), Bell Atlantic contemplates a corporate combination of the Bell Atlantic and NYNEX businesses on a date which is yet to be decided (the "Closing Date"), and Bell Atlantic contemplates that the achieving of the closing of the transactions contemplated by the Definitive Agreement (a "Closing"), and a successful combination of the two businesses, will depend on achieving numerous approvals by third parties, completing other conditions of closing, and developing of business integration plans, in addition to the continuation of efforts to manage and grow the existing lines of Bell Atlantic's business; and WHEREAS, Bell Atlantic acknowledges that the period from the date of this Agreement to a date not later than the second anniversary of the Closing Date is likely to be a period of extraordinary transition; WHEREAS, Bell Atlantic wishes to provide additional financial security to the Key Employee, and to retain the services of the Key Employee as Vice Chairman, and to provide for an effective transition upon any change in the Chief Executive Officer of Bell Atlantic, for the period through the second anniversary of the Closing Date; and WHEREAS, Bell Atlantic and the Key Employee have previously entered into an Employment Agreement dated May 2, 1995 (the "Current Employment Agreement"), which shall, as amended, continue to remain in effect until the Closing; and WHEREAS, Bell Atlantic and the Key Employee wish to set forth in this Agreement the terms and conditions applicable to the continuing employment of the Key Employee after the Closing, which shall be effective upon the Closing; NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Term of Employment During "Transition Period". The term of -------------------------------------------- employment under this Agreement (the "Transition Period") shall commence on the Closing Date and end on the second anniversary of the Closing Date. The parties intend that the obligations of Bell Atlantic and the Bell Atlantic Companies under this Agreement shall become the obligations of - -------------------------------------------------------------------------------- Employment Agreement Page 1 Lawrence T. Babbio, Jr. the successors and assigns of Bell Atlantic and the Bell Atlantic Companies subsequent to the Closing. 2. Obligations of the Bell Atlantic Companies during the Transition ---------------------------------------------------------------- Period. During the Transition Period: - ------ (a) one or more Bell Atlantic Companies shall employ the Key Employee as an officer and Senior Manager at a salary grade not lower than Salary Grade 38; (b) the employing Bell Atlantic Company shall (i) compensate the Key Employee at an annual base salary of not less than $700,000 on and after the Closing Date, and at an annual base salary of not less than $750,000 on and after the first anniversary of Closing, and (ii) to the extent not otherwise modified by the terms of this Agreement, the Key Employee shall be eligible to participate in all of the benefit and compensation plans, and the programs of perquisites, applicable to similarly-situated Senior Managers of Bell Atlantic, as those plans and programs may be amended from time to time; and (c) the Key Employee shall be nominated for election to the Board of Directors of Bell Atlantic, and, on and after the Closing Date, the parent corporation of the combined businesses, at each annual meeting of the respective shareowners which occurs prior to the end of the Transition Period. 3. Obligations of the Key Employee during the Transition Period. ------------------------------------------------------------ During the Transition Period, the Key Employee shall have the following obligations and duties. (a) The Key Employee shall continue to fully and faithfully perform his duties and responsibilities (i) as a director, so long as he is elected and serving, and (ii) as an officer, reporting only to the Chief Executive Officer and the Board. (b) The Key Employee shall serve in such executive capacities, titles and authorities with respect to the Bell Atlantic Companies as the Board or the CEO may from time to time prescribe, and the Key Employee shall perform all duties incidental to such positions, shall cooperate fully with the Board and the CEO, and shall work cooperatively with the other officers of the Bell Atlantic Companies. (c) The Key Employee 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 that are not inconsistent with the terms hereof, 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 Employee's retirement from Bell Atlantic, except to the extent specifically permitted by the Chief Executive Officer or the Board and except as set forth below, the Key Employee 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 Lawrence T. Babbio, Jr. (d) The failure of the Key Employee to perform his obligations pursuant to paragraphs (a) through (c) above shall be excused when such failure is on account of the Key Employee's disability within the meaning of the applicable disability benefit plans in which the Key Employee participates from time to time. 4. Termination of this Agreement. In the event that the Key Employee ----------------------------- is elected Chief Executive Officer on or after the Closing Date but prior to the second anniversary of the Closing Date, this Agreement shall terminate upon such election and shall be of no further force or effect. 5. Retirement Pension Benefits. --------------------------- (a) Eligibility for Waiver of Early Retirement Pension -------------------------------------------------- Discount. If the Key Employee remains in active service with Bell -------- Atlantic through July 1, 1998 in accordance with the terms of this Agreement, the Key Employee shall at any time thereafter be entitled, subject to signing and delivering the Release, to retire with a two- year waiver of any applicable early retirement pension discount under the terms of the Bell Atlantic Senior Management Retirement Income Plan or any successor to that plan which applies to Senior Managers, as that plan may be amended from time to time ("RIP"), as more fully described in the following paragraph. The parties acknowledge that the pension enhancement described in this Section is part of the consideration given by Bell Atlantic in exchange for the Release and the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. (b) Calculation of Waiver of Early Retirement Pension Discount. ---------------------------------------------------------- If the Key Employee qualifies for the waiver of early retirement pension discount, as described in the previous paragraph, the Key Employee's target pension under RIP shall be equal to the greater of: (i) The target pension determined under the applicable pension formula under RIP which is in effect and applicable to the Key Employee at the time of the Key Employee's retirement, after adding two additional years to the Key Employee's age at the time of retirement for purposes of determining the amount of any applicable early retirement discount (but not for any other purpose under RIP); or (ii) The target pension which would have been applicable to the Key Employee if he had retired at any time during the Transition Period, under the terms of any early retirement incentive, pension window, or other special provision of RIP which may then have been in effect but which is no longer in effect at the time of the Executive's actual retirement. In such a case, the calculation of the RIP enhanced benefit shall not be subject to further supplementation by the discount waiver provisions of the prior paragraph. 6. Stay Incentive. -------------- (a) Stay Bonus on Second Anniversary of Closing: Subject to the ------------------------------------------- terms and conditions of this Agreement: - -------------------------------------------------------------------------------- Employment Agreement Page 3 Lawrence T. Babbio, Jr. (1) if there is a Closing of the transactions contemplated in the Definitive Agreement, and (2) if the Key Employee has remained an employee "in good standing" (as hereinafter defined) of a Bell Atlantic Company, or of a succession of two or more Bell Atlantic Companies, from the date of this Closing to the second anniversary of the Closing Date; then, unless such payment is deferred pursuant to Section 12(c), not later than 30 calendar days following such anniversary of the Closing Date, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a Stay Bonus in an amount equal (before withholding of taxes) to 100 percent of the Key Employee's Pay as of the second anniversary of the Closing Date. (b) Definition of Pay. As used in this Agreement, "Pay" shall ----------------- have the meaning set forth in the Key Employee's First Amendment to Employment Agreement, dated as of the date of this Agreement. (c) Definition of Employment in Good Standing. For purposes of ----------------------------------------- Section 6(a), the Key Employee will be considered to be "in good standing" on a given date if, on that date, the Key Employee has not terminated employment for any reason from the date of this Agreement to the given date, 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 is not in receipt of notice from his employing Bell Atlantic Company that the employer has determined that the Key Employee's employment is to be terminated because the Key Employee has committed a violation of law or a breach of the Employee Code of Conduct or other written policy of the employing company which is of sufficient severity to be cause for termination for misconduct. 7. Further Consideration for Non-Compete Agreement. ----------------------------------------------- (a) If the Key Employee has remained an employee "in good standing" (as defined in Section 6(c)) of a Bell Atlantic Company, or of a succession of two or more Bell Atlantic Companies, from the date of this Agreement to July 1, 1998, and if this Agreement is in effect as of that date, then Bell Atlantic shall pay the Key Employee the amount described in the following paragraph. The parties acknowledge that the payment described in this Section is part of the consideration given by Bell Atlantic in exchange for the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. At the time of determination that an amount is payable under Section 6 or 7 of this Agreement, such amount may be deferred in accordance with the provisions of Section 12(c). (b) The payment described in this paragraph shall be equal to two times the Key Employee's Pay as of July 1, 1998. This payment shall be payable in a single cash payment, not later than July 31, 1998 (unless deferred pursuant to Section 12(c)). - -------------------------------------------------------------------------------- Employment Agreement Page 4 Lawrence T. Babbio, Jr. 8. Retirement, Discharge for Cause, and Certain Involuntary -------------------------------------------------------- Terminations of Employment. -------------------------- (a) Voluntary Resignation, Retirement, or Discharge for Cause. --------------------------------------------------------- In the event that, prior to July 1, 1998, the Key Employee voluntarily resigns or retires for any reason (except a "constructive discharge", as defined in Section 8(e)), or is discharged by Bell Atlantic for "cause" (as hereinafter defined) at any time prior to the end of the Transition Period, the Key Employee shall forfeit any and all rights to receive the benefits and other benefits set forth in Sections 5, 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 similarly- situated retiring Senior Manager would be eligible under the applicable provisions of the compensation and benefit plans, as those plans may be amended from time to time. In such event, the Key Employee shall be subject to the terms of the covenant not to compete, as described in Section 10 of this Agreement, for the period described therein. (b) Cause. For purposes of this Agreement, the term "cause" ----- shall mean a violation of law (other than a traffic violation or other minor civil offense), or behavior that Bell Atlantic concludes amounts to a material breach of any company policy or provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in violation of Sections 3(c) or 10 of this Agreement in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any Bell Atlantic Company in violation of Section 11 of this Agreement; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. (c) Consequences of Certain Involuntary Terminations. Except in ------------------------------------------------- the case of a discharge for cause, in the event that Bell Atlantic involuntarily discharges the Key Employee, or the Key Employee is "constructively discharged" (as hereinafter defined), prior to the end of the Transition Period, then the Key Employee shall be entitled to receive, as liquidated damages, subject to signing and delivering the Release, an amount of cash equal to the compensation and benefits which he would have been entitled to receive had Bell Atlantic fulfilled its obligation to employ and compensate the Key Employee in accordance with the provisions of Sections 2, 6, 7 and 8 of this Agreement, calculated and paid in accordance with paragraph (d) of this Section. In such a case, in addition to the liquidated damages described in the previous sentence, subject to signing and delivering the Release described in Section 12(d), the Key Employee shall be entitled to receive the benefits set forth in Sections 5, 6 and 7 of this Agreement, but calculated as though the Key Employee had actually remained in active service with Bell Atlantic, earning the compensation described in Section 2 of this Agreement, until the end of the Transition Period, with payment to be made within 30 days after the termination of employment date. Under the circumstances described in this paragraph, the Key Employee shall be subject to the non- compete covenants of this Agreement through the period ending on the second anniversary of the date of termination of the Key Employee's employment. (d) Calculation and Payment of Liquidated Damages. The --------------------------------------------- liquidated damages described in the first sentence of the previous paragraph shall consist of all - -------------------------------------------------------------------------------- Employment Agreement Page 5 Lawrence T. Babbio, Jr. five of the following items, but only the following items. All of the following items of liquidated damages shall be subject to applicable withholding taxes. Each payment contemplated by this subsection (d) shall be contingent upon the absence, as of the time of such payment, of any knowing and material violation by the Key Employee of any of the covenants contained in Sections 10 and 11. (i) Salary: The liquidated damages shall be paid monthly in cash, in an amount each month equal to the salary which would have been paid to the Key Employee under Section 2 of this Agreement, assuming salary adjustments annually at a percentage equal to the merit increase budget percentage for Bell Atlantic Senior Managers. (ii) Short-Term Incentives: The liquidated damages for foregone short-term incentives under STIP shall be paid annually in cash, 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, in an amount equal to the value of the cash and deferred stock which the Key Employee would have been entitled to receive under the STIP, without adjustment for individual performance. (iii) Long-Term Incentives: The liquidated damages for foregone long-term incentives shall be paid annually in cash, within 30 days of the granting of stock options for the year, in an amount equal to the Black-Scholes value of options which the Key Employee would have been entitled to receive. Furthermore, for purposes of the Key Employee's long-term compensation in the form of any and all Bell Atlantic stock options which are outstanding on the date of the Key Employee's separation from service, the Key Employee shall be deemed, for purposes of determining the duration of the Key Employee's right to exercise any and all such stock options, to have remained in active service with Bell Atlantic continuously through the second anniversary of the Closing Date, and then to have retired on that date with whatever rights to continue to exercise then-outstanding stock options subsequent to such date which would then be applicable to a retiring holder of such options under the terms of the respective stock option agreements and certificates. The provisions of this paragraph shall cease to apply if and when the Key Employee violates any covenant under Section 9 or 10 of this Agreement. Notwithstanding the provisions of this paragraph, any incentive stock options held by the Key Employee shall be recharacterized as nonqualified stock options at the end of the 90th day after the actual date of the Key Employee's separation from service from any and all Bell Atlantic Companies. (iv) RIP Pension Benefits: The RIP target pension will be recalculated after July 1, 1998 taking into account the liquidated damages under paragraphs (i) and (ii) above as though they were earned as salary and short-term incentives during a period of employment ending on the last day of the Transition Period, and (A) Bell Atlantic shall pay the Key Employee a true- up payment based on said recalculation if the Key Employee has elected a lump-sum payment of the benefit provided by Section 5(a), and (B) if the Key Employee has elected a pension in the form of an annuity, the Key Employee's RIP pension benefits thereafter shall be based on said recalculation. - -------------------------------------------------------------------------------- Employment Agreement Page 6 Lawrence T. Babbio, Jr. (v) Miscellaneous Benefits: The liquidated damages for all other foregone benefits shall be paid monthly in an amount equal to the sum of: (A) the Bell Flex allowance that the Key Employee would have been entitled to receive, plus (B) one-twelfth of the annual maximum company matching contribution that the Key Employee would have been eligible to receive if the Key Employee made the maximum contributions to the Bell Atlantic Savings Plan then permitted by law. (e) Constructive Discharge. The Key Employee shall be deemed to ---------------------- have been "constructively discharged" for purposes of this Agreement, if, in the absence of conduct amounting to cause for discharge on the part of the Key Employee, and without the Key Employee's express written consent, any of the following events has occurred within 12 months prior to the Key Employee electing to retire: (i) Bell Atlantic (or the Key Employee's employing company) has breached Section 2(a) or 2(b) of this Agreement; (ii) the Key Employee has suffered a negative individual performance adjustment which causes the Key Employee's short term award under the STIP for a particular year to be reduced by 25% or more; or (iii) the Key Employee's responsibilities have been substantially reduced in type or scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Key Employee has materially less status and authority. Except as provided herein, nothing in this Section 8(e) shall limit or qualify any of the obligations of Bell Atlantic under all subsections of Section 2 of this Agreement, which are absolute. (f) Death. In the event of the death of the Key Employee after ----- the Closing on any date after the date of this Agreement on which the Key Employee was an employee "in good standing" immediately prior to the death, then Bell Atlantic shall continue to pay to the Key Employee's estate to the end of the Transition Period the amounts determined as if at the date of death the Key Employee had been terminated without cause under Section 8(c). 9. Certain Limitations Upon Payments. Anything in this Agreement or --------------------------------- in the Employment Agreement to the contrary notwithstanding, Bell Atlantic and the Key Employee agree to follow the procedures set forth in Attachment A with respect to the applicability of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended. 10. Prohibition Against Competitive Activities. ------------------------------------------ (a) Prohibited Conduct by the Key Employee. During the period -------------------------------------- of the Key Employee's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Employee's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Key Employee, without the prior written consent of the Chief Executive Officer of Bell Atlantic (or the designee of that officer), shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph (b)) within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Key Employee's termination of employment, had a board-approved business plan under which it planned to engage) in such Competitive Activities; - -------------------------------------------------------------------------------- Employment Agreement Page 7 Lawrence T. Babbio, Jr. (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 within any geographic area described in Section (a)(i); 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; (iii) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities. For purposes of Section (a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Key Employee had responsibility to plan, develop, manage or oversee within the last 24 months of the Key Employee's employment with any Bell Atlantic Company. (c) No Solicitation of Bell Atlantic Employees. During the ------------------------------------------ period of the Key Employee's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Employee's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Key Employee shall not interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers. During said 24-month post-separation period, the Key Employee will not solicit any employee of any Bell Atlantic Company to accept employment with, or provide services to, any person or entity which is not a Bell Atlantic Company. (d) 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. For a period of 15 days after the giving of such notice, the Key Employee shall have the opportunity to respond and discuss with Bell Atlantic the underlying facts and the basis for Bell Atlantic's belief that the Key Employee is in breach of this Section. During such 15-day period, Bell Atlantic shall not pursue any remedy provided by this Agreement or at law or in equity. (e) Forfeiture of Benefits. The Key Employee acknowledges that ---------------------- his violation of any of the prohibitions of this Section 10, either during a period of employment with a Bell Atlantic Company, or during the 24 months following termination of employment, may result in the Key Employee's forfeiture of any and all rights to benefits under the nonqualified pension plan in which the Key Employee participates, or the forfeiture of rights to payments or benefits under any other compensation or benefit plan which may contain similar prohibitions or conditions on benefits. - -------------------------------------------------------------------------------- Employment Agreement Page 8 Lawrence T. Babbio, Jr. (f) Waiver. Nothing in this Agreement shall bar the Key ------ Employee from requesting, at the time of the Key Employee's retirement or at any time thereafter, that the officer named in Section 10(a) waive Bell Atlantic's rights to enforce the non-compete covenants of this Section, and said officer shall have the power to agree to such a waiver if said officer determines that it is not inconsistent with the interests of Bell Atlantic to do so. 11. Prohibition Against Disclosure of Proprietary Information. --------------------------------------------------------- (a) Prohibited Conduct by the Key Employee. The Key Employee -------------------------------------- acknowledges that, as one of the most senior officers of the Bell Atlantic Companies, the Key Employee has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Key Employee shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic Company an opportunity to obtain or maintain advantages over its current and potential competitors, 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 a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property. If and when the Key ------------------------------------- Employee terminates employment for any reason with all Bell Atlantic Companies, the Key Employee shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in the previous paragraph. The Key Employee shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Key Employee acknowledges that ---------------------- a violation of the prohibitions of this Section 11 may result in the Key Employee's forfeiture of any - -------------------------------------------------------------------------------- Employment Agreement Page 9 Lawrence T. Babbio, Jr. and all rights to benefits or awards under the nonqualified pension plan in which he or she participates, and any other benefit or compensation plan containing similar prohibitions and requirements. (d) Remedies in Addition to Forfeiture of Benefits. The Key ---------------------------------------------- Employee recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Key Employee of any of the provisions of this Section 11. In the event of any breach of any of the Key Employee's covenants under this Section 11, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to curtailing the payment of any post-separation payments hereunder, and in addition to any other remedies and damages which may be available at law, to injunctive relief to restrain the violation of such covenants by the Key Employee or by any person or persons acting for or with the Key Employee in any capacity whatsoever. 12. Miscellaneous Provisions. ------------------------ (a) Key Employee's Duty to Treat this Agreement as ---------------------------------------------- Confidential. Unless and until the terms of this Agreement, and the ------------ 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 pursuant to any applicable legal duty to disclose such information, it shall be a condition of eligibility to receive any payment hereunder that the Key Employee hold the terms of this Agreement and the amount of any payment hereunder in strict confidence, except that the Key Employee may disclose such details on a confidential basis to his spouse (if any), and to any financial counselor, tax adviser or legal counsel retained by the Key Employee. A breach by the Key Employee of his duty of confidentiality under this paragraph shall constitute cause for Bell Atlantic to terminate this Agreement. (b) 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 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. (c) Bonus and Other Payments Not Applicable to Pension, -------------------------------------------------- Savings Plan or Other Benefit Plans. The amounts described in Sections ----------------------------------- 6 and 7 under this Agreement shall not be eligible to be contributed to any qualified savings plan, and shall not be benefit-bearing compensation for purposes of any group term life insurance plan, pension plan, or other employee benefit plans. Nothing in this Agreement is intended to supersede or modify any rights which the Key Employee may have under any other compensation or benefit plan in which the Key Employee participates. At the time of determination that an amount is payable under Section 6 or 7 of this Agreement, such amount may be deferred under any nonqualified deferred compensation plan in which the Key Employee is then eligible to participate, but only if - -------------------------------------------------------------------------------- Employment Agreement Page 10 Lawrence T. Babbio, Jr. and to the extent then permitted under the terms of any such nonqualified deferred compensation plan. (d) Release. As a condition of eligibility to receive the ------- pension and severance benefits described in Sections 5 and 8 of this Agreement, the Key Employee shall sign and deliver a legal release in the form attached to this Agreement as Attachment B, which shall be signed by the Key Employee at the time of his retirement or other termination of employment from Bell Atlantic (the "Release"), and the Key Employee shall not revoke his signature. (e) 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. (f) Governing Law. This Agreement shall be construed and ------------- enforced in accordance with the laws of the Commonwealth of Virginia. (g) Entire Agreement. Except for the terms of other ---------------- compensation and benefit plans in which the Key Employee participates, effective upon the Closing, this Agreement shall set forth the entire understanding of Bell Atlantic and the Key Employee and shall supersede all prior agreements and communications, whether oral or written, between Bell Atlantic and the Key Employee, including the Non-Compete and Proprietary Information Agreement, between Bell Atlantic and the Executive, dated August 10, 1993 and January 24, 1994, and the Current Employment Agreement. This Agreement shall not be modified except by written agreement of the Key Employee and Bell Atlantic. During the Transition Period and during any period of employment with Bell Atlantic following the Transition Period, the terms of Sections 10 and 11 of this Agreement shall supersede the terms of any Non-Compete and Proprietary Information Agreement to which the Key Employee and any Bell Atlantic Company are parties. Until the closing, the Current Employment Agreement shall be enforceable to the full extent of its terms. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: -------------------------------------------------- Raymond W. Smith, Chairman of the Board and Chief Executive Officer THE KEY EMPLOYEE ------------------------------------------------------- Lawrence T. Babbio, Jr. - -------------------------------------------------------------------------------- Employment Agreement Page 11 Lawrence T. Babbio, Jr. Attachment A ------------ Certain Limitations upon Payments --------------------------------- (a) Tax Code Limitations. Anything in this Agreement or the Current -------------------- Employment 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 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) Calculations by Independent Firm. All determinations to be made -------------------------------- under this Section shall be made by Bell Atlantic's independent public accountant or such law firm as is acceptable to the Key Employee and Bell Atlantic (the "Independent Firm"), immediately if the Key Employee separates from service under circumstances which make the Key Employee eligible to receive post-separation payments under this Agreement, or at such other times as Bell Atlantic may determine. The parties agree that the Independent Firm shall render a preliminary opinion on the applicability of Section 280G to this Agreement and to the Current Employment Agreement within sixty (60) days of the date of Execution of this Agreement. The Independent Firm shall provide its determinations and any supporting calculations both to Bell Atlantic and the Key Employee within ten (10) days of the effective date of termination of employment, or when such calculations are otherwise made. Any such determination by the Independent Firm shall be binding upon Bell Atlantic and the Key Employee. Within five (5) days after this determination, Bell Atlantic shall commence to pay (or cause payments to commence to be paid) 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 the uncertainty in ------------------------------ the application of Section 280G of the Code at the time of the initial determination by the Independent Firm 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, the Independent Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Independent Firm 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 the Independent Firm 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) All of the fees and expenses of the Independent Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by Bell Atlantic. - -------------------------------------------------------------------------------- Employment Agreement Page 12 Lawrence T. Babbio, Jr. Attachment B ------------ Release ------- THIS RELEASE (the "Release") is entered into by [NAME] ---------------------- (the "Key Employee"), for the benefit of ______________________ (the "Company"), and for the benefit of all companies affiliated with the Company (collectively, "Bell Atlantic Companies"), and the officers, directors and employees of each of them. WHEREAS, the Key Employee has separated from service with the Company on _____________, 1996 (the "Separation Date") pursuant to the terms of a Separation and Non-Compete Agreement, dated _______________, 1996, between Bell Atlantic Corporation and the Key Employee (the "Agreement"), and he 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, as his free and voluntary act, hereby releases and discharges the Company, its affiliates, and their successors and assigns, and the directors, officers, employees, and agents of each of them, 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, 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.) as amended by the Civil Rights Act of 1991, the -- --- Civil Rights Acts of 1866 and 1871 (42 U.S.C. Sections 1981 and 1983), Key Employee 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 Americans with Disabilities Act, or any other applicable federal, state or local employment discrimination statute or ordinance, which the Key Employee might have or assert against any of said entities or persons (a) by reason of the Key Employee's active employment by the Company or any affiliated company, or the termination of said employment and all circumstances related thereto; or (b) by reason of any other matter, cause or thing whatsoever which may have occurred prior to the date of execution of this Release. Moreover, the Key Employee waives any and all rights under the Employee Retirement Income Security Act of 1974 (ERISA) to assert any claim to any severance benefits, or other remuneration on account of separation from service, other than as stated in the Agreement. 2. The Key Employee hereby reaffirms the terms and conditions of the Agreement in all respects. 3. 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. - -------------------------------------------------------------------------------- Release under Employment Agreement Page 1 Lawrence T. Babbio, Jr. 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. 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 __________, 199__, that being the Key Employee's Separation Date. THE KEY EMPLOYEE Signed: -------------------------------------- THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING - -------------------------------------------------------------------------------- Release under Employment Agreement Page 2 Lawrence T. Babbio, Jr. EX-10.Q 9 IUSACELL STOCK OPTIONS Exhibit 10q IUSACELL STOCK OPTIONS Certificate for Options Granted by Bell Atlantic Corporation ("BAC") -------------------------------------------------------------------- Named Executive Officers Receiving Grants: Recipients: Lawrence T. Babbio, Jr. and William O. Albertini ------------------------------------------------------------ Date of Grant: February 18, 1997 Exercise Price Per Option: $6.8125 ----------------- ------- Number of Non-Qualified Stock Options ("NQOs"): 13,500 ------ Options to Purchase ADRs of Series L Common Stock of Grupo Iusacell, S.A. de ---------------------------------------------------------------------------- C.V. ---- Latest Expiration Date: 10th anniversary of Date of Grant (February 18, 2007) Earliest Exercise Date: First anniversary of Date of Grant (February 18, 1998). TERMS AND CONDITIONS OF GRANT OF OPTIONS Pursuant to resolutions adopted by the Human Resources Committee of the Board of Directors of BAC, you (the "Recipient" named above) have been granted, as of the Date of Grant stated above, stock options ("Options") to purchase American Depositary Receipts representing 10 shares of Series L Common Stock of Grupo Iusacell, S.A. de C.V. ("Iusacell ADRs"). 1. GOVERNING TERMS. These Options are subject to the terms and conditions stated in this Certificate. References in this Certificate to the "Administrator" shall refer to the Vice President - Human Resources of BAC, or any successor administrator designated by BAC, and any agent, assistant or staff designated by that person to assist in the administration of these Options. These Options are not issued pursuant to any plan document; provided, however, that certain terms and conditions of this certificate incorporate by reference certain provisions of the Bell Atlantic 1985 Incentive Stock Option Plan (that plan as it may be amended from time to time, and any successor to that plan, is referred to herein as the "Stock Option Plan"). 2. EARLIEST DATE OF EXERCISE. In the absence of an event that causes the Options to expire, the earliest date on which the Options may be exercised will be as follows: (a) One Year Waiting Period. Except as provided in paragraph 2(b), 100% of ----------------------- the Options will first be exercisable on the first anniversary of the Date of Grant. (b) Retirement; Disability; Downsizing/Reorganization. Notwithstanding ------------------------------------------------- paragraph (a), all Options shall become exercisable not later than the earliest to occur of (i) the date of your retirement (with a combination of age and service which then satisfies the criteria for "retirement" under the Stock Option Plan), (ii) the date of your - -------------------------------------------------------------------------------- Options to Purchase Iusacell ADRs Page 1 February 18, 1997 Grant termination of employment due to total disability, or (iii) the date of your company-initiated termination of employment from any and all companies affiliated with BAC (other than for misconduct or unsatisfactory performance) due to a reorganization, downsizing, sale or merger of a business unit, or other force management initiative by the company. The Administrator shall have the discretion to determine whether a termination of employment is of the type described in this paragraph. 3. EXPIRATION OF OPTIONS. Your right to exercise Options hereunder shall expire on the earlier of (a) the tenth anniversary of the Date of Grant, (b) in case of your retirement or disability as defined in the Stock Option Plan, the fifth anniversary of the date of retirement or disability-related termination, (c) if clause "(b)" does not apply, 90 days following the date of your company- initiated termination of employment, other than for misconduct or unsatisfactory performance, due to a reorganization, downsizing, sale of a business unit, or other force management initiative by the company, or (d) the date of your resignation or termination of employment for any reason other than those described in "(b)" or "(c)" of this Section 3. You will not be considered to have resigned or terminated your employment for purposes of Options under the Plan if your employment is transferred to a corporation or partnership in which BAC then owns a 50% or greater ownership interest (a "Subsidiary"), or to a company which the board of directors of BAC has agreed to treat as a Subsidiary for this purpose under the Stock Option Plan. 4. DEATH. In the event of your death, any Options hereunder which are outstanding and exercisable on such date of death shall remain exercisable from the date of death until the earlier of: (a) the first anniversary of such date of death, or (b) the tenth anniversary of the Date of Grant. In such event, such Options shall be exercisable by the person named on the most current beneficiary designation executed and delivered by you on the form approved by the Administrator. If no such beneficiary designation has been delivered by you, any such Options shall be exercisable by and for the person or persons (if any) expressly named in your will for this purpose, or, if none is expressly named, by your executor or administrator for your residuary estate. In the event of an inconsistency between your beneficiary designation form (if one has been submitted by you) and your will, your beneficiary designation form shall govern, and the person named under your will shall have no rights under the Plan. 5. EXERCISE. (a) Manner of Exercising. Your Options may be exercised on any business day -------------------- by delivering written notice on a form approved by the Administrator. The notice of exercise shall designate which options are being exercised and specify the number of Iusacell ADRs to be acquired by exercise of Options, which shall not be less than fifty unless the number of Options then remaining is less than fifty. An Option shall be deemed exercised on the business day that the exercise notice is received by the Administrator, as evidenced by the date stated on the written acknowledgment provided by the Administrator. - -------------------------------------------------------------------------------- Options to Purchase Iusacell ADRs Page 2 February 18, 1997 Grant (b) Exercise Price and Withholding Taxes. As soon as practicable after the ------------------------------------ date on which you elect to exercise Options, the Administrator shall notify you of the aggregate exercise price and the amount of any applicable withholding taxes which are required for state or local taxes (and for Federal Income Tax, FICA, and Medicare FICA purposes, in the case of the exercise of NQOs). Your obligation to pay the full exercise price, and any applicable tax withholding obligation, must be satisfied within ten business days of said date of notice, and before the Administrator delivers to you the certificate for Iusacell ADRs. (c) Election of Method to Satisfy Withholding Taxes. The exercise of ----------------------------------------------- Options is a taxable event that requires tax withholding. You may elect to meet the withholding obligation in either of two ways. You may pay, in cash, by personal check, the full amount of all withholding taxes as determined by the Administrator. Alternatively, you may instruct the Administrator to satisfy all withholding tax obligations by reducing the number of Iusacell ADRs which you would otherwise be entitled to have transferred to you as a consequence of your exercise of Options. In the event that you fail to meet your withholding obligations as described in the previous sentence, you hereby irrevocably authorize BAC and its Subsidiaries to withhold in their sole discretion from any remuneration (in any form, including from any option shares) otherwise payable or transferable to you (or your beneficiary) amounts equal to any federal, state, local or FICA tax that the Administrator may determine are required to be withheld under this Certificate, in the event that you fail to satisfy any applicable withholding obligation within ten business days of any notice advising you (or your beneficiary) of such obligation. (d) Payment of Exercise Price. Payment of the Option exercise price shall be ------------------------- made in cash. (e) Cashless Exercise. Notwithstanding other provisions of this Section 5, ----------------- the Administrator shall have the discretion to determine whether or not to allow Options to be exercised by means of one or more procedures commonly known as "cashless exercise", and to establish any applicable processing and payment requirements and deadlines for cashless exercise. The Administrator has the authority and discretion to cease to permit cashless exercise altogether, or to disallow one or more forms of cashless exercise, if and when the Administrator determines it is in the interest of the Plan to do so. The Administrator shall make available to you, on request, instructions for cashless exercise, if such procedures are then permitted under the Plan. (f) Names On ADR Certificates. Upon exercise of Options, you may elect to ------------------------- have the acquired Iusacell ADRs titled either (a) in your name, or (b) in the name of yourself and another person as joint tenants with the right of survivorship. Moreover, you may, in the alternative, elect to have the acquired Iusacell ADRs titled solely in the name of a person other than yourself. Any tax consequences under the federal gift and estate tax laws which may be associated with titling share certificates in the name of - -------------------------------------------------------------------------------- Options to Purchase Iusacell ADRs Page 3 February 18, 1997 Grant another person, or in joint name with another person, shall be your responsibility and not that of BAC. 6. AUTHORIZATION TO WITHHOLD. You hereby irrevocably authorize BAC and its affiliated companies to withhold in their sole discretion from any remuneration (in any form, including from any shares) otherwise payable or transferable to you (or your beneficiary) amounts equal to any federal, state, local or FICA tax that the Administrator may determine are required to be withheld under this Certificate, in the event that you fail to satisfy any applicable withholding obligation within ten business days of any notice advising you (or your beneficiary) of such obligation. 7. TRANSFER PROHIBITED. Options are not transferable by you otherwise than by beneficiary designation (as described in Section 4 of this Certificate), by will, or under applicable intestacy laws. During your lifetime, they may be exercised only by you. 8. DUTY TO ADVISE OF CHANGES OF ADDRESS. You shall be responsible for providing timely notice to the Administrator of any change of your office address or home address. 9. RECAPITALIZATION. In the event that, after the Date of Grant, there is a recapitalization or other restructuring of the securities of Iusacell, or a stock split or ADR split, stock dividend or ADR dividend, combination of shares or ADRs, or any other change fundamentally altering the capital structure of Iusacell, the Chief Executive Officer of BAC, with the advice of counsel, shall have the discretion to (a) adjust the number of Iusacell ADRs which are then subject to option under this Certificate; (b) make any corresponding adjustments in the exercise price of any outstanding Options hereunder, and/or (c) to modify the designated security which may be purchased by these Options, if and when and in the manner that officer determines appropriate. 10. AUTHORITY OF ADMINISTRATOR. The Administrator is authorized to administer exercise transactions, to perform administrative oversight, to interpret this Certificate, and to resolve disputes under this Certificate. A ruling of the Administrator may be appealed to the Chief Executive Officer of BAC, and the decision of that officer, on appeal, shall be final and binding. CERTIFIED ON BEHALF OF BELL ATLANTIC CORPORATION: Date: - ------------------------------------ --------------------- Kevin P. Pennington, Vice President - Human Resources - -------------------------------------------------------------------------------- Options to Purchase Iusacell ADRs Page 4 February 18, 1997 Grant EX-10.R 10 AMENDMENT TO EMPLOYMENT AGREEMENT Exhibit 10r(i) FIRST AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN BELL ATLANTIC CORPORATION AND JAMES G. CULLEN This First Amendment to the Employment Agreement between Bell Atlantic Corporation ("Bell Atlantic") and James G. Cullen (the "Key Employee") dated May 2, 1995 (the "Employment Agreement") is made this 30th day of June, 1996. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated April 21, 1996 between Bell Atlantic, NYNEX Corporation ("NYNEX") and Seaboard Merger Company, and any amendment or restatement thereof (the "Definitive Agreement"), Bell Atlantic contemplates a corporate combination of the Bell Atlantic and NYNEX businesses on a date which is yet to be decided (the "Closing Date"), and Bell Atlantic contemplates that the achieving of the closing of the transactions contemplated by the Definitive Agreement (a "Closing"), and a successful combination of the two businesses, will depend on achieving numerous approvals by third parties, completing other conditions of closing, and developing of business integration plans, in addition to the continuation of efforts to manage and grow the existing lines of Bell Atlantic's business; and WHEREAS, Bell Atlantic acknowledges that the period from the date of this Agreement to the Closing Date is likely to be a period of extraordinary transition; and WHEREAS, Bell Atlantic wishes to provide additional financial security to the Key Employee, and to retain the services of the Key Employee as Vice Chairman to the Closing Date. NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Stay Incentive. -------------- (a) Stay Bonus at Closing. Subject to the terms and conditions of this --------------------- Agreement: (1) if there is a Closing of the transactions contemplated in the Definitive Agreement, and (2) if the Key Employee has remained an employee "in good standing" (as hereinafter defined) of one or more Bell Atlantic Companies 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 bonus consisting of a single cash payment (a "Stay Bonus") in an amount equal (before withholding of taxes) to 100 percent of the Key Employee's Pay as of the Closing Date. As used in this Agreement, "Pay" means the sum of (i) an amount equal to the Key Employee's then current annual rate of base salary, plus (ii) the greater of (a) the value of the Key Employee's most recent award of cash and stock (in either case, whether or not - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page 1 James G. Cullen deferred) under the Senior Management Short Term Incentive Plan or any successor to that plan (the "STIP"); or (b) 150% of the target STIP award for the Key Employee's salary grade as of the relevant date. In the event that the most recent short term award was prorated for a portion of a year, the short term award shall be annualized. (b) Stay Bonus if Merger Plan is Terminated. Subject to the terms and --------------------------------------- conditions of this Agreement, if: (1) the Definitive Agreement is terminated, thereby canceling the plan of merger of the Bell Atlantic and NYNEX businesses, and (2) the Key Employee has remained an employee "in good standing" (as hereinafter defined) of one or more Bell Atlantic Companies, 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 bonus consisting of a single cash payment in an amount equal (before withholding of taxes) to 25 percent of the amount described in Section 1(a) of this Agreement (substituting the date of termination of the Definitive Agreement for the Closing Date, for purposes of calculating the then applicable Pay in Section 1(a)). (c) Payment in Case of Death. Subject to the terms and conditions of this ------------------------ Agreement, in the event of the death of the Key Employee on any date after the date of this Agreement on which the Key Employee was an employee "in good standing" immediately prior to the date of death, and prior to the Closing Date or the date of any termination of the Definitive Agreement, Bell Atlantic shall cause the Key Employee's last employing Bell Atlantic Company to pay the Key Employee's estate a single cash payment which (before withholding taxes) shall be equal to a fraction of the amount described in Section 1(a). The numerator of the fraction shall be the number of days that have elapsed between the signing of this Agreement and the Key Employee's date of death, and the denominator of the fraction shall be the number of days that elapse between the signing of this Agreement and the Closing Date. Such payment shall be made in accordance with the timetable prescribed in Section 1(a), and substituting the date of death for the date described in Section 1(a) for purposes of calculating Pay in those subsections. If the Definitive Agreement is terminated as provided in Section 1(b) after the Key Employee's date of death, a payment shall be made to the Key Employee's estate (in lieu of the foregoing payment) in an amount equal (before withholding of taxes) to 25 percent of the amount described in Section 1(a) of this Agreement and substituting the date of death for the date described in Section 1(a) for purposes of calculating the then applicable Pay in Section 1(a). (d) Definition of Employment in Good Standing. For purposes of Section 1(a) ----------------------------------------- through 1(c), the Key Employee will be considered to be "in good standing" on a given date if, on that date, the Key Employee has not terminated employment for any reason from the date of this Agreement to the given date, 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 is not in receipt of notice from his employing Bell Atlantic Company that the employer has determined that the Key Employee's employment is to be terminated because the Key Employee has committed - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page 2 James G. Cullen a violation of law or a breach of the Employee Code of Conduct or other written policy of the employing company which is of sufficient severity to be cause for termination for misconduct. (e) Stay Bonus Payment Not Applicable to Pension, Savings Plan, or Other -------------------------------------------------------------------- Benefit Plans. The amounts described in this Section of the Agreement shall ------------- not be eligible to be contributed to any qualified savings plan, and shall not be benefit-bearing compensation for purposes of any group term life insurance plan, pension plan, or other employee benefit plans. Nothing in this Agreement is intended to supersede or modify any rights which the Key Employee may have under any other compensation or benefit plan in which the Key Employee participates. At the time of any award of a stay bonus under Section 1(a) or 1(b) of this Agreement, such bonus may be deferred under any nonqualified deferred compensation plan in which the Key Employee is then eligible to participate, but only if and to the extent then permitted under the terms of any such nonqualified deferred compensation plan. 2. Additional Death Benefit. In the event of the death of the Key Employee ------------------------ on any date after the date of this Agreement (but prior to the Closing) on which the Key Employee was an employee "in good standing" immediately prior to the death, then Bell Atlantic shall continue to pay to the Key Employee's estate to the second anniversary of the Closing Date (or for two years following the date of death if the Definitive Agreement is terminated as provided in Section 1(b) after the Key Employee's death) the Key Employee's Pay in effect on the date of death. 3. Certain Limitations Upon Payments. Anything in this Agreement or in the --------------------------------- Employment Agreement to the contrary notwithstanding, Bell Atlantic and the Key Employee agree to follow the procedures set forth in Attachment A with respect to the applicability of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended. 4. Except as modified herein, in all other respects, the terms of the Employment Agreement shall continue in full force and effect until the Closing, or, in the event the Definitive Agreement is terminated, the Employment Agreement will remain in force according to its terms, as amended herein. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to the Employment Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: ------------------------------------ Raymond W. Smith, Chairman of the Board and Chief Executive Officer THE KEY EMPLOYEE --------------------------------------- James G. Cullen - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page 3 James G. Cullen Attachment A ------------ Certain Limitations upon Payments --------------------------------- (a) Tax Code Limitations. Anything in this Agreement or the Employment -------------------- 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 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) Calculations by Independent Firm. All determinations to be made -------------------------------- under this Section shall be made by Bell Atlantic's independent public accountant or such law firm as is acceptable to the Key Employee and Bell Atlantic (the "Independent Firm"), immediately if the Key Employee separates from service under circumstances which make the Key Employee eligible to receive post-separation payments under this Agreement, or at such other times as Bell Atlantic may determine. The parties agree that the Independent Firm shall render a preliminary opinion on the applicability of Section 280G to this Agreement and to the Employment Agreement within sixty (60) days of the date of execution of this Agreement. The Independent Firm shall provide its determinations and any supporting calculations both to Bell Atlantic and the Key Employee within ten (10) days of the effective date of termination of employment, or when such calculations are otherwise made. Any such determination by the Independent Firm shall be binding upon Bell Atlantic and the Key Employee. Within five (5) days after this determination, Bell Atlantic shall commence to pay (or cause payments to commence to be paid) 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 the uncertainty in ------------------------------ the application of Section 280G of the Code at the time of the initial determination by the Independent Firm 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, the Independent Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Independent Firm 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 the Independent Firm 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) All of the fees and expenses of the Independent Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by Bell Atlantic. - -------------------------------------------------------------------------------- Amendment to 1995 Employment Agreement Page 4 James G. Cullen EX-10.S 11 EMPLOYMENT AGREEMENT Exhibit 10s EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made this 30th day of June, 1996, by -------- and between Bell Atlantic Corporation, its successors and assigns ("Bell Atlantic"), and James G. Cullen, a Vice Chairman and employee of Bell Atlantic (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, or a company in which Bell Atlantic directly or indirectly owns a substantial equity interest, their successors and assigns, and, subsequent to any merger of Bell Atlantic with or into any other entity, any company which is an affiliate of the successors and assigns of Bell Atlantic subsequent to such merger, or a company in which any such successor or assignee owns a substantial equity interest. WHEREAS, pursuant to the terms of an Agreement and Plan of Merger, dated April 21, 1996, between Bell Atlantic, NYNEX Corporation ("NYNEX") and Seaboard Merger Company, and any amendment or restatement thereof (the "Definitive Agreement"), Bell Atlantic contemplates a corporate combination of the Bell Atlantic and NYNEX businesses on a date which is yet to be decided (the "Closing Date"), and Bell Atlantic contemplates that the achieving of the closing of the transactions contemplated by the Definitive Agreement (a "Closing"), and a successful combination of the two businesses, will depend on achieving numerous approvals by third parties, completing other conditions of closing, and developing of business integration plans, in addition to the continuation of efforts to manage and grow the existing lines of Bell Atlantic's business; and WHEREAS, Bell Atlantic acknowledges that the period from the date of this Agreement to a date not later than the second anniversary of the Closing Date is likely to be a period of extraordinary transition; WHEREAS, Bell Atlantic wishes to provide additional financial security to the Key Employee, and to retain the services of the Key Employee as Vice Chairman, and to provide for an effective transition upon any change in the Chief Executive Officer of Bell Atlantic, for the period through the second anniversary of the Closing Date; and WHEREAS, Bell Atlantic and the Key Employee have previously entered into an Employment Agreement dated May 2, 1995 (the "Current Employment Agreement"), which shall, as amended, continue to remain in effect until the Closing; and WHEREAS, Bell Atlantic and the Key Employee wish to set forth in this Agreement the terms and conditions applicable to the continuing employment of the Key Employee after the Closing, which shall be effective upon the Closing; NOW, THEREFORE, for good and valuable consideration, the Key Employee and Bell Atlantic hereby agree as follows: 1. Term of Employment During "Transition Period". The term of --------------------------------------------- employment under this Agreement (the "Transition Period") shall commence on the Closing Date and end on the second anniversary of the Closing Date. The parties intend that the obligations of Bell Atlantic and the Bell Atlantic Companies under this Agreement shall become the obligations of - -------------------------------------------------------------------------------- Employment Agreement Page 1 James G. Cullen the successors and assigns of Bell Atlantic and the Bell Atlantic Companies subsequent to the Closing. 2. Obligations of the Bell Atlantic Companies during the Transition ---------------------------------------------------------------- Period. During the Transition Period: - ------ (a) one or more Bell Atlantic Companies shall employ the Key Employee as an officer and Senior Manager at a salary grade not lower than Salary Grade 38; (b) the employing Bell Atlantic Company shall (i) compensate the Key Employee at an annual base salary of not less than $700,000 on and after the Closing Date, and at an annual base salary of not less than $750,000 on and after the first anniversary of Closing, and (ii) to the extent not otherwise modified by the terms of this Agreement, the Key Employee shall be eligible to participate in all of the benefit and compensation plans, and the programs of perquisites, applicable to similarly-situated Senior Managers of Bell Atlantic, as those plans and programs may be amended from time to time; and (c) the Key Employee shall be nominated for election to the Board of Directors of Bell Atlantic, and, on and after the Closing Date, the parent corporation of the combined businesses, at each annual meeting of the respective shareowners which occurs prior to the end of the Transition Period. 3. Obligations of the Key Employee during the Transition Period. During ------------------------------------------------------------ the Transition Period, the Key Employee shall have the following obligations and duties. (a) The Key Employee shall continue to fully and faithfully perform his duties and responsibilities (i) as a director, so long as he is elected and serving, and (ii) as an officer, reporting only to the Chief Executive Officer and the Board. (b) The Key Employee shall serve in such executive capacities, titles and authorities with respect to the Bell Atlantic Companies as the Board or the CEO may from time to time prescribe, and the Key Employee shall perform all duties incidental to such positions, shall cooperate fully with the Board and the CEO, and shall work cooperatively with the other officers of the Bell Atlantic Companies. (c) The Key Employee 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 that are not inconsistent with the terms hereof, 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 Employee's retirement from Bell Atlantic, except to the extent specifically permitted by the Chief Executive Officer or the Board and except as set forth below, the Key Employee 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 James G. Cullen (d) The failure of the Key Employee to perform his obligations pursuant to paragraphs (a) through (c) above shall be excused when such failure is on account of the Key Employee's disability within the meaning of the applicable disability benefit plans in which the Key Employee participates from time to time. 4. Termination of this Agreement. In the event that the Key Employee is ----------------------------- elected Chief Executive Officer on or after the Closing Date but prior to the second anniversary of the Closing Date, this Agreement shall terminate upon such election and shall be of no further force or effect. 5. Retirement Pension Benefits. --------------------------- (a) Eligibility for Waiver of Early Retirement Pension Discount. If ----------------------------------------------------------- the Key Employee remains in active service with Bell Atlantic through July 1, 1998 in accordance with the terms of this Agreement, the Key Employee shall at any time thereafter be entitled, subject to signing and delivering the Release, to retire with a two-year waiver of any applicable early retirement pension discount under the terms of the Bell Atlantic Senior Management Retirement Income Plan or any successor to that plan which applies to Senior Managers, as that plan may be amended from time to time ("RIP"), as more fully described in the following paragraph. The parties acknowledge that the pension enhancement described in this Section is part of the consideration given by Bell Atlantic in exchange for the Release and the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. (b) Calculation of Waiver of Early Retirement Pension Discount. If the ---------------------------------------------------------- Key Employee qualifies for the waiver of early retirement pension discount, as described in the previous paragraph, the Key Employee's target pension under RIP shall be equal to the greater of: (i) The target pension determined under the applicable pension formula under RIP which is in effect and applicable to the Key Employee at the time of the Key Employee's retirement, after adding two additional years to the Key Employee's age at the time of retirement for purposes of determining the amount of any applicable early retirement discount (but not for any other purpose under RIP); or (ii) The target pension which would have been applicable to the Key Employee if he had retired at any time during the Transition Period, under the terms of any early retirement incentive, pension window, or other special provision of RIP which may then have been in effect but which is no longer in effect at the time of the Executive's actual retirement. In such a case, the calculation of the RIP enhanced benefit shall not be subject to further supplementation by the discount waiver provisions of the prior paragraph. 6. Stay Incentive. -------------- (a) Stay Bonus on Second Anniversary of Closing: Subject to the terms ------------------------------------------- and conditions of this Agreement: - -------------------------------------------------------------------------------- Employment Agreement Page 3 James G. Cullen (1) if there is a Closing of the transactions contemplated in the Definitive Agreement, and (2) if the Key Employee has remained an employee "in good standing" (as hereinafter defined) of a Bell Atlantic Company, or of a succession of two or more Bell Atlantic Companies, from the date of this Closing to the second anniversary of the Closing Date; then, unless such payment is deferred pursuant to Section 12(c), not later than 30 calendar days following such anniversary of the Closing Date, Bell Atlantic will cause the Bell Atlantic Company which then employs the Key Employee to pay the Key Employee a Stay Bonus in an amount equal (before withholding of taxes) to 100 percent of the Key Employee's Pay as of the second anniversary of the Closing Date. (b) Definition of Pay. As used in this Agreement, "Pay" shall have the ----------------- meaning set forth in the Key Employee's First Amendment to Employment Agreement, dated as of the date of this Agreement. (c) Definition of Employment in Good Standing. For purposes of Section ----------------------------------------- 6(a), the Key Employee will be considered to be "in good standing" on a given date if, on that date, the Key Employee has not terminated employment for any reason from the date of this Agreement to the given date, 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 is not in receipt of notice from his employing Bell Atlantic Company that the employer has determined that the Key Employee's employment is to be terminated because the Key Employee has committed a violation of law or a breach of the Employee Code of Conduct or other written policy of the employing company which is of sufficient severity to be cause for termination for misconduct. 7. Further Consideration for Non-Compete Agreement. ----------------------------------------------- (a) If the Key Employee has remained an employee "in good standing" (as defined in Section 6(c)) of a Bell Atlantic Company, or of a succession of two or more Bell Atlantic Companies, from the date of this Agreement to July 1, 1998, and if this Agreement is in effect as of that date, then Bell Atlantic shall pay the Key Employee the amount described in the following paragraph. The parties acknowledge that the payment described in this Section is part of the consideration given by Bell Atlantic in exchange for the non-compete and proprietary information covenants granted by the Executive under Sections 10 and 11 of this Agreement. At the time of determination that an amount is payable under Section 6 or 7 of this Agreement, such amount may be deferred in accordance with the provisions of Section 12(c). (b) The payment described in this paragraph shall be equal to two times the Key Employee's Pay as of July 1, 1998. This payment shall be payable in a single cash payment, not later than July 31, 1998 (unless deferred pursuant to Section 12(c)). - -------------------------------------------------------------------------------- Employment Agreement Page 4 James G. Cullen 8. Retirement, Discharge for Cause, and Certain Involuntary Terminations --------------------------------------------------------------------- of Employment. ------------- (a) Voluntary Resignation, Retirement, or Discharge for Cause. In the --------------------------------------------------------- event that, prior to July 1, 1998, the Key Employee voluntarily resigns or retires for any reason (except a "constructive discharge", as defined in Section 8(e)), or is discharged by Bell Atlantic for "cause" (as hereinafter defined) at any time prior to the end of the Transition Period, the Key Employee shall forfeit any and all rights to receive the benefits and other benefits set forth in Sections 5, 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 similarly-situated retiring Senior Manager would be eligible under the applicable provisions of the compensation and benefit plans, as those plans may be amended from time to time. In such event, the Key Employee shall be subject to the terms of the covenant not to compete, as described in Section 10 of this Agreement, for the period described therein. (b) Cause. For purposes of this Agreement, the term "cause" shall mean ----- a violation of law (other than a traffic violation or other minor civil offense), or behavior that Bell Atlantic concludes amounts to a material breach of any company policy or provision of the Employee Code of Business Conduct, and including, by way of example: dishonesty; working outside the Bell Atlantic Companies in violation of Sections 3(c) or 10 of this Agreement in competition with any Bell Atlantic Company; other conduct that poses a material conflict of interest; revealing confidential or proprietary information of any Bell Atlantic Company in violation of Section 11 of this Agreement; or a substantial and deliberate abuse of the voucher or expense reimbursement processes of any Bell Atlantic Company. (c) Consequences of Certain Involuntary Terminations. Except in the ------------------------------------------------ case of a discharge for cause, in the event that Bell Atlantic involuntarily discharges the Key Employee, or the Key Employee is "constructively discharged" (as hereinafter defined), prior to the end of the Transition Period, then the Key Employee shall be entitled to receive, as liquidated damages, subject to signing and delivering the Release, an amount of cash equal to the compensation and benefits which he would have been entitled to receive had Bell Atlantic fulfilled its obligation to employ and compensate the Key Employee in accordance with the provisions of Sections 2, 6, 7 and 8 of this Agreement, calculated and paid in accordance with paragraph (d) of this Section. In such a case, in addition to the liquidated damages described in the previous sentence, subject to signing and delivering the Release described in Section 12(d), the Key Employee shall be entitled to receive the benefits set forth in Sections 5, 6 and 7 of this Agreement, but calculated as though the Key Employee had actually remained in active service with Bell Atlantic, earning the compensation described in Section 2 of this Agreement, until the end of the Transition Period, with payment to be made within 30 days after the termination of employment date. Under the circumstances described in this paragraph, the Key Employee shall be subject to the non-compete covenants of this Agreement through the period ending on the second anniversary of the date of termination of the Key Employee's employment. (d) Calculation and Payment of Liquidated Damages. The liquidated --------------------------------------------- damages described in the first sentence of the previous paragraph shall consist of all - -------------------------------------------------------------------------------- Employment Agreement Page 5 James G. Cullen five of the following items, but only the following items. All of the following items of liquidated damages shall be subject to applicable withholding taxes. Each payment contemplated by this subsection (d) shall be contingent upon the absence, as of the time of such payment, of any knowing and material violation by the Key Employee of any of the covenants contained in Sections 10 and 11. (i) Salary: The liquidated damages shall be paid monthly in cash, in an amount each month equal to the salary which would have been paid to the Key Employee under Section 2 of this Agreement, assuming salary adjustments annually at a percentage equal to the merit increase budget percentage for Bell Atlantic Senior Managers. (ii) Short-Term Incentives: The liquidated damages for foregone short-term incentives under STIP shall be paid annually in cash, 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, in an amount equal to the value of the cash and deferred stock which the Key Employee would have been entitled to receive under the STIP, without adjustment for individual performance. (iii) Long-Term Incentives: The liquidated damages for foregone long- term incentives shall be paid annually in cash, within 30 days of the granting of stock options for the year, in an amount equal to the Black-Scholes value of options which the Key Employee would have been entitled to receive. Furthermore, for purposes of the Key Employee's long-term compensation in the form of any and all Bell Atlantic stock options which are outstanding on the date of the Key Employee's separation from service, the Key Employee shall be deemed, for purposes of determining the duration of the Key Employee's right to exercise any and all such stock options, to have remained in active service with Bell Atlantic continuously through the second anniversary of the Closing Date, and then to have retired on that date with whatever rights to continue to exercise then-outstanding stock options subsequent to such date which would then be applicable to a retiring holder of such options under the terms of the respective stock option agreements and certificates. The provisions of this paragraph shall cease to apply if and when the Key Employee violates any covenant under Section 9 or 10 of this Agreement. Notwithstanding the provisions of this paragraph, any incentive stock options held by the Key Employee shall be recharacterized as nonqualified stock options at the end of the 90th day after the actual date of the Key Employee's separation from service from any and all Bell Atlantic Companies. (iv) RIP Pension Benefits: The RIP target pension will be recalculated after July 1, 1998 taking into account the liquidated damages under paragraphs (i) and (ii) above as though they were earned as salary and short-term incentives during a period of employment ending on the last day of the Transition Period, and (A) Bell Atlantic shall pay the Key Employee a true-up payment based on said recalculation if the Key Employee has elected a lump-sum payment of the benefit provided by Section 5(a), and (B) if the Key Employee has elected a pension in the form of an annuity, the Key Employee's RIP pension benefits thereafter shall be based on said recalculation. - -------------------------------------------------------------------------------- Employment Agreement Page 6 James G. Cullen (v) Miscellaneous Benefits: The liquidated damages for all other foregone benefits shall be paid monthly in an amount equal to the sum of: (A) the Bell Flex allowance that the Key Employee would have been entitled to receive, plus (B) one-twelfth of the annual maximum company matching contribution that the Key Employee would have been eligible to receive if the Key Employee made the maximum contributions to the Bell Atlantic Savings Plan then permitted by law. (e) Constructive Discharge. The Key Employee shall be deemed to have ---------------------- been "constructively discharged" for purposes of this Agreement, if, in the absence of conduct amounting to cause for discharge on the part of the Key Employee, and without the Key Employee's express written consent, any of the following events has occurred within 12 months prior to the Key Employee electing to retire: (i) Bell Atlantic (or the Key Employee's employing company) has breached Section 2(a) or 2(b) of this Agreement; (ii) the Key Employee has suffered a negative individual performance adjustment which causes the Key Employee's short term award under the STIP for a particular year to be reduced by 25% or more; or (iii) the Key Employee's responsibilities have been substantially reduced in type or scope, other than in a general reorganization of the management functions of one or more Bell Atlantic Companies, with the result that the Key Employee has materially less status and authority. Except as provided herein, nothing in this Section 8(e) shall limit or qualify any of the obligations of Bell Atlantic under all subsections of Section 2 of this Agreement, which are absolute. (f) Death. In the event of the death of the Key Employee after the ----- Closing on any date after the date of this Agreement on which the Key Employee was an employee "in good standing" immediately prior to the death, then Bell Atlantic shall continue to pay to the Key Employee's estate to the end of the Transition Period the amounts determined as if at the date of death the Key Employee had been terminated without cause under Section 8(c). 9. Certain Limitations Upon Payments. Anything in this Agreement or in --------------------------------- the Employment Agreement to the contrary notwithstanding, Bell Atlantic and the Key Employee agree to follow the procedures set forth in Attachment A with respect to the applicability of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended. 10. Prohibition Against Competitive Activities. ------------------------------------------ (a) Prohibited Conduct by the Key Employee. During the period of the -------------------------------------- Key Employee's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Employee's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Key Employee, without the prior written consent of the Chief Executive Officer of Bell Atlantic (or the designee of that officer), shall not: (i) personally engage in "Competitive Activities" (as defined in paragraph (b)) within any geographic area in which any Bell Atlantic Company is then engaged (or, at the time of the Key Employee's termination of employment, had a board-approved business plan under which it planned to engage) in such Competitive Activities; - -------------------------------------------------------------------------------- Employment Agreement Page 7 James G. Cullen (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 within any geographic area described in Section (a)(i); 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; (iii) directly or indirectly attempt to divert from any Bell Atlantic Company any business in connection with Competitive Activities. (b) Competitive Activities. For purposes of Section (a) hereof, ---------------------- "Competitive Activities" means business activities relating to products or services of the same or similar type as those for which the Key Employee had responsibility to plan, develop, manage or oversee within the last 24 months of the Key Employee's employment with any Bell Atlantic Company. (c) No Solicitation of Bell Atlantic Employees. During the period of ------------------------------------------ the Key Employee's employment with any Bell Atlantic Company, and for a period of 24 months following the Key Employee's retirement or termination of employment for any other reason from any and all Bell Atlantic Companies, the Key Employee shall not interfere with the relationship of any Bell Atlantic Company with any of its employees, agents, representatives, suppliers or vendors under contract, or joint venturers. During said 24-month post-separation period, the Key Employee will not solicit any employee of any Bell Atlantic Company to accept employment with, or provide services to, any person or entity which is not a Bell Atlantic Company. (d) 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. For a period of 15 days after the giving of such notice, the Key Employee shall have the opportunity to respond and discuss with Bell Atlantic the underlying facts and the basis for Bell Atlantic's belief that the Key Employee is in breach of this Section. During such 15-day period, Bell Atlantic shall not pursue any remedy provided by this Agreement or at law or in equity. (e) Forfeiture of Benefits. The Key Employee acknowledges that his ---------------------- violation of any of the prohibitions of this Section 10, either during a period of employment with a Bell Atlantic Company, or during the 24 months following termination of employment, may result in the Key Employee's forfeiture of any and all rights to benefits under the nonqualified pension plan in which the Key Employee participates, or the forfeiture of rights to payments or benefits under any other compensation or benefit plan which may contain similar prohibitions or conditions on benefits. - -------------------------------------------------------------------------------- Employment Agreement Page 8 James G. Cullen (f) Waiver. Nothing in this Agreement shall bar the Key Employee from ------ requesting, at the time of the Key Employee's retirement or at any time thereafter, that the officer named in Section 10(a) waive Bell Atlantic's rights to enforce the non-compete covenants of this Section, and said officer shall have the power to agree to such a waiver if said officer determines that it is not inconsistent with the interests of Bell Atlantic to do so. 11. Prohibition Against Disclosure of Proprietary Information. --------------------------------------------------------- (a) Prohibited Conduct by the Key Employee. The Key Employee -------------------------------------- acknowledges that, as one of the most senior officers of the Bell Atlantic Companies, the Key Employee has continuing access to confidential and proprietary information of Bell Atlantic Companies. The Key Employee shall, therefore, at all times during the period of active employment with any Bell Atlantic Company, and for a period of three years thereafter, preserve the confidentiality of all proprietary information of any Bell Atlantic Company. The three-year limitation under this paragraph shall not in any way limit any Bell Atlantic Company's common law and statutory rights to protect its trade secrets or intellectual property rights at any time, to the full extent of the law. "Proprietary information" includes, but is not limited to, information in the possession or control of a Bell Atlantic Company that has not been fully disclosed in a writing which has been generally circulated to the public at large, and which gives the Bell Atlantic Company an opportunity to obtain or maintain advantages over its current and potential competitors, 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 a Bell Atlantic Company is bound to protect. (b) Obligation to Return Company Property. If and when the Key ------------------------------------- Employee terminates employment for any reason with all Bell Atlantic Companies, the Key Employee shall, prior to the last day of active employment and without charge to any Bell Atlantic Company, return to the employing Bell Atlantic Company (or the rightful Bell Atlantic Company) all company property, including, without limitation, originals and copies of records, papers, programs, computer software, documents and other materials which contain Proprietary Information, as defined in the previous paragraph. The Key Employee shall thereafter cooperate with each applicable Bell Atlantic Company in executing and delivering documents requested by the company that are necessary to assist the Bell Atlantic Company in patenting or registering any programs, ideas, inventions, discoveries, copyright material or trademarks, and to vest title thereto in the Bell Atlantic Company. (c) Forfeiture of Benefits. The Key Employee acknowledges that a ---------------------- violation of the prohibitions of this Section 11 may result in the Key Employee's forfeiture of any - -------------------------------------------------------------------------------- Employment Agreement Page 9 James G. Cullen and all rights to benefits or awards under the nonqualified pension plan in which he or she participates, and any other benefit or compensation plan containing similar prohibitions and requirements. (d) Remedies in Addition to Forfeiture of Benefits. The Key Employee ---------------------------------------------- recognizes that irreparable injury will result to one or more Bell Atlantic Companies, and to the business and property of any of them, in the event of a breach by the Key Employee of any of the provisions of this Section 11. In the event of any breach of any of the Key Employee's covenants under this Section 11, any Bell Atlantic Company that is damaged by such breach shall be entitled, in addition to curtailing the payment of any post- separation payments hereunder, and in addition to any other remedies and damages which may be available at law, to injunctive relief to restrain the violation of such covenants by the Key Employee or by any person or persons acting for or with the Key Employee in any capacity whatsoever. 12. Miscellaneous Provisions. ------------------------ (a) Key Employee's Duty to Treat this Agreement as Confidential. ----------------------------------------------------------- Unless and until the terms of this Agreement, and the 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 pursuant to any applicable legal duty to disclose such information, it shall be a condition of eligibility to receive any payment hereunder that the Key Employee hold the terms of this Agreement and the amount of any payment hereunder in strict confidence, except that the Key Employee may disclose such details on a confidential basis to his spouse (if any), and to any financial counselor, tax adviser or legal counsel retained by the Key Employee. A breach by the Key Employee of his duty of confidentiality under this paragraph shall constitute cause for Bell Atlantic to terminate this Agreement. (b) 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 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. (c) Bonus and Other Payments Not Applicable to Pension, Savings ----------------------------------------------------------- Plan or Other Benefit Plans. The amounts described in Sections 6 and 7 --------------------------- under this Agreement shall not be eligible to be contributed to any qualified savings plan, and shall not be benefit-bearing compensation for purposes of any group term life insurance plan, pension plan, or other employee benefit plans. Nothing in this Agreement is intended to supersede or modify any rights which the Key Employee may have under any other compensation or benefit plan in which the Key Employee participates. At the time of determination that an amount is payable under Section 6 or 7 of this Agreement, such amount may be deferred under any nonqualified deferred compensation plan in which the Key Employee is then eligible to participate, but only if - -------------------------------------------------------------------------------- Employment Agreement Page 10 James G. Cullen and to the extent then permitted under the terms of any such nonqualified deferred compensation plan. (d) Release. As a condition of eligibility to receive the pension ------- and severance benefits described in Sections 5 and 8 of this Agreement, the Key Employee shall sign and deliver a legal release in the form attached to this Agreement as Attachment B, which shall be signed by the Key Employee at the time of his retirement or other termination of employment from Bell Atlantic (the "Release"), and the Key Employee shall not revoke his signature. (e) 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. (f) Governing Law. This Agreement shall be construed and enforced ------------- in accordance with the laws of the Commonwealth of Virginia. (g) Entire Agreement. Except for the terms of other compensation ---------------- and benefit plans in which the Key Employee participates, effective upon the Closing, this Agreement shall set forth the entire understanding of Bell Atlantic and the Key Employee and shall supersede all prior agreements and communications, whether oral or written, between Bell Atlantic and the Key Employee, including the Non-Compete and Proprietary Information Agreement, between Bell Atlantic and the Executive, dated August 10, 1993 and January 24, 1994, and the Current Employment Agreement. This Agreement shall not be modified except by written agreement of the Key Employee and Bell Atlantic. During the Transition Period and during any period of employment with Bell Atlantic following the Transition Period, the terms of Sections 10 and 11 of this Agreement shall supersede the terms of any Non- Compete and Proprietary Information Agreement to which the Key Employee and any Bell Atlantic Company are parties. Until the closing, the Current Employment Agreement shall be enforceable to the full extent of its terms. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. BELL ATLANTIC CORPORATION By: _________________________________________ Raymond W. Smith, Chairman of the Board and Chief Executive Officer THE KEY EMPLOYEE ------------------------------------------------------- James G. Cullen - -------------------------------------------------------------------------------- Employment Agreement Page 11 James G. Cullen Attachment A ------------ Certain Limitations upon Payments --------------------------------- (a) Tax Code Limitations. Anything in this Agreement or the Current -------------------- Employment 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 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) Calculations by Independent Firm. All determinations to be made under -------------------------------- this Section shall be made by Bell Atlantic's independent public accountant or such law firm as is acceptable to the Key Employee and Bell Atlantic (the "Independent Firm"), immediately if the Key Employee separates from service under circumstances which make the Key Employee eligible to receive post- separation payments under this Agreement, or at such other times as Bell Atlantic may determine. The parties agree that the Independent Firm shall render a preliminary opinion on the applicability of Section 280G to this Agreement and to the Current Employment Agreement within sixty (60) days of the date of Execution of this Agreement. The Independent Firm shall provide its determinations and any supporting calculations both to Bell Atlantic and the Key Employee within ten (10) days of the effective date of termination of employment, or when such calculations are otherwise made. Any such determination by the Independent Firm shall be binding upon Bell Atlantic and the Key Employee. Within five (5) days after this determination, Bell Atlantic shall commence to pay (or cause payments to commence to be paid) 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 the uncertainty in the ------------------------------ application of Section 280G of the Code at the time of the initial determination by the Independent Firm 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, the Independent Firm shall review the determination made by it pursuant to the preceding paragraph. In the event that the Independent Firm 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 the Independent Firm 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) All of the fees and expenses of the Independent Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by Bell Atlantic. - -------------------------------------------------------------------------------- Employment Agreement Page 11 James G. Cullen Attachment B ------------ Release ------- THIS RELEASE (the "Release") is entered into by [NAME] -------------------- (the "Key Employee"), for the benefit of ______________________________________ (the "Company"), and for the benefit of all companies affiliated with the Company (collectively, "Bell Atlantic Companies"), and the officers, directors and employees of each of them. WHEREAS, the Key Employee has separated from service with the Company on _____________, 1996 (the "Separation Date") pursuant to the terms of a Separation and Non-Compete Agreement, dated _______________, 1996, between Bell Atlantic Corporation and the Key Employee (the "Agreement"), and he 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, as his free and voluntary act, hereby releases and discharges the Company, its affiliates, and their successors and assigns, and the directors, officers, employees, and agents of each of them, 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, 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.) as amended by the Civil Rights Act of 1991, the -- --- Civil Rights Acts of 1866 and 1871 (42 U.S.C. Sections 1981 and 1983), Key Employee 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 Americans with Disabilities Act, or any other applicable federal, state or local employment discrimination statute or ordinance, which the Key Employee might have or assert against any of said entities or persons (a) by reason of the Key Employee's active employment by the Company or any affiliated company, or the termination of said employment and all circumstances related thereto; or (b) by reason of any other matter, cause or thing whatsoever which may have occurred prior to the date of execution of this Release. Moreover, the Key Employee waives any and all rights under the Employee Retirement Income Security Act of 1974 (ERISA) to assert any claim to any severance benefits, or other remuneration on account of separation from service, other than as stated in the Agreement. 2. The Key Employee hereby reaffirms the terms and conditions of the Agreement in all respects. 3. 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. - -------------------------------------------------------------------------------- Release under Employment Agreement Page 1 James G. Cullen 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. 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 __________, 199__, that being the Key Employee's Separation Date. THE KEY EMPLOYEE Signed:_______________________________________________ THIS IS A RELEASE READ CAREFULLY BEFORE SIGNING - -------------------------------------------------------------------------------- Release under Employment Agreement Page 2 James G. Cullen EX-10.V 12 TERM SHEET Exhibit 10v STUART C. JOHNSON TERM SHEET ---------- . The Employment Agreement, dated June 25,1996 (the "Employment Agreement"), will be superseded by a new agreement conforming to this term sheet . Mr. Johnson will voluntarily resign effective July 1, 1997 (the "Separation Date") . Until the Separation Date, Mr. Johnson will: . retain Senior Manager status . receive a base salary at a level not less than his existing base salary . receive a short term award for 1996 in accordance with the terms of the plan . retain his existing salary grade 33 (or a comparable compensation band under any applicable post-merger compensation structure) . continue participation in benefit plans through the Separation Date . Until the Separation Date, Mr. Johnson will serve in a position in which his responsibilities will include consolidating Bell Atlantic's video operations and business interests, and such other duties assigned by the officer to whom he reports. . The merger-related stay incentive will be governed by the terms of the Employment Agreement except: . He will be eligible to receive the Stay Incentive (or the merger cancellation payment) within 30 days of the earlier of the closing (or cancellation) of the Merger or his Separation Date . After resignation on the Separation Date: . Separation payments will be governed by the terms of the Employment Agreement, with two years' "pay" (as defined in the Employment Agreement) payable in 24 monthly installments, subject to continuing compliance with the stated non-compete, non-recruiting and proprietary information rules. . Eligibility to receive, in an amount to be determined and paid in first quarter 1998, a cash payment equal to the 6/12ths prorated short term award for 1997 (with all applicable customer service thresholds and performance modifiers under the plan) which he would have been eligible to receive if he had been retirement-eligible on the Separation Date. . Stock Options: . Special 1994 options remain governed by their terms, and are therefore potentially exercisable, subject to price hurdles, until 2nd anniversary of Separation Date . All other outstanding stock options are governed by their terms, subject to the Employment Agreement provision which, upon the Closing of the Merger, deems Mr. Johnson to have exercise rights as though he remained active through the 2nd anniversary of Merger closing, and then retired with up to 5 further years to exercise. . Deferred Compensation: . All balances deferred under the Plan will be fully vested and payable in full as soon as practicable after the Separation Date in a single sum, in accordance with the terms of the Plan applicable to resignations without retirement eligibility . . Pension: . Upon attaining 5 years' service (in April 1997), accrued benefits under the Cash Balance and Senior Management plan will vest. . Benefits will be payable upon separation in accordance with the terms of the plans. . Savings Plan benefits were previously vested in 1995, and remain fully vested. . Eligibility to purchase 18 months of health continuation coverage under COBRA. . Mr. Johnson will continue to be protected, and legally defended, under the terms and to the extent of the applicable indemnification provisions for former officers under the By-Laws of the Company, and, in consideration for the Company's performance under all the provisions of this Agreement, Mr. Johnson will actively and fully cooperate with the Company in connection with any legal disputes regarding matters of which he has knowledge. The Company will reimburse Mr. Johnson for his expenses in connection with his providing such active cooperation. . The terms of this Agreement, and Mr. Johnson's continuing employment, are subject to the Company's customary requirements of continuing compliance with the Business Code of Employee Conduct and other written corporate policies. . The Agreement will contain other legal boilerplate commonly used in the Company's separation agreements, such as the requirement that Mr. Johnson tender resignations from corporate board and officer positions when requested, and sign legal releases at the time of signing the Agreement and on his Separation Date. For Bell Atlantic Corporation Signed: James G. Cullen, Vice Chairman Signed: James R. Young, Vice President - General Counsel For Mr. Johnson Signed: Stuart C. Johnson EX-11 13 STATEMENT RE COMP. OF EARNINGS PER COMMON SHARE Exhibit 11 BELL ATLANTIC CORPORATION AND SUBSIDIARIES Computation of Per Common Share Earnings (Dollars In Millions, Except Per Share Amounts)
Years Ended December 31, ------------------------------------------------------ 1996 1995 1994 ------------------------------------------------------ Income before extraordinary items and cumulative effect of change in accounting principle.............. $ 1,739.4 $ 1,861.8 $ 1,401.9 Extraordinary items.................................... -- (3.5) (2,156.7) Cumulative effect of change in accounting principle............................................. 142.1 -- -- ------------ ------------ ------------ Net income (loss)...................................... $ 1,881.5 $ 1,858.3 $ (754.8) ============ ============ ============ Earnings (Loss) Per Common Share Weighted average shares outstanding.................... 437,749,196 436,760,686 436,283,155 Incremental shares from assumed exercise of stock options and payment of performance share awards....... 1,810,215 1,584,328 952,652 ------------ ------------ ------------ Total shares........................................... 439,559,411 438,345,014 437,235,807 ============ ============ ============ Income before extraordinary items and cumulative effect of change in accounting principle.............. $ 3.96 $ 4.25 $ 3.21 Extraordinary items.................................... -- (.01) (4.94) Cumulative effect of change in accounting principle............................................. .32 -- -- ------------ ------------ ------------ Net income (loss)...................................... $ 4.28 $ 4.24 $ (1.73) ============ ============ ============ Fully Diluted Earnings (Loss) Per Common Share* Weighted average shares outstanding.................... 437,749,196 436,760,686 436,283,155 Incremental shares from assumed exercise of stock options and payment of performance share awards....... 1,960,128 1,815,245 1,007,218 ------------ ------------ ------------ Total shares........................................... 439,709,324 438,575,931 437,290,373 ============ ============ ============ Income before extraordinary items and cumulative effect of change in accounting principle.............. $ 3.96 $ 4.25 $ 3.21 Extraordinary items.................................... -- (.01) (4.94) Cumulative effect of change in accounting principle............................................. .32 -- -- ----------- ----------- ----------- Net income (loss)...................................... $ 4.28 $ 4.24 $ (1.73) =========== =========== ===========
- ----------- *Fully diluted earnings per share calculation is presented in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of Accounting Principles Board Opinion No. 15 because it results in dilution of less than 3%. EX-12 14 STATEMENT RE COMPUTATION OF RATIOS EXHIBIT 12 BELL ATLANTIC CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (Dollars in Millions)
YEARS ENDED DECEMBER 31, ------------------------------------------------------ 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Income before provision for income taxes, extraordinary items, and cumulative effect of changes in accounting principles......................................... $2,750.6 $3,009.4 $2,286.8 $2,273.6 $2,025.7 Equity in income of less than majority-owned subsidiaries...... (327.9) (152.5) (41.1) (48.3) (52.4) Dividends from less than majority-owned subsidiaries........... 125.5 146.0 101.0 73.4 48.3 Interest expense, including interest on capital lease obligations................................................. 486.1 571.1 624.6 719.6 828.7 Portion of rent expense representative of the interest factor.. 82.7 90.9 95.2 102.6 98.6 -------- -------- -------- -------- -------- Income, as adjusted............................................ $3,117.0 $3,664.9 $3,066.5 $3,120.9 $2,948.9 ======== ======== ======== ======== ======== Fixed charges: Interest expense, including interest on capital lease obligations.................................................. $ 486.1 $ 571.1 $ 624.6 $ 719.6 $ 828.7 Portion of rent expense representative of the interest factor.. 82.7 90.9 95.2 102.6 98.6 Capitalized interest........................................... 49.6 64.4 19.1 1.1 3.2 Preferred stock dividend requirement........................... 15.0 9.9 5.7 -- -- -------- -------- -------- -------- -------- Fixed charges.................................................. $ 633.4 $ 736.3 $ 744.6 $ 823.3 $ 930.5 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges............................. 4.92 4.98 4.12 3.79 3.17 ======== ======== ======== ======== ========
EX-13 15 ANNUAL REPORT TO SHAREOWNERS EXHIBIT 13 - -------------------------------------------------------------------------------- Selected Financial and Operating Data - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) --------------------------------------------------------------------- 1996 (a) 1995 (c) 1994 (d) 1993 (e) 1992 --------------------------------------------------------------------- RESULTS OF OPERATIONS Operating revenues $13,081.4 $13,429.5 $13,791.4 $13,145.6 $12,836.0 Operating income 2,936.6 3,086.2 2,804.6 2,797.6 2,506.2 Income before extraordinary items and cumulative effect of changes in accounting principles 1,739.4 1,861.8 1,401.9 1,481.6 1,382.2 Net income (loss) 1,881.5 1,858.3 (754.8) 1,403.4 1,340.6 Income before extraordinary items and cumulative effect of changes in accounting principles per common share 3.96 4.25 3.21 3.39 3.23 Net income (loss) per common share 4.28 4.24 (1.73) 3.22 3.13 Cash dividends declared per common share 2.88 (b) 2.80 2.76 2.68 2.60 FINANCIAL POSITION Total assets $24,856.2 $24,156.8 $24,271.8 $29,544.2 $28,099.5 Long-term debt 5,960.2 6,407.2 6,805.7 7,206.2 7,348.2 Employee benefit obligations 3,887.4 3,841.3 3,773.8 3,396.0 3,058.7 Preferred stock of subsidiary 145.0 145.0 85.0 - - Shareowners' investment 7,422.8 6,683.6 6,081.3 8,224.4 7,816.3 Additions to plant, property and equipment 2,573.4 2,641.8 2,699.0 2,519.0 2,546.8 OTHER INFORMATION Book value per common share $ 16.96 $ 15.27 $ 13.94 $ 18.85 $ 18.00 Return on average common equity 25.7% 28.6% (9.8)% 17.3% 17.4% Debt ratio 52.2% 55.5% 59.4% 54.6% 56.3% Network access lines (in thousands) 20,566 19,820 19,168 18,645 18,181 Number of employees 62,600 61,800 72,300 73,600 71,400
(a) 1996 data include the adoption of a change in accounting for directory publishing. (b) Cash dividends declared in 1996 include a payment of $.005 per common share for redemption of all rights granted under our Shareholder Rights Plan. (c) On July 1, 1995, we contributed our domestic cellular and paging businesses to a partnership, and account for our share of the partnership's results under the equity method. (d) 1994 data include an extraordinary charge for the discontinuation of regulatory accounting principles. (e) 1993 data include the adoption of changes in accounting for income taxes and postemployment benefits. 10 - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Results of Operations and Financial Condition (Tables shown in Dollars in Millions) - -------------------------------------------------------------------------------- OVERVIEW 1996 marked a year in which we achieved very solid financial results while continuing to position our company for entry into new markets and strengthen our competitiveness in existing markets. Our results were driven by strong market demand and solid operating performance in our network and wireless businesses. We reported net income of $1,881.5 million or $4.28 per share in 1996, compared to net income of $1,858.3 million or $4.24 per share in 1995, and a loss of $754.8 million or $1.73 per share in 1994. Our reported results in all three years were affected by special items. After adjusting for such items, net income was $1,872.5 million or $4.26 per share in 1996, $1,701.9 million or $3.88 per share in 1995, and $1,527.2 million or $3.49 per share in 1994. The most significant of these items are discussed below. In the fourth quarter of 1996, we changed our method of accounting for directory publishing revenues and expenses, effective January 1, 1996. 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. This change required us to restate our results of operations for the first three quarters of 1996 (see Note 16 to the consolidated financial statements on page 43). We recorded an after-tax increase in income of $142.1 million, or $.32 per share, in the first quarter of 1996, representing the cumulative effect of this accounting change. This accounting change did not have a material impact on operating income in 1996. In addition to this accounting change, we incurred after-tax charges in 1996 of approximately $135 million, or $.31 per share, for reserves associated with regulatory and other issues, actuarially determined costs of a benefit plan amendment, and costs associated with certain asset and investment dispositions. In 1995, we formed a wireless partnership with NYNEX Corporation, creating Bell Atlantic NYNEX Mobile (BANM). Our results for 1995 included a pretax gain of approximately $314 million ($200 million after-tax or $.46 per share) as a result of the sale of certain cellular properties in connection with the formation of BANM. We also recognized approximately $48 million ($40 million after-tax or $.09 per share) in 1995 for non-recurring charges associated with certain business development ventures and contracts. In 1994, we recorded a pretax charge of $161.9 million ($99.5 million after-tax or $.23 per share) under the provisions of Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits," to recognize costs for the separation of employees who are entitled to benefits under preexisting separation pay plans. Results for 1994 also included a non-cash, extraordinary charge of $2,150.0 million, or $4.92 per share, in connection with our decision to discontinue the use of regulatory accounting principles under SFAS 71, "Accounting for the Effects of Certain Types of Regulation" (see Note 3 to the consolidated financial statements on page 28). During 1995 and 1994, we sold several nonstrategic businesses, including our domestic computer maintenance business, Bell Atlantic Business Systems Services, Inc., in October 1995. Total operating revenues and expenses related to this business were $402 million and $392 million in 1995 and $472 million and $450 million in 1994. In 1994, we sold substantially all of our lease financing businesses, a liquefied petroleum gas distribution business, and a foreign cellular operation. Results for 1995 and 1994 also included extraordinary charges of $3.5 million and $6.7 million for the early extinguishment of debt. PROPOSED MERGER OF BELL ATLANTIC AND NYNEX In 1996, we announced a definitive agreement to merge with NYNEX Corporation. The merger is expected to close in April 1997. This Management's Discussion and Analysis is based on our own historical financial results and includes certain forward-looking statements. You should be aware that our discussion does not, in general, reflect the impact that the proposed merger will have on future financial performance of the post-merger company. Information about the proposed merger is provided in the "Other Matters-Proposed Bell Atlantic - NYNEX Merger" section on page 20, and in Note 17 to the consolidated financial statements on pages 44 and 45. 11 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- FORMATION OF THE BELL ATLANTIC NYNEX MOBILE PARTNERSHIP On July 1, 1995, we and NYNEX contributed substantially all of the investments in our domestic cellular and paging operations to a partnership and formed BANM. Because of the joint control provisions in the partnership agreement, we account for our investment using the equity method. Under the equity method of accounting, our proportionate share of the partnership's pretax income is reported in our consolidated statements of operations as a component of Income from Unconsolidated Businesses. For all periods before July 1, 1995, our statements of operations reflect the results of our domestic cellular and paging businesses on a consolidated basis. We have provided the revenues and expenses of these businesses for periods before the formation of the partnership in Note 4 to the consolidated financial statements on page 29. We believe that your review of this Management's Discussion and Analysis will be simplified by a comparison of financial results that shows the net revenues and expenses of our domestic cellular and paging operations both before and after July 1, 1995 classified as a component of Income from Unconsolidated Businesses. This presentation is shown below. CONSOLIDATED STATEMENTS OF OPERATIONS with domestic cellular and paging results of operations before July 1, 1995 presented as though accounted for under the equity method.
For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------ OPERATING REVENUES Transport services Local service $ 4,670.7 $ 4,423.6 $ 4,333.2 Network access 3,456.8 3,394.7 3,237.6 Toll service 1,388.8 1,435.1 1,555.5 Ancillary services Directory publishing 1,222.5 1,107.7 1,084.2 Other 601.2 557.4 481.0 Value-added services 1,599.5 1,393.2 1,284.4 Other services 141.9 515.9 800.6 ---------- ---------- ---------- 13,081.4 12,827.6 12,776.5 ---------- ---------- ---------- OPERATING EXPENSES Employee costs 3,921.6 3,932.8 4,174.7 Depreciation and amortization 2,594.6 2,548.5 2,516.1 Other 3,628.6 3,358.0 3,396.8 ---------- ---------- ---------- 10,144.8 9,839.3 10,087.6 ---------- ---------- ---------- Operating income 2,936.6 2,988.3 2,688.9 Income from unconsolidated businesses 327.9 236.4 128.9 Other income and expense, net (36.0) 331.8 36.3 Interest expense 477.9 547.1 567.3 ---------- ---------- ---------- Income before provision for income taxes, extraordinary items, and cumulative effect of change in accounting principle 2,750.6 3,009.4 2,286.8 Provision for income taxes 1,011.2 1,147.6 884.9 ---------- ---------- ---------- 1,739.4 1,861.8 1,401.9 Extraordinary items, net of tax - (3.5) (2,156.7) Cumulative effect of change in accounting principle, net of tax 142.1 - - ---------- ---------- ---------- Net income (loss) $ 1,881.5 $ 1,858.3 $ (754.8) ========== ========== ==========
For the years ended December 31, 1995 and 1994, previously eliminated intercompany transactions aggregating $28.0 million and $48.4 million are added back to both operating revenues and operating expenses. 12 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- OPERATING REVENUES - -------------------------------------------------------------------------------- LOCAL SERVICE REVENUES - --------------------------------------------------------------------------------
Increase - -------------------------------------------------------------------------------- 1996-1995 $247.1 5.6% - -------------------------------------------------------------------------------- 1995-1994 $90.4 2.1% - --------------------------------------------------------------------------------
Local service revenues are earned by our operating telephone subsidiaries from the provision of local exchange, local private line and public telephone (pay phone) services. Higher usage of our network facilities was the primary reason for the increases in local service revenues in 1996 and 1995. This growth was generated by an increase in access lines in service of 3.8% in 1996 and 3.4% in 1995, and higher message volumes. In 1996, business and residence access lines increased 5.6% and 2.8%, compared to growth rates of 5.5% and 2.4% in 1995. Stronger access line growth in 1996 reflects higher demand for Centrex services and an increase in second residential lines. Higher private line service revenues also contributed to the revenue growth in 1996. For a discussion of the Telecommunications Act of 1996, which will open the local exchange market to competition, see "Factors That May Impact Future Results" beginning on page 18. - -------------------------------------------------------------------------------- NETWORK ACCESS REVENUES - --------------------------------------------------------------------------------
Increase - -------------------------------------------------------------------------------- 1996-1995 $62.1 1.8% - -------------------------------------------------------------------------------- 1995-1994 $157.1 4.9% - --------------------------------------------------------------------------------
Network access revenues are earned from long distance carriers for their use of our local exchange facilities in providing long distance services to their customers, and from end-user subscribers. Switched access revenues are derived from usage-based charges paid by long distance carriers for access to our network. Special access revenues arise from access charges paid by long distance carriers and end-users who have private networks. End-user access revenues are earned from local exchange carrier customers who pay for access to our network. Network access revenues increased in 1996 and 1995 because of higher customer demand as reflected by growth in access minutes of use of 9.7% in 1996 and 7.9% in 1995. Volume growth in 1996 was boosted by the expansion of the business market, particularly for high capacity services. Revenue growth from volume increases in both years was partially offset by the effect of price reductions implemented during 1995 in connection with the Federal Communications Commission's (FCC) Interim Price Cap Plan. Revenues in 1996 were also reduced by special charges for reserves associated with regulatory issues. The FCC regulates the rates that we can 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 its Interim Price Cap Plan. Beginning on August 1, 1995, we implemented price decreases totaling approximately $305 million on an annual basis. These price decreases included the scheduled expiration of a temporary rate increase of approximately $98 million on an annualized basis that was in effect from March 17, 1995 through July 31, 1995 to recover prior years "exogenous" postemployment benefit costs. On July 20, 1996, we implemented price increases, which will be in effect for the period July 1996 through June 1997. The rates included in our 1996 filing resulted in price increases totaling approximately $21 million on an annual basis. We expect that network access revenue growth in 1997, relative to 1996 revenues, will be positively affected by continued volume growth and by price increases effective on July 20, 1996. For a discussion of proposed FCC rulemakings concerning access charges, see "Factors That May Impact Future Results" beginning on page 18. - -------------------------------------------------------------------------------- TOLL SERVICE REVENUES - --------------------------------------------------------------------------------
(Decrease) - -------------------------------------------------------------------------------- 1996-1995 $ (46.3) (3.2)% - -------------------------------------------------------------------------------- 1995-1994 $(120.4) (7.7)% - --------------------------------------------------------------------------------
Toll service 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, referred to as Local Access and Transport Areas ("LATAs"). Other toll services that we provide include 800 services, Wide Area Telephone Service (WATS), and corridor services (between LATAs in Northern New Jersey and New York City and between LATAs in Southern New Jersey and Philadelphia). Toll message volumes grew 2.3% in 1996. The decline in toll service revenues in 1996 was mainly due to price reductions and discount offerings that we initiated on certain toll services in response to competition. In addition, we extended local calling areas in Virginia which had the effect of reducing toll service revenues. The reduction in toll service revenues in 1995 was caused by a decline in toll message volumes of 2.4%, company-initiated price reductions, and extended local calling areas. The decrease in toll messages was due primarily to increased competition throughout the region for intraLATA toll, WATS, and private line services. Price reductions were implemented on certain toll services as part of our competitive response. 13 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- We believe that competition for toll services will continue to impact future revenue growth. You should read "Factors That May Impact Future Results - Competition - IntraLATA Toll Services" on page 19 for a further discussion of toll service revenue issues. - -------------------------------------------------------------------------------- DIRECTORY PUBLISHING REVENUES - --------------------------------------------------------------------------------
Increase - -------------------------------------------------------------------------------- 1996-1995 $114.8 10.4% - -------------------------------------------------------------------------------- 1995-1994 $23.5 2.2% - --------------------------------------------------------------------------------
We earn directory publishing revenues primarily from local advertising and marketing services provided to businesses in our White and Yellow Pages directories, which are published throughout the region in which our telephone subsidiaries operate. We also provide database services and directory marketing services outside of our region. As previously described in the "Overview" section, we changed our method of accounting for directory publishing revenues and expenses in 1996. The effect of this change caused an increase in revenues of $67.0 million in 1996. Excluding the effect of this accounting change, 1996 directory publishing revenues grew 4.3% over 1995. Revenue growth in both 1996 and 1995 was principally due to higher rates charged for directory services. - -------------------------------------------------------------------------------- OTHER ANCILLARY SERVICES REVENUES - --------------------------------------------------------------------------------
Increase - -------------------------------------------------------------------------------- 1996-1995 $43.8 7.9% - -------------------------------------------------------------------------------- 1995-1994 $76.4 15.9% - --------------------------------------------------------------------------------
Our company provides other ancillary services which include systems integration services, billing and collection services provided to long distance carriers, customer premises equipment distribution, facilities rental services, and video and information services. In 1996 and 1995, ancillary services revenue growth was boosted by new contracts with business customers for systems integration services. Revenue growth in 1996 was lower than 1995 due to the completion of certain phases of systems integration contracts with the federal government. We experienced reductions in billing and collections revenues in both years due to the elimination of these services from a contract with a long distance carrier. - -------------------------------------------------------------------------------- VALUE-ADDED SERVICES REVENUES - --------------------------------------------------------------------------------
Increase - -------------------------------------------------------------------------------- 1996-1995 $206.3 14.8% - -------------------------------------------------------------------------------- 1995-1994 $108.8 8.5% - --------------------------------------------------------------------------------
Value-added services represent a family of services which expand the utilization of the network. These services include products such as voice messaging services, Caller ID, Call Waiting, and Return Call, as well as more mature products such as Touch-Tone and other customer premises wiring and maintenance services. Improved revenue growth from our value-added services is principally the result of increased marketing and promotional efforts which have stimulated customer demand and usage. Demand for these services also has been fueled by the introduction of new and enhanced optional features. - -------------------------------------------------------------------------------- OTHER SERVICES REVENUES - --------------------------------------------------------------------------------
(Decrease) - -------------------------------------------------------------------------------- 1996-1995 $(374.0) (72.5)% - -------------------------------------------------------------------------------- 1995-1994 $(284.7) (35.6)% - --------------------------------------------------------------------------------
Other services include revenues from our telecommunications consulting, real estate, computer maintenance, and lease financing businesses. The decline in other services revenues in 1996 and 1995 was caused principally by the sale of our domestic computer maintenance subsidiary in October 1995. Revenues in 1995 were also impacted by the disposition of our lease financing and other nonstrategic businesses in 1994. OPERATING EXPENSES - -------------------------------------------------------------------------------- EMPLOYEE COSTS - --------------------------------------------------------------------------------
(Decrease) - -------------------------------------------------------------------------------- 1996-1995 $(11.2) (.3)% - -------------------------------------------------------------------------------- 1995-1994 $(241.9) (5.8)% - --------------------------------------------------------------------------------
Employee costs consist of salaries, wages and other employee compensation, employee benefits and payroll taxes. Our network operations subsidiaries, which include our operating telephone subsidiaries and a subsidiary that provides centralized services and support, incurred higher employee costs of $93.4 million or 2.6% in 1996 and lower employee costs of $201.5 million or 5.4% in 1995, compared with the corresponding prior years. In 1996, higher network-related employee costs were mainly attributable to annual salary and wage increases, as well as increased overtime pay for repair and maintenance activity, principally as a result of higher business volumes. We also recognized additional benefit costs associated with an amendment to a separation pay plan. All of these expense increases were offset, in part, by the effect of lower network employee levels and by the effect of certain contract labor and separation pay costs recorded in 1995. The decrease in 1995 network-related employee costs was primarily due to the effect of a one-time charge in 1994 to recognize benefit costs, under the provisions of SFAS 112, for the separation of employees who were entitled to benefits 14 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- under preexisting separation pay plans. Decreased overtime pay, lower network employee levels and a reduction in pension costs further reduced employee costs in 1995. These cost reductions were partially offset by annual salary and wage increases and the recognition of certain contract labor and separation pay costs associated with a five-year contract with the International Brotherhood of Electrical Workers (IBEW) and the contract settlement with the Communications Workers of America (CWA). In May 1995, our operating telephone subsidiaries executed a five-year contract with the IBEW. The IBEW contract provides for a 17.4% wage increase over the contract period, a ratification bonus, improved pensions and benefits, and certain employment security provisions. We reached a final settlement with the CWA on a three-year labor agreement in January 1996. The agreement includes a 10.6% wage increase over the three-year contract period, a ratification bonus, improved pensions and benefits, and certain employment security provisions. In 1995, we announced that the pension plan covering most of our management employees would be converted to a cash balance plan, effective December 31, 1995. This change did not have a material impact on pension benefit costs in 1996 or 1995. Employee costs at our nonregulated subsidiaries decreased $104.6 million or 26.9% in 1996 and $40.4 million or 9.4% in 1995. Employee costs were lower in 1996 and 1995 principally due to a reduction in work force levels resulting from the sale of our domestic computer maintenance subsidiary in October 1995. Expenses in 1995 were also impacted by the sale of our lease financing businesses in 1994. Expense reductions in 1996 were partially offset by higher employee costs related to entering the Internet and out-of-region long distance businesses. - -------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION - --------------------------------------------------------------------------------
Increase - -------------------------------------------------------------------------------- 1996-1995 $46.1 1.8% - -------------------------------------------------------------------------------- 1995-1994 $32.4 1.3% - --------------------------------------------------------------------------------
Depreciation and amortization expense at our network operations subsidiaries increased $72.9 million or 2.9% in 1996 and $87.7 million or 3.7% in 1995 over the corresponding prior years. These increases were principally caused by growth in depreciable telephone plant and changes in the mix of plant assets. We use the composite group remaining life method to depreciate our telephone plant assets. Under this method, we periodically revise depreciation rates based on a number of factors. The composite depreciation rates for our network operations subsidiaries were 7.8% in 1996, 7.9% in 1995, and 7.8% in 1994. Changes in depreciation rates did not have a significant impact on depreciation and amortization expense in 1996 or 1995. Depreciation and amortization expense at our nonregulated subsidiaries decreased $26.8 million or 37.1% in 1996 and $55.3 million or 43.4% in 1995 over the corresponding prior years. The decreases were mainly due to a reduction in depreciable assets resulting from the sales of subsidiaries in 1995 and 1994, as described earlier. - -------------------------------------------------------------------------------- OTHER OPERATING EXPENSES - --------------------------------------------------------------------------------
Increase/(Decrease) - -------------------------------------------------------------------------------- 1996-1995 $270.6 8.1% - -------------------------------------------------------------------------------- 1995-1994 $(38.8) (1.1)% - --------------------------------------------------------------------------------
Other operating expenses consist of contract services, rent, network software costs, the provision for uncollectible accounts receivable, and other costs. The rise in other operating expenses in 1996 was largely due to additional costs of approximately $200 million which were incurred at the network operations subsidiaries to upgrade network software, enhance billing and operating systems, market and advertise services, and comply with certain aspects of the Telecommunications Act of 1996 to permit our eventual entry into the in-region long distance business. We also incurred expenses in 1996 of approximately $75 million associated with entering new businesses, primarily Internet and out-of-region long distance services. The change in accounting for directory publishing expenses in 1996 caused an increase in other operating expenses of $63.2 million. Other operating expenses also included special charges associated with certain asset and investment dispositions and higher costs at our nonregulated businesses, principally due to increased volumes of business. Expense increases in 1996 were offset, in part, by the effect of the sale of our domestic computer maintenance business in late 1995. The decline in other operating expenses in 1995 was mostly due to the disposition of subsidiaries in 1995 and 1994. This decrease was partially offset by higher costs at our network operations subsidiaries to enhance systems, consolidate work activities, and market value-added services. We also recognized special charges in 1995 associated with certain business development ventures and contracts. In 1997, we expect to continue to incur costs associated with our entry into Internet and out-of-region long distance businesses and compliance with the Telecommunications Act of 1996 at about the same level as in 1996. We also anticipate that, if we are permitted entry into the in-region long distance business during 1997, we will incur additional operating expenses associated with entering this business. 15 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INCOME FROM UNCONSOLIDATED BUSINESSES - --------------------------------------------------------------------------------
Increase - -------------------------------------------------------------------------------- 1996-1995 $91.5 38.7% - -------------------------------------------------------------------------------- 1995-1994 $107.5 83.4% - --------------------------------------------------------------------------------
Income from unconsolidated businesses includes equity income and losses and goodwill amortization related to these investments. For comparative purposes, the domestic cellular and paging businesses for periods before July 1, 1995 are presented as though accounted for under the equity method. Equity income from our BANM investment was $360.4 million in 1996, $267.1 million in 1995, and $122.0 million in 1994. The year-over-year increases were driven by improved operating margins and by strong revenue growth resulting from expansion of our cellular subscriber base. BANM's subscriber base grew by more than 31% in 1996 and 43% in 1995, through the addition of more than one million customers each year. Equity income from our investment in Telecom Corporation of New Zealand Limited (Telecom), the principal provider of telecommunications services in that country, increased in both 1996 and 1995 as a result of improved operating results. Results for 1996 were negatively impacted by higher equity losses associated with our investments in several new ventures, including a personal communications services (PCS) joint venture, PrimeCo Personal Communications, L.P. (PrimeCo), and an international wireless joint venture, Omnitel Pronto Italia S.p.A. (Omnitel). In November 1996, PrimeCo launched commercial service in 16 major cities throughout the country. In December 1996, we increased our ownership interest in Omnitel from 11.67% to 17.45%. We recognized equity losses from our investment in Grupo Iusacell, S.A. de C.V. (Iusacell), a Mexican wireless company, of $24.3 million in 1996, $87.8 million in 1995, and $65.4 million in 1994. Lower equity losses in 1996 reflect net foreign exchange gains and a reduction in the amortization of goodwill. Equity losses in 1995 and 1994 were impacted by an increase in our economic interest in Iusacell from 23.2% to 41.9% in August 1994, and the effect of the continued devaluation of the Mexican peso on Iusacell's net liabilities, primarily debt, denominated in U.S. dollars. As of October 1, 1996, for accounting purposes, we consider Iusacell to operate in a highly inflationary economy. As a result, future income from Iusacell will not be impacted as significantly by changes in the peso exchange rate. You should also read the "Other Matters - Iusacell Restructuring" section on page 19 for additional information about our Iusacell investment. We expect that our earnings in 1997, as compared to 1996, will be diluted by increased losses associated with our PCS business, the effects of our increased ownership of Omnitel, and new business development initiatives in long distance and fixed wireless at Iusacell. - -------------------------------------------------------------------------------- OTHER INCOME AND EXPENSE, NET - --------------------------------------------------------------------------------
Increase (Decrease) - -------------------------------------------------------------------------------- 1996-1995 $(367.8) - -------------------------------------------------------------------------------- 1995-1994 $295.5 - --------------------------------------------------------------------------------
Other income and expense, net, consists primarily of interest and dividend income, and gains and losses from the disposition of subsidiaries and non-operating assets and investments. The changes in other income and expense in both years were almost entirely attributable to a pretax gain of approximately $314 million recorded in 1995 on the sale of certain cellular properties in connection with the formation of BANM. Other items individually were not material in 1996, 1995 or 1994. - -------------------------------------------------------------------------------- INTEREST EXPENSE - --------------------------------------------------------------------------------
(Decrease) - -------------------------------------------------------------------------------- 1996-1995 $(69.2) (12.6)% - -------------------------------------------------------------------------------- 1995-1994 $(20.2) (3.6)% - --------------------------------------------------------------------------------
We were able to reduce interest expense in 1996 and 1995 as a result of lower rates of interest and reductions in borrowing levels. See Note 8 to the consolidated financial statements on pages 32 and 33 for additional information about our debt. We do not expect the downward trend in interest expense to continue in 1997. - -------------------------------------------------------------------------------- EFFECTIVE INCOME TAX RATES - --------------------------------------------------------------------------------
For the Years Ended December 31, - -------------------------------------------------------------------------------- 1996 36.8% - -------------------------------------------------------------------------------- 1995 38.1% - -------------------------------------------------------------------------------- 1994 38.7% - --------------------------------------------------------------------------------
The effective income tax rate is the provision for income taxes as a percentage of income before taxes, extraordinary items and cumulative effect of accounting changes. The lower effective income tax rates in both 1996 and 1995 are mainly due to changes in certain foreign investee results for which there were no corresponding tax benefits or expense. The 1996 rate reflects prior period adjustments, including research and development credits. The 1995 rate was also impacted by a reduction in the Pennsylvania state income tax rate. A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is provided in Note 14 to the consolidated financial statements on page 41. 16 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - --------------------------------------------------------------------------------
FINANCIAL CONDITION For the Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Cash Flows From (Used In): Operating activities $ 4,415.5 $ 3,981.0 $ 3,777.0 Investing activities (3,144.0) (2,090.8) (1,694.2) Financing activities (1,475.8) (1,676.3) (2,086.0) - --------------------------------------------------------------------------------
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 both December 31, 1996 and 1995, our sources of funds, primarily from operations and to the extent necessary from readily available external financing arrangements, are sufficient to meet ongoing operating requirements. We expect that presently foreseeable capital requirements will continue to be financed primarily through internally generated funds. Additional long-term debt or equity financing may be needed to fund additional development activities or to maintain our capital structure to ensure our financial flexibility. We limit our use of derivatives to managing risk that could jeopardize our financing and operating flexibility, making cash flows more stable over the long run and achieving savings over other means of financing. Derivative agreements are tied to specific liabilities or assets and hedge the related economic exposures. The use of these hedging agreements has not had a material impact on our financial condition or results of operations. We do not hold derivatives for trading purposes. The notional amounts of our derivative contracts are used to calculate contractual payments to be exchanged and are not a measure of our credit risk or our future cash requirements. Credit risk related to derivatives is limited to nonperformance by counterparties to our contracts. We manage that credit risk by limiting our exposure to any one financial institution and by monitoring our counterparties' credit ratings. We believe the risk of loss due to nonperformance by counterparties is remote and that any losses would not be material to our financial condition or results of operations. CASH FLOWS FROM OPERATING ACTIVITIES Our primary source of funds continued to be cash generated from operations. Cash flows from operations in 1996 were higher because of improved accounts receivable collections and timing differences in the payment of accrued taxes and other liabilities. Cash flows from operations improved in 1995 mainly as a result of growth in operating income. CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures continued to be our primary use of capital resources. We invested approximately $2.5 billion in 1996, $2.4 billion in 1995, and $2.2 billion in 1994 to support our network businesses 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 continue to make substantial investments in our unconsolidated businesses. During 1996, we invested $496.5 million in unconsolidated businesses, including additional investments of $317.0 million in Omnitel, primarily to increase our ownership interest, and $128.0 million in PrimeCo, primarily to fund the build-out of a PCS network. Our investments in unconsolidated businesses during 1995 consisted principally of $292.0 million in PrimeCo to fund the initial purchase of PCS licenses. In 1994, we made an investment of $524.0 million to purchase additional shares of Iusacell stock. Our short-term investments consist of cash equivalents held in trusts for the payment of certain employee benefits. During 1996 and 1995, we invested $401.7 million and $135.0 million in short-term investments. At December 31, 1996, our short-term investments were $271.7 million. We held no short-term investments at December 31, 1995. During 1996 and 1995, we received cash payments of $188.3 million and $338.7 million on notes receivable. These payments included $136.3 million in 1996 and $221.2 million in 1995 related to a note received in connection with the 1994 sale of one of our lease financing subsidiaries. We also received cash proceeds of $87.0 million in 1995 on a note that was established in connection with the formation of BANM. In 1995, we received cash proceeds of approximately $362 million from the sale of certain cellular properties and approximately $250 million in connection with the sale of our domestic computer maintenance business and our interests in certain European computer maintenance operations. In 1994, we received cash proceeds of $1,323.8 million from the sale of one of our lease financing subsidiaries. We also received cash totaling $190.4 million from the sale of other investments. In November 1996, Telecom announced plans to repurchase a portion of its stock beginning in 1997. We anticipate selling a portion of our stock investments in Telecom, to the extent necessary to keep our percentage ownership interest in Telecom from exceeding the maximum permitted level of 24.95%. This transaction is expected to result in cash proceeds of approximately $155 million to $165 million. 17 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- 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 the definitive merger agreement with NYNEX, we agreed, pending closing of the merger, that our quarterly dividend payments will not exceed $.72 per share through the February 1, 1997 payment date or $.74 per share beginning with the May 1, 1997 payment date. Our dividend following the completion of the merger is expected to be, initially, $3.08 per share on an annualized basis. We reduced our long-term debt (including capital lease obligations) and short-term debt by $239.9 million in 1996, $555.9 million in 1995, and $990.2 million in 1994. Approximately $200 million and $250 million of debt was refinanced in 1995 and 1994. Our debt ratio was 52.2% as of December 31, 1996, compared to 55.5% as of December 31, 1995 and 59.4% as of December 31, 1994. As of December 31, 1996, we had unused bank lines of credit in excess of $2.1 billion. Our subsidiaries have shelf registrations for the issuance of up to $1.9 billion of unsecured debt securities. We also had $61.8 million in borrowings outstanding under bank lines of credit at December 31, 1996. The debt securities of our subsidiaries continue to be accorded high ratings by primary rating agencies. In the fourth quarter of 1995, our subsidiary Bell Atlantic New Zealand Holdings, Inc. (BANZHI) issued 600,000 shares of Series B Preferred Stock at a share price of $100 with an annual dividend rate of $5.80 per share. In 1994, BANZHI issued 850,000 shares of Series A Preferred Stock at a share price of $100 with an annual dividend rate of $7.08 per share. These transactions resulted in net cash inflows of $59.5 million in 1995 and $85.0 million in 1994. FACTORS THAT MAY IMPACT FUTURE RESULTS The telecommunications industry is undergoing substantial changes as a result of the Telecommunications Act of 1996 (the Act), other public policy changes and technological advances. These changes are likely to bring increased competitive pressures in our current businesses, but will also open new markets to us. The Act became law on February 8, 1996 and replaced the Modification of Final Judgment (MFJ). In general, the Act includes provisions that open local exchange markets to competition and permit Bell Operating Companies, such as our company, to provide interLATA (long distance) services and to engage in manufacturing. However, our ability to engage in businesses previously prohibited by the MFJ is largely dependent on satisfying certain conditions contained in the Act. Among the requirements with which we must comply is a 14- point "competitive checklist" which includes steps we must take which will help competitors offer local service, either through resale, through the purchase of unbundled network elements, or through their own networks. We must also demonstrate to the FCC that our entry into the long distance market would be in the public interest. We are unable to predict definitively the impact that the Act will 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, and the timing, extent and success of our pursuit of new business opportunities resulting from the Act. These factors will in turn depend, in part, on the final outcome of several FCC rulemakings and the outcome of state interconnection proceedings (see also "Recent Developments" below). 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, and other companies that offer network services. Some 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. You should read the "Competition" section on page 19 for additional information. RECENT DEVELOPMENTS On August 1, 1996, the FCC adopted an order establishing rules for implementation of the interconnection requirements set forth in the Act. The FCC's order establishes rules to govern interconnection agreements that are reached through state arbitrations, when negotiations fail. Bell Atlantic and other telecommunication companies appealed the interconnection order to the U.S. Court of Appeals. This case is currently pending. The Court has stayed the effectiveness of the uniform national pricing rules adopted by the FCC, and the FCC rule that permitted competitors to "pick and choose" isolated terms out of negotiated interconnection agreements. Private negotiations and state arbitrations are continuing while the stay is in effect, pending the Court's final decision. As of February 1997 we have entered into over 30 interconnection agreements, with a number of different companies, in each of our local exchange jurisdictions. 18 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- The FCC has also initiated proceedings to address universal service obligations and access charges, and will adopt regulations regarding these issues in subsequent orders. Although we are unable to predict the final outcome, either of these proceedings could have a material effect on future operating revenues. COMPETITION INTRALATA TOLL SERVICES IntraLATA toll services are calls that originate and terminate within the same LATA, but 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. Currently, intraLATA toll calls in these states are completed by our operating telephone companies unless the customer dials a code to access a competing carrier. This dialing method would be changed by "presubscription," which would enable customers to make these toll calls using another carrier without having to dial an access code. The Act addressed the issue of presubscription by prohibiting a state from requiring presubscription or "dialing parity" until the earlier of such time as the Bell Operating Company is authorized to provide long distance services within the state or three years from the effective date of the Act. This prohibition does not apply to a final order requiring presubscription that was issued on or prior to December 19, 1995 or to states consisting of a single LATA. In several states, the regulatory commissions have adopted orders requiring our operating telephone companies to provide intraLATA presubscription in 1997. The Pennsylvania regulatory commission ordered presubscription by July 31, 1997, but has stated that a reasonable effort should be made to coordinate implementation of presubscription with our entry into the long distance market in Pennsylvania. The state regulatory commission in West Virginia ordered presubscription by August 15, 1997. The Delaware Public Service Commission adopted an order that requires implementation of presubscription by July 31, 1997, although we believe this order is inconsistent with the Act. In New Jersey, the Board of Public Utilities (BPU) has adopted a rule requiring implementation of presubscription by May 5, 1997. We have filed in federal court a challenge to the BPU's rule on the grounds that it is inconsistent with the Act. We expect to offer intraLATA presubscription in our other state jurisdictions coincident with our offering of long distance services in those states, as required by the Act. Implementation of presubscription for intraLATA toll services could have a material negative effect on toll service revenues, especially if we are not permitted to offer long distance services at the same time. 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 the District of Columbia, Delaware, Maryland, New Jersey, Pennsylvania and Virginia. In September 1996, legislation in the District of Columbia was signed into law that is expected to increase competition in the local exchange market. The Act is expected to significantly increase the level of competition in all of our local exchange markets. OTHER MATTERS IUSACELL RESTRUCTURING In February 1997, we consummated a restructuring of our Iusacell investment to permit us to assume control of the Board of Directors and management of Iusacell. Under the terms of the restructuring, we exchanged certain Series B and D shares of Iusacell stock for Series A shares, which enables us to elect a majority of the Board of Directors. We also paid a premium of $50.0 million to the current majority owner. The exchange of shares does not affect our economic ownership percentage of Iusacell. We also converted approximately $33 million of subordinated debt into equity, and we may be required to provide Iusacell up to $150 million in financing. The current majority owner has also been given put options to sell one third of its interest each year for three years at specified prices. The maximum exposure of the put options could be material if one or more of the puts is exercised at a time when the market price is substantially below the put price. As a result of the restructuring, we will change the accounting for our Iusacell investment from the equity method to full consolidation. DISPOSITION OF BELLCORE INVESTMENT We own a one-seventh interest in Bell Communications Research, Inc. (Bellcore). In November 1996, Bell Atlantic and other Bellcore owners entered into an agreement to sell our jointly owned investment in Bellcore. We expect to record a small gain as a result of this sale, which is anticipated to close in 1997. 19 - -------------------------------------------------------------------------------- Management's Discussion and Analysis continued - -------------------------------------------------------------------------------- PROPOSED BELL ATLANTIC-NYNEX MERGER Bell Atlantic and NYNEX announced a proposed 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 will become a subsidiary of Bell Atlantic. NYNEX stockholders will receive 0.768 of a share of Bell Atlantic common stock for each share of NYNEX common stock that they own. Bell Atlantic stockholders will continue to own their existing shares after the merger. We expect that the merger will 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. In November 1996, stockholders of both companies approved the merger. The completion of the merger is subject to a number of other conditions, including certain regulatory approvals. As a result of the merger, the post-merger company will incur special transition and integration costs of approximately $500 million in the first year following the completion of the merger and an additional $200 million to $400 million over the two succeeding years, in connection with completing the transaction and integrating the operations of Bell Atlantic and NYNEX. The transition costs consist principally of professional and registration fees, systems modification costs, costs associated with the elimination and consolidation of duplicate facilities, and employee severance and relocation costs. It is expected that the post-merger company will recognize recurring expense savings of approximately $600 million annually by the third year following completion of the merger as a result of consolidating operating systems and other administrative functions and reducing management positions. Approximately $300 million in savings are expected to be achieved in the first year following completion of the merger, with an additional $150 million in each of the two succeeding years. Incremental savings in annual capital expenditures for the company should grow to approximately $250 million to $300 million, including efficiencies relating to purchasing, marketing trials and equipment testing. We have established a target range for long-term earnings per share growth, following completion of the merger and excluding the transition and integration costs described above, of 10-12%. Future operating revenues, expenses and net income of the post-merger company may not follow the same historical trends, or reflect the same dependence on economic and competitive factors, as presented above in our discussion of our own historical results of operations and financial condition. You should also refer to Note 17 of our consolidated financial statements on pages 44 and 45 for pro forma information on the post-merger company. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Information contained above with respect to the expected financial impact of the proposed merger, and other statements in this Management's Discussion and Analysis, regarding expected future events and financial results is forward-looking and subject to risks and uncertainties. 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 could affect the future results of our company and could cause those results to differ materially from those expressed in the forward-looking statements: (i) materially adverse changes in economic conditions in the markets served by the company; (ii) a significant delay in the expected closing of the merger; (iii) the final outcome of FCC rulemakings with respect to interconnection agreements, access charge reform and universal service; (iv) the timing of presubscription for toll services; (v) future state regulatory actions and economic conditions in the company's operating areas; (vi) the extent, timing and success of competition from others in the local telephone and toll service markets; and (vii) the timing of entry and profitability of the company in the long distance market. 20 - -------------------------------------------------------------------------------- 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. We believe the financial statements have been prepared in conformity with generally accepted accounting principles and the information in this report is consistent with those statements. To meet our responsibility for the preparation of reliable financial statements, we maintain a strong internal control structure. It includes the appropriate control environment, accounting systems, and control procedures. The internal control structure is designed to provide reasonable assurance that assets are safeguarded from unauthorized use, that transactions are properly recorded and executed under our authorizations, and that the financial records permit the preparation of reliable financial statements. There are, however, inherent limitations that should be recognized in considering the assurances provided by the internal control structure. The concept of reasonable assurance recognizes that the costs of the internal control structure should not exceed the benefits to be derived. The internal control structure is reviewed and evaluated on a regular basis. Compliance is monitored by our internal auditors through an annual plan of internal audits. The Board of Directors has the responsibility to review the financial statements. This is done by its Audit Committee, which is composed of five outside directors. The Audit Committee meets periodically with management and the Board of Directors. It also meets with representatives of the internal auditors and independent accountants and reviews the work of each to ensure that their respective responsibilities are being carried out and to discuss related matters. Both the internal auditors and independent accountants have direct access to the Audit Committee. /s/ Raymond W. Smith Raymond W. Smith Chairman of the Board and Chief Executive Officer /s/ William O. Albertini William O. Albertini Executive Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- Report of Independent Accountants - -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF BELL ATLANTIC CORPORATION: We have audited the accompanying consolidated balance sheets of Bell Atlantic Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareowners' investment, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bell Atlantic Corporation and subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 2 to the consolidated financial statements, the Company changed its method of accounting for directory publishing revenues and expenses in 1996. Also, as discussed in Notes 1 and 3 to the consolidated financial statements, the Company discontinued accounting for the operations of its telephone subsidiaries in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," effective August 1, 1994. /s/ Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 5, 1997 21 Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Operations - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) ---------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES $ 13,081.4 $ 13,429.5 $ 13,791.4 OPERATING EXPENSES Employee costs, including benefits and taxes 3,921.6 4,022.0 4,333.1 Depreciation and amortization 2,594.6 2,627.1 2,652.1 Other 3,628.6 3,694.2 4,001.6 ------------- -------------- -------------- 10,144.8 10,343.3 10,986.8 ------------- -------------- -------------- OPERATING INCOME 2,936.6 3,086.2 2,804.6 Income from unconsolidated businesses 327.9 152.5 41.1 Other income and expense, net (36.0) 331.7 23.2 Interest expense 477.9 561.0 582.1 ------------- -------------- -------------- Income before provision for income taxes, extraordinary items, and cumulative effect of change in accounting principle 2,750.6 3,009.4 2,286.8 Provision for income taxes 1,011.2 1,147.6 884.9 ------------- -------------- -------------- Income before extraordinary items and cumulative effect of change in accounting principle 1,739.4 1,861.8 1,401.9 Extraordinary items Discontinuation of regulatory accounting principles, net of tax - - (2,150.0) Early extinguishment of debt, net of tax - (3.5) (6.7) ------------- -------------- -------------- - (3.5) (2,156.7) ------------- -------------- -------------- Cumulative effect of change in accounting principle Directory publishing, net of tax 142.1 - - ------------- -------------- -------------- NET INCOME (LOSS) $ 1,881.5 $ 1,858.3 $ (754.8) ============= ============== ============== Per Common Share: Income before extraordinary items and cumulative effect of change in accounting principle $ 3.96 $ 4.25 $ 3.21 Extraordinary items - (.01) (4.94) Cumulative effect of change in accounting principle .32 - - ------------- -------------- -------------- NET INCOME (LOSS) $ 4.28 $ 4.24 $ (1.73) ============= ============== ============== Weighted average number of common shares and equivalent shares outstanding (in millions) 439.6 438.3 437.2 ============= ============== ==============
See Notes to Consolidated Financial Statements. 22 Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Balance Sheets - --------------------------------------------------------------------------------
(Dollars in Millions, Except Per Share Amounts) ----------------------------------------------- At December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 152.5 $ 356.8 Short-term investments 271.7 - Accounts receivable, net of allowances of $248.3 and $189.8 2,846.8 2,386.0 Inventories 148.7 132.8 Prepaid expenses 402.0 611.7 Other 126.3 385.4 ------------- -------------- 3,948.0 3,872.7 ------------- -------------- Plant, property and equipment 34,758.4 33,553.8 Less accumulated depreciation 18,842.7 17,632.5 ------------- -------------- 15,915.7 15,921.3 ------------- -------------- Investments in unconsolidated businesses 3,766.8 3,007.7 Other assets 1,225.7 1,355.1 ------------- -------------- Total assets $ 24,856.2 $ 24,156.8 ============= ============== LIABILITIES AND SHAREOWNERS' INVESTMENT Current liabilities Debt maturing within one year $ 2,137.3 $ 1,930.2 Accounts payable and accrued liabilities 2,902.7 2,723.5 Other 662.8 719.3 ------------- -------------- 5,702.8 5,373.0 ------------- -------------- Long-term debt 5,960.2 6,407.2 ------------- -------------- Employee benefit obligations 3,887.4 3,841.3 ------------- -------------- Deferred credits and other liabilities Deferred income taxes 1,229.9 1,213.9 Unamortized investment tax credits 123.0 147.3 Other 385.1 345.5 ------------- -------------- 1,738.0 1,706.7 ------------- -------------- Preferred stock of subsidiary 145.0 145.0 ------------- -------------- Commitments (Notes 6 and 7) Shareowners' investment Preferred and preference stock ($1 par value; none issued) - - Common stock ($1 par value; 437,816,267 shares and 437,765,346 shares issued) 437.8 437.8 Contributed capital 5,510.9 5,506.4 Reinvested earnings 2,381.9 1,776.5 Foreign currency translation adjustment (458.5) (515.9) ------------- -------------- 7,872.1 7,204.8 Less common stock in treasury, at cost 3.6 3.1 Less deferred compensation-employee stock ownership plans 445.7 518.1 ------------- -------------- 7,422.8 6,683.6 ------------- -------------- Total liabilities and shareowners' investment $ 24,856.2 $ 24,156.8 ============= ==============
See Notes to Consolidated Financial Statements. 23 Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Changes in Shareowners' Investment - --------------------------------------------------------------------------------
( Dollars in Millions, Except Per Share Amounts, and Shares in Thousands) ------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 ------------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount - -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK Balance at beginning of year 437,765 $ 437.8 436,406 $ 436.4 436,130 $ 436.1 Shares issued: Employee plans 27 - 1,258 1.3 230 .2 Shareowner plans 24 - 8 - - - Acquisition agreements - - 93 .1 46 .1 ---------- ----------- --------- ----------- --------- ------------ Balance at end of year 437,816 437.8 437,765 437.8 436,406 436.4 ---------- ----------- --------- ----------- --------- ------------ COMMON STOCK ISSUABLE Balance at beginning of year - - 93 .1 142 .1 Shares issued: Acquisition agreements - - (93) (.1) (49) - ---------- ----------- --------- ----------- --------- ------------ Balance at end of year - - - - 93 .1 ---------- ----------- --------- ----------- --------- ------------ CONTRIBUTED CAPITAL Balance at beginning of year 5,506.4 5,428.4 5,415.2 Shares issued: Employee plans 2.5 76.5 13.2 Shareowner plans 1.6 1.5 - Other .4 - - ----------- ----------- ------------ Balance at end of year 5,510.9 5,506.4 5,428.4 ----------- ----------- ------------ REINVESTED EARNINGS Balance at beginning of year 1,776.5 1,144.4 3,093.6 Net income (loss) 1,881.5 1,858.3 (754.8) Dividends declared and redemption of stock rights ($2.88, $2.80, and $2.76 per share) (1,260.8) (1,223.4) (1,203.9) Shares issued: Employee plans (19.4) (11.8) (.9) Tax benefit of dividends paid to ESOPs 7.9 9.0 10.4 Other (3.8) - - ----------- ----------- ------------ Balance at end of year 2,381.9 1,776.5 1,144.4 ----------- ----------- ------------ FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance at beginning of year (515.9) (330.8) (83.9) Translation adjustments (net of tax benefit of $4.7, $1.1, and $.9) 57.4 (185.1) (246.9) ----------- ----------- ------------ Balance at end of year (458.5) (515.9) (330.8) ----------- ----------- ------------ TREASURY STOCK Balance at beginning of year 63 3.1 220 11.0 50 2.4 Shares purchased 1,490 100.6 211 11.2 209 10.5 Shares distributed: Employee plans (1,498) (100.0) (43) (2.1) (13) (.7) Shareowner plans (1) (.1) (234) (11.6) - - Acquisition agreements - - (91) (5.4) (26) (1.2) ---------- ----------- --------- ----------- --------- ------------ Balance at end of year 54 3.6 63 3.1 220 11.0 ---------- ----------- --------- ----------- --------- ------------ DEFERRED COMPENSATION-ESOPs Balance at beginning of year 518.1 586.2 634.3 Amortization (72.4) (68.1) (48.1) ----------- ----------- ------------ Balance at end of year 445.7 518.1 586.2 ----------- ----------- ------------ Total shareowners' investment $ 7,422.8 $ 6,683.6 $ 6,081.3 =========== =========== ============
See Notes to Consolidated Financial Statements. 24 Bell Atlantic Corporation and Subsidiaries - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
(Dollars in Millions) ------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 1,881.5 $ 1,858.3 $ (754.8) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,594.6 2,627.1 2,652.1 Extraordinary items, net of tax - 3.5 2,156.7 Cumulative effect of change in accounting principle, net of tax (142.1) - - Gain on sale of cellular properties, net of tax - (200.1) - Income from unconsolidated businesses (327.9) (152.5) (41.1) Dividends received fromunconsolidated businesses 125.5 146.0 101.0 Other items, net 62.1 62.3 (58.7) Changes in certain assets and liabilities, net of effects from acquisition/disposition of businesses: Accounts receivable (69.9) (310.2) (192.6) Inventories (15.9) (47.6) (80.8) Other assets (.6) (18.7) (226.6) Accounts payable and accrued liabilities 127.0 67.1 50.4 Deferred income taxes, net 77.1 (95.4) (270.5) Unamortized investment tax credits (24.3) (29.4) (49.4) Employee benefit obligations 52.1 84.8 382.8 Other liabilities 76.3 (14.2) 108.5 ---------- ---------- ---------- Net cash provided by operating activities 4,415.5 3,981.0 3,777.0 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments (401.7) (135.0) (10.0) Proceeds from sale of short-term investments 130.0 135.0 18.5 Additions to plant, property and equipment (2,553.4) (2,627.2) (2,648.3) Proceeds from sale of plant, property and equipment 13.2 3.5 102.1 Investment in finance lease and notes receivable - - (741.6) Proceeds from finance lease and notes receivable - 93.1 721.8 Proceeds from notes receivable 188.3 338.7 - Acquisition of businesses, less cash acquired (10.0) (41.4) (37.5) Proceeds from Telecom Corporation of New Zealand Limited capital reduction plan - - 67.4 Investments in unconsolidated businesses, net (496.5) (442.4) (583.7) Proceeds from disposition of businesses 4.2 611.2 1,446.8 Other, net (18.1) (26.3) (29.7) ---------- ---------- ---------- Net cash used in investing activities (3,144.0) (2,090.8) (1,694.2) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings - 106.6 249.6 Principal repayments of borrowings and capital lease obligations (228.2) (439.3) (621.1) Early extinguishment of debt - (200.0) (350.0) Net change in short-term borrowings with original maturities of three months or less 5.8 (48.1) (287.6) Dividends paid and redemption of stock rights (1,252.0) (1,218.0) (1,195.1) Proceeds from sale of common stock 74.7 76.9 6.9 Purchase of common stock for treasury (100.6) (11.2) (8.7) Net change in outstanding checks drawn on controlled disbursement accounts 24.5 (2.7) 35.0 Proceeds from sale of preferred stock by subsidiary - 59.5 85.0 ---------- ---------- ---------- Net cash used in financing activities (1,475.8) (1,676.3) (2,086.0) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents (204.3) 213.9 (3.2) Cash and cash equivalents, beginning of year 356.8 142.9 146.1 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 152.5 $ 356.8 $ 142.9 ========== ========== ==========
See Notes to Consolidated Financial Statements. 25 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------------------------------- DESCRIPTION OF BUSINESS Bell Atlantic Corporation is a diversified telecommunications company. For ease of reference, Bell Atlantic Corporation will be referred to as "we" or "Bell Atlantic" in this Annual Report. We operate predominantly in a single industry segment -- communications and related services. Our telephone subsidiaries provide local telephone services to customers in the mid-Atlantic region of the United States (Pennsylvania, New Jersey, Delaware, Virginia, Maryland, West Virginia and the District of Columbia). These services include the provision of voice and data transport, enhanced and custom calling features, network access, directory assistance, private lines, and public telephones. We also provide systems integration, customer premises equipment distribution and directory publishing services. During 1996, we began marketing long distance services in selected areas outside our geographic region. We also own an interest in a telecommunications company in New Zealand. Our wireless business includes domestic and international investments. Through several joint ventures, we provide cellular and personal communications services throughout most of the United States. We also have invested in wireless businesses in Mexico, Italy, Slovakia and the Czech Republic. 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 likely to bring 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. CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include our majority-owned subsidiaries (see Notes 4 and 6). Investments in businesses in which we do not have 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. 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. RECLASSIFICATIONS We reclassified certain amounts from previous years to conform with the 1996 presentation. REVENUE RECOGNITION Our 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. Revenues recognized from leasing transactions are recorded under Statement of Financial Accounting Standards (SFAS) No. 13, "Accounting for Leases." MAINTENANCE AND REPAIRS We charge the cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments, to operating expense. EARNINGS PER COMMON SHARE We calculate earnings per share by dividing net income by the weighted average number of shares and equivalent shares outstanding during the year. 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 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 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 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. 26 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 1 continued Effective August 1, 1994, our telephone subsidiaries discontinued accounting for their operations under SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation" (see Note 3). For financial reporting purposes, we no longer use asset lives set by regulators. As a result, we began using shorter estimated asset lives for certain categories of plant and equipment. The asset lives used by our telephone subsidiaries before and after the discontinuation of SFAS No. 71 are presented in the following table:
Average Lives (in years) Before After - -------------------------------------------------------------------------------- Buildings 18 - 60 30 Central office equipment 6 - 13 5 - 12 Cable, wiring and conduit 20 - 60 15 - 50 Other equipment 6 - 38 6 - 35
When we replace or retire depreciable telephone plant, the carrying amount of such plant is deducted from the respective accounts and charged to 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, 20-40 years; and other equipment, 2-10 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. CAPITALIZATION OF INTEREST COSTS We capitalize interest on funds borrowed to finance the acquisition or construction of plant assets. Capitalized interest is reported as a cost of plant and a reduction in interest cost. Before we discontinued SFAS No. 71, our telephone subsidiaries recorded an allowance for funds used during construction, which included both interest and equity return components, as a cost of plant and as an item of other income. GOODWILL Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. We amortize goodwill on a straight-line basis over periods not exceeding 40 years. We assess the impairment of goodwill related to our consolidated subsidiaries under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Goodwill related to our unconsolidated businesses accounted for under the equity method is reviewed whenever events or changes in circumstances indicate that the carrying value may not be recoverable and a determination of impairment (if any) is made based on estimates of future cash flows. 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 present these translation adjustments as a separate component of shareowners' investment. We report exchange gains and losses on intercompany foreign currency transactions of a long-term nature in shareowners' investment. 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. Effective October 1, 1996, we consider Grupo Iusacell, S.A. de C.V., our investment in Mexico, to operate in a highly inflationary economy. HEDGING INSTRUMENTS We periodically enter into hedging agreements to reduce our exposure to fluctuations in foreign exchange rates and interest rates. We use forward exchange contracts to hedge our exposure to currency fluctuations on certain short-term transactions denominated in a currency other than an entity's functional currency. Gains and losses on these contracts offset the foreign exchange gains and losses on the underlying hedged transactions and are included in income. The discount or premium on these contracts is included in income over the life of the contract. Gains and losses on forward exchange contracts which hedge identifiable foreign currency commitments are deferred and reflected as adjustments to the related transactions. If the transaction is no longer likely to occur, the gain or loss is recognized immediately in income. Gains and losses and related discounts or premiums arising from financial instruments that hedge foreign balances of a long-term investment nature are included in shareowners' investment as foreign currency translation adjustments. Interest rate hedge agreements are used to reduce interest rate risks and costs inherent in our debt portfolio. These agreements involve the exchange of fixed and variable interest rate payments over the life of the agreement without the exchange of the underlying principal amounts. The interest differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense over the life 27 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 1 continued of the agreements. If we terminate a hedging 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. INCOME TAXES Bell Atlantic and its domestic subsidiaries file a consolidated federal income tax return. Our telephone subsidiaries use the deferral method of accounting for investment tax credits earned prior to repeal of investment tax credits by the Tax Reform Act of 1986. We also defer certain transitional credits earned after the repeal. These credits are being amortized as a reduction to the provision for income taxes over the estimated service lives of the related assets. 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 (see Note 2). 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. Effective January 1, 1996, we adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (see Note 12). 2. 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 $142.1 million (net of income tax of $88.0 million), or $.32 per share, 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, and it would not have been significant had it been applied in 1995 and 1994. We restated our 1996 quarterly results of operations for the effect of the change in accounting for directory publishing (see Note 16). As a result of this restatement, (unaudited) income before cumulative effect of change in accounting principle decreased $5.8 million, $30.6 million and $17.9 million in the first, second, and third quarters of 1996. 3. DISCONTINUATION OF REGULATORY ACCOUNTING PRINCIPLES - ------------------------------------------------------ In the third quarter of 1994, we discontinued the use of regulatory accounting principles under SFAS No. 71, which means for financial reporting purposes we no longer follow accounting practices set by regulators. As a result, we recorded a noncash, extraordinary charge of $2,150.0 million, which is net of an income tax benefit of $1,498.4 million. The following table displays the components of the after-tax charge:
(Dollars in Millions) - -------------------------------------------------------------------------------- Increase in plant and equipment depreciation reserve $ 2,128.9 Accelerated investment tax credit amortization (136.2) Tax-related regulatory asset and liability elimination 42.5 Other regulatory asset and liability elimination 114.8 ------------- Total $ 2,150.0 =============
28 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 4. FORMATION OF WIRELESS PARTNERSHIP - ----------------------------------------- Effective July 1, 1995, Bell Atlantic and NYNEX Corporation completed the combination of substantially all of our domestic cellular and paging businesses and the formation of a wireless partnership, Bell Atlantic NYNEX Mobile (BANM). BANM operates as a general partnership and is controlled equally by Bell Atlantic and NYNEX. Because of joint control provisions in the partnership agreement, we account for our investment using the equity method. We contributed net assets of $1,178.1 million in exchange for an approximate 62% equity interest in the partnership. No gain or loss was recognized on the contribution. As a condition to the completion of the combination, we sold certain cellular properties in Massachusetts and Rhode Island resulting in the recognition of a pretax gain of approximately $314 million ($200 million after- tax) in 1995. As required by the partnership agreement, in July 1996, we contributed to BANM a portion of our investment in a cellular partnership with NYNEX which serves the New York metropolitan area. The remainder of our investment in this cellular partnership is scheduled to be contributed to BANM in July 1997. The following table provides the revenues and expenses of our domestic cellular and paging businesses as reported in our consolidated financial statements for periods before the formation of the partnership:
(Dollars in Millions) - -------------------------------------------------------------------------------- Six months ended Year ended June 30, 1995 Dec. 31, 1994 - -------------------------------------------------------------------------------- Operating revenues $ 629.9 $ 1,063.3 Operating expenses 532.0 947.6 ------------- ------------- Operating income 97.9 115.7 Income from unconsolidated businesses 22.6 34.2 Other expenses, net .1 13.1 Interest expense 13.9 14.8 ------------- ------------- Income before income taxes $ 106.5 $ 122.0 ============= =============
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, 1996 1995 - -------------------------------------------------------------------------------- Land $ 256.6 $ 262.2 Buildings 2,863.5 2,736.8 Central office equipment 13,718.9 12,812.6 Cable, wiring and conduit 12,833.8 12,404.6 Other equipment 4,218.6 4,145.7 Other 452.2 619.4 Construction-in-progress 414.8 572.5 -------------- ----------- 34,758.4 33,553.8 Accumulated depreciation (18,842.7) (17,632.5) -------------- ----------- Total $ 15,915.7 $ 15,921.3 ============== ===========
Plant, property and equipment at December 31, 1996 and 1995 includes real estate property under operating leases, or held for lease, of $346.2 million and $327.5 million, and accumulated depreciation of $92.3 million and $82.3 million. 29 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 6. INVESTMENTS IN UNCONSOLIDATED BUSINESSES - ------------------------------------------- Our investments in unconsolidated businesses, which are accounted for principally under the equity method, are comprised of the following:
(Dollars in Millions) - ----------------------------------------------------------------------------------------------------------------------- 1996 1995 At December 31, Ownership Investment Ownership Investment - ----------------------------------------------------------------------------------------------------------------------- Equity investees: Bell Atlantic NYNEX Mobile 62.35% $ 1,806.0 62.594% $ 1,446.7 PrimeCo Personal Communications, L.P. 25.0 375.9 25.0 298.8 Telecom Corporation of New Zealand Limited 24.82 689.2 24.82 639.4 Grupo Iusacell, S.A. de C.V. 41.9 333.1 41.9 356.2 Omnitel Pronto Italia S.p.A. 17.45 331.5 11.67 40.4 Other Various 169.6 Various 169.0 ------------- -------------- Total equity investees 3,705.3 2,950.5 Other investees Various 61.5 Various 57.2 ------------- -------------- Total $ 3,766.8 $ 3,007.7 ============= ==============
The BANM partnership, as described in Note 4, provides wireless local and long distance services to customers in the Northeast, mid-Atlantic, Southeast and Southwest domestic cellular markets. PrimeCo Personal Communications, L.P. (PrimeCo) is a partnership between Bell Atlantic, NYNEX, AirTouch Communications, and U S West Media Group. In March 1995, the PrimeCo partnership acquired licenses for approximately $1.1 billion which allow the partnership to provide personal communications services in 11 major markets across the United States. PrimeCo began offering services to customers in November 1996. Under the terms of the partnership agreement PrimeCo entered into a leveraged lease financing arrangement for certain equipment. This leveraged lease financing obligation has been guaranteed by the partners in the joint venture. Our share of this guarantee is approximately $73 million. Telecom Corporation of New Zealand Limited is that country's principal provider of telecommunications services. At the date of acquisition in 1990, goodwill was approximately $285 million. We are amortizing this amount on a straight-line basis over a period of 40 years. Through purchases of stock totaling $1,044.0 million, we acquired a 41.9% economic interest in Grupo Iusacell, S.A. de C.V. (Iusacell), the second largest telecommunications company in Mexico. Our shares represented approximately 44% of the voting rights for Iusacell stock. At acquisition, goodwill amounted to approximately $760 million. We are amortizing this amount on a straight-line basis over a period of 25 years. Our investment in Iusacell was reduced by approximately $530 million as of December 31, 1996 as a result of foreign currency translation losses. We recorded these losses as a component of shareowners' investment. In February 1997, we consummated a restructuring of our investment to permit us to assume control of the Board of Directors and management of Iusacell. Under the terms of the restructuring, we exchanged certain Series B and D shares of Iusacell stock for Series A shares, which enables us to elect a majority of the Board of Directors. We also paid a premium of $50.0 million to the current majority owner. The exchange of shares does not affect our economic ownership percentage of Iusacell. We also converted approximately $33 million of subordinated debt into equity, and we may be required to provide Iusacell up to $150 million in financing. As a result of the restructuring, we will change the accounting for our Iusacell investment from the equity method to full consolidation. Omnitel Pronto Italia S.p.A. (Omnitel) operates a cellular mobile telephone network in Italy. In 1994, we acquired an 11.67% interest in Omnitel. We account for this investment under the equity method because we have significant influence over Omnitel's operating and financial policies. In December 1996, we made an additional investment of $273.7 million that increased our ownership in Omnitel to 17.45%. Approximately $250 million of this additional investment represents goodwill which is being amortized on a straight-line basis over 25 years. We also have telecommunications investments in Slovakia and the Czech Republic. These equity investees consist of joint ventures to build and operate cellular networks in these countries. Other investments include video services joint ventures, real estate partnerships, a one-seventh interest in Bell Communications Research, Inc. (Bellcore), and several other domestic and international joint ventures. In November 1996, Bell Atlantic and other Bellcore owners entered into an agreement to sell our jointly owned investment in Bellcore. 30 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 6 continued We expect to record a small gain as a result of this sale, which is anticipated to close in 1997. Included in operating expenses are amounts billed by Bellcore. Such expenses for 1996, 1995 and 1994 were $108.1 million, $103.7 million and $99.8 million for various network planning, engineering, and software development projects. Dividends received from equity investees amounted to $125.5 million in 1996, $146.0 million in 1995 and $101.0 million in 1994. The following tables present the summarized unaudited financial information for our equity investees. These amounts are shown on a 100 percent basis.
(Dollars in Millions) - -------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 - -------------------------------------------------------------------------------- Results of operations: Revenues $ 7,544.6 $ 5,088.8 Operating income 776.6 926.9 Net income 451.6 407.1 Bell Atlantic's equity share of income $ 327.9 $ 152.5 ------------ ------------- (Dollars in Millions) - -------------------------------------------------------------------------------- At December 31, 1996 1995 - -------------------------------------------------------------------------------- Financial position: Current assets $ 2,334.2 $ 1,707.8 Noncurrent assets 10,806.3 8,370.6 Current liabilities 3,693.7 2,697.8 Noncurrent liabilities 2,323.8 1,260.9 Minority interests 235.1 253.9 Stockholders' equity 6,887.9 5,865.8 Bell Atlantic's equity share of investees $ 3,705.3 $ 2,950.5 ------------ -------------
The above financial information at December 31, 1996 includes net assets of foreign equity investees totaling approximately $2.3 billion (on a 100% basis), of which $1.5 billion is located in New Zealand and the remainder is located in Mexico and European countries. These assets may be subject to risks in the event of changes in government policies or other unforeseen circumstances. 7. LEASING ARRANGEMENTS - ----------------------- 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 $248.0 million in 1996, $272.6 million in 1995 and $285.5 million in 1994. In 1996, 1995 and 1994, we incurred initial capital lease obligations of $1.6 million, $14.0 million and $11.9 million. Capital lease amounts included in plant, property and equipment are as follows:
(Dollars in Millions) - -------------------------------------------------------------------------------- At December 31, 1996 1995 - -------------------------------------------------------------------------------- Capital leases $ 158.6 $ 172.8 Accumulated amortization (84.3) (87.4) -------------- ------------- Total $ 74.3 $ 85.4 ============== =============
This table displays the aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 1996:
(Dollars in Millions) - -------------------------------------------------------------------------------- Capital Operating Years Leases Leases - -------------------------------------------------------------------------------- 1997 $ 23.3 $ 87.7 1998 23.2 77.2 1999 19.0 64.5 2000 29.3 61.4 2001 17.3 58.5 Thereafter 75.8 540.8 --------- --------- Total minimum rental commitments 187.9 $ 890.1 ========= Less interest and executory costs 79.8 --------- Present value of minimum lease payments 108.1 Less current installments 10.0 --------- Long-term obligation at December 31, 1996 $ 98.1 =========
As of December 31, 1996, the total minimum sublease rentals to be received in the future under noncancelable operating subleases was $69.8 million. 31 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 7 continued AS LESSOR Our finance lease receivables consist of the remaining leveraged lease and project finance portfolios of a lease financing subsidiary that was disposed of in 1994. We are no longer providing new leasing services. Finance lease receivables, which are included in Current Assets-Other and Noncurrent Assets-Other Assets in the consolidated balance sheets, are comprised of the following:
(Dollars in Millions) ------------------------------ At December 31, 1996 1995 - -------------------------------------------------------------------------------- Leveraged leases $ 810.7 $ 802.3 Direct finance leases 17.6 27.3 -------------- ------------- Total $ 828.3 $ 829.6 ============== ============= The components of our net investment in leveraged leases are as follows: (Dollars in Millions) ------------------------------ At December 31, 1996 1995 - -------------------------------------------------------------------------------- Minimum lease payments receivable $ 745.5 $ 746.2 Estimated residual value 496.8 496.8 Unearned income (431.6) (440.7) -------------- ------------- Total $ 810.7 $ 802.3 ============== =============
Minimum lease payments receivable are shown net of principal and interest on the associated nonrecourse debt. Accumulated deferred taxes arising from leveraged leases, which are included in deferred income taxes, amounted to $765.4 million at December 31, 1996 and $755.6 million at December 31, 1995. This table displays the future minimum lease payments to be received from noncancelable leases, net of nonrecourse loan payments related to leveraged leases, for the periods shown at December 31, 1996:
(Dollars in Millions) ----------------------------------- Years Capital Leases Operating Leases - -------------------------------------------------------------------------------- 1997 $ 8.7 $ 38.8 1998 13.3 33.9 1999 14.6 24.9 2000 15.5 18.6 2001 15.0 13.1 Thereafter 700.5 28.5 --------- --------- Total $ 767.6 $ 157.8 ========= =========
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, 1996 1995 - -------------------------------------------------------------------------------- Notes payable: Commercial paper $ 1,611.0 $ 1,415.8 Bank loans 61.8 200.5 Long-term debt maturing within one year 464.5 313.9 -------------- ------------- Total debt maturing within one year $ 2,137.3 $ 1,930.2 ============== ============= Weighted average interest rates for notes payable outstanding at year-end 5.6% 5.8% -------------- -------------
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, 1996, we had in excess of $2.1 billion of unused bank lines of credit. The availability of these lines, for which there are no formal compensating balances or commitment fee agreements, is at the discretion of each bank. 32 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 8 continued LONG-TERM DEBT This table shows our outstanding long-term debt obligations:
(Dollars in Millions) - ------------------------------------------------------------------------------------------------------------------------- At December 31, Interest Rates Maturities 1996 1995 - --------------------------------------------------------------------------------------------------------- ------------ Telephone subsidiaries' debentures 4.375% - 7.00% 1998 - 2025 $ 2,137.0 $ 2,172.0 7.125% - 7.75% 2002 - 2033 1,955.0 1,955.0 7.85% - 8.75% 2019 - 2031 1,080.0 1,080.0 --------------------------------------------------- ----------- 5,172.0 5,207.0 Notes payable 5.26% - 12.42% 1997 - 2005 735.1 916.7 Mortgage and installment notes 7.13% - 11.00% 1997 - 2003 27.3 11.9 Employee stock ownership plan loans - senior notes 8.17% 2000 412.2 497.9 Capital lease obligations - average rate 10.3% and 10.4% 108.1 119.7 Unamortized discount and premium, net (30.0) (32.1) ---------- ----------- Total long-term debt, including current maturities 6,424.7 6,721.1 Less maturing within one year 464.5 313.9 ---------- ----------- Total long-term debt $ 5,960.2 $ 6,407.2 ========== ===========
The telephone subsidiaries' debentures outstanding at December 31, 1996 include $1,537.0 million that are callable. The call prices range from 102.49% to 100.0% of face value, depending upon the remaining term to maturity of the issue. In addition, these debentures include $440.0 million that will become redeemable for limited periods at the option of the holders. Of this amount, $175.0 million becomes redeemable in 1997, 2000, and 2002; and $265.0 million becomes redeemable in 1999. The redemption prices will be 100.0% of face value plus accrued interest. Maturities of long-term debt outstanding at December 31, 1996, excluding capital lease obligations and unamortized discount and premium, are $454.5 million in 1997, $397.7 million in 1998, $559.7 million in 1999, $319.2 million in 2000, $93.8 million in 2001, and $4,521.7 million thereafter. These amounts include the redeemable debentures at the earliest possible redemption dates. Our medium-term notes (which are included in notes payable) are issued by Bell Atlantic Financial Services, Inc. (FSI), a wholly owned subsidiary. FSI debt securities (aggregating $633.6 million at December 31, 1996) have the benefit of a Support Agreement dated October 1, 1992 between Bell Atlantic and FSI under which Bell Atlantic will make payments of interest, premium (if any) and principal on the FSI debt should FSI fail to pay. The holders of FSI debt do not have recourse to the stock or assets of our telephone subsidiaries, however, they 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 $4.8 billion at December 31, 1996. We recorded extraordinary charges associated with the early extinguishment of debentures. These charges reduced net income by $3.5 million (net of an income tax benefit of $2.5 million) in 1995, and $6.7 million (net of an income tax benefit of $3.6 million) in 1994. Information on our Employee Stock Ownership Plan Loans is provided in Note 13. 33 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 9. FINANCIAL INSTRUMENTS - ------------------------ DERIVATIVES We limit our use of derivatives to managing risk that could jeopardize our financing and operating flexibility, making cash flows more stable over the long run and achieving savings over other means of financing. Derivative agreements are tied to specific liabilities or assets and hedge the related economic exposures. The use of these hedging agreements has not had a material impact on our financial condition or results of operations. We do not hold derivatives for trading purposes. INTEREST RATE HEDGE AGREEMENTS The following table provides additional information about our interest rate hedge agreements. The notional amounts are used to calculate contractual payments to be exchanged. These amounts are not actually paid or received, nor are they a measure of our exposure in the event of nonperformance by a counterparty. Interest rate hedge agreements have not significantly affected our relative proportion of variable and fixed interest expense.
(Dollars in Millions) ---------------------------------------- Weighted Average Rate --------------------- Notional Variable to Fixed: Amount Maturities Receive Pay - -------------------------------------------------------------------------------- At December 31, 1996 $ 200.0 1999-2005 5.5% 6.0% 1995 $ 200.0 1999-2005 5.4 5.7
FOREIGN EXCHANGE CONTRACTS Our foreign exchange contracts have generally been limited to forward contracts for the sale or purchase of certain foreign currencies on a specified future date. All of our outstanding contracts have maturities within 120 days of the respective year-end. We continually monitor the relationship between gains and losses recognized on forward exchange contracts and on the underlying transactions being hedged to mitigate market risk. Foreign exchange gains and losses recognized on these contracts were not material to our results of operations or financial condition and offset the foreign exchange gains and losses on the underlying hedged transactions. Amounts deferred from hedging identifiable foreign currency commitments were not material. At December 31, 1996, we had no material foreign currency cash flow exposure denominated in a currency other than our functional currency. We have not hedged our accounting translation exposure to foreign currency fluctuations relative to our net equity position in foreign businesses since it does not represent actual cash flow exposure. Our net equity position in our principal unconsolidated foreign businesses totaled $1,423.7 million at December 31, 1996 and $1,099.8 million at December 31, 1995. These businesses have operations primarily in New Zealand, Mexico and Italy. Certain unconsolidated foreign businesses accounted for using the equity method have balances denominated in a currency other than the investees' functional currency. We are subject to fluctuations in our equity income from these businesses related to foreign currency gains and losses on such balances. We recognized foreign currency gains totaling $6.8 million in 1996 and foreign currency losses totaling $29.0 million in 1995 and $21.5 million in 1994 in income from unconsolidated businesses. 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, interest rate hedge agreements and foreign exchange forward contracts. Our policy is to place our temporary cash investments, and to enter into derivative contracts, with major financial institutions. We also limit the amount of credit exposure to any one financial institution and monitor our counterparties' credit ratings. We believe the risk of credit loss due to nonperformance by counterparties is remote and any losses would not be material to our results of operations or financial condition. Concentrations of credit risk with respect to trade receivables other than those from AT&T are limited due to the large number of customers. For the years ended December 31, 1996, 1995 and 1994, revenues generated from services provided to AT&T (primarily network access and billing and collection) were $1,203.2 million, $1,316.4 million and $1,352.6 million. At December 31, 1996 and 1995, our accounts receivable, net, included $109.9 million and $125.3 million from AT&T. We also have an uncollateralized note receivable from The Finova Group Inc. in connection with the disposition of a lease financing subsidiary in 1994 in the amount of $77.5 million at December 31, 1996 and $213.8 million at December 31, 1995. The principal and interest payments received on the note match the principal and interest payments on debt retained by us as part of the disposition. 34 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 9 continued FAIR VALUES OF FINANCIAL INSTRUMENTS The tables below provide additional information about our material financial instruments: Financial Instrument Valuation Method - -------------------------------------------------------------------------------- Cash and cash equivalents Carrying amounts and short-term investments Debt (excluding capital leases Market quotes for similar and unamortized premium terms and maturities or future and discount) cash flows discounted at current rates Preferred stock investments Future cash flows discounted and notes receivable at current rates or market quotes for similar instruments Interest rate hedge Gains or losses to terminate agreements agreements Foreign exchange contracts Market quotes and common stock investments
(Dollars in Millions) - ------------------------------------------------------------------------------- 1996 1995 ------------------ ------------------ Carrying Fair Carrying Fair At December 31, Amount Value Amount Value - ------------------------------------------------------------------------------- Debt $ 8,019.4 $ 8,097.7 $ 8,249.8 $ 8,604.3 Preferred and common stock investments and notes receivable, net 135.8 111.4 315.6 318.4 Interest rate hedge agreements - 3.1 - (3.8) Forward exchange contracts:* Receivable 6.4 6.4 8.5 8.5 Payable (2.5) (2.5) (.4) (.4)
* No position in any individual foreign currency exceeded $6.3 million at December 31, 1996 and $6.8 million at December 31, 1995.
(Dollars in Millions) - -------------------------------------------------------------------------------- 1996 1995 --------------- --------------- Contract/ Contract/ At December 31, Notional Amount Notional Amount - -------------------------------------------------------------------------------- Interest rate hedge agreements $ 200.0 $ 200.0 Forward exchange contracts 8.9 8.9
10. PREFERRED STOCK OF SUBSIDIARY - --------------------------------- Our subsidiary Bell Atlantic New Zealand Holdings, Inc. (BANZHI) issued two series of preferred stock. BANZHI and another subsidiary indirectly own our investment in Telecom Corporation of New Zealand Limited. 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. Both series of preferred stock are subject to mandatory redemption on May 1, 2004 at a redemption price per share of $100, together with any accrued and unpaid dividends. 11. SHAREOWNERS' INVESTMENT - --------------------------- We are authorized to issue up to 12.5 million shares each of preferred and preference stock and 1.5 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 $.01 per Right ($.005 per share as a result of a two-for-one stock split declared on March 16, 1990) on May 1, 1996. 35 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 12. 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 $.7 million in 1996, $.9 million in 1995 and $10.0 million in 1994. If we had elected to recognize compensation expense based on the fair value at the grant dates for 1995 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, 1996 1995 - -------------------------------------------------------------------------------- Net income As reported $ 1,881.5 $ 1,858.3 Pro forma 1,861.9 1,839.9 ----------------------------------- Earnings per share As reported $ 4.28 $ 4.24 Pro forma 4.24 4.20 -----------------------------------
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:
1996 1995 - -------------------------------------------------------------------------------- Dividend yield 4.9% 5.1% Expected volatility 14.7% 15.9% Risk-free interest rate 5.4% 7.6% Expected lives (in years) 4.5 4.5 - --------------------------------------------------------------------------------
The weighted average value of options granted was $7.23 per option during 1996 and $7.46 per option during 1995. FIXED STOCK OPTION PLANS We have two fixed stock option plans. Under the first plan, the 1985 Incentive Stock Option Plan (ISO Plan), key employees may be granted incentive and/or nonqualified stock options to purchase shares of Bell Atlantic common stock. Under the ISO Plan, certain key employees may receive reload options upon tendering shares of Bell Atlantic common stock to exercise options. A total of 25,000,000 shares may be distributed under the ISO Plan and the Performance Share Plan. As of December 31, 1996 and 1995, a total of 6,834,702 and 10,879,082 shares of common stock were available for the granting of stock options under the ISO Plan and for distributions of shares under the Performance Share Plan. Under the second plan, the Stock Compensation Plan for Outside Directors, each outside director is entitled to receive up to 2,500 stock options per year. In 1994, we adopted the Options Plus Plan. We granted nonqualified stock options to approximately 800 managers below the rank of officer in place of a portion of each such manager's annual cash bonus in 1994 and 1995. The plan was then discontinued. Under all the plans described above, the exercise price of each option equals the market price of Bell Atlantic common stock on the date of grant. Options 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, 1993 2,582,568 $ 50.50 Granted 5,838,885 54.75 Exercised (177,796) 46.86 Canceled/forfeited (326,323) 54.69 ------------- Outstanding, December 31, 1994 7,917,334 53.55 Granted 3,798,970 51.06 Exercised (1,332,155) 52.27 Canceled/forfeited (350,609) 52.53 ------------- Outstanding, December 31, 1995 10,033,540 52.81 Granted 5,503,966 67.70 Exercised (1,651,542) 51.53 Canceled/forfeited (398,216) 65.71 ------------- Outstanding, December 31, 1996 13,487,748 58.66 ============= Options exercisable, December 31: 1994 2,352,386 50.73 1995 6,533,179 53.83 1996 8,467,943 53.26
36 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 12 continued The following table summarizes information about fixed stock options outstanding as of December 31, 1996:
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 - ------------------------------------------------------------------------------------------------------------------ $ 34 to 44 42,824 1.9 years $ 36.52 42,824 $ 36.52 45 to 54 6,476,141 7.1 52.22 6,476,141 52.22 55 to 64 2,255,486 7.7 57.53 1,876,555 56.63 65 to 74 4,713,297 9.0 68.24 72,423 67.99 - ----------------------------------- ---------- Total 13,487,748 7.9 58.66 8,467,943 53.26 =================================== ==========
PERFORMANCE-BASED SHARE PLANS The Performance Share Plan provided for the granting of awards to certain key employees in the form of Bell Atlantic common stock. A key employee received the distribution of shares at the end of the applicable performance measurement period or the employee elected to defer the distribution of the awards for one or more years. Awards were based on the total return of Bell Atlantic common stock in comparison to the total return on the stock of a number of other telecommunications companies. Authority to make new grants expired in December 1994. Final awards were credited to employees in January 1996. We also have deferred compensation plans that allow certain employees and members of the Board of Directors to defer all or a portion of their compensation. Some of these plans provide returns based on the performance of and for 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. This table is a summary of the status of our performance-based share plans:
Shares - -------------------------------------------------------------------------------- Outstanding, December 31, 1993 874,375 Additional shares credited 82,231 Distributed (161,041) Canceled/forfeited (23,125) ----------- Outstanding, December 31, 1994 772,440 Additional shares credited 87,387 Distributed (114,715) Canceled/forfeited (21,634) ----------- Outstanding, December 31, 1995 723,478 Additional shares credited 60,703 Distributed (100,877) Canceled/forfeited (230,058) ----------- Outstanding, December 31, 1996 453,246 ===========
37 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 13. EMPLOYEE BENEFITS - --------------------- PENSION PLANS We sponsor noncontributory defined benefit pension plans covering substantially all of our management and associate employees. Benefits for associate employees are determined by a flat dollar amount per year of service according to job classification. Effective December 31, 1995, the plan covering management employees was converted to a cash balance plan with benefits determined by compensation credits related to age and service and interest credits based on individual account balances. The management pension benefit for prior years was based on a stated percentage of adjusted career average earnings. Under the cash balance plan, each management employee's opening account balance was determined by converting the accrued pension benefit as of December 31, 1995 to a lump-sum amount based on the prior plan's provisions. The lump-sum value was then multiplied by a transition factor based on age and service to arrive at the opening balance. Our objective in funding the plans is to accumulate funds at a relatively stable level over participants' working lives so that benefits are fully funded at retirement. Plan assets consist principally of investments in domestic and foreign corporate equity securities, U.S. and foreign government and corporate debt securities, and real estate. Pension cost includes the following components:
(Dollars in Millions) Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost $ 180.4 $ 162.6 $ 196.4 Interest cost 812.3 820.8 821.1 Actual return on plan assets (1,916.9) (2,559.9) (27.6) Net amortization and deferral 988.1 1,638.2 (841.9) --------- --------- --------- Pension cost $ 63.9 $ 61.7 $ 148.0 ========= ========= =========
The change in pension cost from year-to-year was caused by a number of variables, including changes in actuarial assumptions (see table below), returns on plan assets and plan amendments. The following table shows the pension plans' funded status reconciled with amounts in our consolidated balance sheets:
(Dollars in Millions) At December 31, 1996 1995 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Benefits based on service to date and present salary levels Vested $ 8,877.6 $ 8,747.2 Nonvested 1,295.7 1,847.1 ------------ ------------- Accumulated benefit obligation 10,173.3 10,594.3 Additional benefits related to estimated future salary levels 429.0 708.9 ------------ ------------- Projected benefit obligation 10,602.3 11,303.2 ------------ ------------- Fair value of plan assets 14,050.0 13,218.9 ------------ ------------- Plan assets in excess of projected benefit obligation (3,447.7) (1,915.7) Unrecognized net gain 4,184.0 2,565.8 Unamortized prior service cost (16.4) 3.4 Unamortized net transition asset 154.1 173.6 Additional minimum liability for nonqualified plans 19.0 27.7 ------------ ------------- Accrued pension obligation $ 893.0 $ 854.8 ============ =============
We used the following assumptions to calculate pension costs and benefit obligations:
At December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Discount rate 7.75% 7.25% 8.25% Rate of future increases in compensation levels 4.75% 4.75% 5.25% -------- -------- --------
In addition, the expected long-term rate of return on plan assets used to calculate pension costs for 1996, 1995 and 1994 was 8.25%. Pension benefits for approximately 70% of employees are subject to collective bargaining, and modifications in pension benefits have been bargained from time to time. We have also periodically amended the benefits in the management plan. Substantive commitments for future amendments are reflected in the pension costs and benefit obligations. The actuarial assumptions used to determine pension costs and benefit obligations 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 pension costs and benefit obligations. 38 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 13 continued POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Our postretirement health and life insurance benefit plans cover substantially all of our management and associate employees. Postretirement health benefit costs are based on comprehensive medical and dental plan provisions. Postretirement life insurance costs are based on annual basic pay at retirement. In 1996, we restructured certain postretirement health and life insurance obligations and assets to create a single plan. The remaining postretirement benefits continue to be provided by separate plans. The restructure did not affect plan benefits or postretirement benefit costs or obligations. We fund the postretirement health and life insurance benefits of current and future retirees. Plan assets consist principally of investments in domestic and foreign corporate equity securities, and U.S. Government and corporate debt securities. Postretirement benefit cost includes the following components:
(Dollars in Millions) Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost $ 73.1 $ 63.8 $ 81.6 Interest cost 298.9 297.6 298.0 Actual return on plan assets (217.0) (330.7) 12.4 Net amortization and deferral 115.6 237.6 (89.0) ---------- ---------- ---------- Postretirement benefit cost $ 270.6 $ 268.3 $ 303.0 ========== ========== ==========
The change in postretirement benefit cost from year-to-year was caused by a number of variables, including changes in actuarial assumptions (see table below), returns on plan assets, and plan amendments. The following table shows the postretirement benefit plans' funded status reconciled with the amounts recognized in our consolidated balance sheets:
(Dollars in Millions) At December 31, 1996 1995 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation (APBO): Retirees $ 2,263.6 $ 2,503.4 Fully eligible plan participants 353.9 368.9 Other active plan participants 1,301.6 1,384.7 ------------ ------------ Total APBO 3,919.1 4,257.0 ------------ ------------ Fair value of plan assets 1,880.3 1,632.5 ------------ ------------ APBO in excess of plan assets 2,038.8 2,624.5 Unrecognized net gain 771.7 145.7 Unamortized prior service cost (68.9) (56.7) ------------ ------------ Accrued postretirement benefit obligation $ 2,741.6 $ 2,713.5 ============ ============ Total APBO by plan: Health and welfare $ 3,681.4 $ 3,747.2 Life insurance 237.7 509.8 ------------ ------------ Total $ 3,919.1 $ 4,257.0 ============ ============ Fair value of plan assets by plan: Health and welfare $ 1,696.5 $ 932.1 Life insurance 183.8 700.4 ------------ ------------ Total $ 1,880.3 $ 1,632.5 ============ ============
We used the following assumptions to calculate the postretirement benefit costs and benefit obligations:
At December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Discount rate 7.75% 7.25% 8.25% Rate of future increases in compensation levels 4.75 4.75 5.25 Medical cost trend rate: For the year ending 10.00 11.00 12.00 Ultimate (year 2003) 5.00 5.00 5.00 Dental cost trend rate 4.00 4.00 4.00 -------- -------- --------
39 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 13 continued In addition, the expected long-term rate of return on plan assets used to calculate postretirement benefit costs for 1996, 1995 and 1994 was 8.25%. The medical cost trend rate significantly affects the reported postretirement benefit costs and benefit obligations. A one-percentage-point increase in the assumed health care cost trend rates for each future year would have increased 1996 postretirement benefit costs by $43.7 million and would have increased the accumulated postretirement benefit obligation as of December 31, 1996 by $402.5 million. Postretirement benefits for approximately 70% of employees are subject to collective bargaining and have been modified from time to time. We have also periodically modified postretirement benefits for management employees. Substantive commitments for future amendments are reflected in the postretirement benefit costs and benefit obligations. The actuarial assumptions used to determine postretirement benefit costs and benefit obligations 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 postretirement benefit costs and benefit obligations. SAVINGS PLANS AND EMPLOYEE STOCK OWNERSHIP PLANS We 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. Under these plans, we match a certain percentage of eligible employee contributions with shares of our common stock. Two leveraged employee stock ownership plans (ESOPs) were established to purchase our common stock and fund our matching contribution. Common stock is allocated from the 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, 1996, the number of unallocated and allocated shares of common stock was 6,889,386 and 10,130,862. All ESOP shares are included in earnings per share computations. The ESOP trusts were funded by the issuance of $790.0 million in ESOP Senior Notes. The annual interest rate on the ESOP Senior Notes is 8.17%. The ESOP Senior Notes are payable in semiannual installments, which began on January 1, 1990 and end in the year 2000. The ESOP trusts repay the notes, including interest, with funds from our contributions to the ESOP trusts, as well as dividends received on unallocated shares of common stock and interest earned on the cash balances of the ESOP trusts. The obligations of the 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. We recognize ESOP cost based on accounting rules applicable to companies with ESOP trusts that held securities before December 15, 1989. ESOP cost and trust activity consist of the following:
(Dollars in Millions) Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Compensation $ 72.3 $ 68.0 $ 48.1 Interest incurred 35.5 48.6 48.0 Dividends (22.3) (26.0) (29.8) Other trust earnings and expenses, net (.3) (.5) (.3) ---------- ---------- ---------- Net leveraged ESOP cost 85.2 90.1 66.0 Additional (reduced) ESOP cost (6.7) (3.2) 7.1 ---------- ---------- ---------- Total ESOP cost $ 78.5 $ 86.9 $ 73.1 ========== ========== ========== Dividends received for debt service $ 43.0 $ 43.8 $ 44.1 ========== ========== ========== Total company contributions to trusts $ 88.5 $ 99.1 $ 78.4 ========== ========== ==========
40 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 14. INCOME TAXES - ---------------- The components of income tax expense from continuing operations are presented in the following table:
(Dollars in Millions) Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Current: Federal $ 822.9 $ 1,093.0 $ 1,010.8 State and local 135.5 179.4 194.0 ---------- ---------- ---------- Total 958.4 1,272.4 1,204.8 ---------- ---------- ---------- Deferred: Federal 63.7 (79.7) (278.0) State and local 13.4 (15.7) 7.5 ---------- ---------- ---------- Total 77.1 (95.4) (270.5) ---------- ---------- ---------- 1,035.5 1,177.0 934.3 ---------- ---------- ---------- Investment tax credits (24.3) (29.4) (49.4) ---------- ---------- ---------- Total income tax expense $ 1,011.2 $ 1,147.6 $ 884.9 ========== ========== ==========
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, 1996 1995 1994 - -------------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Investment tax credits (.6) (.6) (2.2) State income taxes, net of federal tax benefits 3.5 3.4 5.4 Other, net (1.1) .3 .5 --------- --------- --------- Effective income tax rate 36.8% 38.1% 38.7% ========= ========= =========
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, 1996 1995 - -------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation $ 1,946.1 $ 2,019.4 Leasing activities 807.3 774.1 Other 481.9 465.7 -------------- ------------- 3,235.3 3,259.2 -------------- ------------- Deferred tax assets: Employee benefits (1,612.7) (1,593.7) Investment tax credits (47.3) (56.6) State net operating loss carryforwards (14.5) (12.0) Advance payments (33.4) (48.5) Other (348.1) (520.1) -------------- ------------- (2,056.0) (2,230.9) -------------- ------------- Valuation allowance 19.2 9.6 -------------- ------------- Net deferred tax liability $ 1,198.5 $ 1,037.9 ============== =============
Deferred tax assets include approximately $1,130 million at December 31, 1996 and $1,108 million at December 31, 1995 related to postretirement benefit costs recognized under SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions." This deferred tax asset will gradually be realized over the estimated lives of current retirees and employees. At December 31, 1996, net operating loss (NOL) carryforwards for state income tax purposes were $212.5 million (excluding amounts attributable to leveraged leases) and expire from 1997 to 2011. Based on projections of future taxable income, we expect to realize future tax benefits of state NOL carryforwards in the amount of $3.1 million. The valuation allowance primarily represents tax benefits of certain state NOL carryforwards and other deferred tax assets which may expire unutilized. During 1996, the valuation allowance increased $9.6 million as a result of additional state NOLs and deferred tax assets which arose during 1996 and more likely than not will expire unutilized. 41 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 15. ADDITIONAL FINANCIAL INFORMATION - ------------------------------------ The tables below provide additional financial information related to our consolidated financial statements:
Balance Sheet Information (Dollars in Millions) ----------------------------------- At December 31, 1996 1995 - -------------------------------------------------------------------------------------------------- Accounts payable and accrued liabilities: Accounts payable $ 1,667.5 $ 1,668.9 Accrued expenses 789.5 513.1 Accrued vacation pay 247.3 242.4 Accrued taxes 97.6 195.9 Interest payable 100.8 103.2 -------------- --------------- Total $ 2,902.7 $ 2,723.5 ============== =============== Other current liabilities: Advance billings and customer deposits $ 347.6 $ 412.9 Dividend payable 315.2 306.4 -------------- -------------- Total $ 662.8 $ 719.3 ============== =============== Cash Flow Information (Dollars in Millions) -------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Cash paid during the year for: Income taxes, net of amounts refunded $ 1,116.0 $ 1,182.1 $ 1,283.7 Interest, net of amounts capitalized 484.9 564.1 569.1 Noncash investing and financing activities: Conversion of accounts receivable to note receivable - 3.4 - Note receivable on sale of business - - 435.0 Note receivable on sale of asset 1.9 - 39.0 Acquisition of plant under capital leases 1.6 14.0 11.9 Acquisition of plant through mortgage assumption 16.0 - - Common stock issued for incentive plans 4.7 4.0 5.3 Common stock issued for acquisitions - 5.5 1.5 Noncash investment in unconsolidated businesses 9.0 - - Contribution of net assets to unconsolidated businesses: Bell Atlantic NYNEX Mobile 130.2 1,178.1 - Other - 16.4 1.6 ------------- -------------- -------------- Income Statement Information (Dollars in Millions) -------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Interest expense incurred, net of amounts capitalized $ 486.1 $ 571.1 $ 624.6 Capitalized interest 49.6 64.4 19.1 Advertising expense 141.2 122.0 122.6 ------------- -------------- --------------
Interest expense incurred includes $8.2 million in 1996, $10.1 million in 1995 and $42.5 million in 1994 related to our lease financing business. Such interest expense is classified as other operating expenses. Income taxes, plus payroll, gross receipts, property, capital stock and other taxes totaled $1,900.5 million for 1996. 42 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - -----------------------------------------------
(Dollars in Millions, Except Per Share Amounts) - ------------------------------------------------------------------------------------------------------------------------- Income Before Income Before Extraordinary Item Extraordinary Item and Cumulative Effect and Cumulative Effect of Change in Operating Operating of Change in Accounting Principle Quarter Ended Revenues Income Accounting Principle Per Common Share Net Income - ------------------------------------------------------------------------------------------------------------------------- 1996: March 31 $ 3,219.9 $ 800.2 $ 464.7 $ 1.06 $ 606.8 June 30 3,223.6 752.4 463.7 1.05 463.7 September 30 3,266.6 759.9 465.4 1.06 465.4 December 31 3,371.3 624.1 345.6 .79 345.6 ------------ ---------- --------- --------- ---------- 1995: March 31 $ 3,449.7 $ 831.5 $ 414.5 $ .95 $ 414.5 June 30 3,564.5 843.0 447.1 1.02 447.1 September 30* 3,261.1 719.4 604.8 1.38 604.8 December 31 3,154.2 692.3 395.4 .90 391.9 ------------ ---------- --------- --------- ----------
We restated our results of operations for the first three quarters of 1996 for the effect of a change in the method of accounting for directory publishing revenues and expenses (see Note 2). * Net income for the third quarter of 1995 includes a gain of approximately $200 million related to the sale of certain cellular properties in connection with the formation of the Bell Atlantic NYNEX Mobile partnership (see Note 4). 43 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- 17. PROPOSED BELL ATLANTIC-NYNEX MERGER - --------------------------------------- Bell Atlantic and NYNEX announced a proposed 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 will become a subsidiary of Bell Atlantic. NYNEX stockholders will receive 0.768 of a share of Bell Atlantic common stock for each share of NYNEX common stock that they own. Bell Atlantic stockholders will continue to own their existing shares after the merger. The merger is expected 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. At special meetings held in November 1996, the stockholders of both companies approved the merger. The completion of the merger is subject to a number of conditions, including certain regulatory approvals and receipt of opinions that the merger will be tax free. The merger is expected to close in April 1997. We have provided the following unaudited pro forma combined condensed financial statements which give effect to the merger using the pooling-of- interests method of accounting. These financial statements include certain reclassifications to conform to the presentation that will be used by the post- merger company, and certain pro forma adjustments that conform the companies' methods of accounting. This information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred had the merger been consummated at the dates indicated, nor is it necessarily indicative of future operating results or financial position of the post-merger company. PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollars in Millions) At December 31, 1996 - ---------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 249.4 Short-term investments 300.5 Accounts receivable, net 6,261.3 Other 1,600.5 ------------- 8,411.7 ------------- Plant, property and equipment 75,861.7 Less accumulated depreciation 39,622.7 ------------- 36,239.0 ------------- Investments in unconsolidated businesses 4,946.3 Other assets 3,891.3 ------------- Total assets $ 53,488.3 ============= Liabilities and Shareowners' Investment Current liabilities Debt maturing within one year $ 2,884.2 Accounts payable and accrued liabilities 6,159.5 Other 1,493.3 ------------- 10,537.0 ------------- Long-term debt 15,286.0 ------------- Employee benefit obligations 9,529.4 ------------- Deferred credits and other liabilities 3,044.4 ------------- Minority interest, including a portion subject to redemption requirements 2,014.2 ------------- Preferred stock of subsidiary 145.0 ------------- Shareowners' investment Common stock 78.7 Contributed capital 13,226.9 Reinvested earnings 1,303.8 Foreign currency translation adjustment (319.4) ------------- 14,290.0 Less common stock in treasury, at cost 589.3 Less deferred compensation -- employee stock ownership plans 768.4 ------------- 12,932.3 ------------- Total liabilities and shareowners' investment $ 53,488.3 =============
44 - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements continued - -------------------------------------------------------------------------------- Note 17 continued PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in Millions, Except Per Share Amounts) -------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Operating revenues $ 29,145.8 $ 27,927.8 $ 27,098.0 Operating expenses 22,958.4 22,404.6 22,500.3 -------------------------------------------------------- Operating income 6,187.4 5,523.2 4,597.7 Income from unconsolidated businesses 14.2 12.7 98.8 Other income and expense, net (189.5) 572.0 (20.6) Interest expense 1,080.6 1,265.7 1,230.8 Provision for income taxes 1,788.1 1,835.0 1,212.2 -------------------------------------------------------- Income from continuing operations 3,143.4 3,007.2 2,232.9 Extraordinary items Discontinuation of regulatory accounting principles, net of tax - (2,919.4) (2,150.0) Early extinguishment of debt, net of tax - (3.5) (6.7) Cumulative effect of change in accounting principle Directory publishing, net of tax 273.1 - - -------------------------------------------------------- Net income $ 3,416.5 $ 84.3 $ 76.2 ======================================================== Income from continuing operations per common share $ 4.06 $ 3.93 $ 2.94 Net income per common share $ 4.41 $ .11 $ .10 Weighted average number of common shares and equivalent shares outstanding (in millions) 775.1 765.9 758.8
It is anticipated that a one-time pretax charge of approximately $200 million for direct incremental merger-related costs will be recorded in the quarter in which the merger is completed. In the December 31, 1996 pro forma combined condensed balance sheet, unpaid merger-related costs have been reflected as an increase to accounts payable and accrued liabilities, with a deferred tax benefit included in other assets. On an after-tax basis, these costs have been reflected as a reduction in reinvested earnings. 45 EX-18 16 LETTER RE CHANGE IN ACCOUNTNG PRINCIPLE Exhibit 18 December 31, 1996 Bell Atlantic Corporation 1717 Arch Street Philadelphia, PA 19103 We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K. We have read management's justification for the change in accounting from the "amortization" revenue recognition method to the "point of publication" method contained in the Company's Form 10-K for the year ended December 31, 1996. Based on our reading of the data and discussions with Company officials of the business judgment and business planning factors relating to the change, we believe management's justification is reasonable. Accordingly, we concur that the newly adopted accounting principle described above is preferable in the Company's circumstances to the method previously applied. /s/ Coopers & Lybrand L.L.P. EX-21 17 BELL ATLANTIC CORPORATION SUBSIDIARIES EXHIBIT 21 Bell Atlantic Corporation Subsidiaries: - --------------------------------------- Anderson CellTelCo Atlantic West B.V. BA Parkway Associates BA Parkway Associates II BABS Australia Pty. Ltd. BAC Financial Services International B.V. BAC International - The Netherlands B.V. BAC International - The Netherlands B.V. Sucursal en Espana BACPE, Inc. BAP - 1760 Market, Inc. BAP - 1800 Arch Land Parcel, Inc. BAP - 6755 Snowdrift, Inc. BAP - 7150 Windsor, Inc. BAP - Caroline, Inc. BAP-Durham, Inc. BAPCI Services, Inc. BATCL - 1987 - I, Inc. BATCL - 1987 - II, Inc. BATCL - 1987 - III, Inc. BATCL-1991-I, Inc. BATCL-1991-II, Inc. BATCO-1989-II, Inc. BATCO-1989-III, Inc. Bell Atlantic - Delaware Directory Properties, Inc. Bell Atlantic - Delaware, Inc. Bell Atlantic - Maryland Directory Properties, Inc. Bell Atlantic - Maryland, Inc. Bell Atlantic - New Jersey, Inc. Bell Atlantic - Pennsylvania Directory Properties, Inc. Bell Atlantic - Pennsylvania, Inc. Bell Atlantic - Virginia Directory Properties, Inc. Bell Atlantic - Virginia, Inc. Bell Atlantic - Washington, D.C. Directory Properties, Inc. Bell Atlantic - Washington, D.C., Inc. Bell Atlantic - West Virginia, Inc. Bell Atlantic Administrative Services, Inc. Bell Atlantic Asia, Inc. Bell Atlantic Australia Pty. Limited Bell Atlantic Austria, Inc. Bell Atlantic Benelux, Inc. Bell Atlantic Capital Corporation Bell Atlantic Capital Funding Corp. Bell Atlantic Cellular Consulting Group, Inc. Bell Atlantic China Holdings Ltd. Bell Atlantic Communications and Construction Services, Inc. Bell Atlantic Communications, Inc. Bell Atlantic Construction Services, Inc. Bell Atlantic Czech Republic, Inc. Bell Atlantic Directory Graphics, Inc. Bell Atlantic Directory Services - Delaware, Inc. Bell Atlantic Directory Services - Maryland, Inc. Bell Atlantic Directory Services - Pennslyvania, Inc. Bell Atlantic Directory Services - Virginia, Inc. Bell Atlantic Directory Services - Washington, D.C., Inc. Bell Atlantic Directory Services - West Virginia, Inc. Bell Atlantic Directory Services, Inc. Bell Atlantic Electronic Publishing, Inc. Bell Atlantic Enterprises International, Inc. Bell Atlantic Entertainment and Information Services Group, Inc. Bell Atlantic Europe S.A./N.V Bell Atlantic Federal Integrated Systems - Puerto Rico, Inc. Bell Atlantic Federal Integrated Systems, Inc. Bell Atlantic Financial Services, Inc. Bell Atlantic Foreign Sales Corporation Bell Atlantic Foundation Bell Atlantic Full Services Channel, Inc. Bell Atlantic Gulf Holdings Ltd. Bell Atlantic Holdings Limited Bell Atlantic India, Inc. Bell Atlantic Indonesia, Inc. Bell Atlantic Information Systems, Inc. Bell Atlantic InfoSpeed Corp. Bell Atlantic Integrated Systems, Inc. Bell Atlantic International - Italia S.r.L. Bell Atlantic International Ventures, Inc. Bell Atlantic International, Inc. Bell Atlantic Internet Solutions, Inc. Bell Atlantic Investment Development Corporation Bell Atlantic Investments, Inc. Bell Atlantic Land Development, Inc. Bell Atlantic Latin America Holdings, Inc. Bell Atlantic Market Research, Inc. Bell Atlantic Merger Venture, Inc. Bell Atlantic Meridian Systems Bell Atlantic Mexico, S.A. de C.V. Bell Atlantic Mobile Systems of Allentown, Inc. Bell Atlantic Mobile Systems of Northern New Jersey, Inc. Bell Atlantic Mobile Systems, Inc. Bell Atlantic Mobilfunk GmbH Bell Atlantic Network Funding Corporation Bell Atlantic Network Integration, Inc. Bell Atlantic Network Services, Inc. Bell Atlantic New Holdings, Inc. Bell Atlantic New Zealand Holdings, Inc. Bell Atlantic NSI Holdings, Inc. Bell Atlantic NSI ISCP Ventures, Inc. Bell Atlantic NYNEX Mobile, Inc. Bell Atlantic Paging, Inc. Bell Atlantic PAI Comunicaciones C.A. Bell Atlantic Payment Systems, Inc. Bell Atlantic Personal Communications, Inc. Bell Atlantic Professional Services, Inc. Bell Atlantic Properties, Inc. Bell Atlantic Property Holdings II, Inc. Bell Atlantic Property Holdings III, Inc. Bell Atlantic Puerto Rico, Inc. Bell Atlantic TELE-TV Holdings, Inc. Bell Atlantic Telecommunications Systems, Inc. Bell Atlantic TeleProducts Corp. Bell Atlantic Telezone Holdings, Inc. Bell Atlantic TriCon Leasing Corporation Bell Atlantic Utilities Systems, Inc. Bell Atlantic Vehicle Management, Inc. Bell Atlantic Ventures II, Inc. Bell Atlantic Ventures XV, Inc. Bell Atlantic Ventures XXIII, Inc. Bell Atlantic Ventures XXV, Inc. Bell Atlantic Ventures XXVIII, Inc. Bell Atlantic Video Services Company Bell Atlanticom Systems, Inc. Bell Communications Research CAI Wireless Systems, Inc. Chesapeake Directory Sales Company Columbia Cellular Telephone Company ComsWest Pty. Ltd. Essar Commvision Limited Essar Telecom Limited EuroTel Bratislava Ltd. EuroTel Praha Ltd. FM America Corp. Greenville Cellular Telephone Company HKP Partners of New Zealand Limited Howard W. Sams & Company ICA Foreign Financial, Inc. Infostrada S.p.A. IR Northlight II Associates Iron Run Venture I Iron Run Venture II Iron Run Venture III Las Cruces Cellular Telephone Company Metro Mobile CTS MIS, Inc. Metro Mobile CTS of Charlotte, Inc. Metro Mobile CTS of Hartford, Inc. Metro Mobile CTS of New Bedford, Inc. Metro Mobile CTS of New London, Inc. Metro Mobile CTS of Newport, Inc. Metro Mobile CTS of Providence, Inc. Metro Mobile CTS of the Northeast, Inc. Metro Mobile CTS of Windham, Inc. Metro Mobile of Venezuela, Inc. Metro Mobile Real Estate Development of New York, Inc. Metro Mobile Transport, Inc. MMDS Holdings II, Inc. MMDS Holdings, Inc. National Telephone Directory Company New Bedford Cellular Telephone Company Omnitel-Pronto Italia S.p.A Omnitel-Sistemi Radiocellulari Italiani S.p.A. One Parkway, Inc. OPI Holdings, Inc. P.T. Citra Sari Makmur Pacific Star Communications (NSW) Pty. Ltd. Pacific Star Communications (QLD) Pty. Ltd. Pacific Star Communications Pty. Ltd. Pacific Star Technologies Pty. Ltd. Penn-Del Directory Company Portal Investments, Inc. Seaboard Merger Company Sky Network Television Limited Sodalia S.p.A. Southwestco Wireless, Inc. Springfield Cellular Telephone Company The Bell Atlantic Systems Group, Inc. The Penn's Landing Marina Corporation EX-23 18 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-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-3 (File No. 33-36551), Form S-3 (File No. 33-49085), Form S-3 (File No. 33-62393), Form S-4 (File No. 333-11573), of our reports dated February 5, 1997, which include an explanatory paragraph stating that the Company changed its method of accounting for directory publishing revenues and expenses in 1996 and discontinued accounting for the operations of its telephone subsidiaries in accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," effective August 1, 1994, on our audits of the consolidated financial statements and financial statement schedule of the Company and its subsidiaries as of December 31, 1996 and December 31, 1995, and for each of the three years in the period ended December 31, 1996, which reports are incorporated by reference or included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania March 25, 1997 EX-24 19 POWERS OF ATTORNEYS Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 19th day of March, 1997. /s/ William W. Adams ________________________________ William W. Adams Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 19th day of March, 1997. /s/ Lawrence T. Babbio, Jr. -------------------------------- Lawrence T. Babbio, Jr. Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ Thomas E. Bolger ________________________________ Thomas E. Bolger Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ Frank C. Carlucci -------------------------------- Frank C. Carlucci Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ James G. Cullen ________________________________ James G. Cullen Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ James H. Gilliam, Jr. -------------------------------- James H. Gilliam, Jr. Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ Thomas H. Kean -------------------------------- Thomas H. Kean Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 19th day of March, 1997. /s/ John F. Maypole ________________________________ John F. Maypole Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 19th day of March, 1997. /s/ Joseph Neubauer ________________________________ Joseph Neubauer Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 19th day of March, 1997. /s/ Thomas H. O'Brien ________________________________ Thomas H. O'Brien Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ Eckhard Pfeiffer ________________________________ Eckhard Pfeiffer Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 21st day of March, 1997. /s/ Rozanne L. Ridgway ________________________________ Rozanne L. Ridgway Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint William O. Albertini, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ Raymond W. Smith ________________________________ Raymond W. Smith Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 19th day of March, 1997. /s/ Doreen A. Toben ___________________________ Doreen A. Toben Exhibit 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint Raymond W. Smith and William O. Albertini, or either of them (with full power to act without the other), his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to sign in the name and on behalf of the undersigned, in any and all capacities in which the signature of the undersigned would be appropriate, the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments thereto for filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the rules, regulations and requirements of the Securities and Exchange Commission, and generally to do and perform all things which such attorneys, or any of them, may deem necessary or advisable in connection with the preparation, signing and filing of such Annual Report as fully and effectually in all respects as the undersigned could do if personally present. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this 24th day of March, 1997. /s/ Shirley Young ________________________________ Shirley Young EX-27 20 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 424 0 3,095 248 149 3,948 34,758 18,843 24,856 5,703 5,960 0 0 438 6,985 24,856 0 13,081 0 10,145 0 0 478 2,751 1,011 1,740 0 0 142 1,882 4.28 0
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